-----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, RooMGXt04cwGtXetAmAfokv+/TgY8O8tqTOw5j/szvx03kK1PjKu9jZqa30+ECP6 LilmmvKYpSTltdcLkMUu/A== 0000950123-00-002076.txt : 20000309 0000950123-00-002076.hdr.sgml : 20000309 ACCESSION NUMBER: 0000950123-00-002076 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 50 FILED AS OF DATE: 20000308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DECODE GENETICS INC CENTRAL INDEX KEY: 0001022974 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 043326704 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-31984 FILM NUMBER: 563765 BUSINESS ADDRESS: STREET 1: LYNGHALSI 1 CITY: REYJKAVIK STATE: K6 MAIL ADDRESS: STREET 1: LYNGHALSI 1 STREET 2: REYKJAVIK CITY: ICELAND S-1 1 DECODE GENETICS, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 8, 2000 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ DECODE GENETICS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 8731 04-3326704 (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification No.)
------------------------ LYNGHALS 1 KARI STEFANSSON, M.D., DR. MED. REYKJAVIK, ICELAND C/O SMITH, STRATTON, WISE, HEHER & BRENNAN + 354-570-1900 600 COLLEGE ROAD EAST (Address, Including Zip Code, and Telephone PRINCETON, NEW JERSEY 08540 Number, Including Area Code, of Registrant's 609-924-6000 Principal Executive Office) (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
------------------------ Copies to: DIANE M. FRENIER, ESQ. PAUL E. KUMLEBEN, ESQ. MARSHA E. NOVICK, ESQ. DAVIS POLK & WARDWELL SMITH, STRATTON, WISE, HEHER & BRENNAN 99 Gresham Street 600 College Road East London EC2V 7NG Princeton, New Jersey 08540 United Kingdom 609-924-6000 + 44-207-418-1300
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS POSSIBLE 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, 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
- ---------------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE(1) REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------------------------- Common Stock, $.001 par value(2)...... shares $ $200,000,000 $52,800 - ----------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended. (2) Includes shares that the underwriters have the option to purchase to cover over-allotments, if any. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 The information in this preliminary 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 preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. PRELIMINARY PROSPECTUS (Subject to Completion) Issued , 2000 Shares LOGO COMMON STOCK ------------------------ deCODE genetics, Inc. is offering shares of its common stock. This is our initial public offering and no established public market currently exists for our common stock. We anticipate that the initial public offering price will be between $ and $ per share. ------------------------ Our shares have been approved for quotation, subject to official notice of issuance, on the Nasdaq National Market and the European Association of Securities Dealers Automated Quotation in each instance under the symbol "DCGN." ------------------------ INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 8. ------------------------ PRICE $ A SHARE ------------------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS DECODE -------- ------------- ----------- Per Share....................................... $ $ $ Total........................................... $ $ $
deCODE has granted the underwriters an option to purchase up to an additional shares of our common stock to cover over-allotments. 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. Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on , 2000 ------------------------ MORGAN STANLEY DEAN WITTER LEHMAN BROTHERS , 2000 3 TABLE OF CONTENTS
PAGE ---- Special Note Regarding Forward-Looking Statements.......................... 3 Prospectus Summary.................... 4 Risk Factors.......................... 8 Use of Proceeds....................... 22 Dividend Policy....................... 23 Capitalization........................ 24 Dilution.............................. 25 Exchange Rates........................ 26 Selected Consolidated Financial Data................................ 27 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 28
PAGE ---- Business.............................. 33 Management............................ 54 Certain Transactions.................. 60 Principal Stockholders................ 61 Description of Securities............. 63 Certain Tax Considerations............ 66 Shares Eligible for Future Sale....... 70 Underwriters.......................... 72 Legal Matters......................... 74 Experts............................... 74 Where You Can Find More Information... 74 EASDAQ Information.................... 75 Index to Consolidated Financial Statements.......................... F-1
------------------------ ABOUT THIS PROSPECTUS In this prospectus, "deCODE," "we," "us" and "our" each refers to deCODE genetics, Inc. and its wholly-owned subsidiary Islensk erfethagreining ehf., an Icelandic company. deCODE genetics(TM), the deCODE genetics logo, DecodeGT(TM), Allegro(TM), and GeneMiner(TM) are trademarks of deCODE genetics, Inc. GeneChip(R) is a registered trademark of Affymetrix Inc. Other trade names and trademarks appearing in this prospectus are the property of their respective holders. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. You should assume that the information contained in this prospectus is accurate only as of the date of this prospectus, unless such information is stated to be given as of another date. Our business, financial condition, results of operations and prospects may have changed since any such date. UNTIL , 2000, ALL DEALERS THAT BUY, SELL OR TRADE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 2 4 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "expect," "plan," "anticipate," "believe," "estimate," "predict," "intend," "potential," or "continue," the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined under "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." These factors may cause our actual results to differ materially from any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we nor any other person assume responsibility for the accuracy and completeness of the forward-looking 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 or to any changes or exceptions. 3 5 PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before deciding to invest in our common stock. We urge you to read this entire prospectus carefully, including the "Risk Factors" section and our consolidated financial statements and the notes to those statements. DECODE OUR COMPANY deCODE is a genomics and health informatics company which is developing products and services for the healthcare industry. We develop and apply modern informatics technology to discover new knowledge about health and disease through data-mining. We believe that certain unique qualities of the Icelandic population, together with our advanced bioinformatics and high throughput genotyping facility, should place deCODE at a competitive advantage to perform genetic and medical research to identify disease genes and drug and diagnostic targets. As the international effort to sequence the human genome progresses, we believe that the principal task will be to transform raw genomic data into knowledge about human health and disease and then into tangible products and services. We believe that deCODE is well-positioned to place the human genome sequence in a meaningful context through which we and our partners can generate value. deCODE was founded in 1996 and its operations, as well as its approximately 300 employees, are based in Iceland. In 1998, we entered into a significant research collaboration and cross-license agreement with F.Hoffmann-La Roche, or Roche, under which we may receive a total of more than $200 million in research funding and milestone payments. To date our accomplishments include: - the identification of eight locations for disease-causing genes; - the identification of twelve specific candidate disease genes; - the achievement of four milestones in our research collaboration agreement with Roche; - the completion of a high-throughput genotyping facility; - the development of automated software algorithms for data capture, analysis and interpretation; and - near completion of a computerized genealogy database covering the Icelandic population. We believe that discovery of health care knowledge requires bringing together three key types of data: information from the healthcare system, information about relationships among individuals covered by this system and associated molecular genetics data. We believe that operating in Iceland accomplishes this by allowing us to benefit from the following four important characteristics of the Icelandic nation in our medical and genetic research: - extensive genealogical records dating back to the settlement of the country in the ninth century; - relative genetic homogeneity with a population descended from a small number of settlers; - a centralized healthcare system since 1915; and - a well-educated population. We believe that bringing these four factors together greatly enhances our research and development efforts in generating future products and services for the healthcare industry. deCODE is pursuing its access to public and proprietary data through three avenues of commercialization: - discovery services, with a focus on gene and drug target discovery; - database services, with a focus on the construction and commercialization of the Icelandic Health Sector Database, or the IHD, containing non-personally identifiable data from Icelandic healthcare records, and the deCODE Combined Data Processing capability, or the DCDP, to cross-reference data from the IHD with genealogical and genotypic data; and - healthcare informatics, with a focus on bioinformatics, decision-support tools and privacy products. 4 6 We believe that the DCDP will permit users to build more complete models of the interplay of genes, the environment and disease than are currently available. OUR STRATEGY Our strategy is to use our population-based genomics approach to transform genomic data and healthcare data into products and services. The key elements of our strategy are as follows: - Gene and Drug Target Discovery. deCODE plans to pursue gene and drug target discovery and the characterization of genes that contribute to the causes of common diseases. In addition, we will use studies of gene expression and protein-protein interaction systems to define molecular pathways, which may contain drug targets. - Database Subscription and Consulting Services. deCODE expects to develop and operate the DCDP, which is intended to cross-reference non-personally identifiable healthcare information on the Icelandic population in the IHD with genealogy data and genetic data obtained through consent. In addition, we are developing new mathematical algorithms to extract further knowledge from the DCDP. Services we plan to offer to future subscribers of the DCDP will include gene discovery and drug target validation, pharmacogenomics, disease management and health management. - Pharmacogenomics Partnerships. In collaboration with pharmaceutical companies, we intend to apply pharmacogenomics to understand differences in drug response among individuals. We believe that genomics will permit the identification of the genetic differences that cause different people to respond differently to the same drugs and that, as a result, it will be possible to individualize the selection of drugs for patients. - Sale and Marketing of Healthcare Informatics Products. We plan to exploit market opportunities for software tools that we develop during the design and construction of the IHD and DCDP and in our disease gene discovery efforts. The software tools that we have already developed include GeneMiner, DecodeGT, an encryption system, and a comprehensive sample database. We expect to offer healthcare informatics services, such as decision-support software and privacy solutions. - Formation of Collaborations. We intend to seek corporate collaborations or joint ventures with pharmaceutical and biotechnology companies to provide research alliances, product development and commercialization for our gene and drug target discovery programs. deCODE was incorporated in Delaware in 1996. Our principal office is located at Lynghals 1, Reykjavik, Iceland, our telephone number is +354-570-1900 and our address on the world wide web is www.decode.com. 5 7 THE OFFERING Common stock to be offered.................... -- shares Common stock to be outstanding immediately after this offering...... -- shares Use of Proceeds............ We estimate that our net proceeds from this offering will be approximately $ -- million, based on an initial public offering price of $ -- per share. We plan to use the net proceeds from this offering for the development and operation of the DCDP, to fund our research and discovery programs, for capital expenditures and for working capital and general corporate purposes. See "Use of Proceeds." Dividend Policy............ We intend to retain earnings, if any, for use in our business and do not anticipate paying dividends on our common stock in the foreseeable future. See "Dividend Policy." Quotations................. Our shares have been approved for quotation, subject to official notice of issuance, on the Nasdaq National Market and the European Association of Securities Dealers Automated Quotation, or EASDAQ, in each instance under the symbol "DCGN." - --------------- Unless we specifically state otherwise, the information in this prospectus does not take into account the issuance of up to -- shares of our common stock which the underwriters have the option to purchase solely to cover over-allotments. If the underwriters exercise their over-allotment option in full, -- shares of our common stock will be outstanding after the offering. The number of shares of our common stock to be outstanding immediately after this offering includes 22,969,544 shares of our common stock that will be issued upon the automatic conversion of all our outstanding shares of preferred stock upon the closing of this offering. See "Description of Securities -- Preferred Stock." The number of shares of our common stock to be outstanding immediately after this offering does not take into account 2,125,037 shares of our common stock that are reserved for issuance upon exercise of outstanding options and warrants. For a description of the options, see "Description of Securities -- Stock Options" and "Certain Transactions." For a description of the warrants, see "Description of Securities -- Warrants and Other Rights to Purchase." 6 8 SUMMARY CONSOLIDATED FINANCIAL DATA The following table presents consolidated summary financial data for deCODE. The data presented in this table are derived from "Selected Consolidated Financial Data" and the consolidated financial statements and the notes to those statements which are included elsewhere in this prospectus. You should read those sections for a further explanation of the financial data summarized here. You should also read "Management's Discussion and Analysis of Financial Condition and Results of Operations," which describes a number of factors that have affected our financial results.
INCEPTION (AUGUST 23, 1996) TO YEAR ENDED DECEMBER 31, DECEMBER 31, ----------------------------------------- 1996 1997 1998 1999 ------------ ----------- ------------ ------------ CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue................................. $ 0 $ 0 $ 12,705,000 $ 16,444,075 Operating Expenses Research and development.............. 737,764 6,080,096 19,282,364 31,823,950 General and administrative............ 454,873 1,967,684 4,893,202 7,863,299 ----------- ----------- ------------ ------------ Total operating expenses................ 1,192,637 8,047,780 24,175,566 39,687,249 Operating loss.......................... (1,192,637) (8,047,780) (11,470,566) (23,243,174) Equity in net earnings (loss) of affiliate............................. 0 0 0 (1,484,081) Interest income, net.................... 40,005 (8,461) 562,336 1,549,481 Taxes................................... 0 0 0 0 ----------- ----------- ------------ ------------ Net loss................................ (1,152,632) (8,056,241) (10,908,230) (23,177,774) Accrued dividends and amortized discount on preferred stock.................... (181,852) (620,385) (2,571,523) (7,542,787) Premium on repurchase of preferred stock................................. 0 0 0 (30,887,044) ----------- ----------- ------------ ------------ Net loss available to common stockholders.......................... $(1,334,484) $(8,676,626) $(13,479,753) $(61,607,605) =========== =========== ============ ============ Basic and diluted net loss per share.... $ (1.10) $ (3.85) $ (3.06) $ (9.56) Shares used in computing basic and diluted net loss per share(1)......... 1,213,925 2,254,413 4,400,576 6,446,055 Unaudited pro forma basic and diluted net loss per share.................... $ (0.84) Shares used in computing unaudited pro forma basic and diluted net loss per share(1).............................. 27,559,365
The following table presents a summary of our balance sheet at December 31, 1999: on an actual basis; on a pro forma basis after giving effect to the issuance of 22,969,544 shares of our common stock upon the automatic conversion upon the closing of this offering of our Series A preferred stock, Series B preferred stock and Series C preferred stock into shares of common stock; and on a pro forma basis as adjusted to give effect to the issuance of 22,969,544 shares of our common stock upon that automatic conversion and the sale of -- shares of common stock pursuant to this offering. This information is based on an initial public offering price of $ -- per share less the estimated underwriters discounts and commissions.
AS OF DECEMBER 31, 1999 ----------------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents......................... $29,668,249 $29,668,249 Total assets...................................... 79,130,186 79,130,186 Total long-term liabilities....................... 4,874,291 4,874,291 Redeemable, convertible preferred stock........... 116,209,595 0 Total stockholders' equity (deficit).............. (68,024,730) 48,184,865
- --------------- (1) See Note B of Notes to Consolidated Financial Statements for an explanation of the determination of the shares used in computing basic and diluted net loss per share and unaudited pro forma basic and diluted net loss per share. 7 9 RISK FACTORS The shares of common stock offered by this prospectus involve a substantial risk of loss. Before making an investment in the common stock, you should carefully read this entire prospectus and should give particular attention to the following risk factors. You should recognize that other significant risks may arise in the future, which we cannot foresee at this time. Also, the risks that we now foresee might affect us to a greater or different degree than expected. There are a number of important factors that could cause our actual results to differ materially from those indicated by the forward-looking statements contained in this prospectus. These factors include, without limitation, the risk factors listed below and other factors presented throughout this prospectus. WE MAY NOT SUCCESSFULLY DEVELOP OR DERIVE REVENUES FROM ANY PRODUCTS OR SERVICES DISCOVERY SERVICES Our gene discovery programs are still in the early stages of development and may not result in marketable products. Our technology and development focus is primarily directed toward identifying genes or gene fragments which are responsible for, or indicate the presence of, certain diseases. We have only identified twelve specific candidate genes under our research programs and have not yet validated any disease genes. Our technologies and approach to gene discovery may not enable us to identify successfully the specific genes that cause or predispose individuals to the complex diseases that are the targets of our gene discovery program, even where we have identified candidate genes. In addition, the diseases we are targeting are generally believed to be caused by a number of genetic and environmental factors. It may not be possible to address such diseases through gene-based therapeutic or diagnostic products. Accordingly, even if we are successful in identifying specific genes, our discoveries may not lead to the development of commercial products. Even if we, or our collaborators, are able to develop pharmaceutical products, those products will fail to produce revenues unless they: - are safe and effective; - meet regulatory standards in a timely manner; - successfully compete with other technologies and products; - avoid infringing on the proprietary rights of others; - can be manufactured in sufficient quantities at reasonable costs; and - can be marketed successfully. We are not certain that we will be able to achieve these conditions for product revenues. We expect that it will be a number of years, if ever, before we will recognize revenue from therapeutic or diagnostic product sales or royalties on such sales. Our initiatives in pharmacogenomics and functional genomics are not certain to provide any revenues. There may be no market for these services because of competition, lack of market acceptance or our inability to develop these services successfully. We may not be able to develop our functional genomics capabilities to a state that is adequate for realizing revenues. DATABASE SERVICES We, through our wholly-owned subsidiary Islensk erfethagreining ehf., received a license permitting us to develop and operate the IHD in January 2000, and accordingly, are at the very early stages of its development. The collection of genotypic data, that is another integral part of the DCDP, is also in the early stages of development. We expect that it will take several years before the DCDP is fully developed. We are presently devoting substantial resources to the development of the DCDP and its components. We plan to continue to devote substantial resources to this development for the foreseeable future. We cannot be sure that the DCDP will result in marketable products or services. Our intended method for cross-referencing genealogical, genotypic and 8 10 healthcare data is central to the development of the DCDP and is unproven. The success of our database services is contingent upon: - the development of the IHD and collection of genotypic data; - the creation of database and cross-reference software that is free from design defects or errors; - compliance with governmental requirements regarding the IHD; - the security and reliability of encryption technology; - the cooperation of the Icelandic healthcare system; - the ability to obtain blood samples from consenting Icelanders and consents to the use of their genotypic data by cross-referencing through the DCDP; - the usefulness of information derived through the DCDP in disease management, analysis of drug response, gene discovery and drug target validation; and - the development of marketing and pricing methods that are accepted by the intended users of the DCDP. The failure to successfully commercialize our database services will have a material adverse effect on our business operations. HEALTHCARE INFORMATICS Our bioinformatics, decision-support and privacy protection products have, to date, been tested only in connection with our own use of them and they may not meet the needs of potential customers. We are at an early stage of development of our medical decision-support systems, or MDSS, for healthcare providers, and we have generated no revenues from sales or licenses of bioinformatics, decision-support, or privacy protection products. To date we have not produced any decision-support tools and there can be no assurance that we can successfully develop or commercialize MDSS or that there will be a market for our bioinformatics, decision-support or privacy protection products for healthcare delivery. OUR BUSINESS MODEL IS BASED ON UNPROVEN APPROACHES The products we hope to develop involve new and unproven approaches. They are based on the assumption that information about genes may help scientists better understand complex disease processes. Scientists generally have a limited understanding of the role of genes in diseases, and few products based on gene discoveries have been developed. Of the products that exist, all are diagnostic products. To date, we know of no therapeutic products based on disease gene discoveries. If our assumption about the role of genes in the disease process is wrong, our gene discovery programs may not result in products, the genetic data included in our database and informatics products may not be useful to our customers and those products may lose any competitive advantage. IF WE CONTINUE TO INCUR OPERATING LOSSES FOR A PERIOD LONGER THAN ANTICIPATED, OR IN AN AMOUNT GREATER THAN ANTICIPATED, WE MAY BE UNABLE TO CONTINUE OUR OPERATIONS We incurred net losses available to common stockholders of $61,607,605 for the year ended December 31, 1999, $13,479,753 for the year ended December 31, 1998, and $8,676,626 for the year ended December 31, 1997. As of December 31, 1999 we had an accumulated deficit of $76,713,517. To date, we have never generated a profit and we have not generated any significant revenues except for payments received in connection with our research collaboration with Roche and interest revenues. The development of our technologies will require substantial increases in expenditures over the next several years. In addition, we expect to spend more in connection with our internal research programs and the preparation of the IHD, the DCDP and informatics. As a result, we expect to incur operating losses for several years. If the time required to generate product revenues and achieve profitability is longer than anticipated or the level of operating losses is greater than anticipated, we may not be able to continue our operations. 9 11 WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT ADDITIONAL FUNDING TO MEET OUR EXPANDING CAPITAL REQUIREMENTS We have used substantial amounts of cash to fund our research and development activities. We expect our capital and operating expenditures to increase over the next several years as we expand our research and development activities, construct the IHD and the DCDP, collect the genotype data and develop healthcare informatics products. Many factors will influence our future capital needs, including: - the progress of our discovery and research programs; - the number and breadth of these programs; - our ability to attract collaborators for, subscribers to or customers for our products and services; - our achievement of milestones under our research collaboration agreement with Roche; - our ability to establish and maintain additional collaborations; - our collaborators' progress in commercializing our gene discoveries; - the level of our activities relating to commercialization rights we retain in our collaborations; - competing technological and market developments; - the costs involved in enforcing patent claims and other intellectual property rights; and - the costs and timing of regulatory approvals. We intend to rely on Roche and future collaborators for significant funding in support of our research efforts. In addition, we may seek additional funding through public or private equity offerings and debt financings. Additional financing may not be available when needed. If available, such financing may not be on terms favorable to us or our stockholders. Stockholders' ownership will be diluted if we raise additional capital by issuing equity securities. If we raise additional funds through collaborations and licensing arrangements, we may have to relinquish rights to certain of our technologies or product candidates, or grant licenses on unfavorable terms. These situations could have a material adverse effect on us. If adequate funds are not available, we would have to scale back or terminate our discovery and research programs and product development, and our business, financial condition and results of operations would be materially adversely affected. We believe that the net proceeds from this offering, existing cash and investment securities and anticipated cash flow from Roche will be sufficient to support our current operating plan at least through 2001. We have based this belief on assumptions that may prove wrong. IF WE DO NOT MAINTAIN THE GOODWILL AND RECEIVE THE COOPERATION OF THE ICELANDIC POPULATION, WE MAY BE UNABLE TO PURSUE OUR GENE IDENTIFICATION PROGRAMS, PHARMACOGENOMICS OR FUNCTIONAL GENOMICS EFFORTS, COLLECT GENOTYPE DATA OR DEVELOP THE IHD AND THE DCDP Our approach to gene identification and the development and maintenance of genotype data, the IHD and the DCDP depend on the goodwill and cooperation of the Icelandic population, including the Icelandic government and the healthcare system. Our development of the IHD will be impaired if individual Icelanders refuse to allow information from their medical records to be included in the IHD or healthcare providers attempt to prevent us from having access to medical records of their patients. Our development of genotype data and our cross- referencing through the DCDP of that data with information about the manifestations of disease, or phenotypes, in the IHD require that a substantial portion of the Icelandic population provide us with blood samples for genotyping and consent to the use of their DNA to cross-reference molecular genetics data with the IHD. Because certain mutations may be carried only by a small portion of the Icelandic population, the unwillingness of even a small portion of the population to participate in our programs could diminish our ability to develop and market information based on the use of genotypic data. Accordingly, if we do not maintain the goodwill of the Icelandic people and receive the cooperation of individual Icelanders and the medical profession, our business and financial condition will be materially adversely affected. 10 12 OUR RELIANCE ON THE ICELANDIC POPULATION IN OUR GENE DISCOVERY PROGRAMS AND DATABASE SERVICES MAY LIMIT THE APPLICABILITY OF OUR DISCOVERIES TO CERTAIN POPULATIONS In general, the genetic make-up and prevalence of disease vary across populations around the world. Common complex diseases generally occur with a similar frequency in Iceland as in other western countries. We are already studying some of these diseases in our gene discovery programs. However, the populations of other western nations may be genetically predisposed to certain diseases because of mutations not present in the Icelandic population. As a result, we and our partners may take more time or may be unable to develop diagnostic products that are effective on all, or a portion, of those people with such diseases. Similarly, any difference between the Icelandic population and the populations of other countries may have an effect on the usefulness of the IHD and DCDP in studying disease in populations of countries other than Iceland. OUR CREATION AND OPERATION OF THE IHD IS BASED UPON A LICENSE FROM THE ICELANDIC MINISTRY OF HEALTH AND SOCIAL SECURITY AND IS SUBJECT TO GOVERNMENT SUPERVISION AND REGULATION We are only permitted to construct the IHD and cross-reference it with our genealogical and genetic data, through the DCDP, in accordance with the stipulations of the license, or the IHD license, granted by the Ministry of Health and Social Security, or the Ministry, pursuant to the Act on a Health Sector Database no. 139/1998, or the Act. The license permits the processing of healthcare data from healthcare records and other relevant data into the IHD. Our construction and operation of the IHD will be subject to the supervision of the IHD Monitoring Committee, the Data Protection Commission of Iceland and an Interdisciplinary Ethics Committee. These committees report to the Ministry. In addition, the operation of the IHD is subject to the review of the Icelandic Bioethics Committee. The Ministry may withdraw our license in the event that we violate the terms and conditions of the IHD license, the Act or the rules promulgated pursuant to the Act. In addition, the Act could be amended in ways which would adversely affect our ability to develop or market the IHD and, consequently, the DCDP. Because the Act and the rules were recently adopted by the Icelandic parliament and government, there is no precedent interpreting the Act or the rules. Our preparation of the IHD is subject to technical requirements imposed by the Data Protection Commission in areas such as data encryption and privacy protection. These requirements are subject to change from time to time and may require greater technical capabilities than we currently have. Compliance with these requirements can be expensive and time-consuming and may delay the development of the IHD and the DCDP or make such development more expensive than anticipated. In addition, our compliance is subject to evaluation by the agencies imposing these requirements. We cannot control the time required for this evaluation, and accordingly, the evaluation process may lead to delay in the development of the IHD and the DCDP. The Interdisciplinary Ethics Committee has the power to withdraw permission for any types of research programs in the IHD not conducted in accordance with international rules of bioethics. At the expiration of the IHD license, we are required to ensure that the Ministry or a party entrusted by the Ministry will receive, without payment of consideration, intellectual property rights necessary for the creation and operation of the database for public health purposes and for scientific research. We are subject to a very extensive indemnity clause in our agreement with the Ministry, pursuant to which: - we have agreed not to make any claim against the government if the Act or the license are amended as a result of the Act or rules relating to the IHD being found to be inconsistent with the rules of the European Economic Area, or EEA, or other international rules and agreements to which Iceland is or becomes a party; - we have agreed that if the Icelandic State, by a final judgment, is found to be liable or subject to payment to any third party as a result of the passage of legislation on the IHD and/or issuance of the IHD license, we will indemnify it against all damages and costs in connection with the litigation; and - we have agreed to compensate any third parties with whom the Icelandic government negotiates a settlement of liability claims arising from the legislation on the IHD and/or the issuance of the IHD 11 13 license, provided that the Icelandic government demonstrates that it was justified in agreeing to make payments pursuant to the settlement. WE MAY NOT BE ABLE TO ENTER INTO AGREEMENTS WITH ICELANDIC HEALTH INSTITUTIONS AS REQUIRED BY THE IHD LICENSE IN ORDER TO COLLECT DATA FROM THE INSTITUTIONS The IHD license requires us to enter into agreements with Icelandic health institutions and self-employed health service workers regarding access to and the processing of information from medical records. We cannot be certain that we will be able to enter into such agreements or that such agreements will be on terms favorable to us. We cannot be certain that individuals within health institutions will adhere to the requirements of such agreements. Our inability to enter into such agreements on favorable terms or in a timely manner, or to obtain others' compliance with the terms of such agreements, could have a material adverse effect on us. THE IHD LICENSE WILL EXPIRE IN JANUARY 2012 Even if we are successful in creating and marketing the IHD and the DCDP, the IHD license will expire in January 2012 unless we are able to obtain an extension. There is no assurance that we will obtain further access rights on favorable terms, if at all. Our negotiations with healthcare institutions, the process of genotyping and the development of database infrastructure, among other factors, will determine when we can begin marketing the DCDP. We expect that the IHD and the DCDP will not be fully operational for up to five years. The IHD license will be subject to a review in 2008, and at that time, in accordance with an agreement we entered into with the Ministry simultaneously with the granting of the IHD license, we and the Ministry will enter into discussions on renewal of the license at the end of the term. The Ministry is not obligated to renew the IHD license and there can be no guarantee that it will do so. Failure to maintain the IHD license or to complete the IHD or the DCDP in a timely fashion will materially adversely affect our business and financial condition. WE MAY NOT BE ABLE TO FORM AND MAINTAIN THE COLLABORATIVE RELATIONSHIPS THAT OUR BUSINESS STRATEGY REQUIRES Our strategy for deriving revenues from the discovery of genes and the development of products based upon our discoveries depends upon the formation of research collaborations and licensing arrangements with several partners at the same time. We currently have a research collaboration only with Roche. To succeed, we will have to maintain this relationship and establish additional collaborations. We cannot be sure that we will be able to establish additional research collaborations or licensing arrangements necessary to develop and commercialize products using our technology, that any future collaborations or licensing arrangements will be on terms favorable to us, or that current or future collaborations or licensing arrangements ultimately will be successful. If we are not able to manage multiple programs successfully, our programs will suffer. We also expect to rely on collaborations in other parts of our business such as the construction of the DCDP. During the development of the DCDP, we intend to pursue collaborations to assist us in the development of certain of its components. Such collaborations may involve the use of particular technologies or collaborative development and marketing activities. If we are unable to enter into such collaborations on favorable terms, our ability to commercialize the DCDP will be adversely affected. To develop our healthcare informatics products, we also plan to rely on collaborative relationships. To date we have not established any such collaborative relationships. If we are unable to form or maintain such collaborative arrangements, our healthcare informatics operations will be adversely affected. OUR DEPENDENCE ON COLLABORATIVE RELATIONSHIPS MAY LEAD TO DELAYS IN PRODUCT DEVELOPMENT AND DISPUTES OVER RIGHTS TO TECHNOLOGY Under our current strategy, and for the foreseeable future, we do not expect to develop or market pharmaceutical products on our own. As a result, we will be dependent on collaborators for the pre-clinical study and clinical development of therapeutic and diagnostic products and for regulatory approval, manufacturing and marketing of any products that result from our technology. Our agreements with pharmaceutical collaborators or collaborators for gene research projects will typically allow them significant discretion in electing whether to 12 14 pursue such activities. We cannot control the amount and timing of resources collaborators will devote to our programs or potential products. Our collaborations may have the effect of limiting the areas of research that we may pursue either alone or with others. In addition, we expect to develop our database products, in part, with various collaborators, and we may develop healthcare informatics tools which are designed to work in conjunction with or to enhance the healthcare informatics tools of other developers. These arrangements may place responsibility for key aspects of product development and marketing on our collaborative partners. Accordingly, the performance of these key aspects is uncertain and beyond our direct control. The failure of our collaborators to perform their obligations could result in our database products containing erroneous data, design defects, viruses or software defects that are difficult to detect and correct and may adversely affect our revenues and the market acceptance of our products. If any pharmaceutical, healthcare informatics or database collaborator were to breach or terminate its agreement with us, or otherwise fail to conduct collaborative activities successfully and in a timely manner, the development or commercialization of products, services, technologies or research programs may be delayed or terminated. Competing products, developed by our collaborators or to which our collaborators have rights, may result in their withdrawal of support for our products and services. Disputes may arise in the future over the ownership of rights to any technology developed with collaborators. These and other possible disagreements between us and our collaborators could lead to delays in the collaborative research, development or commercialization of products. Such disagreements could also result in litigation or require arbitration to resolve. Any such event could have a material adverse effect on our business. ETHICAL AND PRIVACY CONCERNS MAY LIMIT OUR ABILITY TO DEVELOP AND USE THE IHD AND DCDP AND MAY LEAD TO LITIGATION AGAINST US OR THE ICELANDIC GOVERNMENT The passage of the Act and the granting by the Ministry of the IHD license have raised ethics and privacy concerns in Iceland and internationally, among healthcare professionals and others. Ethical and privacy concerns about the development and use of the IHD and DCDP may lead to litigation in U.S., Icelandic or other national courts, or in international courts such as the European Court of Human Rights in Strasbourg, e.g., on the basis of an alleged breach of the patient-doctor confidential relationship, constitutional privacy issues, international conventions dealing with protection of privacy issues or human rights conventions. The results of such litigation could materially adversely affect our results of operations. CERTAIN PARTIES HAVE ANNOUNCED AN INTENTION TO INSTITUTE LITIGATION TESTING THE CONSTITUTIONALITY OF THE ACT In February 2000, an organization known as The Association of Icelanders for Ethics in Science and Medicine, or Mannvernd, and a group of physicians and other citizens issued a press release announcing their intention to file lawsuits against the State of Iceland and any other relevant parties, including deCODE, to test the constitutionality of the Act. According to the press release, the intended lawsuit will allege that the Act and the IHD license involve human rights violations and will challenge the validity of provisions of the Act which allow the use of presumed consent for the processing of health data into the IHD and the grant of a license to operate a single database. deCODE believes that any such litigation would be without merit and intends to defend vigorously any such action in which we become a party. However, in the event that the Icelandic State by a final judgment is found to be liable or subject to payment to any third party as a result of the passage of legislation on the IHD and/or the issuance of the IHD license, our agreement with the Ministry requires us to indemnify the Icelandic State against all damages and costs incurred in connection with such litigation. In addition, the pendency of such litigation could lead to delay in the development of the IHD and the DCDP, and an unfavorable outcome would prevent us from developing and operating the IHD and the DCDP. This would have a material adverse effect on our business and financial condition. 13 15 ANY FAILURE TO PROTECT CONFIDENTIAL DATA ADEQUATELY COULD CAUSE US TO INCUR LIABILITY OR COULD RESULT IN LOSS OF OUR LICENSE The Act and our license require us to encrypt all patient data and to take other actions to ensure confidentiality of data included in the IHD and restrict access to it. We are developing the IHD in accordance with the technology, security and organizational terms established by the Data Protection Commission. Such terms may be periodically reviewed and amended by the Data Protection Commission in light of new technology or change of circumstances. We will be required to comply with the revised data protection terms within an established deadline. Although the security terms established by the Data Protection Commission have, to date, received some criticism by one expert in this field, we believe that they are, and will continue to be, in line with international best industry-practice standards. In addition, the customers for other products we may develop may impose confidentiality requirements. Accidental disclosures of confidential data may result from technical failures in encryption technology or from human error by our employees or those of our customers or collaborators. Any failure to comply fully with all confidentiality requirements could lead to liability for damages incurred by individuals whose privacy is violated, the loss of the IHD license, the loss of our customers and reputation and the loss of the goodwill and cooperation of the Icelandic population including healthcare professionals. Any of these events would have a material adverse effect on our business and financial condition. ETHICAL AND PRIVACY CONCERNS MAY LIMIT THE USE OF GENETIC TESTING Existing genetic predisposition tests developed by other companies have raised ethical concerns. It is possible that employers or others could discriminate against people who have a genetic predisposition to certain diseases. Concern regarding possible discrimination may result in governmental authorities enacting restrictions or bans on the use of all, or certain types of, genetic testing. Similarly, such concerns may lead individuals to refuse to use genetics tests even if permissible. These factors may limit the market for, and therefore the commercial viability of, products developed by us and our collaborators. THERE IS INTENSE COMPETITION FOR THE DEVELOPMENT AND MARKETING OF PRODUCTS BASED UPON THE IDENTIFICATION OF DISEASE-CAUSING GENES A number of companies are attempting to rapidly identify and patent genes that cause diseases or an increased susceptibility to diseases. Competition in this field is intense and is expected to increase. We have numerous competitors, including major pharmaceutical and diagnostic companies, specialized biotechnology firms, universities and other research institutions, the United States-funded Human Genome Project and other government-sponsored entities. Many of our competitors have considerably greater capital resources, research and development staffs and facilities, and technical and other resources than we do, which may allow them to discover important genes before we do. We believe that a number of our competitors are developing competing products and services that may be commercially successful and that are further advanced in development than our potential products and services. To succeed, we, together with our collaborators, must discover disease-predisposing genes, characterize their functions, develop genetic tests or therapeutic products and related information services based on such discoveries, obtain regulatory and other approvals, and launch such services or products before competitors. Even if our collaborators or we are successful in developing effective products or services, our products and services may not successfully compete with those of our competitors. Our competitors may succeed in developing and marketing products and services that are more effective than ours or that are marketed before ours. Our collaboration with Roche does not prevent it from initiating its own gene research or developing products based upon its, or any other party's, gene research. Such products may compete with any products developed as a result of our gene discovery programs. We expect that future collaborations may allow our future partners to undertake research and develop products on their own or with third parties. Competitors have established, and in the future may establish, patent positions with respect to gene sequences related to our research projects. Such patent positions or the public availability of gene sequences comprising substantial portions of the human genome could decrease the potential value of our research projects 14 16 and make it more difficult for us to compete. We may also face competition from other entities in gaining access to DNA samples used for research and development purposes. We expect competition to intensify as technical advances are made and become more widely known. Our future success will depend in large part on maintaining a competitive position in the genomics field. Rapid technological development by us or others may result in products or technologies becoming obsolete before we recover the expenses we incur in developing them. Less expensive or more effective technologies could make future products obsolete. We cannot be certain that we will be able to make the necessary enhancements to any products we develop to compete successfully with newly emerging technologies. THERE IS INTENSE COMPETITION IN THE FIELD OF DATABASE SERVICES A number of databases are being marketed or are under development by companies or governments to assist participants in the healthcare industry and academic researchers in the management and analysis of their own genomic data and data available in the public domain. Although we believe that our existing genealogy database and our license to construct and operate the IHD provide us with a unique opportunity to cross-reference databases that include genetic makeup, genealogy, medical history, disease symptoms, resource use and treatment outcomes, we cannot be sure that any databases created by us will achieve greater market acceptance than those of our competitors. THERE IS INTENSE COMPETITION IN THE FIELD OF HEALTHCARE INFORMATICS The healthcare informatics field is highly competitive. Many companies compete with us to develop healthcare informatics similar to our expected products, including products relating to medical record maintenance, MDSS and systems design. We expect that competition will continue to intensify. Many of our competitors have significantly greater financial resources and market presence than we have. We cannot be sure that any products that we develop in the field of healthcare informatics, including MDSS, will compete effectively with those of our competitors. REGULATORY AUTHORITIES MAY DETERMINE THAT OUR LICENSE TO DEVELOP THE IHD INFRINGES UPON COMPETITION RULES IN THE EUROPEAN ECONOMIC AREA Iceland is a member of the European Free Trade Association, or EFTA, together with Norway, Switzerland and Liechtenstein. Through this membership, Iceland has become a part of the EEA which was created by the EEA agreement between EFTA and the European Union, or EU. The EEA agreement extends the EU internal market and its regulations to EFTA countries that adopt certain EU legislation. Accordingly, Iceland is subject to both EFTA and EU competition and public procurement rules. In April 1999, Mannvernd, announced that it had filed a complaint with the EFTA Surveillance Authority alleging that the passage of the Act constitutes a violation by the Government of Iceland of its obligations under the EEA agreement. A determination that the Act or our IHD license is in breach of such rules could result in a revocation or dilution of the license and could have a negative impact on the profitability and marketing potential of the DCDP. OTHERS MAY CLAIM INTELLECTUAL PROPERTY RIGHTS TO OUR GENEALOGY DATABASE We are aware that there are other firms and individuals who have prepared, or are currently preparing, genealogy databases similar to the one we have developed. If any parties should successfully claim that the creation or use of any of our databases infringes upon their intellectual property rights, it could have a material adverse effect on our business. Recently, two holders of copyrights in approximately 100 Icelandic genealogy books have filed a copyright infringement suit against us in Iceland claiming that we have used data from these books in the creation of our genealogy database, in violation of their rights. The claimants seek a declaratory judgment to prevent our use of the database and monetary damages in the amount of approximately $9,000,000. We believe that this suit is without merit and intend to defend it vigorously, but if it were successful it could have a material adverse effect on our database and gene discovery services. 15 17 WE MAY NOT BE ABLE TO PROTECT THE PROPRIETARY RIGHTS THAT ARE CRITICAL TO OUR SUCCESS Our success will depend on our ability to protect our genealogy database and genotypic data and any other proprietary databases that we develop, proprietary software and other proprietary methods and technologies. Despite our efforts to protect our proprietary rights, unauthorized parties may be able to obtain and use information that we regard as proprietary. Our commercial success will depend in part on obtaining patent protection. The patent positions of pharmaceutical, biopharmaceutical and biotechnology companies, including ours, are generally uncertain and involve complex legal and factual considerations. We cannot be sure that any of our pending patent applications will result in issued patents, that we will develop additional proprietary technologies that are patentable, that any patents issued to us or our partners will provide a basis for commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties, or that the patents of others will not have an adverse effect on our ability to do business. In addition, patent law relating to the scope of claims in the area of genetics and gene discovery is still evolving. There is substantial uncertainty regarding the patentability of genes or gene fragments without known functions. The laws of some European countries provide that genes and gene fragments may not be patented. The Commission of the EU has passed a directive which prevents the patenting of genes in their natural state. The U.S. Patent and Trademark Office initially rejected a patent application by the National Institutes of Health on partial genes. Accordingly, the degree of future protection for our proprietary rights is uncertain and, we cannot predict the breadth of claims allowed in any patents issued to us or to others. We could also incur substantial costs in litigation if we are required to defend ourselves in patent suits brought by third parties or if we initiate such suits. Others may have filed and in the future are likely to file patent applications covering genes or gene products that are similar or identical to our products. We cannot be certain that our patent applications will have priority over any patent applications of others. The mere issuance of a patent does not guarantee that it is valid or enforceable; thus even if we are granted patents we cannot be sure that they would be valid and enforceable against third parties. Further, a patent does not provide the patent holder with freedom to operate in a way that infringes the patent rights of others. Any legal action against us or our partners claiming damages and seeking to enjoin commercial activities relating to the affected products and processes could, in addition to subjecting us to potential liability for damages, require us or our partners to obtain a license in order to continue to manufacture or market the affected products and processes. There can be no assurance that we or our partners would prevail in any action or that any license required under any patent would be made available on commercially acceptable terms, if at all. If licenses are not available, we or our partners may be required to cease marketing our products or practicing our methods. If expressed sequence tags, single nucleotide polymorphisms, or SNPs, or other sequence information become publicly available before we apply for patent protection on a corresponding full-length or partial gene, our ability to obtain patent protection for those genes or gene sequences could be adversely affected. In addition, other parties are attempting to rapidly identify and characterize genes through the use of gene expression analysis and other technologies. If any patents are issued to other parties on these partial or full-length genes or uses for such genes, the risk increases that the sale of our or our collaborators' potential products or processes may give rise to claims of patent infringement. The amount of supportive data required for issuance of patents for human therapeutics is highly uncertain. If more data than we have available is required, our ability to obtain patent protection could be delayed or otherwise adversely affected. Even with supportive data, the ability to obtain patents is uncertain in view of evolving examination guidelines, such as the utility and written description guidelines proposed by the U.S. Patent and Trademark Office. While we require employees, academic collaborators and consultants to enter into confidentiality agreements, there can be no assurance that proprietary information will not be disclosed, that others will not independently develop substantially equivalent proprietary information and techniques, otherwise gain access to our trade secrets or disclose such technology, or that we can meaningfully protect our trade secrets. 16 18 If the information processed by the DCDP is disclosed without our authorization, demand for our products and services may be adversely affected. WE CANNOT BE CERTAIN THAT REGULATORY APPROVALS WILL BE OBTAINED FOR PRODUCTS RESULTING FROM OUR GENE DISCOVERY PROGRAMS New drugs and diagnostic products must be approved by government agencies in the countries in which they are to be marketed. We cannot be certain that regulatory approval for any drugs or diagnostic products resulting from our gene discovery programs will be obtained. The regulatory process can take many years and require substantial resources. Because some of the products likely to result from our disease research programs involve the application of new technologies and may be based upon a new therapeutic approach, they may be subject to substantial additional review by various government regulatory authorities. As a result, these authorities may grant regulatory approvals for these products more slowly than for products using more conventional technologies. Furthermore, regulatory approval may impose limitations on the use of a drug or diagnostic product. After initial regulatory approval, a marketed product and its manufacturer are subject to continuing review. Discovery of previously unknown problems with a product may have adverse effects on our business, financial condition and results of operations, including withdrawal of the product from the market. OUR DEPENDENCE UPON A SINGLE THIRD PARTY FOR SEQUENCING MACHINES MAY IMPAIR OUR RESEARCH PROGRAMS We currently use a single manufacturer to supply the gene sequencing machines that we use in our gene discovery programs. While other types of gene sequencing machines are available from other manufacturers, we do not believe that the other machines are as efficient as the machines we currently use. We cannot be sure that the gene sequencing machines will remain available in sufficient quantities at acceptable costs. If we cannot obtain additional gene sequencing machines at commercially reasonable rates, or if we are required to change to a new supplier of gene sequencing machines, our gene discovery programs would be adversely affected. WE MAY NOT BE ABLE TO OBTAIN NECESSARY TECHNOLOGY We have acquired or licensed certain components of our technologies from third parties. Changes in or termination of these third party agreements could materially adversely affect our discovery or research programs. We cannot be certain that we will be able to acquire any new technologies which we need. WE WILL HAVE TO RELY ON OTHERS FOR CLINICAL TRIALS, MANUFACTURING, MARKETING, REGULATORY COMPLIANCE AND SALES CAPABILITIES, WHICH MAY IMPAIR OUR ABILITY TO DELIVER PRODUCTS In our research collaborations, we will seek to retain rights to develop and market certain therapeutic and diagnostic products or services. If we are able to retain these rights and successfully develop products, we expect to contract with others for conducting clinical trials, manufacturing, marketing and sales. We are not certain that we will be able to enter into such arrangements on favorable terms, if at all. Our dependence upon third parties for the conduct of clinical trials, the obtaining of governmental approvals or the manufacture, marketing or sales of products may adversely affect our ability to develop and deliver products on a timely and competitive basis. Our current facilities and staff are inadequate for commercial production and distribution of products. If we choose in the future to engage directly in the development, manufacturing and marketing of certain products, we will require substantial additional funds, personnel and production facilities. EFFORTS TO REDUCE HEALTHCARE COSTS MAY AFFECT OUR OPERATIONS Our success will depend in part on the extent to which government and health administration authorities, private health insurers and other third party payors will pay for our products. Reimbursement for newly approved healthcare products is uncertain. Third party payors, including Medicare in the U.S., are increasingly challenging the prices charged for medical products and services. Government and other third party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for new 17 19 therapeutic products. We cannot be certain that any third party insurance coverage will be available to patients for any products we discover or develop. If government or other third party payors do not provide adequate coverage and reimbursement levels for our products, the market acceptance of these products may be materially reduced. OUR OPERATIONS MAY BE IMPAIRED UNLESS WE CAN SUCCESSFULLY MANAGE OUR GROWTH We have recently experienced significant growth in the number of our employees and the scope of our operations. We intend to hire additional personnel to construct the IHD and DCDP and to develop our healthcare informatics products. Our management and operations are, and may continue to be, under significant strain due to this growth. To manage such growth, we must strengthen our management team and attract and retain skilled employees. Our success will also depend on our ability to improve our management information, research information and operational control systems and to expand, train and manage our workforce. USE OF THERAPEUTIC OR DIAGNOSTIC PRODUCTS DEVELOPED AS A RESULT OF OUR PROGRAMS MAY RESULT IN LIABILITY CLAIMS The users of any therapeutic or diagnostic products developed as a result of our discovery or research programs or the use of our database or medical decision-support products may bring product liability claims against us. We currently do not carry liability insurance to cover such claims. We are not certain that we or our collaborators will be able to obtain such insurance or, if obtained, that sufficient coverage can be acquired at a reasonable cost. If we cannot protect against potential liability claims, we or our collaborators may find it difficult or impossible to commercialize products. A liability claim or product recall could have a material adverse effect on us. WE MAY BE UNABLE TO HIRE AND RETAIN THE KEY PERSONNEL UPON WHOM OUR SUCCESS DEPENDS We depend on the principal members of our management and scientific staff, including Dr. Kari Stefansson, Chairman, President, Chief Executive Officer and Secretary, Hannes Smarason, Executive Vice President and Senior Business and Finance Officer, Dr. Jeffrey Gulcher, Vice President, Research and Development and Dr. C. Augustine Kong, Director of Statistics. If any of these people leaves us, our ability to conduct our operations may be negatively affected. Our future success also will depend in part on our ability to attract, hire and retain additional personnel. There is intense competition for such qualified personnel and we cannot be certain that we will be able to continue to attract and retain such personnel. Failure to attract and retain key personnel could have a material adverse effect on us. OUR OPERATIONS INVOLVE A RISK OF INJURY FROM HAZARDOUS MATERIALS Our research and manufacturing activities involve the generation, use and disposal of hazardous materials and wastes, including various chemicals and radioactive compounds. We are subject to laws and regulations governing the use, storage, handling and disposal of these materials, including standards prescribed by Iceland and applicable EU standards. Although we believe that our safety procedures comply with such laws and regulations, the risk of environmental contamination or injury cannot be eliminated. In the event of such an occurrence, we could be held liable for any damages that result, which could exceed our resources. Although we believe that we comply in all material aspects with applicable environmental laws and regulations and do not expect to make additional material capital expenditures in this area, we cannot predict whether new regulatory restrictions on the production, handling and marketing of biotechnology products will be imposed. Any such new regulatory restrictions could require us to incur significant costs to comply or could have a material adverse effect on our operations. OUR MANAGEMENT HAS BROAD DISCRETION OVER THE USE OF THE PROCEEDS FROM THIS OFFERING The net proceeds of this offering are estimated to be approximately $ -- million, or about $ -- million if the underwriters exercise their over-allotment option in full. This calculation is based on an initial public offering price of $ -- per share. The information contained in this prospectus regarding our use of these proceeds is based upon the current state of our business operations, our current business plan and 18 20 strategy, and current economic and industry conditions. The amount and timing of our expenditures will vary depending on our progress in developing and constructing the databases, the progress of our research and discovery programs, technological changes, changing competitive conditions, and general economic conditions. The estimated allocations of our use of the net proceeds of this offering are subject to reapportionment among the listed purposes, and to other general corporate purposes, including working capital. The actual amount of the uses of proceeds cannot be predicted with any degree of certainty. Our management will retain broad discretion as to the allocation of the proceeds of this offering, including the timing and conditions of the use of the proceeds. CURRENCY FLUCTUATIONS MAY AFFECT OUR FINANCIAL CONDITION Our revenues and cash reserves are denominated in U.S. dollars, but a portion of our operating costs are denominated in Icelandic kronas. A strengthening of the Icelandic krona against the U.S. dollar may, therefore, have a negative impact on our financial condition. WE DO NOT EXPECT TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE We have never paid dividends on our common stock and we do not intend to pay any dividends on our common stock for the foreseeable future. YEAR 2000 RISKS MAY HARM OUR BUSINESS Despite the passing of January 1, 2000, the risks posed by Year 2000 issues could still adversely affect our business in a number of significant ways. Although we believe that our internally developed systems and technology are Year 2000 compliant, our information technology systems nevertheless could be substantially impaired or cease to operate due to latent Year 2000 problems. Additionally, we rely on information technology and automated laboratory equipment supplied by third parties. Year 2000 problems experienced by us or any of such third parties could materially adversely affect our business. THE INTERESTS OF OUR CONTROLLING STOCKHOLDERS MAY CONFLICT WITH OUR INTERESTS AND THE INTERESTS OF OUR OTHER STOCKHOLDERS After this offering, our directors, executive officers and current 5% stockholders (including an affiliate of Roche), and certain of their affiliates, will beneficially own approximately -- % of the common stock. These stockholders, if they all act together, will then effectively have the ability to elect all of our directors. They will also be able to determine the outcome of most corporate actions requiring stockholder approval, including our merger with or into another company, a sale of substantially all of our assets and amendments to our certificate of incorporation. The decisions of these stockholders may conflict with our interests or those of our other stockholders. OUR RIGHT TO ISSUE PREFERRED STOCK AND ANTI-TAKEOVER PROVISIONS COULD MAKE A THIRD-PARTY ACQUISITION OF US DIFFICULT AND OTHERWISE ADVERSELY AFFECT COMMON STOCKHOLDERS Our Board of Directors is authorized to designate and issue up to 7,016,666 shares of preferred stock as to which the Board can determine the price, rights, preferences and privileges of those shares without any further vote or action by the stockholders. If you own common stock, your ownership rights will be subject to, and may be adversely affected by, the rights of the owners of preferred stock that we may issue in the future. As a result, the issuance of preferred stock could have a material adverse effect on the market value of the common stock. An additional issuance of preferred stock would give us financial flexibility for possible acquisitions and other corporate purposes. However, it could make it more difficult for a third party to acquire a majority of our outstanding voting stock. Further, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. Under this law, if anyone becomes an "interested stockholder" in deCODE, we may not enter a "business combination" with that person for three years without special approval. These provisions could delay or prevent a change of control. Certain other provisions of our certificate of incorporation and bylaws, including those 19 21 providing for preferred stock, could also delay or prevent changes of control or management. These provisions could adversely affect the market price of the common stock. OUR COMMON STOCK HAS NEVER BEEN PUBLICLY TRADED AND WE CANNOT PREDICT THE EXTENT TO WHICH A TRADING MARKET WILL DEVELOP Before this offering, there has been no public market for our common stock, although some banking institutions in Iceland have been making a market for privately negotiated transactions among non-U.S. persons in our Series B preferred stock. Our Series B preferred stock transfer records indicate that approximately 10 million shares of Series B preferred stock were transferred during 1999 in approximately 7,000 transactions and approximately 1.1 million shares of Series B preferred stock were transferred during January 2000 in approximately 2,700 transactions. The majority of these transactions had an Icelandic financial institution as one of the counterparties. We cannot predict the extent to which an active public market for the common stock will develop or be sustained after this offering. We will negotiate the initial public offering price with the representatives of the underwriters. The initial public offering price of our common stock may not be indicative of future market prices. OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE The market price of our common stock is likely to be highly volatile. In addition to various risks described elsewhere in this prospectus, the following factors could also cause price volatility: - announcements made by us or our competitors concerning the results of research activities, technological innovations or new commercial products; - changes in or adoption of new government regulations; - regulatory actions; - changes in patent laws; - developments concerning proprietary rights; - variations in operating results; and - actual, announced or threatened litigation. Extreme price and volume fluctuations occur in the stock market from time to time and can particularly affect the prices of technology and biotechnology stocks. These extreme fluctuations are often unrelated to the actual performance of the affected issuers. These broad market fluctuations may adversely affect the market price of our common stock. FUTURE SALES BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY AFFECT OUR STOCK PRICE AND OUR ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS Sales of our common stock by our current stockholders in the public market after this offering could cause the market price of our stock to fall. Sales may also make it more difficult for us to sell equity securities or equity-related securities in the future at a time and price that our management deems acceptable, or at all. Upon the completion of this offering, we will have -- shares of common stock outstanding, assuming no exercise of options or warrants and assuming no exercise of the underwriters' over-allotment option. Of these outstanding shares of common stock, the -- shares sold in this offering will be freely tradable, without restriction under the Securities Act of 1933, as amended (the "Securities Act"), unless purchased by our "affiliates." The remaining -- shares of common stock held by existing stockholders are "restricted securities" and may be resold in the United States public market only if registered or pursuant to an exemption from registration. Immediately following the completion of this offering, holders of -- shares of common stock and options, and warrants to purchase -- shares of common stock will be entitled to certain registration rights. Upon registration, these shares may be freely sold in the public market. 20 22 Stockholders who will hold an aggregate of -- % of our common stock after the offering have agreed, pursuant to certain lock-up agreements, that they will not sell any shares of common stock for a period of 180 days after the date of this prospectus without the prior written consent of the underwriters. Shareholders who will hold an aggregate of -- % of our common stock after the offering have signed an agreement providing that, upon request of deCODE or the underwriters, they will not sell any shares of common stock for a period ending 180 days after the effective date of the registration statement of which this prospectus is a part. Upon expiration of the lock-up agreements: - -- shares of common stock will be immediately eligible for resale (subject to the volume limitations of Rule 144 in the case of sales by affiliates); - -- shares of common stock will be immediately eligible for resale (subject to the volume limitations of Rule 144); and - -- shares of common stock will be eligible for resale from time to time thereafter upon expiration of the applicable holding periods under Rule 144 (subject to the volume limitations of Rule 144). PURCHASERS IN THIS OFFERING WILL SUFFER IMMEDIATE DILUTION If you purchase common stock in this offering, the value of your shares based upon our actual book value will immediately be less than the offering price you paid (known as "dilution"). Based upon the net tangible book value of the common stock at December 31, 1999, your shares will be worth $ -- less per share than the price you paid in the offering. If options and warrants we previously granted are exercised, additional dilution is likely to occur. Following the completion of this offering, options and warrants to purchase 2,125,037 shares of common stock, at the weighted-average exercise price of $ -- will be outstanding. 21 23 USE OF PROCEEDS We estimate that we will receive net proceeds from this offering of about $ -- million, or about $ -- million if the underwriters exercise their over-allotment option in full. For purposes of this calculation, we have assumed an initial public offering price of $ -- per share. We expect to use approximately $ -- million of the net proceeds of this offering for the development and construction of the DCDP. In addition, we intend to spend approximately $ -- million to fund our discovery and research programs. We also intend to spend approximately $ -- million of the net proceeds of this offering for capital expenditures. These expenditures will include the purchase of: - laboratory automation equipment; - production equipment; - computer equipment; - furniture; - fixtures; and - additional office and laboratory facilities. The remainder of the net proceeds are expected to be used for working capital and general corporate purposes. We may also use a portion of the net proceeds to acquire businesses, technologies, or products complementary to our business even though we do not currently have any specific plans to do so. Pending use of the net proceeds for the purposes described above, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities. 22 24 DIVIDEND POLICY We have never declared or paid any dividends on our common stock. Following this offering, our dividend practices with respect to our common stock will be determined and may be changed from time to time by our Board of Directors. Any issuance of dividends will be based upon our earnings, financial condition, capital requirements and other factors considered important by our Board of Directors. Under Delaware law and our certificate of incorporation, our Board of Directors is not required to declare dividends on our common stock. We expect to retain all earnings, if any, generated by our operations for the development and growth of our business and do not anticipate paying any dividends to our stockholders for the foreseeable future. Each share of our outstanding classes of preferred stock bears dividends at the rate of 8% of the original purchase price per share, payable when declared by the Board of Directors. To date, the Board of Directors has not declared any dividends on the preferred stock. Our certificate of incorporation provides that all the outstanding preferred stock will convert to common stock upon the closing of this offering, at which time all undeclared dividends will be canceled. 23 25 CAPITALIZATION The following table shows as of December 31, 1999: our actual capitalization; our pro forma capitalization after giving effect to the automatic conversion upon the closing of this offering of our Series A preferred stock, Series B preferred stock and Series C preferred stock; and our pro forma capitalization as adjusted to give effect to that automatic conversion and the sale of -- shares of our common stock pursuant to this offering. This information assumes an initial public offering price of $ -- per share less the estimated underwriters discounts and commissions. For information pertaining to our common stock and our preferred stock, see "Description of Securities."
DECEMBER 31, 1999 ------------------------------------------ PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) Long-term obligations, net of current portion..... $ 4,874,291 $ 4,874,291 $ Series A, B, and C convertible preferred stock; 32,641,926 shares authorized, 22,967,226 shares outstanding actual and no shares outstanding pro forma........................................... 116,209,595 0 Stockholders' equity (deficit) Common Stock; $0.001 par value, 48,000,000 shares authorized, 9,604,012 shares outstanding actual; 32,573,556 shares outstanding pro forma and -- shares outstanding pro forma as adjusted............ 9,604 32,574 Additional paid-in capital...................... 32,023,850 145,205,296 Notes receivable from stockholders.............. (9,597,830) (9,597,830) Deferred compensation........................... (10,744,069) (10,744,069) Dividends accreted on convertible preferred stock........................................ (3,005,179) 0 Accumulated deficit............................. (76,713,517) (76,713,517) Accumulated other comprehensive income.......... 2,411 2,411 ------------ ------------ ------------ Total stockholders' equity (deficit)............ (68,024,730) 48,184,865 ------------ ------------ ------------ Total capitalization............................ $ 53,059,156 $ 53,059,156 $ ============ ============ ============
The information contained above does not include 2,155,037 shares of our common stock issuable upon exercise of outstanding options to purchase common stock and warrants to purchase preferred stock that will convert into warrants to purchase common stock upon the closing of this offering. See "Description of Securities" for additional information regarding the outstanding warrants and options. 24 26 DILUTION If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of common stock after this offering. Pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the pro forma number of shares of common stock outstanding. As of December 31, 1999, our pro forma net tangible book value was approximately $ -- or $ -- per share of common stock after taking into account the issuance of -- shares of common stock upon the automatic conversion, upon the closing of this offering, of our Series A preferred stock, Series B preferred stock and Series C preferred stock. Without taking into account any other changes in our net tangible book value after December 31, 1999, other than to give effect to this offering of -- shares of common stock at an assumed initial offering price of $ -- per share, less estimated underwriting discounts and commissions, our pro forma as adjusted net tangible book value, at December 31, 1999, would have been approximately $ -- or $ -- per share. This represents an immediate increase in the net tangible book value of $ -- per share of our common stock to present stockholders and an immediate dilution of $ -- per share or -- % of the initial public offering price to new investors. The following table shows this dilution: Assumed initial public offering price per share(1).......... $ Pro forma net tangible book value per share at December 31, 1999............................................... $ Increase per share attributable to new investors.......... ----------- Pro forma as adjusted net tangible book value per share after this offering....................................... ----------- Dilution per share to new investors......................... $ ===========
- --------------- (1) The assumed initial public offering price set forth in the above table represents the midpoint of the range set forth on the cover page of this prospectus, before deducting underwriting discounts and offering expenses payable by us to the underwriters. The following table summarizes, on a pro forma basis as of December 31, 1999, the differences between existing stockholders and investors in this offering with respect to the number and percentage of shares of our common stock purchased from us, the amount and percentage of consideration paid, and the average price paid per share of our common stock, before deduction of underwriting discounts and commissions:
SHARES OWNED CONSIDERATION ----------------------- ------------------------- AVERAGE PRICE NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE --------- ---------- ----------- ---------- ------------- Existing stockholders........ % $ % $ New investors................ --------- ---- ----------- ---- Total........................ 100% $ 100% ========= ==== =========== ====
The information contained above does not include 2,155,037 shares of our common stock issuable upon exercise of outstanding options to purchase common stock and warrants to purchase preferred stock that will convert into warrants to purchase common stock upon closing of this offering. See "Description of Securities" for additional information regarding the outstanding warrants and options. To the extent that any of these options and warrants are exercised, there will be further dilution to investors. 25 27 EXCHANGE RATES Our revenues are denominated in U.S. dollars. However, a portion of our costs are denominated in Icelandic kronas as a result of the fact that all our operations take place in Iceland. The following table sets forth, for the periods and dates indicated, information regarding the buying exchange rate of the Icelandic krona against the U.S. dollar as registered by the Central Bank of Iceland, expressed in Icelandic kronas per U.S. dollar.
YEAR ENDED DECEMBER 31, AVERAGE(1) HIGH LOW PERIOD END - ----------------------- ---------- ----- ----- ---------- 1997................................................. 70.89 73.43 66.56 71.98 1998................................................. 71.05 73.26 67.00 69.32 1999................................................. 72.42 75.44 68.89 72.35 2000 (through March 7, 2000)......................... 73.37 74.02 71.27 73.77
- --------------- (1) The average of the rates for the last business day of each month in the period, except for March 2000 for which the rate used is March 7, 2000. On March 7, 2000 the buying exchange rate of the Icelandic krona against the U.S. dollar was 73.77. 26 28 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and the notes to those statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The consolidated statement of operations data for the fiscal years ended December 31, 1997, 1998 and 1999 and the consolidated balance sheet data at December 31, 1998 and 1999 are derived from consolidated financial statements included elsewhere in this prospectus that have been audited by PricewaterhouseCoopers ehf., independent auditors. The consolidated statement of operations data for the period from inception (August 23, 1996) to December 31, 1996 and the consolidated balance sheet data at December 31, 1996 and 1997 are derived from audited consolidated financial statements not included in this prospectus. Historical results are not necessarily indicative of future results.
INCEPTION (AUGUST 23, 1996) TO YEAR ENDED DECEMBER 31, DECEMBER 31, ------------------------------------------- 1996 1997 1998 1999 -------------------- ----------- ------------ ------------ CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue......................... $ 0 $ 0 $ 12,705,000 $ 16,444,075 Operating Expenses Research and development...... 737,764 6,080,096 19,282,364 31,823,950 General and administrative.... 454,873 1,967,684 4,893,202 7,863,299 ----------- ----------- ------------ ------------ Total operating expenses........ 1,192,637 8,047,780 24,175,566 39,687,249 ----------- ----------- ------------ ------------ Operating loss.................. (1,192,637) (8,047,780) (11,470,566) (23,243,174) Equity in net earnings (loss) of affiliate..................... 0 0 0 (1,484,081) Interest income, net............ 40,005 (8,461) 562,336 1,549,481 Taxes........................... 0 0 0 0 ----------- ----------- ------------ ------------ Net loss........................ (1,152,632) (8,056,241) (10,908,230) (23,177,774) Accrued dividends and amortized discount on preferred stock... (181,852) (620,385) (2,571,523) (7,542,787) Premium on repurchase of preferred stock............... 0 0 0 (30,887,044) ----------- ----------- ------------ ------------ Net loss available to common stockholders.................. $(1,334,484) $(8,676,626) $(13,479,753) $(61,607,605) =========== =========== ============ ============ Basic and diluted net loss per share......................... $ (1.10) $ (3.85) $ (3.06) $ (9.56) Shares used in computing basic and diluted net loss per share(1)...................... 1,213,925 2,254,413 4,400,576 6,446,055 Unaudited pro forma basic and diluted net loss per share.... $ (0.84) Shares used in computing unaudited pro forma basic and diluted net loss per share(1)...................... 27,559,365
AS OF DECEMBER 31, ----------------------------------------------------------- 1996 1997 1998 1999 ------------ ----------- ------------ ------------ CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents........... $ 3,975,311 $ 2,714,225 $ 25,075,844 $ 29,668,249 Total assets........................ 7,801,556 6,770,492 38,540,115 79,130,186 Total long-term liabilities......... 1,440,673 1,331,156 6,946,330 4,874,291 Redeemable, convertible preferred stock............................. 6,881,851 12,603,990 42,044,519 116,209,595 Total stockholders' equity (deficit)......................... (1,328,469) (9,907,939) (17,108,563) (68,024,730)
- --------------- (1) See Note B of Notes to Consolidated Financial Statements for an explanation of the determination of the shares used in computing basic and diluted net loss per share and unaudited pro forma basic and diluted net loss per share. 27 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read this section in conjunction with our consolidated financial statements and related notes thereto appearing elsewhere in this prospectus. OVERVIEW deCODE was incorporated in August 1996. We have incurred losses since our inception, principally as a result of research and development and general and administrative expenses in support of our operations. On December 31, 1999, we had an accumulated deficit of $76,713,517. We anticipate incurring additional losses over at least the next several years as we expand our internal and collaborative gene discovery efforts, continue our technology development and construct the DCDP and healthcare informatics. We expect that our losses will fluctuate from quarter to quarter and that such fluctuations may be substantial especially because progress in our scientific work and milestone payments which are related to progress can fluctuate between quarters. In February 1998, we entered into a research collaboration and cross-license agreement with Roche regarding research into the genetic causes of twelve diseases. Under the terms of the agreement, Roche has made equity investments and is funding our gene discovery programs in the twelve diseases. For the year ended December 31, 1999, revenues from Roche constituted 96% of our total revenues. See "Business." We anticipate that collaborations will remain an important element of our business strategy and future revenues. Our ability to generate revenue growth and become profitable is dependent, in part, on our ability to enter into additional collaborative arrangements, and on our ability and our collaborative partners' ability to successfully commercialize products incorporating, or based on, our work. There can be no assurance that we will be able to maintain or expand our existing collaborations, enter into future collaborations to develop applications based on existing or future research agreements or successfully commercialize the DCDP. Our failure to successfully develop and market products over the next several years, or to realize product revenues, would have a material adverse effect on our business, financial condition and results of operations. Royalties or other revenues generated from commercial sales of products developed using our technologies are not expected for at least several years, if at all. We currently only have an agreement with Roche which provides all of our collaborative research funding. Our operating results through December 31, 1999 reflect the expenses incurred in our gene discovery activities, partly offset by the revenues received pursuant to our research collaboration agreement with Roche in connection with these activities. During 2000 we will continue these activities, but our operating results will also reflect the substantial costs we expect to incur in commencing the development of the IHD and the DCDP. While we intend to enter into collaborations to help fund and develop the DCDP, until we do so there will be no revenue from our database service activities to offset against these costs. On December 3, 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101), that summarizes the staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The accounting and disclosure requirements that are described in SAB 101 apply to all registrants. deCODE has adopted the requirements of SAB 101 and has restated prior years in accordance with the going public exemption under Accounting Principles Board Opinion No. 20, "Accounting Changes." RESULTS OF OPERATIONS COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998 Revenues. Our revenues increased to $16,444,075 for the year ended December 31, 1999 as compared to $12,705,000 for the year ended December 31, 1998, an increase of 29%. The increase was primarily due to revenues related to milestone payments received pursuant to our research collaboration agreement with Roche; the increase also reflected the recognition of twelve months of research funding provided by Roche in 1999 28 30 compared to eleven months in 1998, and the receipt of laboratory equipment and consumables from Affymetrix in the first fiscal quarter of 1999 as consideration for services provided by us on its behalf. Research and Development. Our research and development expenses increased to $31,823,950 for the year ended December 31, 1999 as compared to $19,282,364 for the year ended December 31, 1998, an increase of 65%. This increase was primarily attributable to the continued expansion of operations including our hiring of additional research personnel and the resulting salary and benefits costs, an expansion of our laboratory facility and the resulting depreciation, and our increased research efforts. General and Administrative. Our general and administrative expenses increased to $7,863,299 for the year ended December 31, 1999 as compared to $4,893,202 for the year ended December 31, 1998, an increase of 61%. This increase was principally attributable to the increase in personnel and related salaries and benefits costs. Stock Compensation Expense. Stock compensation expense was $8,043,995 for the year ended December 31, 1999 compared to $5,219,642 for the year ended December 31, 1998, an increase of 54%. This increase was attributable to expenses for options and shares awarded to employees and others with exercise or purchase prices below the deemed fair value for financial reporting purposes. Equity in Net Earnings (Loss) of Affiliate. deCODE's equity in net earnings (loss) of affiliate, Gagnalind hf., for the year ended December 31, 1999 is comprised of deCODE's share of the earnings of Gagnalind hf. and amortization of the difference between deCODE's cost and the underlying equity in the net assets of Gagnalind hf. at acquisition. Interest Income, net. Our interest income increased to $2,185,441 for the year ended December 31, 1999 as compared to $922,230 for the year ended December 31, 1998, an increase of 137%. This increase primarily derived from interest on payments received in connection with a stock issuance. The increase was also attributable to increased cash reserves resulting from milestone payments pursuant to our research collaboration agreement with Roche. Our interest expenses increased to $635,959 for the year ended December 31, 1999 as compared to $359,894 for the year ended December 31, 1998, an increase of 77%. This increase in interest expense primarily resulted from new equipment leasing arrangements which we entered into in the second half of 1998 and were in effect for all of 1999. Net Loss. As a result of the foregoing factors, our net loss for the year ended December 31, 1999 increased to $23,177,774 as compared to $10,908,230 for the year ended December 31, 1998, an increase of 112%. As of December 31, 1999, we had accumulated losses of $76,713,517 and did not owe any federal income taxes. Realization of deferred tax assets is dependent on future earnings if any. Net Loss Available to Common Stockholders. Our net loss available to common stockholders more than quadrupled to $61,607,605 for the year ended December 31, 1999 as compared to $13,479,753 for the year ended December 31, 1998. This increase was primarily due to increases in the above described costs and expenses over the same period and to the increase in accrued dividends and amortized discount on preferred stock and premiums on the repurchase of preferred stock. COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997 Revenues. Our revenues were $12,705,000 for the year ended December 31, 1998. We did not have any revenues for the year ended December 31, 1997. Revenues in 1998 were solely attributable to payments received pursuant to our research collaboration agreement with Roche. Research and Development. Our research and development expenses more than tripled to $19,282,364 for the year ended December 31, 1998 from $6,080,096 for the year ended December 31, 1997. This increase was primarily attributable to continued expansion of our operations, including our hiring of more research and development personnel, purchases of laboratory supplies, investment in laboratory equipment and expansion of our facilities. General and Administrative. Our general and administrative expenses more than doubled to $4,893,202 for the year ended December 31, 1998 from $1,967,684 for the year ended December 31, 1997. This increase was primarily attributable to the increase in personnel and related salaries and benefits costs. 29 31 Stock Compensation Expense. Stock compensation expense was $5,219,642 for the year ended December 31, 1998, compared to $11,851 for the year ended December 31, 1997. This increase was attributable to expenses for options and shares awarded to employees and others with exercise or purchase prices below the deemed fair value for financial reporting purposes. Interest Income, net. Our interest income increased more than five-fold to $922,230 for the year ended December 31, 1998 from $163,076 for the year ended December 31, 1997. This increase was due to greater cash reserves primarily resulting from our sale of Series B preferred stock to Icelandic investors in 1998 and also from payments received pursuant to our research collaboration and stock purchase agreements with Roche. Our interest expense increased to $359,894 for the year ended December 31, 1998 from $171,537 for the year ended December 31, 1997, an increase of 110%. This increase was mainly due to additional equipment lease obligations entered into during 1998, which enabled us to support our research and development activities. Net Loss. As a result of the foregoing factors, our net loss for the year ended December 31, 1998 increased to $10,908,230 as compared to $8,056,241 for the year ended December 31, 1997, an increase of 35%. As of December 31, 1998, we had accumulated losses of $20,275,235 and did not owe any federal income taxes. Realization of deferred tax assets is dependent on future earnings if any. Net Loss Available to Common Stockholders. Our net loss available to common stockholders increased to $13,479,753 for the year ended December 31, 1998 as compared to $8,676,626 for the year ended December 31, 1997, an increase of 55%. This increase was primarily due to increases in the above-described costs and expenses over the same period and to the increase in accrued dividends and amortized discount on preferred stock. LIQUIDITY AND CAPITAL RESOURCES Our cash and cash equivalents totalled $29,668,249 at December 31, 1999. We have financed our operations since inception primarily through private placements of equity securities, our collaboration with Roche and capital leases. As of December 31, 1999, we had received an aggregate of $39,053,695 pursuant to our collaboration agreement with Roche in fixed research funding, milestone payments and equity contributions. Inflation has not had a material effect on our business. Our investing activities have consisted of the acquisition of an office and laboratory facility in Reykjavik, Iceland, acquisitions of equipment and expenditures for building improvements. At December 31, 1999, our gross investment in office and laboratory space, equipment and building improvements since inception was $17,802,672. In addition, during 1999, deCODE acquired an approximate 56% equity interest in Gagnalind hf., an Icelandic software company, in exchange for cash and shares of our common stock and Series B preferred stock. In February and March 1999, we sold 110,000 shares of Series B preferred stock resulting in aggregate cash proceeds of $825,000. In February and May 1999, we sold 1,111,111 shares of Series C preferred stock and 111,111 warrants to purchase shares of Series C preferred stock for an aggregate purchase price of $3,333,445. In August 1999, we repurchased a total of 2,358,074 shares of Series A preferred stock, issued and subsequently repurchased 250,000 shares of Series B preferred stock in exchange for 333,333 shares of common stock and repurchased 100,000 shares of Series C preferred stock, at an initial purchase price of $7.50 per share, later adjusted upward to $13.95 per share. In August 1999 we issued 5,000,000 shares of Series B preferred stock at an initial purchase price of $7.50 per share, later adjusted upward to $15.00 per share. The net cash used in our operating activities was $11,646,931 for the year ended December 31, 1999 compared to $2,067,278 for the year ended 1998. The increase was primarily due to higher research and development costs which were only partly offset by payments from Roche. As of December 31, 1999, we had net operating losses carried forward of approximately $18,867,000 to offset Icelandic and U.S. taxable income. If not utilized, the net operating loss carry-forwards will begin to expire in the year 2004 in Iceland and in the year 2018 in the United States. We had no material commitments for capital expenditures at December 31, 1999. We anticipate that the net proceeds from this offering will enable us to increase capital expenditures over the next several years to expand 30 32 our facilities and purchase additional equipment in support of additional collaborations, increased internal research and development and development of the DCDP. We expect our cash requirements to increase significantly in future periods because of planned expansion of our operations. The planned expansion will be in support of expected growth in research collaboration agreements, database construction, and internal research and discovery programs. We believe that the net proceeds from this offering, together with existing cash and cash equivalents, and anticipated cash flows under our research collaboration agreement with Roche, will be sufficient to support our operations through at least 2001. Our belief is based on our current operating plan, which could change in the future and require additional funding sooner than anticipated. Even if we have sufficient cash for our current operating plan, we may seek to raise additional capital because of favorable market conditions or other strategic factors. Our future capital requirements depend on numerous factors, including: - the progress of our discovery and research programs; - the number and breadth of these programs; - our ability to attract collaborators for, subscribers to or customers for our products and services; - our achievement of milestones under our research collaboration agreement with Roche; - our ability to establish and maintain additional collaborations; - our collaborators' progress in commercializing our gene discoveries; - the level of our activities relating to commercialization rights we retain in our collaborations; - competing technological and market developments; - the costs involved in enforcing patent claims and other intellectual property rights; and - the costs and timing of regulatory approvals. We will require significant additional capital in the future, which we may seek to raise through public or private equity offerings, debt financing or additional collaborations and licensing arrangements. No assurance can be given that additional financing or collaborations and licensing arrangements will be available when needed, or that if available, will be obtained on favorable terms. If adequate funds are not available when needed, we may have to curtail operations or attempt to raise funds on unattractive terms. See "Risk Factors -- We may not be able to obtain sufficient additional funding to meet our expanding capital requirements." IMPACT OF CURRENCY FLUCTUATIONS We publish our consolidated financial statements in U.S. dollars. Currency fluctuations can affect the financial results of deCODE as revenues and cash reserves are in U.S. dollars but a portion of operating costs are in Icelandic kronas. A strengthening of the Icelandic krona against the dollar can thus adversely affect the "buying power" of our cash reserves and revenues. On the other hand, weakening of the Icelandic krona can strengthen our financial position. All long-term liabilities are U.S. dollar denominated. deCODE has not previously engaged in, and does not now contemplate entering into, currency hedging transactions. deCODE may enter into such transactions on a non-speculative basis to the extent that it may in the future have substantial foreign currency exposure, for example, in connection with payments from collaborative partners or due to investments. RECENT ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." This standard establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. Upon the standard's initial application, all derivatives are required to be recognized in the balance sheet as either assets or liabilities and measured at fair value. In addition, all hedging relationships must be 31 33 designated, reassessed and documented. Currently, the standard is to be effective for fiscal years and quarters beginning after June 15, 2000. Considering deCODE's current activities, it is not anticipated that the adoption of the new standard will have a significant impact on deCODE's financial position or results of operations. QUANTITATIVE AND QUALITATIVE DISCLOSURES The primary objective of our investment activities is to preserve principal while maximizing income we receive from our investments without significantly increasing risk. Some of the securities in our investment portfolio may be subject to market risk. This means that a change in prevailing interest rates may cause the market value of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the market value of our investment will probably decline. To minimize this risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds and government and non-government debt securities. In general, money market funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate. As of December 31, 1999, all of our cash and cash equivalents were in money market and checking accounts. THE IMPACT OF THE YEAR 2000 We started our operations in 1996 and do not expect the Year 2000 problem to have a significant impact on our information technology infrastructure or the gene sequencing machines and other equipment contained in our laboratory. We have received assurances from our vendors that their products are Year 2000 compliant and we are not aware of any problems which developed after January 1, 2000. Currently, we are not aware of any Year 2000 problems within deCODE. Given the fact that all our hardware and software is relatively new, we have not performed extensive testing except where we were not able to obtain assurance from a provider or had reason to believe that a product might have Year 2000 problems. 32 34 BUSINESS OVERVIEW deCODE is a genomics and health informatics company which is developing products and services for the healthcare industry. We develop and apply modern informatics technology to discover new knowledge about health and disease through data-mining. We believe that certain unique qualities of the Icelandic population, together with our advanced bioinformatics and high throughput genotyping facility, should place deCODE at a competitive advantage to perform genetic and medical research to identify disease genes and drug and diagnostic targets. As the international effort to sequence the human genome progresses, we believe that the principal task will be to transform raw genomic data into knowledge about human health and disease and then into tangible products and services. We believe that deCODE, is well-positioned to place the human genome sequence in a meaningful context through which we and our partners can generate value. deCODE was founded in 1996 and its operations, as well as its approximately 300 employees, are based in Iceland. In 1998, we entered into a significant research collaboration and cross-license agreement with Roche, under which we may receive a total of more than $200 million in research funding and milestone payments. To date our accomplishments include: - the identification of eight locations for disease-causing genes; - the identification of twelve specific candidate disease genes; - the achievement of four milestones in our research collaboration agreement with Roche; - the completion of a high-throughput genotyping facility; - the development of automated software algorithms for data capture, analysis and interpretation; and - near completion of a computerized genealogy database covering the Icelandic population. We believe that discovery of healthcare knowledge requires bringing together three key types of data: information from the healthcare system, information about relationships among individuals covered by this system and associated molecular genetics data. We believe that operating in Iceland accomplishes this by allowing us to benefit from the following four important characteristics of the Icelandic nation in our medical and genetic research: - extensive genealogical records dating back to the settlement of the country in the ninth century; - relative genetic homogeneity with a population descended from a small number of settlers; - a centralized healthcare system since 1915; and - a well-educated population. We believe that bringing these four factors together greatly enhances our research and development efforts in generating future products and services for the healthcare industry. 33 35 The following diagram illustrates our business model: [BUSINESS MODEL] Our business model is based on four sets of information: - genealogy records of almost all living Icelanders and most of their ancestors for whom records exist, dating back to the settlement of Iceland in the ninth century; - genotype data from consenting Icelanders; - the IHD, which we plan to create and operate from healthcare records of Icelanders pursuant to the IHD license; and - other public and proprietary data to which we have access. Our three avenues of commercialization are as follows: Discovery Services. We believe that the development and application of proprietary bioinformatics tools in the context of an appropriate population will accelerate our ability to discover disease-related genes and associated drug targets. This strategy is designed to enable us to derive value both from diagnostic and therapeutic products and from pharmacogenomic services. We are currently working on discovery in collaboration with Roche and in our own research programs. We expect to seek additional partners for this business unit from among pharmaceutical and biotechnology companies. Database Services. We are in the early stages of developing the DCDP, a tool which, subject to ongoing compliance with regulatory requirements, will cross-reference genealogical records, data from the IHD and genotypes of consenting participants. The DCDP is intended to generate knowledge about diseases and their genetic risk factors, disease management, and to provide insights into the interplay between environment and disease, outcomes and resource use in delivering healthcare. deCODE believes that the DCDP will be unique both in cross-referencing genetic and healthcare information and in providing an unprecedented level of detail of the interplay between genes, environment and disease. As more information is generated, both inside and outside deCODE, we believe that the DCDP will become even more powerful. We anticipate that the customer base for the DCDP will include a variety of participants in the healthcare industry, such as pharmaceutical and biotechnology companies and healthcare providers. Healthcare Informatics. The third unit of our business, healthcare informatics, is derived from our discovery and database services. The products being developed by this business unit are expected to result from 34 36 knowledge and experience acquired in our two principal business units, discovery services and database services. In the future, the integration of genetics and medicine will add a new level of complexity to the decision making process in the delivery of healthcare. The need for medical decision-support systems, or MDSS, for healthcare providers is expected to increase over the next several years. We are developing MDSS, which will include insights from the DCDP, for healthcare providers and we will seek to commercialize bioinformatics tools developed in our gene and drug target discovery efforts. We also plan to provide privacy protection products based on our expertise in encryption tools for complex and sensitive medical and genetic data. SCIENTIFIC BACKGROUND The map of the human genome is about to be unraveled. In December 1999, the sequence of the entire chromosome 22 was announced and the sequences of other chromosomes are expected to follow. The target of the Human Genome Project is to complete the first draft sequence of the human genome by May 2000. The challenge will then be to transform this raw sequence data into specific knowledge about disease and healthcare. GENOMICS The blueprint of all biological activity, which consists of deoxyribonucleic acid, or DNA, is located within the nucleus of every cell and is commonly referred to as the genome. The genome is the total DNA content of an organism. DNA is composed of four bases. The sequence or order of these bases is the code that ultimately determines structure and function in all organisms. The human genome is broken up into 23 pairs of chromosomes and every individual inherits a set of 23 chromosomes from each parent. Genes are segments of DNA located throughout the genome. The human genome consists of approximately three billion bases and is estimated to contain more than 100,000 genes. Each cell uses or "expresses" only those genes (approximately 10% of the 100,000 genes) necessary for its specific role. Accordingly, different types of cells express different sets of genes. When a gene is turned on or expressed, it produces a derivative copy of its DNA sequence called messenger RNA, which is used as a template to direct the production of a protein. Proteins are large molecules composed of amino acids and control all biological processes. The order of the bases in DNA determines the order of amino acids in a protein. Proteins in turn make up molecular pathways, which cells use to carry out their specific functions. Diseases can occur when a molecular pathway in a normal biological function is upset or blocked as a result of a mutated or a defective gene. The ability to detect a mutation and to understand the process by which it contributes to disease is crucial to understanding the fundamental mechanisms of a disease. In the simplest form, genetic diseases result from a mutation in only one gene and the disease is usually passed from generation to generation. Common diseases are thought to have a complex genetic basis; they generally skip one or more generations and may result from interactions between genes or from the interaction between genetic and environmental factors. Soon, the entire human genome sequence will be discovered. We believe that by itself, this knowledge is of limited value and that the importance of this discovery will only reach its full potential if this sequence data is explored along with detailed knowledge about health history, genetic profile and genealogy. POPULATION GENOMICS Population genomics is a field of genomics which applies modern genetic and molecular biology techniques to an entire population to discover how genetic factors contribute to the cause of diseases. Since almost all common diseases have a genetic component, the discovery of the cause of disease can often be reduced to finding the gene or genes mutated in patients who have the disease as compared to those who do not. Since this approach does not require a preconceived notion about which tissues or proteins or genes are important in the disease, it represents a systematic strategy for creating specific knowledge about disease. The challenge is to find a population which is small enough to allow the necessary cooperation but large enough to deliver meaningful results. 35 37 FUNCTIONAL GENOMICS Functional genomics is a field of genomics that attempts to determine the manner in which disease genes specifically impact the disease process. It is the study of the function of genes, including how expression of a particular gene is regulated and the function of the protein that the gene encodes. Researchers employing functional genomics techniques may analyze large numbers of genes to compare patterns of gene expression in diseased and healthy tissues or may compare genes in humans to those in other species, in each case in an effort to determine the molecular pathways that cause disease. GENOMICS AND HEALTHCARE PRODUCTS Genomics and Diagnostics. Gene-based diagnostic tests for both disease identification and management represent an important tool that can be used by physicians to identify and monitor patients with increased risk of a disease. These tests can complement clinical tests and may lead to more cost-effective use of expensive tests and to a greater level of accuracy. Knowledge of predisposition towards a disease may allow patients to alter their lifestyles or to take medication that prevents the disease. Genomics and Therapeutics. The lack of precise knowledge about the causes of diseases makes it difficult for the pharmaceutical industry to select targets for new drugs. Identifying specific disease genes may result in very specific and, therefore, potentially more valuable drug targets than are otherwise available. The disease gene products themselves may be attractive drug targets. In addition, they mark a key molecular pathway that is composed of several other potential drug targets. Genomics and Drug Response. The efficacy and safety of existing and new drugs may be enhanced by pharmacogenomics. Pharmacogenomics is the application of genomics technology to the analysis and identification of genes involved in drug response. It is believed that genomics will permit the identification of the genetic differences that cause different people to respond differently to the same drugs. This may lead to tailor-made treatments for individuals, maximizing efficacy and minimizing side effects. DECODE'S UNIQUE APPROACH POPULATION GENOMICS AND THE VALUE OF THE ICELANDIC POPULATION We believe that our unique approach, coupled with the application of extensive bioinformatics to population genomics, has a number of distinct advantages because of the following characteristics of the Icelandic nation: Extensive Genealogy. Genealogy has been a national pastime in Iceland since the country was settled in the ninth century. Numerous sources of genealogical information, including parish records, census data and written manuscripts, are readily available. Relative Genetic Homogeneity. Common diseases in most countries have a large number of genetic causes. In an isolated population that is genetically simpler, the number of genetic causes is likely to be fewer than in more genetically diverse populations. Thus, studying a more homogeneous population, like the Icelanders, simplifies the problem of finding and subsequently understanding disease genes and mutations causing common diseases. The Icelandic population was founded by Norwegian and British settlers who arrived in Iceland in the ninth and tenth centuries. Because Iceland has experienced little immigration over the last eleven centuries, most of the 275,000 living Icelanders are descended from these original "founding" settlers. Our ability to trace the Icelandic population back approximately 1,100 years also facilitates gene discovery. Because many present-day Icelanders may share a particular disease gene with one of the founding settlers, they may also have such disease gene in common with other Icelanders. We can make use of this "founder" effect to facilitate the identification of disease genes. It has been demonstrated that the disease genes found in Iceland are, in general, also found in other populations. Even if the disease genes in Iceland are different from those found in other populations, the identification of any disease gene marks a key molecular pathway likely to be involved in the disease in other populations as well. Therefore, we believe the discovery of a disease gene in Iceland may enhance the identification of drug targets for any population. 36 38 Centralized Healthcare System. Iceland has had a centralized national healthcare system since 1915. It presently consists of a base of 55 primary care centers, two major hospitals in Reykjavik which are being merged, one central hospital in Akureyri, and several smaller ones. Outside the primary care centers, the healthcare system is highly specialized and patients with most of the major illnesses are cared for by specialty clinics. Our clinical collaborators work at these centers, as well as in the major hospitals. Well-educated Population. The level of public education is high in Iceland and illiteracy is negligible. Historically, the Icelandic population has been cooperative when approached by physicians and scientists working on biomedical research in the Icelandic community. DISCOVERY SERVICES The extensive genealogy database and associated bioinformatics that we have built in Iceland are the core of our novel genealogical approach to identifying human disease genes and associated drug targets. We believe that working with the Icelandic population puts us in a position to accelerate the discovery and development of new proprietary diagnostic and therapeutic products capable of addressing diseases at their root causes, rather than simply identifying and treating their symptoms. These programs may permit doctors to make earlier diagnoses, use healthcare resources more cost-effectively and select safer and more effective drugs for patients on the basis of their genetic make-up. The genealogical approach that we have developed depends on the genealogical database and bioinformatics tools that we have built. In the study of any particular disease, we first define the disease classification broadly but rigorously. (For example, we first labeled stroke patients as "stroke" rather than as a series of less common subtypes of stroke). After our clinical collaborators compile a list of all patients who have been diagnosed with the disease, the list is encrypted and run through our genealogy database which yields very large extended families of patients, sometimes containing hundreds of individuals. The genealogy naturally links together those patients who are likely to share a gene or genes for the disease. The patients are genotyped to determine which genes or pieces of chromosomes they have in common. The genealogical approach compensates for the inadequacies of "consensus criteria" for disease classification, which utilizes specific symptoms accepted by a consensus committee of physicians to determine who is "affected" by the disease, and increases the chance that the form of the disease studied is the one actually inherited. We believe that no other organization uses genealogy in this manner. Our unique approach to human genetics has allowed us to map genes in diseases in which many others have previously failed. By using this approach, deCODE expects to be able to assign function to the raw data contained in the human genome sequence. The following diagram describes our approach to gene discovery. A description of each step and a list of supporting tools and technologies used in each step follows the diagram. [GENETIC DISCOVERY] 37 39 Genetic Mapping We have developed an extensive computerized genealogy database that currently includes almost all 275,000 living Icelanders along with most of their ancestors for whom records exist. This represents most of the Icelanders who are known through records ever to have lived in Iceland. We believe that this is the most complete genealogy database of any nation. We have shown that the accuracy of maternal connections in the database is greater than 99.3%. Before we start a study looking for genes that cause or contribute to a particular disease, we obtain approvals from both the Bioethics Committee and the Data Protection Commission. All patients who participate in our research program by giving a blood sample sign an informed consent form approved by the Bioethics Committee. We have developed a sophisticated encryption system to protect the personal privacy of all participating volunteers. In our present disease-based research projects the first step of our genealogical approach is for our clinical collaborators to compile a list of patients who have been diagnosed with a particular disease in Iceland. After the Data Protection Commission has encrypted the patient list, it is sent to us and run through an encrypted version of our genealogy database. The genealogy database and associated data-mining tools that we have developed enable us to determine the relationships among all members of a large patient list and demonstrate information flow through the generations. Using DNA from patients and their relatives who grant us informed consent, we are able to generate high-resolution genotypes with our high-throughput genotyping facility using 1,000 microsatellite markers. A microsatellite marker is a segment of DNA containing variable short repeats that can be used to derive a genotype. Our high-throughput genotyping facility and bioinformatics systems substantially decrease the amount of labor involved in reading the genotypes. We have developed a statistical informatics program that is used to determine which portion of the genome is shared among most or all of the patients within a family. This technique can systematically screen every segment of the human genome for shared genotypes and can narrow the location of a disease gene or genes to a small fraction (1/1000) of the human genome. That segment marks the location of the disease gene that is mutated in the patients with the disease. We use stringent criteria to determine that we have successfully found a disease gene location before moving onto the next step of gene discovery. Physical Mapping, Fine-Mapping, and Sequencing Once the chromosomal region containing the disease gene has been narrowed to two to three million base pairs, a higher resolution map is developed. To accomplish this, we construct a physical map using large overlapping pieces of human DNA. We have developed an automated high-throughput physical mapping method which is based on sophisticated proprietary software developed at deCODE and uses robotics. By integrating a robust hybridization system (i.e., matching of a small piece of DNA to large segments of DNA), automated analysis of the hybridization data, and data-mining techniques, we construct low-resolution and high-resolution maps of the human genome spanning from 30 to 80 million bases. We use low-resolution and high-resolution physical maps to find new microsatellite markers and genetic variations known as single nucleotide-polymorphisms, or SNPs, and use them to create more precise sets of genotypes of the patients. SNP markers differ from microsatellite markers in several ways. SNPs represent a single base change in the genomic sequence and microsatellite markers represent short repeats of sequence. There is more information contained in microsatellite markers than SNPs (one microsatellite marker contains three to five times more information than a SNP) and so they are well-suited for our genetic studies using large families. Currently, the cost of genotyping microsatellite markers is much less than genotyping SNPs (especially given the relative information content). However, the SNPs are more numerous than microsatellite markers and therefore more useful for fine-mapping and association studies. Many patients may share several closely spaced genotypes which serve to narrow the region containing a disease gene. We believe that the relative genetic homogeneity and the age of the Icelandic population will enable us to reduce the size of the chromosomal region containing the disease gene to as few as 250,000 base pairs. We 38 40 believe that this segment would contain fewer than ten candidate genes, thus reducing the amount of time required to screen the genes for mutations. Once we have narrowed a region, we sequence this narrow region using automated DNA sequencers and then use our bioinformatics tools to identify new genes. The genes are screened in turn for mutations that occur in patients with the disease and rarely in those without. Typically, only one gene in this segment will be the disease gene, but we may find disease genes on other chromosomes that can be discovered in the same manner. We believe that our ability to go from gene mapping to disease gene identification will be further enhanced as the sequencing of the human genome is completed. Functional Genomics After we have succeeded in identifying a disease gene under our population genomics approach, we will define molecular pathways in which the disease gene plays a role. This is essential information both for understanding the biology of the disease and also for identifying additional specific drug targets that interact with the disease genes. We have established three complementary systems designed to isolate specific drug targets from "upstream," "downstream" and "proximal" pathways that may be involved in the disease process. We believe these three functional approaches will expand the number of potential drug targets that are associated with the specific disease genes identified using our population genomics approach. Our proximal analysis uses a high-throughput yeast two-hybrid screening system that can identify proteins that physically interact with the disease gene product. As very few proteins work alone in the body, these partner proteins are likely to be involved in the normal biology of the disease gene. We carry out the screening in yeast cells, using methods of increasing stringency intended to eliminate false positive protein-protein interactions. We have also developed protein-interaction assays that can be used for membrane proteins that may be difficult to analyze using two-hybrid technology. Complementing the two-hybrid system with our membrane protein interaction assays is essential since approximately 50% of known drug targets are membrane associated and may not have been found using the two-hybrid system alone. We are also able to crossmatch the genes identified as partners of the first disease gene with additional population genomics data since they might be mutated in the same disease. Potential drug targets from upstream pathways include proteins that control the expression level of the disease gene (i.e., those gene products that are responsible for turning the disease gene on or off in particular tissues or under particular conditions). We plan to link the control region of newly identified disease genes to a "reporter" gene and establish precisely which region governs expression. DNA from this region will be used to retrieve specific binding proteins that are responsible for turning the disease on. Finally, we plan to use gene expression analysis using Affymetrix GeneChip technology to validate our conclusions and to identify other genes which are regulated in tandem with the disease gene. Our downstream analysis is designed to uncover genes that are influenced by the overexpression, underexpression or misexpression of the disease gene. We have established efficient systems to turn a gene on or off in cells, as well as to express mutated versions revealed in the course of gene discovery. We employ DNA chip technology in our efforts to find genes whose expression patterns are altered by different scenarios of disease gene expression. Some of these genes may play a role together with the disease gene product in disrupting the normal biology and leading to disease. DATABASE SERVICES The main focus of our database services will be first on the development and then on the operation of the DCDP. Description of the DCDP We believe that the DCDP will represent the first opportunity in the world to cross-reference genetic, phenotypic and genealogic data on a large scale. It will provide a comprehensive opportunity to assign function to 39 41 genomic sequence. It will be designed to enable users to pose specific queries to it through a software program, or query layer, which will process the request. With these tools, users are expected to be able to query the various data sets cross-referenced by the DCDP. The users' interactions will be confined to the query layer; users will not have direct access to the data accessed by the DCDP. We believe that the DCDP will permit users to build more complete models of the interplay of genes, environment and disease than are currently available primarily as a result of the following: - the healthcare data contained in the IHD will include not only basic disease diagnosis but also details of laboratory results, treatments and outcomes; - the IHD will contain a population rather than the handpicked patient lists used in existing approaches; and - the IHD will contain medical information collected over time. There are three sources of data for the DCDP, which are as follows: Data from the Icelandic Healthcare System. Under the terms of the IHD license we will be able to process medical information, environmental exposure information and resource use information from the Icelandic healthcare system. The key data sources include: - hospitals and ambulatory services; - primary healthcare centers; - private specialty clinics; and - hospital and private laboratory results. A computerized network of medical records will be organized in each participating healthcare institution. Information processed in the IHD will take place in a manner designed to ensure that personal data remains non-personally identifiable. The type of healthcare data will include admission data, diagnostic work-up and results, diagnoses, treatment and operations for each patient visit, medical and social history, allergies, risk factor exposure, pharmaceutical treatment and outcomes. Genealogy Data. The DCDP will access the same genealogy data that we use in our current discovery services. Genotypic Data. We plan to derive genotypes of consenting Icelanders who give us blood samples in accordance with applicable regulations and consent to have their genotypic data stored and cross-referenced with the IHD. Our genealogy database is complete for our applications. We are in the early stages of development of the other two sources of data. The License On December 17, 1998, the Icelandic parliament passed the Act, allowing the Ministry to grant an operating license to create and run the IHD. On January 22, 2000, the IHD license was granted to Islensk erfethagreining ehf., our wholly-owned Icelandic subsidiary. The license, which has a term of twelve years, allows us to collect data from medical records of Icelandic healthcare institutions and self-employed health professionals, and to transfer such data in encrypted form into a centralized database containing non-personally identifiable information. It also permits us to cross-reference the IHD data with genealogical data and genotypic data obtained through consent. Pursuant to the terms of the IHD license and the Act, before we can begin collecting information and transferring it into the IHD, we must fulfill numerous conditions, such as paying fees and costs associated with the license and obtaining government approval of our privacy protection measures, and must enter into agreements with healthcare institutions and self-employed health professionals allowing us access to their medical records. Some medical professionals, including the board of directors of the Icelandic Medical 40 42 Association, or IMA, have opposed the proposals for the establishment of the IHD on ethical and privacy grounds. We do not believe that these views are representative of the Icelandic medical profession as a whole or that they will materially affect our ability to enter into such agreements. Once we have entered into the required agreements, an independent security expert must verify that our information systems and operating procedures comply with the data security requirements of the Icelandic Data Protection Commission before we can process the data we obtain from these healthcare providers. In addition to the scrutiny of the Data Protection Commission, our security system for the IHD will benefit from the advice and monitoring of deCODE's Security Advisory Board of internationally renowned experts in the fields of computer security, data and privacy protection and security of healthcare informatics. We expect this board of experts to meet periodically to review any security issues we may encounter in our operations and in the development and operation of the IHD and to provide us with technical advice for solving such issues and maintaining or exceeding international best industry-practice standards. We expect the Security Advisory Board to be appointed and operational by May 2000. HEALTHCARE INFORMATICS Physicians are routinely required to cross-reference specific details regarding their individual patients with their general knowledge of best medical practice in clinics and hospitals. One of the main challenges facing physicians today is how to deal with the vast and growing amount of medical knowledge. In addition, the number of medical tests ordered and drugs that patients take are leading to more information stored per patient. Some hospitals and clinics have begun to use information technology to help store patient records. However, the actual analysis and decision-making about diagnosis and treatment is still mostly carried out by the un-aided human mind of the physician combining general medical knowledge with specific patient data. While this approach has worked well in the past, it is an increasingly difficult task which sometimes leads to delays in diagnosis and medical mistakes. The complexity of physicians' decision-making may increase in the future if genetics is integrated with the delivery of healthcare in the form of predictive testing and treatments tailor-made to individual patients. deCODE believes that the "information load" on physicians will continue to grow as the genetic dimension of healthcare leads to risk prediction and a shift from generalized treatment guidelines to personalized care. This trend toward personalized healthcare presents the following three opportunities in healthcare informatics: - We will use what is learned from our discovery programs and the DCDP to provide MDSS necessary to deliver and interpret this increased volume of data to a variety of end-users. - We will use our experience in privacy protection in the DCDP to meet the increased need for privacy solutions that will accompany the increased volume of personally sensitive healthcare information. - We will use our expertise in the gene and drug target discovery unit to develop and market bioinformatics tools. We also plan to pursue market opportunities for other software tools that we have developed during the design and construction of the IHD and DCDP and in our disease gene discovery efforts, including GeneMiner, DecodeGT and a comprehensive sample database. OUR STRATEGY deCODE's strategy is to use its population-based approach to transform genomic and healthcare data into products and services for the healthcare sector. The key elements of our strategy are as follows: Gene and Drug Target Discovery. deCODE plans to pursue gene and drug target discovery and the characterization of genes that contribute to the causes of common diseases. In addition, we will use studies of gene expression and protein-protein interaction systems to define molecular pathways, which may contain drug targets. We will focus on diseases that have the potential to result in the discovery of new proteins and drug candidates. We will also seek to identify disease genes for the purpose of developing diagnostic products. 41 43 Database Subscription and Consulting Services. deCODE expects to build and operate the DCDP, which is intended to process and cross-reference non-personally identifiable healthcare information on the Icelandic population (in the IHD) with genealogy data and genetic data obtained through consent. In addition, we are developing new mathematical algorithms to extract further knowledge from the DCDP. Services we plan to offer to future subscribers of the DCDP will include principally gene discovery and drug target validation, pharmacogenomics, disease management and health management. Subscribers are expected to include pharmaceutical companies, healthcare organizations, national health services and government agencies that will pay subscription fees and, in some cases, a share of product revenues they generate as a result of using the database. Pharmacogenomics Partnerships. In collaboration with pharmaceutical companies, we intend to apply pharmacogenomics to understand differences in drug response among individuals. We believe that genomics will permit the identification of the genetic differences that cause different people to respond differently to the same drugs and that, as a result, it will be possible to individualize the selection of drugs for patients. We believe that the integration of medical treatment and outcome information with genetic information will give us an advantage in the generation of pharmacogenomics information. We expect to generate revenues from these partnerships through fixed research funding and milestone and royalty payments. Sale and Marketing of Healthcare Informatics Products. We plan to exploit market opportunities for software tools that we develop during the design and construction of the IHD and DCDP and in our disease gene discovery efforts. The software tools that we have already developed include GeneMiner, DecodeGT, an encryption system, and a comprehensive sample database. We expect to offer healthcare informatics services, such as MDSS and privacy solutions. The decision-support tools would, for example, be useful in areas such as medical record keeping and its standardization and in medical decision making. deCODE may provide specialized services to customers such as governmental agencies and medical institutions which will enable them to collect and process information in a standardized form. We intend to capitalize on our experience in the protection of privacy of medical and genetic data to market systems for the protection of privacy in healthcare. The customers for these services could include industry, public institutions and governments. Formation of Collaborations. We intend to seek corporate collaborations or joint ventures with pharmaceutical and biotechnology companies to provide research alliances, product development and commercialization for our gene and drug target discovery programs. We expect to generate revenues from these collaborations through research funding and milestone and royalty payments. We also plan to seek collaborators for the development and marketing of our database and healthcare informatics products and services. PRODUCTS AND SERVICES Our current services and those under development can be classified into three categories, all of which are based on analyzing data from the Icelandic population using our proprietary bioinformatics tools: discovery services; database services; and healthcare informatics. DISCOVERY SERVICES Current Discovery Programs We have started gene discovery programs associated with 27 common diseases, 12 of which are collaborative programs with Roche. The inheritance patterns of many common diseases are complex, indicating that the diseases are probably caused by mutations in one or more genes and/or through interactions between genes and environment. We believe that these diseases represent large market opportunities for therapeutic and diagnostic products because: - their causes are not fully understood; - current treatments are of limited effectiveness; - there are currently no approaches to tailor treatment to cause; and - large numbers of individuals are affected by these diseases. 42 44 The identification of disease genes is expected to provide insights into the causes of common diseases and to help the development of highly-specific diagnostic and therapeutic products, including small molecule products, recombinant proteins, gene therapy and antisense therapy. The following table sets forth the current status of our gene discovery programs.
PROGRESS STATUS ----------------------------------------------------------- ONE OR MORE DISEASE DISEASE ANALYZING LOCUS CANDIDATE GENES GENE CATEGORY DNA IDENTIFIED(2) IDENTIFIED(3) VALIDATION(4) - -------- --------- ------------- --------------- ------------- AUTOIMMUNE DISEASES Atopy/Allergy.......................................... X Inflammatory bowel disease............................. X Insulin dependent diabetes............................. X Psoriasis.............................................. X X X Rheumatoid arthritis................................... X CANCER Lung cancer............................................ X Melanoma............................................... X Prostate cancer........................................ X CARDIOPULMONARY DISEASES Asthma................................................. X Chronic obstructive pulmonary disease(1)............... X Hypertension(1)........................................ X Myocardial infarction(1)............................... X Peripheral arterial occlusive disease(1)............... X Cerebrovascular disease (stroke)(1).................... X X X CENTRAL NERVOUS SYSTEM DISEASES Alzheimer's disease(1)................................. X X X Anxiety disorder(1).................................... X Bipolar disease/depression(1).......................... X Familial essential tremor.............................. X X Multiple sclerosis..................................... X X X Narcolepsy............................................. X (5) X Parkinson's disease.................................... X Schizophrenia(1)....................................... X X X EYE DISEASES Macular degeneration................................... X FEMALE HEALTH Endometriosis.......................................... X METABOLIC DISEASE & OTHER Non-insulin dependent diabetes(1)...................... X Osteoporosis(1)........................................ X Osteoarthritis(1)...................................... X X X
- --------------- (1) Gene discovery programs in collaboration with Roche. (2) Locus describes a specific region in the human genome that has been linked to a genetic trait or disease and that meets stringent criteria of statistical significance. (3) Candidate gene describes a particular gene that is suspected to cause or contribute to a genetic trait or disease on the basis of its location within a locus meeting stringent statistical criteria. (4) Disease gene validation means identification of mutations in the candidate gene in Iceland and other populations of patients. (5) Loci identified by third party. 43 45 The following is a description of the diseases in which our programs are most advanced. Autoimmune Diseases. We are currently studying several autoimmune diseases such as inflammatory bowel disease (Crohn's and ulcerative colitis), psoriasis, atopy and rheumatoid arthritis. All four are in large genome-wide linkage scans, and we have found the location of a novel psoriasis gene. - Psoriasis. Psoriasis is a chronic inflammatory disease that leads to disfiguring skin lesions and arthritis. We have completed a genome-wide linkage scan of Icelandic familial material and have confirmed linkage and association to a region of the genome that regulates immune response known as the MHC. Our genome-wide scan also identified a novel region of the genome that interacts with the MHC to cause psoriasis. Our second location represents the second gene mapped outside the MHC that fulfills the criteria for genome-wide significance. We are in the process of fine-mapping both gene locations. Cardiopulmonary Diseases. We are studying a variety of common diseases such as asthma, chronic obstructive pulmonary disease, myocardial infarction, peripheral vascular disease and stroke. We have already achieved a milestone with Roche for finding the location of a gene associated with stroke. - Cerebrovascular disease (Stroke). Stroke represents diseases that directly or indirectly affect the blood vessels in the brain and cause central nervous system damage from either blockage of cerebral blood flow or rupture of an intracranial artery. It is the third leading cause of death. We have formed a research alliance with local physicians who care for a majority of the stroke patients diagnosed in Iceland. We have collected almost 2,000 DNA samples from informative families and genotyped most of them. Using our genealogical approach, we have mapped the location of one stroke gene that meets the criteria for genome-wide significance. This represents the first gene ever mapped for the common forms of stroke. Central Nervous System Diseases. We are studying the genetic basis for psychiatric and central nervous system diseases. We have achieved two milestones in our collaboration with Roche by mapping the location of genes contributing to the following diseases. - Alzheimer's Disease. Alzheimer's disease is the most common cause of dementia. We have carried out a genome-wide scan that included 1,200 Icelanders. We have mapped late onset Alzheimer's disease to a novel chromosome location. We are currently fine-mapping the gene location. - Schizophrenia. Schizophrenia is a debilitating psychiatric disorder. No group has ever reported the isolation of a schizophrenia gene. We and our clinical collaborators have collected a significant number of DNA samples from the largest families in Iceland. We have carried out a genome-wide scan, and we are currently fine-mapping and sequencing one small region of the genome. We have also identified three candidate disease genes. Metabolic and Other Diseases. We are studying the genetic basis for osteoarthritis, non-insulin-dependent diabetes, osteoporosis and endometriosis. We have achieved a research milestone in our collaboration with Roche for mapping a gene associated with osteoarthritis. - Osteoarthritis. Osteoarthritis is a degenerative disease of the joints. There are currently no known genes causing the common forms of osteoarthritis. We have mapped three genes linked to osteoarthritis. We are currently fine-mapping and sequencing these regions to search for the disease genes themselves. Collaborations Our strategy for pursuing business opportunities is to establish alliances with pharmaceutical companies, biotechnology firms and other healthcare institutions to perform research into the genetic basis of a given disease or group of diseases. Depending on the nature of each prospective business opportunity, we may conduct the research in return for one or more of the following: up-front equity investments; direct payments for research funding; payments upon the achievement of scientific milestones; shared or exclusive rights to diagnostics and therapeutics; and royalties on products marketed by our collaborators. In some instances, we may negotiate for access to our collaborators technologies, including libraries of chemical compounds, to enhance our operations outside of the collaboration. 44 46 Hoffmann-La Roche. In February 1998, we entered into a research collaboration and cross-license agreement with Roche to collaborate on the discovery of genetic variations which affect the cause of diseases for the purpose of developing new methods to diagnose diseases and obtain drug targets useful in drug discovery. The agreement provides for a steering committee, the membership of which is equally divided between the parties, to oversee the collaborative research programs. Under the terms of the agreement, Roche is funding the collaborative gene discovery programs in twelve diseases, including four cardiovascular diseases, four psychiatric/neurologic diseases and four metabolic diseases, by making specified payments according to a payment schedule. Roche's obligation under the agreement to fund these programs will continue until February 1, 2003 provided that Roche elects to extend the research term of the agreement for the one-year periods commencing on the third and fourth anniversaries of the agreement. In addition to research funding payments, we are entitled to receive payments from Roche upon the achievement of specified scientific development and marketing milestones. We have reached four milestones in this collaboration. The agreement gives Roche exclusive worldwide rights to develop and commercialize therapeutic and diagnostic products based on gene discoveries. Roche is required to pay us royalties on sales of any such products. We retained the exclusive, worldwide rights to develop and commercialize gene therapy and antisense products based on our gene discoveries and will be required to pay Roche royalties on sales of any such products. In connection with the agreement, Roche Finance Ltd, or Roche Finance, an affiliate of Roche, has purchased shares of our Series C preferred stock and has an option to purchase additional shares at any time prior to the end of February 2001. Roche Finance has also purchased warrants to buy shares of our Series C preferred stock and will be entitled to purchase additional warrants if it exercises its option to acquire additional shares of Series C preferred stock. These will become warrants to purchase an equivalent amount of common stock upon the completion of this offering. Pursuant to an agreement, we license our GeneMiner bioinformatic software product to Roche. In addition to the research collaboration with Roche, we have entered into the following collaborations: Affymetrix Inc. In November 1998, we entered into a DNA array internal use license agreement. Under the non-exclusive agreement, Affymetrix has licensed its DNA array technology to us for use in our gene expression experiments and for purposes of exploring the technology's genotyping capabilities. Access to Affymetrix's technology, coupled with our unique population based approach, now provides us with a powerful solution for performing and analyzing array-based gene expression experiments. The use of this technology is consistent with our objectives to augment our existing technology portfolio to include alternative gene discovery and gene functionality tools. It will also help us to explore the options of array-based genotyping approaches using SNPs. License from The Beth Israel Deaconess Medical Center. We have obtained an exclusive license from The Beth Israel Deaconess Medical Center, or Beth Israel, in Boston, Massachusetts to develop and commercialize therapeutic and diagnostic products anywhere in the world based on Beth Israel's interest in patents and know-how relating to the linkage between a particular segment of DNA and multiple sclerosis. Under the terms of the agreement, we are obligated to pay license fees and other payments upon the achievement of specified milestones. We are also obligated to pay royalties to Beth Israel on the sales of products that may result from the licensed technology. Hospital and Physician Collaborations. We have entered into collaboration agreements and arrangements with the three largest hospitals in Iceland, the Icelandic Heart Association and with several physician groups pursuant to which the hospitals and physicians will help to construct lists of patients with specific diseases and provide expertise and clinical and research data related to our research projects. Under these arrangements, we will reimburse expenses. In addition if we sell the results of a project to a third party, we will make specified upfront payments and will pay a portion of any performance-based milestones and royalties we receive from these third parties. Payments generally go into specially designated funds for further research. Pharmacogenomics Through its access to relevant data (e.g., through the cross-referencing of genetic and phenotypic information), deCODE plans to offer pharmacogenomic services to pharmaceutical and biotechnology 45 47 companies. In this way, we believe that we will be able to assist pharmaceutical companies in tailoring drugs to specific parts of the patient population. Tailor-made drugs will better ensure both effectiveness and safety. In addition, it is expected that genetic information may lead to faster and more successful clinical trials, which may result in cost savings. Pharmacogenomics may also enable pharmaceutical companies to explore the use of older chemical compounds which have been abandoned. Because the development cost of these compounds has already been incurred, the additional cost to bring these products to market may be reduced. Internal Programs We also plan to work on some diseases without partnering with pharmaceutical companies, and we are currently pursuing a number of disease projects independent of research sponsorships. In the event we complete any independent projects, we intend to pursue the commercial development of our gene and drug target discovery through the development and marketing of therapeutics and diagnostic products. We may do this by using our own resources to turn discoveries from our internal projects into therapeutic or diagnostic products and developing our own marketing capabilities, by licensing our discoveries to others who would be required to pay us royalties on sales of any products they develop using the results of our gene discovery programs or by entering into collaborative arrangements for the development and marketing of products from these programs. DATABASE SERVICES The DCDP is intended to allow users to ask questions about relationships between genetic and environmental data and disease. We believe the DCDP should increase the utility of human genome sequence data by providing a medical and environmental context, which should facilitate the development of new products and services for healthcare. Products Gene Discovery and Drug Target Validation. We expect the DCDP to be used in gene discovery programs and drug target validation by pharmaceutical and biotechnology companies as a way of confirming their own provisional findings or providing an impetus for further research. We expect that the DCDP will be used to search the human genome for gene mutations that are linked to the occurrence of a particular disease. Pharmacogenomics. We expect the DCDP to improve understanding of how drug response can vary across a population due to underlying genetic differences. For example, a customer might search for a region of the genome that appears to be shared by patients with similar drug responses. Pharmacogenomic analysis with the DCDP is therefore an opportunity for pharmaceutical companies to market products which more closely meet the needs of a diverse market. Disease Management. The DCDP is uniquely positioned to provide new insights and help design disease management programs. By carefully analyzing clinical data and correlating such data with genetic factors, healthcare providers may develop programs that cover the lifespan of the disease, from preventive actions to determining the most appropriate treatments for each individual. For a healthcare provider, which is constantly making the cost/quality tradeoff, this is a unique way to design programs which optimize both cost and quality. Health Economics. We believe that a major trend in healthcare is the shift from managing disease towards maintaining individual health. Providers are under pressure to stop focusing on therapeutic areas in isolation and to begin considering an individual's risk of disease in general. In order to do this, providers will need to understand inter-relationships between different therapeutic areas and health indicators so that they can analyze the costs and benefits of various treatments or behavioral modifications. We believe that the DCDP will naturally lend itself to this kind of analysis by processing data across the major therapeutic areas as well as information on well-being and lifestyle. For example, a customer may use the DCDP to analyze a particular preventive measure known to reduce the risk of a target disease to see if that measure may increase the patient's risk of developing other diseases. 46 48 Customers We believe that the potential customer base for the DCDP consists of members of the healthcare industry, including: - Pharmaceutical and Biotechnology Companies. The DCDP may be used by pharmaceutical and biotechnology companies in their gene discovery and pharmacogenomics programs. - Health Organizations. Healthcare providers, including health maintenance organizations, managed care groups and hospital groups may use the DCDP to help them determine the most appropriate method of care for patients. - National Health Services and Government Agencies. National health services and government agencies may use the database to save money by determining the most effective allocation of resources. We anticipate that our customers will pay for access to the database by means of a fixed subscription plus, in the case of pharmaceutical and biotechnology companies, a share of any product revenues they generate as a result of using the database. Collaborations During our development of the DCDP, we intend to establish alliances with partners who can contribute to the creation of the DCDP and IHD and complement our efforts. Potential areas of collaboration include access to comparable data from populations outside Iceland, assistance from potential users with the design of products and technical expertise from vendors or consultants. We anticipate that any partner would contribute to funding of the development of the DCDP. HEALTHCARE INFORMATICS We have identified three product opportunities in healthcare informatics to leverage capabilities derived from our gene discovery and database operations. Products Bioinformatics. To aid in our gene and drug target discovery work, we have developed numerous proprietary bioinformatics tools for genealogy analysis, project management, gene mapping, physical mapping, and gene identification which we hope to commercialize as independent products. A description of these tools is illustrated below:
TYPE DESCRIPTION - ---- ----------- Genealogy tools: - Clustering algorithms are used to compare lists of patients with the genealogy database to determine relevant patient relationships. - Special datamining algorithms are used to determine the genetic component of traits. Project management tools: - Our sample manager is used to track blood and DNA samples that have arrived in the laboratory, throughout the discovery process. - Our project manager is used to keep track of all patient blood samples, DNA samples, pedigrees, and medical information in research projects. Genotyping tools: - Our genotype viewer automates the fractionation of data according to quality, decreasing the amount of labor. - The marker manager manages large genetic marker sets collated in the laboratory and is used to view and define maps for statistical analysis. - Our genotype manager manages the imports and exports of the genotypes for a given set of patients and markers.
47 49
TYPE DESCRIPTION - ---- ----------- - The Observer is a quality control tool for genotyping and sequencing facilities. Statistical tools: - The Allegro linkage analysis program has computational power which is one to two orders of magnitude more efficient than previously developed statistical analysis programs known in the public domain. Physical mapping tools: - Our software automates the process of reading physical mapping hybridization data through image analysis and uses data-mining tools that combine multiple data sources. Gene discovery tools: - GeneMiner is used to discover new genes through the use of sequence information alone; it analyzes up to a million base pairs of sequence; its graphical interface allows user annotation; and it permits integration of third party information (exon and gene predictors, sequence comparison programs, mouse and human homology comparisons and repeat similarity)
Privacy Protection. deCODE has developed expertise in encryption mechanisms and security management to fulfill the Icelandic Data Protection Commission's requirements. For example, our encryption tools provide for privacy of blood samples that enter our laboratory. We believe that the opportunity to commercialize this expertise will grow as the healthcare industry seeks to take advantage of the benefits offered by information technology to manage complex healthcare data while maintaining patient confidentiality. Medical Decision-Support Software. In deciding how to treat patients, physicians are routinely required to make the appropriate link between the specific details regarding patients and their general knowledge of best medical practice. One of the main challenges facing physicians today is how to deal with the vast and growing amount of information about best medical practice and the specific circumstances of their patients. Medical decision-support software provide computer-based assistance to physicians in assimilating and using available information. deCODE expects to offer products which will include ways of combining medical knowledge with patient information such as symptoms and test results to assist physicians in determining diagnosis and treatment while addressing patients' concerns about the confidentiality of their personal medical data. Customers Bioinformatics. We believe that the customers for our bioinformatics tools will mainly consist of pharmaceutical and biotechnology companies. However, we also expect to attract customers in other areas of the healthcare industry. These customers will use our tools to aid in their gene and drug target discovery programs. Privacy Products. We believe that privacy products can potentially be sold to any company handling sensitive data about individual persons, whether or not the data are healthcare-related. However, pharmaceutical companies, healthcare providers and payors with substantial quantities of individual data protected by privacy restrictions will serve as our primary target. One such opportunity is to develop a secure Internet environment for government agencies collecting nation-wide patient data from mobile field staff. Other opportunities relate to developing and supporting medical decision-support services and enabling secure remote access by patients, physicians and other users or to a distributed network. Medical Decision-Support Software. Products and services in the field of decision support have a broad potential customer base in the healthcare industry. deCODE's initial focus will be on healthcare providers, government agencies, physicians and HMOs, all of whom use support tools that capture and analyze patient data to assist them in healthcare decision-making. RESEARCH AND DEVELOPMENT EXPENSES Our research and development expenses were $31,823,950 in 1999, $19,282,364 in 1998 and $6,080,096 in 1997. Of these amounts, we estimate that $21,003,807 in 1999, $12,726,360 in 1998 and $0 in 1997 were customer sponsored research activities. 48 50 PATENTS AND PROPRIETARY RIGHTS We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. Accordingly, patents and other proprietary rights protections are an essential element of our business. We currently rely on patents, trade secret law and contractual non-disclosure and confidentiality arrangements to protect our proprietary information. We intend to seek patent protection in the United States and other jurisdictions to protect technology, inventions and improvements to inventions that are commercially important to the development of our business, including genes we discover, mutations of genes and related processes and inventions, technologies which may be used to discover and characterize genes, and therapeutic and diagnostic processes and other inventions based on these genes. We have no issued patents but have filed eleven patent applications in the United States. We also intend to seek patent protection or rely upon trade secret rights to protect other technologies that may be used to develop databases and healthcare informatics products and services. COMPETITION We face, and will continue to face, intense competition in our gene discovery programs from organizations such as major pharmaceutical companies, specialized biotechnology firms, universities and other research institutions, the Human Genome Project and other government-sponsored entities. A number of entities are attempting to rapidly identify and patent genes responsible for causing diseases or an increased susceptibility to diseases and to develop products based on these discoveries. Competition is also intense in the healthcare informatics and database areas. Many companies are focusing on medical record systems and cost-oriented patient databases as well databases containing genomics information. Many of our competitors, either alone or together with their collaborative partners, have substantially greater financial resources and larger research and development staffs than we do. These competitors may discover, characterize or develop important genes, drug targets or drug leads before we or our collaborators do or may obtain regulatory approvals of their drugs more rapidly than we or our collaborators do. They may develop healthcare informatics and database products before we do or which are technically superior to ours or prove to be more useful to our potential customers. Developments by others may render pharmaceutical product candidates or technologies developed by us or our collaborators obsolete or non-competitive. Any product candidate that we or our collaborators successfully develop may compete with existing therapies that have long histories of safe and effective use. Our competitors may obtain patent protection or other intellectual property rights that could limit our rights, or our customers' ability, to use our technologies, healthcare informatics products or databases, or commercialize therapeutic or diagnostics products. In addition, we face, and will continue to face, intense competition from other companies for collaborative arrangements with pharmaceutical and biotechnology companies, for establishing relationships with academic and research institutions and for licenses to proprietary technology. Our ability to compete successfully will depend, in part, on our ability, and that of our collaborators, to: - develop proprietary products; - develop and maintain products that reach the market first, and are technologically superior to and more cost effective than other products on the market; - obtain patent or other proprietary protection for our products and technologies; - attract and retain scientific and product development personnel; - obtain required regulatory approvals; and - manufacture, market and sell products that we develop. 49 51 GOVERNMENT REGULATION Regulation by governmental authorities will be a significant factor in our ongoing research and development activities and in our proposed business relating to the DCDP. In addition, the development, production and marketing of any pharmaceutical products which we or a partner may develop is subject to regulation by governmental authorities. THE IHD LICENSE The DCDP and the IHD are subject to applicable Icelandic law. The IHD will be developed and operated pursuant to an operating license from the Ministry and will be subject to the Act, the regulations promulgated under the Act, the license and an agreement between the licensee and the Ministry, all of which impose numerous requirements on our activities. As required by the license, concurrently with the issuance of the license, we, through our Icelandic subsidiary, entered into an agreement with the Ministry. This agreement provides that we must pay the Icelandic government a fixed annual fee of 70 million Icelandic kronas (approximately $1,000,000) and an additional annual fee of 6% of its net profit, up to a maximum of 70 million Icelandic kronas per year (approximately $1,000,000). The agreement also provides that our rights to the IHD will be transferred to the Ministry on the expiration or termination of the license. The license and the agreement under which we received the license also require us to: - pay the costs incurred by the health institutions (including the costs of medical record software) in connection with the entering of data from medical records before transfer to the IHD; - financially segregate the operation of the IHD from our other activities by maintaining a separate operating unit and separate accounts for IHD operations; - pay the costs of the governmental agencies which monitor our IHD activities; - indemnify and agree not to sue the Icelandic government for any liability resulting from the passage of the legislation on the IHD and its operation and/or the issuance of the IHD; and - observe international bioethics rules. The license prohibits us from, among other things: - abusing our position by charging unreasonable fees, refusing business to our competitors or discriminating among customers by imposing discriminatory or other onerous business terms on our customers; or - assigning or pledging our rights in the license. The Act places a number of duties on us, as the IHD licensee, and imposes a number of conditions on the IHD license. Under the Act, we are prohibited from allowing direct access to the IHD and must keep the IHD and processing of the database in Iceland. Our employees and contractors must sign an irrevocable confidentiality oath prior to commencing employment or performing services on our behalf. At the expiration of the IHD license, we are required to ensure that the Ministry or a party entrusted by the Ministry will receive, without payment of consideration, intellectual property rights necessary for the creation and operation of the database for public health purposes and for scientific research. The IHD license may be revoked if we or our employees violate the terms of the Act, if the conditions of the license are not fulfilled, or if we become unable to operate the IHD. If we or our employees or any person assigned to process data violate the provisions of the Act or applicable regulations with regard to confidentiality, we will be required to compensate any persons to whom the data relate for financial loss which the violation causes. If results obtained from cross-referencing data in the DCDP prove to be personally identifiable, the Data Protection Commission may, among other actions, order the destruction of such results in their entirety or in part or revoke its approval of the procedures and work processes applied by us to ensure privacy of the IHD data. 50 52 The IHD license will be reviewed by the Ministry no later than October 1, 2008. During the course of the review, we and the Ministry will enter into discussions for the renewal of the license after its expiration in 2012 provided that deCODE continues to meet the requirements of all applicable laws and regulations. The Ministry may also review the IHD license from time to time following our request, on its own initiative or if the IHD license contravenes any applicable laws or regulations. Our creation and operation of the IHD and the DCDP will involve oversight by the Ministry, with the assistance of an IHD Monitoring Committee, an Interdisciplinary Ethics Committee, the Bioethics Committee of Iceland and the Data Protection Commission of Iceland. These bodies will help to ensure our compliance with applicable laws and regulations. The Monitoring Committee consists of three members who are appointed by the Minister of Health and Social Security. The Monitoring Committee will ensure that the licensee complies with the Act and applicable regulations by monitoring negotiations and agreements for the transfer of data and reporting any events of noncompliance with the Act to the Ministry. The Monitoring Committee is charged with protecting the interests of the public health authorities, health institutions, self-employed health service workers and scientists in the process of making agreements between us and those parties. The Interdisciplinary Ethics Committee will review query types and monitor research projects for compliance with internationally accepted ethical standards for scientific research involving human beings. Members of the Interdisciplinary Ethics Committee are appointed by the Ministry and may halt any query or research project deemed by the committee to violate such standards. The Bioethics Committee of Iceland is a standing committee appointed by the Ministry that oversees scientific research relating to human beings in Iceland. It has no direct supervisory function over our IHD license but will provide ethical advice to the Monitoring Committee based upon quarterly reports containing lists of queries and patient data submitted to the IHD. Members of the Data Protection Commission, which is a standing committee responsible for overseeing rights of privacy and data protection in Iceland, are appointed by the Minister of Justice and include health, legal and computer specialists. The Data Protection Commission establishes the technology, security and organizational terms with which we must comply in the development of the IHD pursuant to the IHD license. The Data Protection Commission may periodically review such terms in light of new technologies, experience or change of circumstances, and we will be required to comply with the revised data protection terms within the deadline established by the Data Protection Commission. The Data Protection Commission will monitor the security of the collection, use and access to patients' information and may intervene to prevent breaches of such security. The Data Protection Commission will ensure that we comply with the privacy laws applicable in Iceland and will administer the access limitations to data and encryption methodology used for the IHD. PHARMACEUTICAL PRODUCTS Our success will depend, in part, on the development and marketing of products based on our research and development. Our ability and our partners' ability to successfully manufacture and market therapeutic or diagnostic products will be subject to strict regulatory controls on the clinical testing, manufacture, labelling, supply and marketing of the products. Most countries require a company to obtain and maintain regulatory approval for a product from the relevant regulatory authority to enable the product to be marketed. Obtaining regulatory approval and complying with appropriate statutes and regulations is time-consuming and requires the expenditure of substantial resources. Most European countries and the United States have very high standards of technical appraisal and consequently, in most cases, a lengthy approval process for pharmaceutical products. The regulatory approval processes, which usually include pre-clinical and clinical studies, as well as post-marketing surveillance to establish a compound's safety and efficacy, can take many years and require the expenditure of substantial resources. Data obtained from such studies is susceptible to varying interpretations that could delay, limit or prevent regulatory approval. Delays or rejections may also be encountered based upon changes in drug approval 51 53 policies in applicable jurisdictions. There can be no assurance that we or our collaborative customers will obtain regulatory approval for any drugs or diagnostic products developed as the result of our gene discovery programs. Because many of the products which may result from our research and development programs are likely to involve the application of new technologies, such products may be subject to substantial additional review by various governmental regulatory authorities. As a result, regulatory approvals may require more time than for products using more conventional technologies. In addition, ethical concerns about the use of genetic predisposition testing, and in particular about the risk that such testing could lead to discrimination by insurance providers or employers, may lead to poor market acceptance or to regulatory controls that would adversely affect the development of or demand for diagnostic products based on our research. ENVIRONMENTAL Our research facilities and laboratory are located in Reykjavik, Iceland. We operate under applicable Icelandic and European Union laws and standards, with which we believe that we comply, relating to environmental, hazardous materials and other safety matters. Our research and manufacturing activities involve the generation, use and disposal of hazardous materials and wastes, including various chemicals and radioactive compounds. These activities are subject to standards prescribed by Iceland and the EU. EMPLOYEES As of December 31, 1999, we had approximately 310 employees, of whom approximately 295 were employed full-time, 47 held Ph.D. or M.D. degrees and approximately 171 held college degrees. 267 employees were engaged in, or directly supported, research and development activities, of whom 185 worked within the laboratory facilities and 50 held positions associated with the development of informatics. 38 employees were engaged in business development, finance, administration and facilities management. In addition, we utilized part-time employees and outside contractors and consultants as needed and plan to continue to do so. We anticipate hiring approximately 100 software developers in 2000-2001. We have entered into individual employment contracts with our employees in accordance with standard Icelandic hiring practices. We believe that the relationship with our employees is good. Furthermore, to help protect our proprietary know-how and data, each employee must agree not to disclose any trade secret or confidential information without our prior consent. Employees also assign to us all patent rights and technical information which they develop during employment. FACILITIES Our headquarters are located at Lynghals 1, Reykjavik, Iceland, a business district. This three-story building, which we lease pursuant to a sale/leaseback arrangement, has 3,300 square meters, or approximately 30,000 square feet, of floor space including our laboratory space, executive offices, support and administrative space. The lease expires in 2008, at which time the property will be transferred to us, provided we have complied fully with the lease. We may also build a 1,500 square meter, or approximately 13,500 square foot, facility on adjacent land. In addition, we maintain a facility for approximately 15 genealogists located in Thornverholt 14, Reykjavik and we lease 533 square meters, or approximately 5,000 square feet, of additional office space for our database department at Hlietharsmari 19, Kopavogur, Iceland. We have also entered into a lease for a 1,923 square meter, or approximately 19,000 square foot, facility located at Hlietharsmari 15, Kopavogur, Iceland to conduct database and informatics activities. On February 14, 2000, we entered into an agreement with the City of Reykjavik and the University of Iceland pursuant to which, subject to municipal approval, we will be entitled to enter into a lease and construct a 10,000 square meter, or approximately 108,000 square foot, facility to replace our current headquarters facility. If such approval is granted, we expect to complete the project within the next two years. 52 54 LEGAL PROCEEDINGS We are not a party to any material legal proceedings except for an action commenced on January 13, 2000 in the District Court of Reykjavik in Iceland by Thornorsteinn Jonsson and Genealogia Islandorum hf., the holders of copyrights to approximately 100 books of genealogical information. They allege that our genealogy database infringes their copyrights and seek damages in the amount of approximately $9,000,000 and a declaratory judgment to prevent us from using the allegedly infringing data. We believe the suit is without merit and intend to defend this action vigorously. In January and February 2000, two individuals advised deCODE that they believe they are entitled to shares of deCODE's common stock. deCODE believes these assertions are without merit and intends to defend any actions which these parties may commence. 53 55 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS Our executive officers and directors as of the date of this prospectus are as follows:
NAME AGE POSITION - ---- --- -------- Kari Stefansson(2)................... 50 Chairman of the Board of Directors, President, Chief Executive Officer and Secretary Hannes Smarason...................... 32 Executive Vice President and Senior Business and Finance Officer Axel Nielsen......................... 34 Vice President, Finance and Treasurer Jeffrey Gulcher...................... 40 Vice President, Research and Development Kristjan Erlendsson.................. 50 Vice President, Clinical Collaborations Hakon Guethbjartsson................. 34 Vice President, Informatics Sigurethur Bjornsson................. 36 Vice President, Medical Informatics Jean-Francois Formela(1)............. 43 Director Andre Lamotte........................ 51 Director Terrance McGuire(1)(2)(3)............ 43 Director and Assistant Secretary Guy Nohra(1)(3)...................... 39 Director Sir John Vane........................ 72 Director
- --------------- (1) Member of Audit Committee. (2) Member of Nominating Committee. (3) Member of Compensation Committee. Following are brief descriptions of our current executive officers and directors: Kari Stefansson, M.D., Dr. Med. has served as our President, Chief Executive Officer, Secretary and a Director since he co-founded deCODE in August 1996. Dr. Stefansson was appointed to serve as the Chairman of our Board of Directors in December 1999. From 1993 until April 1997, Dr. Stefansson was a professor of Neurology, Neuropathology and Neuroscience at Harvard University. In addition, from 1993 through December 1996 he was Director of Neuropathology at Beth Israel Hospital in Boston, Massachusetts. From 1983 to 1993, he held faculty positions in Neurology, Neuropathology and Neurosciences at the University of Chicago. Dr. Stefansson received his M.D. and Dr. Med. from the University of Iceland in 1976 and 1986, respectively. Hannes Smarason has served as our Executive Vice President and Senior Business and Finance Officer since March 2000. From March 1999 to March 2000, he served as our Senior Vice President, Chief Business Officer and Treasurer and from January 1997 to March 1999, he served as our Chief Financial Officer and Vice President of Business Development. Before joining us, he worked with McKinsey & Co. in Boston from 1992 through December 1996 as a consultant. Mr. Smarason received his B.S. in Mechanical Engineering and Management from the Massachusetts Institute of Technology and his M.B.A. from the Massachusetts Institute of Technology Sloan School of Management. Axel Nielsen has served as our Vice President, Finance and Treasurer since March 2000. From March 1999 to March 2000, he served as our Chief Financial Officer and from June 1998 to March 1999, he served as our controller. Mr. Nielsen was employed by Icelandair as the Director of Strategic Affairs from July 1997 to June 1998. From August 1995 to June 1997 he worked with McKinsey & Co. in London as a consultant. Mr. Nielsen received a B.Sc. in Computer Science from the University of Iceland in 1989, a Cand. Oecon. in Business and Finance from the University of Iceland in 1991, and an M.B.A. from the Massachusetts Institute of Technology Sloan School of Management in 1995. Jeffrey Gulcher, M.D., Ph.D. has served as our Vice President, Research and Development since he co-founded the company in August 1996. Dr. Gulcher was on staff in the Department of Neurology at Beth Israel Hospital in Boston, Massachusetts and Harvard University Medical School from June 1993 to October 1998. 54 56 Dr. Gulcher received his Ph.D and M.D. from the University of Chicago in 1986 and 1990, respectively, and completed his neurology residency at the Longwood Program of the Neurology Department of the Harvard Medical School in 1996. Dr. Kristjan Erlendsson joined us in September 1998 to oversee collaboration projects and was elected to serve as our Vice President for Clinical Collaborations in March 1999. From March 1996 to August 1998, he was Director of Hospital Affairs at Iceland's Ministry of Health and Social Security. Since 1988, Dr. Erlendsson has served as Executive Director of Medical Education at the University of Iceland. He has also been a Consultant in Internal Medicine, Allergy and Clinical Immunology at Landspitalinn University Hospital since 1985. Dr. Erlendsson received his M.D. from the University of Iceland in 1976, trained in internal medicine at the University of Connecticut-New Britain General Hospital from 1978 to 1981, and did a postdoctoral fellowship in allergy and clinical immunology at Yale University-Yale New Haven Hospital from 1981 to 1984. Hakon Guethbjartsson, Ph.D. has served as our Vice President, Informatics since March 2000. In 1996, Dr. Guethbjartsson joined us to direct our Department of Informatics. Dr. Guethbjartsson received his B.Sc. in electrical engineering in 1990 and his M.Sc. in electrical engineering and computer science in 1992 from the University of Iceland. In 1996, he received his Ph.D. from the Massachusetts Institute of Technology and performed post-doctoral research concerning magnetic resonance imaging at Brigham and Woman's Hospital in Boston until he joined deCODE. Sigurethur Bjornsson has served as our Vice President, Medical Informatics since February 1999. Mr. Bjornsson served as Chief Executive Officer of Thor Investments and Chief Financial Officer of Hof Holdings from February 1996 to January 1999 and Director of Information Technology for Hof Holdings from November 1992 to January 1996. Mr. Bjornsson studied mathematics at the University of Iceland from 1984 to 1987. Jean-Francois Formela, M.D. has served as a director of deCODE since August 1996, and as a member of our Audit Committee since February 1998. Dr. Formela is a General Partner of Atlas Venture Associates II, L.P. Before joining Atlas Venture in 1993, Dr. Formela was Senior Director, Medical Marketing and Scientific Affairs at Schering-Plough in the U.S. where he also held biotechnology licensing and marketing responsibilities. Dr. Formela is a director of Biochem Pharma and several private companies. Dr. Formela holds an M.D. from Paris University School of Medicine and an M.B.A. from Columbia Business School. Andre Lamotte has served as a director of deCODE since August 1996. In 1989, Dr. Lamotte founded Medical Science Partners, or MSP, which specializes in early stage life sciences investments, in affiliation with Harvard University, and has served as the Managing General Partner since then. Before founding MSP, Dr. Lamotte served as a General Manager at Pasteur Merieux from April 1983 to April 1988. He also currently serves as the Managing General Partner of Medical Science Partners II, L.P. and Medical Science II Co-Investment, L.P. Dr. Lamotte is a director of Ascent Pediatrics, Inc. Dr. Lamotte holds a Ph.D. in chemistry from the Massachusetts Institute of Technology and an M.B.A. from Harvard University. Terrance G. McGuire has served as a director of deCODE since August 1996 and as Assistant Secretary since January 1998. He currently serves as Chairman of three board committees: the Compensation Committee, the Audit Committee and the Nominating Committee. Since March 1996, he has been a Founding General Partner of Polaris Venture Partners. Since 1992, he has served as a general partner of Alta V Management Partners L.P., which is the general partner of Alta V Limited Partnership. He is a director of Akamai Technologies, Inc., Aspect Medical Systems, Inc., Inspire Pharmaceuticals, Inc., Wrenchead.com, Inc., Paradigm Genetics, Inc. and several other private healthcare and information technology companies. Mr. McGuire received his B.S. in Physics and Economics from Hobart College, his M.S. in Engineering from Dartmouth College and his M.B.A from the Harvard Business School. Guy P. Nohra has served as a director of deCODE since August 1996. He is a founder and general partner of Alta Partners, a venture capital partnership investing in information technologies and life science companies. Prior to founding Alta Partners in 1996, Mr. Nohra was a partner of Burr, Egan, Deleage & Co., which he joined in 1989 and served as a Vice President from 1989-1997. Previously, Mr. Nohra was a Product Manager of Medical Products with Security Pacific Trading Corporation where he was responsible for a multi-million dollar 55 57 product line and travelled extensively in Korea, Taiwan, Hong Kong, China and Southeast Asia. In 1982, he received his B.A. from Stanford University and 1989 he received his M.B.A from the University of Chicago Graduate School of Business. Mr. Nohra is serving or has served on the board of directors of Vesica, Pilot Cardiovascular, InnerDyne, Interpore, R2 Technologies, VitaGen and several private life science companies. Sir John Vane has served as a director of deCODE since January 1997. In 1982, Sir John received the Nobel Prize in Physiology or Medicine for his work in prostaglandins and for discovering the mode of action of aspirin. He graduated in Chemistry, took a D.Phil. in Pharmacology and spent 20 years in academic research. As a consultant to Squibb, he initiated the program on inhibiting angiotensin-converting enzyme which led to the marketing of Captopril. During 12 years as Director of Research and Development at the Wellcome Foundation, he oversaw the development of Tracrium, Flolan, Zovirax and Lamictal. In 1986, he founded the William Harvey Research Institute and built the Institute to over 100 members, first as Chairman, then as Director General, and, since 1997, as Honorary President. Sir John acts as a consultant to, and board member of, several pharmaceutical and biopharmaceutical companies. Sir John also has served as a partner of Vane Associates since 1997. He became a Fellow of the Royal Society in 1974, was knighted in 1984 and has received numerous other honorary fellowships and doctorates. Other Significant Management Member C. Augustine Kong, Ph.D., who is 41 years old, has served as our Director of Statistics as a full time consultant since 1996. He is on leave as an associate professor in the Department of Human Genetics at the University of Chicago, where he has been a member of the faculty since 1986. Dr. Kong received his Ph.D. in statistics from Harvard University in 1986. Members of our Board of Directors serve for a term of one year and until their successors are elected and qualify. Our executive officers are elected by our Board of Directors and serve until their successors are elected and qualify. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During 1999, our compensation committee consisted of Terrance McGuire and Guy Nohra. Neither of the members of our compensation committee has at any time been an officer or employee of deCODE. No interlocking relationship exists between our Board of Directors or compensation committee and the board of directors or compensation committee of any other company, nor has any interlocking relationship existed in the past. DIRECTOR COMPENSATION Our directors do not receive cash compensation for services on our Board of Directors or any board committee, except as described below. We entered into an agreement with Vane Associates (of which Sir John Vane is a partner) on December 1, 1997, pursuant to which we agreed to grant Sir John options to purchase up to an aggregate of 60,000 shares of our common stock for his participation on our Board of Directors. Pursuant to the agreement, Sir John received a stock option for 15,000 shares on December 1, 1997, at an exercise price of $0.20 per share, a stock option for 15,000 shares on December 1, 1998, at an exercise price of $4.00 per share, and a stock option for 15,000 shares on December 1, 1999, at an exercise price of $18.29 per share. In addition, Sir John will receive a stock option for 15,000 shares on December 1, 2000, at an exercise price equal to the fair market value on the date of grant subject to the continued satisfaction of certain obligations under our agreement with Vane Associates. We reimburse all directors for their expenses incurred in connection with attendance at Board of Directors and committee meetings. BOARD COMMITTEES Our Board of Directors has established an audit committee, a nominating committee and a compensation committee. Our audit committee, which consists of Terrance McGuire, Guy Nohra and Jean-Francois Formela, reviews the results and scope of our annual audit and the services provided by our independent auditors. Our nominating committee, which consists of Kari Stefansson and Terrance McGuire, reviews the qualifications of 56 58 candidates and proposes nominees to serve as directors on our board and nominees for membership on our board committees. Our compensation committee, which consists of Terrance McGuire and Guy Nohra, makes recommendations to the Board of Directors with respect to our general and specific compensation policies and practices and administers our 1996 Equity Incentive Plan. SCIENTIFIC ADVISORY BOARD We are advised by an international scientific advisory board, which is currently composed of four members with expertise in the fields of statistics, molecular biology, genetic research and medicine. Our scientific advisory board meets periodically to review specific projects with those members who are experts in the subjects being discussed. In addition, we may consult individual board members as to matters in their respective areas of expertise. Our scientific advisory board currently is composed of the following individuals: Professor Peter Donnelly, Chairman. Dr. Donnelly graduated with a Ph.D. in statistics from Oxford University. He was Professor of Statistics and Ecology and Evolution at the University of Chicago before he returned to Oxford as Professor of Statistical Science and Chairman of the Department of Statistics. In addition to being on our scientific advisory board. Dr. Donnelly has agreed to spend one month a year assisting us on statistical and population genetic issues. Karl Tryggvason, M.D., Ph.D. Dr. Tryggvason is Professor of Medical Chemistry at the Karolinska Institute in Stockholm, Sweden, and the leading author of over 150 scientific publications. Dr. Tryggvason is a permanent member of the Nobel Assembly, and was recently re-elected to the Nobel Committee for Physiology or Medicine. Helgi Valdimarsson, M.D. Dr. Valdimarsson is Professor of Immunology and former chairman of the Department of Medicine at the University of Iceland. Guethmundur Thornorgeirsson, M.D. Dr. Thornorgeirsson is Professor of Internal Medicine at the University of Iceland and the chairman of the scientific board of the Icelandic Heart Association. SECURITY ADVISORY BOARD We are in the process of establishing a Security Advisory Board that will consist of experts in the fields of computer security, data and privacy protection and security of medical informatics. We expect this board to meet periodically to review security issues in our operations and in the development and operation of the IHD and to advise us on the development of appropriate security measures. We expect the Security Advisory Board to be appointed and operational by May 2000. 57 59 EXECUTIVE COMPENSATION The following table provides certain information concerning the annual and long-term compensation for the fiscal year ended December 31, 1999 of: (i) our Chief Executive Officer; and (ii) our four highest-paid executive officers as of December 31, 1999 whose salary and bonus earned during the fiscal year ended December 31, 1999 exceeded $100,000. These individuals are referred to as the "Named Officers" here and elsewhere in the prospectus. SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION(1) STOCK OPTION AWARDS --------------- (NUMBER OF SHARES ALL OTHER NAME AND PRINCIPAL POSITION SALARY UNDERLINING OPTIONS) COMPENSATION - --------------------------- --------------- -------------------- ------------ Kari Stefansson............................... $304,551 -- $43,686(2) Chairman of the Board of Directors, President, Chief Executive Officer and Secretary Hannes Smarason............................... $146,597 260,000 -- Executive Vice President and Senior Business and Finance Officer Jeffrey Gulcher............................... $162,323 -- -- Vice President, Research and Development Kristjan Erlendsson........................... $132,460 -- -- Vice President, Clinical Collaborations Sigurethur Bjornsson.......................... $114,062 -- -- Vice President, Medical Informatics
- --------------- (1) Includes compensation paid in Icelandic kronas. Figures reflect an exchange rate of 72.55 Icelandic kronas to $1.00, the exchange rate determined by the Central Bank of Iceland on December 31, 1999. (2) Includes the value of housing and an automobile provided by us for the benefit of the Named Officer. The following table provides certain information concerning grants of stock options to the Named Officers during the fiscal year ended December 31, 1999. The percent of the total options set forth below is based on an aggregate of 840,500 options granted to employees in 1999. OPTION GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF NUMBER OF PERCENTAGE OF STOCK PRICE SECURITIES TOTAL OPTIONS APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OR OPTION TERM OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------- NAME GRANTED FISCAL 1999 PER SHARE DATE 5% 10% - ---- ---------- ------------- ----------- ---------- ------ ------ Kari Stefansson............... 0 -- -- -- -- -- Hannes Smarason............... 260,000 30.9% $5.63 8/26/09 $ 0(1) $ 0(1) Jeffrey Gulcher............... 0 -- -- -- -- -- Kristjan Erlendsson........... 0 -- -- -- -- -- Sigurethur Bjornsson.......... 0 -- -- -- -- --
- --------------- (1) This option was exercised prior to December 31, 1999 pursuant to an early option exercise right. 58 60 The following table sets forth certain information concerning exercisable and unexercisable stock options held by the Named Officers as of December 31, 1999. AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY SHARES ACQUIRED VALUE FISCAL YEAR END(1) OPTIONS OF FISCAL YEAR-END NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - ---- --------------- -------- ------------------------- -------------------------- Kari Stefansson........... 0 -- 0/0 $0/0 Hannes Smarason........... 260,000 $ 0 0/0 $0/0 Jeffrey Gulcher........... 0 -- 0/0 $0/0 Kristjan Erlendsson....... 0 -- 0/0 $0/0 Sigurethur Bjornsson...... 0 -- 0/0 $0/0
- --------------- (1) All of the options granted to date to employees (including officers) have provided for an early exercise right, which has been exercised. See "Description of Securities -- Stock Options" and "Certain Transactions" for information pertaining to the early exercise right and promissory notes delivered by certain Named Officers in connection with their exercise of such rights. EMPLOYMENT AGREEMENTS At the time of commencement of employment, our executive officers generally receive offer letters specifying basic terms and conditions of their employment. We have entered into employment agreements with Mr. Erlendsson and Mr. Bjornsson that allow either party to terminate the agreement upon three months and six months prior notice, respectively. Our executive officers have signed agreements which require them to maintain the confidentiality of our information and to assign inventions to us. These agreements also prohibit these officers from competing with us during the terms of their employment and for two years thereafter by engaging in any capacity in any business which is, or on the date of termination of their employment was, competitive with our business. 59 61 CERTAIN TRANSACTIONS In January 1998 and August 1999, we granted to Hannes Smarason, our Executive Vice President and Senior Business and Finance Officer, options to purchase 300,000 and 260,000 shares of our common stock, respectively. In November 1998, we granted to Sigurethur Bjornsson, our Vice President, Medical Informatics, an option to purchase 120,000 shares of our common stock. Messrs. Smarason and Bjornsson immediately exercised their options pursuant to the early exercise right granted to all our employees. At the times of exercise, Mr. Smarason delivered to us promissory notes in the principal amounts of $59,700 and $1,462,240 and Mr. Bjornsson delivered to us a promissory note in the amount of $479,880. Each of these promissory notes bears interest in the amount of six percent (6%) per annum. The notes are due and payable on January 1, 2001, November 1, 2003 and February 1, 2003, respectively. The shares purchased by Mr. Bjornsson and Mr. Smarason in 1998 vest at the rate of 1/4 on the first anniversary of the date of employment and 1/48 on the last day of each month thereafter. The shares purchased by Mr. Smarason in 1999 vest at the rate of 1/48 on the first day of each month, commencing December 1, 1999. As of December 31, 1999, the principal and accrued interest on the notes delivered by Mr. Smarason in 1998 and 1999 was $66,769 and $1,487,432, respectively, and the principal and accrued interest on the note delivered by Mr. Bjornsson was $512,340. Kari Stefansson, our Chairman, Chief Executive Officer and President, and Mr. Smarason are stockholders in an Icelandic company which has entered into a research collaboration with deCODE for discovery of compounds made from thermophilic organisms. We provide funding for, and own the rights to all intellectual property created in, this collaboration. During 1998 and 1999 we made research funding payments to the company in the aggregate amount of $593,955. In February and May 1999, we sold to Roche Finance shares of Series C preferred stock and warrants to purchase shares of Series C preferred stock for an aggregate purchase price of $3,333,445. In August 1999, we - repurchased 13,559 shares of Series A preferred stock held by Alta Embarcadero Partners, LLC, 507,711 shares of Series A preferred stock held by Alta California Partners, L.P., 260,635 shares of Series A preferred stock held by Atlas Venture Europe Fund, B.V., 260,635 shares of Series A preferred stock held by Atlas Venture Fund II, L.P., 146,628 shares of Series A preferred stock held by Medical Science Partners, II, L.P., 395,714 shares of Series A preferred stock held by Polaris Venture Partners, L.P. and 23,040 shares of Series A preferred stock held by Polaris Venture Partners Founders' Fund, L.P.; - issued (and repurchased) 250,000 shares of Series B preferred stock to Kari Stefansson in exchange for 333,333 shares of common stock held by him; and - repurchased 100,000 shares of Series C preferred stock held by Roche Finance. The initial purchase price we paid for the shares of Series A preferred stock, Series B preferred stock and Series C preferred stock was $7.50 per share. Pursuant to the agreement of the parties, this price was subject to later upward adjustment to reflect possible adjustment in the price at which we sold shares of Series B preferred stock to a third party in August 1999. In December 1999, the purchase price was adjusted to $13.95 per share with the additional amounts paid in February 2000. Mr. Nohra, one of our directors, is a general partner of Alta Partners, which provides investment advisory services to Alta California Partners, L.P. and Alta Embarcadero Partners, LLC. Dr. Formela, one of our directors, is a general partner of Atlas Venture Associates II, L.P., the general partner of Atlas Venture Fund II, L.P. Mr. McGuire, one of our directors, is a general partner of Polaris Venture Partners, L.P. and Polaris Venture Partners Founders' Fund, L.P. Mr. Lamotte, one of our directors, is the Managing General Partner of Medical Science Partners II, L.P. 60 62 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of our common stock as of December 31, 1999, and as of that date as adjusted to give effect to the offering, by (i) each person who is known by us to own beneficially more than 5% of our common stock; (ii) each of our Named Officers and current directors; and (iii) all of our directors and Named Officers as a group.
NUMBER OF SHARES PERCENTAGE PERCENTAGE BENEFICIALLY OWNED OWNED BEFORE OWNED AFTER NAME OF BENEFICIAL OWNER BEFORE OFFERING(1) OFFERING(1) OFFERING(1) - ------------------------ ------------------ --------------- ----------- Roche Finance Ltd(2)............................. 4,483,334 13.4% % 124 Grenzacherstrasse (including 2.9% CH-4070 Basel in Switzerland stock options and warrants) Entities affiliated with Alta California 2,335,082 7.1% % Partners, L.P.(3).............................. (including 1% One Embarcadero Center, Suite 4050 in San Francisco, CA 94111 warrants) Entities affiliated with Atlas Venture(4)........ 2,335,082 7.1% % 222 Berkeley Street, Suite 1950 (including 1% Boston, MA 02116 in warrants) Entities affiliated with Polaris Venture 1,875,848 5.7% % Partners, L.P.(5).............................. (including 1% 1000 Winter Street in Suite 3350 warrants) Waltham, MA 02154 Kari Stefansson.................................. 3,125,292 9.6% % Hannes Smarason.................................. 560,000 1.7% * Jeffrey Gulcher.................................. 481,200 1.5% * Kristjan Erlendsson.............................. 125,000 * * Sigurethur Bjornsson............................. 120,000 * * Jean-Francois Formela(4)......................... 2,335,082 7.1% % (including 1% in warrants) Andre Lamotte(6)................................. 686,514 2.1% % Terrance McGuire(5).............................. 1,875,848 5.7% * (including 1% in warrants) Guy Nohra(3)..................................... 2,335,082 7.1% % (including 1% in warrants) Sir John Vane(7)................................. 45,000 * All directors and executive officers as a group 11,689,018 35.0% % (10 persons)(8)................................ (including 3% in stock options and warrants)
- --------------- * Less than one percent (1) Beneficial ownership is determined in a manner prescribed by the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to stock options and warrants currently exercisable or exercisable within 60 days are considered outstanding for computing the percentage ownership of the person holding the options and the 61 63 percentage ownership of any group of which the holder is a member, but are not considered outstanding for computing the percentage ownership of any other person. Except as indicated by footnote, or otherwise subject to community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. Applicable percentage of ownership is based on 32,573,556 shares of common stock outstanding on the date of this prospectus giving effect to the automatic conversion of all outstanding shares of our preferred stock into shares of common stock upon the closing of this offering and on -- shares of common stock outstanding after this offering. (2) Includes 3,511,111 shares of common stock issuable upon conversion of shares of Series C preferred stock and 361,111 shares of common stock issuable upon conversion of shares of Series C preferred stock which, in turn, are issuable upon exercise of warrants owned by Roche Finance, 555,556 shares of common stock issuable upon conversion of shares of Series C preferred stock that Roche Finance has an option to acquire, and 55,556 shares of common stock issuable upon conversion of shares of Series C preferred stock issuable upon exercise of warrants which Roche Finance has an option to acquire. (3) Includes (1) 2,030,846 shares of common stock issuable upon conversion of shares of Series A preferred stock owned by Alta California Partners, L.P. and 244,416 shares of common stock issuable upon conversion of shares of Series A preferred stock which, in turn, are issuable upon exercise of warrants owned by Alta California Partners, L.P. and (2) 54,236 shares of common stock issuable upon conversion of shares of Series A preferred stock owned by Alta Embarcadero Partners, LLC and 5,584 shares of common stock issuable upon conversion of shares of Series A preferred stock which, in turn, are issuable upon exercise of warrants owned by Alta Embarcadero Partners, LLC. Mr. Nohra is a general partner of Alta Partners, L.P., which provides investment advisory services to Alta California Partners, L.P. and Alta Embarcadero Partners, LLC. In addition, the principals of Alta Partners are general partners of Alta California Management Partners, L.P. (which is a general partner of Alta California Partners, L.P.), and Alta Embarcadero Partners, LLC. Mr. Nohra disclaims beneficial ownership of all such shares held by all of the foregoing funds. (4) Includes (1) 1,042,541 shares of common stock issuable upon conversion of shares of Series A preferred stock owned by Atlas Venture Fund II, L.P., and 125,000 shares of common stock issuable upon conversion of shares of Series A preferred stock which, in turn, are issuable upon exercise of warrants owned by Atlas Venture Fund II, L.P., and (2) 1,042,541 shares of common stock issuable upon conversion of shares of Series A preferred stock owned by Atlas Venture Europe Fund B.V., and 125,000 shares of common stock issuable upon conversion of shares of Series A preferred stock which, in turn, are issuable upon exercise of warrants owned by Atlas Venture Europe Fund B.V., a wholly owned subsidiary of Atlas InvesteringsGroep N.V., which is a limited partner in Atlas Venture Fund II L.P. Mr. Formela is a general partner of Atlas Venture Associates II, L.P., which is the sole general partner of Atlas Venture Fund II, L.P. (5) Includes (1) 1,582,854 shares of common stock issuable upon conversion of shares of Series A preferred stock owned by Polaris Venture Partners, L.P. and 189,496 shares of common stock issuable upon conversion of shares of Series A preferred stock which, in turn, are issuable upon exercise of warrants owned by Polaris Venture Partners, L.P., and (2) 92,161 shares of common stock issuable upon conversion of shares of Series A preferred stock owned by Polaris Venture Partners Founders' Fund, L.P. and 11,337 shares of common stock issuable upon conversion of shares of Series A preferred stock which in turn, are issuable upon exercise of warrants owned by Polaris Venture Partners Founders' Fund, L.P. Mr. McGuire is a general partner of both Polaris Venture Partners Founders' Fund, L.P. and Polaris Venture Partners, L.P. (6) Includes 586,514 shares of common stock issuable upon conversion of shares of Series A preferred stock owned by Medical Science Partners II, L.P. and 100,000 shares of common stock issuable upon the conversion of shares of Series A preferred stock which, in turn, are issuable upon exercise of warrants held by Medical Science Partners II, L.P. Mr. Lamotte is the Managing General Partner of Medical Science Partners, II, L.P. (7) Includes 45,000 shares of common stock underlying options granted to Sir John that were exercisable within 60 days of December 31, 1999. Does not include 15,000 shares of common stock underlying options which 62 64 will be granted to Sir John in December 2000 subject to the continued satisfaction of certain obligations under our consulting contract with Vane Associates (of which Sir John is a partner). (8) Includes 45,000 shares of common stock underlying options that were exercisable within 60 days of December 31, 1999, as well as 800,833 shares of common stock issuable upon conversion of shares of Series A preferred stock which, in turn, are issuable upon the exercise of the warrants and other rights to purchase described in footnotes 3 through 7 above. DESCRIPTION OF SECURITIES Our authorized capital stock consists of 80,641,926 shares, of which 48,000,000 shares are common stock, $0.001 par value, and 32,641,926 shares are preferred stock. Our Board of Directors has the power and authority to designate 7,016,666 shares of preferred stock into classes or series. Immediately following this offering, there will be shares of common stock and no shares of preferred stock outstanding. COMMON STOCK As of December 31, 1999, there were 9,604,012 shares of common stock issued and outstanding and held of record by approximately 350 stockholders. In addition, as of December 31, 1999, there were outstanding options to purchase 45,000 shares of common stock. Holders of shares of common stock are entitled to one vote at all meetings of stockholders for each share held by them. The common stock has no preemptive rights or other rights to subscribe for additional shares, no conversion right and no right of redemption. Subject to the rights and preferences of the holders of any preferred stock, the holders of the common stock are entitled to receive such dividends as, when and if declared by the Board of Directors out of funds legally available therefor for that purpose. We have not paid dividends on the common stock. The payment of dividends, if any, in the future with respect to the common stock is within the discretion of the Board of Directors and will depend on our earnings, capital requirements, financial condition and other relevant factors. At present, our Board of Directors does not intend to declare any dividend on the common stock in the foreseeable future. PREFERRED STOCK Of our 32,641,926 authorized preferred shares, 11,041,926 shares are designated as Series A preferred stock, 10,000,000 shares are designated as Series B preferred stock, and 4,583,334 shares are designated as Series C preferred stock. As of December 31, 1999, 9,562,301 shares of Series A preferred stock (held by 20 holders of record), 9,893,814 shares of Series B preferred stock (held by approximately 5,000 holders of record), and 3,511,111 shares of Series C preferred stock (held by one holder of record) were outstanding. In addition, as of December 31, 1999, there were outstanding warrants to purchase 1,137,814 shares of Series A preferred stock and warrants and options to purchase 972,223 shares of Series C preferred stock. Upon the closing of this offering, all outstanding shares of preferred stock will be converted into 22,969,544 shares of common stock. In addition, all outstanding warrants to purchase shares of preferred stock will be converted into warrants and options to purchase shares of common stock. Each share of our outstanding classes of preferred stock bears dividends at the rate of 8% of the original purchase price per share, payable when declared by the Board of Directors. To date the Board of Directors has not declared any dividends on the preferred stock. Our certificate of incorporation provides that the outstanding preferred stock will convert to common stock upon the closing of this offering, at which time all undeclared dividends will be cancelled. 63 65 With respect to the 7,016,666 shares of preferred stock not currently designated as an existing series, our Board of Directors is authorized, except as otherwise limited by Delaware law, without further action by the stockholders: - to issue shares of preferred stock in one or more series; - to fix or alter the dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption price or prices, and liquidation preferences of any wholly unissued series of preferred stock; - to designate the number of shares constituting, and the designation of, any series of preferred stock; and - to increase or decrease the number of shares of a series subsequent to the issue of shares of that series, but not below the number of shares of that series then outstanding. WARRANTS AND OTHER RIGHTS TO PURCHASE As of December 31, 1999, we had outstanding warrants to purchase 1,137,814 shares of Series A preferred stock at $1.00 per share, a warrant to purchase 250,000 shares of Series C preferred stock at $2.00 per share, a warrant to purchase 55,555 shares of Series C preferred stock at $3.00 per share, a warrant to purchase 55,556 shares of Series C preferred stock at $3.00, and an option to purchase (i) 555,556 shares of Series C preferred stock at $4.00 per share and (ii) a warrant to purchase 55,556 shares of Series C preferred stock at $4.00 per share. The warrants to purchase 1,137,814 shares of Series A preferred stock expire on August 26, 2005, the warrant to purchase 250,000 shares of Series C preferred stock expires on February 2, 2007, the warrant to purchase 55,555 shares of Series C preferred stock expires on February 5, 2008, the warrant to purchase 55,556 shares of Series C preferred stock expires on May 20, 2009, and the option to purchase 555,556 shares of Series C preferred stock and a warrant to purchase 55,556 shares of Series C preferred stock expires on February 1, 2001. Immediately following this offering all of the outstanding warrants will be converted into warrants to purchase an identical number of shares of common stock at the exercise price set forth in the applicable warrant. STOCK OPTIONS We established our 1996 Equity Incentive Plan, or the 1996 Plan, for the purposes of attracting and retaining the best available personnel, to provide additional incentive to our employees and consultants and to promote our success. Our incentive plan provides for: (i) the grant of stock options to employees and consultants; (ii) the grant of stock bonuses to employees, directors and consultants; and (iii) the grant of rights to purchase restricted stock, on such terms and conditions our Board of Directors or a board committee determines. The powers of our Board of Directors or board committee, as the case may be, include the determination of which employees and consultants are to receive stock option grants, the exercise price, number of shares and the vesting schedule of the grants. At the discretion of our Board of Directors or board committee, any options granted may permit the early exercise of the options, in whole or in part, prior to vesting. We retain the right, upon termination of the option holder's employment or consulting arrangement, to repurchase the shares of common stock acquired as a result of an early exercise that are unvested on the date of termination, at the price per share paid by the option holder at the time of exercise of the option. All of the options granted to employees to date have provided for an early exercise right. The total number of shares of common stock authorized for issuance under the 1996 Plan is 5,000,000. As of December 31, 1999, 1,041,000 shares of common stock were eligible for issuance upon the exercise of options available to be granted under the 1996 Plan. REGISTRATION RIGHTS OF STOCKHOLDERS Pursuant to the terms of an investor rights agreement, the holders of -- shares of common stock (including -- shares of common stock issuable upon exercise of warrants) (the "Registrable Shares") will have the right to require us to file a registration statement under the Securities Act covering the registration of 64 66 their shares at any time after 180 days from the effective date of the registration statement of which this prospectus is a part if the holders of 50% of such shares demand registration and the number of shares to be registered has an aggregate public offering price of at least $5,000,000. We are not required to effect more than two registrations for the holders pursuant to these demand registration rights. In addition, holders of -- shares of common stock are entitled to piggyback registration rights with respect to the registration of these shares under the Securities Act. If we propose to register any shares of common stock under the Securities Act either for our account or for the account of our other security holders, the holders of shares having piggyback rights are entitled to receive notice of the registration and are entitled, with some limitation, to include their shares in the registration. Further, at any time after we become eligible to file a registration statement on Form S-3, any holder or holders of the then outstanding Registrable Shares may require us to file registration statements under the Securities Act on Form S-3 with respect to their shares of common stock. The above described registration rights are subject to conditions and limitations, including the right of the underwriters of an offering to limit the number of shares of common stock which security holders may include in a registration. Further, we may defer a registration for a period of 90 days if we furnish to the holders requesting registration a certificate signed by the chairman of the board stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to deCODE and our stockholders for the requested registration to be effected at that time. We are generally required to bear all of the expenses of all such registrations, including the reasonable fees of a single counsel acting on behalf of all selling holders, except underwriting discounts and selling commissions. Registration of any of the shares of common stock held by security holders with registration rights would result in such shares becoming freely tradable without restriction under the Securities Act immediately upon effectiveness of such registration. DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS We are subject to Section 203 of the Delaware General Corporation Law ("DGCL") which is an anti-takeover provision. In general, the statute prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder unless the business combination is approved in a prescribed manner. A "business combination" includes a merger, asset sale or other transaction resulting in financial benefit to the stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years prior, did own) 15% or more of a corporation's voting stock. Certain provisions in our certificate of incorporation, in our bylaws and under Delaware law could make it more difficult for other companies to acquire us, even if doing so would benefit our stockholders. For example, our certificate of incorporation and bylaws provide for the issuance of preferred stock. The use of preferred stock may have the effect of delaying, deferring or preventing a change in control. Further, use of the preferred stock may have an adverse impact on the ability of our stockholders to participate, if applicable, in a tender offer or exchange offer for the common stock, which would diminish the value of the common stock. The DGCL authorizes a corporation in its certificate of incorporation to limit the personal liability of its directors for violations of their fiduciary duty of care. Accordingly, our certificate of incorporation states that a director will not be personally liable to deCODE or to our stockholders for monetary damages resulting from any breach of fiduciary duty as a director, except for the breach of the director's duty of loyalty to us or our stockholders, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or a transaction from which the director derives an improper personal benefit. The DGCL also authorizes a corporation to indemnify its directors and officers, and our bylaws require that we indemnify each director and executive officer to the fullest extent allowable under the DGCL. We believe that these provisions will assist us in attracting and retaining qualified individuals to serve as directors. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the common stock will be [ ]. 65 67 CERTAIN TAX CONSIDERATIONS CERTAIN U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF COMMON STOCK The following is a general discussion of material U.S. federal income tax consequences relating to the ownership and disposition of shares of common stock by a beneficial owner thereof that is a non-U.S. holder. A non-U.S. holder is a person or entity that, for U.S. federal income tax purposes, is a non-resident alien individual, a foreign corporation, a foreign partnership, or other foreign entity, or a foreign estate or trust. This discussion is based on the Internal Revenue Code of 1986, as amended, or the Code, and administrative interpretations as of the date hereof, all of which are subject to change, including changes with retroactive effect. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to non-U.S. holders in light of their particular circumstances. In particular, this discussion does not address non-U.S. holders who are subject to U.S. federal income tax on their worldwide income or whose shares of common stock are effectively connected with the conduct of a U.S. trade or business. In addition, this discussion does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction. Prospective holders should consult their tax advisors with respect to the particular tax consequences to them of owning and disposing of shares of common stock, including the consequences under the laws of any state, local or foreign jurisdiction. DIVIDENDS Subject to the discussion below, dividends paid to a non-U.S. holder of common stock generally will be subject to withholding tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. For purposes of determining whether tax is to be withheld at a 30% rate or at a reduced rate as specified by an income tax treaty, we ordinarily will presume that dividends paid on or before December 31, 2000, to an address in a foreign country are paid to a resident of such country absent knowledge that such presumption is not warranted. Under new United States Treasury Regulations applicable to dividends paid after December 31, 2000, to obtain a reduced rate of withholding under a treaty, a non-U.S. holder will generally be required to provide to us certification of such non-U.S. holder's entitlement to benefits under a treaty. The new regulations also provide special rules to determine whether, for purposes of determining the applicability of a tax treaty, dividends paid to a non-U.S. holder that is an entity should be treated as paid to the entity or those holding an interest in that entity. Generally, we must report to the U.S. Internal Revenue Service the amount of dividends paid, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax treaties or certain other agreements, the U.S. Internal Revenue Service may make its reports available to tax authorities in the recipient's country of residence. Dividends paid to a non-U.S. holder at an address within the United States may be subject to backup withholding imposed at a rate of 31% if the non-U.S. holder fails to establish that it is entitled to an exemption or to provide a correct taxpayer identification number and certain other information. Under current United States federal income tax law, backup withholding (imposed at a rate of 31%) generally will not apply to dividends paid on or before December 31, 2000, to a non-U.S. holder at an address outside the United States (unless the payer has knowledge that the payee is a U.S. holder). Under new regulations applicable to payments after December 31, 2000, however, a non-U.S. holder will be subject to backup withholding if the non-U.S. holder does not provide the certification required in order to receive treaty benefits described above. GAIN ON DISPOSITION OF COMMON STOCK A non-U.S. holder generally will not be subject to U.S. federal income tax with respect to gain realized on a sale or other disposition of shares of common stock. 66 68 INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING ON DISPOSITION OF COMMON STOCK Under current United States federal income tax law, information reporting and backup withholding imposed at a rate of 31% will apply to the proceeds of a disposition of shares of common stock effected by or through a U.S. office of a broker unless the disposing holder certifies as to its non-U.S. status or otherwise establishes an exemption. Generally, U.S. information reporting and backup withholding will not apply to a payment of disposition proceeds where the transaction is effected outside the United States through a non-U.S. office of a non-U.S. broker. However, U.S. information reporting requirements (but not backup withholding) will apply to a payment of disposition proceeds where the transaction is effected outside the United States by or through an office outside the United States of a broker that is: - a U.S. person, - a foreign person which derives 50% or more of its gross income for certain periods from the conduct of a trade or business in the United States, - a "controlled foreign corporation" for U.S. federal income tax purposes or - in the case of payments made after December 31, 2000, a foreign partnership with certain connections to the United States, in each case unless such broker has documentary evidence in its files of the holder's non-U.S. status and has no actual knowledge to the contrary or unless the holder establishes an exemption. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is furnished to the U.S. Internal Revenue Service. CERTAIN BELGIAN TAX CONSIDERATIONS FOR BELGIAN HOLDERS OF COMMON STOCK The following generally summarizes the material Belgian income and stamp tax consequences of the acquisition, direct ownership and disposition of our common stock by Belgian residents and it is based on the opinion of Stibbe Simont Monahan Duhot, Belgian legal counsel to deCODE. This discussion is based on tax law applicable in Belgium as in effect on the date of this prospectus, and is subject to changes to Belgian law, including changes that could have retroactive effect. The following summary does not take into account or discuss tax laws of any country other than Belgium nor does it take into account the individual circumstances of each investor. Prospective Belgian investors are advised to consult their own tax advisers as to the tax consequences of the acquisition, ownership and disposition of our common stock. BELGIAN WITHHOLDING TAX Dividends distributed on our common stock (gross of Belgian taxation but net of any foreign withholding tax deducted) are subject to Belgian dividend withholding tax at the rate of 25.0% when paid or attributed through an intermediary in Belgium. However, no Belgian dividend withholding tax is due if the Belgian resident is a company subject to Belgian corporation income tax, provided certain formalities are met. To the extent that dividends on our common stock are attributed or paid outside Belgium, without the intervention of a paying agent or any other financial intermediary in Belgium, no Belgian dividend withholding tax is due. However, Belgian resident entities subject to Belgian legal entities tax (such as pension funds) must pay the dividend withholding tax to the Belgian Treasury. The withholding tax may be subject to exemptions or reductions provided by Belgian law. For instance, in certain cases the above-mentioned 25% rate of dividend withholding tax will be reduced to 15%. The reduced rate applies in particular to: - dividends distributed on shares publicly issued on or after January 1, 1994; and 67 69 - dividends distributed on shares that have been privately issued on or after January 1, 1994 in exchange for cash contributions, provided the shares are registered, or are bearer shares placed in open custody, to a financial institution in Belgium as of the date of their issuance. INCOME TAX FOR BELGIAN RESIDENT INDIVIDUALS The Belgian dividend withholding tax is a final tax for Belgian resident individuals holding our common stock as a private investment, and the dividends need to be reported in such individuals' annual income tax returns. If no withholding tax has been levied (for example where payment or attribution is made outside Belgium), such individuals are required to report the dividends in their tax returns, and will be taxed at the rate of either 25.0% or 15.0%, in each case increased by a municipal surcharge (generally varying from 5% to 8% of the tax due). Belgian resident individuals whose holdings of our common stock are connected with a business will be taxed on the dividends at the ordinary rates for business income, varying from 25% to 55% and increased by the appropriate municipal surcharge and a 3% crisis contribution. Any Belgian withholding tax is creditable against the final income tax due, provided the holder of our common stock has full ownership of that stock at the time of attribution or payment of the dividends and the dividend distribution does not entail a reduction in value or capital loss on the shares. CORPORATE INCOME TAX FOR COMPANIES RESIDENT IN BELGIUM Dividends received by companies resident in Belgium are, in principle, subject to corporation income tax at the rate of 40.1%, i.e. the standard rate of 39%, increased by the additional tax of 3% of the corporate income tax due. Lower rates may be applicable to Belgian resident companies which, among other conditions, are not 50% or more owned by another company and whose taxable income is below certain thresholds fixed by law. Belgian resident companies which satisfy the minimum holding requirement of either a participation of at least 5% in deCODE or an acquisition value of at least BEF50 million at the time of attribution or payment of dividends will be taxed on only 5% of the dividends received (so-called dividends-received deductions or DRD) unless deCODE falls within one of the categories expressly excluded from the DRD. DRD entitlement is assessed on a case by case basis at the time of attribution by reference to the origin of the issuer's revenue used to distribute the dividend. If our revenues continue to be submitted to normal taxation, it is highly unlikely that DRD would be denied. INCOME TAX FOR BELGIAN RESIDENT ENTITIES SUBJECT TO BELGIAN LEGAL ENTITIES TAX The Belgian dividend withholding tax is a final tax for Belgian resident entities subject to the Belgian legal entities tax. BELGIAN CAPITAL GAINS TAXATION Income Tax for Individuals Resident in Belgium. Individuals holding our common stock as a private investment will not be subject to Belgian capital gains taxation on the disposal of that stock. Individuals may, however, be subject to a 33% tax (increased by the appropriate municipal surcharge and the 3% crisis contribution) if the capital gain is deemed to be "speculative" in nature as defined by Belgian case law. Corporate Income Tax for Companies Resident in Belgium. Capital gains realized by companies resident in Belgium on the disposal of our common stock are exempt from Belgian capital gains taxation if our dividends fully qualify for the DRD. It is not necessary to satisfy the minimum holding requirement for DRD to benefit from this exemption. Capital losses are only tax-deductible on a liquidation and distribution of all our assets and liabilities. In that event, capital losses are tax-deductible to the extent that they represent fully paid-up capital. Belgium Resident Entities Subject to the Belgian Legal Entities Tax. Entities subject to the Belgian legal entities tax are not subject to Belgian capital gains taxation on the disposal of our common stock. 68 70 BELGIAN INDIRECT TAXES Stamp Tax on Securities Transactions. In principle, a Belgian stamp tax is levied upon the subscription or purchase or sale of our common stock in Belgium through a professional intermediary. The rate applicable to subscriptions for new shares is 0.35% subject to an upper limit of BEF 10,000 or (Euro 248) per transaction. The rate applicable to sales and purchases of existing shares in Belgium through a professional intermediary is 0.17% subject to an upper limit of BEF 10,000 or (Euro 248) per transaction. An exemption is available to professional intermediaries (such as credit institutions), insurance companies, pension funds and collective investment vehicles acting for their own account. Non-Belgian resident holders of our common stock acting for their own account will also be entitled to an exemption from this stamp tax if they deliver to the issuer of the professional intermediary in Belgium, as the case may be, an affidavit confirming non- Belgian resident status. Tax on Physical Delivery of Bearer Securities. A tax is levied upon the physical delivery of our common stock pursuant to the subscription or acquisition for consideration in Belgium. This tax is also due on the delivery of our common stock pursuant to a withdrawal of such stock from "open custody" in Belgium. An exemption is available if the acquisition for consideration does not take place through a professional intermediary. This tax is due, at the rate of 0.2% on the sums payable by the subscriber or acquirer on a subscription of acquisition of the sales value of our common stock, as estimated by the custodian, on a withdrawal from "open custody." An exemption is available for deliveries to recognized professional intermediaries (such as credit institutions) acting for their own account. An exemption is also available for delivery to a non-resident of shares of our common stock which are held in "open custody" with certain specified financial intermediaries. Since securities listed on EASDAQ are always in book entry form, the Belgian tax on the physical delivery of bearer securities will not apply to transactions in our common stock on EASDAQ. 69 71 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering there has been no public market for our common stock. Some financial institutions have been making a market for privately-negotiated transactions among non-U.S. persons in shares of our outstanding Series B preferred stock. Our Series B preferred stock transfer records indicate that approximately 10 million shares of Series B preferred stock were transferred during 1999 in approximately 7,000 transactions and approximately 1.1 million shares of Series B preferred stock were transferred during January 2000 in approximately 2,700 transactions. The majority of these transactions had an Icelandic financial institution as one of the counterparties. Future sales of substantial amounts of our common stock, or even the possibility of such sales, could reduce the prevailing market price. As described below, only a limited number of shares of common stock currently held by our stockholders will be available for sale shortly after this offering due to certain contractual and legal restrictions on resale. Sales of substantial amounts of common stock in the public market after the restrictions lapse could adversely affect the prevailing market price and our ability to raise equity capital in the future. Upon closing of this offering, -- shares of our common stock will be outstanding based on the number of shares of our preferred stock and common stock outstanding as of December 31, 1999, and assuming no exercise of the underwriters' over-allotment option. Of these shares, the -- shares of common stock being sold in this offering will be freely tradable (unless purchased by an "affiliate" of deCODE as such term is defined in the Securities Act of 1933 without restriction or registration under the Securities Act. All remaining shares of common stock were issued and sold in private transactions and are "restricted securities" which are eligible for public sale only if registered under the Securities Act or sold in accordance with Rule 144 promulgated under that Act. In addition, upon closing of this offering 2,125,037 shares of common stock will be issuable upon the exercise of warrants and options. Each of deCODE and the directors, executive officers and certain other stockholders of deCODE (who will hold, in the aggregate, -- % of deCODE's common stock after the offering) has agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, it will not sell its shares during the period ending 180 days after the date of this prospectus. Each of certain other stockholders of deCODE, (who will hold, in the aggregate, -- % of deCODE's common stock after the offering), has signed an agreement providing that, upon the request of deCODE or Morgan Stanley & Co. Incorporated, it will not, during the period ending 180 days after the effective date of the registration statement of which this prospectus is a part, sell or otherwise transfer or dispose of any shares of common stock. We cannot be certain that such agreements can be enforced against all transferees of the initial purchasers of the shares. As a result of lockups with the underwriters and the provisions of Rule 144, the -- shares which are restricted securities will be available for sale in the U.S. public market as follows: - -- shares of common stock will be immediately eligible for resale upon expiration of the lockup period (subject to the volume limitations of Rule 144 in the case of sales by affiliates) - -- shares of common stock will be immediately eligible for resale upon expiration of the lockup period (subject to the volume limitations of Rule 144) - -- shares of common stock will be eligible for resale from time to time thereafter upon expiration of the applicable holding periods under Rule 144 upon expiration of the lockup period (subject to the volume limitations of Rule 144) Rule 144. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus a person or persons whose shares are aggregated, who has beneficially owned restricted securities for at least one year, including the holding period of any prior owner except an affiliate, will be entitled to sell within any three-month period a number of shares that does not exceed the greater of: - 1% of the number of shares of our common stock then outstanding, which will equal approximately -- shares immediately after this offering; or 70 72 - the average weekly trading volume of our common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to 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 deCODE. Rule 144(k). Under Rule 144(k), a person who is not deemed to have been one of our affiliates 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, including the holding period of any prior owner except an affiliate, is entitled to sell these shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Registration Rights. As described above, holders of -- shares of our common stock which are restricted securities will be entitled to demand registration of their shares under the Securities Act at any time after 180 days after the effective date of the registration statement of which this prospectus is a part. Registration of these shares under the Securities Act would result in their becoming freely tradeable without restriction under the Securities Act, except for shares purchased by affiliates, immediately upon the effectiveness of the registration. 71 73 UNDERWRITERS Under the terms and subject to the conditions contained in an underwriting agreement dated the date of this prospectus the underwriters named below, for whom Morgan Stanley & Co. Incorporated is acting as representative, have severally agreed to purchase, and deCODE has agreed to sell to them, severally, the number of shares indicated below.
NUMBER OF NAME SHARES - ---- --------- Morgan Stanley & Co. Incorporated........................... Lehman Brothers Inc......................................... --------- Total....................................................... =========
The underwriters are offering the shares of common stock subject to their acceptance of the shares from deCODE 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 by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters' over-allotment option described below. The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price listed on the cover page of this prospectus 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 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 representative. Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on -- , 2000. deCODE has granted to the underwriters an option to purchase up to an aggregate of -- additional shares of common stock exercisable for 30 days from the date of this prospectus, at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering overallotments, if any, made in connection with the offering of the shares of common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of the additional shares of common stock as the number listed next to the underwriter's name in the preceding table bears to the total number of shares of common stock listed next to the names of all underwriters in the preceding table. If the underwriters' option is exercised in full, the total price to the public will be $ -- , the total underwriters' discounts and commissions will be $ -- and total proceeds to deCODE will be $ -- . The underwriters have informed deCODE 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. The common stock has been approved for quotation, subject to official notice of issuance, on the Nasdaq National Market and on EASDAQ, in each case under the symbol "DCGN." Each of deCODE and the directors, executive officers and certain other stockholders of deCODE (who will hold, in the aggregate, -- % of deCODE's common stock after the offering) 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 date of this prospectus: - offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of 72 74 directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or - enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, whether any 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 paragraph above do not apply to: - the sale of shares to the underwriters; - the issuance by deCODE of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding, authorized or available for grant on the date of this prospectus of which the underwriters have been advised in writing; or - transactions by any person other than deCODE relating to shares of common stock or other securities acquired in open market transactions after the completion of the offering of the shares. Each of certain other stockholders of deCODE, (who will hold, in the aggregate, -- % of deCODE's common stock after the offering), signed an agreement providing that, upon the request of deCODE or Morgan Stanley & Co. Incorporated, it will not, during the period ending 180 days after the effective date of the registration statement of which this prospectus is a part, sell or otherwise transfer or dispose of any shares of common stock. deCODE made such request on -- . We cannot be certain that such agreements can be enforced against all transferees of the initial purchasers of the shares. Any deCODE stockholder holding registration rights cannot require deCODE to register its stock earlier than 180 days after the date of this prospectus. These registration rights may not, therefore, be used as a reason to break-up any lock-up arrangements described above. 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 the 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. deCODE and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. PRICING OF THE OFFERING Prior to this offering, there has been no public market for the common stock. Some Icelandic financial institutions have been making a market for privately negotiated transactions among non-U.S. persons in shares of our outstanding Series B preferred stock. The initial public offering price of the common stock will be determined by negotiations between deCODE and the representative. Among the factors to be considered in determining the initial public offering price will be the future prospects of deCODE and its industry in general, earning and certain other financial operating information of deCODE in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to those of deCODE. 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. 73 75 The following table summarizes the per share and total public offering price of the shares of common stock in the offering, the underwriting compensation to be paid to the underwriters by us and the proceeds of the offering, before expenses, to us. The information presented assumes either no exercise or full exercise by the underwriters of their over-allotment option.
TOTAL ---------------------- WITHOUT WITH PER OVER- OVER- SHARE ALLOTMENT ALLOTMENT ------ --------- --------- Public offering price....................................... $ $ $ Underwriting discounts and commissions payable by us........ Proceeds, before expenses, to us............................
The underwriting discount and commission per share is equal to the public offering price per share of our common stock less the amount paid by the underwriters to us per share of common stock. We estimate total offering expenses payable by us, other than the underwriting discounts and commissions referred to above, will be approximately $ -- . LEGAL MATTERS The validity of the common stock offered and some of the legal matters arising in connection with this offering will be passed upon for us by Smith, Stratton, Wise, Heher & Brennan, Princeton, New Jersey. Other legal matters in connection with this offering will be passed upon for the underwriters by Davis Polk & Wardwell, New York, New York. EXPERTS The consolidated financial statements as of December 31, 1998 and 1999 and for each of the three years in the period ended December 31, 1999, included in this prospectus, have been included herein in reliance on the report of PricewaterhouseCoopers ehf., independent accountants, given on the authority of that firm as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission, Washington, D.C., a registration statement on Form S-1 (together with required schedules and exhibits) under the Securities Act with respect to the shares of common stock offered. This prospectus, which constitutes a part of the registration statement, does not contain all of the information provided in the registration statement, certain terms of which are omitted in accordance with the rules and regulations of the Securities and Exchange Commission. You can find additional information with respect to deCODE and the common stock in the registration statement, which may be inspected without charge, at the public reference facilities maintained by the Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; Seven World Trade Center, 13th Floor, New York, New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of these materials may be obtained from the Public Reference Room of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C., 20549, at prescribed rates. You may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The registration statement is also publicly available through the Securities and Exchange Commission's web site located at http://www.sec.gov. 74 76 EASDAQ INFORMATION BELGIUM RESTRICTIONS Prior to approval of the preliminary prospectus and/or the final prospectus by the Belgian Banking and Finance Commission, the shares of common stock will not, whether directly or indirectly, be offered, sold, transferred or delivered in Belgium to any individual or entity other than institutional investors referred to in Article 3.2. of the Belgian Royal Decree of July 7, 1999, on the public character of financial transactions, acting on their own account. APPROVAL BY THE BANKING AND FINANCE COMMISSION On -- , The Banking and Financial Commission (Commission bancaire et financiere/Commissie voor het Bank- en Financiewezen) approved this prospectus in accordance with article 29 ter, (sec.) 1 of the Belgian Royal Decree 185 of July 9, 1935 on the supervision of banks and the issue of securities as supplemented by the law of March 9, 1989. This approval does not imply any judgment as to the appropriateness or the quality of this initial public offering and the admission to trading of our common stock on EASDAQ, nor of our situation. The notice required by article 29 ter, (sec.) 1 of the -- Royal Decree will be published in the press on the first day of trading on EASDAQ. For this purpose, the prospectus approved by the Belgian Banking and Finance Commission is considered to include the registration statement declared effective by the United States Securities and Exchange Commission on -- as well as the additional information contained herein. RESPONSIBILITY FOR THE PROSPECTUS deCODE, represented by Kari Stefansson, Chairman, Chief Executive Officer and President, and Hannes Smarason, Executive Vice President and Chief Business and Finance Officer, takes responsibility for the contents of this prospectus. deCODE, having made all reasonable inquiries, accepts responsibility for, and confirms that this prospectus contains, all information with regard to us and our shares of common stock that is material in the context of the offering and sale of our shares of common stock, that the information contained in this prospectus is true and correct in all material respects and is not misleading, that the opinions and our intentions expressed herein are honestly held and that there are no other facts the omission of which makes this prospectus as a whole or any of such information or the expression of any such opinions or intentions misleading. AVAILABILITY OF INFORMATION Companies applying for admission to trading on EASDAQ are required to publish relevant financial and other information regularly and to keep the public informed of all events likely to affect the market price of their securities. Price sensitive information will be made available to investors in Europe through the EASDAQ -- Company Reporting System and other international information vendors. Copies of the Registration Statement will be available for review at the office of Morgan Stanley Dean Witter, 25 Cabot Square, Canary Wharf, London, E14B 4QA. Additional information about deCODE may be obtained from the sources indicated under "Where You Can Find More Information" in this prospectus. SETTLEMENT AND CLEARANCE The following summarizes our understanding of the operation of the clearing system which will be in place. Persons proposing to trade the common stock on EASDAQ should inform themselves about the costs of such trading including any taxes that might arise from such trade. See also "Certain Tax Considerations -- Certain Belgian Tax Considerations for Belgian Holders of Common Stock." Transactions in the common stock executed in the United States generally will be settled by book-entry through financial institutions that are participants in DTC. 75 77 DTC is a limited-purpose trust company that was created to hold securities for its participating organizations, collectively, DTC Participants, and to facilitate the clearance settlements of transactions in such securities between participants through electronic book-entry changes in accounts of DTC Participants. DTC Participants include securities brokers and dealers, banks and trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies, collectively, DTC Indirect Participants, that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly. Persons which are DTC Participants may beneficially own securities held by or on behalf of DTC only through DTC Participants or DTC Indirect Participants. Our shares of common stock are expected to be quoted on EASDAQ in U.S. dollars. Transactions in the shares of common stock on EASDAQ will be settled in U.S. dollars or any other Euroclear of Clearstream eligible currency through the Euroclear or Clearstream systems. Investors in the common stock on EASDAQ must have a securities account with a financial institution which directly or indirectly has access to Euroclear or Clearstream. Euroclear and Clearstream are DTC Indirect Participants. Euroclear and Clearstream hold securities and book-entry interests in securities for their direct participants, which include banks, securities brokers and dealers, other professional intermediaries and foreign depositories and facilitate the clearance and settlements of securities transactions between their respective participants, and between their participants and participants of certain other securities intermediaries, including DTC, through electronic book-entry changes in accounts of such participants or other securities intermediaries. Euroclear and Clearstream provide their respective participants, among other things, with safekeeping, administration, clearance and settlement, securities lending and borrowing, and related services. Euroclear and Clearstream have established an electronic bridge between their two systems, across which their respective participants may settle trades with each other. Euroclear and Clearstream participants are investment banks, securities brokers and dealers, banks, central banks, supranationals, custodians, investment managers, corporations, trust companies and certain their organizations and include certain of the underwriters. ADMISSION TO TRADING ON EASDAQ We have applied for admission to listing of our common stock to EASDAQ. Our common stock is expected to begin trading on EASDAQ on -- . The EASDAQ trading symbol will be "DCGN." TRANSFER OF OUR COMMON STOCK Upon the issuance of the securities in the manner set forth in this prospectus, our common stock will be freely transferable within the EU, and fully paid and nonassessable. 76 78 DECODE GENETICS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ------- Report of Independent Accountants........................... F-2 Consolidated Balance Sheets................................. F-3 Consolidated Statements of Operations....................... F-4 Consolidated Statements of Changes in Stockholders' Equity (Deficit)................................................. F-5 Consolidated Statements of Cash Flows....................... F-6 Notes to Consolidated Financial Statements.................. F-7
F-1 79 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and stockholders of deCODE genetics, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in stockholders' equity and cash flows present fairly, in all material respects, the consolidated financial position of deCODE genetics, Inc. ("deCODE") at December 31, 1998 and 1999 and the consolidated results of its operations and its consolidated cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles in the United States. These financial statements are the responsibility of deCODE's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards in the United States, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers ehf. Reykjavik, Iceland March 8, 2000 F-2 80 DECODE GENETICS, INC. CONSOLIDATED BALANCE SHEETS
PRO FORMA STOCKHOLDERS' DECEMBER 31, EQUITY AT --------------------------- DECEMBER 31, 1998 1999 1999 ------------ ------------ -------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 25,075,844 $ 29,668,249 Receivable from share issuance............................ 0 33,143,836 Prepaid expenses and other current assets................. 979,998 2,552,124 ------------ ------------ Total current assets.................................... 26,055,842 65,364,209 Investments................................................. 0 757,340 Property and equipment, net................................. 12,484,273 13,008,637 ------------ ------------ Total assets............................................ $ 38,540,115 $ 79,130,186 ============ ============ LIABILITIES, REDEEMABLE, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable and accrued expenses..................... $ 3,415,643 $ 4,146,894 Current portion of capital lease obligations.............. 2,087,186 2,218,726 Deferred research revenue................................. 1,155,000 2,238,333 Payable to preferred shareholders......................... 0 17,467,077 ------------ ------------ Total current liabilities............................... 6,657,829 26,071,030 Capital lease obligations, net of current portion........... 6,772,472 4,549,809 Other long-term liabilities................................. 173,858 324,482 Redeemable, convertible preferred stock, $0.001 par value; 32,641,926 shares authorized: Series A; Designated: 11,041,926 shares Issued and outstanding: 9,562,301 shares (liquidation value $11,752,188) at December 31, 1999.................................................. 14,012,463 12,405,887 $ 0 Series B; Designated: 10,000,000 shares Issued and outstanding: 9,893,814 shares (liquidation value $104,690,567) at December 31, 1999.................................................. 22,616,316 94,485,380 0 Series C; Designated: 4,583,334 shares Issued 3,611,111 shares and outstanding 3,511,111 shares (liquidation value $9,068,624) at December 31, 1999... 5,415,740 9,318,328 0 ------------ ------------ ------------ Total redeemable, convertible preferred stock............. 42,044,519 116,209,595 0 ------------ ------------ ------------ Commitments and contingencies (Note G) Stockholders' equity (deficit): Common stock, $0.001 par value; Authorized: 48,000,000 shares Issued and outstanding: 9,381,500 shares and 9,604,012 shares at December 31, 1998 and 1999, respectively, and 32,573,556 on an unaudited pro forma basis........ 9,382 9,604 32,574 Additional paid-in capital................................ 17,842,611 32,023,850 145,205,296 Notes receivable.......................................... (4,033,347) (9,597,830) (9,597,830) Deferred compensation..................................... (8,549,906) (10,744,069) (10,744,069) Dividends accreted on redeemable, convertible preferred stock................................................... (2,102,068) (3,005,179) 0 Accumulated deficit....................................... (20,275,235) (76,713,517) (76,713,517) Accumulated other comprehensive income.................... 0 2,411 2,411 ------------ ------------ ------------ Total stockholders' equity (deficit).................... (17,108,563) (68,024,730) $ 48,184,865 ------------ ------------ ============ Total liabilities, redeemable, convertible preferred stock and stockholders' equity (deficit)........................ $ 38,540,115 $ 79,130,186 ============ ============
The accompanying notes are an integral part of the consolidated financial statements. F-3 81 DECODE GENETICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------- 1997 1998 1999 ----------- ------------ ------------ REVENUE Research collaborative contract................... $ 0 $ 12,705,000 $ 15,776,667 Other revenue..................................... 0 0 667,408 ----------- ------------ ------------ Total revenue.................................. 0 12,705,000 16,444,075 OPERATING EXPENSES Research and development.......................... 6,080,096 19,282,364 31,823,950 General and administrative........................ 1,967,684 4,893,202 7,863,299 ----------- ------------ ------------ Total operating expenses....................... 8,047,780 24,175,566 39,687,249 ----------- ------------ ------------ Operating loss...................................... (8,047,780) (11,470,566) (23,243,174) Equity in net earnings (loss) of affiliate.......... 0 0 (1,484,081) Interest income, net................................ (8,461) 562,336 1,549,481 Taxes............................................... 0 0 0 ----------- ------------ ------------ Net loss............................................ (8,056,241) (10,908,230) (23,177,774) Accumulated dividends and amortized discount on preferred stock................................... (620,385) (2,571,523) (7,542,787) Premium on repurchase of preferred stock............ 0 0 (30,887,044) ----------- ------------ ------------ Net loss available to common stockholders........... $(8,676,626) $(13,479,753) $(61,607,605) =========== ============ ============ Basic and diluted net loss per share................ $ (3.85) $ (3.06) $ (9.56) Shares used in computing basic and diluted net loss per share......................................... 2,254,413 4,400,576 6,446,055 Unaudited pro forma basic and diluted net loss per share............................................. $ (0.84) Shares used in computing unaudited pro forma basic and diluted net loss per share.................... 27,559,365
The accompanying notes are an integral part of the consolidated financial statements. F-4 82 DECODE GENETICS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
DIVIDENDS ACCRETED ON ADDITIONAL CONVERTIBLE COMMON PAID-IN NOTES DEFERRED REDEEMABLE, ACCUMULATED STOCK PAR VALUE CAPITAL RECEIVABLE COMPENSATION PREFERRED STOCK DEFICIT --------- --------- ----------- ----------- ------------ --------------- ------------ BALANCE AT DECEMBER 31, 1996....................... 6,015,000 $6,015 $ 0 $ 0 $ 0 $ (181,852) $ (1,152,632) Issuance of common stock in exchange for settlement of loan....................... 20,000 20 85,285 Deferred compensation arising from stock option grants..................... 55,250 (55,250) Amortization of deferred compensation............... 11,851 Accretion of dividends and amortization of discount on preferred stock............ (605,174) (15,211) Comprehensive income (loss): Net loss for the period.... (8,056,241) Total comprehensive income (loss)..................... --------- ------ ----------- ----------- ------------ ----------- ------------ BALANCE AT DECEMBER 31, 1997....................... 6,035,000 6,035 140,535 0 (43,399) (787,026) (9,224,084) Issuance of common stock.... 200,000 200 340,768 (80,000) Issuance of common stock upon exercise of stock options.................... 3,146,500 3,147 4,081,514 (3,953,347) Deferred compensation arising from stock option grants..................... 13,279,794 (13,279,794) Amortization of deferred compensation............... 4,773,287 Accretion of dividends and amortization of discount on preferred stock............ (1,315,042) (142,921) Comprehensive income (loss): Net loss for the period.... (10,908,230) Total comprehensive income (loss)..................... --------- ------ ----------- ----------- ------------ ----------- ------------ BALANCE AT DECEMBER 31, 1998....................... 9,381,500 9,382 17,842,611 (4,033,347) (8,549,906) (2,102,068) (20,275,235) Issuance of common stock.... 68,000 68 1,207,845 Forfeiture of unvested Founder Stock and unvested common stock issued upon early exercise of stock options.................... (359,655) 219,111 513,424 Exchange of common stock for Series B preferred stock... (333,333) Issuance of common stock upon exercise of stock options.................... 847,500 154 1,413,392 (5,895,594) Deferred compensation arising from stock options.................... 10,106,684 (10,106,684) Cancellation of stock options previously giving rise to deferred compensation............... (87,602) 87,602 Amortization of deferred compensation............... 7,311,495 Payments of notes receivable................. 112,000 Premium on repurchase of preferred stock............ 582,514 (31,469,558) Beneficial conversion feature of issuance of Series C preferred stock... 1,540,920 Accretion of dividends and amortization of discount on preferred stock............ (1,485,625) (1,790,950) Comprehensive income (loss): Net loss for the period.... (23,177,774) Other comprehensive income (loss): Foreign currency translation.............. Total comprehensive income (loss)..................... --------- ------ ----------- ----------- ------------ ----------- ------------ BALANCE AT DECEMBER 31, 1999....................... 9,604,012 $9,604 $32,023,850 $(9,597,830) $(10,744,069) $(3,005,179) $(76,713,517) ========= ====== =========== =========== ============ =========== ============ ACCUMULATED TOTAL OTHER STOCKHOLDERS' COMPREHENSIVE TREASURY EQUITY INCOME STOCK (DEFICIT) ------------- ----------- ------------- BALANCE AT DECEMBER 31, 1996....................... $ 0 $ 0 $ (1,328,469) Issuance of common stock in exchange for settlement of loan....................... 85,305 Deferred compensation arising from stock option grants..................... 0 Amortization of deferred compensation............... 11,851 Accretion of dividends and amortization of discount on preferred stock............ (620,385) Comprehensive income (loss): Net loss for the period.... (8,056,241) Total comprehensive income (loss)..................... (8,056,241) ------ ----------- ------------ BALANCE AT DECEMBER 31, 1997....................... 0 0 (9,907,939) Issuance of common stock.... 260,968 Issuance of common stock upon exercise of stock options.................... 131,314 Deferred compensation arising from stock option grants..................... 0 Amortization of deferred compensation............... 4,773,287 Accretion of dividends and amortization of discount on preferred stock............ (1,457,963) Comprehensive income (loss): Net loss for the period.... (10,908,230) ------------ Total comprehensive income (loss)..................... (10,908,230) ------ ----------- ------------ BALANCE AT DECEMBER 31, 1998....................... 0 0 (17,108,563) Issuance of common stock.... 1,207,913 Forfeiture of unvested Founder Stock and unvested common stock issued upon early exercise of stock options.................... (732,895) (360) Exchange of common stock for Series B preferred stock... (3,750,000) (3,750,000) Issuance of common stock upon exercise of stock options.................... 4,482,895 847 Deferred compensation arising from stock options.................... 0 Cancellation of stock options previously giving rise to deferred compensation............... 0 Amortization of deferred compensation............... 7,311,495 Payments of notes receivable................. 112,000 Premium on repurchase of preferred stock............ (30,887,044) Beneficial conversion feature of issuance of Series C preferred stock... 1,540,920 Accretion of dividends and amortization of discount on preferred stock............ (3,276,575) Comprehensive income (loss): Net loss for the period.... (23,177,774) Other comprehensive income (loss): Foreign currency translation.............. 2,411 2,411 ------------ Total comprehensive income (loss)..................... (23,175,363) ------ ----------- ------------ BALANCE AT DECEMBER 31, 1999....................... $2,411 $ 0 $(68,024,730) ====== =========== ============
The accompanying notes are an integral part of the consolidated financial statements. F-5 83 DECODE GENETICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------- 1997 1998 1999 ----------- ------------ ------------ Cash flows from operating activities: Net loss.................................................... $(8,056,241) $(10,908,230) $(23,177,774) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization............................. 513,055 1,470,959 2,767,521 Equity in net loss of affiliate........................... 0 0 1,484,081 Amortization of deferred stock compensation............... 11,851 4,773,287 7,311,495 Other stock-based remuneration............................ 0 446,355 732,500 Accrued interest on receivable from share issuance........ 0 0 (893,836) Equipment received for services provided.................. 0 0 (414,000) Other..................................................... 10,521 (45,389) 0 Changes in operating assets and liabilities: Prepaid expenses and other current assets................. 76,436 (753,014) (1,572,126) Accounts payable and accrued expenses..................... 1,370,458 1,802,896 881,251 Deferred research revenue................................. 0 1,155,000 1,083,333 Other long-term liabilities............................... 183,000 (9,142) 150,624 ----------- ------------ ------------ Net cash used in operating activities................... (5,890,920) (2,067,278) (11,646,931) ----------- ------------ ------------ Cash flows from investing activities: Purchases of property and equipment....................... (351,071) (5,084,441) (2,879,055) Investment in affiliated company.......................... 0 0 (254,444) Proceeds from sales of equipment.......................... 23,371 0 3,581 ----------- ------------ ------------ Net cash used in investing activities................... (327,700) (5,084,441) (3,129,918) ----------- ------------ ------------ Cash flows from financing activities: Proceeds from financing of facility....................... 0 2,437,254 0 Repurchase of preferred stock............................. 0 0 (20,310,555) Forfeiture of common stock................................ 0 0 (360) Issuance of preferred stock and warrants.................. 5,101,754 27,269,350 41,658,444 Issuance of common stock.................................. 0 26,927 848 Repayment of notes receivable for common stock............ 0 0 112,000 Cash on deposit........................................... (76,464) 1,595,769 0 Installment payments on capital lease obligations......... (408,153) (1,475,565) (2,091,123) Proceeds from bridge loans................................ 706,074 0 0 Repayment of bridge loans................................. (365,677) (340,397) 0 ----------- ------------ ------------ Net cash provided by financing activities............... 4,957,534 29,513,338 19,369,254 ----------- ------------ ------------ Net increase (decrease) in cash............................. (1,261,086) 22,361,619 4,592,405 Cash and cash equivalents at beginning of period............ 3,975,311 2,714,225 25,075,844 ----------- ------------ ------------ Cash and cash equivalents at end of period.................. $ 2,714,225 $ 25,075,844 $ 29,668,249 =========== ============ ============ Supplemental cash flow information: Cash paid for interest.................................... $ 179,164 $ 551,576 $ 554,834 =========== ============ ============ Supplemental schedule of non-cash transactions: Equipment acquired under capital leases................... $ 426,036 $ 8,420,123 $ 0 Common stock issued in settlement of loan................. 85,305 0 0 Series A preferred stock issued in settlement of current liability............................................... 0 285,000 150,000 Series B preferred stock issued as a part of payment for facility................................................ 0 347,216 0 Receivable from share issuance............................ 0 0 33,143,836 Payable to preferred shareholders......................... 0 0 17,467,077 Series B preferred stock issued in exchange for shares in affiliate............................................... 0 0 779,064 Common stock issued in exchange for shares in affiliate... 0 0 1,207,913 Supplies received in exchange for services provided....... 0 0 239,600
The accompanying notes are an integral part of the consolidated financial statements. F-6 84 DECODE GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. DESCRIPTION OF BUSINESS: deCODE genetics, Inc. ("deCODE") is a genomics and health informatics company which applies and develops modern informatics to collect and analyze data about the Icelandic population in order to develop products and services for the healthcare industry. deCODE was founded in 1996 and its facilities are located in Reykjavik, Iceland, where all of deCODE's operations take place. In November 1996, deCODE acquired all of the then outstanding shares and assumed the related liabilities of deCODE ehf. which was subsequently renamed Islensk erfethagreining ehf. deCODE ehf. was founded in December 1995 by certain of the same founding stockholders of deCODE. From inception to the date of acquisition by deCODE, deCODE ehf. had been engaged in the early assessment of the feasibility of utilizing genomics to aid in drug discovery. Through February 1998, deCODE was a development stage enterprise as defined by Statement of Financial Accounting Standards No. 7, "Accounting and Reporting by Development Stage Enterprises." On February 1, 1998, deCODE entered into a research and collaboration agreement with the Swiss pharmaceutical and diagnostic company F.Hoffmann-La Roche ("Roche"), under which deCODE may receive a total of more than $200 million in equity contributions, research funding and milestone payments. This agreement covers research of up to twelve disease categories over a period of up to five years. As a part of this relationship, Roche has made capital investments in deCODE, provides funding for ongoing research and has made cash payments upon the achievement of certain research milestones. B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF PRESENTATION These financial statements are reported in United States dollars, deCODE's functional currency, and prepared in accordance with generally accepted accounting principles in the United States. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts and operations of deCODE and its wholly owned subsidiary. All significant intercompany accounts and transactions are eliminated upon consolidation. The investment in affiliate in which deCODE has significant influence, but does not control, is accounted for using the equity method. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. UNCERTAINTIES deCODE is subject to risks common to companies in the biotechnology industry including, but not limited to, development by deCODE or its competitors of new technological innovations, ability to market products or services, dependence on key personnel, dependence on key suppliers, protection of proprietary technology, ability to obtain additional financing, ability to negotiate collaborative arrangements and compliance with governmental and other regulations. F-7 85 DECODE GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONCENTRATION OF RISK Financial instruments that potentially subject deCODE to concentrations of credit risk consist principally of temporary cash investments. deCODE's cash is deposited only with financial institutions in Iceland and the United States having a high credit standing. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of short-term financial instruments, including cash and cash equivalents, receivables, certain other current assets, trade accounts payable, certain accrued liabilities, and other current liabilities approximates their carrying amount in the financial statements mainly due to the short maturity of such instruments. The fair value of capital lease obligations and other long-term liabilities approximate their carrying amounts based on deCODE's estimated current incremental borrowing rate for similar obligations with similar terms. CASH EQUIVALENTS deCODE considers all highly liquid investments with a maturity of 90 days or less at the date of purchase to be cash equivalents. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets of generally three years for computer equipment, five years for laboratory equipment, furniture, fixtures and company cars, and fifty years for buildings. Maintenance and repairs are expensed as incurred, while major betterments are capitalized. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation or amortization are eliminated from the accounts and any resulting gain or loss is reflected in the statement of operations. IMPAIRMENT OF LONG-LIVED ASSETS As appropriate, management determines whether any property or equipment has been impaired based on the criteria established by Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of." deCODE has made no adjustments to the carrying values of property and equipment during the years ended December 31, 1997, 1998 and 1999. CAPITAL LEASES Assets acquired under capital lease agreements are recorded at the present value of the future minimum rental payments using interest rates appropriate at the inception of the lease. Property and equipment subject to capital lease agreements are amortized over the shorter of the life of the lease or the estimated useful life of the asset, in accordance with deCODE's normal depreciation policies, unless the lease transfers ownership or contains a bargain purchase option, in which case the leased asset is amortized over the estimated useful life of such asset. REVENUE RECOGNITION AND DEFERRED REVENUE On December 3, 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101), that summarizes the staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The accounting and disclosure requirements that are described in SAB 101 apply to all registrants. deCODE has adopted the requirements of SAB 101 and has restated prior years in accordance with the going public exemption under Accounting Principles Board Opinion No. 20, "Accounting Changes." F-8 86 DECODE GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) deCODE's revenues are currently derived primarily from research funding under the research and collaboration agreement with Roche. Research funding revenue is recognized on an accrual basis as services are provided and are recorded with reference to contracted rates. Milestone payments are recorded when acknowledgement of having achieved applicable performance requirements is received from the joint steering committee and are recognized as revenue on a retrospective straight-line basis over the contractual term of the agreement with Roche. Accordingly, payments received in advance of being earned are recorded as deferred revenue. RESEARCH AND DEVELOPMENT All research and development costs are expensed as incurred. STOCK-BASED COMPENSATION deCODE follows Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation." The provisions of SFAS No. 123 allow companies to either expense the estimated fair value of stock options granted or to follow the intrinsic value method set forth in Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to Employees," and disclose the pro forma effects on net loss and net loss per share had the estimated fair value of the options been expensed. deCODE has elected to follow the intrinsic value method in accounting for its stock option incentive plans. FOREIGN CURRENCY TRANSLATION deCODE and its wholly-owned subsidiary use the U.S. dollar as the functional currency. deCODE's wholly-owned subsidiary also consolidates its subsidiaries, all of which use the local currency, the Icelandic krona, as the functional currency. For these entities the assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at the average exchange rates prevailing during the period. Gains and losses from translation are included in accumulated other comprehensive income (loss). INCOME TAXES deCODE accounts for income taxes using the liability method, which requires the recognition of deferred tax assets or liabilities for the temporary differences between the financial reporting and tax bases of deCODE's assets and liabilities and for tax carryforwards at enacted statutory tax rates in effect for the years in which the difference are expected to reverse. In addition, valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. COMPUTATION OF NET LOSS PER COMMON SHARE Net loss per share is computed under Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Basic net loss per share is computed using net loss available to common stockholders and the weighted-average number of common shares outstanding. The weighted-average number of common shares outstanding during the period is the number of shares determined by relating the portion of time within a reporting period that common shares have been outstanding to the total time in that period. F-9 87 DECODE GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Net loss available to common stockholders consisted of the following:
1997 1998 1999 ---------- ----------- ----------- Net loss.............................................. $8,056,241 $10,908,230 $23,177,774 ---------- ----------- ----------- Accumulated dividends: Accreted dividends on Series A and Series C preferred stock.................................. 605,174 1,315,042 1,485,625 Dividends on Series B preferred stock............... 0 1,113,560 4,266,212 ---------- ----------- ----------- 605,174 2,428,602 5,751,837 Amortized discount on Series A and Series C preferred stock............................................... 15,211 142,921 1,790,950 ---------- ----------- ----------- Accumulated dividends and amortized discount on preferred stock..................................... 620,385 2,571,523 7,542,787 Premium on repurchase of preferred stock.............. 0 0 30,887,044 ---------- ----------- ----------- Net loss available to common stockholders............. $8,676,626 $13,479,753 $61,607,605 ========== =========== ===========
The Series B preferred stock is not redeemable and events that would lead to a constructive liquidation of deCODE, as defined, are remote. As such, dividends are not accreted on the Series B preferred stock. The premium on repurchase of preferred stock arises as a result of deCODE's repurchase of Series A, Series B and Series C preferred stock in August 1999 and represents the aggregate difference between the adjusted repurchase price and the then carrying value of the Series A, Series B and Series C preferred stock. Diluted net loss per share is computed using the weighted-average number of common shares outstanding during the period, plus the dilutive effect of potential common shares. Diluted net loss per share does not differ from basic net loss per share since potential common shares from the conversion of preferred stock, stock options and warrants are antidilutive for all periods presented and are, therefore, excluded from the calculation. For the years ended December 31, 1997, 1998, and 1999, preferred stock convertible into 11,790,375, 19,125,683 and 22,969,544 shares of common stock, respectively, options to purchase 1,180,000, 47,000 and 45,000 shares of common stock, respectively, and warrants to purchase 1,137,814, 1,998,926 and 2,110,037 shares of preferred stock, respectively, were not included in the computation of diluted loss per share since their inclusion would be antidilutive. UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY Upon the closing of a qualified initial public offering, all of the outstanding shares of Series A, Series B and Series C preferred stock, will automatically convert into 22,969,544 shares of common stock. These conversions have been reflected in unaudited pro forma stockholders' equity at December 31, 1999. UNAUDITED PRO FORMA NET LOSS PER SHARE Unaudited pro forma basic and diluted net loss per share have been calculated assuming the conversion of all outstanding shares of preferred stock into common stock, as if the preferred shares had converted immediately upon their issuance. Accordingly, in the calculation of unaudited pro forma net loss per share, net loss has not been increased for the accumulated dividends or amortized discounts on preferred stock or for the premium on the repurchase of preferred stock. The calculation of unaudited pro forma net loss per share is as follows: F-10 88 DECODE GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, 1999 ----------------- (UNAUDITED) Net loss available to common stockholders................... $(61,607,605) Unaudited pro forma adjustments to reflect assumed conversion of preferred stock: Accumulated dividends and amortized discounts on preferred stock.................................................. 7,542,787 Premium on repurchase of preferred stock.................. 30,887,044 ------------ Net loss used in computing unaudited pro forma basic and diluted net loss per share................................ $(23,177,774) ============ Shares used in computing basic and diluted net loss per share..................................................... 6,446,055 Unaudited pro forma adjustment to reflect weighted effect of assumed conversion of preferred stock..................... 21,113,310 ------------ Shares used in computing unaudited pro forma basic and diluted net loss per share................................ 27,559,365 ============ Unaudited pro forma basic and diluted net loss per share.... $ (0.84)
SEGMENT INFORMATION In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 (SFAS No. 131), "Disclosures About Segments of an Enterprise and Related Information." This statement requires companies to report information about operating segments in interim and annual financial statements. It also requires segment disclosures about products and services, geographic areas and major customers. deCODE adopted SFAS No. 131 effective for its fiscal year ended December 31, 1998. deCODE has determined that it did not have any separately reportable operating segments as of December 31, 1998 or 1999. All of deCODE's revenues from inception through December 31, 1999 have been generated in Iceland, and all of deCODE's long-lived assets are located in Iceland. In 1998 and 1999, one customer, Roche, accounted for 100% and 96% of revenues, respectively. RECENT ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for Derivative Instruments and Hedging Activities." This standard establishes a new model for accounting for derivatives and hedging activities and supersedes and amends a number of existing standards. Upon the standard's initial application, all derivatives are required to be recognized in the balance sheet as either assets or liabilities and measured at fair value. In addition, all hedging relationships must be designated, reassessed and documented. Currently, the standard is to be effective for fiscal years and quarters beginning after June 15, 2000. Considering deCODE's current activities, it is not anticipated that the adoption of SFAS No. 133 will have a significant impact on its financial position or results of operations. C. INVESTMENTS: In January and February 1999, deCODE acquired equity interests totalling 20% in Gagnalind hf. in exchange for $254,444 in cash and 70,824 shares of Series B preferred stock. In November 1999, deCODE entered into an agreement to acquire an approximate 20% equity interest in eMR ehf. in exchange for deCODE's interest in Gagnalind hf. and $344,590 in cash. This transaction is expected to be completed in early 2000. In connection with this agreement, deCODE issued 68,000 shares of common stock in exchange for additional shares in Gagnalind hf. which temporarily increased deCODE's equity interest in Gagnalind hf. to 56% at December 31, 1999. The carrying amount of deCODE's investment in Gagnalind hf. approximates deCODE's underlying equity in the net assets of Gagnalind hf. F-11 89 DECODE GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) deCODE's equity in net earnings (loss) of affiliate, Gagnalind hf., for the year ended December 31, 1999 is comprised of deCODE's share of the earnings of Gagnalind hf. and amortization of the difference between deCODE's cost and the underlying equity in the net assets of Gagnalind hf. at acquisition. D. PROPERTY AND EQUIPMENT: Property and equipment, all located in Iceland, consisted of the following:
DECEMBER 31, -------------------------- 1998 1999 ----------- ----------- Buildings................................................... $ 4,661,824 $ 5,339,200 Furniture and fixtures...................................... 562,096 708,682 Laboratory equipment........................................ 8,968,309 11,370,430 Other property and equipment................................ 336,466 384,360 ----------- ----------- 14,528,695 17,802,672 Less: accumulated depreciation and amortization............. (2,044,422) (4,794,035) ----------- ----------- Total.................................................. $12,484,273 $13,008,637 =========== ===========
The total depreciation and amortization for the years ended December 31, 1997, 1998 and 1999 was, $513,055, $1,470,959 and $2,767,521, respectively. Property and equipment includes amounts for certain fixed assets financed under capital lease obligations. Total cost and accumulated amortization relating to property and equipment subject to capital lease obligations was $10,624,985 and $1,601,675, respectively, as of December 31, 1998, and $10,624,985 and $3,336,034, respectively, as of December 31, 1999. deCODE's capital lease obligations are collateralized by the assets to which the obligations relate. deCODE has an option to purchase all of the leased property and equipment for 3% of the original lease amount at lease end. E. ACCOUNTS PAYABLE AND ACCRUED EXPENSES: Accounts payable and accrued expenses consisted of the following:
DECEMBER 31, ------------------------ 1998 1999 ---------- ---------- Salaries and other employee benefits........................ $ 936,443 $1,461,763 Suppliers................................................... 2,433,763 2,423,849 Other....................................................... 45,437 261,282 ---------- ---------- Total..................................................... $3,415,643 $4,146,894 ========== ==========
F. BRIDGE LOANS: In September 1997, the Series A preferred stockholders provided deCODE with bridge loans totaling $706,074 and bearing interest at the rate of 7% per annum. deCODE repaid $365,677 in October 1997, using the proceeds from the second round of Series A preferred stock and paid the remaining $340,397 in April 1998. F-12 90 DECODE GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) G. COMMITMENTS AND CONTINGENCIES: LEASE COMMITMENTS deCODE leases certain property, laboratory equipment and other assets under long-term capital leases which expire at varying dates through 2008. At December 31, 1999, future minimum lease payments for non-cancelable capital leases were as follows:
DECEMBER 31, 1999 ------------ 2000........................................................ $ 2,606,983 2001........................................................ 2,002,142 2002........................................................ 1,189,722 2003........................................................ 383,608 2004-2008................................................... 1,721,940 ----------- Total minimum lease payments................................ 7,904,395 Less amount representing interest........................... (1,135,860) ----------- Present value of future minimum lease payments.............. 6,768,535 Less current portion........................................ (2,218,726) ----------- Long-term portion........................................... $ 4,549,809 ===========
At December 31, 1997, some of deCODE's capital lease obligations were collateralized by an amount of cash on deposit with an Icelandic bank ($1,595,769 at December 31, 1997). The requirement for the deposited amount was removed by the leasing company in 1998. SETTLEMENT AGREEMENT On December 31, 1997, deCODE entered into a settlement agreement in respect of the past use of certain research facilities (the "Agreement"). As a part of the Agreement, deCODE paid fees both in the form of cash and the issuance of Series A preferred stock. In connection with the Agreement, on January 1, 1998, deCODE issued 100,000 shares of Series A preferred stock. Further, on December 31, 1998 and 1999, deCODE issued 20,000 shares and 10,000 shares of Series A preferred stock, respectively. The amounts paid and the value of the shares issued have been expensed in the statement of operations. Under the Agreement, deCODE is obligated to make certain payments upon the achievement of established milestones leading to the discovery of defined products. deCODE is also to pay royalties on certain royalty bearing products which may result. Such royalties are to be paid for a period up to and potentially exceeding 15 years. COLLABORATIVE PARTIES deCODE has established collaborations in Iceland in most of the disease categories in which the company works. These collaborations generally extend for periods of up to five years, with deCODE being committed to make various payments in connection with research and other services provided as well as to pay the collaborators a portion of sales of scientific results to a third party or of commercial royalties and commercial payments received by deCODE. Subject to satisfactory performance of a consulting arrangement, deCODE is committed to grant stock options for 15,000 shares on December 1, 2000 at an exercise price equal to the fair market value on the date of grant. F-13 91 DECODE GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Certain of the collaborative agreements stipulate future payments in respect of services provided to deCODE. These future payments are included in current and long-term liabilities in the accompanying balance sheets. LITIGATION In January 2000, a lawsuit was filed against deCODE and another Icelandic company alleging copyright infringement and claiming damages amounting to approximately $9,000,000. deCODE believes the suit is without merit and intends to defend this action vigorously; however, the ultimate resolution of this matter cannot yet be determined. In January and February 2000, two individuals advised deCODE that they believe they are entitled to shares of deCODE's common stock. deCODE believes these assertions are entirely without merit and intends to defend any actions which these parties may commence vigorously; however, the ultimate resolution of these matters cannot be determined. In February 2000, an organization known as The Association of Icelanders for Ethics in Science and Medicine, or Mannvernd, and a group of physicians and other citizens issued a press release announcing their intention to file lawsuits against the State of Iceland and any other relevant parties, including deCODE, to test the constitutionality of the Act on a Health Sector Database no. 139/1998, or the Act. According to the press release, the intended lawsuit will allege that the Act and the IHD license involve human rights violations and will challenge the validity of provisions of the Act which allow the use of presumed consent for the processing of health data into the IHD and the grant of a license to operate a single database. deCODE believes that any such litigation would be without merit and intends to defend vigorously any such action in which it becomes a party. However, in the event that the Icelandic State by a final judgment is found to be liable or subject to payment to any third party as a result of the passage of legislation on the IHD and/or the issuance of the IHD license, our agreement with the Ministry requires us to indemnify (see note M) the State of Iceland against all damages and costs incurred in connection with such litigation. H. REDEEMABLE, CONVERTIBLE PREFERRED STOCK: deCODE is authorized to issue 32,641,926 shares of preferred stock. The preferred stock can be issued in one or more series. The outstanding shares of preferred stock issued are convertible, at the option of the holder, into common stock at any time, at the applicable conversion rate as adjusted from time to time (one-to-one at the date of issuance). Upon such optional conversion, deCODE shall pay any accumulated, unpaid dividends, whether or not declared by the Board of Directors. The preferred stock automatically converts to common stock upon closing of a qualified initial public offering, as defined by deCODE's Amended and Restated Certificate of Incorporation. Upon such automatic conversion, all accumulated, unpaid dividends will be cancelled. Common stock that would be received upon an optional or automatic conversion would carry with it certain registration rights. In addition, the preferred stock contains constructive liquidation provisions whereby the occurrence of certain defined events are deemed to be liquidations of deCODE. The liquidation value is the sum of the original issue price plus any accumulated, unpaid dividends before any distributions to the holders of common stock. A description of the preferred stock outstanding on December 31, 1999 is as follows: SERIES A As of December 31, 1999, deCODE has issued and outstanding 9,562,301 shares of Series A preferred stock. Holders of Series A preferred stock are entitled to receive, when and as declared by the Board of Directors, cash dividends at the rate of 8% of the original issue price per annum. Series A preferred stock dividends are cumulative and receive preference over dividends on any outstanding shares of common stock. Upon liquidation, dissolution or winding-up of deCODE, the holders of Series A preferred stock are entitled to receive the sum of F-14 92 DECODE GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the original issue price plus any accumulated, unpaid dividends before any distributions to the holders of common stock. The Series A preferred stock is redeemable upon the vote of 75% of the shareholders voting as a separate class, beginning on the seventh anniversary of the earliest issue date and ending three years later. The redemption value is the sum of the original issue price plus any accumulated, unpaid dividends. Accumulated, accreted dividends on Series A preferred stock amounted to $1,738,233 and $2,069,888 at December 31, 1998 and 1999, respectively. In connection with the sale of 5,090,376 shares of Series A preferred stock in October 1997, deCODE issued 1,137,814 warrants to purchase Series A preferred stock for $1.00 per share. The total consideration received under the issuance was allocated between the preferred shares and the warrants based upon their relative fair values at the date of issuance. The consideration allocated to the warrants was $650,240, and the resulting discount on the preferred shares is being amortized over seven years, the earliest redemption date of the Series A preferred stock. These warrants expire on August 26, 2005. SERIES B As of December 31, 1999, deCODE has issued and outstanding 9,893,814 shares of Series B preferred stock. Holders of Series B preferred stock are entitled to receive, when and as declared by the Board of Directors, cash dividends at the rate of 8% of the original issue price per annum. Series B preferred stock dividends are cumulative and receive preference over dividends on any outstanding shares of common stock. Upon liquidation, dissolution or winding-up of deCODE, the holders of Series B preferred stock are entitled to receive the sum of the original issue price plus any accumulated, unpaid dividends before any distributions to the holders of common stock. Cumulative, undeclared dividends on Series B preferred stock amounted to $1,113,560 and $5,379,772 at December 31, 1998 and 1999, respectively. Such dividends will not be recorded until declared. SERIES C As of December 31, 1999, deCODE has issued 3,611,000 shares of Series C preferred stock and, of those, 3,511,111 shares are outstanding. Holders of Series C preferred stock are entitled to receive, when and as declared by the Board of Directors, cash dividends at the rate of 8% of the original issue price per annum. Series C preferred stock dividends are cumulative and receive preference over dividends on any outstanding shares of common stock. Upon liquidation, dissolution or winding-up of deCODE, the holders of Series C preferred stock are entitled to receive the sum of the original issue price plus any accumulated, unpaid dividends before any distributions to the holders of common stock. The Series C preferred stock is redeemable upon the vote of 75% of the shareholders voting as a separate class, beginning on the seventh anniversary of the earliest issue date and ending three years later. The redemption value is the sum of the original issue price plus any accumulated, unpaid dividends. Accumulated, accreted dividends on Series C Preferred Stock amounted to $363,835 and $935,291 at December 31, 1998 and 1999, respectively. Pursuant to a stock and warrant purchase agreement signed in February 1998, Roche purchased 2,500,000 shares of Series C preferred stock at $2.00 per share in February 1998, purchased 555,555 additional shares of Series C preferred stock at $3.00 per share in February 1999, and purchased another 555,556 shares of Series C preferred stock at $3.00 per share in May 1999. In connection with these share purchases, Roche also obtained options and warrants to purchase a total of 972,223 shares of Series C preferred stock for a weighted-average exercise price of $3.37 per share. The total consideration received under these issuances was allocated between the preferred shares and the warrants based upon their relative fair values at the dates of issuance. F-15 93 DECODE GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The consideration allocated to the 861,112 options and warrants issued in February 1998 was $400,250, and the resulting discount on the preferred shares is being amortized over seven years, the earliest redemption date of the Series C preferred stock. Options and warrants to purchase 611,112 shares expire on February 1, 2001, and warrants to purchase 250,000 shares expire on February 2, 2007. The consideration allocated to the 55,555 warrants issued in February 1999 was $41,668, and the resulting discount on the preferred shares is being amortized over seven years, the earliest redemption date of the Series C preferred stock. These warrants expire on February 5, 2008. The consideration allocated to the 55,556 warrants issued in May 1999 was $125,804 resulting in the shares being issued at a discount. As the preferred shares issued with these warrants were issued with beneficial conversion features, the remaining consideration to be allocated was recorded as additional paid-in capital resulting in no consideration being allocated to the preferred shares. This resulting discount on the preferred shares was amortized entirely on the date of issuance, as the preferred shares are convertible upon issuance. These warrants expire on May 20, 2009. ISSUANCE OF SERIES B PREFERRED STOCK On June 30, 1999, deCODE entered into a Stock Purchase Agreement (the "Purchase Agreement") to sell five million shares of Series B preferred stock at $7.50 per share (the "Purchase Price") to a Luxembourg-based financial buyer (the "Buyer"). The sale closed on August 8, 1999. Contemporaneously with the execution of the Purchase Agreement, deCODE and the Buyer entered into an agreement pursuant to which the parties agreed upon the following: - Sales of Series B preferred stock in the Icelandic market shortly before the date of the Purchase Agreement indicated that the market price was approximately $15 per share; - The Buyer would sell the Series B preferred stock to Icelandic investors at the market price; - The Purchase Price at which the Buyer would buy the Series B shares from deCODE would be increased to $15.00 per share (the "Adjusted Purchase Price") if (i) the Buyer was able to sell at least 50% of the Series B shares at or above the Adjusted Purchase Price and (ii) the trading price in the Icelandic market remained at or above the Adjusted Purchase Price from the time of such resale through the end of 1999; - In the event that deCODE received the incremental Adjusted Purchase Price proceeds from the Buyer, deCODE would also receive interest on such amount at a rate of 6% per annum from the closing date; and - The Buyer would receive a commission of 7% of the proceeds from the sale of the Series B preferred stock for the placement of deCODE's stock. This commission would only become payable in the event that the Purchase Price was subsequently increased to the Adjusted Purchase Price. On August 8, 1999, the closing date, the Buyer advised deCODE that it had arranged for the sale of at least 50% of the Series B shares at a price of $15.00 per share. EXCHANGE OF COMMON STOCK FOR SERIES B PREFERRED STOCK On July 12, 1999, deCODE entered into an agreement whereby it exchanged 333,333 shares of common stock held by deCODE's chief executive officer, or CEO, for 250,000 shares of newly issued Series B preferred stock. At this time, the common shares were estimated to have a fair value equal to 75% of the fair value of the Series B preferred shares. The 333,333 shares of common stock were held in treasury and subsequently re-issued during 1999. F-16 94 DECODE GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) REPURCHASE OF SERIES A, SERIES B AND SERIES C PREFERRED STOCK On August 8, 1999, deCODE repurchased the 250,000 shares of Series B preferred stock issued to its CEO pursuant to a Resolution adopted by the Board of Directors. The 250,000 shares of Series B preferred stock were held in treasury and subsequently re-issued during 1999. On August 11, 1999, deCODE repurchased and retired 2,358,074 shares of Series A preferred stock. On August 24, 1999, deCODE repurchased and holds in treasury 100,000 shares of Series C preferred stock. Pursuant to the Series A and Series C preferred stock repurchase agreements and the Board Resolution, the initial repurchase price deCODE paid for such shares of Series A, Series B and Series C preferred stock was $7.50 per share (the "Repurchase Price"). deCODE paid the Repurchase Price to the selling shareholders in August 1999. However, pursuant to agreements between the respective stockholders and deCODE on July 12, 1999, it was agreed that the repurchase price paid for the Series A, Series B and Series C preferred stock would be equal to the Purchase Price per share, net of any commission payable to the Buyer, at which deCODE sold shares of its Series B preferred stock in the August 8, 1999 offering. ADJUSTMENT TO ISSUANCE AND REPURCHASE PRICES On December 28, 1999, the conditions requiring an increase of the Purchase Price were met, and deCODE and the Buyer agreed on an Adjusted Purchase Price of $15.00 per share for the five million shares of Series B preferred stock sold to the Buyer on August 8, 1999. It was also agreed that the Buyer would receive the commission in the amount of $5,250,000, representing 7% of the total aggregate Adjusted Purchase Price for the Series B shares. As of December 31, 1999, deCODE has recorded a receivable from the Buyer in the amount of $33,143,836 representing the incremental amount due from the Buyer with respect to the Adjusted Purchase Price of $37,500,000, less commissions and plus accrued interest. The receivable from the Buyer was paid in February 2000. As a result of the Purchase Price being adjusted, on December 28, 1999, deCODE and the Series A stockholders, deCODE's CEO and the Series C stockholder agreed upon an adjusted repurchase price for the Series A, Series B and Series C preferred stock of $13.95 per share, that being the Adjusted Purchase Price of $15.00 per share less a commission of 7% of the Adjusted Purchase Price. The incremental repurchase price per share of $6.45, or $17,467,077 in aggregate, was paid to the respective sellers of Series A, Series B and Series C preferred stock in February 2000, and accordingly, is reflected in the balance sheet at December 31, 1999 as a current liability. UNDESIGNATED PREFERRED STOCK With respect to the 7,016,666 shares of preferred stock not currently designated as an existing series, deCODE's Board of Directors is authorized, except as otherwise limited by Delaware law, without further action by the stockholders: - to issue shares of preferred stock in one or more series; - to fix or alter the dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption price or prices, and liquidation preferences of any wholly unissued series of preferred stock; - to designate the number of shares constituting, and the designation of, any series of preferred stock; and F-17 95 DECODE GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) - to increase or decrease the number of shares of a series subsequent to the issue of shares of that series, but not below the number of shares of that series then outstanding. BALANCES OF THE SERIES A, SERIES B AND SERIES C PREFERRED STOCK
NUMBER OF SHARES AMOUNT ---------------------------------- -------------------------------------- SERIES A SERIES B SERIES C SERIES A SERIES B SERIES C PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED STOCK STOCK STOCK STOCK STOCK STOCK TOTAL ---------- --------- --------- ----------- ----------- ---------- ------------ Issuance of Series A preferred stock............................ 6,699,999 0 0 $ 6,699,999 $ 0 $ 0 $ 6,699,999 Accretion of dividends on preferred stock............................ 181,852 181,852 ---------- --------- --------- ----------- ----------- ---------- ------------ BALANCE AT DECEMBER 31, 1996....... 6,699,999 0 0 6,881,851 0 0 6,881,851 Issuance of Series A preferred stock and warrants............... 5,090,376 5,101,754 5,101,754 Accretion of dividends and amortization of discount on preferred stock.................. 620,385 620,385 ---------- --------- --------- ----------- ----------- ---------- ------------ BALANCE AT DECEMBER 31, 1997....... 11,790,375 0 0 12,603,990 0 0 12,603,990 Issuance of Series A preferred stock............................ 120,000 366,000 366,000 Issuance of Series B preferred stock............................ 4,712,990 22,616,316 22,616,316 Issuance of Series C preferred stock, warrants and options...... 2,500,000 5,000,250 5,000,250 Accretion of dividends and amortization of discount on preferred stock.................. 1,042,473 415,490 1,457,963 ---------- --------- --------- ----------- ----------- ---------- ------------ BALANCE AT DECEMBER 31, 1998....... 11,910,375 4,712,990 2,500,000 14,012,463 22,616,316 5,415,740 42,044,519 Repurchase and retirement of Series A preferred stock................ (2,358,074) (2,916,259) (2,916,259) Exchange of common stock for Series B preferred stock.................. 250,000 3,750,000 3,750,000 Repurchase of Series B preferred stock............................ (250,000) (3,750,000) (3,750,000) Repurchase of Series C preferred stock and held in treasury....... (100,000) (224,329) (224,329) Issuance of Series A preferred stock............................ 10,000 367,500 367,500 Issuance of Series B preferred stock............................ 5,180,824 71,869,064 71,869,064 Issuance of Series C preferred stock and warrants............... 1,111,111 1,792,525 1,792,525 Accretion of dividends and amortization of discount on preferred stock.................. 942,183 2,334,392 3,276,575 ---------- --------- --------- ----------- ----------- ---------- ------------ BALANCE AT DECEMBER 31, 1999....... 9,562,301 9,893,814 3,511,111 $12,405,887 $94,485,380 $9,318,328 $116,209,595 ========== ========= ========= =========== =========== ========== ============
I. STOCKHOLDERS' EQUITY: COMMON STOCK The total authorized shares of common stock, par value $0.001, of deCODE is 48,000,000 shares. Holders of shares of common stock are entitled to one vote at all meetings of stockholders for each share held by them. The common stock has no preemptive rights or other rights to subscribe for additional shares, no conversion right and no right of redemption. Subject to the rights and preferences of the holders of any preferred stock, the holders of the common stock are entitled to receive such dividends as, when and if declared by the Board of Directors out of funds legally available therefor for that purpose. Notes receivable for the purchase of common stock are collateralized only by the shares to which they relate, are payable after a fixed period of generally four years and bear a fixed interest rate of generally six percent per annum. F-18 96 DECODE GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Of the 6,015,000 shares of common stock that were issued and paid at the inception of deCODE, 5,789,438 were issued to the founders of deCODE subject to certain vesting provisions ("Founder Stock"). The unvested shares of Founder Stock are subject to repurchase by deCODE at the original issue price in the event that a founder does not continue in employment, according to individual terms. At December 31, 1999, 503,341 shares of the Founder Stock remained subject to repurchase. Of the Founder Stock, 3,606,492 shares of common stock are entitled to piggyback registration rights with respect to the registration of such shares under the Securities Act. Should deCODE propose to register any shares of common stock under the Securities Act either for deCODE's own account or for the account of other security holders, the holders of shares having piggyback rights are entitled to receive notice of the registration and are entitled, with some limitation, to include their shares in the registration. Forfeited unvested Founder Stock and unvested common stock issued upon early exercise of stock options totalling 359,655 shares were held in treasury and subsequently re-issued during 1999. At December 31, 1999, 1,954,623 shares of common stock that were issued upon early-exercise of stock options remained unvested. Upon the closing of a public offering, all outstanding shares of preferred stock will automatically convert into shares of common stock. As of December 31, 1999, the number of shares of common stock issuable upon conversion are as follows:
SHARES OF COMMON STOCK ------------ Series A preferred stock.................................... 9,562,301 Series B preferred stock.................................... 9,896,132 Series C preferred stock.................................... 3,511,111 ---------- 22,969,544 ==========
Also upon the closing of a public offering, warrants to purchase shares of Series A and Series C preferred stock will automatically convert into warrants to purchase the same number of shares of common stock. As of December 31, 1999, warrants to purchase 1,137,814 shares of Series A preferred stock and warrants to purchase 972,223 shares of Series C preferred stock were outstanding. Such stock and warrants will have the right to require deCODE to file a registration statement under the Securities Act covering the registration of their shares at any time after 180 days from the effective date of an initial registration statement if the holders of 50% of such shares demand registration and the number of shares to be registered has an aggregate public offering price of at least $5,000,000. Such registration rights are subject to conditions and limitations, including the right of the underwriters of an offering to limit the number of shares of common stock which security holders may include in a registration. Further, deCODE may defer a registration for a period of 90 days if deCODE furnishes to the holders requesting registration a certificate signed by the chairman of the board stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to deCODE and its stockholders for the requested registration to be effected at that time. deCODE is generally required to bear all of the expenses of such registrations, except underwriting discounts and selling commissions. Registration of any of the shares of common stock held by security holders with registration rights would result in such shares becoming freely tradable without restriction under the Securities Act immediately upon effectiveness of such registration. STOCK OPTION PLAN In August 1996, deCODE adopted the deCODE genetics, Inc. 1996 Equity Incentive Plan (the "Plan"). A total of 5,000,000 options are reserved to be granted under the terms of the Plan. The Plan provides for grants of stock options to employees, members of the Board of Directors, consultants and other advisors who are not F-19 97 DECODE GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) employees. Options granted to date generally vest over a period of four years, generally have a maximum term of 10 years, contain early-exercise provisions and allow for company-provided financing of the exercise price. As of December 31, 1999, 1,041,000 shares were available for grant under the 1996 Plan. Options transactions pursuant to the Plan are summarized as follows:
EXERCISE PRICE EXERCISE PRICE EXERCISE PRICE GREATER THAN GRANT EQUALS GRANT LESS THAN GRANT DATE STOCK FAIR VALUE DATE STOCK FAIR VALUE DATE STOCK FAIR VALUE TOTAL -------------------------- -------------------------- --------------------------- ---------- WEIGHTED- WEIGHTED- WEIGHTED- NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE NUMBER OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE OF SHARES EXERCISE PRICE OF SHARES --------- -------------- --------- -------------- ---------- -------------- ---------- Outstanding at December 31, 1996............... 0 $ 0.00 0 $ 0.00 0 $ 0.00 0 Granted.................. 0 0.00 0 0.00 1,180,000 0.20 1,180,000 -------- ------ ------ ------ ---------- ------ ---------- Outstanding at December 31, 1997............... 0 0.00 0 0.00 1,180,000 0.20 1,180,000 Granted.................. 540,000 4.00 15,000 4.00 1,378,500 0.64 1,933,500 Exercised................ (523,000) 4.00 0 0.00 (2,543,500) 0.42 (3,066,500) -------- ------ ------ ------ ---------- ------ ---------- Outstanding at December 31, 1998............... 17,000 4.00 15,000 4.00 15,000 0.20 47,000 Granted.................. 0 0.00 15,000 18.29 840,500 5.62 855,500 Exercised................ (7,000) 4.00 0 0.00 (840,500) 5.62 (847,500) Cancelled................ (10,000) 4.00 0 0.00 0 0.00 (10,000) -------- ------ ------ ------ ---------- ------ ---------- Outstanding at December 31, 1999............... 0 $ 0.00 30,000 $11.15 15,000 $ 0.20 45,000 ======== ====== ====== ====== ========== ====== ========== TOTAL -------------- WEIGHTED- AVERAGE EXERCISE PRICE -------------- Outstanding at December 31, 1996............... $ 0.00 Granted.................. 0.20 ------ Outstanding at December 31, 1997............... 0.20 Granted.................. 1.58 Exercised................ 1.03 ------ Outstanding at December 31, 1998............... 2.79 Granted.................. 5.85 Exercised................ 5.61 Cancelled................ 4.00 ------ Outstanding at December 31, 1999............... $ 7.50 ======
The following table summarizes information about stock options outstanding at December 31, 1999:
OUTSTANDING VESTED AND EXERCISABLE ------------------------ --------------------------- WEIGHTED- AVERAGE REMAINING CONTRACTUAL WEIGHTED- NUMBER LIFE NUMBER AVERAGE EXERCISE PRICE OF SHARES (IN YEARS) OF SHARES EXERCISE PRICE -------------- --------- ----------- --------- -------------- $0.20.......................................... 15,000 7.92 15,000 $ 0.20 $4.00.......................................... 15,000 8.92 15,000 4.00 $18.29......................................... 15,000 9.92 1,250 18.29 ------ ----- ------ ------ $0.20-18.29.................................... 45,000 8.92 31,250 $ 2.75 ====== ===== ====== ======
deCODE records deferred compensation for options granted with exercise prices below the estimated fair value of common stock at the date on which both the number of shares to be issued and the exercise price are fixed and determinable. Deferred compensation is amortized and recorded as compensation expense ratably over the vesting period of the options. Stock-based compensation expense of $11,851, $4,773,287, and $7,311,495 was recognized in the statements of operations during the years ended December 31, 1997, 1998 and 1999. Each employee option grant generally vests twenty-five percent on the first anniversary date of an employee's commencement of employment and 1/48 of the original grant each month thereafter for the following three years. All options granted to date have contained a provision for early-exercise according to the terms of the Plan with company-provided financing of the exercise price made available. In almost all cases, employees have taken advantage of their right to early-exercise and to fund such exercise with a company-provided loan. The company-provided loans are due after a fixed term of generally four years and bear a fixed interest rate of six percent per F-20 98 DECODE GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) annum. In March 1999, deCODE amended certain previously granted options, thus resulting in a new measurement date for such options. OTHER STOCK OPTION ARRANGEMENTS In February 1998, deCODE granted a stock option to a collaborator which was not granted under the provisions of the Plan. This option was for 80,000 shares of common stock at an exercise price of $0.40 per share. The option had no vesting provisions and was immediately exercised using company-provided financing that was subsequently paid in 1999. PRO FORMA NET LOSS PER COMMON SHARE deCODE applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for options granted to employees and has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation". Accordingly, no compensation expense as calculated under SFAS No. 123 has been recognized in the statements of operations for stock options granted to employees. deCODE applies SFAS No. 123 in accounting for options granted to non-employees and has recognized the grant date fair value of options granted to non-employees in the statements of operations. Had compensation cost for all stock options been determined based on the fair value at the grant date for awards in 1997, 1998 and 1999, consistent with the provisions of SFAS No. 123, deCODE's net loss and basic and diluted net loss per share would have been changed to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31, ----------------------------------------- 1997 1998 1999 ----------- ------------ ------------ Net loss attributable to common stockholders -- as reported............................................ $(8,676,626) $(13,479,753) $(61,607,605) Net loss attributable to common stockholders -- pro forma............................................... $(8,694,626) $(10,399,753) $(58,197,605) Basic and diluted net loss per share -- as reported... $ (3.85) $ (3.06) $ (9.56) Basic and diluted net loss per share -- pro forma..... $ (3.86) $ (2.36) $ (9.03)
The effects of applying the provisions of SFAS No. 123 on net loss and net loss per share as stated above is not necessarily representative of the effects on reported income or loss for future years due to, among other things, the vesting period of the stock options and the fair value of additional stock options that may be granted in future years. The weighted-average grant-date fair values using the Black-Scholes option pricing model were:
YEAR ENDED DECEMBER 31, ------------------------ 1997 1998 1999 ----- ----- ------ Exercise price greater than grant date stock fair value..... $2.31 Exercise price equals grant date stock fair value........... $1.88 $11.60 Exercise price less than grant date stock fair value........ $0.10 $1.72 $11.02
The fair values of the options granted during 1997, 1998 and 1999 are estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: no dividends, expected volatility of 50%, 50% and 60%, respectively; expected terms of 3.1 years, 3.8 years and 3.9 years, respectively; and risk-free interest rates of 5.82%, 5.44% and 5.74%, respectively. J. STOCK-BASED COMPENSATION AND REMUNERATION: Stock-based compensation and remuneration are included in the statements of operations in the following captions: F-21 99 DECODE GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED DECEMBER 31, ------------------------------------- 1997 1998 1999 ------- ----------- ----------- General and administrative expense................... $ 3,675 $ 1,757,639 $ 3,121,509 Research and development expense..................... 8,176 3,462,003 4,922,486 ------- ----------- ----------- Total................................................ $11,851 $ 5,219,642 $ 8,043,995 ======= =========== ===========
K. DEFINED CONTRIBUTION BENEFITS: deCODE contributes to relevant pension organizations for personnel in Iceland in accordance with Icelandic law. Certain other discretionary contributions may be made. Contributions are based on employee salaries and deCODE has no further liability in connection with these plans. Total contributions were $101,064, $381,138 and $747,939 for the years ended December 31, 1997, 1998 and 1999, respectively. L. INCOME TAXES: deCODE accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes." Due to deCODE incurring net losses since inception, there is no provision for income taxes for the years ended December 31, 1997, 1998 and 1999. deCODE has not paid income taxes in the United States, Iceland or elsewhere since inception. The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities were as follows:
DECEMBER 31, -------------------------- 1998 1999 ----------- ----------- DEFERRED TAX ASSETS (LIABILITIES): Loss carryforwards.......................................... $ 4,591,389 $ 5,662,000 Capitalization of research and development costs............ 0 3,308,000 Other deferred tax assets................................... 0 121,000 Tax depreciation in excess of book depreciation............. (185,699) (428,000) ----------- ----------- Net deferred tax asset...................................... 4,405,690 8,663,000 Valuation allowance......................................... (4,405,690) (8,663,000) ----------- ----------- $ 0 $ 0 =========== ===========
At December 31, 1999, deCODE has available a net operating loss carryforward for federal income tax purposes of approximately $38,000 to offset future federal taxable income in the United States which expires in 2018. deCODE also has approximately $18,829,000 of foreign net operating loss carryforwards available to offset future taxable income in Iceland which expires in varying amounts beginning in 2004. As required by SFAS No. 109, the management of deCODE has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and has established a full valuation allowance for such assets, which are comprised principally of net operating loss carryforwards and capitalization of research and development costs. Management reevaluates the positive and negative evidence periodically. The net operating loss carryforwards could be limited in the future if there is a significant change in ownership. M. SUBSEQUENT EVENTS: On January 22, 2000, the Ministry of Health and Social Security granted deCODE's Icelandic subsidiary, Islensk erfethagreining ehf., an operating license to create and run the Icelandic Health Sector Database, or IHD. The license, which has a term of twelve years, allows deCODE to collect data from medical records of Icelandic healthcare institutions and self-employed healthcare professionals and to transfer such data in encrypted form into F-22 100 DECODE GENETICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) a centralized database. As required by the license and concurrently with the issuance of the license, our Icelandic subsidiary entered into an agreement with the Ministry. This agreement provides that deCODE must pay the Icelandic government a fixed annual fee of 70 million Icelandic kronas (approximately $1,000,000 at December 31, 1999) and an additional annual fee of 6% of its net profit, up to a maximum of 70 million Icelandic kronas per year. The agreement also provides that deCODE's rights to the IHD will be transferred to the Ministry on the expiration or termination of the license. deCODE's preparation of the IHD is subject to technical requirements imposed by the Icelandic Data Protection Commission in areas such as data encryption and privacy protection. These requirements are subject to change from time to time and may require greater technical capabilities than deCODE currently has. Compliance with these requirements can be expensive and time-consuming and may delay the development of the IHD and the DCDP or make such development more expensive than anticipated. In addition, deCODE's compliance is subject to evaluation by the agencies imposing these requirements. deCODE cannot control the time required for this evaluation, and accordingly, the evaluation process may lead to delay in the development of the IHD and the DCDP. deCODE is subject to a very extensive indemnity clause in the agreement with the Ministry, pursuant to which it has: - agreed not to make any claim against the government if the Act or the license are amended as a result of the Act or rules relating to the IHD being found to be inconsistent with the rules of the European Economic Area or other international rules and agreements to which Iceland is or becomes a party; - agreed that if the Icelandic state by a final judgment is found to be liable or subject to payment to any third party as a result of the passage of legislation on the IHD and/or issuance of the IHD license, deCODE will indemnify it against all damages and costs in connection with the litigation; and - agreed to compensate any third parties with whom the Icelandic government negotiates a settlement of liability claims arising from the legislation on the IHD and/or the issue of the IHD license, provided that the Icelandic government demonstrates that it was justified in agreeing to make payments pursuant to the settlement. The license and the agreement under which deCODE received the license also require it to: - pay the costs incurred by the health institutions (including the costs of medical record software) in connection with the entering of data from medical records before transfer to the IHD; - financially segregate the operation of the IHD from its other activities by maintaining a separate operating unit, and separate accounts for the IHD; - pay the costs of the governmental agencies which monitor deCODE's IHD activities; - indemnify and agree not to sue the Icelandic government for any liability resulting from the passage of the legislation on the IHD and its operation and/or the issuance of the IHD; and - observe international science ethics rules. The license prohibits deCODE from, among other things: - abusing its position by charging unreasonable fees, refusing business to our competitors or discriminating among customers by imposing discriminatory or other onerous business terms on our customers; or - assigning or pledging our rights in the license. The IHD license will expire in January 2012, unless an extension is granted. F-23 101 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table lists the costs and expenses, other than underwriting discounts and commissions, which we expect to incur in connection with the issuance and distribution of the securities being registered. Except for the SEC registration fee, the NASD filing fee, the Nasdaq National Market fee and the EASDAQ filing fee, the amounts listed below are estimates: SEC Registration Fee........................................ $ NASD filing fee............................................. $ Nasdaq National Market Listing application fee.............. $ EASDAQ Listing application fee.............................. $ Legal fees and expenses..................................... $ Blue Sky fees and expenses.................................. $ Accounting fees and expenses................................ $ Printing and engraving expenses............................. $ Transfer Agent and Registrar fees........................... $ Miscellaneous expenses...................................... $ ------------ Total.................................................. $ ============
All expenses of registration incurred in connection herewith are being borne by us. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 102(b)(7) of the Delaware General Corporation Law ("DGCL") enables a corporation in its certificate of incorporation to limit the personal liability of its directors for violations of their fiduciary duty of care. Accordingly, Section 4.7 of our certificate of incorporation states that a director will not be personally liable to us or to our stockholders for monetary damages resulting from any breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to us or to our stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. If the DGCL is amended, then the liability of a director will be eliminated or limited to the fullest extent permitted by the amended DGCL. Subsection (a) of Section 145 of the DGCL empowers a corporation to indemnify any person who was or is 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 corporation) by reason of the fact that he 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 expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Subsection (b) of Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he 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 expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of that action or suit if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best II-1 102 interests of the corporation. No indemnification will be made, however, in respect to any claim, issue or matter as to which that person is adjudged to be liable to the corporation, unless and only to the extent that the Court of Chancery or the court in which that action or suit was brought will determine upon application that, despite the adjudication of liability but in view of all of the circumstances of the case, that person is fairly and reasonably entitled to indemnity for the expenses which the Court of Chancery or such other court deems proper. Section 145 further provides that to the extent a present or former director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145, or in defense of any claim, issue or matter therein, that person will be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him; that the indemnification provided by Section 145 will not be deemed exclusive of any other rights to which the indemnified party may be entitled; and that the scope of indemnification extends to directors, officers, employees, or agents of a constituent corporation absorbed in a consolidation or merger and persons serving in that capacity at the request of the constituent corporation for another. The determination of whether indemnification is proper under the circumstances, unless made by a court, is determined by (a) a majority of the disinterested members of the Board of Directors or board committee; (b) independent legal counsel (if a quorum of the disinterested members of the Board of Directors or board committee is not available or if the disinterested members of the Board of Directors or a board committee so direct); or (c) the stockholders. Section 145 also empowers us to purchase and maintain insurance on behalf of our directors or officers against any liability asserted against them or incurred by them in any such capacity or arising out of their status as our directors or officers whether or not we would have the power to indemnify them against the liabilities under Section 145. We currently carry liability insurance for the benefit of our directors and officers that provides coverage for any damages (excluding punitive or exemplary damages, fines or penalties), settlements, and reasonable and necessary legal fees and expenses incurred by any of the officers or directors resulting from any judicial or administrative proceeding initiated during the policy period against any of the officers or directors in which they may be subjected to a binding adjudication of liability for damages or other relief, including any appeal therefrom, for any actual or alleged error, omission, misstatement, misleading statement, neglect, breach of duty or negligent act by any officer or director, while acting solely in his capacity as a director or officer of the company (or any subsidiary of the company). Among other exclusions, our current policy specifically excludes coverage for any claim: by or at the behest of any person or entity that at the time the claim is first made owns or controls 20% or more of the outstanding securities representing the present right to vote for the election of directors of the company (and/or its subsidiaries); involving an accounting of profits made in fact from the purchase and/or sale by the officers and directors of the securities of the company; based upon actual or alleged pollution or contamination; for violations of the Employee Retirement Income Security Act of 1974; by, on behalf of, or at the direction of, the company or other officers or directors; brought about by any dishonest, fraudulent or criminal act or omission or any personal profit or advantage gained by any director or officer to which he was not legally entitled; based upon or arising out of a wrongful act actually or allegedly committed subsequent to a corporate takeover; based upon or arising out of their services as directors, officers or employees of any entity other than the company (or a subsidiary of the company); for actual or alleged libel, slander, defamation, bodily injury, sickness, disease, death, false arrest, false imprisonment, assault, battery, mental anguish, emotional distress, invasion of privacy or damage to or destruction of tangible property; based on allegations that computer software or hardware failed to function properly because of a Year 2000 problem; and/or based upon any future public or private offering of securities. We expect that the exclusion for securities offerings will be removed before the effective date of this registration statement. Section 42 of our bylaws requires that we indemnify each director and executive officer to the fullest extent allowable under the DGCL, and empowers us to indemnify our other officers, employees and other agents. Section 42 further provides, however, that we may limit the extent of our indemnification by individual contracts with our directors and executive officers, and further, that we will not be required to indemnify any director or executive officer in connection with any proceeding (or part of a proceeding) initiated by that person or any proceeding by that person against us or our directors, officers, employees or other agents unless (a) indemnification is expressly required to be made by law, (b) the proceeding was authorized by our Board of Directors or (c) indemnification is provided by us, in our sole discretion, pursuant to the powers vested in us II-2 103 under the DGCL. This provision is a contract with each director and executive officer who serves in that capacity at any time while the provision and the relevant provisions of the DGCL are in effect. Any repeal or modification of Section 42 of our bylaws will only be prospective, and will not affect any rights in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any of our agents. Further, the rights conferred on any person by Section 42 will continue as to a person who has ceased to be a director, officer, employee or other agent and will inure to the benefit of the heirs, executors and administrators of such person. We have, in addition, entered into an indemnity agreement with one of our directors, Sir John Vane. The agreement requires us, subject to certain exceptions, to hold harmless and indemnify Sir John to the fullest extent authorized or permitted by the provisions of the bylaws and the DGCL, as each may be amended from time to time (but, only to the extent that an amendment permits us to provide broader indemnification rights than the bylaws or the DGCL permitted prior to adoption of that amendment). Subject to certain exclusions, we further agreed to hold harmless and indemnify Sir John against any and all expenses (including attorneys' fees), witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that he becomes legally obligated to pay because of any claim or claims made against or by him in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative (including an action by or in the right of us) to which he is, was, or at any time becomes, a party, or is threatened to be made a party, by reason of the fact that he is, was, or at any time becomes, our director, officer, employee or other agent, or is or was serving, or at any time serves, at our request, as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise; and otherwise to the fullest extent as may be provided to him by us under our bylaws and the DGCL. Our agreement with, and obligations to, Sir John under his indemnity agreement will continue during the period that he serves as our director, officer, employee or other agent (or is or was serving at our request as a director, officer, employee or other agent of another company, partnership, joint venture, trust, employee benefit plan or other enterprise) and will continue thereafter so long as he will be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative, by reason of the fact that the director was serving in the capacity referred to herein. Further, the Underwriting Agreement, a proposed form of which is filed as Exhibit 1.1 hereto, contains provisions for indemnification of our underwriters and their officers, directors and certain other persons, against certain civil liabilities, including certain liabilities under the Securities Act. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. In the three years preceding the filing of this registration statement, we sold the following securities that were not registered under the Securities Act. (1) In July 1997, we issued 20,000 shares of our common stock to the Icelandic Industrial Development Fund upon the conversion of a $85,305 debt. (2) In October 1997, we issued 5,090,376 shares of Series A preferred stock and warrants to purchase 1,137,814 shares of Series A preferred stock to a group of accredited investors for aggregate cash proceeds of $5,101,754. (3) In February 1998, we issued 200,000 shares of our common stock to the Icelandic Heart Association for aggregate cash proceeds of $80,000. (4) In December of 1997, we granted stock options to employees, directors and consultants covering an aggregate of 1,165,000 shares of our common stock which were exercised in January 1998 for an aggregate exercise price of $233,000. In February of 1998, we granted stock options to employees, directors and consultants covering an aggregate of 1,020,000 shares of our common stock which were immediately exercised for an aggregate exercise price of $408,000. In March and November of 1998, we granted stock options to employees, directors and consultants covering an aggregate of 408,500 and 570,000 shares of our common stock, respectively, of which 408,500 and 553,000 of these options were immediately exercised for an aggregate II-3 104 exercise price of $408,500 and $2,164,000. In August of 1999, we granted stock options to employees, directors and consultants covering an aggregate of 840,500 shares of our common stock which were immediately exercised for an aggregate exercise price of $4,726,188. Also in 1999, 7,000 options, which were granted in November 1998, were exercised for an aggregate exercise price of $28,000. In December of 1997, 1998 and 1999, we granted stock options to a director covering an aggregate of 15,000, 15,000 and 15,000 shares of our common stock, respectively, at exercise prices of $0.20, $4.00 and $18.29 per share, respectively. The first two of such option grants were exercised in February 2000. (5) On January 1, 1998, December 31, 1998 and December 31, 1999, we issued 100,000, 20,000 and 10,000 shares of Series A preferred stock, respectively, to one accredited investor, The Beth Israel Deaconess Medical Center, pursuant to a settlement agreement. (6) On February 2, 1998, we sold 2,500,000 shares of Series C preferred stock and options and warrants to purchase 861,112 shares of Series C preferred stock to one accredited investor, Roche Finance Ltd, for aggregate cash proceeds of $5,000,250 pursuant to a Series C Preferred Stock and Warrant Purchase Agreement. (7) On February 27, 1998, we issued an aggregate of 74,670 shares of Series B preferred stock to several non-U.S. persons in connection with the purchase of property. (8) In March of 1998, we sold an aggregate of 3,290,000 shares of Series B preferred stock to several non-U.S. persons for aggregate cash proceeds of $12,580,000. (9) In August, September and October of 1998, we sold an aggregate of 1,248,320 shares of Series B preferred stock to several non-U.S. persons for aggregate cash proceeds of $9,277,400. (10) On November 27, 1998 we sold 100,000 shares of Series B preferred stock to Buretharas hf., a non-U.S. person, for aggregate cash proceeds of $750,000. (11) In January 1999, we issued 70,824 shares of Series B preferred stock to several non-U.S. persons in exchange for securities of Gagnalind hf. (12) On February 16 and March 30 of 1999, we sold 80,000 and 30,000 shares of Series B preferred stock, respectively, to several non-U.S. persons for aggregate cash proceeds of $825,000. (13) On February 2, 1999, we sold 555,555 shares of Series C preferred stock, and warrants to purchase 55,555 shares of Series C preferred stock to one accredited investor, Roche Finance Ltd, for aggregate cash proceeds of $1,666,721 pursuant to a Series C Preferred Stock and Warrant Purchase Agreement. (14) On May 20, 1999, we sold 555,556 shares of Series C preferred stock, and warrants to purchase 55,556 shares of Series C preferred stock to one investor, Roche Finance Ltd, for aggregate cash proceeds of $1,666,724 pursuant to a Series C Preferred Stock and Warrant Purchase Agreement. (15) On August 8,1999, we issued 250,000 shares of Series B preferred stock to Kari Stefansson in exchange for 333,333 shares of common stock held by him. (16) On August 8, 1999, we sold 5,000,000 shares of Series B preferred stock to Biotek Invest, S.A., a non-U.S. person, for aggregate cash proceeds of $37,500,000, subject to subsequent adjustment, with final net cash proceeds of $69,750,000. (17) In November 1999, we issued an aggregate of 68,000 shares of common stock to Thornrounarfelag Islands hf. and Skyrr hf., two Icelandic companies, in exchange for securities of Gagnalind hf. The sale and issuance of securities in the transactions described above were deemed to be exempt from registration under the Securities Act by virtue of Section 4(2) and/or Regulation D as transactions not involving any public offering or Regulation S as offers and sales that occurred outside the United States. Where appropriate, the purchasers represented their intention to acquire the securities for investment only and not with a view to the distribution thereof or that they were non-U.S. persons. Appropriate legends are affixed to the stock certificates issued in those transactions. All recipients either received adequate information about us or had access, through employment or other relationships, to adequate information. II-4 105 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1.1* Underwriting Agreement 3.1* Amended and Restated Certificate of Incorporation 3.2 Bylaws 4.1* Specimen Common Stock Certificate 4.2 Form of Warrant to Purchase Series A Preferred Stock 4.3 Form of Warrant to Purchase Series C Preferred Stock 5.1* Opinion of Smith, Stratton, Wise, Heher & Brennan 8.1* Opinion of Stibbe Simont Monahan Duhot regarding Belgian taxation 10.1 Form of License from The Icelandic Data Protection Commission to Islensk erfethagreining ehf. and its Clinical Collaborators to Use and Access Patient Records and Other Clinical Data Relating to Individuals 10.2 1996 Equity Incentive Plan, as amended 10.3 Form of Non-Statutory Stock Option Agreement, including Early Exercise Stock Purchase Agreement and all exhibits thereto, as executed by employees and officers of deCODE genetics, Inc. who received and exercised non-statutory stock options 10.4 Form of Employee Proprietary Information and Inventions Agreement 10.5 Agreement on the Collaboration of Friethrik Skulason (FS) and Islensk erfethagreining ehf. (IE) on the Creation of a Database of Icelandic Genealogy, dated April 15th, 1997 10.6** Research Agreement between deCODE genetics, Inc., and Islensk erfethagreining ehf. and Rannsokna- og Fraeethslusjoethurinn ehf., dated October 24, 1997, as extended 10.7 Consultancy Contract between deCODE genetics, Inc. and Vane Associates, dated December 1, 1997, together with Nondisclosure Agreement executed by Vane Associates as of December 1, 1997, as amended 10.8 Indemnity Agreement between deCODE genetics, Inc. and Sir John Vane, dated December 1, 1997 10.9** Settlement Agreement between The Beth Israel Deaconess Medical Center and deCODE genetics, Inc., dated as of December 31, 1997 10.10 Amended and Restated Non-Recourse Promissory Note between deCODE genetics, Inc. and Hannes Smarason, dated March 24, 1999, 10.11** Research Collaboration and Cross-license Agreement among F.Hoffmann-La Roche Ltd, Hoffmann-La Roche Inc. and deCODE genetics, Inc., dated as of February 1, 1998 10.12 Amended and Restated Investor Rights Agreement of deCODE genetics, Inc., dated as of February 2, 1998, as further amended and restated 10.13** Collaboration Agreement between The Icelandic Heart Association (Hjartavernd) and Islensk erfethagreining ehf., dated February 13, 1998 10.14** Collaboration Agreement between Dr. Helgi Jonsson, Thornorvaldur Ingvarsson and Islensk erfethagreining ehf., dated March 31, 1998 10.15** Collaboration Agreement between The Research Group on Arterial Hypertension and Islensk erfethagreining ehf., dated June 3, 1998 10.16 Contract on Sale and Leaseback between Islensk erfethagreining ehf. and The Icelandic Investment Bank, dated June 8, 1998
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EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.17 Contract on Financial Leasing between Islensk erfethagreining ehf. and Lysing hf., dated June 19, 1998 10.18 Employment Agreement between Islensk erfethagreining ehf. and Axel Nielsen, dated July 1, 1998 10.19** Collaboration Agreement between a Collaboration Group on Alzheimer's Disease and Related Disorders and Islensk erfethagreining ehf., dated July 19, 1998 10.20** Collaboration Agreement between The Research Group on Osteoporosis and Islensk erfethagreining ehf., dated July 19, 1998 10.21 Employment Agreement between Islensk erfethagreining ehf. and Kristjan Erlendsson, dated September 4, 1998 10.22 Co-operation Agreement between Reykjavik Hospital and Islensk erfethagreining ehf., dated November 4, 1998 10.23 Amended and Restated Non-Recourse Promissory Note between deCODE genetics, Inc. and Sigurethur I. Bjornsson, dated March 24, 1999 10.24 Co-operation Agreement between the Iceland State Hospital and Islensk erfethagreining ehf., dated December 15, 1998 10.25 Employment Contract between Islensk erfethagreining ehf. and Sigurethur I. Bjornsson, dated January 15, 1999 10.26 Lease between Friethar sf. and Islensk erfethagreining ehf., dated February 18, 1999 10.27** Research Contract on the Co-operation of a Research Team for Age-Related Macular Degeneration and Islensk erfethagreining ehf., dated April 27, 1999 10.28** Research Contract on the Co-operation of a Research Team for Peripheral Artery Occlusive Disease and Islensk erfethagreining ehf., dated May 28, 1999 10.29** Research Contract on the Co-operation of a Research Team for Allergy and Asthma and Islensk erfethagreining ehf., dated July 1, 1999 10.30 Series A Preferred Stock Repurchase Agreement between deCODE genetics, Inc. and certain holders of Series A Preferred Stock, dated as of July 12, 1999, with attached Addendum 10.31 Series C Preferred Stock Repurchase Agreement between deCODE genetics, Inc. and Roche Finance Ltd, dated as of July 12, 1999, with attached Addendum 10.32 Common Stock Repurchase Agreement between deCODE genetics, Inc. and Kari Stefansson, dated as of July 12, 1999 10.33 Stock Purchase Agreement between deCODE genetics, Inc. and Biotek Invest, S.A., dated as of June 30, 1999, with attached Addendum 10.34 Co-operation Agreement between Akureyri Central Hospital and Islensk erfethagreining ehf., dated October 26, 1999, with attached Declaration 10.35 Non-Recourse Promissory Note between deCODE genetics, Inc. and Hannes Smarason, dated September 15, 1999 10.36** Research Contract on the Co-Operation of a Research Team for Cerebral Haemorrhage and Islensk erfethagreining ehf., dated November 3, 1999 10.37 Lease between the Computer Centre of the Icelandic Savings Banks and Islensk erfethagreining ehf., dated November 24, 1999 10.38 Research Collaboration Agreement by and between Islenskar hveraorverur ehf. and Islensk erfethagreining ehf., dated December 28, 1999 10.39 Agreement between The Minister for Health and Social Security and Islensk erfethagreining ehf. relating to the Issue of an Operating Licence for the Creation and Operation of a Health Sector Database, dated January 21, 2000
II-6 107
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.40 Operating Licence issued to Islensk erfethagreining ehf., State Reg. No. 691295-3549 Lynghals 1 Reykjavik for the Creation and Operation of a Health Sector Database, dated January 22, 2000 10.41 Series B Preferred Stock Agreement between deCODE genetics, Inc. and Kari Stefansson, dated as of March 1, 2000 10.42 Agreement between The University of Iceland, Islensk erfethagreining ehf., and the City of Reykjavik, dated February 15, 2000 10.43* Lease between Islensk erfethagreining ehf. and Faghus ehf., dated as of March 1, 2000 10.44 Form of Employee Confidentiality, Invention Assignment and Non-Compete Agreement executed by certain officers 21.1 Subsidiaries of deCODE genetics, Inc. 23.1 Consent of PricewaterhouseCoopers ehf., independent public accountants 23.2* Consent of Smith, Stratton, Wise, Heher & Brennan (contained in Exhibit 5.1) 23.3* Consent of Stibbe Simont Monahan Duhot (contained in Exhibit 8.1) 24.1 Power of Attorney (see "Power of Attorney" below) 27.1 Financial Data Schedule
- --------------- * To be filed by amendment. ** Confidential treatment has been requested with respect to a portion of this Exhibit. FINANCIAL STATEMENT SCHEDULES No schedules are required because the information is either not applicable or is presented elsewhere herein. ITEM 17. UNDERTAKINGS. We hereby undertake to provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of deCODE pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of deCODE 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, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. We hereby undertake that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act will 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, each post-effective amendment that contains a form of prospectus will be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time will be deemed to be the initial bona fide offering thereof. II-7 108 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, we have duly caused this registration statement to be signed on our behalf by the undersigned, thereunto duly authorized, in the city of Reykjavik, Iceland, on March 8, 2000. deCODE genetics, Inc. /s/ DR. KARI STEFANSSON By: -------------------------------------- Dr. Kari Stefansson, President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dr. Kari Stefansson, Hannes Thorn. Smarason and Axel Nielsen, and each or any one of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including Rule 462(b) or other post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates stated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ DR. KARI STEFANSSON President, Chief Executive Officer March 8, 2000 - --------------------------------------------- (principal executive officer) and Dr. Kari Stefansson Director /s/ AXEL NIELSEN Chief Financial Officer and March 8, 2000 - --------------------------------------------- Treasurer (principal financial Axel Nielsen officer and principal accounting officer) /s/ JEAN-FRANCOIS FORMELA Director March 8, 2000 - --------------------------------------------- Jean-Francois Formela /s/ ANDRE LAMOTTE Director March 8, 2000 - --------------------------------------------- Andre Lamotte /s/ TERRANCE MCGUIRE Director March 8, 2000 - --------------------------------------------- Terrance McGuire /s/ GUY NOHRA Director March 8, 2000 - --------------------------------------------- Guy Nohra /s/ SIR JOHN VANE Director March 8, 2000 - --------------------------------------------- Sir John Vane
II-8 109 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1.1* Underwriting Agreement 3.1* Amended and Restated Certificate of Incorporation 3.2 Bylaws 4.1* Specimen Common Stock Certificate 4.2 Form of Warrant to Purchase Series A Preferred Stock 4.3 Form of Warrant to Purchase Series C Preferred Stock 5.1* Opinion of Smith, Stratton, Wise, Heher & Brennan 8.1* Opinion of Stibbe Simont Monahan Duhot regarding Belgian taxation 10.1 Form of License from The Icelandic Data Protection Commission to Islensk erfethagreining ehf. and its Clinical Collaborators to Use and Access Patient Records and Other Clinical Data Relating to Individuals 10.2 1996 Equity Incentive Plan, as amended 10.3 Form of Non-Statutory Stock Option Agreement, including Early Exercise Stock Purchase Agreement and all exhibits thereto, as executed by employees and officers of deCODE genetics, Inc. who received and exercised non-statutory stock options 10.4 Form of Employee Proprietary Information and Inventions Agreement 10.5 Agreement on the Collaboration of Friethrik Skulason (FS) and Islensk erfethagreining ehf. (IE) on the Creation of a Database of Icelandic Genealogy, dated April 15th, 1997 10.6** Research Agreement between deCODE genetics, Inc., and Islensk erfethagreining ehf. and Rannsokna- og Fraeethslusjoethurinn ehf., dated October 24, 1997, as extended 10.7 Consultancy Contract between deCODE genetics, Inc. and Vane Associates, dated December 1, 1997, together with Nondisclosure Agreement executed by Vane Associates as of December 1, 1997, as amended 10.8 Indemnity Agreement between deCODE genetics, Inc. and Sir John Vane, dated December 1, 1997 10.9** Settlement Agreement between The Beth Israel Deaconess Medical Center and deCODE genetics, Inc., dated as of December 31, 1997 10.10 Amended and Restated Non-Recourse Promissory Note between deCODE genetics, Inc. and Hannes Smarason, dated March 24, 1999, 10.11** Research Collaboration and Cross-license Agreement among F Hoffmann-La Roche Ltd, Hoffmann-La Roche Inc. and deCODE genetics, Inc., dated as of February 1, 1998 10.12 Amended and Restated Investor Rights Agreement of deCODE genetics, Inc., dated as of February 2, 1998, as further amended and restated 10.13** Collaboration Agreement between The Icelandic Heart Association (Hjartavernd) and Islensk erfethagreining ehf., dated February 13, 1998 10.14** Collaboration Agreement between Dr. Helgi Jonsson, Thornorvaldur Ingvarsson and Islensk erfethagreining ehf., dated March 31, 1998 10.15** Collaboration Agreement between The Research Group on Arterial Hypertension and Islensk erfethagreining ehf., dated June 3, 1998 10.16 Contract on Sale and Leaseback between Islensk erfethagreining ehf. and The Icelandic Investment Bank, dated June 8, 1998
II-9 110
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.17 Contract on Financial Leasing between Islensk erfethagreining ehf. and Lysing hf., dated June 19, 1998 10.18 Employment Agreement between Islensk erfethagreining ehf. and Axel Nielsen, dated July 1, 1998 10.19** Collaboration Agreement between a Collaboration Group on Alzheimer's Disease and Related Disorders and Islensk erfethagreining ehf., dated July 19, 1998 10.20** Collaboration Agreement between The Research Group on Osteoporosis and Islensk erfethagreining ehf., dated July 19, 1998 10.21 Employment Agreement between Islensk erfethagreining ehf. and Kristjan Erlendsson, dated September 4, 1998 10.22 Co-operation Agreement between Reykjavik Hospital and Islensk erfethagreining ehf., dated November 4, 1998 10.23 Amended and Restated Non-Recourse Promissory Note between deCODE genetics, Inc. and Sigurethur I. Bjornsson, dated March 24, 1999 10.24 Co-operation Agreement between the Iceland State Hospital and Islensk erfethagreining ehf., dated December 15, 1998 10.25 Employment Contract between Islensk erfethagreining ehf. and Sigurethur I. Bjornsson, dated January 15, 1999 10.26 Lease between Friethar sf. and Islensk erfethagreining ehf., dated February 18, 1999 10.27** Research Contract on the Co-operation of a Research Team for Age-Related Macular Degeneration and Islensk erfethagreining ehf., dated April 27, 1999 10.28** Research Contract on the Co-operation of a Research Team for Peripheral Artery Occlusive Disease and Islensk erfethagreining ehf., dated May 28, 1999 10.29** Research Contract on the Co-operation of a Research Team for Allergy and Asthma and Islensk erfethagreining ehf., dated July 1, 1999 10.30 Series A Preferred Stock Repurchase Agreement between deCODE genetics, Inc. and certain holders of Series A Preferred Stock, dated as of July 12, 1999, with attached Addendum 10.31 Series C Preferred Stock Repurchase Agreement between deCODE genetics, Inc. and Roche Finance Ltd, dated as of July 12, 1999, with attached Addendum 10.32 Common Stock Repurchase Agreement between deCODE genetics, Inc. and Kari Stefansson, dated as of July 12, 1999 10.33 Stock Purchase Agreement between deCODE genetics, Inc. and Biotek Invest, S.A., dated as of June 30, 1999, with attached Addendum 10.34 Co-operation Agreement between Akureyri Central Hospital and Islensk erfethagreining ehf., dated October 26, 1999, with attached Declaration 10.35 Non-Recourse Promissory Note between deCODE genetics, Inc. and Hannes Smarason, dated September 15, 1999 10.36** Research Contract on the Co-Operation of a Research Team for Cerebral Haemorrhage and Islensk erfethagreining ehf., dated November 3, 1999 10.37 Lease between the Computer Centre of the Icelandic Savings Banks and Islensk erfethagreining ehf., dated November 24, 1999 10.38 Research Collaboration Agreement by and between Islenskar hveraorverur ehf. and Islensk erfethagreining ehf., dated December 28, 1999 10.39 Agreement between The Minister for Health and Social Security and Islensk erfethagreining ehf. relating to the Issue of an Operating Licence for the Creation and Operation of a Health Sector Database, dated January 21, 2000
II-10 111
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.40 Operating Licence issued to Islensk erfethagreining ehf., State Reg. No. 691295-3549 Lynghals 1 Reykjavik for the Creation and Operation of a Health Sector Database, dated January 22, 2000 10.41 Series B Preferred Stock Agreement between deCODE genetics, Inc. and Kari Stefansson, dated as of March 1, 2000 10.42 Agreement between The University of Iceland, Islensk erfethagreining ehf., and the City of Reykjavik, dated February 15, 2000 10.43* Lease between Islensk erfethagreining ehf. and Faghus ehf., dated as of March 1, 2000 10.44 Form of Employee Confidentiality, Invention Assignment and Non-Compete Agreement executed by certain officers 21.1 Subsidiaries of deCODE genetics, Inc. 23.1 Consent of PricewaterhouseCoopers ehf., independent public accountants 23.2* Consent of Smith, Stratton, Wise, Heher & Brennan (contained in Exhibit 5.1) 23.3* Consent of Stibbe Simont Monahan Duhot (contained in Exhibit 8.1) 24.1 Power of Attorney (see "Power of Attorney" below) 27.1 Financial Data Schedule
- --------------- * To be filed by amendment. ** Confidential treatment has been requested with respect to a portion of this Exhibit. II-11 EX-3.2 2 BYLAWS 1 EXHIBIT 3.2 BYLAWS OF DECODE GENETICS, INC. (A DELAWARE CORPORATION) (AS AMENDED THROUGH DECEMBER 31, 1999) 2 TABLE OF CONTENTS ARTICLE I - OFFICES......................................................................................1 Section 1. Registered Office....................................................................1 Section 2. Other Offices........................................................................1 ARTICLE II - CORPORATE SEAL..............................................................................1 Section 3. Corporate Seal.......................................................................1 ARTICLE III - STOCKHOLDERS MEETINGS......................................................................1 Section 4. Place of Meetings....................................................................1 Section 5. Annual Meeting.......................................................................1 Section 6. Special Meetings.....................................................................3 Section 7. Notice of Meetings...................................................................4 Section 8. Quorum...............................................................................4 Section 9. Adjournment and Notice of Adjourned Meetings.........................................4 Section 10. Voting Rights........................................................................4 Section 11. Beneficial Owners of Stock...........................................................5 Section 12. List of Stockholders.................................................................5 Section 13. Action without Meeting...............................................................5 Section 14. Organization.........................................................................6 ARTICLE IV - DIRECTORS...................................................................................7 Section 15. Number and Term of Office............................................................7 Section 16. Powers...............................................................................7 Section 17 Vacancies............................................................................7 Section 18. Registration.........................................................................7 Section 19. Removal..............................................................................8 Section 20. Meetings.............................................................................8 (a) Annual Meeting................................................................8 (b) Regular Meetings..............................................................8 (c) Special Meetings..............................................................8 (d) Telephone Meetings............................................................8 (e) Notice of Meetings............................................................8 (f) Waiver of Notice..............................................................8 Section 21. Quorum and Voting....................................................................9 Section 22. Action Without Meeting...............................................................9 Section 23. Fees and Compensation................................................................9 Section 24. Committees...........................................................................9 (a) Executive Committee...........................................................9 (b) Other Committees.............................................................10 (c) Term.........................................................................10 (d) Meetings.....................................................................10 Section 25. Organization........................................................................11
3 ARTICLE V - OFFICERS..................................................................................11 Section 26. Officers Designated................................................................11 Section 27. Tenure and Duties of Officers......................................................11 (a) General......................................................................11 (b) Duties of Chairman of the Board of Directors.................................11 (c) Duties of President..........................................................11 (d) Duties of Vice President.....................................................12 (e) Duties of Secretary..........................................................12 (f) Duties of Chief Financial Officer or Treasurer...............................12 Section 28. Delegation of Authority............................................................12 Section 29. Resignations.......................................................................12 Section 30. Removal............................................................................13 ARTICLE VI - EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION.....13 Section 31. Execution of Corporate Instruments.................................................13 Section 32. Voting of Securities Owned by the Corporation......................................13 ARTICLE VII - SHARES OF STOCK.........................................................................14 Section 33. Form and Execution of Certificates.................................................14 Section 34. Lost Certificates..................................................................14 Section 35. Transfers..........................................................................14 Section 36. Fixing Record Dates................................................................14 Section 37. Registered Stockholders............................................................15 ARTICLE VIII - OTHER SECURITIES OF THE CORPORATION....................................................16 Section 38. Execution of Other Securities......................................................16 ARTICLE IX - DIVIDENDS................................................................................16 Section 39. Declaration of Dividends...........................................................16 Section 40. Dividend Reserve...................................................................16 ARTICLE X - FISCAL YEAR..............................................................................17 Section 41. Fiscal Year........................................................................17 ARTICLE XI - INDEMNIFICATION..........................................................................17 Section 42. Indemnification of Directors, Officers, Employees and Other Agents.....................17 (a) Directors and Executive Officers.............................................17 (b) Other Officers, Employees and Other Agents...................................17 (c) Good Faith...................................................................17 (d) Expenses.....................................................................18 (e) Enforcement..................................................................18 (f) Non-Exclusivity of Rights....................................................19 (g) Survival of Rights...........................................................19 (h) Insurance....................................................................19
4 (i) Amendments...................................................................19 (j) Saving Clause................................................................19 (k) Certain Definitions..........................................................19 ARTICLE XII - NOTICES.................................................................................20 Section 43. Notices................................................................................20 (a) Notice to Stockholders......................................................20 (b) Notice to Directors..........................................................21 (c) Address Unknown..............................................................21 (d) Affidavit of Mailing.........................................................21 (e) Time Notices Deemed given....................................................21 (f) Methods of Ntoice............................................................21 (g) Failure to Receive Notice....................................................21 (h) Notice to Person with Whom Communication Is Unlawful.........................21 (i) Notice to Person with Undeliverable Address..................................22 ARTICLE XIII - AMENDMENTS.............................................................................22 Section 44. Amendments.........................................................................22 ARTICLE XIV - RIGHT OF FIRST REFUSAL..................................................................22 Section 45. Right of First Refusal.............................................................22 ARTICLE XV - LOANS TO OFFICERS........................................................................25 Section 38. Loans to Officers..................................................................25
5 BYLAWS OF DECODE GENETICS, INC. (A DELAWARE CORPORATION) ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an office or principal place of business at such place(s), both within and without the State of Delaware, as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II CORPORATE SEAL SECTION 3. CORPORATE SEAL. The Corporate seal shall consist of a die bearing the name of the corporation and the inscription, "Corporate Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE III STOCKHOLDERS' MEETINGS SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or if not so designated then at the office of the corporation required to be maintained pursuant to Section 2 hereof. SECTION 5. ANNUAL MEETING. (A) The annual meeting of the stockholders of the corporation, for the purpose of election of Directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. 1 6 (B) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (B) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (C) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than one hundred twenty (120) calendar days in advance of the date of the corporation's proxy statement released to stockholders in connection with the previous year's annual meeting of the stockholders; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year's proxy statement, notice by the stockholder to be timely must be so received a reasonable time before the solicitation is made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business and (v) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, in his capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include in formation with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder's meeting, stockholders must provide notice as required by the regulations promulgated under the Securities and Exchange Act of 1934, as amended. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. (C) Only persons who are nominated in accordance with the procedures set forth in this (c) shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the corporation entitled to vote in the election of Directors at the meeting who complies with the notice set forth in this paragraph (c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation in accordance with the provisions of paragraph (b) of this Section 5. Such stockholder's notice shall set forth (i) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a Director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the 2 7 corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person's written consent to being named in the proxy statement, if any, as a nominee and to serving as a Director if elected); and (ii) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (b) of this Section 5. At the request of the Board of Directors, any person nominated by a stockholder for election as a Director shall furnish to the Secretary of the corporation that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a Director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (c). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare at the meeting and the defective nomination shall be disregarded. SECTION 6. SPECIAL MEETINGS. (A) Special meeting of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board, (ii) the President, or (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption), and shall be held at such place, on such date, and at such time as they or he shall fix; provided, however, that following registration of any of the classes of equity securities of the corporation pursuant to the provisions of the Securities Exchange Act of 1934, as amended, special meetings of the stockholders may only be called by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized Directors. (B) If a special meeting is called by any person or persons other than the Board of Directors, 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 Section 7 of these Bylaws, that a meeting will be held 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 paragraphs (b) 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. 3 8 SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders shall be given 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, such notice to specify the place, date and hour and purpose or purposes of the meeting. Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, either before or after such meeting, and will be waived by any stockholder by his attendance thereat or in person or by proxy, except when the stockholder 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. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. SECTION 8. QUORUM. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. Any shares, the voting of which at said meeting has been enjoined, or which for any reason cannot be lawfully voted at such meeting, shall not be counted to determine a quorum at such meeting. In the absence of a quorum any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but not other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the voting power represented at any meeting at which a quorum is present shall be valid and binding upon the corporation; provided, however, that Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of Directors) of shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class. SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares represented thereat. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which 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. SECTION 10. VOTING RIGHTS. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of 4 9 stockholders. Except as may be otherwise provided in the Certificate of Incorporation or these Bylaws, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by a written proxy executed by such person or his duly authorized agent, which proxy shall be filed with the Secretary at or before the meeting at which it is to be used. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period. All elections of Directors shall be by written ballot, unless otherwise provided in the Certificate of Incorporation. SECTION 11. BENEFICIAL OWNERS OF STOCK. (A) If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the General Corporation Law of Delaware, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of this subsection (c) shall be a majority or even-split in interest. (B) Persons holding stock in a fiduciary capacity shall be entitled to vote the shares so held. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the corporation he has expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent such stock and vote thereon. SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 13. ACTION WITHOUT MEETING. (A) Any action required by statute to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of the 5 10 stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, are 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. (B) Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the Corporation in the manner herein required, written consents signed by a sufficient number of stockholders to take action are delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. (C) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stock- holders who have not consented in 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. SECTION 14. ORGANIZATION (A) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, the most senior Vice President present, or in the absence of any such officer, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. (B) The Board of Directors of the corporation shall be entitled to make such rules and regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies, and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for 6 11 balloting on matters which are to be voted on by ballot. Unless, and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure. ARTICLE IV DIRECTORS SECTION 15. NUMBER AND TERM OF OFFICE. The Board of Directors shall consist of one or more members, the number thereof to be determined from time to time by resolution of the Board of Directors. The number of authorized Directors may be modified from time to time by amendment of this Section 15 in accordance with the provisions of Section 44 hereof. Except as provided in Section 17, the Directors shall be elected by the stockholders at their annual meeting in each year and shall hold office until the next annual meeting and until their successors shall be duly elected and qualified. Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the Directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws. No reduction of the authorized number of Directors shall have the effect of removing any Director before the Director's term of office expires, unless such removal is made pursuant to the provisions of Section 19 hereof. SECTION 16. POWERS. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation. SECTION 17. VACANCIES. Unless otherwise provided in the Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of Directors may be filled by a majority of the Directors then in office, although less than a quorum, or by a sole remaining Director, and each Director so elected shall hold office for the unexpired portion of the term of the Director whose place shall be vacant and until his successor shall have been duly elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Section 17 in the case of the death, removal or resignation of any Director, or if the stockholders fail at any meeting of stockholders at which Directors are to be elected (including any meeting referred to in Section 19 below) to elect the number of Directors then constituting the whole Board of Directors. SECTION 18. RESIGNATION. Any Director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more Directors shall resign from the Board of Directors, effective at a future date, a majority of the Directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the 7 12 unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified. SECTION 19. REMOVAL. At a special meeting of stockholders called for the purpose in the manner hereinabove provided, subject to any limitations imposed by law or the Certificate of Incorporation, the Board of Directors, or any individual Director, may be removed from office, with or without cause, and a new Director or Directors elected by a vote of stockholders holding a majority of the outstanding shares entitled to vote at an election of Directors. SECTION 20. MEETINGS. (A) ANNUAL MEETINGS. The annual meeting of the Board of Directors shall be held immediately after the annual meeting of stockholders and at the place where such meeting is held. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it. (B) REGULAR MEETINGS. Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held in the office of the corporation required to be maintained pursuant to Section 2 hereof. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may also be held at any place within or without the State of Delaware which has been determined by the Board of Directors. (C) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place with or without the State of Delaware whenever called by the President or a majority of the Directors. (D) TELEPHONE MEETINGS. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (E) NOTICE OF MEETINGS. Written notice of the time and place of all special meetings of the Board of Directors shall be given at least one (1) day before the date of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any Director by attendance thereat, except when the Director attends the 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. (F) WAIVER OF NOTICE. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the Directors not present shall sign a written waiver of notice, or a consent to holding such meeting, or an approval of the minutes thereof. Neither the business to be transacted at, nor the purpose of, any regular or special 8 13 meeting of the Board of Directors need be specified in any written waiver of notice or consent unless so required by the Certificate of Incorporation or these Bylaws. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. SECTION 21. QUORUM AND VOTING. (A) Unless the Certificate of Incorporation requires a greater number and except with respect to indemnification questions arising under Section 42 hereof, for which a quorum shall be one-third of the exact number of Directors fixed from time to time in accordance with Section 15 hereof, but not less than one (1), a quorum of the Board of Directors shall consist of a majority of the exact number of Directors fixed from time to time in accordance with Section 15 of these Bylaws, but not less than one (1); provided, however, at any meeting whether a quorum be present or otherwise, a majority of the Directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. (B) At each meeting of the Board of Directors at which a quorum is present all questions and business shall be determined by a vote of a majority of the Directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws. SECTION 22. ACTION WITHOUT 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 of Directors or committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. SECTION 23. FEES AND COMPENSATION. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any Director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor. SECTION 24. COMMITTEES. (A) EXECUTIVE COMMITTEE. The Board of Directors may by resolution passed by a majority of the whole Board of Directors, appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and specifically granted by the Board of Directors, shall have and may exercise when the Board of Directors is not in session all powers of the Board of Directors in the management of the business and affairs of the corporation, including, without limitation, the power and authority to declare a dividend or to authorize the issuance of stock, except such committee shall not have the power or authority to amend the Certificate of Incorporation, to 9 14 adopt an agreement of merger or consolidation, to recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, to recommend to the stockholders of the corporation a dissolution of the corporation or a revocation of a dissolution or to amend these Bylaws. (B) OTHER COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors, and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall such committee have the powers denied to the Executive Committee in these Bylaws. (C) TERM. The members of all committees of the Board of Directors shall serve a term coexistent with that of the Board of Directors which shall have appointed such committee. The Board of Directors, subject to the provisions of subsections (a) or (b) of this Section 24, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they 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. (D) MEETINGS. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 24 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any Director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any Director by attendance thereat, except when the Director attends such special 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. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. 10 15 SECTION 25. ORGANIZATION. At every meeting of the Directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or if the President is absent, the most senior Vice President, or, in the absence of any such officer, a chairman of the meeting chosen by a majority of the Directors present, shall preside over the meeting. The Secretary, or in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. ARTICLE V OFFICERS SECTION 26. OFFICERS DESIGNATED. The officers of the corporation shall be the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer and the Treasurer, all of whom shall be elected at the annual organizational meeting of the Board of Directors. The order of the seniority of the Vice Presidents shall be in the order of their nomination, unless otherwise determined by the Board of Directors. The Board of Directors may also appoint a Chairman of the Board of Directors, one or more Assistant Secretaries, Assistant Treasurers, and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors. SECTION 27. TENURE AND DUTIES OF OFFICERS. (A) GENERAL. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. (B) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. If there is no President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in paragraph (c) of this Section 27. (C) DUTIES OF PRESIDENT. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. The President shall be the Chief Executive Officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President 11 16 shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. (D) DUTIES OF VICE PRESIDENT. The Vice President, in the order of their seniority, may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice President shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (E) DUTIES OF SECRETARY. The Secretary shall attend all meetings of the stockholders and the Board of Directors, and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders, and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties given him in these Bylaws and other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (F) DUTIES OF CHIEF FINANCIAL OFFICER OR TREASURER. The Chief Financial Officer or Treasurer shall keep or cause to be kept the books of account of the corporation a thorough and proper manner, and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer or Treasurer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer or Treasurer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct any Assistant Treasurer to assume and perform the duties of the Chief Financial Officer or Treasurer in the absence or disability of the Chief Financial Officer or Treasurer, and each Assistant Treasurer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. SECTION 28. DELEGATION OF AUTHORITY. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof. SECTION 29. RESIGNATIONS. Any officers may resign at any time by giving written notice to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer. 12 17 SECTION 30. REMOVAL. Any officer may be removed from office at any time, either with or without cause, by the vote or written consent of a majority of the Directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors. ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION SECTION 31. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation. Unless otherwise specifically determined by the Board of Directors or otherwise required by law, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chairman of the Board of Directors, or the President or any Vice President, and by the Secretary or Chief Financial Officer or Treasurer or any Assistant Secretary or Assistant Treasurer. All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors. All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do. Unless 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. SECTION 32. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the President, or any Vice President. 13 18 ARTICLE VII SHARES OF STOCK SECTION 33. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all 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 shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. SECTION 34. LOST CERTIFICATES. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. SECTION 35. TRANSFERS. (A) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized and upon the surrender of a properly endorsed certificate or certificates for a like number of shares. (B) 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. SECTION 36. FIXING RECORD DATES. (A) 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, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of 14 19 business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting: provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (B) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix, in advance, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (C) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. SECTION 37. 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, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 15 20 ARTICLE VIII OTHER SECURITIES OF THE CORPORATION SECTION 38. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 33), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation. ARTICLE IX DIVIDENDS SECTION 39. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. SECTION 40. DIVIDEND RESERVE. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. 16 21 ARTICLE X FISCAL YEAR SECTION 41. FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. ARTICLE XI INDEMNIFICATION SECTION 42. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS. (A) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall indemnify its Directors and executive officers to the fullest extent not prohibited by the Delaware General Corporation Law; provided, however, that the corporation may limit the extent of such indemnification by individual contracts with its Directors and executive officers; and, provided, further, that the corporation shall not be required to indemnify any Director or executive officer in connection with any proceeding (or part thereof) initiated by such person or any proceeding by such person against the corporation or its Directors, officers, employees or other agents unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation or (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Delaware General Corporation Law. (B) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall have power to indemnify its other officers, employees and other agents as set forth in the Delaware General Corporation Law. (C) GOOD FAITH. (1) For purpose of any determination under this Bylaw, a Director or executive officer shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to best interests of the corporation, and, with respect to any criminal action or proceeding, to have had no reasonable cause to believe that his conduct was unlawful, if his action is based on information, opinions, reports and statements, including financial statements and other financial data, in each case prepared or presented by: (I) One or more officers or employees of the corporation whom the Director or executive officer believed to be reliable and competent in the matters presented; 17 22 (II) Counsel, independent accountants or other persons as to matters which the Director or executive officer believed to be within such person's professional competence; and (III) With respect to a Director, a committee of the Board upon which such Director does not serve, as to matters within such Committee's designated authority, which committee the Director believes to merit confidence; so long as, in each case, the Director or executive officer acts without knowledge that would cause such reliance to be unwarranted. (2) The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal proceeding, that he had reasonable cause to believe that his conduct was unlawful. (3) The provisions of this paragraph (c) shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth by the Delaware General Corporation Law. (D) EXPENSES. The corporation shall advance, prior to the final disposition of any proceeding, promptly following request therefor, all expenses incurred by any Director or executive officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Bylaw, no advance shall be made by the corporation if a determination is reasonably and promptly made (1) by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to the proceeding, or (2) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation. (E) ENFORCEMENT. Without the necessity of entering into an express contract, all rights to indemnification and advances to Directors and executive officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the Director or executive officer. Any right to indemnification or advances granted by this Bylaw to a Director or executive officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the 18 23 expense of prosecuting his claim. The corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the corporation (including its Board of Directors), independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. (F) NON-EXCLUSIVITY OF RIGHTS. The rights conferred to any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its Directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the Delaware General Corporation Law. (G) SURVIVAL OF RIGHTS. The rights conferred to any person by this Bylaw shall continue as to a person who has ceased to be a Director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (H) INSURANCE. To the fullest extent permitted by the Delaware General Corporation Law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Bylaw. (I) AMENDMENTS. Any repeal or modification of this Bylaw shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation. (J) SAVING CLAUSE. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each Director and executive officer to the full extent not prohibited by any applicable portion of this Bylaw that shall not have been invalidated, or by any other applicable law. (K) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following definitions shall apply: (1) The term "PROCEEDING" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or 19 24 completed action, suit or proceeding, whether civil, criminal, administrative or investigative. (2) The term "EXPENSES" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding. (3) The term the "CORPORATION" 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 any person who 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, shall stand in the same position under the provisions of this Bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (4) Reference to a "director," "officer," "employee," or "agent" of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. (5) Reference to "other enterprises" shall include employee benefit plans; reference to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation 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 a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Bylaw. ARTICLE XII NOTICES SECTION 43. NOTICES. (A) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, it shall be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent. 20 25 (B) NOTICE TO DIRECTORS. Any notice required to be given to any Director may be given by the method stated in subsection (a), or by facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such Director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such Director. (C) ADDRESS UNKNOWN. If no address of a stockholder or Director be known, notice may be sent to the office of the corporation required to be maintained pursuant to Section 2 hereof. (D) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, or Director or Directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall be conclusive evidence of the statements therein contained. (E) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing and all notices given by facsimile, telex or telegram shall be deemed to have been given as of the sending time recorded at time of transmission. (F) METHODS OF NOTICE. It shall not be necessary that the same method of giving notice be employed in respect to all Directors, but one permissible method may be employed in respect to any one or more, and any other permissible method or methods may be employed in respect of any other or others. (G) FAILURE TO RECEIVE NOTICE. The period or limitation of time within which any stockholder may exercise any option or rights, or enjoy any privilege or benefit, or be required to act, or within which any Director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such stockholder or such Director to receive such notice. (H) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. 21 26 (I) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is required to be given, under any provision of law or the Certificate of Incorporation or Bylaws of the corporation, to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a twelve month period, have been mailed addressed to such person at his address as shown on the records of the Corporation and have been returned undeliverable, the giving of such notice to such person all not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to this paragraph. ARTICLE XIII AMENDMENTS SECTION 44. AMENDMENTS. Except as otherwise set forth in paragraph (i) of Section 42 of these Bylaws, these Bylaws may be amended or repealed and new Bylaws adopted by the stockholders entitled to vote. The Board of Directors shall also have the power, if such power is conferred upon the Board of Directors by the Certificate of Incorporation, to adopt, amend or repeal Bylaws (including, without limitation, the amendment of any Bylaw setting forth the number of Directors who shall constitute the whole Board of Directors). ARTICLE XIV RIGHT OF FIRST REFUSAL SECTION 45. RIGHT OF FIRST REFUSAL. No holder of the corporation's common stock shall sell, assign, pledge, or in any manner transfer any of the shares of common stock of the corporation or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise, except by a transfer which meets the requirements hereinafter set forth in this Bylaw: (A) If the stockholder receives from anyone a bona fide offer acceptable to the stockholder to purchase any of his shares of stock, then the stockholder shall first give written notice thereof to the corporation. The notice shall name the proposed transferee and state the number of shares to be transferred, the price per share and all other terms and conditions of the offer. (B) For fifteen (15) days following receipt of such notice, the corporation shall have the option to purchase all or any lesser part of the shares specified in the notice at the price and upon the terms set forth in such bona fide offer. In the event the corporation elects to 22 27 purchase all the shares, it shall give written notice to the selling stockholder of its election and settlement for said shares be made as provided below in paragraph (c). (C) In the event the corporation elects to acquire any of the shares of the selling stockholder as specified in said selling stockholder's notice, the Secretary of the corporation shall so notify the selling stockholder and settlement thereof shall be made in cash within thirty (30) days after the Secretary of the corporation receives said selling stockholder's notice; provided that if the terms of payment set forth in said selling stockholder's notice were other than cash against delivery, the corporation and/or its other stockholders shall pay for said shares on the same terms and conditions set forth in said selling stockholder's notice. (D) In the event the corporation does not elect to acquire all of the shares specified in the selling stockholder's notice, said selling stockholder may, within the sixty-day period following the expiration of the option rights granted to the corporation and other stockholders herein, sell elsewhere the shares specified in said selling stockholder's notice which were not acquired by the corporation and/or its other stockholders, in accordance with the provisions of paragraph (d) of this bylaw, provided that said sale shall not be on terms and conditions more favorable to the purchaser than those contained in the bona fide offer set forth in said selling stockholder's notice. All shares so sold by said selling stockholder shall continue to be subject to the provisions of this Bylaw in the same manner as before said transfer. (E) Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this Bylaw: (1) A stockholder's transfer of any or all shares held either during such stockholder's lifetime or on death by will or intestacy to such stockholder's immediate family. "Immediate family" as used herein shall mean spouse, lineal descendant, father, mother, brother, or sister of the stockholder making such transfer and shall include any trust established primarily for the benefit of the stockholder or his immediate family. (2) A stockholder's bona fide pledge or mortgage of any shares with a commercial lending institution, provided that any subsequent transfer of said shares by said institution shall be conducted in the manner set forth in this Section 45. (3) A stockholder's transfer of any or all of such stockholder's shares to the corporation or to any other stockholder of the corporation. (4) A stockholder's transfer of any or all of such stockholder's shares to a person who, at the time of such transfer, is an officer or director of the corporation. (5) A corporate stockholder's transfer of any or all of its shares pursuant to and in accordance with the terms of any merger, consolidation, reclassification of shares or capital reorganization of the corporate stockholder, or pursuant to a sale of all or substantially all of the stock or assets of a corporate stockholder. 23 28 (6) A corporate stockholder's transfer of any or all of its shares to any or all of its stockholders. (7) A transfer by a stockholder which is a limited or general partnership to any or all of its partners. In any such case, the transferee, assignee, or other recipient shall receive and hold such stock to the provisions of this Bylaw, and there shall be no further transfer of such stock except in accordance with this Bylaw. (F) The provisions of this Section 45 may be waived with respect to any transfer either by the corporation, upon duly authorized action of its Board of Directors, or by the stockholders, upon the express written consent of the owners of a majority of the voting power of the corporation (excluding the votes represented by those shares to be sold by the selling stockholder). This Section 45 may be amended or repealed either by a duly authorized action of the Board of Directors or by the stockholders, upon the express vote or written consent of the owners of a majority of the voting power of the corporation. (G) Any sale or transfer, or purported sale or transfer, of securities of the corporation shall be null and void unless the terms, conditions, and provisions of this Bylaw are strictly observed and followed. (H) The foregoing right of first refusal shall terminate on either of the following dates, whichever shall first occur: (1) On August 31, 2006; or (2) Upon the date securities of the corporation are first offered to the public pursuant to a registration statement filed with, and declared effective by, the United States Securities and Exchange Commission under the Securities act of 1933, as amended. (I) The certificates representing shares of common stock of the corporation shall bear on their face the following legend so long as the foregoing right of first refusal remains in effect: "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION, AS PROVIDED IN THE BYLAWS OF THE CORPORATION." 24 29 ARTICLE XV LOANS TO OFFICERS SECTION 46. 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 subsidiaries, including any officer or employee who is a Director of the corporation or its subsidiaries, whenever, is the judgment of the Board of Directors, such loan, guarantee or 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 46 shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 25 EX-4.2 3 FORM OF WARRANT 1 EXHIBIT 4.2 NO. PAW-____ THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. WARRANT TO PURCHASE ___________ SHARES OF SERIES A PREFERRED STOCK OF DECODE GENETICS, INC. (VOID AFTER ___________) This certifies that _________________________ or its assigns (the "Holder"), for value received, is entitled to purchase from deCODE genetics, Inc., a Delaware corporation (the "Company"), a maximum of __________ fully paid and nonassessable shares of the Company's Series A Preferred Stock ("Preferred Stock") for cash at a price of $_________ per share (the "Stock Purchase Price") at any time or from time to time up to and including 5:00 p.m. (Pacific time) on ____________________ (the "Expiration Date"), upon surrender to the Company at its principal office (or at such other location as the Company may advise the Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and, if applicable, upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Company shall deliver notice of the Initial Public Offering to the Holder at least 30 days prior to the closing thereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 3 of this Warrant. This Warrant is subject to the following terms and conditions: 1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES. 1.1 GENERAL. This Warrant is exercisable at the option of the holder of record hereof, at any time or from time to time, up to the Expiration Date for all or any part of the shares of Preferred Stock (but not for a fraction of a share) which may be purchased hereunder. The Company agrees that the shares of Preferred Stock purchased under this Warrant shall be and are deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered, properly endorsed, the completed, executed Form of Subscription delivered and payment made for such shares. Certificates for the shares of Preferred Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise. shall be delivered to the Holder hereof by the Company at the Company's expense within a reasonable time after the rights represented by this Warrant have been so exercised. In case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Preferred Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder. 1 2 1.2 NET ISSUE EXERCISE. Notwithstanding any provisions herein to the contrary, if the fair market value of one share of the Company's Preferred Stock is greater than the Stock Purchase Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Form of Subscription and notice of such election in which event the Company shall issue to the Holder a number of shares of Preferred Stock computed using the following formula: X = Y (A-B) ----------- A Where X = the number of shares of Preferred Stock to be issued to the Holder Y = the number of shares of Preferred Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation) A = the fair market value of one share of the Company's Preferred Stock (at the date of such calculation) B = Stock Purchase Price (as adjusted to the date of such calculation) For purposes of the above calculation, fair market value of one share of Preferred Stock shall be determined by the Company's Board of Directors in good faith; provided, however, that in the event the Company makes an initial public offering of its Common Stock the fair market value at such time per share shall be the product of (i) the per share offering price to the public of the Company's initial public offering, and (ii) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise. 2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants and agrees that all shares of Preferred Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any shareholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that, during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Preferred Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. The Company will take all such action as may be necessary to assure that such shares of Preferred Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Preferred Stock may be listed; provided, however, that the Company shall not be required to effect a registration under Federal or State securities laws with respect to such exercise. The Company will not take any action which would result in any adjustment of the Stock Purchase Price (as set forth in Section 3 hereof) (i) if the total number of shares of Preferred Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Preferred Stock then outstanding and all shares of Preferred Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Preferred Stock then authorized by the Company's Restated Certificate of Incorporation, or (ii) if the total number of shares of Common Stock issuable after such action upon the conversion of all such shares of Preferred Stock, together 2 3 with all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all such shares of Preferred Stock, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding would exceed the total number of shares of Common Stock then authorized by the Company's Amended and Restated Articles of Incorporation. 3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3. Upon each adjustment of the Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment. 3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall at any time subdivide its outstanding shares of Preferred Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Preferred Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased. 3.2 DIVIDENDS IN PREFERRED STOCK, OTHER STOCK, PROPERTY, RECLASSIFICATION. If at any time or from time to time the Holders of Preferred Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, (A) Preferred Stock or any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Preferred Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, (B) any cash paid or payable otherwise than as a cash dividend, or (C) Preferred Stock or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than shares of Preferred Stock issued as a stock split or adjustments in respect of which shall be covered by the terms of Section 3.1 above), then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Preferred Stock receivable thereupon. and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clause (b) above and this clause (c)) which such Holder would hold on the date of such exercise had he been the holder of record of such Preferred Stock as of the date on which holders of Preferred Stock received or became entitled to receive such shares or all other additional stock and other securities and property. 3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If any recapitalization, reclassification or reorganization of the capital stock of the Company (including any automatic conversion of outstanding shares of the Preferred Stock), or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets or other transaction shall be effected in such a way that holders of Preferred Stock shall be entitled to receive stock, securities, or other assets or property (an "Organic Change"), then, as a condition of such Organic Change, lawful and adequate 3 4 provisions shall be made by the Company whereby the Holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Preferred Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Preferred Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby; provided, however, that in the event the value of the stock, securities or other assets or property (determined in good faith by the Board of Directors of the Company) issuable or payable with respect to one share of the Preferred Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby is in excess of the Stock Purchase Price hereof effective at the time of a merger and securities received in such reorganization, if any, are publicly traded, then this Warrant shall expire unless exercised prior to such Organic Change. In the event of any Organic Change, appropriate provision shall be made by the Company with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Stock Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument reasonably satisfactory in form and substance to the Holders of a majority of the warrants to purchase Series A Preferred Stock then outstanding, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. 3.4 CERTAIN EVENTS. If any change in the outstanding Preferred Stock of the Company or any other event occurs as to which the other provisions of this Section 3 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder of the Warrant in accordance with such provisions, then the Board of Directors of the Company shall make an adjustment in the number and class of shares available under the Warrant, the Stock Purchase Price or the application of such provisions, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price the total number, class and kind of shares as he would have owned had the Warrant been exercised prior to the event and had he continued to hold such shares until after the event requiring adjustment. 3.5 NOTICES OF CHANGE. (A) Immediately upon any adjustment in the number or class or shares subject to this Warrant and of the Stock Purchase Price, the Company shall give written notice thereof to the Holder, setting forth in reasonable detail and certifying the calculation of such adjustment. (B) The Company shall give written notice to the Holder at least 10 business days prior to the date on which the Company closes its books or takes a record for determining rights to receive any dividends or distributions. (C) The Company shall also give written notice to the Holder at least 30 business days prior to the date on which an Organic Change shall take place. 4 5 4. ISSUE TAX. The issuance of certificates for shares of Preferred Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax (other than any applicable income taxes) in respect thereof, provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised. 5. CLOSING OF BOOKS. The Company will at no time close its transfer books against the transfer of any warrant or of any shares of Preferred Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant. 6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent or to receive notice as a shareholder of the Company or any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by the holder to purchase shares of Preferred Stock, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such Holder for the Stock Purchase Price or as a shareholder of the Company, whether such liability is asserted by the Company or by its creditors. 7. WARRANTS TRANSFERABLE. Subject to compliance with applicable federal and state securities laws, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes), upon surrender of this Warrant properly endorsed. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Warrant shall have been so endorsed, may be treated by the Company, at the Company's option, and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Company any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered owner hereof as the owner for all purposes. 8. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and obligations of the Company, of the holder of this Warrant and of the holder of shares of Preferred Stock issued upon exercise of this Warrant, referred to in Section 7 shall survive the exercise of this Warrant. 9. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be changed, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 10. NOTICES. Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered or shall be sent by certified mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefore in the first paragraph of this Warrant or such other address as either may from time to time provide to the other. 11. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. All of the obligations of the Company relating to the Preferred Stock issuable upon the exercise of 5 6 this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. 12. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California. 13. LOST WARRANTS. The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant, the Company, at its expense, will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant. 14. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price. [THIS SPACE INTENTIONALLY LEFT BLANK] 6 7 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officer, thereunto duly authorized this ____ day of __________, DECODE GENETICS, INC. a Delaware corporation By: Kari Stefansson President and Secretary 7 8 EXHIBIT A SUBSCRIPTION FORM Date: deCODE genetics, Inc. Attn: President Ladies and Gentlemen: : The undersigned hereby elects to exercise the warrant issued to it by deCODE genetics, Inc. (the "Company") and dated ______________, Warrant No. PAW-9, (the "Warrant") and to purchase thereunder ___________ shares of the Series A Preferred Stock of the Company (the "Shares") at a purchase price of ______________ per Share or an aggregate purchase price of $________________ (the "Purchase Price"). : The undersigned hereby elects to convert percent ( %) of the value of the Warrant pursuant to the provisions of Section 1.2 of the Warrant. Pursuant to the terms of the Warrant the undersigned has delivered the Purchase Price herewith in full in cash or by certified check or wire transfer. The undersigned also makes the representations set forth on the attached Exhibit B of the Warrant. Very truly yours, By: Title: 1 9 EXHIBIT B INVESTMENT REPRESENTATION THIS AGREEMENT MUST BE COMPLETED, SIGNED AND RETURNED TO DECODE GENETICS, INC. ALONG WITH THE SUBSCRIPTION FORM BEFORE THE PREFERRED STOCK ISSUABLE UPON EXERCISE OF THE WARRANT DATED _______________, WILL BE ISSUED. Date: deCODE genetics, Inc. Attn: President Ladies and Gentlemen: The undersigned, __________________________ ("Purchaser"), intends to acquire up to shares of the Series A Preferred Stock (the "Preferred Stock") of deCODE genetics, Inc. (the "Company") from the Company pursuant to the exercise or conversion of certain Warrants to purchase Preferred Stock held by Purchaser. The Preferred Stock will be issued to Purchaser in a transaction not involving a public offering and pursuant to an exemption from registration under the Securities Act of 1933, as amended (the "1933 Act") and applicable state securities laws. In connection with such purchase and in order to comply with the exemptions from registration relied upon by the Company, Purchaser represents, warrants and agrees as follows: Purchaser is acquiring the Preferred Stock for its own account, to hold for investment, and Purchaser shall not make any sale, transfer or other disposition of the Preferred Stock in violation of the 1933 Act or the General Rules and Regulations promulgated thereunder by the Securities and Exchange Commission (the "SEC") or in violation of any applicable state securities law. Purchaser has been advised that the Preferred Stock has not been registered under the 1933 Act or state securities laws on the ground that this transaction is exempt from registration, and that reliance by the Company on such exemptions is predicated in part on Purchaser's representations set forth in this letter. Purchaser has been informed that under the 1933 Act, the Preferred Stock must be held indefinitely unless it is subsequently registered under the 1933 Act or unless an exemption from such registration (such as Rule 144) is available with respect to any proposed transfer or disposition by Purchaser of the Preferred Stock. Purchaser further agrees that the Company may refuse to permit Purchaser to sell, transfer or dispose of the Preferred Stock (except as permitted under Rule 144) unless there is in effect a registration statement under the 1933 Act and any applicable state securities laws covering such transfer, or unless Purchaser furnishes an opinion of counsel reasonably satisfactory to counsel for the Company, to the effect that such registration is not required. 2 10 Purchaser also understands and agrees that there will be placed on the certificate(s) for the Preferred Stock, or any substitutions therefor, a legend stating in substance: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws. These shares have been acquired for investment and may not be sold or otherwise transferred in the absence of an effective registration statement for these shares under the Securities Act and applicable state securities laws, or an opinion of counsel satisfactory to the Company that registration is not required and that an applicable exemption is available." Purchaser has carefully read this letter and has discussed its requirements and other applicable limitations upon Purchaser's resale of the Preferred Stock with Purchaser's counsel. Very truly yours, By: Title: EX-4.3 4 FORM OF WARRANT 1 EXHIBIT 4.3 No. PCW-_____ THE SECURITIES REPRESENTED HEREBY, AND THE SECURITIES TO BE ISSUED UPON THE EXERCISE OF THE SECURITIES REPRESENTED HEREBY, HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. THE SECURITIES REPRESENTED HEREBY, AND THE SECURITIES TO BE ISSUED UPON THE EXERCISE OF THE SECURITIES REPRESENTED HEREBY, MAY NOT BE OFFERED, SOLD OR TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. TRANSFER OF THE SECURITIES REPRESENTED HEREBY, OR OF THE SECURITIES TO BE ISSUED UPON THE EXERCISE OF THE SECURITIES REPRESENTED HEREBY, IS PROHIBITED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S PROMULGATED PURSUANT TO THE ACT. THE SECURITIES REPRESENTED HEREBY MAY NOT BE EXERCISED BY OR ON BEHALF OF ANY U.S. PERSON UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. THE EXERCISE OF THIS WARRANT, AND THE DELIVERY OF SECURITIES THEREUPON, ARE SUBJECT TO FURTHER CONDITIONS IMPOSED BY UNITED STATES SECURITIES LAWS. SEE SECTION 14. Warrant to Purchase __________ Shares of Series C Preferred Stock of deCODE genetics, Inc. (Void after __________) This certifies that Roche Finance Ltd, a Swiss company having a place of business at 124 Grenzacherstrasse CH-4070, Basel, Switzerland, or its assigns, (the "Holder"), for value received, is entitled to purchase from deCODE genetics Inc., a Delaware, USA corporation (the "Company"), having a place of business at Lynghalsi 1, IS-110 Reykjavik, Iceland, a maximum of __________ fully paid and nonassessable shares of the Series C Preferred Stock of the Company ("Series C Preferred Stock") for cash at a price of $_____ per share (the "Preferred Stock Purchase Price") at any time or from time to time up to and including 5:00 p.m. (New York time) on _________ [the date that is nine (9) years from after the issue date of the Warrant] (the "Expiration Date"), upon surrender to the Company at its principal office (or at such other location as the Company may advise the Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled -1- 2 in and signed and, if applicable, upon payment in cash or by check of the aggregate Preferred Stock Purchase Price for the number of shares for which this Warrant is being exercised, determined in accordance with the provisions hereof. The Preferred Stock Purchase Price and the number and class of shares purchasable hereunder are subject to adjustment as provided in Section 3 of this Warrant. This Warrant is subject to the following terms and conditions: 1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES. 1.1 General. This Warrant is exercisable at the option of the Holder of record hereof, at any time or from time to time, up to the Expiration Date for all or any part of the shares of Series C Preferred Stock (but not for a fraction of a share) which may be purchased hereunder. The Company agrees that the shares of Series C Preferred Stock purchased under this Warrant shall be deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered, properly endorsed, the completed, executed Form of Subscription delivered and payment made for such shares. Certificates for the shares of Series C Preferred Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Company's expense within a reasonable time after the rights represented by this Warrant have been so exercised. In case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under this Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Series C Preferred Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder. 1.2 Net Issue Exercise. Notwithstanding any provision herein to be contrary, if the fair market value of one share of the Series C Preferred Stock is greater than the Preferred Stock Purchase Price (at the date of calculation as set forth below), then in lieu of exercising this Warrant for cash, the Holder may elect to receive shares of Series C Preferred Stock equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company (or at such other location as the Company may advise the Holder in writing) together with the properly endorsed Form of Subscription and notice of such election, in which event the Company shall issue to the Holder a number of shares of Series C Preferred Stock computed using the following formula: -2- 3 Y (A - B) X = ----------- A Where: X = the number of shares of Series C Preferred Stock to be issued to the Holder Y = the number of shares of Series C Preferred Stock purchasable under this Warrant or, if only a portion of this Warrant is being exercised, the portion of this Warrant being canceled (at the date of such calculation) A = the fair market value of one share of the Company's Series C Preferred Stock (at the date of such calculation) B = Preferred Stock Purchase Price (as adjusted to the date of such calculation) For purposes of the above calculation, fair market value of one share of Series C Preferred Stock shall be determined by the Company's Board of Directors in good faith; provided, however, that in the event the Common Stock of the Company, par value $0.001 per share (the "Common Stock") is publicly traded, the fair market value per share on the date of exercise shall be the product of (i) the average of the closing sales prices of the Common Stock (or the closing bid, if no sales were reported) as quoted on the Nasdaq National Market, or if the Common Stock is not then quoted on Nasdaq, on such other established exchange or national system on which the Common Stock is listed, over the twenty (20) business days preceding the date of exercise, and (ii) the number of shares of Common Stock into which each share of Series C Preferred Stock is convertible at the time of such exercise. 2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. -3- 4 The Company covenants and agrees that all shares of Series C Preferred Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any stockholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that, during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Series C Preferred Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. The Company will take all such action as may be necessary to assure that such shares of Series C Preferred Stock may be issued as provided herein without violation of any applicable United States federal or state law or regulation, or of any requirements of any domestic stock exchange upon which the Series C Preferred Stock may be listed; provided, however, that the Company shall not be required to effect a registration under United States federal or state securities laws with respect to such exercise. The Company will not take any action which would result in any adjustment of the Preferred Stock Purchase Price under Section 3 if: (i) the total number of shares of Series C Preferred Stock issuable after such action upon exercise of all outstanding warrants, together with all shares of Series C Preferred Stock then outstanding and all shares of Series C Preferred Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding, would exceed the total number of shares of Series C Preferred Stock then authorized by the Company's Certificate of Incorporation as in effect from time to time (the "Certificate of Incorporation"), or (ii) the total number of shares of Common Stock issuable after such action upon the conversion of all such shares of Series C Preferred Stock, together with all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all such shares of Series C Preferred Stock, together with all shares of Common Stock then outstanding and all shares of Common Stock then issuable upon exercise of all options and upon the conversion of all convertible securities then outstanding would exceed the total number of shares of Common Stock then authorized by the Certificate of Incorporation. -4- 5 3. ADJUSTMENT OF WARRANT RIGHTS. 3.1 Upon Conversion of Series C Preferred Stock. (a) Warrant Exercisable for Common Stock. In the event that all of the outstanding Series C Preferred Stock is, at any time prior to the Expiration Date, converted in accordance with the Certificate of Incorporation into shares of Common Stock, then this Warrant shall immediately become exercisable for that number of shares of Common Stock equal to the number of shares of Common Stock that would have been received if this Warrant had been exercised in full and the shares of Series C Preferred Stock received thereupon had been simultaneously converted into Common Stock immediately prior to such event. In such event, the Common Stock purchase price (the "Common Stock Purchase Price") per share shall equal the quotient obtained by dividing (i) the aggregate Preferred Stock Purchase Price of the number of shares of Series C Preferred for which this Warrant was exercisable immediately prior to such event by (ii) the number of shares of Common Stock for which this Warrant is exercisable immediately after such event. (b) Adjustments to Common Stock. If, at any time following the conversion of all of the Series C Preferred Stock and prior to the Expiration Date, there is any change in the Common Stock by reason of stock dividends, splits, subdivisions, combinations or the like the number of shares of Common Stock subject to this Warrant pursuant to Section 3.1(a) shall be appropriately adjusted in proportion to such increase or decrease in outstanding shares of Common Stock, and the Common Stock Purchase Price per share shall be appropriately adjusted so that the total Common Stock Purchase Price payable upon exercise of this Warrant in full shall remain unchanged. 3.2 Prior to Conversion of Series C Preferred. The Preferred Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant prior to the conversion of all of the outstanding Series C Preferred shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3.2. Upon each adjustment of the Preferred Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Preferred Stock Purchase Price resulting from such adjustment, the number of shares owned by multiplying the Preferred Stock Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Preferred Stock Purchase Price resulting from such adjustment. (a) Subdivision or Combination of Stock. In case the Company shall at any time subdivide its outstanding shares of Series C Preferred Stock into a greater number of shares, the -5- 6 Preferred Stock Purchase Price in effect prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Series C Preferred Stock of the Company shall be combined into a smaller number of shares, the Preferred Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased. (b) Dividends in Preferred Stock, Property, Reclassification. If at any time or from time to time the Holders of Series C Preferred Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor: (i) Series C Preferred Stock or any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Series C Preferred Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, (ii) Any cash paid or payable otherwise than as a cash dividend, or (iii) Series C Preferred Stock or additional stock or other securities or property (including cash) by way of spinoff, split-up, reclassification combination of shares or similar corporate rearrangement (other than shares of Preferred Stock issued as a stock split or adjustments in respect of which shall be covered by the terms of Section 3.2(a)), then and in each such case, the Holder hereof shall upon the exercise of this Warrant be entitled to receive, in addition to the number of shares of Series C Preferred Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clauses (ii) and (iii) above) which such Holder would hold on the date of such exercise had such Holder been the holder of record of such Series C Preferred Stock as of the date on which Holders of Series C Preferred Stock received or became entitled to receive such shares or all other additional stock and other securities and property. (c) Reorganization, Reclassification, Consolidation, Merger or Sale. If any recapitalization, reclassification or reorganization of the capital stock of the Company (including any automatic conversion of outstanding shares of the Series C Preferred Stock), or all consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets or other transaction shall be effected in such a way that Holders of Series C Preferred Stock shall be entitled to receive stock, securities, or other assets or property (an "Organic -6- 7 Change"), then, as a condition of such Organic Change, lawful and adequate provisions shall be made by the Company whereby the Holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Series C Preferred Stock of the Company immediately purchasable and receivable upon the exercise of the rights represented by this Warrants) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Series C Preferred Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of rights represented hereby; provided, however, that in the event the value of the stock, securities or other assets or property (determined in good faith by the Board of Directors of the Company) issuable or payable with respect to one share of the Series C Preferred Stock of the Company immediately purchasable and receivable upon the exercise of the rights represented by this Warrant is in excess of the Preferred Stock Purchase Price effective at the time of a merger and securities received in such reorganization, if any, are publicly traded, then this Warrant shall expire unless exercised prior to such Organic Change. In the event of any Organic Change, appropriate provision shall be made by the Company with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Preferred Stock Purchase Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument reasonable satisfactory in form and substance to the Holders of a majority of the warrants to purchase Series C Preferred Stock then outstanding, executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase. (d) Certain Events. If any change in the outstanding Series C Preferred Stock of the Company or any other event occurs as to which the other provisions of this Section 3.2 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder of this Warrant in accordance with such provisions, then the Board of Directors of the Company shall make an adjustment in the number and class of shares available under this Warrant, the Preferred Stock Purchase Price or the application of such provisions, so as to protect such purchase rights. The adjustment shall be such as will give the Holder of this Warrant upon exercise for the same aggregate Preferred Stock -7- 8 Purchase Price the total number, class and kind of shares as such Holder would have owned had this Warrant been exercised prior to the event and had he continued to hold such shares until after the event requiring adjustment. (e) Notices of Change. (i) Immediately upon any adjustment under this Section 3.2 in the number of shares subject to this Warrant and of the Preferred Stock Purchase Price, the Company shall have written notice thereof to the Holder, setting forth in reasonable detail and certifying the calculation of such adjustment. (ii) The Company shall give written notice to the Holder at least ten (10) business days prior to the date on which the Company closes its books or takes a record for determining rights to receive any dividends or distributions. (iii) The Company shall also give written notice to the Holder at least thirty (30) business days prior to the date an which on which an Organic Change shall take place. 4. ISSUE TAX. The issuance of certificates for shares of Series C Preferred Stock or Common Stock, as the case may be, upon the exercise of this Warrant shall be made without charge to the Holder of this Warrant for any issue tax (other than any applicable income taxes) in respect thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of this Warrant being exercised. 5. CLOSING OF BOOKS. The Company will at no time close its transfer books against the transfer of any warrant or any shares of Series C Preferred Stock or Common Stock, as the case may be, issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant. -8- 9 6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent or to receive notice as a stockholder of the Company or any other matters or any rights whatsoever as a stockholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by the Holder to purchase shares of Series C Preferred Stock or Common Stock, as the case may be, and no mere enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder for the Preferred Stock Purchase Price or the Common Stock Purchase Price or as a stockholder of the Company, whether such liability is asserted by the Company or by its creditors. 7. WARRANTS TRANSFERABLE. 7.1 Transfer. Subject to compliance with applicable United States federal and state securities laws, this Warrant and all rights hereunder shall be transferable, in whole or in part, without charge to the Holder (except for transfer taxes), upon surrender of this Warrant properly endorsed. Each taker and holder of this Warrant, by taking or holding same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the Holder, when this Warrant shall have been so endorsed, may be treated by the Company, at the Company's option, and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Company, any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered owner hereof as the Holder for all purposes. 7.2 Survival. The rights and obligations of the Company, of the Holder and of the holder of the Series C Preferred Stock or Common Stock, as the case may be, issuable upon the exercise of this Warrant referred to in Section 7.1 shall survive the exercise of this Warrant. 8. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. -9- 10 9. NOTICES. Any notice or request required or permitted to be given under or in connection with this Warrant shall be deemed to have been sufficiently given if in writing and personally delivered or sent by certified mail (return receipt requested), facsimile transmission (receipt verified), or overnight express courier service (signature required), prepaid, to the party for which such notice is intended, at the address set forth for such party below: (a) In the case of the Purchaser, to: Roche Finance Ltd 124 Grenzacherstrasse CH-4070 Basel SWITZERLAND Attention: CFDV Building 21 Room 292 Facsimile No.: 41-61-688-4169 With a copy to: Hoffmann-La Roche Inc. 340 Kingsland Street Nutley, NJ 07110 Attention: General Counsel Facsimile No.: (973) 235-3500 (b) In the case of the Company, to: deCODE genetics, Inc. Lynghalsi 1 SI-110 Reykjavik ICELAND Attention: President Facsimile No.: 354-570-1901 or to such other address for such party as it shall have specified by like notice to the other party, provided that notices of a change of address shall be effective only upon receipt thereof. If delivered personally or by facsimile transmission, the date of delivery shall be deemed to be the date on which such notice or request was given. If sent by overnight express courier service, the date of delivery shall be deemed to be the next business day after such notice or request was deposited with such service. If sent by certified mail, the date of delivery shall be deemed to be the third business day after such notice or request was deposited with the U.S. Postal Service, or the foreign equivalent thereto. -10- 11 10. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any corporation succeeding the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. All of the obligations of the Company relating to the Series C Preferred Stock or Common Stock, as the case may be, issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the Holder hereof. 11. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Delaware, USA. 12. LOST WARRANTS. The Company covenants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant, the Company, at its expense, will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant. 13. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Preferred Stock Purchase Price or Common Stock Purchase Price, as applicable. -11- 12 14. ADDITIONAL RESTRICTIONS ON EXERCISE. In addition to the restrictions set forth in the legends at the head of this Warrant, this Warrant shall not be exercised within the United States, and the Warrant Shares to be issued upon the exercise of this Warrant shall not be delivered within the United States, other than in offerings deemed to meet the definition of "offshore transaction" (as such term is defined in Regulation S promulgated under the United States Securities Act of 1933, as amended), unless this Warrant or the Warrant Shares, as the case may be, are registered under such Act or an exemption from such registration is available. * * * -12- 13 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its duly authorized officer as of __________. deCODE genetics, Inc. By:___________________________ Kari Stefansson President 14 FORM OF SUBSCRIPTION (to be executed upon exercise of Warrant) deCODE genetics, Inc.: The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within warrant certificate (the "Warrant Certificate") for, and to purchase thereunder: [ ] __________ shares of Series C Preferred Stock; or [ ] pursuant to Section 3.1 thereof, __________ shares of Common Stock , as provided for therein, and [ ] tenders herewith payment of the purchase price in full in the form of cash or a certified or official bank check in the amount of US$__________; or [ ] pursuant to Section 1.2 of the Warrant, elects to purchase the number of shares of Series C Preferred Stock indicated above by surrendering the Warrant to the extent of __________ Warrant Shares, inasmuch as, as of the date hereof, the fair market value of one share of Series C Preferred Stock (as determined in accordance with the terms of the Warrant) is US$_____ and the Preferred Stock Purchase Price is $_____. The undersigned hereby certifies that the undersigned is not a U.S. Person and the Warrant is not being exercised on behalf of a U.S. person, as such term is defined in Regulation S promulgated under the United States Securities Act of 1933, as amended. Please issue a certificate or certificates for such Warrant Shares or shares of Common Stock, as the case may be, in the name of, and pay cash for any fractional share, to: Name Address --------------------------------- Social Security No. or Federal ID No. 15 (continued ...) If the number of Warrant Shares or shares of Common Stock, as the case may be, to be issued in connection herewith shall not be all of the Warrant Shares or shares of Common Stock purchasable under the Warrant, a new Warrant Certificate shall be issued in the name of the undersigned for the balance remaining of the shares purchasable thereunder, rounded up to the next higher number of such shares. ROCHE FINANCE LTD. By:___________________________ Name:_________________________ Title:________________________ By:___________________________ Name:_________________________ Title:________________________ EX-10.1 5 FORM OF LICENCE 1 EXHIBIT 10.1 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.1 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason -------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 Date Ref. ------------- ------------- Dr. __________, physician ______________ Hospital I. PERMIT PURSUANT TO PARAGRAPH 3 OF ARTICLE 4, PARAGRAPH 2 OF ARTICLE 5 AND PARAGRAPH 3 OF ARTICLE 6 OF ACT NO. 121/1989 ON THE REGISTRATION AND HANDLING OF PERSONAL DATA The Data Protection Commission has at its meeting today resolved to issue to you a Permit to use personal data for research into the ______________________. The Permit is subject to the terms described in Chapter II below. II. TERMS It is revealed that you intend to assign a considerable part of the processing of the personal data to Islensk erfdagreining ehf., particularly the part involving work with genetic material. The transfer of personal data between you (Permit Holder/Responsible Party) and IE (Processing Party) shall take place in accordance with the work procedures described in Chapter III below. The Data Protection Commission will, pursuant to an agreement between the Commission and IE, appoint a person to supervise that the work is performed in accordance with such terms, the expense of such supervision to be paid by IE. The Data Protection Commission points out that the general principle is that the same cipher should be used in all genetic research carried out in co-operation with Islensk erfdagreining ehf. Accordingly, the same cipher will be used for the encryption of data in this research, unless you request otherwise - however, it should be emphasised that you are responsible for the anonymity of all data. The objective of the conditions established by the Data Protection Commission is to ensure the anonymity of participants in genetic research, by use of the following guidelines: 1. That research data will be preserved as clinical data in accordance with the current Act on Patients' Rights, the Physicians' Act and regulations on clinical records. 2. That all research data at Islensk erfdagreining ehf. will be encrypted so that neither blood samples nor other personal data identified with names, identity numbers or other comparable personal identifiers are transferred to Islensk erfdagreining ehf. 3. That linking between personal data on the premises of the Responsible Party and Processing Party takes place only with the use of a cipher. 3 DATA PROTECTION COMMISSION ________________________________________________________________________________ 4. That the use of the cipher is restricted to the supervisors of the Data Protection Commission and in accordance with the terms described below. 5. That the cipher is kept secure. 6. That the cipher will never be used for the encryption/decryption of fewer identity numbers than twenty at each time. 7. That data from the research of one disease, including biosamples, will not be used in the research of another disease, without the express written approval of the person recorded or a special authorisation from the Data Protection Commission. III. WORK PROCEDURES All processing of personal data in relation to genetic research shall be performed in accordance with the following work procedures: 1. The Supervisor of the Data Protection Commission shall produce A CIPHER, which replaces the identity number with a Personal Number (PN), i.e. a code. Three copies may be preserved of the cipher, one by the Data Protection Commission, another by the Supervisor of the Data Protection Commission and the third in a safety deposit box at Islensk erfdagreining ehf. (IE). The copies to be kept by the Data Protection Commission and in the deposit box of IE shall be sealed by a public notary. The safety deposit box of IE shall be locked with two keys, one of which shall be delivered to the Data Protection Commission for custody. An inspection may be carried out at any time to ascertain whether any seals have been broken. 2. Supervisors shall ENCRYPT THE GENEALOGICAL DATABASE (the Book of Icelanders) using the cipher. The database may be encrypted as soon as new updates of the Book of Icelanders are ready. An encrypted Book of Icelanders may neither be housed in the same computer nor on the same computer network as an unencrypted Book of Icelanders, except under the supervision of the Supervisor of the Data Protection Commission. In order to reduce the possibility of breaching the anonymity by comparing encrypted genealogical tables with genealogical tables containing identity numbers, IE shall classify individuals according to their age so that if there are few individuals registered as born in certain years, the registered year of birth is altered so that the minimum number of individuals within any age group is twenty. 3. The Supervisor shall receive: a. Reykjavik Municipal Hospital's register of patients diagnosed with __________________. b. The National Hospital's register of patients diagnosed with __________________. c. The Akureyri District Hospital's register of patients diagnosed with __________________. d. The University of Iceland Institute of Pathology's register of received _______ samples; diagnosis: ________________________________. e. The State Social Security Institute's register of patients who have been prescribed medication against ________________________. 2 4 DATA PROTECTION COMMISSION ________________________________________________________________________________ As it is important that outside parties do not obtain information on the names of patients, except with the express consent of the patient, the assumption is made in this Permit that the individuals in question will be contacted and that the willingness of each individual to participate in the research ascertained before work with data on such patients begins. It is proposed that this will be done by the same physician who has treated the person in question, or in the name of an institution and with the approval of a senior physician in the event that the patient's physician is deceased or for any other reason unavailable. The Supervisor encrypts THESE NAME LISTS with the above cipher and delivers the lists in encrypted form to IE. The Supervisor may, if he so chooses and the Permit Holders agree, perform such encryption in co-operation with the Genetic Research Service Centre (GRSC), a foundation domiciled at Noatun 17, Reykjavik. No copies shall remain in the possession of the Supervisor. 4. IE performs the LINKING OF THE ENCRYPTED LIST OF PATIENTS AND THE ENCRYPTED GENEALOGICAL DATABASE. Thus, an ENCRYPTED LIST OF PARTICIPANTS is created, i.e. a list of patients and relatives, and an encrypted genealogical table. 5. The Supervisor receives from IE the encrypted list of participants, DECRYPTS it and prepares a list of the identity numbers and names of the participants. Then he decrypts the genealogical table in the same manner. The Supervisor may, if he so chooses and the Permit Holders agree, perform this decryption in co-operation with the Genetic Research Service Centre (GRSC), a foundation domiciled at Noatun 17, Reykjavik. The Supervisor delivers to you the list of identity numbers and the decrypted genealogical table. No copies may remain in the possession of the Supervisor. 6. IE prints out and delivers to the Permit Holders STICK-ON LABELS for the labelling of blood samples, connection sheets and forms to be filled out for health information. Each label contains: - a three-letter code which is the set identifier - a number specifying the number of labels in the set - a label number (bar code) - the term of validity (month/year in numerals and as a bar code) The term of validity of labels shall be three months from the date of issue. There shall be no connection between label numbers and set labels. IE may, until three months have passed from the date of issue of the label number, preserve information on issued label numbers (label number register), the date of issue, the number of labels in each set and sample numbers, cf. Sub-Section 9. 7. Participants are selected for a priority list for calling in (from families with two or more individuals who have been diagnosed with _________________ ___________). You shall PRESENT THE RESEARCH PROJECT to potential participants and explain, among other things, issues regarding the handling and security of personal data, and ascertain their willingness to participate. The patient himself/herself shall, to the extent possible, be charged with the task of contacting his/her relatives. Those who are willing to participate shall sign a declaration of their informed consent. Such declarations of consent shall be in a form requiring the specific approval of the Data Protection Commission and the Science Ethics Committee. 3 5 DATA PROTECTION COMMISSION ________________________________________________________________________________ You shall preserve all declarations of consent in a single file and treat them in accordance with current rules on the handling of clinical records. Measures shall be taken to ensure that patients have a copy of the granted declaration of consent. When this has been done, YOU SHALL COLLECT BIOSAMPLES AND CLINICAL DATA on the participants as follows: a. On the arrival of the participant, a so-called CONNECTION SHEET is filled out. The sheet states the identity number and name of the participant, the date of arrival and the identifier of the research, i.e. the name of the disorder and the names of the Permit Holders. One label from a set is attached to the connection sheet. b. Then BLOOD IS DRAWN from the participant, and tubes with blood samples labelled with labels from the same set of labels used to label the connection sheet. Other biosamples shall be labelled in the same manner. c. When this has been done, THE PERMIT HOLDERS RECORD CLINICAL DATA regarding the participant on special forms. Other information than specified by the Permit Holder as necessary for his purposes in the research plan/declaration of consent may not be collected. The above forms shall be devoid of any personal identifiers, and identified using labels from the same set of labels as used in labelling the connection sheet and the blood sample. The Permit Holder may assign the work described in this Sub-Section to the Genetic Research Service Centre or individual employees working on the responsibility of the Centre, cf. Sub-Section 10. All collection of health data from other sources, e.g. from clinical records, is subject to the permission of the registered person if he/she is alive. Otherwise, the authorisation of the senior physician in question shall be obtained. 8. The Supervisors shall supervise the transfer of DATA FROM CONNECTING SHEETS (INFORMATION ON IDENTITY NUMBERS AND LABEL NUMBERS) TO A SPECIAL REGISTER, encrypt identity numbers in the register and then deliver them to IE in a sealed envelope. When this transfer has been completed, the Supervisors shall keep the connection sheets for one month and then destroy them. No copies may remain with the Permit Holder or the Supervisor. 9. Blood samples and forms with health data are sent to IE. On receipt of the data, IE RE-LABELS them and replaces label numbers with sample numbers. As soon as all labels of the label set in question have been received, or on expiry of the label number, the record in question shall be deleted from the Register of Label Numbers. IE shall recycle the label number as soon as possible. The Supervisor of the Data Protection Commission shall supervise the deletion of records from the Register of Label Numbers in accordance with the above instructions. IV. You are RESPONSIBLE for ensuring the treatment of all personal data as clinical records, pursuant to the current Act on Patients' Rights, the Physicians' Act and government regulations on clinical records, that such data are not transferred out of the country 4 6 DATA PROTECTION COMMISSION ________________________________________________________________________________ and that all handling of genetic research data is in accordance with the above work procedures. The validity of the said Permit is subject to the condition that the required authorisation of the Science Ethics Committee has been granted for the research in question. The Data Protection Commission reserves the right to revoke this Permit or amend certain terms at any time, if this is required in the interest of personal protection, especially if it is discovered that the Responsible Parties include staff of the Processing Party (IE), or if there are other such reasons which may be regarded as invalidating the premises of the Permit. Concurrently with the issue of this Permit, older permits of the Data Protection Commission relating to the same project are cancelled. On behalf of the Data Protection Commission ---------------------------- Managing Director Copies: Svana Helen Bjornsdottir Kolbeinsmyri 14 170 Seltjarnarnes Islensk erfdagreining ehf. Kari Stefansson Lynghals 1 110 Reykjavik 5 EX-10.2 6 EQUITY INCENTIVE PLAN 1 EXHIBIT 10.2 DECODE GENETICS, INC. 1996 EQUITY INCENTIVE PLAN ADOPTED AUGUST 21, 1996 APPROVED BY STOCKHOLDERS AUGUST 21, 1996 AS AMENDED THROUGH JULY 12, 1999 1. PURPOSES. (A) The purpose of the Plan is to provide a means by which selected Employees and Directors of and Consultants to the Company, and its Affiliates, may be given an opportunity to benefit from increases in value of the stock of the Company through the granting of (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses, and (iv) rights to purchase restricted stock, all as defined below. (B) The Company, by means of the Plan, seeks to retain the services of persons who are now Employees or Director of or Consultants to the Company or its Affiliates, to secure and retain the services of new Employees, Directors and Consultants, and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. (C) The Company intends that the Stock Awards issued under the Plan shall, in the discretion of the Board or any Committee to which responsibility for administration of the Plan has been delegated pursuant to subsection 3(c), to be either (i) Options granted pursuant to Section 6 hereof, including Incentive Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to purchase restricted stock granted pursuant to Section 7 hereof. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and in such form as issued pursuant to Section 6, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option. 2. DEFINITIONS. (A) "AFFILIATE" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code. (B) "BOARD" means the Board of Directors of the Company. (C) "CAUSE" means (a) gross or habitual failure to perform the assigned duties of the employee's job, that is, performance failure not corrected within thirty (30) days after written notice to the employee thereof or (b) misconduct, including, but not limited to: (i) conviction of a crime, or entry of a plea of nolo contendere with regard to a crime, involving moral turpitude or dishonesty, (ii) illegal drug use or alcohol abuse on Company premises or at a Company sponsored event, (iii) 2 conduct by the employee which in the good faith and reasonable determination of the Board demonstrates gross unfitness to serve, (iv) participation in a fraud or act of dishonesty against the Company, or (v) intentional, material violation by the employee of any contract between the employee and the Company or of any statutory duty of the employee to the Company. Mental or physical disability shall not constitute "Cause." (D) "CODE" means the Internal Revenue Code of 1986, as amended. (E) "COMMITTEE" means a Committee appointed by the Board in accordance with subsection 3(c) of the Plan. (F) "COMPANY" means deCODE genetics, Inc., a Delaware corporation. (G) "CONSULTANT" means any person, including an advisor, engaged by the Company or an Affiliate to render consulting services and who is compensated for such services, provided that the term "Consultant" shall not include Directors who are paid only a director's fee by the Company or who are not compensated by the Company for their services as Directors. (H) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the person's service with the Company, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Board or the chief executive officer of the Company may determine, in that party's sole discretion, whether Continuous Status as an Employee, Director or Consultant shall be considered interrupted in the case of: (i) any leave of absence approved by the Board or the chief executive officer of the Company, including sick leave, military leave, or any other personal leave; or (ii) transfers between the Company, Affiliates or their successors. (I) "COVERED EMPLOYEE" means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to stockholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code. (J) "DIRECTOR" means a member of the Board. (K) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (L) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (M) "FAIR MARKET VALUE" means the value of the common stock as determined in good faith by the Board. (N) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. 2 3 (O) "LISTING DATE" means the first date upon which any security of the Company is listed (or approved for listing) upon notice of issuance on any securities exchange, or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system if such securities exchange or interdealer quotation system has been certified in accordance with the provisions of Section 25100(o) of the California Corporate Securities Law of 1968. (P) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a current Employee or Officer of the Company or its parent or subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act of 1933 ("Regulation S-K")), does not possess an interest in any other transaction as to which disclosure would be required under Item 404 (a) of Regulation S-K, and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for purposes of Rule 16b-3. (Q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. (R) "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. (S) "OPTION" means a stock option granted pursuant to the Plan. (T) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (U) "OPTIONEE" means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option. (V) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of the Treasury regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an "affiliated corporation" at any time, and is not currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a Director, or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code. 3 4 (W) "PLAN" means this 1996 Equity Incentive Plan. (X) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect with respect to the Company at the time discretion is being exercised regarding the Plan. (Y) "STOCK AWARD" means any right granted under the Plan, including any Option, any stock bonus, and any right to purchase restricted stock. (Z) "STOCK AWARD AGREEMENT" means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan. 3. ADMINISTRATION. (A) The Plan shall be administered by the Board unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). (B) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; whether a Stock Award will be an Incentive Stock Option, a Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock, or a combination of the foregoing; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive stock pursuant to a Stock Award; and the number of shares with respect to which a Stock Award shall be granted to each such person. (2) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (3) To amend the Plan or a Stock Award as provided in Section 13. (4) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan. (C) The Board may delegate administration of the Plan to a committee of the Board composed of not fewer than two (2) members (the "Committee"), all of the members of which Committee may be, in the discretion of the Board, Non-Employee Directors and/or Outside 4 5 Directors. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee of two (2) or more Outside Directors any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or such a subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Additionally, prior to the Listing Date, and notwithstanding anything to the contrary contained herein, the Board may delegate administration of the Plan to a committee of one or more members of the Board and the term "Committee" shall apply to any person or persons to whom such authority has been delegated. Notwithstanding anything in this Section 3 to the contrary, the Board or the Committee may delegate to a committee of one or more members of the Board the authority to grant Stock Awards to eligible persons who (1) are not then subject to Section 16 of the Exchange Act and/or (2) are either (i) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award, or (ii) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code. 4. SHARES SUBJECT TO THE PLAN. (A) Subject to the provisions of Section 12 relating to adjustments upon changes in stock, the stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate Five Million (5,000,000) shares of the Company's common stock. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the stock not acquired under such Stock Award shall revert to and again become available for issuance under the Plan. (B) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. ELIGIBILITY. (A) Incentive Stock Options may be granted only to Employees. Stock Awards other than Incentive Stock Options may be granted only to Employees, Directors or Consultants. (B) No person shall be eligible for the grant of an Incentive Stock Option if, at the time of grant, such person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of such stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant. (C) Subject to the provisions of Section 12 relating to adjustments upon changes in stock, no person shall be eligible to be granted Options covering more than one million (1,000,000) shares 5 6 of the Company's common stock in any calendar year. This subsection 5(c) shall not apply prior to the Listing Date, and, following the Listing Date, shall not apply until (i) the earliest of: (A) the first material modification of the Plan (including any increase to the number of shares reserved for issuance under the Plan in accordance with Section 4); (B) the issuance of all of the shares of common stock reserved for issuance under the Plan; (C) the expiration of the Plan; or (D) the first meeting of stockholders at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which occurred the first registration of an equity security under section 12 of the Exchange Act; or (ii) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder. 6. OPTION PROVISIONS. Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (A) TERM. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted. (B) PRICE. The exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option was granted. The exercise price of each Nonstatutory Stock Option shall be determined by the Board. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (C) CONSIDERATION. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Board or the Committee, at the time of the grant of the Option, (A) by delivery to the Company of other common stock of the Company, (B) according to a deferred payment arrangement, except that payment of the common stock's "par value" (as defined in the Delaware General Corporation Law) shall not be made by deferred payment, or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the Option is granted or to whom the Option is transferred pursuant to subsection 6(d), or (C) in any other form of legal consideration that may be acceptable to the Board. In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. 6 7 (D) TRANSFERABILITY. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the Incentive Stock Option is granted only by such person. A Nonstatutory Stock Option shall only be transferable by the Optionee upon such terms and conditions as are set forth in the Option Agreement for such Nonstatutory Stock Option, as the Board of the Committee shall determine in its discretion, except that each Nonstatutory Stock Option may be transferred to the spouse, children, lineal ancestors and lineal descendants of the Optionee (or to a trust created solely for the benefit of the Optionee and the foregoing persons) or to an organization except from taxation pursuant to Section 501(c)(3) of the Code or to which tax deductible charitable contributions may be made under Section 170 of the Code (excluding such organizations classified as private foundations under applicable regulations and rulings). The person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option. (E) VESTING. The total number of shares of stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to tome or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised. (F) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it as of the date of termination) but only within such period of time ending on the earliest of (i) the date three (3) months after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant or such longer or shorter period specified in the Option Agreement), (ii) the time of such termination if such termination is for "Cause" or if after such termination the Optionee provides services for or acquires an ownership interest in any business which competes with the Company, or (iii) the expiration of the term of the Option as set forth in the Option Agreement. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. 7 8 An Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (other than upon the Optionee's death or disability) would result in liability under Section 16(b) of the Exchange Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day after the last date on which such exercise would result in such liability under Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (other than upon the Optionee's death or disability) would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Securities Act of 1933, as amended (the "Act"), then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the first paragraph of this subsection 6(f), or (ii) the expiration of a period of three (3) months following the termination of the Optionee's Continuous Status as an Employee, Director or Consultant during which the exercise of the Option would not be in violation of such registration requirements. (G) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates as a result of the Optionee's disability, the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (H) DEATH OF OPTIONEE. In the event of the death of an Optionee during, or within a period specified in the Option Agreement after the termination of, the Optionee's Continuous Status as an Employee, Director or Consultant, the Option may be exercise (to the extent the Optionee was entitled to exercise the Option as of the date of death) by the Optionee's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionee's death pursuant to subsection 6(d), but only within the period ending on the earlier of (i) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement ), or (ii) the expiration of the term of such Option as set forth in the Option Agreement. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. 8 9 (I) EARLY EXERCISE. The Option may, but need not, include a provision whereby the Optionee may elect at any time while an Employee, Director or Consultant to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Any unvested shares so purchased may be subject to a repurchase right in favor of the Company or to any other restriction the Board determines to be appropriate. (J) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to exercise a right of first refusal following receipt of notice from the Optionee of the intent to transfer all or any part of the shares exercised pursuant to the Option. Except as expressly provided in this Subsection (j), such right of first refusal shall otherwise comply with the provisions of the Bylaws of the Company. (K) RE-LOAD OPTIONS. Without in any way limiting the authority of the Board or Committee to make or not to make grants of Options hereunder, the Board or Committee shall have the authority (but not an obligation) to include as part of any Option Agreement a provision entitling the Optionee to a further Option (a "Re-Load Option") in the event the Optionee exercises the Option evidenced by the Option Agreement, in whole or in part, by surrendering other shares of Common Stock in accordance with this Plan and the terms and conditions of the Option Agreement. Any such Re-Load Option (i) shall be for a number of shares equal to the number of shares surrendered as part or all of the exercise price of such Option; (ii) shall have an expiration date which is the same as the expiration date of the Option the exercise of which gave rise to such Re-Load Option; and (iii) shall have an exercise price which is equal to one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Re-Load Option on the date of exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option which is an Incentive Stock Option and which is grated to a 10% stockholder (as described in subsection 5(b)), shall have an exercise price which is equal to one hundred ten percent (110%) of the Fair Market Value of the stock subject to the Re-Load Option on the date of exercise of the original Option and shall have a term which is no longer than five (5) years. Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory Stock Option, as the Board or Committee may designate at the time of the grant of the original Option; provided, however, that the designation of any Re-Load Option as an Incentive Stock Option shall be subject to the one hundred thousand dollar ($100.000) annual limitation on exercisability of Incentive Stock Options described in subsection 11(e) of the Plan and in Section 422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be subject to the availability of sufficient shares under subsection 4(a) and the limits on the grants of Options under subsection 5(c) and shall be subject to such other terms and conditions as the Board or Committee may determine which are not inconsistent with the express provisions of the Plan regarding the terms of Options. 9 10 7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK. Each stock bonus or restricted stock purchase agreement shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate. The terms and conditions of stock bonus or restricted stock purchase agreements may change from time to time, and the terms and conditions of separate agreements need not be identical, but each stock bonus or restricted stock purchase agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions as appropriate: (A) PURCHASE PRICE. The purchase price under each restricted stock purchase agreement shall be such amount as the Board or Committee shall determine and designate in such Stock Award Agreement. Notwithstanding the foregoing, the Board or the Committee may determine that eligible participants in the Plan may be awarded stock pursuant to a stock bonus agreement in consideration for past services actually rendered to the Company or for its benefit. (B) TRANSFERABILITY. Rights under a stock bonus or restricted stock purchase agreement shall be transferable by the grantee only upon such terms and conditions as are set forth in the applicable Stock Award Agreement, as the Board or the Committee shall determine in its discretion, so long as stock awarded under such Stock Award Agreement remains a subject to the terms of the agreement. (C) CONSIDERATION. The purchase price of stock acquired pursuant to a stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Board or the Committee, according to a deferred payment arrangement, except that payment of the common stock's "par value" (as defined in the Delaware General Corporation Law) shall not be made by deferred payment, or other arrangement with the person to whom the stock is sold; or (iii) in any other form of legal consideration that may be acceptable to the Board or the Committee in its discretion. Notwithstanding the foregoing, the Board or the Committee to which administration of the Plan has been delegated may award stock pursuant to a stock bonus agreement in consideration for past services actually rendered to the Company or for its benefit. (D) VESTING. Shares of stock sold or awarded under the Plan may, but need not, be subject to a repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board or the Committee. (E) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT. In the event a Participant's Continuous Status as an Employee, Director or Consultant terminates, the Company may repurchase or otherwise reacquire any or all of the shares of stock held by that person which have not vested as of the date of termination under the terms of the stock bonus or restricted stock purchase agreement between the Company and such person. 10 11 8. CANCELLATION AND RE-GRANT OF OPTIONS. (A) The Board or the Committee shall have the authority to effect, at any time and from time to time, (i) the repricing of any outstanding Options under the Plan and/or (ii) with the consent of the affected holders of Options, the cancellation of any outstanding Options under the Plan and the grant in substitution therefor of new Options under the Plan covering the same or different numbers of shares of stock, but having an exercise price per share not less than one hundred percent (100%) of the Fair Market Value in the case of an Incentive Stock Option or, in the case of a 10% stockholder (as described in subsection 5(b)) receiving a new grant of any Incentive Stock Option, not less than one hundred ten percent (110%) of the Fair Market Value per share of stock on the new grant date. Notwithstanding the foregoing, the Board or the Committee may grant an Option with an exercise price lower than that set forth above if such Option is granted as part of a transaction to which section 424(a) of the Code applies. (B) Shares subject to an Option canceled under this Section 8 shall continue to be counted against the maximum award of Options permitted to be granted pursuant to subsection 5(c) of the Plan. The repricing of an Option under this Section 8, resulting in a reduction of the exercise price, shall be deemed to be a cancellation of the original Option and the grant of a substitute Option; in the event of such repricing, both the original and the substituted Options shall be counted against the maximum awards of Options permitted to be granted pursuant to subsection 5(c) of the Plan. The provisions of this subsection 8(b) shall be applicable only to the extent required by Section 162(m) of the Code. 9. COVENANTS OF THE COMPANY. (A) During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of stock required to satisfy such Stock Awards. (B) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the Stock Award; provided, however, that this undertaking shall not require the Company to register under the act, either the Plan, any Stock Award or any stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Stock Awards unless and until such authority is obtained. 10. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to Stock Awards shall constitute general funds of the Company. 11 12 11. MISCELLANEOUS. (A) The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest pursuant to subsection 6(e) or 7(d), notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will best. (B) Neither an Employee, Director or Consultant nor any person to whom a Stock Award is transferred under subsection 6(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Stock Award unless and until such person has satisfied all requirements for exercise of the Stock Award pursuant to its terms. (C) Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Employee, Director, Consultant or other holder of Stock Awards any right to continue in the employ of the Company or any Affiliate (or to continue acting as a Director or Consultant) or shall affect the right of the Company or any Affiliate to terminate the employment of any Employee with or without cause the right of the Company's Board of Directors and/or the Company's stockholders to remove any Director as provided in the Company's By-Laws and the provisions of the Delaware General Corporation Law, or the right to terminate the relationship of any Consultant subject to the terms of such Consultant's agreement with the Company or Affiliate. (D) To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year under all plans of the Company and its Affiliates exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. (E) The Company may require any person to whom a Stock Award is granted, or any person to whom a Stock Award is transferred pursuant to subsection 6(d) or 7(b), as a condition of exercising or acquiring stock under any Stock Award, (1) to give written assurances satisfactory to the Company as to such person's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the Stock Award for such person's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise or acquisition of stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act, or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems 12 13 necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. (F) To the extent provided by the terms of a Stock Award Agreement, the person to whom a Stock Award is granted may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under a Stock Award by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold shares from the shares of the common stock otherwise issuable to the participant as result of the exercise or acquisition of stock under the Stock Award; or (3) delivering to the Company owned and unencumbered shares of the common stock of the Company. 12. ADJUSTMENTS UPON CHANGES IN STOCK. (A) If any change is made in the stock subject to the Plan, or subject to any Stock Award (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the type(s) and maximum number of securities subject to award to any person during any calendar year pursuant to subsection 5(c), and the outstanding Stock Awards will be appropriately adjusted in the type(s) and number of securities and price per share of stock subject to such outstanding Stock Awards. Such adjustments shall be made by the Board or the Committee, the determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a "transaction not involving the receipt of consideration by the Company.") (B) In the event of: (1) a dissolution, liquidation or sale of all or substantially all of the assets of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; or (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; then: (i) any surviving corporation or acquiring corporation shall assume any Stock Awards outstanding under the Plan or shall substitute similar stock awards (including an award to acquire the same consideration paid to the stockholders in the transaction described in this subsection 12(b)) for those outstanding under the Plan, or (ii) in the event any surviving corporation or acquiring corporation refuses to assume such Stock Awards or to substitute similar stock awards for those outstanding under the Plan, (A) with respect to Stock Awards held by persons then performing services as Employees, Directors or Consultants the vesting of such Stock Awards (and, if applicable, the time during which such Stock Awards may be exercised) shall be accelerated prior to such event and the Stock Awards terminated if not exercised (if applicable) after such acceleration and at or prior to such event, and (B) with respect to any other Stock Awards outstanding under the Plan, such Stock Awards shall be terminated if not exercised (if applicable) prior to such event. 13 14 13. AMENDMENT OF THE PLAN AND STOCK AWARDS. (A) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 12 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: (I) Increase the number of shares reserved for Stock Awards under the Plan; (II) Modify the requirements as to eligibility for participation in the Plan (to the extent such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code); or (III) Modify the Plan in any other way if such modification requires stockholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code or to comply with the requirements of Rule 16b-3. (B) The Board may in its sole discretion submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations promulgated thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. (C) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. (D) Rights and obligations under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing. (E) The Board at any time, and from time to time, may amend the terms of any one or more Stock Award; provided, however, that the rights and obligations under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing. 14 15 14. TERMINATION OR SUSPENSION OF THE PLAN. (A) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on August 15, 2006, which shall be within ten (10) years from the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated. (B) Rights and obligations under any Stock Award granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the written consent of the person to whom the Stock Award was granted. 15. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined by the Board, but no Stock Awards granted under the Plan shall be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board, and, if required, an appropriate permit has been issued by the Commissioner of Corporations of the State of California. 15 EX-10.3 7 FORM OF STOCK OPTION AGREEMENT 1 EXHIBIT 10.3 NON-STATUTORY STOCK OPTION _________________________, Optionee: deCODE genetics, Inc., a Delaware corporation (the "Company"), has granted to you, the optionee named above, an option to purchase shares of the common stock of the Company ("Common Stock"). This option is not intended to qualify as an "incentive stock option" within the meaning of Section 422 of the United States Internal Revenue Code of 1986, as amended (the "Code"). The grant hereunder is intended to comply with the provisions of Regulation S promulgated by the United States Securities and Exchange Commission under the United States Securities Act of 1933, as amended (the "Act"). The details of your option are as follows: 1. DEFINITIONS. (A) "AFFILIATE" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code. (B) "BOARD" means the Board of Directors of the Company. (C) "CAUSE" means (a) gross or habitual failure to perform the person's assigned duties, that is, performance failure not corrected within thirty (30) days after written notice to the person thereof or (b) misconduct, including, but not limited to: (i) conviction of a crime, or entry of a plea of nolo contendere with regard to a crime, involving moral turpitude or dishonesty, (ii) illegal drug use or alcohol abuse on Company premises or at a Company sponsored event, (iii) conduct by the person which in the good faith and reasonable determination of the Board demonstrates gross unfitness to serve, (iv) participation in a fraud or act of dishonesty against the Company, or (v) intentional, material violation by the person of any contract between the person and the Company or of any statutory duty of the person to the Company. Neither mental nor physical disability shall constitute "Cause". (D) "CONSULTANT" means any person, including an advisor, engaged by the Company or an Affiliate to render consulting services and who is compensated for such services, provided that the term "Consultant" shall not include Directors who are paid only a director's fee by the Company or who are not compensated by the Company for their services as Directors. (E) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the person's service with the Company, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Board or the chief executive officer of the Company may determine, in that party's sole discretion, whether Continuous Status as an Employee, Director or Consultant shall be considered interrupted in the case of: (i) any leave of absence approved by the Board or the chief executive officer of the Company, including sick leave, military leave, or any other personal leave; or (ii) transfers between the Company, Affiliates or their successors. -1- 2 (F) "DIRECTOR" means a member of the Board. (G) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (H) "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. 2. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of shares of Common Stock subject to this option is ______________ (__________). 3. VESTING. Subject to the limitations contained herein, twenty- five percent (25%) of the shares will vest (become exercisable) on ____________, and 1/48th of the shares will then vest on the last day of each month thereafter until either: (i) you cease to provide services to the Company for any reason; or (ii) this option becomes fully vested. Additionally, vesting will be suspended for the duration of any leave of absence that does not constitute a termination of your Continuous Status as an Employee, Director or Consultant. 4. EXERCISE PRICE AND METHOD OF PAYMENT. (A) EXERCISE PRICE. The exercise price of this option is $_______ per share. (B) METHOD OF PAYMENT. Payment of the exercise price per share is due in full upon exercise of all or any part of this option. You may elect, to the extent permitted by applicable statutes and regulations, to make payment of the exercise price under one of the following alternatives: (i) Payment of the exercise price per share in cash (including check) at the time of exercise; (ii) Payment according to a deferred payment arrangement acceptable to the Board (including payment by promissory note), except that payment of the common stock's "par value" (as defined in the Delaware General Corporation Law) shall be made in cash (including check) at the time of exercise; (iii) Payment pursuant to a program developed under Regulation T as promulgated by the United States Federal Reserve Board which, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds; (iv) Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, payment by delivery of already-owned shares of Common Stock, held for the period required to avoid a charge to the Company's reported earnings, and owned free and clear of any liens, claims, encumbrances or security interests, which Common Stock shall be valued at its fair market value on the date of exercise; or -2- 3 (v) Payment by a combination of the methods of payment permitted by subparagraph 4(b)(i) through 4(b)(iv) above. 5. EXERCISE PRIOR TO VESTING PERMITTED. (A) CONDITIONS OF EARLY EXERCISE. Subject to the provisions of this option, you may elect at any time during your Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company, to exercise the option as to any part or all of the shares subject to this option at any time during the term hereof, including without limitation, a time prior to the date of earliest exercise ("vesting") stated in Paragraph 3; provided, however, that: (i) a partial exercise of this option shall be deemed to cover first vested shares and then the earliest vesting installment of unvested shares; (ii) any shares so purchased from installments which have not vested as of the date of exercise shall be subject to the purchase option in favor of the Company as described in the Early Exercise Stock Purchase Agreement attached hereto; and (iii) you shall enter into the Early Exercise Stock Purchase Agreement attached hereto with a vesting schedule that will result in the same vesting as if no early exercise had occurred. (B) EXPIRATION OF EARLY EXERCISE ELECTION. The election provided in this Paragraph 5 to purchase shares upon the exercise of this option prior to the vesting dates (the "Early Exercise Election") shall cease upon termination of your Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company and may not be exercised after the date thereof. 6. WHOLE SHARES. This option may not be exercised for any number of shares which would require the issuance of anything other than whole shares. 7. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, this option may not be exercised unless the shares issuable upon exercise of this option are then registered under the Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Act. 8. TERM. The term of this option commences on _________________, the date of grant, and expires on ____________________ (the "Expiration Date," which date shall be no more than ten (10) years from date this option is granted), unless this option expires sooner as set forth herein. In no event may this option be exercised on or after the Expiration Date. This option shall expire on the date of your termination of Continuing Status as an Employee, Director or Consultant if: (a) such termination is for Cause; or (b) after such termination you provide services for or acquire an ownership interest in any business which competes with the Company. However, this option may be exercised following termination of Continuous Status as an Employee, Director or Consultant only as to that number of shares as to which it was exercisable on the date of termination of Continuous Status as an Employee, Director or Consultant under the provisions of Paragraph 3. -3- 4 9. EXERCISE UPON OR SUBSEQUENT TO VESTING. (A) In lieu of making the Early Exercise Election, Optionee may exercise this option, to the extent specified above, by delivering a stock purchase agreement (in a then form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require for purposes of compliance with any applicable law, rule or regulation. (B) By exercising this option, you agree that: (i) as a precondition to the completion of any exercise of this option, the Company may require you to enter an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of: (A) the exercise of this option; (B) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or (C) the disposition of shares acquired upon such exercise; (ii) the Company (or a representative of the underwriters) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Act, require that you not sell or otherwise transfer or dispose of any shares of Common Stock or other securities of the Company during such period (not to exceed one hundred eighty (180) days) following the effective date (the "Effective Date") of the registration statement of the Company filed under the Act as may be requested by the Company or the representative of the underwriters. You further agree that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period; and (iii) at the request of the Company, you will execute and become a party to any voting agreement then in effect between the Company and any of its common stockholders. 10. TRANSFERABILITY This option is not transferable, except (i) by will or by the laws of descent and distribution, (ii) to your spouse, children, lineal ancestors and lineal descendants (or to a trust created solely for your benefit and that of the foregoing persons), (iii) to an organization exempt from taxation pursuant to Section 501(c)(3) of the Code or to which tax deductible contributions may be made under Section 170 of the Code (excluding such organizations classified as private foundations under applicable regulations and rulings), or (iv) to your Affiliate. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise this option. 11. OPTION NOT A SERVICE NOR EMPLOYMENT CONTRACT. This option is neither a service nor an employment contract. Nothing in this option shall be deemed to: (i) create in any way whatsoever any obligation on your part to continue in the employ of the Company, or of the Company to continue your employment with the Company; or (ii) obligate the Company or any Affiliate of the Company, or their respective stockholders, Board of Directors, officers or employees to continue any relationship which you might have as a Director or Consultant for the Company or Affiliate of the Company. -4- 5 12. NOTICES. Any notices provided for in this option shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the mail, postage prepaid, addressed to you at the address specified below or at such other address as you hereafter designate by written notice to the Company. 13. GENDER. Whenever the context requires, words denoting gender in this option shall include the masculine, feminine and neuter. Dated: ________________ Very truly yours, deCODE genetics, Inc. By:__________________________________ Kari Stefansson, President ATTACHMENTS: Early Exercise Stock Purchase Agreement -5- 6 The undersigned: (a) Acknowledges receipt of the foregoing option and the attachments referenced therein and understands that all rights and liabilities with respect to this option are set forth in the option; and (b) Acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the undersigned optionee and the Company and its Affiliates regarding the acquisition of stock in the Company and supersedes all prior oral and written agreements on that subject with the exception of (i) the options previously granted and delivered to the undersigned under stock option plans of the Company, and (ii) the following agreements only: NONE _____________ (Initial) OTHER _____________________________________ _____________________________________ _____________________________________ _____________________________________ (signature) _____________________________________ (print name) Address: _____________________________________ _____________________________________ _____________________________________ _____________________________________ -6- 7 EARLY EXERCISE STOCK PURCHASE AGREEMENT THIS AGREEMENT is made by and between deCODE genetics, Inc., a Delaware corporation (the "Company"), and ______________________________("Purchaser"). WITNESSETH: WHEREAS, Purchaser holds a stock option to purchase shares of common stock of the Company which Purchaser desires to exercise; and WHEREAS, Purchaser wishes to take advantage of the early exercise provision of its option and therefore to enter into this Agreement; NOW, THEREFORE, IT IS AGREED between the parties as follows: 1. Purchaser hereby agrees to purchase from the Company, and the Company hereby agrees to sell to Purchaser, an aggregate of ____________ shares of the common stock (the "Stock") of the Company, for an aggregate exercise price of $_______________ ($____ per share) payable as follows: Cash at Closing $______________ Nonrecourse Promissory Note in the form of Exhibit A (the "Note") $______________ Total Exercise Price $______________ The closing hereunder shall occur at the offices of the Company on the date of this Agreement or at such other time and place as the parties may mutually agree upon in writing. At the closing, Purchaser shall deliver to the Company: (i) the total exercise price (accounted for by cash at closing and the executed Note if a portion of the total exercise price is to be paid by a promissory note) and an executed pledge agreement in the form attached hereto as Exhibit B (the "Pledge Agreement") under which all shares of the Stock acquired by Note shall be pledged as collateral security for the payment of the indebtedness represented by the Note; (ii) three (3) Stock Powers, in the form attached as Exhibit C, duly endorsed (with date and number of shares left blank); and (iii) the voting agreement between the Company and the holders of its Common Stock in the form attached hereto as Exhibit D, duly executed by Purchaser. The certificates for all of the Stock that is subject to the Pledge Agreement, together with the Stock Powers, shall be retained by the Company as security pursuant to the Pledge Agreement. At the closing or as soon thereafter as practicable, the Company shall deliver to the Escrow Agent (as defined in Paragraph 8) share certificates for all of the Stock that is to be -7- 8 subject to the Forfeiture Option (as defined in Paragraph 2), and shall deliver share certificates to Purchaser for all of the Stock, if any, that is not to be subject to the Forfeiture Option or the Pledge Agreement. The certificates for all of the Stock that is subject to the Pledge Agreement but not the Forfeiture Option shall be retained by the Company as security pursuant to the Pledge Agreement. 2. The Stock to be purchased by Purchaser pursuant to this Agreement shall be subject to the following option ("Forfeiture Option"): (a) In the event that Purchaser shall cease to be an employee of the Company for any reason (including his death), or no reason, with or without cause, the Forfeiture Option may be exercised. The Company shall have the right, at any time within the ninety (90) day period after Purchaser's termination of service with the Company and all affiliates of the Company or such longer period as may be agreed to by the Company and Purchaser, to require Purchaser or its personal representative, as the case may be, to forfeit to the Company up to but not exceeding the number of shares of the Stock set forth on Exhibit E attached hereto. Upon such forfeiture, the Company shall return to Purchaser for each share of Stock forfeited the price per share paid by Purchaser pursuant to this Agreement (including accrued but unpaid interest on the principal portion of any note given by Purchaser in payment of such price which relates to the purchase price of the forfeited shares of Stock ) ("Forfeiture Price") (b) In addition, and without limiting the foregoing Forfeiture Option, if at any time during the term of the Forfeiture Option, there occurs: (i) a dissolution or liquidation of the Company; (ii) a merger or consolidation involving the Company in which the Company is not the surviving corporation; (iii) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of other securities, cash or otherwise; or (iv) any other capital reorganization in which more that fifty percent (50%) of the shares of the Company entitled to vote are exchanged, then: (1) if there is no successor to the Company, the Company shall have the right to exercise its Forfeiture Option as to all or any portion of the Stock then subject to the Forfeiture Option set forth above to the same extent as if Purchaser's employment by the Company had ceased on the date preceding the date of consummation of said event or transaction; or (2) the Forfeiture Option may be assigned to any successor of the Company, and the Forfeiture Option shall apply if Purchaser shall cease for any reason to be an employee of such successor on the same basis as set forth above. In that case, references herein to the "Company" shall be deemed to refer to such successor. (c) As used herein, employment with the Company shall include Employment with an affiliate of the Company. (d) This Agreement is not an employment contract and nothing in this Agreement shall be deemed to create in any way whatsoever any obligation on the part of Purchaser to continue in the employ to this Company, or of the Company to continue -8- 9 Purchaser in the employ of the Company. 3. The Forfeiture Option may be exercised by giving written notice of exercise delivered or mailed as provided in Paragraph 15. Upon providing of such notice and payment or tender of the purchase price, the Company shall become the legal and beneficial owner of the Stock being purchased and all rights and interests therein or related thereto. 4. If from time to time during the term of the Forfeiture Option there is any stock dividend or liquidating dividend or distribution of cash and/or property, stock split or other change in the character or amount of any of the outstanding securities of the Company, then, in such event, any and all new, substituted or additional securities or other property to which Purchaser is entitled by reason of his ownership of Stock will be immediately subject to the Forfeiture Option and be included in the word "Stock" for all purposes of the Forfeiture Option with the same force and effect as the shares of Stock then subject to the Forfeiture Option. While the total Option Price shall remain the same after each such event, the Option Price per share of Stock upon exercise of the Forfeiture Option shall be appropriately adjusted. 5. All certificates representing any shares of Stock of the Company subject to the provisions of this Agreement shall have endorsed thereon legends in substantially the following form: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN OPTION SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER, OR HIS PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS COMPANY. ANY TRANSFER OR ATTEMPTED TRANSFER OF ANY SHARES SUBJECT TO SUCH OPTION IS VOID WITHOUT THE PRIOR EXPRESS WRITTEN CONSENT OF THE ISSUER OF THESE SHARES. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY AND/OR ITS ASSIGNEE(S) AS PROVIDED IN THE BYLAWS OF THE CORPORATION. -9- 10 THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A VOTING AGREEMENT BY AND AMONG THE COMPANY AND CERTAIN OF ITS STOCKHOLDERS, DATED AS OF FEBRUARY 2, 1998, AS SUCH AGREEMENT MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH IS ON FILE IN THE OFFICE OF THE SECRETARY OF THE COMPANY. 6. Purchaser acknowledges that it is aware that the Stock to be issued to it by the Company pursuant to this Agreement has not been registered under the United States Securities Act of 1933, as amended (the "Act"), on the basis that no distribution or public offering of the Stock in the United States is to be effected, and in this connection acknowledges that the Company is relying on the following representations. In this connection, Purchaser warrants and represents to the Company that it is acquiring the Stock for investment and not with a view to or for sale in connection with any distribution of the Stock or with any present intention of distributing or selling the Stock and he/she does not presently have reason to anticipate any change in circumstances or any particular occasion or event which would cause it to sell the Stock. Purchaser recognizes that the Stock must be held indefinitely unless it is subsequently registered under the Act or an exemption from such registration is available and, further, recognizes that the Company is under no obligation to register the Stock or to comply with any exemption from such registration. 7. Purchaser is aware that the Stock may not be sold pursuant to Rule 144 adopted under the Act unless certain conditions are met. Among the conditions for use of Rule 144 is the availability of specified current public information about the Company. Purchaser recognizes that the Company presently has no plans to make such information available to the public. Whether or not the Forfeiture Option is exercised or has lapsed, Purchaser further agrees not to make any disposition of any of the Stock in the United States in any event unless and until: (a) There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (b) Purchaser: (i) shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition; and (ii) shall have given the Company an opinion of counsel, which opinion and counsel shall be satisfactory to the Company, to the effect that such disposition will not require registration of the Stock under the Act. 8. As security for its faithful performance of the terms of this Agreement and to insure the availability for delivery of Purchaser's Stock upon exercise of the Forfeiture -10- 11 Option herein provided for, Purchaser agrees, at the closing hereunder (or as soon thereafter as practicable), to deliver (or have the Company deliver on the Purchaser's behalf) to and deposit with the Secretary of the Company ("Escrow Agent"), as Escrow Agent in this transaction, three (3) Stock Powers duly endorsed (with date and number of shares left blank), together with a certificate or certificates evidencing all of the Stock subject to the Forfeiture Option; said documents are to be held by the Escrow Agent and delivered by said Escrow Agent pursuant to the Joint Escrow Instructions of the Company and Purchaser set forth in Exhibit F, which instructions shall also be delivered to the Escrow Agent at the closing hereunder (or as soon thereafter as practicable). If a portion of the total purchase price is paid by a promissory note, the Stock is also subject to the Pledge Agreement, and possession of the certificates and stock assignments by the Escrow Agent shall also constitute possession by the Company of such instruments pursuant to the Pledge Agreement. 9. Purchaser shall not sell or transfer any of the Stock subject to the Forfeiture Option or any interest therein so long as such Stock is subject to the Forfeiture Option or the Pledge Agreement. 10. The Company shall not be required: (i) to transfer on its books any shares of Stock of the Company which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement; or (ii) to treat as owner of such shares or to accord the right to vote as such owner or to pay dividends to any transferee to whom such shares shall have been so transferred. 11. Subject to the provisions of Paragraphs 9 and 10, Purchaser (but not any unapproved transferee) shall, during the term of this Agreement, exercise all rights and privileges of a stockholder of the Company with respect to the Stock. 12. The parties agree to execute such further instruments and to take such further action as reasonably may be necessary to carry out the intent of this Agreement. 13. Purchaser hereby authorizes the Company, upon any event of default pursuant to the terms of the Note, to date any stock powers, and to fill in the appropriate number of shares necessary to transfer to the Company the number of shares having a fair market value equal to the then outstanding principal amount of the Note on the date of such default. If the fair market value of the shares on such date is lower than the then outstanding principal amount of the Note, then transfer of all the shares of the Purchaser to the Company will constitute full and final settlement and complete discharge of the Purchaser from any liability to the Company or any third parties 14. Purchaser agrees that, if required by the Company (or a representative of the underwriters) in connection with the first underwritten registration of the offering of any securities of the Company under the Act, it will not sell or otherwise transfer or dispose of any shares of Common Stock or other securities of the Company during such period (not to exceed one hundred eighty (180) days) following the effective date of the registration -11- 12 statement of the Company filed under the Act (the "Effective Date") as may be requested by the Company or the representative of the underwriters. Purchaser further agrees that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period 15. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in any mail box, by registered or certified mail with postage and fees prepaid, addressed to the other party hereto at such party's address hereinafter shown below such party's signature or at such other address as such party may designate by ten (10) days' advance written notice to the other party hereto. 16. This Agreement shall bind and inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer herein set forth, inure to the benefit of and be binding upon Purchaser, its heirs, executors, administrators, successors, and assigns. Without limiting the generality of the foregoing, the Forfeiture Option of the Company hereunder shall be assignable by the Company at any time or from time to time, in whole or in part. -12- 13 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the _____ day of ____________________, 19___. deCODE genetics, Inc. By:_____________________________________ Kari Stefansson, President Address: Lynghalsi 1 IS-110 Reykjavik, Iceland ________________________________________ (signature) ________________________________________ (print name) Address: ________________________________________ ________________________________________ ________________________________________ -13- 14 ATTACHMENTS: Exhibit A Nonrecourse Promissory Note Exhibit B Pledge Agreement Exhibit C Stock Powers Exhibit D Voting Agreement Exhibit E Vesting Schedule Exhibit F Joint Escrow Instructions -14- 15 EXHIBIT A NONRECOURSE PROMISSORY NOTE Reykjavik, Iceland $_______________ ____________,__________ FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to pay to the order of deCODE genetics, Inc., a Delaware corporation (the "Company"), at the Company's principal office or at such other place as the holder hereof may designate in writing, on __________________________, in lawful money of the United States of America and in immediately available funds, the total price of __________________________ Dollars ($______________), together with interest, compounded annually, from the date hereof on the unpaid principal at the rate of 6% per annum. This Note may not be prepaid. The full amount of this Note is secured by a pledge of shares of Common Stock of the Company, and is subject to all of the terms and provisions of the Early Exercise Stock Purchase Agreement and the Pledge Agreement, each of even date herewith between the undersigned and the Company. The Company's recovery against the undersigned for failure to pay any amount owing hereunder when due shall be limited solely to the shares of Common Stock or other collateral of the undersigned pledged to the Company in the Pledge Agreement. The undersigned shall not be liable or have any personal liability in any other respect for the payment of any amount due under this Note. The undersigned hereby represents and agrees that the amounts due under this Note are not consumer debt, and are not incurred primarily for personal, family or household purposes, but are for business and commercial purposes only. The undersigned hereby waives presentment, protest and notice of protest, demand for payment, notice of dishonor and all other notices or demands in connection with the delivery, acceptance, performance, default or endorsement of this Note. -15- 16 This Note shall be governed by, and construed, enforced and interpreted in accordance with, the laws of the State of Delaware, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. ____________________________________ (signature) ____________________________________ (print name) -16- 17 EXHIBIT B PLEDGE AGREEMENT 1. As collateral security for the payment of that certain $___________ Nonrecourse Promissory Note issued this date to deCODE genetics, Inc. ("Pledgee") by the undersigned (hereinafter called "indebtedness"), the undersigned hereby assigns, transfers to and pledges with the Pledgee the securities listed on Schedule 1 hereto which were this day delivered to be deposited with Pledgee, together with any stock rights, rights to subscribe, dividends paid in cash or other property in connection with the complete or partial liquidation of Pledgee, stock dividends, dividends paid in stock, new securities or other property to which the undersigned is or may hereafter become entitled to receive on account of such property, and in the event that the undersigned receives any such, the undersigned will immediately deliver it to Pledgee to be held by Pledgee hereunder in the same manner as the property originally pledged hereunder. All property assigned, transferred to and pledged with Pledgee under this paragraph or any other provision of this Pledge Agreement is hereinafter called "collateral." 2. At any time, without notice, and at the expense of the undersigned, Pledgee in its name or in the name of its nominee or of the undersigned may, but shall not be obligated to: (1) collect by legal proceedings or otherwise all dividends, interest, principal payments and other sums now or hereafter payable upon or on account of said collateral; (2) enter into any extension, reorganization, deposit, merger, or consolidation agreement, or any agreement in any way relating to or affecting the collateral, and in connection therewith may deposit or surrender control of such collateral thereunder, accept other property in exchange for such collateral and do and perform such acts and things as it may deem proper, and any money or property received in exchange for such collateral shall be applied to the indebtedness or thereafter held by it pursuant to the provisions hereof; (3) insure, process and preserve the collateral; (4) cause the collateral to be transferred to its name or to the name of its nominee; (5) exercise as to such collateral all the rights, powers, and remedies of an owner, except that so long as the indebtedness is not in default the undersigned shall retain all voting rights as to the collateral. 3. The undersigned agrees to pay prior to delinquency all taxes, charges, liens and assessments against the collateral, and upon the failure of the undersigned to do so Pledgee at its option may pay any of them and shall be the sole judge of the legality or validity thereof and the amount necessary to discharge the same. 4. All advances, charges, costs and expenses, including reasonable attorneys' fees, incurred or paid by Pledgee in exercising any right, power or remedy conferred by this Pledge Agreement, or in the enforcement thereof, shall become a part of the indebtedness secured hereunder and Pledgee shall have recourse solely against the collateral for payment of same. 5. The happening of any of the following events shall constitute an event of default under this Pledge Agreement: (1) failure to keep or perform any of the terms or -17- 18 provisions of this Pledge Agreement; (2) default in the payment of principal or interest related to the indebtedness when due; (3) the levy of any attachment, execution or other process against the collateral; or (4) the insolvency, commission of an act of bankruptcy, general assignment for the benefit of creditors, or filing of any petition in bankruptcy or for relief under the provisions of any applicable law relating to insolvency or bankruptcy, of, by, or against the undersigned. 6. Upon the happening of any of the events of default specified in the last preceding paragraph, Pledgee may then, or at any time thereafter, at its election, apply, set off, collect or sell in one or more sales, or take such steps as may be necessary to liquidate and reduce to cash in the hands of Pledgee in whole or in part, with or without any previous demands or demand of performance or notice or advertisement, the whole or any part of the collateral in such order as Pledgee may elect, and any such sale may be made either at public or private sale at its place of business or elsewhere, or at any broker's board or securities exchange, either for cash or upon credit or for future delivery; provided, however, that if such disposition is at private sale, then the purchase price of the collateral shall be equal to the public market price then in effect, or, if at the time of sale no public market for the collateral exists, then, Pledgee and the undersigned hereby agree that such private sale shall be at a purchase price mutually agreed to by Pledgee and the undersigned or, if the parties cannot agree upon a purchase price, then at a purchase price established by a majority of three independent appraisers knowledgeable of the value of such collateral, one named by the undersigned within 10 days after written request by the Pledgee to do so, one named by Pledgee within such 10 day period, and the third named by the two appraisers so selected, with the appraisal to be rendered by such body within 30 days of the appointment of the third appraiser. The cost of such appraisal, including all appraiser's fees, shall be charged against the proceeds of sale as an expense of such sale. Pledgee may be the purchaser of any or all collateral so sold and hold the same thereafter in its own right free from any claim of the undersigned or right of redemption. Demands of performance, notices of sale, advertisements and presence of property at sale are hereby waived, and Pledgee is hereby authorized to sell hereunder any evidence of debt pledged to it. Any sale hereunder may be conducted by any officer or agent of Pledgee. 7. The proceeds of the sale of any of the collateral and all sums received or collected by Pledgee from or on account of such collateral shall be applied by Pledgee to the payment of expenses incurred or paid by Pledgee in connection with any sale, transfer or delivery of the collateral, to the payment of any other costs, charges, attorneys' fees or expenses mentioned herein, and to the payment of the indebtedness or any part thereof, all in such order and manner as Pledgee in its discretion may determine. For purposes of this Pledge Agreement, collateral in the form of cash shall be treated as if it were the proceeds of the sale of collateral.) The Pledgee's receipt of such proceeds shall be considered a complete payment of the Note and the undersigned shall thereafter be discharged from any further liability thereunder. Pledgee shall pay any balance to the undersigned. 8. Pledgee shall be under no duty or obligation whatsoever to make or give any presentments, demands for performance, notices of non-performance, protests, notices of protest or notices of dishonor in connection with any obligations or evidences of -18- 19 indebtedness held by Pledgee as collateral, or in connection with any obligations or evidences of indebtedness which constitute in whole or in part the indebtedness secured hereunder. 9. Pledgee may at any time deliver the collateral or any part thereof to the undersigned and the receipt of the undersigned shall be a complete and full acquittance for the collateral so delivered, and Pledgee shall thereafter be discharged from any liability or responsibility therefor. 10. Upon the transfer of all or any part of the indebtedness Pledgee may transfer all or any part of the collateral and shall be fully discharged thereafter from all liability and responsibility with respect to such collateral so transferred, and the transferee shall be vested with all the rights and powers of Pledgee hereunder with respect to such collateral so transferred; but with respect to any collateral not so transferred Pledgee shall retain all rights and powers hereby given. 11. Until all indebtedness shall have been paid in full the power of sale and all other rights, powers and remedies granted to Pledgee hereunder shall continue to exist and may be exercised by Pledgee at any time and from time to time irrespective of the fact that the indebtedness or any part thereof may have become barred by any statute of limitations, or that the personal liability of the undersigned may have ceased. The undersigned will be deemed to have repaid the indebtedness in full as provided in Section 7. 12. Pledgee agrees that so long as the indebtedness is not in default, the collateral held hereunder shall be released from pledge as the indebtedness is paid or if substitute collateral acceptable to the Pledgee is deposited with the Pledgee. The amount of the collateral to be released shall be determined by the Pledgee in light of the amount of collateral which it determines to be necessary to secure the outstanding indebtedness. Release from this pledge, however, shall not result in release from the provisions of those certain Joint Escrow Instructions, if any, of even date herewith among the parties to this Pledge Agreement and the Escrow Agent named therein, or from the Purchase Option granted by the undersigned set forth in the Early Exercise Stock Purchase Agreement, if any, between the parties to this Pledge Agreement. 13. The rights, powers and remedies given to Pledgee by this Pledge Agreement shall be Pledgee's sole rights, powers and remedies for the undersigned's failure to pay any indebtedness secured by this agreement. Pledgee may exercise its lien or right of setoff with respect to the indebtedness in the same manner as if the indebtedness were unsecured. Any forbearance or failure or delay by Pledgee in exercising any right, power or remedy hereunder shall not be deemed to be a waiver of such right, power or remedy, and any single or partial exercise of any right, power or remedy hereunder shall not preclude the further exercise thereof; and every right, power and remedy of Pledgee shall continue in full force and effect until such right, power or remedy is specifically waived by an instrument in writing executed by Pledgee. The undersigned will be deemed to have repaid the indebtedness in full as provided in Section 7. -19- 20 Dated: ____________________ deCODE genetics, Inc. ____________________________________ (signature) By:_________________________________ ____________________________________ Kari Stefansson, President (print name) -20- 21 SCHEDULE 1 TO PLEDGE AGREEMENT ____________________________ shares of common stock of deCODE genetics, Inc., a Delaware corporation, represented by share certificate number, dated _______________, 19___. -21- 22 EXHIBIT C STOCK POWER FOR VALUE RECEIVED, ________________________________________ hereby sells, assigns and transfers unto __________________________________ ________________________ Shares of the common stock of deCODE genetics, Inc. standing in my name on the books of said Corporation represented by Certificates(s) No(s)___________________________________________ and does hereby irrevocably constitute and appoint ____________________________________ attorney to transfer the said stock on the books of said Corporation with full power of substitution in the premises. Dated______________________ ____________________________________________ (This signature must be identical to the name as written on the face of the certificate) -22- 23 EXHIBIT D VOTING AGREEMENT THIS VOTING AGREEMENT (this "Agreement"), dated as of February 2, 1998, by and among Kari Stefansson and Jeffrey Gulcher (collectively, the "Investor Founders"), deCODE genetics, Inc., a Delaware, USA corporation (the "Company"), and the holders of shares of Common Stock, par value $0.001 per share ("Common Stock"), of the Company with respect only to such shares of Common Stock held by them as of the date of this Agreement or shares hereafter acquired by them other than by conversion of Preferred Stock of the Company into Common Stock (such holders, the "Common Stockholders"). The Investor Founders and the Common Shareholders are collectively referred to as the "Investors" and each individually as an "Investor." PRELIMINARY STATEMENTS A. Pursuant to the certain Series C Preferred Stock and Warrant Purchase Agreement, dated as of February 1, 1998 (the "Stock Purchase Agreement"), Roche Finance Ltd ("Roche") has agreed to purchase a certain number of shares of the Series C Preferred Stock of the Company, as well as Warrants to purchase shares of Series C Preferred Stock of the Company. B. A condition to the execution of the Stock Purchase Agreement by Roche is the execution and delivery by the Investor Founders and the Common Stockholders of this Agreement relating to, among other things, the election of members to the Company's Board of Directors (the "Board of Directors"). NOW, THEREFORE, in consideration of the foregoing statements and the mutual covenants and agreements of the parties contained in this Agreement, the parties hereto agree as follows: 1. ALL VOTING OF COMMON STOCKHOLDERS. 1.1 General. At any time at which the holders of Common Stock will have the right to vote on any matter pursuant to the Certificate of Incorporation or the Bylaws of the Company, as in effect from time to time, or applicable law, including without limitation, with respect to the election of directors of the Company, each of the Common Stockholders will vote all shares of Common Stock owned or hereafter acquired by such Common Stockholder, as follows: (a) In favor of any action in favor of which the holders of a majority of the shares owned by the Investor Founders (the "Founders Shares") have voted, -23- 24 and against any action against which the holders of a majority of the Founders Shares have voted; (b) Specifically with respect to the election of directors: (i) at each annual or special meeting of Stockholders (or by written consent in lieu of a meeting of Stockholders), to cause and maintain the election to the Board of Directors of the individuals nominated by the holders of a majority of the Founders Shares; (ii) in favor of removal of a director elected by the holders of the Common Stock only if the holders of a majority of the Founders Shares vote the majority of such shares in favor of such removal, and in such case, in favor of such removal; (iii) for filling any vacancy in the office of a director to be elected by the holders of the Common Stock with another individual nominated by the holders of a majority of the Founders Shares. 1.2 Termination of Voting Agreement. The voting obligations imposed by this Voting Agreement shall terminate upon the effective date of a registration statement pertaining to the initial public offering of the Common Stock. 2. FUTURE ISSUANCE OF COMMON STOCK. 2.1 The company shall require any person to whom or which any shares of Common Stock are to be issued after the date hereof, other than upon conversion of Preferred Stock of the Company into Common Stock, as a condition to the issuance of such shares, to agree to become a party to this Agreement as a "Common Stockholder" with respect to such shares of Common Stock. 3. MISCELLANEOUS. 3.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of Delaware, USA as applied to agreements among Delaware, USA residents entered into and to be performed entirely within Delaware, USA. 3.2 Severability. In case any provision of the Agreement shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. -24- 25 3.3 Amendment and Waiver. Except as otherwise expressly provided, neither this Agreement nor any provision herein may be amended or waived except by the written consent of the Company, holders of a majority of the Founders Shares, and holders of a majority of the Common Stockholders. 3.4 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 3.5 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. * * * -25- 26 IN WITNESS WHEREOF, the parties hereto have executed this Voting Agreement, or have caused this Voting Agreement to be executed by its duly authorized officer, as of the date first above written. deCODE genetics, Inc. By:__________________________________ Name: Kari Stefansson Title: President -26- 27 Dated:_____________________ ____________________________________ (signature) ____________________________________ (print name) Address: ____________________________________ ____________________________________ ____________________________________ ____________________________________ 28 EXHIBIT E VESTING SCHEDULE The Forfeiture Option shall be in effect with respect to all of the shares of Stock on the date of the Purchaser's execution of the Early Exercise Stock Purchase Agreement and shall expire: (a) As to 25% of the shares of Stock, on ____________________; and (b) thereafter, as to 1/48 of such shares on the last day of each month. 29 EXHIBIT F JOINT ESCROW INSTRUCTIONS Secretary deCODE genetics, Inc. Lynghalsi 1 IS-110 Reykjavik, Iceland Dear Sir/Madam: As Escrow Agent for both deCODE genetics, Inc., a Delaware corporation (the "Company"), and the undersigned purchaser of stock of the Company ("Purchaser"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Early Exercise Stock Purchase Agreement (the "Agreement"), of even date herewith, to which a copy of these Joint Escrow Instructions is attached as Exhibit F, in accordance with the following instructions: 1. In the event the Company or an assignee shall elect to exercise the Forfeiture Option set forth in the Agreement, the Company or its assignee will give to Purchaser and you a written notice specifying the number of shares of stock to be forfeited, the amount to be returned to Purchaser by the Company (the "Forfeture Price"), and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice. 2. At the closing you are directed: (a) to date any stock powers necessary for the transfer in question; (b) to fill in the number of shares being transferred; and (c) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company against the simultaneous delivery to you of the Forfeiture Price of the number of shares of stock being purchased pursuant to the exercise of the Forfeiture Option. 3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as specified in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as his/her attorney-in-fact and agent for the term of this escrow to execute with respect to such securities and other property all documents of assignment and/or transfer and all stock certificates necessary or appropriate to make all securities negotiable and complete any transaction herein contemplated. 4. This escrow shall terminate upon expiration or exercise in full of the Forfeiture Option, whichever occurs first. 30 5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of same to Purchaser and shall be discharged of all further obligations hereunder; provided, however, that if at the time of termination of this escrow you are advised by the Company that the property subject to this escrow is the subject of a pledge or other security agreement, you shall deliver all such property to the pledgeholder or other person designated by the Company. 6. Except as otherwise provided in these Joint Escrow Instructions, your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. 7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties or their assignees. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith. 8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or Company, excepting only orders or process of courts of law, and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree of any court, you shall not be liable to any of the parties hereto or to any other person, firm or Company by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 9. You shall not be liable in any respect on account of the identity, authority or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder. 10. You shall not be liable for the outlawing of any rights under any statute of limitations with respect to these Joint Escrow Instructions or any documents deposited with you. 11. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be Secretary of the Company or if you shall resign by written notice to each party. In the event of any such termination, the Company may appoint any officer or assistant officer of the Company as successor Escrow Agent and Purchaser hereby confirms the appointment of such successor or successors as his attorney-in-fact and agent to the full extent of your appointment. 12. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 13. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities, you are authorized and directed to retain in your possession without liability to anyone all or any part of said securities until such dispute shall 31 have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall be under no duty whatsoever to institute or defend any such proceedings. 14. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, including delivery by express courier or five days after deposit in any mail box, by registered or certified mail with postage and fees prepaid, addressed to each of the other parties hereunto entitled at the following addresses, or at such other addresses as a party may designate by ten days' advance written notice to each of the other parties hereto: Company: deCODE genetics, Inc. Lynghalsi 1 IS-110 Reykjavik, Iceland Purchaser: ___________________________ ___________________________ ___________________________ ___________________________ Escrow Agent: Secretary deCODE genetics, Inc. Lynghalsi 1 IS-110 Reykjavik, Iceland 15. By signing these Joint Escrow Instructions you become a party hereto only for the purpose of said Joint Escrow Instructions; you do not become a party to the Agreement. 16. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder. You may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. The Company shall be responsible for all fees generated by such legal counsel in connection with your obligations hereunder. 17. This instrument shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. It is understood and agreed that references to "you" or "your" herein refer to the original Escrow Agent and to any and all successor Escrow Agents. It is understood and agreed that the Company may at any time or from time to time assign its rights under the Agreement and these Joint Escrow Instructions in whole or in part. 18. This Agreement shall be governed by and interpreted and determined in accordance with the laws of the State of Delaware as such laws are applied by Delaware courts to contracts made and to be performed entirely in Delaware by residents of that state. 32 Very truly yours, deCODE genetics, Inc. By___________________________ Kari Stefansson President Purchaser: ___________________________ (signature) ___________________________ (print name) Escrow Agent: _______________________________________ Kari Stefansson Secretary EX-10.4 8 FORM OF EMPLOYEE AGREEMENT 1 EXHIBIT 10.4 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.4 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason -------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 [DECODE GENETICS LOGO] EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT DeCODE Genetics ehf. (Islensk erfdagreining ehf.), State Registration No. 691295-3549, of Lynghals 10, Reykjavik ("the company"), on the one hand, and - ------------------------------------------ ------------------------ (employee name) (identification number) whose address is ______________________________________ ("the employee"), on the other hand, having agreed on a contract whereby the Employee is employed by the company, hereby conclude the following Agreement which is a premise and part of the employment contract between the parties. 1. CONFIDENTIALITY 1.1 NONDISCLOSURE OF PROPRIETARY INFORMATION. COMPANY RIGHTS The Employee undertakes to hold in the strictest confidentiality the Proprietary Information of the Company as further defined under Section 1.2 below, both during the term of his/her employment with the Company and following such term as further specified under 9.3 below. The Employee shall not disclose the Proprietary Information of the Company, use it, lecture on it or publish it except as such disclosure use or publication is required in connection with the work of the Employee for the Company or unless an officer of the Company expressly so authorises in writing. The Employee shall obtain written permission from the Company before publishing or submitting for publication any material (written, verbal or otherwise) relating to his/her work with the Company or incorporating any Proprietary Information. The Employee hereby assigns to the Company any rights he/she might otherwise possess in such Proprietary Information. All such Proprietary Information shall be the sole property of the Company or its assignees. 3 1.2 PROPRIETARY INFORMATION The term "Proprietary Information" in this Agreement refers to tangible and intangible information relating to antibodies and other biological materials, cloned cells, samples of assay components, media and/or cloned cells and methods and descriptions of procedures of producing various types of assay components or prepare media and/or clones cells, plans, descriptions, products, processes, know-how, designs, models, formulas, methods, developmental or experimental work, clinical data, improvements, discoveries, plans for research, new products, marketing and selling, business plans, budgets and unpublished financial statements, licenses, information on prices and costs, suppliers and customers and other information regarding the employment and business affairs of the Company and information regarding the skills and compensation of other employees of the Company. 1.3 THIRD PARTY INFORMATION The Employee understands that the Company has received and will in the future receive from third parties confidential or proprietary information ("THIRD PARTY INFORMATION") subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. The Employee shall, during and after the term of his/her employment with the Company, hold Third Party Information in the strictest confidence and will not disclose to anyone (other than the Company personnel who need to know such information in connection with their work for the Company) or use, except in connection with my work for the Company, Third Party Information unless expressly authorised by an officer of the Company in writing. 1.4 INFORMATION FROM PREVIOUS EMPLOYERS AND OTHERS The Employee undertakes not to use improperly or disclose any confidential information or trade secrets, if any, of any former employer or any other party to whom he/she has an obligation of confidentiality, and undertakes furthermore not to bring unto the premises of the Company any unpublished documents or any property belonging to any former employee or any other party to whom he/she has an obligation of confidentiality unless consented to in writing by such employer in party. In the performance of his/her duty for the Company, the Employee shall use only information which is generally known and used by persons with training and experience comparable with his/her own, which is common knowledge in the industry or otherwise legally in the public domain or which is otherwise provided or developed by the Company. 4 2. PROPRIETARY RIGHTS TO INVENTIONS 2.1 PROPRIETARY RIGHTS The term "Proprietary Rights" shall mean all trade secrets, patents, licences, copyrights, trade marks and other intellectual property rights throughout the world. 2.2 PRIOR INVENTIONS Inventions, patented or unpatented, wich the Employee may have made prior to his/her employment with the Company are excluded from the scope of this Agreement. To preclude any possible uncertainty in this respect, the Employee has set forth in Exhibit A, attached hereto, a complete list of all invention that he/she has, alone or jointly with others, conceived, developed or reduced to practice or caused to be conceived, developed or reduced to practice prior to the commencement of his/her employment with the Company, which the Employee considers to be his/her property or the property of third parties and that he/she wishes to have excluded from the scope of this Agreement (collectively referred to as "PRIOR INVENTIONS"). The Employee understands that if he/she were to violate any prior confidentiality agreement by disclosing any such prior invention in Exhibit A, he/she shall not disclose the invention but disclose only a cursory name for each such invention along with the party to whom it belongs together with an explanation to the effect that full disclosure as to such invention has not been made for that reason. A space is provided in Exhibit A for such purposes. The Employee further represents that there are no further Prior Inventions beyond those listed in Exhibit A. The Employee represents, furthermore, that if, in the course of his/her employment with the Company, he/she incorporates a Prior Invention into a Company product, process or machine, the Company is hereby granted and shall have a royalty-free, irrevocable, and perpetual world-wide license (with rights to sublicense, with multiple tiers of sublicensees) to make, have made, modify, use and sell such Prior Invention. Notwithstanding the foregoing, the Employee undertakes not to incorporate or permit to incorporate Prior Inventions in any Company Inventions without the company's prior written consent. 2.3 PROPERTY RIGHTS TO INVENTIONS The Company shall, without special payment, fee or compensation, become the owner of all inventions and all rights, titles and interests in respect of all inventions (and all proprietary rights with respect thereto), whether or not patentable or registrable under patent statutes, copyright statutes, trade mark statutes or any other statutes on proprietary rights, made or conceived,developed or reduced to practice or discovered by the Employee alone or jointly with others during the period of his/her employment with the company. All such inventions 5 and proprietary rights thereto shall be regarded and referred to as Company Inventions. The company shall have full and unrestricted rights to use or let others us Company Inventions at its own discretion, including to modify them or develop them further. 2.4 INVENTIONS EXEMPT FROM COMPANY PROPRIETARY RIGHTS Notwithstanding the provisions of Section 2.3 above, the Company shall not become the owner of inventions developed by the Employee entirely on his/her own time without using the Company's instruments or equipment, supplies, facilities or trade secrets and neither related to the Company's business, research or development nor resulting from work performed by the Employee for the Company. 2.5 OBLIGATION TO KEEP COMPANY INFORMED During the period of his/her employment with the Company and for six (6) months after termination of his/her employment with the Company, the Employee will promptly disclose to the Company fully and in writing all inventions authored, conceived or reduced to practice by him/her either alone or jointly with others. In addition, the Employee will promptly disclose to the Company any patent applications filed by him/her or on his/her behalf within one year after termination of employment. At the time of each such disclosure, the Employee shall furthermore advise the Company in writing if he/she believes that such Inventions are exempt from the proprietary rights of the Company under the provisions of Section 2.3 and at the same time provide to the Company in writing all evidence necessary to substantiate that belief. The Company will keep in confidence and not use for any purpose or disclose to third parties any confidential information regarding Inventions which are exempt from the Proprietary Rights of the Company and which are disclosed to the Company in writing pursuant to this Agreement. The Employee will preserve the confidentiality of any invention which is not exempt from the Proprietary Rights of the Company. 2.6 ASSIGNMENT TO THIRD PARTIES The Company has an unrestricted right to assign to any third party, without limitations, any rights, title and interests with respect to any Invention to which the Employee has contributed and which the Company possesses or comes into possession of under this Agreement. 2.7 ENFORCEMENT OF PROPRIETARY RIGHTS The Employee undertakes to assist the Company in every way and in any country to obtain, and from time to time enforce Proprietary Rights under Icelandic or foreign law relating to Company Inventions. To this end, the Employee 6 undertakes to execute, verify and deliver such documents and perform such acts (including appearances as a witness) as the Company may reasonably require of an Employee and as may be of use to the Company in applying for, obtaining, perfecting, evidencing, sustaining and enforcing such Proprietary Rights and the assignment thereof. The obligation of the Employee to assist the Company in this respect shall continue for six years beyond the termination of his/her employment, but the Company shall pay for his/her expenses and compensate him/her at a reasonable rate for the time spent by him/her at the Company's request on such assistance after termination of his/her employment. 3. RECORDS The Employee undertakes to keep and maintain adequate records (in the form of notes, sketches, drawings and in any other form that may be required by the Company) of all Proprietary Information which the Employee may collect or develop and on all Inventions that the Employee may make during the period of his/her employment at the Company, which records shall be available to and remain the sole property of the Company at all times. 4. NO CONFLICTING OBLIGATION The Employee represents that his/her performance of all the terms of this Agreement and of his duties as an Employee of the Company does not and will not breach any agreement to keep in confidence information acquired by me in confidence or in trust prior to his/her employment by the Company. The Employee further represents that he/she has not entered into and will not enter into any agreement, either written or oral in conflict herewith. 5. RETURN OF COMPANY DOCUMENTS When the Employee leaves the employ of the Company, he/she will deliver to the Company any and all drawings, plans, notes, memoranda, specifications, instructions, models, formulas and other data, together with all copies thereof, and any other material containing or disclosing any Company Invention, Third Party Information or Proprietary Information of the Company. The Employee further agrees that any property situated on the Company's premises and owned by the Company, including computer disks and other storage media, filing cabinets or other working areas, is subject to inspection by Company personnel at any time with or without notice. Prior to leaving his/her employment, the Employee will co-operate with the Company in completing and signing the Company's termination statement. 6. LEGAL AND OTHER REMEDIES The company shall have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other remedies which will 7 terminate any situation which is incompatible with the provisions of this Agreement. The exercise of such right shall not in any way prejudice any other rights or remedies that the Company may have for a breach of this Agreement. 7. NOTICES Any notices required or permitted hereunder shall be deemed given upon personal delivery to the recipient or, if sent by certified or registered mail, three (3) days after the date of mailing. 8. NOTIFICATION OF NEW EMPLOYER In the event of the Employee leaving the employ of the Company, he/she consents that the Company notify any new employer of the Employee's rights and obligations under this Agreement. 9. GENERAL PROVISIONS 9.1 DISPUTES Any dispute arising in respect of this Agreement shall be subject to the jurisdiction of the District Court of Reykjavik. 9.2 SUCCESSORS AND ASSIGNS This Agreement will be binding upon the Employee's heirs, executors, and other parties deriving their rights from the Employee and will be for the benefit of the Company, its successors or assigns. 9.3 SURVIVAL The provisions of this Agreement shall survive by six years the termination of the Employee's employment at the Company. Furthermore, the provisions of the Agreement shall remain in effect in the event that the Company assigns the Agreement to any other party which thereby succeeds to the rights or interest of the Company. 9.4 EMPLOYMENT AT THE COMPANY The Employee agrees and understands that nothing in this Agreement shall confer any right with respect to continuation of employment by the Company, nor shall it interfere in any way with the Employee's or Company's rights under the employment contract to terminate his/her employment at the Company whether the reasons for the termination are specified or not. 8 9.5 WAIVER No waiver by the Company of any breach of this Agreement shall be a waiver of any preceding or succeeding breach. No waiver by the Company of any right under this Agreement shall be construed as a waiver of any other right. The company shall not be required to give notice of any intention to enforce the terms of this Agreement. 9.6 ENTIRE AGREEMENT The obligations pursuant to Sections 1 and 2 of this Agreement shall apply to any time during which the Employee may have been previously employed or is in the future employed, by the Company as a consultant if no other agreement governs nondisclosure and assignment of inventions during such period. This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior discussions of the parties to the Agreement on its subject. No modification or amendment to this Agreement, nor waiver of any rights under this Agreement shall be effective unless in writing and signed by both parties. Any subsequent changes in the work, field, duties, salary or compensation of the Employee will not affect the validity or scope of this Agreement. This Agreement shall be effective as of the first day of employment to the Employee and remain in effect as specified in its provisions. Reykjavik, year Employee On behalf of DECODE GENETICS, INC. ---------------------------- ------------------------------------ EX-10.5 9 AGREEMENT DATED APRIL 15, 1997 1 EXHIBIT 10.5 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.5 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason -------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 AGREEMENT ON THE COLLABORATION OF FRIDRIK SKULASON (FS) AND ISLENSK ERFDAGREINING (IE) ON THE CREATION OF A DATABASE OF ICELANDIC GENEALOGY 1. A new multi-user program will be created to work with the database. IE will supply all programming work and pay all the cost of such work. IE and FS will both have full rights to the source code and authorisation to make use of it at their discretion. 2. IE will pay all wage costs relating to entering data in the database. FS and IE will both have full rights to utilise the database for their own purposes. 3. IE will supply and pay for all equipment and work facilities. 4. FS will permit access to his library and computer data and provide brief consultation at the beginning of the work to the programmers/system designers. 5. FS has full rights to the issue of a CD-ROM with a single-user version of the search program. IE will not issue a CD-ROM with this data. Profits from the issue of the CD-ROM will be divided equally among the parties. 6. The database on the CD-ROM will be protected so that it cannot be used by competitors. The parties will agree on a protection method. 7. IE has full rights to provide scientists and enterprises engaged in genetic research with services regarding the database. IE shall not provide services regarding the database to parties who might be engaged in competition with FS in the publication of genealogical data. 8. FS has full rights to sell services regarding the database to individuals and genealogical societies. FS shall not provide services regarding the database to parties engaged in competition with IE regarding research. 9. FS and IE will collaborate on the employment of staff for entering data. Both parties must be satisfied with whoever is employed. 10. A separate agreement will be made regarding when the entry of data has proceeded far enough to foresee an end to the project. This second agreement shall provide for the continued entry of data in the database. 11. In the event that IE ceases to operate, the database will be entirely the property of FS. This does not apply, however, if IE merges with another company of if its activities are transferred to another company. If either party enters into bankruptcy, the other party shall retain all rights regarding the database unless otherwise provided for by law. REYKJAVIK, 15 APRIL 1997 For Fridrik Skulason For Islensk Erfdagreining Fridrik Skulason [sign.] Kari Stefansson [sign.] Bjorg Olafsdottir [sign.] Gudmundur Sverrisson [sign.] EX-10.6 10 RESEARCH AGREEMENT 1 EXHIBIT 10.6 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.6 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason -------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 [NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] RESEARCH AGREEMENT 3 TABLE OF CONTENTS
PAGE ARTICLE 1 DEFINITIONS..............................................................................1 1.1 "Data protection commission".............................................................1 1.2 "Diseases"...............................................................................1 1.3 "Intellectual property"..................................................................1 1.4 "Invention"..............................................................................1 1.5 "Original Data"..........................................................................1 1.6 "Research"...............................................................................1 1.7 "Research Data"..........................................................................2 1.8 "Results"................................................................................2 1.9 "Steering-Committee" or "SC".............................................................2 ARTICLE 2 OBJECTIVES AND CONDUCT OF THE RESEARCH...................................................2 2.1 Research Objectives......................................................................2 2.2 Steering Committee.......................................................................2 2.3 Research Location........................................................................2 2.4 Use of Data..............................................................................2 2.5 Exclusivity of Research Relationship.....................................................3 2.6 Transfer of Materials....................................................................3 2.7 Results of the Research..................................................................3 ARTICLE 3 PAYMENTS.................................................................................3 3.1 Payments.................................................................................3 3.2 Other Sources of Funding.................................................................4 ARTICLE 4 PROPRIETARY RIGHTS.......................................................................5 4.1 Proprietary Rights.......................................................................5 4.2 Infringement of Intellectual Property Rights.............................................5 4.3 Survival.................................................................................5 ARTICLE 5 CONFIDENTIALITY .........................................................................5 5.1 Confidential Information.................................................................5 5.2 Disclosure to Employees..................................................................5 5.3 Survival.................................................................................5 ARTICLE 6 PUBLICATIONS.............................................................................5 6.1 Publications.............................................................................5 6.2 No Use of Names..........................................................................6 ARTICLE 7 OTHER DISEASES...........................................................................6 7.1 Other Diseases...........................................................................6 7.2 [CONFIDENTIAL TREATMENT REQUESTED].......................................................6 ARTICLE 8 CONFLICT RESOLUTION......................................................................6
i 4 TABLE OF CONTENTS
PAGE 8.1 Conflict Resolution......................................................................6 ARTICLE 9 TERM, EXTENSION AND TERMINATION..........................................................6 9.1 Term.....................................................................................6 9.2 Extension Option.........................................................................7 9.3 Breach...................................................................................7 ARTICLE 10 INDEMNIFICATION..........................................................................7 10.1 Indemnification by deCODE................................................................7 10.2 Indemnification by RF....................................................................7 10.3 Survival.................................................................................7 ARTICLE 11 MISCELLANEOUS............................................................................7 11.1 Force Majeure............................................................................7 11.2 No License...............................................................................7 11.3 Independent Contractors..................................................................8 11.4 Changes to Agreement.....................................................................8 11.5 Governing Law............................................................................8
ii 5 RESEARCH AGREEMENT THIS RESEARCH AGREEMENT (the "Agreement") is made as of October 24, 1997 (the "Effective Date") by and between RANNSOKNA-OG FREDSLUEJODURINN EHF, ("RF") a private limited liability company, incorporated in Iceland and controlled by Hannes Petursson ("HP"), a Psychiatrist, holding positions at Reykjavik Hospital and the University of Iceland and DECODE GENETICS, INC., a corporation organized and existing under the laws of the state of Delaware and its wholly owned subsidiary "Islensk erfdagreining hf", a company incorporated in Iceland which operates a research facility in Iceland (collectively, "deCODE"). WHEREAS, RF has certain rights to materials and data collected in connection with research of schizophrenia and bipolar disease; and WHEREAS, deCODE wishes to obtain such materials and data in connection with its research and development regarding the diagnosis and treatment of schizophrenia and bipolar disease; and WHEREAS, RF wishes to provide deCODE with such previously collected materials and data and any materials and data generated in the course of this Agreement pursuant to the terms set forth below. NOW, THEREFORE, in consideration of the premises and mutual covenants below, and for good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties, hereto intending to be legally bound, agree as follows: ARTICLE 1 DEFINITIONS 1.1 "DATA PROTECTION COMMISSION" is the Icelandic committee governing the use of personal information for research purposes. 1.2 "DISEASES" shall mean schizophrenia and bipolar disease as such diseases are defined in Appendix A. 1.3 "INTELLECTUAL PROPERTY" shall have the meaning set forth in Section 2.7. 1.4 "INVENTION" shall have the meaning set forth in Section 4.1. 1.5 "ORIGINAL DATA" shall mean any information, including but not limited to trio data, and any samples, including but not limited to blood samples and DNA extracts, which have been collected and are in the possession of RF prior to the Effective Date and which are related to the Research. 1.6 "RESEARCH" shall mean the program of research undertaken by the parties pursuant to this Agreement which is directed towards the swift discovery of genes causing schizophrenia and bipolar disease as set forth in Appendix A as amended from time to time by the Steering Committee. 6 1.7 "RESEARCH DATA" shall mean any information resulting from the Research, including but not limited to trio data, and any patient samples, including but not limited to blood samples and DNA extracts, which are collected in the course of conducting the Research. 1.8 "RESULTS" shall have the meaning set forth in Section 2.7. 1.9 "STEERING-COMMITTEE" or "SC" shall mean the research steering committee described in Section 2.2. ARTICLE 2 OBJECTIVE AND CONDUCT OF THE RESEARCH 2.1 RESEARCH OBJECTIVES. The objective of the Research is to conduct research directed towards the swift discovery of genes causing schizophrenia and genes causing bipolar disease pursuant to the plan of research set forth in Appendix A and amended from time to time by the SC. 2.2 STEERING COMMITTEE. (A) CREATION OF THE STEERING COMMITTEE ("SC"). The parties hereby create a steering committee which shall consist of three (3) members, one (1) of which shall be appointed by RF and two (2) of which shall be appointed by deCODE. deCODE shall designate one of its representative's as its senior representative. Each party may substitute or change its designated representative. The SC shall produce mutually agreed minutes of planned work and resources. (B) REGULAR MEETINGS. The SC shall meet every three (3) months during the term of the Agreement, at such times and places as the members of the SC agree. The parties shall, however, have the right to request a meeting of the SC be held within one week of such request. (C) RESPONSIBILITIES OF THE SC. The SC shall act as the primary governing body for conducting the Research and shall have the responsibility for (i) creating, reviewing, approving and amending annual research plans and budgets for each project, (ii) reviewing disclosure of inventions, (iii) identifying promising genes, and (iv) monitoring the progress of the Research. (D) DECISIONS OF THE SC. Decisions of the SC shall require the agreement of the representative of each party present at the SC meeting. Any disputes, will be referred to the senior deCODE representative and the RF appointee for resolution for a period of thirty (30) days. If, after the parties are unable to resolve such dispute, it shall be referred to arbitration pursuant to Article 8, except those referred to in 6.1. 2.3 RESEARCH LOCATION. The Research shall be conducted in Iceland and the primary location of the Research shall be the facilities of deCODE. 2.4 USE OF DATA. RF hereby grants to deCODE the exclusive and unrestricted right to (i) use all Original Data and Research Data for any purpose related to the Research 2 7 and (ii) commercialize all products that result from the Research. For a period of five (5) years following the expiration or termination of this Agreement, deCODE shall have access to the Original Data and Research Data for verification of results generated during the course of the Research, subject to approval by the Icelandic Data Protection Commission. All Original Data and Research Data provided to deCODE by RF shall remain the property of RF and shall be returned to RF upon the termination or expiration of this Agreement. These obligations of this Section shall survive the termination or expiration of this Agreement for any reason. 2.5 EXCLUSIVITY OF RESEARCH RELATIONSHIP. RF shall not (i) provide the Original Data or Research Data to any third party and (ii) enter into any other commercial collaborative agreements or collaborations that otherwise restrict deCODE's ability commercially exploit the Results of the Research during the term of this Agreement and for a period of 3 years thereafter. deCODE shall not enter into other collaborations for the purpose of conducting the Research, unless the SC deems it necessary to advance the Research or commercially exploit the Results of the Research during the term of this Agreement. The obligations set forth in this Section shall survive any termination or expiration of this Agreement for any reason. 2.6 TRANSFER OF MATERIALS. Within four (4) weeks of execution of this Agreement RF shall deliver to deCODE all Original Data, including but not limited to blood samples and DNA extracts in such quantities as the SC deems necessary to conduct the Research. RF shall deliver Research Data when it becomes available. Upon the first anniversary of the Effective Date, RF shall have delivered to deCODE [CONFIDENTIAL TREATMENT REQUESTED]. 2.7 RESULTS AND RESEARCH. Each party shall keep complete and accurate records of the Research conducted hereunder. The parties will promptly and fully disclose to each other any and all information and results obtained from conducting the Research (the "Results"). deCODE shall own all right, title and interest in and to the Results and all Intellectual Property related thereto. As used in this Agreement, "Intellectual Property" means all patents, trade secrets and other proprietary rights, together with all related rights, applications, filings, registrations and the like. The obligations set forth in this Section shall survive any termination or expiration of this Agreement for any reason. ARTICLE 3 PAYMENTS 3.1 PAYMENTS. deCODE shall pay the following amounts to RF as full payment and compensation for RF's performance under this Agreement, and as cost of RF's participation in the Research: (A) RESEARCH FUNDING. deCODE shall provide up to a total of [CONFIDENTIAL TREATMENT REQUESTED] to RF to pay the cost of its end of the Research over the three (3) year term of this Agreement. The use of these funds will be determined by the SC and will be used solely for purposes of the Research. A [CONFIDENTIAL TREATMENT REQUESTED] will be paid to RF 3 8 upon the Effective Date and the same amount in quarterly installments from thereon, subject to a review by the SC. Such amounts shall be full payment of all costs for RF's performance of the Research, including any and all costs for full-time equivalent research personnel, equipment, travel, applicable fees, overhead, and other reasonable expenses as determined by the SC. (B) MILESTONE PAYMENTS. deCODE agrees to pay RF the following milestone payments on the occurrence of each of the following events: [CONFIDENTIAL TREATMENT REQUESTED] The above milestone payments can be used by RF to advance it objectives, solely at its discretion. 3.2 OTHER SOURCES OF FUNDING. RF is free to seek other sources of funding for the Research, PROVIDED THAT such funding sources do not in any way affect deCODE's ownership of Results or Inventions derived from the Research, or restrict or diminish deCODE's ability to commercialize the results of the Research. All grant proposals and subsequent research progress reports will be immediately submitted to the SC for review prior to submission. If any outside grants or funding are received by RF, RF shall be permitted to spend an amount equal to such outside grants that are received from the funds that are provided by deCODE pursuant to Section 3.1 (a) on other research efforts solely at RF's discretion. 4 9 ARTICLE 4 PROPRIETARY RIGHTS 4.1 PROPRIETARY RIGHTS. deCODE shall acquire all proprietary rights of any kind whatsoever resulting from the Research. Any invention or other know-how conceived or first reduced to practice in the performance of the Research, together with all Intellectual Property related thereto (collectively "Inventions") shall be at all times the sole and exclusive property of deCODE. RF shall perform, or ensure that all agents and clinical personnel shall perform any and all acts necessary to assist deCODE in perfecting its right to any and all such Inventions, including using its best efforts to ensure the prompt disclosure of same to deCODE by any agent, employee or other individual involved in the Research and the development of the Inventions. 4.2 INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS. If the activities of either party in connection with the Research or as a result of any commercial exploitation thereof, result in a claim of patent infringement or other violation of the intellectual property rights of any third party, deCODE shall defend against such claims. RF shall cooperate in such defense and shall have the right to be represented by counsel of its own choice. 4.3 SURVIVAL. The obligations of this Article shall survive termination or expiration of this Agreement for any reason. ARTICLE 5 CONFIDENTIALITY 5.1 CONFIDENTIAL INFORMATION. Each party shall, for the term of this Agreement and for five years after its conclusion, keep completely confidential and not disclose to any third party, any information designated as confidential furnished to it by the other party pursuant to this Agreement except as provided in Article 6 as required by law. The SC will determine what information will be designated confidential along with the method of designation. 5.2 DISCLOSURE TO EMPLOYEES. Each party shall obtain a written agreement of each of its employees, agents and consultant who work on the Research obliging such person to corresponding obligations of confidentiality. 5.3 SURVIVAL. The obligations of this Article shall survive the termination or expiration of this Agreement for any reason. ARTICLE 6 PUBLICATIONS 6.1 PUBLICATIONS. Each party to this Agreement recognizes that the publication of papers, oral presentations and abstracts, regarding the Research, subject to reasonable controls to protect confidential information, will be beneficial to both parties. Accordingly, deCODE shall have the right to review for a period of thirty (30) days and approve any paper 5 10 for publication, the same to apply to oral presentations and abstracts, which utilizes data generated from the Research. RF agrees to delete references to deCODE's Confidential Information in any such paper and agrees to withhold publication of same for an additional thirty (30) days in order to permit deCODE to obtain patent protection, if deCODE deems it necessary. Authorship on papers will also be determined by the SC and is subject to customary scientific practices. In the event of a dispute, RF has the right to nominate the first and the last author on the paper(s) in question. 6.2 NO USE OF NAMES. Neither party shall use the other party's name in its promotional activities without the prior written consent of such other party, save for disclosures required by law or government regulations. Notwithstanding the foregoing, RF hereby allows deCODE to include RF's name in a list of deCODE's collaborators to be use in corporate background information and presentations. ARTICLE 7 OTHER DISEASES 7.1 OTHER DISEASES. deCODE and RF agree to discuss widening the collaborative efforts set forth in the Agreement to include the genetics of other psychiatric diseases in Iceland, e.g., Alcoholism. The terms of such agreements will have to be negotiated separately. 7.2 [CONFIDENTIAL TREATMENT REQUESTED] ARTICLE 8 CONFLICT RESOLUTION 8.1 CONFLICT RESOLUTION. In the event of a dispute between the parties regarding the subject matter contained herein, such disputes shall be resolved exclusively through arbitration. The parties will enter into an arbitration agreement, cf. the Act on Mutually Agreed Arbitration, no. 53/1989. Each party shall nominate one arbiter and a third arbiter, who will act as a chief arbiter, shall be nominated by Reykjavik District Court. The obligations of this Section shall survive the termination or expiration of this Agreement for any reason. ARTICLE 9 TERM, EXTENSION AND TERMINATION 9.1 TERM. Unless terminated earlier pursuant to Sections 9.3 the term of this Agreement shall be three (3) years from the Effective Date. 6 11 9.2 EXTENSION OPTION. On the second anniversary of the Effective Date, either party has the option to extend the terms of this Agreement for one or both of the Diseases for an additional two (2) years. In the event the Research is extended beyond the three (3) year term of this Agreement, the parties will, in good faith, negotiate a new funding scheme based on the resource commitments deemed necessary by RF and the principles set forth in this Agreement. RF shall have the right to conduct due diligence on the resources committed by deCODE to the Research. If RF finds the resource commitment to be inadequate, RF shall have the right to end the Research after the term of three years. 9.3 BREACH. If either party breaches this Agreement and the breaching party has not (i) cured the breach or (ii) initiated good faith efforts to cure such breach within sixty (60) days of written notice from the non-breaching party, the non-breaching party may terminate this Agreement upon the expiration of such sixty (60) day period. The Research described in this Agreement is subject to approval by the Icelandic Data Protection Commission and failure on its behalf to allow the Research to proceed does not constitute a breach of this Agreement. ARTICLE 10 INDEMNIFICATION 10.1 INDEMNIFICATION BY DECODE. deCODE shall defend, indemnify and hold harmless RF and its directors and officers from and against any and all liability, damage or loss arising out of third party claims or suits related to the Research except to the extent that such claims arise out of negligence, recklessness or willful misconduct by RF and its directors and officers. 10.2 INDEMNIFICATION BY RF. RF shall defend, indemnify and hold harmless deCODE and its directors and officers from and against any and all liability, damage or loss arising out of third party claims or suites related to the Research except to the extent that such claims arise out of negligence, recklessness or willful misconduct of deCODE and its directors and officers. 10.3 SURVIVAL. The obligations set forth in this Article shall survive termination and expiration of this Agreement for any reason. ARTICLE 11 MISCELLANEOUS 11.1 FORCE MAJEURE. Neither party will be responsible for delays resulting from acts beyond the control of such party, including but not limited to acts of God, governmental restrictions, fire, flood, explosion, civil disorder, provided that the nonperforming party uses commercially reasonable efforts to avoid or remove such causes of nonperformance and continue performance hereunder with reasonable dispatch whenever such causes are removed. 11.2 NO LICENSE. Except as expressly provided herein, nothing in this Agreement 7 12 shall be construed as conferring on either party an express or implied right or license or option to license any disclosed confidential information, Invention or Intellectual Property owned by the other party. 11.3 INDEPENDENT CONTRACTORS. The parties shall perform their obligations under this Agreement as independent contractors and nothing contained in this Agreement shall be construed to be inconsistent with such relationship or status. This Agreement shall not constitute, create or in any way be interpreted as a joint venture or partnership of any kind. 11.4 CHANGES TO AGREEMENT. No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the parties hereto unless reduced to writing and signed by the respective authorized officers of the parties hereto. 11.5 GOVERNING LAW. This Agreement shall be governed by the laws of Iceland. IN WITNESS WHEREOF, the parties have by duly authorized persons, executed this Agreement, as of the date first above written. Reykjavik October 24, 1997 deCODE genetics, Inc. Rannsokna-og fredsluejodurinn ehf. By: /s/ Kari Stefansson By: /s/ Hannes Petursson -------------------- --------------------- Date: 24/10/97 Date: 24/10/97 --------- ----------------- Witnessed by: Gunnar Jonsson 0712603219 --------------------------- Hannes Smarason 251167-3389 --------------------------- 8 13 SIDE LETTER TO AN AGREEMENT ENTERED INTO BY AND BETWEEN DECODE GENETICS, INC., AND ISLENSK ERFDGREINING HF ON THE ONE HAND ) ("DECODE") AND RANNSOKNA-OG FRAEDSLUSJODURINN EHF (RF) ON THE OTHER HAND, DATED OCTOBER 24, 1997 (THE "AGREEMENT") Definitions given in the aforesaid Agreement apply to this side letter. The parties to the Agreement hereby declare it to be their mutual understanding that o any and all rights, including rights to Original Data Research Data Hannes Petursson (HP) obtained through his previous research of the genetics of schizophrenia and bipolar disease have been assigned to RF, which is controlled by HP, thus any obligations in the Agreement shall be those of RF. RF holds all right, title and interest in the Original Data; o HP represents and warrants that HP's obligations hereunder and RF;s obligations under the Agreement do not violate any agreements to which HP or RF are a party; o HP and RF represent and warrant that the Original Data has been and the Research Data will be collected with all valid consents required for use in the Research; o during the term of the Agreement HP will actively participate in the Research and not participate in any research tat may be conflict with deCODE's interest of the Research; o no agent or employee of RF or HP will participate in any other research that may be in conflict of the Agreement; o the obligations assumed under the Agreement by RF under Section 2.5 and Articles 4, 5, 6, and 7 shall be assumed by HP as well, an extension of the Agreement pursuant to Section 9.2 shall serve as an extension of the obligations assumed under this side letter; [CONFIDENTIAL TREATMENT REQUESTED] 9 14 EXTENSION AGREEMENT A refrence is amde to a RESEARCH AGREEMENT entered into 24 October 1997 (the Agreement) by and between DECODE GENETICS, IN. On the one hand and RANNSOKNA-OG FREDSLUEJODURINN EHF on the other hand. Terms used herein shall bear the same meaning as in the Agreement. Article 9.2 of the Agreement provides for an extension option under which either party has the option to extend the Agreement for one or both of the Diseases for an additional two years, i.e. till 24 October 2002. The Parties hereby mutually agree to extend the Agreement for an additional two years. As provided for in Article 9.2 of the Agreement, the Parties will enter into good faith negotiations regarding a funding scheme for the extension of the Research. Reykjavik, January 24, 2000 deCODE genetics, Inc. Rannsokna-og Fredsluejodurinn ehf By: /s/ Kari Stefansson By: /s/ Hannes Petursson Witnessed by: /s/ Johann Hjartarson /s/ Gunnar Jonsson 0712603219 10 EX-10.7 11 CONSULTANCY CONTRACT 1 EXHIBIT 10.7 THIS CONSULTANCY CONTRACT is made on the 1 day of December, 1997 BETWEEN (1) deCODE genetics, Inc., a Delaware Corporation with its principal place of business at Lynghals, 1 110 Reykjavik Iceland ("Company") (2) Vane Associates, a partnership, "White Angles" 7 Beech Dell Keston Park Keston Kent BR2 6EP Great Britain ("Consultant") IT IS AGREED: ENGAGEMENT OF SERVICES Consultant shall procure that Professor Sir John Vane ("Sir John Vane") acts as directors and will serve as a member of the Company's Board of Directors (the "Board") and perform the duties of a director, in accordance with the Company's Amended and Restated Articles of Incorporation, Bylaws, and the general Corporation Law of Delaware (the "Services"). The Services will take place from time to time as reasonably requested by the Company at times mutually acceptable to Consultant and the Company at meetings in either Reykjavik or, occasionally, in Boston, Massachusetts and by reviewing and, if thought fit, executing written consents that may be submitted to members of the Board from time to time. Sir John Vane may participate in such meetings by teleconference. It is anticipated that the Board will meet approximately five times per year and have approximately five written consents to review and sign, if thought fit, and that Sir John's time commitment per year to the Company shall not materially exceed that number of days. 2 2. COMMENCEMENT This Agreement shall be deemed to commence with effect from 27 October 1997 and shall continue until the close of business on the third anniversary of the date of this Agreement and thereafter until terminated by either party upon 90 days written notice to the other. 3. COMPENSATION 3.1 In consideration of the Consultant's Services and subject to approval by the Company's Board of Directors, which shall pay to Vane Associates $2,000 per day for each Board Meeting that Sir John Vane attends and shall issue (being each 12 monthly period this Agreement subsists) each year at monthly intervals to Vane Associates nonstatutory stock options (the "Options") to purchase up to 15,000 shares of common stock of the Company in each year at a price equal to its fair market value on the date of grant pursuant to the terms of the Company's 1996 Equity Incentive Plan for each of the next four years, provided that Sir John Vane continues to serve as a director of the Company at the time the Options are to be issued. The Options will vest monthly during each year or part year of this Agreement. 3.2 The Company will also reimburse Vane Associates for reasonable travel lodging food and other incidental expenses incurred by Consultant in performing the Services under this Agreement (including travelling to and from Board Meetings). Consultant agrees to provide the Company with appropriate receipts or other relevant documentation for all such costs as part of any submission for reimbursement. 4. FEES 4.1 The Consultant will be entitled to receive the fee referred to above per meeting or teleconference or agreed day's services of the Company attended by Sir John Vane payable to its account at Midland Bank Plc 31 Holborn London EC1N 2HR, Great Britain Sort Code: 40-03-28 Account No: 41187805 payable in full without deduction for bank transfer changes within 28 days of each meeting; 3 5. EXPENSES 5.1 Company will reimburse the Consultant's first class travel and out-of-pocket disbursements on behalf of Sir John Vane for travel, accommodation and incidental expenses made on behalf of or for the benefit of Company including travelling to and from Company meetings which shall be billed to Company at cost as incurred and shall be supported by appropriate receipts and other relevant documentation. 5.2 Company agrees to reimburse the Consultant all its legal expenses in reviewing, negotiating and amending this Agreement and the associated Indemnity Agreement. 6. COPYRIGHT 6.1 All copyrights and/or design rights in any work created in the course of or under this Agreement shall belong to Company save for papers the Consultant and/or Sir John Vane publishes and lectures or delivers where the copyright and right to copyright become a moral right and a right to use, deliver and exploit which shall belong to the Consultant and /or Sir John Vane. 6.2 For the avoidance of doubt Company, acquires no rights to any copyright, design rights, moral right, patents or similar intellectual property rights arising in the course of the Consultant's or Sir John Vane's work under any other consultancies or appointments held from time to time. 6.3 Sir John Vance and consultant shall execute Non-Disclosure Agreements in favour of Company in the form attached hereto as Exhibit A. 7. ACKNOWLEDGEMENT AND ASSIGNMENT 7.1 It is agreed that this Agreement shall enure for the benefit of and be enforceable by the Consultant and its successors in title. 7.2 This Agreement is not assignable by either party without the prior written approval of the other. 8. AMENDMENTS Changes, amendments and supplements to this Agreement must be made in writing and signed by the parties. 9. GOVERNING LAW 9.1 This Agreement shall be governed by the laws of England. 4 9.2 By their execution of this agreement, the parties hereby irrevocably agree to submit to the exclusive jurisdiction of the English Courts. 10. TERMINATION 10.1 This Agreement may be terminated by either party without liability to the other on 90 days written notice to expire no earlier than the close of business on the third anniversary of this Agreement. 10.2 If either party is in breach of any provision of this Agreement, the non-breaching party may in writing give the allegedly breaching party written notice to cure or remedy such breach within 28 days of receipt of such written notice. If the allegedly breaching party has not cured or remedied the alleged breach within that period, then this Agreement may be terminated forthwith upon further written notice. 10.3 The Company shall ensure that the Consultant is reimbursed for the consultants fees and expenses down to the date of termination howsoever arising without set-off or deduction. 11. PRE-EXISTING AGREEMENTS This Agreement is subject to the understanding that the consultant and/or Sir John Vane are contracted to and affiliated with various organizations and other companies and may from time to time become contracted to and affiliated with other similar organizations and other companies, including but without limitation on an equity investment basis (collectively, the "Affiliated Entities"). It is particularly understood that the Consultant and/or Sir John Vane are required to fulfil certain obligations to the Affiliated Entities pursuant to the guidelines or the policies if any, adopted by the Affiliated Entities or pursuant to a contract entered into with such Affiliated Entities. 12. INDEMNITY AGREEMENT In connection with this Agreement, Sir John Vane and the Company have executed that certain Indemnity Agreement, dated as 1997. 13. NOTICES Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed effectively served upon personal delivery or upon delivery by courier or 7 days after posting by certified mail if sent from the USA or by registered post if sent from England, in either case sent by express pre-paid air, addressed to the other party at its address as shown above or to such other address as such party may designate in writing for the purpose of this Agreement from time to time. 5 /s/ Kari Stefansson /s/ Sir John Vane --------------------- --------------------- Company Consultant 6 DECODE GENETICS, INC. (A DELAWARE CORPORATION) NONDISCLOSURE AGREEMENT FOR MEMBERS OF THE BOARD OF DIRECTORS In connection with your review of certain confidential information of DECODE GENETICS, INC. (the "Company") as a member of the Company's Board of Directors, we ask that you read and accept the following conditions concerning the Company's disclosure of such information to you: "Proprietary Information" shall mean all information obtained by you from or disclosed to you by the Company (I) which relates to the Company's past, present or future research, development or business activities or the results of such activities or (ii) which the Company has received from others and is obligated to treat as confidential or proprietary. Proprietary Information shall not include information previously known to you or publicly disclosed without breach of an obligation of confidentiality, either prior or subsequent to your receipt of such information. You agree that you shall hold all Proprietary Information in confidence and shall not use any Proprietary Information except as may be authorized by the Company in writing. You shall not disclose any such Proprietary Information to any person by publication or otherwise. You further agree that at any time upon request of the Company, you shall return to the Company any and all written or descriptive matter including, but not limited to, financial information, descriptions or other papers or documents that contain any such Proprietary Information, together with all copies thereof. You acknowledge the receipt of consideration. If the foregoing reflects your understanding, please sign this Agreement in the space provided below. Accepted and Agreed to: 1 December 1997 /s/ John Vane ------------------------------ [Date] [Signature] Sir John Vane ------------------------------ [Print Name] White Angles 7 Beech Dell ------------------------------ Keston Kent UK ------------------------------ [Address] 7 AMENDMENT TO CONSULTANCY CONTRACT This Amendment to Consultancy Contract (this "Amendment") is entered into as of this 1st day of December, 1997 by and among deCODE genetics, Inc., a Delaware Corporation having its principal place of business at Lynghalsi 1, 110 Reykjavik, Iceland (the "Company"), Vane Associates, a partnership having its principal place of business at 7 Beech Dell, Keston Park, Keston, Kent BR26EP, Great Britain (the "Consultant") and Sir John Vane, having an address of 7 Beech Dell, Keston Park, Keston, Kent BR26EP, Great Britain. PRELIMINARY STATEMENTS A. The Company and the Consultant have entered into that certain Consultancy Contract (the "Contract") dated as of December 1, 1997 pursuant to which the Consultant has agreed to provide consulting services to the Company. B. Section 3.1 of the Contract provides for the payment of certain fees and the issuance of options to purchase the Company's common stock to the Consultant as compensation for the Consultant's services. C. The Company and the Consultant wish to amend Section 3.1 of the Contract as provided herein. NOW, THEREFORE, in consideration of the foregoing statements and the mutual covenants and agreements of the parties contained in this Amendment, the parties hereto agree as follows: 1. Section 3.1 of the Contract is hereby deleted in its entirety and replaced with the following paragraphs: "3.1 In consideration of the Consultant's Services and subject to approval by the Company's Board of Directors, which shall be confirmed to Consultant prior to commencement, the Company shall pay to Vane Associates $2,000 per day for each Board Meeting that Sir John Vane ("Sir John") attends and shall issue to Sir John, on the date of this agreement, and on each of the subsequent three anniversaries of this agreement, an option to purchase up to 15,000 shares of Common Stock of the Company (the "Options"), provided that Sir John continues to serves as a director of the Company at the time the Options are to be issued. "3.2 The Options shall be nonstatutory stock options, issued outside of the Company's 1996 Equity Incentive Plan, and shall have an exercise price equal to the fair market value of the Company's Common Stock on each date of grant. The Options shall vest immediately upon grant thereof. -1- 8 "3.3 In consideration of the exercise price of the Options, and in the event that Sir John elects a deferred payment arrangement as the method of payment Sir John shall (1) deliver payment to the Company in an amount equal to the par value of the shares of stock received upon exercise of the Options, and (2) execute and deliver a nonrecourse promissory note, in form and substance mutually agreeable to the parties (the "Note") to the Company as payment for the remainder of the exercise price of such Options. The Note shall be secured by a pledge to the Company of the shares purchased upon exercise of the Options, as evidenced by a pledge agreement to be entered into by the Company and Sir John, in form and substance mutually agreeable to the parties (the "Pledge Agreement"). Further, in the case of any event of default under the Note, the Company's exclusive remedy under the Note and Pledge Agreement shall be the return of any shares of stock subject to the Pledge Agreement having a fair market value equal to the then outstanding principal balance of the Note, to the Company's treasury." 2. Section 3.2 of the Contract shall be renumbered as Section 3. 4. 3. Except as specifically provided herein, the Contract shall be unaffected by this Amendment and shall continue in full force and effect. Unless otherwise expressly provided herein, the capitalized terms used in this Amendment without further definition have the meanings ascribed thereto in the Contract. ***** -2- 9 IN WITNESS WHEREOF, each of the parties hereto has caused to be executed by its duly authorized representative this Amendment to Consultancy Contract as of the date first set forth above. deCODE genetics, Inc. By: /s/ Kari Stefansson ------------------- Kari Stefansson President VANE ASSOCIATES, a partnership By: /s/ John Vane ---------------- Name: Sir John Vane Title: /s/ John Vane --------------- Sir John Vane -3- EX-10.8 12 INDEMNITY AGREEMENT 1 EXHIBIT 10.8 INDEMNITY AGREEMENT THIS AGREEMENT is made and entered into this 1 day of December by and between deCODE genetics, Inc., a Delaware corporation (the "Corporation"), and SIR JOHN VANE ("Agent"). RECITALS WHEREAS, Agent performs a valuable service to the Corporation in his capacity as a director of the Corporation; WHEREAS, the Corporation has adopted bylaws (the "Bylaws") providing for the indemnification of the directors, officers, employees and other agents of the Corporation, including persons serving at the request of the Corporation in such capacities with other corporations or enterprises, as authorized by the Delaware General Corporation Law, as amended (the "Code"); WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit contracts between the Corporation and its agents, officers, employees and other agents with respect to indemnification of such persons; and WHEREAS, in order to induce Agent to continue to serve as director of the Corporation, the Corporation has determined and agreed to enter into this Agreement with Agent; NOW, THEREFORE, in consideration of Agent's continued service as director after the date hereof, the parties hereto agree as follows: AGREEMENT 1. SERVICES TO THE CORPORATION. Agent will serve, subject to the terms of the Corporation's Restated Certificate of Incorporation and Bylaws, as director of the Corporation or as a director, officer or other fiduciary of an affiliate of the Corporation (including any employee benefit plan of the Corporation) faithfully and to the best of his ability so long as he is duly elected and qualified in accordance with the provisions of the Bylaws or other applicable charter documents of the Corporation or such affiliate; provided, however, that Agent may at any time and for any reason resign from such position (subject to any contractual obligation that Agent may have assumed apart from this Agreement) and the Corporation or any affiliate shall have no obligation under this Agreement to continue Agent in any such position. 2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless and indemnify Agent to the fullest extent authorized or permitted by the provisions of the Bylaws and the Code, as the same may be amended from time to time (but, only to the extent that such amendment permits the Corporation to provide broader indemnificationrights than the Bylaws or the Code permitted prior to adoption of such amendment). 1 2 3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the indemnification otherwise provided for herein, and subject only to the exclusions set forth in Section 4 hereof, the Corporation hereby further agrees to hold harmless and indemnify Agent: (a) against any and all expenses (including attorneys' fees), witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that Agent becomes legally obligated to pay because of any claim or claims made against or by him in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative (including an action by or in the right of the Corporation) to which Agent is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Agent is, was or at any time becomes a director, officer, employee or other agent of Corporation, or is or was serving or at any time serves at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise; and (b) otherwise to the fullest extent as may be provided to Agent by the Corporation under the non-exclusivity provisions of the Code and Section 41 of the Bylaws. 4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section 3 hereof shall be paid by the Corporation: (a) on account of any claim against Agent for an accounting of profits made from the purchase or sale by Agent of securities of the Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; (b) on account of Agent's conduct that was knowingly fraudulent or deliberately dishonest or that constituted willful misconduct; (c) on account of Agent's conduct that constituted a breach of Agent's duty of loyalty to the Corporation or resulted in any personal profit or advantage to which Agent was not legally entitled; (d) for which payment is actually made to Agent under a valid and collectible insurance policy or under a valid and enforceable indemnity clause, bylaw or agreement, except in respect of any excess beyond payment under such insurance, clause, bylaw or agreement; (e) if indemnification is not lawful (and, in this respect, both the Corporation and Agent have been advised that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication); or (f) in connection with any proceeding (or part thereof) initiated by Agent, or any proceeding by Agent against the Corporation or its directors, officers, employees or other 2 3 agents, unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the Corporation, (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the Code, or (iv) the proceeding is initiated pursuant to Section 9 hereof. 5. CONTINUATION OF INDEMNITY. All agreements and obligations of the Corporation contained herein shall continue during the period Agent is a director, officer, employee or other agent of the Corporation (or is or was serving at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) and shall continue thereafter so long as Agent shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative, by reason of the fact that Agent was serving in the capacity referred to herein. 6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement to indemnification by the Corporation for a portion of the expenses (including attorneys' fees), witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that Agent becomes legally obligated to pay in connection with any action, suit or proceeding referred to in Section 3 hereof even if not entitled hereunder to indemnification for the total amount thereof, and the Corporation shall indemnify Agent for the portion thereof to which Agent is entitled. 7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days after receipt by Agent of notice of the commencement of any action, suit or proceeding, Agent will, if a claim in respect thereof is to be made against the Corporation under this Agreement, notify the Corporation of the commencement thereof; but the omission so to notify the Corporation will not relieve it from any liability which it may have to Agent otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Agent notifies the Corporation of the commencement thereof: (a) the Corporation will be entitled to participate therein at its own expense; (b) except as otherwise provided below, the Corporation may, at its option and jointly with any other indemnifying party similarly notified and electing to assume such defense, assume the defense thereof, with counsel reasonably satisfactory to Agent. After notice from the Corporation to Agent of its election to assume the defense thereof, the Corporation will not be liable to Agent under this Agreement for any legal or other expenses subsequently incurred by Agent in connection with the defense thereof except for reasonable costs of investigation or otherwise as provided below. Agent shall have the right to employ separate counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Agent unless (i) the employment of counsel by Agent has been authorized by the Corporation, (ii) Agent shall have reasonably concluded that there may be a conflict of interest between the Corporation and Agent in the conduct of the defense of such action or (iii) the Corporation shall not in fact have 3 4 employed counsel to assume the defense of such action, in each of which cases the fees and expenses of Agent's separate counsel shall be at the expense of the Corporation. The Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Corporation or as to which Agent shall have made the conclusion provided for in clause (ii) above; and (c) the Corporation shall not be liable to indemnify Agent under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent, which shall not be unreasonably withheld. The Corporation shall be permitted to settle any action except that it shall not settle any action or claim in any manner which would impose any penalty or limitation on Agent without Agent's written consent, which may be given or withheld in Agent's sole discretion. 8. EXPENSES. The Corporation shall advance, prior to the final disposition of any proceeding, promptly following request therefor, all expenses incurred by Agent in connection with such proceeding upon receipt of an undertaking by or on behalf of Agent to repay said amounts if it shall be determined ultimately that Agent is not entitled to be indemnified under the provisions of this Agreement, the Bylaws, the Code or otherwise. 9. ENFORCEMENT. Any right to indemnification or advances granted by this Agreement to Agent shall be enforceable by or on behalf of Agent in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. Agent, in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. It shall be a defense to any action for which a claim for indemnification is made under Section 3 hereof (other than an action brought to enforce a claim for expenses pursuant to Section 8 hereof, provided that the required undertaking has been tendered to the Corporation) that Agent is not entitled to indemnification because of the limitations set forth in Section 4 hereof. Neither the failure of the Corporation (including its Board of Directors or its stockholders) to have made a determination prior to the commencement of such enforcement action that indemnification of Agent is proper in the circumstances, nor an actual determination by the Corporation (including its Board of Directors or its stockholders) that such indemnification is improper shall be a defense to the action or create a presumption that Agent is not entitled to indemnification under this Agreement or otherwise. 10. SUBROGATION. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Agent, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Corporation effectively to bring suit to enforce such rights. 11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this Agreement shall not be exclusive of any other right which Agent may have or hereafter acquire under any statute, provision of the Corporation's Certificate of Incorporation or Bylaws, agreement, vote of stockholders or directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. 4 5 12. SURVIVAL OF RIGHTS. (a) The rights conferred on Agent by this Agreement shall continue after Agent has ceased to be a director, officer, employee or other agent of the Corporation or to serve at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise and shall inure to the benefit of Agent's heirs, executors and administrators. (b) The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place. 13. SEPARABILITY. Each of the provision of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be invalid for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. Furthermore, if this Agreement shall be invalidated in its entirety on any ground, then the Corporation shall nevertheless indemnify Agent to the fullest extent provided by the Bylaws, the Code or any other applicable law. 14. GOVERNING LAW. This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware. 15. AMENDMENT AND TERMINATION. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. 16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute but one and the same Agreement. Only one such counterpart need be produced to evidence the existence of this Agreement. 17. HEADINGS. The headings of the sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. 18. NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) upon delivery if delivered by hand to the party to whom such communication was directed or (ii) upon the third business day after the date on which such communication was mailed if mailed by certified or registered mail with postage prepaid: (a) If to Agent, at the address indicated on the signature page hereof. 5 6 (b) If to the Corporation, to deCODE genetics, Inc. Attention: Dr. Kari Stefansson Lynghalsi 1 IS-110 Reykjavik, Iceland or to such other address as may have been furnished to Agent by the Corporation. IN WITNESS WHEREOF, the parties hereto have signed this Agreement on and as of the day and year first above written. deCODE genetics, Inc. By: /s/ Kari Stefansson --------------------- Kari Stefansson President and Secretary AGENT /s/ John Vane ------------- Name: Sir John Vane Address: White Angles 7 Beech Dell Keston, Kent BR26EP UK 6. EX-10.9 13 SETTLEMENT AGREEMENT 1 EXHIBIT 10.9 [NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] SETTLEMENT AGREEMENT BY AND BETWEEN THE BETH ISRAEL DEACONESS MEDICAL CENTER AND DECODE GENETICS, INC. This License Agreement (hereinafter, the "Agreement") is effective as of the 31st day of December 1997 (hereinafter, the "Effective Date") between Beth Israel Deaconess Medical Center (hereinafter "BIDMC"), a nonprofit corporation existing under the laws of the Commonwealth of Massachusetts and having its principal place of business at One Deaconess Road, Boston, MA 02215, and deCode Genetics, Inc., (hereinafter "deCode") a corporation existing under the laws of Delaware and having its principal place of business at Lynghais 1, 110 Reykjavik, Iceland. WHEREAS, utilizing BIDMC facilities and resources Dr. Kari Stefansson performed a study of multiple sclerosis and identified linkage to an approximately 200 kb segment of DNA; WHEREAS, Dr. Stefansson has identified at least two genes in the HLA region which are associated with myelin-forming cells and are candidate genes for multiple sclerosis; WHEREAS, Dr. Stefansson also began systematically sequencing the DNA from the 200 kb segment using facilities and resources of BIDMC; WHEREAS, the parties have agreed that any Technology (as defined below) made by Dr. Stefansson identified above, between November 1, 1993 and the Effective Date, shall be jointly owned by the parties. NOW THEREFORE, in consideration of the premises and mutual covenants and conditions set forth below, BIDMC and deCode agree as follows: 1 2 1. DEFINITIONS. 1.1 "TECHNOLOGY" shall mean all inventions creations ideas, know-how, data, and information, whether patentable or not, which have been conceived, reduced to practice, developed, derived, collected, made or otherwise generated by Dr. Stefansson, between November 1, 1993 and the Effective Date, alone or in collaboration with one or more or employees, staff members or contractors of BIDMC, and which are associated with the linkage of the 200 kb segment of DNA to the multiple sclerosis trait. 1.2 "LICENSED PATENTS" shall mean all patents, patent applications, reissues, reexaminations, renewals, divisions, and continuations throughout the world, including but not limited to those listed on Exhibit A, directed, to inventions that have been made between November 1, 1993 and the Effective Date by Dr. Stefansson alone or in collaboration with one or more employees, staff members, or contractors of BIDMC, covering or relating to the Technology. 1.3 "KNOWHOW" shall mean all confidential technology, whether patentable or not, that has been discovered, invented, or developed between November 1, 1993 and the Effective Date by Dr. Stefansson alone or in collaboration with one or more employees, staff members, or contractors of BIDMC during the course of performing research on the Technology and which is useful in connection with the discovery, optimization, manufacture, use, or sale of any Royalty-Bearing Products. 1.4 "ROYALTY-BEARING PRODUCT" shall mean any product which is developed and sold by deCode or its sublicensees, which is derived from the 200 kb segment of DNA and which is intended for the diagnosis or treatment of multiple sclerosis. 1.5 "NET SALES" shall mean the gross amount invoiced by deCode or its Affiliates for sales by deCode or its Affiliates of Royalty-Bearing Products, less (a) credits or allowances, if any, actually granted, (b) discounts actually allowed, (c) freight, postage, and insurance charges and additional special packaging charges, (d) customs duties, (e) excises, sales taxes, duties or other taxes imposed upon and paid with respect to such sales (excluding what is commonly known as income taxes), and (f) deductions for bad debts. 2 3 1.6 "SUBLICENSE INCOME" shall mean license fees and royalties paid to deCode or its Affiliates by sublicensees of deCode or its Affiliates for sales of Royalty-Bearing Products by the sublicensees, but shall not include debt or equity investments, and research and development payments. 1.7 "VALID CLAIM" shall mean a claim of any unexpired United States or foreign patent or patent application which shall not have been withdrawn, cancelled, or disclaimed, nor held invalid by a court of competent jurisdiction in an unappealed or unappealable decision, and in the case of a patent application, has not been pending for more than five (5) years. 1.8 "MAJOR MARKET COUNTRY" means the United States, United Kingdom, Germany, France, Italy or Japan. 1.9 "FDA" shall mean the United States Food and Drug Administration or the equivalent governmental agencies in a Major Market Country (including the European Medicines Evaluation Agency). 1.10 "AFFILIATE" means any corporation, company, partnership, joint venture and/or firm which controls, is controlled by or is under common control with a party. The purposes of this Section 1.10, "control" shall mean, (a) in a case of corporate entities, direct or indirect ownership of at least 50% of the stock or shares having the right to vote for the election of directors and (b) in a case of noncorporate entities, direct or indirect ownership of at least 50% of the equity interest with the power to direct the management and policies of such noncorporate entities. 2. OWNERSHIP. BIDMC and deCode shall jointly own the Licensed Patents and the Knowhow. BIDMC and deCode agree to execute or have executed all documents and assignments reasonably necessary to establish BIDMC and deCode as the record owners of the Licensed Patents and the Knowhow. The Technology and resulting Licensed Patents and Knowhow are limited to genes for multiple sclerosis in the 200 kb segment of DNA and BIDMC shall not have, or acquire, any rights to any other genes identified by Dr. Stefansson or deCode in such 200 kb segment of DNA. 3 4 3. LICENSED GRANT BIDMC hereby grants deCode and its Affiliates, and deCode and its Affiliates, accept, an exclusive, worldwide license to all of BIDMC's interest in and to the Licensed Patents and the Knowhow, including the right to sublicense all such rights, under terms not inconsistent with the terms set forth in this Agreement to make, have made, use, sell, offer to sell, and import Royalty-Bearing Products. 4. LICENSE FEES, MILESTONES, MAINTENANCE FEES, AND ROYALTIES. 4.1 LICENSE FEES. 4.1.1 CASH PAYMENT. deCode shall make the following payments to BIDMC upon the occurrence of the following events: [CONFIDENTIAL TREATMENT REQUESTED] These cash payments are non-refundable and not creditable against future royalties that may be due. 4.1.2 PREFERRED STOCK PAYMENTS. deCode shall make the following payments to BIDMC upon the occurrence of the following events: (a) Upon execution of this Agreement by deCode and BIDMC, deCode shall issue to BIDMC [CONFIDENTIAL TREATMENT REQUESTED] shares of deCode's Series A Preferred Stock. (b) Upon the first anniversary of the Effective Date, deCode shall issue to BIDMC that number of shares of deCode's Series A Preferred Stock that can 4 5 be purchased with [CONFIDENTIAL TREATMENT REQUESTED] at a purchase price equal to the last price paid per share (or the last valuation per share in the case of a non-cash transaction, e.g., license agreement, lease line, etc.) for deCode's preferred stock before the first anniversary of the Effective Date, or if deCode closes an initial public offering, the last price paid by the public for deCode's common stock at the close of trading on the day preceding the first anniversary of the Effective Date. (c) Upon the second anniversary of the Effective Date, deCode shall issue to BIDMC that number of shares of deCode's Series A Preferred Stock that can be purchased with [CONFIDENTIAL TREATMENT REQUESTED] at a purchase price equal to the last price paid per share (or the last valuation per share in the case of a non-cash transaction, e.g., license agreement, lease line, etc.) for deCode's preferred stock before the second anniversary of the Effective Date, or if deCode closes an initial public offering, the last price paid by the public for deCode's common stock at the close of trading on the day preceding the second anniversary of the Effective Date. These license fees are non-refundable and not credible against future royalties that may become due. 4.1.3 TERMS OF SERIES A PREFERRED STOCK. (a) The Series A Preferred Stock paid to BIDMC pursuant to Sections 4.1.2. (a) - (c) above shall be issued pursuant to a stock purchase agreement in substantially the form attached hereto as Exhibit B (the "Stock Purchase Agreement"). Prior to each of the first anniversary and second anniversary of the Effective Date with respect to each respective payment pursuant to Sections 4.1.2. (b) and (c) above, deCode shall prepare, execute and deliver to BIDMC the Stock Purchase Agreement that shall set forth the appropriate price paid per share and number of shares, and upon receiving BIDMC's executed copy thereof, shall issue, and deliver to BIDMC a share certificate for the appropriate number of shares of Series A Preferred Stock. Section 3(d) of the Stock Purchase Agreement shall be utilized only in connection with the initial issuance of [CONFIDENTIAL TREATMENT REQUESTED] shares of deCode's Series A Preferred Stock to BIDMC pursuant to Section 4.1.2(a). Section 3(d) shall not be utilized in the Stock Purchase Agreement in connection with the issuances to BIDMC pursuant to Sections 4.1.2(b) and 4.1.2(c). 5 6 (b) Upon such date that such appropriate number of shares of deCode's Series A Preferred Stock is issued to BIDMC pursuant to Sections 4.1.2. (a)-(c) above, BIDMC shall hold the same rights, preferences and privileges as the other holders of outstanding shares of deCode Series A Preferred Stock on such date, pursuant to deCode's Amended and Restated Certificate of Incorporation and Amended and Restated Investor Rights Agreement in effect on such date. 4.2 MILESTONES. deCode shall make the following payments to BIDMC within thirty (30) days of the first occurrence (and not for any subsequent occurrences) of the following milestone events: [CONFIDENTIAL TREATMENT REQUESTED] These milestone payments are non-refundable and not creditable against any future royalties that may be due. 4.3 ANNUAL MAINTENANCE FEES. deCode shall pay to BIDMC [CONFIDENTIAL TREATMENT REQUESTED]on the first anniversary and each subsequent anniversary of the Effective Date during the term of this Agreement. Such annual maintenance fee shall be creditable against royalties that become due to BIDMC in the calendar year following such payment. 6 7 4.4 ROYALTIES. 4.4.1 ROYALTIES ON ROYALTY-BEARING PRODUCTS SOLD BY DECODE. (A) THERAPEUTIC PATENTED PRODUCTS. deCode will pay to BIDMC a royalty of [CONFIDENTIAL TREATMENT REQUESTED]of Net Sales for all Royalty-Bearing Products that are approved by the FDA for therapeutic use in the country where the Royalty-Bearing Products are sold and that are covered by at least one Valid Claim of a Licensed Patent in the country where such Royalty-Bearing Products are sold. (B) DIAGNOSTIC PATENTED PRODUCTS. deCode will pay to BIDMC a royalty of [CONFIDENTIAL TREATMENT REQUESTED]of Net Sales for all Royalty-Bearing Products that are approved by the FDA for diagnostic use in the country where such Royalty-Bearing Products are sold and that are covered by at least one Valid Claim of a Licensed Patent in the country where such Royalty-Bearing Products are sold. (C) UNPATENTED THERAPEUTIC PRODUCTS INCLUDING KNOWHOW. deCode will pay to BIDMC a royalty of [CONFIDENTIAL TREATMENT REQUESTED]of Net Sales for all Royalty-Bearing Products that are approved by the FDA for therapeutic use in the country where such Royalty-Bearing Products are sold and that are not covered by at least one Valid Claim of a Licensed Patent in the country where such Royalty-Bearing Products are sold. (D) UNPATENTED DIAGNOSTIC PRODUCTS INCLUDING KNOWHOW. deCode will pay to BIDMC a royalty of [CONFIDENTIAL TREATMENT REQUESTED]of Net Sales for all Royalty-Bearing Products that are approved by the FDA for diagnostic use in the country where such Royalty-Bearing Products are sold and that are not covered by at least one Valid Claim of a Licensed Patent in the country where such Royalty-Bearing Products are sold. 4.4.2 ROYALTIES ON ROYALTY-BEARING PRODUCTS SOLD BY SUBLICENSEES. (A) PATENTED SUBLICENSEE PRODUCTS. deCode will pay to BIDMC [CONFIDENTIAL TREATMENT REQUESTED]of all Sublicense Income paid to deCode for sales of Royalty-Bearing Products that are covered by at least one Valid Claim of a Licensed Patent in the country where such Royalty-Bearing Products are sold. 7 8 (B) UNPATENTED SUBLICENSEE PRODUCTS INCLUDING KNOWHOW. deCode will pay to BIDMC [CONFIDENTIAL TREATMENT REQUESTED] of all Sublicense income paid to deCode for sales of Royalty-Bearing Products that are not covered by at least one Valid Claim of a Licensed Patent in the country where such Royalty-Bearing Products are sold. (C) MINIMUM SUBLICENSE PAYMENTS. In the event that the royalty payments described in this section total less than [CONFIDENTIAL TREATMENT REQUESTED]of Net Sales of a sublicensee of Royalty-Bearing Products approved for therapeutic use or [CONFIDENTIAL TREATMENT REQUESTED]of Net Sales of a sublicensee of Royalty-Bearing Products approved for diagnostic use, the parties agree to meet in good faith to negotiate whether such payments are commercially reasonable payments to BIDMC in light of how other consideration, such as equity funding paid by the sublicensee to deCode shall be allocated. (D) SUBLICENSE INCOME PAYMENT TERMS. Sublicensee's income which is not royalty income, but which is owed to BIDMC under this Section 4.4.2(i.e. licensing fees and the like) shall be paid to BIDMC by deCode within thirty (30)days from the date that deCode receives such payment from a sublicensee. 4.4.3 DURATION OF ROYALTY OBLIGATIONS. The royalty obligations of deCode shall terminate on a country-by-country basis upon the latter of (i) the last to expire of the Licensed Patents in such country and (ii) fifteen (15) years after the first commercial sale of a Royalty-Bearing Product in such country. 4.4.4 QUARTERLY PAYMENTS. With regard to Net Sales, royalties due thereon shall be payable quarterly, within forty-five (45) days after the end of each calendar quarter, based upon the Net Sales of the Royalty-Bearing Products during such preceding calendar quarter, commencing with the calendar quarter in which the first commercial sale of any Royalty-Bearing Product is made. With regard to Sublicense Income received by deCode for sales of Royalty-Bearing Products, royalties due thereon shall be payable quarterly, within sixty (60) days after the end of each calendar quarter, based upon the Sublicense Income received by deCode during such preceding calendar quarter, commencing with the calendar quarter in which the first commercial sale of any Royalty-Bearing Product is made by a sublicensee of deCode. 8 9 4.4.5 REPORTS. deCode shall furnish to BIDMC at the same time as each payment is made by deCode, a detailed written report of the Net Sales of Royalty-Bearing Products and the Sublicense Income received by decode for sales of Royalty-Bearing Products and the royalties due and payable for such calendar quarter. 4.4.6 RECORDS. deCode shall keep full, complete and proper records and accounts of its sales of Royalty-Bearing Products and Sublicense Income received by deCode for sales of Royalty-Bearing Products to enable the royalties payable thereon to be determined. BIDMC shall have the right at its own expense to appoint an independent certified public accounting firm approved by deCode, which approval shall not be unreasonably withheld, to audit deCode's records which are necessary to verify the royalties payable pursuant to this Agreement. Such audit shall be at BIDMC's expense; provided, however, that if the audit discloses that BIDMC has been underpaid royalties by at least five percent (5%) for the audited period, then deCode shall reimburse BIDMC for any such reasonable audit costs, together with an amount equal to the additional royalties to which BIDMC is entitled as disclosed by the audit. BIDMC may exercise its right of audit no more frequently than once in any calendar year. The accounting firm shall disclose to BIDMC only information relating solely to the accuracy of the royalty payments. deCode shall preserve and maintain all such records required for audit for a period of two (2) years after the calendar quarter to which the record applies. 4.4.7 NO DUPLICATE ROYALTIES. Under no circumstances shall deCode be obligated to pay more than one royalty on any Royalty-Bearing Product. 4.4.8 FORM OF PAYMENT: TAXES. All amounts payable to BIDMC hereunder shall be payable in United States funds without deductions for taxes, assessments, fees or charges of any kind, except for the deductions provided in Section 1.5. deCode shall be responsible for the payment of all withholding taxes imposed by any country on any royalty or other payment payable to BIDMC hereunder. All amounts payable to BIDMC hereunder shall be payable in United States dollars in Boston, Massachusetts, or at such other place as BIDMC may reasonably designate, provided, however, that if the law of any foreign country prevents any payment payable to BIDMC hereunder to be made in Boston, Massachusetts, or as otherwise designated by BIDMC or prevents any such payment to be made in United States dollars, BIDMC agrees to accept such royalty in form and place as permitted, including deposits by deCode in the applicable foreign currency in a local bank or banks in such country designated by deCode. If any 9 10 currency conversion is required in connection with any payments to BIDMC hereunder, such conversion shall be made at the buying rate for the transfer of such other currency as quoted by The Wall Street Journal on the last business day of the applicable accounting period, in the case of any payment if payable with respect to a specified accounting period, or, in the case of any other payment, the last business day prior to the date of such payment. 4.5 INTEREST. In the event that any payment (other than royalty payment) due hereunder is not made when due, the payment shall accrue interest beginning on the Effective Date at the annual rate of eighteen percent (18%). In the event any royalty payments are not made when due, the payment shall accrue interest beginning on the first day following the calendar quarter in which such payment is due calculated at the annual rate of the sum of (a) two percent (2%) plus (b) the prime interest rate quoted by The Wall Street Journal on the date said payment is due, or on the date the payment is made, whichever is higher. In either case, the interest shall be compounded on the last day of each calendar quarter, provided that in no event shall said annual rate exceed the maximum interest rate permitted by law in regard to such payments. Such payments when made shall be accompanied by all interest so accrued. Said interest and the payment and acceptance thereof shall not negate or waive the right of BIDMC to any other remedy, legal or equitable, to which it may be entitled because of the delinquency of the payment. 5. TERM AND TERMINATION OF THIS AGREEMENT. 5.1 TERM. Unless terminated sooner in accordance with the terms herein, this Agreement shall expire upon expiration of the last to expire of the Licensed Patents, provided however that the license granted to deCode under Section 3 with respect to the Knowhow shall survive such expiration. 5.2 TERMINATION WITHOUT CAUSE BY DECODE. For a period of thirty-six (36) months from the Effective Date, deCode shall not have the right to terminate this Agreement without cause. Upon the termination of such thirty-six (36) month period, 10 11 deCode shall not have the right to terminate this Agreement without cause for additional twenty-four (24) months except that deCode shall have the right to request termination of this Agreement if it determines that (i) the continued research, development or distribution of Royalty-Bearing Products is not commercially feasible, or (ii) the manufacture, use or sale of Royalty-Bearing Products is covered by third party patents to which it is not willing to obtain a license. Upon deCode's determination of either event (i) or (ii) described above, deCode shall present to BIDMC in writing its determination, the rationale for such determination and its request for BIDMC's consent for early termination. The parties shall meet to discuss deCode's options and BIDMC agrees not to unreasonably withhold consent to deCode's request, provided, however, that deCode pay to BIDMC the difference between [CONFIDENTIAL TREATMENT REQUESTED] and the total amount of annual maintenance fees already paid by deCode to BIDMC pursuant to Section 4.3 above. After the fifth anniversary of the Effective Date, deCode shall have the right to terminate this Agreement upon thirty (30) days prior written notice to BIDMC. 5.3 TERMINATION UPON DEFAULT BY DECODE. In the event of default by deCode, BIDMC may give deCode written notice of the default and elect to terminate this Agreement ninety (90) days after receipt of the notice unless, within said time period, deCode cures the default. Any dispute arising hereunder shall be resolved in accordance with the provisions of Section 10.1. 5.4 RIGHTS UPON TERMINATION. Upon any termination of this Agreement, the exclusive license granted to deCode in Section 3 shall terminate, and deCode's maintenance fee and royalty obligations defined in Sections 4.3 and 4.4 shall also terminate. deCode's obligations under Sections 4.1, 4.2, 4.5, 6, 7.1, 7.2, 8 and 10.7, shall survive termination of this Agreement and in the event of any termination of this Agreement, deCode shall continue to have the right to exercise its rights as a joint owner of the Licensed Patents and the Knowhow. Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such termination. 11 12 6. WARRANTIES AND DISCLAIMERS. 6.1 deCode warrants and represents that it has the right to enter into this Agreement. 6.2 BIDMC warrants and represents that all patents and patent applications covering or relating to the Technology which were filed by or on behalf of BIDMC are listed on Schedule A. deCode warrants and represents that it has not filed any patent applications covering or relating to the Technology. 6.3 BIDMC warrants and represents that it has the right to enter into this Agreement and to grant the licenses granted herein. 6.4 NEITHER PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTY INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY OF THE LICENSED TECHNOLOGY OR ANY ROYALTY-BEARING PRODUCTS AND HEREBY DISCLAIMS THE SAME 6.5 NEITHER PARTY MAKES ANY EXPRESS OR IMPLIED WARRANTY THAT THE MANUFACTURE, USE OR SALE OF ANY ROYALTY-BEARING PRODUCT WILL NOT INFRINGE ANY PATENT OR OTHER RIGHT OF ANY PARTY AND HEREBY DISCLAIMS THE SAME. 7. PATENT MATTERS. 7.1 Patent Prosecution and Maintenance. deCode shall have the sole responsibility for the prosecution and maintenance of the Licensed Patents. deCode shall not abandon any patent application of the Licensed Patents or fail to maintain any of the Licensed Patents without providing BIDMC with sixty (60) days prior written notice to BIDMC. If deCode decides to abandon any patent application or not to maintain any patent of the Licensed Patents, then BIDMC may, at its own expense, assume control of the prosecution of such application or maintenance of such patent. 12 13 7.2 PROVISION OF INFORMATION TO BIDMC. deCode shall keep BIDMC informed with regard to the patent prosecution of the Licensed Patents by providing to BIDMC copies of all correspondence and filings with Patent Offices and an opportunity to comment on such correspondence and filings prior to the time that such papers are filed and submitted. 7.3 INFRINGEMENT ACTIONS. 7.3.1 CLAIMS OF INFRINGEMENT AGAINST THIRD PARTIES. (a) deCode shall have the sole right to initiate an infringement or other appropriate suit anywhere in the world against any third party who at any time has infringed, or is suspected of infringing, any of the Licensed Patents or of using without proper authorization or misappropriating all or any portion of the Knowhow. (b) deCode shall pay all expenses of the suit, including, without limitation, attorneys' fees and court costs. Any damages, settlement fees or other consideration for past infringement received as a result of such litigation shall be treated as Sublicense Income after deCode deducts its expenses related to such suit from the recovery. If necessary, BIDMC shall join as a party to the suit but shall be under no obligation to participate except to the extent that such participation is required as the result of being a named party to the suit. BIDMC shall offer reasonable assistance to deCode in connection therewith at no charge to deCode except for reimbursement of reasonable expenses, including out-of-pocket expenses and salaries of BIDMC personnel, incurred in rendering such assistance. deCode shall not settle any such suit involving rights of BIDMC without obtaining the prior written consent of BIDMC, which consent shall not be unreasonably withheld. If, after deCode has had knowledge of such claim for at least six (6) months and following reasonable notice from the BIDMC, deCode shall fail to take any action against any Infringer which BIDMC may reasonably deem necessary or desirable to prevent such infringement or violation, or to recover damages therefor, in addition to any other remedy available to it, BIDMC may, upon notice to deCode, take any steps BIDMC may deem appropriate against such Infringer at BIDMC's own expense. 13 14 deCode shall assist BIDMC, at BIDMC's expense, as reasonably requested in taking any such action against any such Infringer. Any amount recovered as a result of any such action taken by BIDMC shall be retained by BIDMC. 7.3.2 CLAIMS OF INFRINGEMENT AGAINST DECODE. (a) In the event that a third party at any time provides written notice of a claim to, or brings an action, suit or proceeding against, any party or any of their respective Affiliates or sublicensees, claiming infringement of its patent rights or copyrights or unauthorized use or misappropriation of its technology, based upon an assertion or claim arising out of the development, manufacture, use or sale of Royalty-Bearing Products, such party shall promptly notify the other party of the claim or the commencement of such action, suit or proceeding enclosing a copy of the claim and/or all papers served. BIDMC agrees to make its advice regarding the technical merits of any such claim reasonably available to deCode. (b) If deCode or any of its sublicensees, in order to operate under or exploit the licenses granted under Section 3 of this Agreement in any country, must, in deCode's or sublicensee's reasonable judgment, make payments to one or more third parties to obtain a license or similar right under a patent or other technology in the absence of which Royalty-Bearing Products could not legally be developed, manufactured, used, marketed, imported, sold, or offered to be sold in such country, one-half 1/2) of such third party payments shall be set off against the royalty payments otherwise due to BIDMC provided that in no event shall the royalty payments due BIDMC be reduced by more than fifty percent (50%). During the course of negotiations between deCode and such third party, if requested by deCode, BIDMC shall render to deCode reasonable assistance as necessary for deCode to secure such license or similar right. The negotiation and final terms of such license or similar right shall be in the sole discretion of the deCode. 8. INDEMNIFICATION AND INSURANCE. 8.1 PRODUCT LIABILITY INDEMNITY. deCode shall indemnify, defend and hold harmless BIDMC and its trustees, officers, medical and professional staff, employees and agents and their respective successors, heirs and assigns (the "Indemnitees"), 14 15 against any and all ability, damage, loss or expense (including reasonable Attorneys' fees and expenses of litigation) incurred by or imposed upon the Indemnitees, or any one of them, in connection with any claims, suits, actions, demands or judgments arising out of any theory of product liability (including, but not limited to, actions in the form of tort, warranty, or strict liability) and arising out of the design, production, manufacture, sale, use, lease or promotion by deCode or by a sublicensee, Affiliate or agent of deCode of any product, process or service relating to, or developed pursuant to this Agreement. deCode's indemnification obligations under this Section 8.1 shall not Apply to any damage, loss or expense directly attributable to the negligent activity of the Indemnitees. 8.2 INSURANCE. At such time as any Royalty-Bearing Product is being commercially distributed or sold by deCode or by a sublicensee, Affiliate or agent of deCode, deCode shall, at its sole cost and expense, procure and maintain policies of comprehensive general liability insurance in amounts not less than $2 million per incident and $2 million aggregate naming the Indemnitees as additional insureds. Such comprehensive general liability insurance shall provide (a) product liability coverage and broad form contractual liability coverage for deCode's indemnification under Section 8.1 above. If deCode elects to self-insure all or part of the limits described above (including deductibles or retentions which are in excess of $250,000 annual aggregate), such self-insurance programs must be acceptable to BIDMC. deCode shall provide BIDMC with written evidence of such insurance upon request of BIDMC. deCode shall provide BIDMC with written notice prior to any cancellation, non-renewal or material change in such insurance. Upon such notice BIDMC shall have the right to terminate this Agreement. deCode shall maintain such commercial general liability insurance during (a) the period that any such product, process or service is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by deCode or by a sublicensee, Affiliate or agent of deCode and (b) a reasonable period after the period referred to in (iii) (a) above which in no event shall be less than fifteen (15) years. 15 16 9. DUE DILIGENCE / GENERAL OBLIGATION. deCode shall use commercially reasonable efforts to commercialize the licensed Technology. In the event that deCode shall fail to comply with due diligence obligations under this paragraph, deCode shall (i) within 60 days of deCode's receipt of written notice of such failure, provide BIDMC a commercially reasonable plan to remedy such failure within a time period not to exceed 180 days from the date of deCode's receipt of such notice and (ii) cure such failure in accordance with such plan within the time provided for under such plan. deCode shall provide BIDMC at least once per year a report of its activities and efforts toward commercialization of the licensed Technology in sufficient detail to allow BIDMC to monitor deCode's compliance with the due diligence provisions of this Agreement. In addition, deCode shall meet with the Chief of Neurology of BIDMC, or his/her designee, every six (6) months in order to enable such person to monitor deCode's commercialization activities and to offer suggestions relating to such commercialization. The sole remedy of BIDMC for any failure of deCode to comply with the obligations set forth in this Section 9 to use reasonable efforts to commercialize the licensed Technology shall be to obtain immediate payment from deCode of all unpaid amounts specified in Sections 4.1 (provided that the preferred stock purchase price shall be the last price paid per share (or the last valuation per share in the case of a non-cash transaction, e.g. license agreement, lease line, etc.) for deCode's preferred stock before the date of termination, or if deCode doses an initial public offering, the last price paid by the public for deCode's common stock at the close of trading on the day preceding the date of termination.) and 4.3 (due through the fifth anniversary of the Effective Date) of this Agreement and terminate the licenses to the Licensed Patents and Knowhow granted in Section 3 so that following such termination deCode will only have the non-exclusive right as a joint owner to practice the Licensee Patents and Knowhow. 10. GENERAL PROVISIONS. 10.1 ARBITRATION. Any matter or disagreement arising out of this Agreement shall be resolved by arbitration. Such matter or disagreement shall be submitted for decision to a mutually selected arbitrator. If an arbitrator cannot be agreed upon, the parties shall request the American Arbitration Association to appoint an arbitrator. 16 17 The arbitrator shall conduct the arbitration in accordance with the Rules of the American Arbitration Association. The decision and award by the arbitrator shall be final and binding. Judgment upon the award may be entered in any court having jurisdiction thereof. Any arbitration pursuant to this Section 10.1 shall be held in Boston, Massachusetts, or such other place as may be mutually agreed upon in writing by the parties. The costs of any such arbitration shall be shared equally by the parties. 10.2 ENTIRE AGREEMENT; MODIFICATION. This Agreement and the Mutual Release attached hereto as Exhibit C set forth the entire agreement and understanding between the parties as to the subject matter set forth in this Agreement. There shall be no amendments or modifications to this Agreement, except by a written document which is signed by both parties. 10.3 MASSACHUSETTS LAW. This Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Massachusetts. 10.4 HEADINGS. The headings for each article and section of this Agreement have been inserted for convenience of reference only and are not intended to limit or expand on the meaning of the language contained in the particular article or section. 10.5 SEVERABILITY. If any provision of this Agreement is ultimately held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 10.6 NO WAIVER. Any delay in enforcing a party's rights under this Agreement or any waiver as to a particular default or other matter shall not constitute a waiver of such party's rights to the future enforcement of its rights under this Agreement, excepting only as to an expense written and signed waiver as to a particular matter for a particular period of time. 10.7 ATTORNEY FEES. In any dispute between the parties, the attorney fees and court costs of the prevailing party shall be reimbursed by the other party. 10.8 ASSIGNMENTS. This Agreement shall not be assignable by either of the parties without the express written consent of the other party, which consent shall 17 18 not be unreasonably withheld, except each party may assign this Agreement without consent of the other party, but with notice, to any successors in interest of the assigning party's business related to this Agreement. 10.9 NOTICES. Any notices given pursuant to this Agreement shall be in writing and shall be sent by hand, certified mail, overnight courier, or fax addressed as follows FOR BIDMC: Beth Israel Deaconess Medical Center One Deaconess Road Boston, MA 02215 Fax No. 617-632-7196 Attention: Barry I. Eisenstein, M.D. with a copy to: Ropes & Gray One International Place Boston, Massachusetts 02110-2624 Attention: Dacia A. Clayton, Esq. FOR deCode: deCode Genetics, Inc. Lynghais 1 110 Reykjavik, Iceland Fax No. 354-564-1901 Attention: Kari Stefansson, M.D. with a copy to: Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 Attention: David E. Redlick, Esq. Such notices shall be effective upon receipt by the addressee. 10.10 COMPLIANCE WITH U.S. LAWS. Nothing contained in this Agreement shall require or permit BIDMC or deCode to do any act inconsistent with the requirements of any United States law, regulation, or executive order as the same may be in effect from time to time. 18 19 10.11 COMPLIANCE WITH LAW. deCode shall comply with and shall. instruct any sublicensee to comply, in all material respects, with all government statutes and regulations that relate to Royalty-Bearing Products, including, but not limited to, FDA statutes and regulations and the Export Administration Act of 1979 (50 App. U.S.C.ss.2401 et.seq.), as amended, and the regulations promulgated thereunder, and any applicable similar laws and regulations of any other country. Without limiting the generality of the foregoing, deCode agrees that all Royalty-Bearing Products used or sold in the United States shall be manufactured substantially in the United States to the extent required by and in compliance with the 35 U.S.C.ss.200 et.seq. and all implementing regulations thereto as may be amended from time to time. 10.12 MARKING. deCode shall cause all Royalty-Bearing Products sold in the United States to be marked with all U.S. patent numbers for any applicable Licensed Patent, to the extent required by United States law. deCode shall similarly cause all Royalty-Bearing Products shipped to or sold in any other country to be marked with the patent number(s) for any applicable Licensed Patent in such a manner as to conform with the patent laws and practice of such country. 10.13 PUBLICITY. Except as required by law or permitted hereunder, deCode shall not use the name of the BIDMC or BIDMC's Affiliates, nor that of any staff member employee, or student or BIDMC or its Affiliates, or any adaptation thereof, in any advertising, promotional or sales literature, offering materials, business plan or any other form of publicity without prior written consent obtained from BIDMC and from the individual staff member, employee or student if such individual's name is so used. 10.14 INDEPENDENT CONTRACTORS. For the purposes of this Agreement and all services to be provided hereunder, each shall be, and shall be deemed to be, an independent contractor and not an agent, partner, joint venturer or employee of the other party. Neither party shall have authority to make any statements, representations or commitments of any kind, or to take any action which shall be binding on the other party, except as may be explicitly provided for herein or authorized in writing. 19 20 IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date. Beth Israel Deaconess Medical Center deCODE Genetics, Inc. By: /s/ David Dolins By: /s/ Terrence McGuire ------------------------ ------------------------------ Title: President Title: Director & Assistant Secretary ------------------------ ------------------------------ 20 21 EXHIBIT A LICENSED PATENTS Provisional Patent Application Entitled, [CONFIDENTIAL TREATMENT REQUESTED] 21 22 EXHIBIT B STOCK PURCHASE AGREEMENT (Attached) 22 23 DECODE GENETICS, INC. SERIES A PREFERRED STOCK PURCHASE AGREEMENT This SERIES A PREFERRED STOCK PURCHASE AGREEMENT ("Agreement") is made effective as of January ___, 1998, by and between deCODE genetics, Inc., a Delaware corporation (the "Company") and Beth Israel Deaconess Medical Center, Inc., a Massachusetts corporation ("Purchaser"). Whereas, the parties hereto have entered into that certain License Agreement, dated as of the date hereof (the "License Agreement"), and Section 4 of the License Agreement provides for the sale and issuance of the Company's Series A Preferred Stock to Purchaser. NOW THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. AUTHORIZATION AND SALE OF SHARES 1.1 AUTHORIZATION. The Company has authorized the sale and issuance to Purchaser [CONFIDENTIAL TREATMENT REQUESTED] shares of Series A Preferred Stock (the "Shares"). 1.2 SALE. Subject to the terms and conditions hereof, the Company hereby agrees to issue and sell to Purchaser, and Purchaser hereby agrees to purchase from the Company, the Shares, for a purchase price of One Dollar ($1.00) per share, and an aggregate purchase price of [CONFIDENTIAL TREATMENT REQUESTED], which purchase price is deemed to have been paid by Purchaser pursuant to the terms set forth in Section 4 of the License Agreement. 23 24 1.3 CLOSING. The closing of the sale of purchase of the Shares under this Agreement shall be held on January 12, 1998, at the offices of Purchaser or at such other time and place as the Company and Purchaser may agree (the "Closing"). 1.4 DELIVERY. At the Closing and upon full payment of the purchase price of the Shares, the Company will deliver to Purchaser a certificate representing the Shares, dated as of the date of the Closing. 2. REPRESENTATIONS TO PURCHASER Purchaser hereby represents and warrants to the Company as follows: 2.1 Purchaser is acquiring the Shares for Purchaser's own account, not as nominee or agent, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act of 1933, as amended (the "1933 Act"). 2.2 Purchaser understands that (i) the Shares have not been registered under the 1933 Act by reason of a specific exemption therefrom, that they must be held by Purchaser indefinitely, and that Purchaser must, therefor, bear the economic risk of such investment indefinitely, unless a subsequent disposition thereof is registered under the 1933 Act or is exempt from such registration; (ii) each certificate representing the Shares will be endorsed with the following legend: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." 24 25 and (iii) the Company will instruct any transfer agent not to register the transfer of any of the Shares unless the conditions specified in the foregoing legend are satisfied. 2.3 Purchaser has been furnished with all the information necessary to make an informed investment decision. Purchaser has been given access to such information relating to the Company as Purchaser has requested. 2.4 By reason of Purchaser's business or financial experience, Purchaser has the capacity to make the decision referred to in subsection (c) above. 2.5 Purchase is an "accredited investor, "as such term is defined in Rule 501(a) of Regulation D of the 1933 Act. 3. REPRESENTATIONS OF THE COMPANY. The Company hereby represents and warrants to Purchaser as follows: 3.1 The Shares, when issued in compliance with the provisions of this Agreement, will be fully paid and non-assessable. 3.2 The Company has all requisite legal and corporate power to execute and deliver this Agreement, to issue and sell the Shares and to carry out and perform its obligations under the terms of this Agreement. 3.3 All corporate action on the part of the Company, its directors and stockholders necessary for the sale and issuance of the Shares and the performance of the Company's obligations hereunder has been taken or will be taken prior to the Closing. 3.4 Since October 30, 1997 until January 12, 1998, there has been no change in the assets, liabilities, financial condition, business prospects or operations of the Company, other than changes in the ordinary course of business, none of which individually or in the aggregate 25 26 has had or is expected to have a material adverse effect on such assets, liabilities, financial condition, business prospects or operations of the Company. 4. MISCELLANEOUS. 4.1 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents, made and to be performed entirely with the State of Delaware. 4.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly 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. 4.3 ENTIRE AGREEMENT. This Agreement and the License Agreement constitute the full and entire understanding and agreement among the parties with regard to the subject matter hereof. 4.4. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. 4.5 FURTHER ACTION. Each party shall, without further consideration, take such further action and execute and deliver such further documents as may be reasonably requested by the other party in order to carry out the provisions and purposes of this Agreement. 26 27 This Agreement is hereby executed as of the date first above written. DECODE GENETICS, INC. By:________________________________________ Kari Stefansson, President BETH ISRAEL DEACONESS MEDICAL CENTER, INC. By:________________________________________ Print Name:________________________________ Title:_____________________________________ 27 28 EXHIBIT C MUTUAL RELEASE (ATTACHED) 28 29 MUTUAL RELEASE IN CONSIDERATION OF THE MUTUAL RELEASES CONTAINED HEREIN AND FOR OTHER GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which consideration is hereby acknowledged, Beth Israel Deaconess Medical Center, Inc. ("B.I."), for itself and for its successors, assigns, subsidiaries, and affiliates, does hereby remise, release, and forever discharge Dr. Kari Stefanson ("Dr. Kari Stefanson") and deCode genetics, Inc. ("deCode") and all of their heirs, successors, assigns, affiliates, subsidiaries, officers, directors, shareholders, employees, agents and attorneys (collectively, "the deCode entitities") of and from all debts, demands, causes of action, accounts, covenants, contracts, agreements, damages, and any and all claims, demands, and liabilities whatsover of every name and nature, both in LAW and EQUITY, which against the deCode entities, individually or collectively, B.I. and/or its successors, assigns, subsidiaries, and affilitates now have or ever had from the beginning of the world to this date, including without limitation any of the foregoing that were, could have been, or could be asserted or interposed in Civil Action No. 97-3046 in the Suffolk Superior Court of Massachusetts, but excluding any of the foregoing arising out of or with respect to a certain Settlement Agreement or a certain Amended and Restated Investor Rights Agreement of even date between B.I. and deCode; and Dr. Stefanson and deCode, for themselves and their heirs, successors, assigns, subsidiaries, and affiliates do hereby remise, release, and forever discharge B.I. and all of its successors, assigns, affiliates, subsidiaries, officers, diretors, shareholders, employees, agents, and attorneys, (collectively, "the B.I. entities") of and from all debts, demands, causes of action, accounts, covenants, contracts, agreements, damages, and any and all claims, demands, and liabilities whatsoever of every name and 29 30 nature, both in LAW and EQUITY, which against B.I. entities, individually or collectively, Dr. Stefanson, deCode, and/or their successors, assigns, subsidiaries and affiliates now have or ever had from the beginning of the world to this date, including without limitation any of the foregoing that were, could have been, or could be asserted or interposed in Civil Action No. 97-3046 in the Suffolk Superior Court of Massachuesetts, but excluding any of the foregoing arising out of or with respect to a certain Settlement Agreement or a certain Amended and Restated Investor Rights Agreement of even date between B.I. and deCode. IN WITNESS WHEREOF, the undersigned have executed this releas as sealed instrument as of January ___, 1998. BETH ISRAEL DEACONESS MEDICAL CENTER By:__________________________________ Its:_________________________________ DR. KARI STEFANSSON _________________________________ DECODE GENETICS, INC. By:__________________________________ Its:_________________________________ 30 EX-10.10 14 AMENDED & RESTATED PROMISSORY NOTE 1 Exhibit 10.10 AMENDED AND RESTATED NON-RECOURSE PROMISSORY NOTE $59,700 Reykjavik, Iceland March 24, 1999 FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to pay to the order of deCODE genetics, Inc., a Delaware corporation (the "Company"), at the Company's principal office or at such other place as the holder hereof may designate in writing, on 1 January 2001, in lawful money of the United States of America and in immediately available funds, the total price of fifty nine thousand and seven hundred Dollars ($59,700), together with interest, compounded annually, from 29 January, 1998 on the unpaid principal at the rate of 6% per annum. This Note may not be prepaid. The full amount of this Note is secured by a pledge of shares of Common Stock of the Company, and is subject to all of the terms and provisions of the Amended and Restated Early Exercise Stock Purchase Agreement and the Amended and Restated Pledge Agreement, each of even date herewith between the undersigned and the Company. The Company's recovery against the undersigned for failure to pay any amount owing hereunder when due shall be limited solely to the shares of Common Stock or other collateral of the undersigned pledged to the Company in the Amended and Restated Pledge Agreement. The undersigned shall not be liable or have any personal liability in any other respect for the payment of any amount due under this Note. The undersigned hereby represents and agrees that the amounts due under this Note are not consumer debt, and are not incurred primarily for personal, family or household purposes, but are for business and commercial purposes only. The undersigned hereby waives presentment, protest and notice of protest, demand for payment, notice of dishonor and all other notices or demands in connection with the delivery, acceptance, performance, default or endorsement of this Note. This Note shall be governed by, and construed, enforced and interpreted in accordance with, the laws of the State of Delaware, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 2 This Amended and Restated Non-Recourse Promissory Note reflects amendments to the Non-Recourse Promissory Note delivered to the Company by the undersigned on 29 January, 1998, which amendments were agreed upon between the Company and the undersigned on March 24, 1999. It supersedes and replaces in all respects such Non-Recourse Promissory Note. /s/ Hannes Smarason ------------------------------------ (signature) Hannes T. Smarason ------------------------------------ (print name) EX-10.11 15 AGREEMENT DATED FEBRUARY 1, 1998 1 EXHIBIT 10.11 [NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] RESEARCH COLLABORATION AND CROSS-LICENSE AGREEMENT AMONG F.HOFFMANN-LA ROCHE LTD AND HOFFMANN-LA ROCHE INC. AND DECODE GENETICS, INC. DATED AS OF FEBRUARY 1, 1998 2 TABLE OF CONTENTS Page 1. DEFINITIONS ...................................................... 2 2. REPRESENTATIONS AND WARRANTIES ................................... 17 2.1 Representations and Warranties of Both Parties ................... 17 2.2 Representations of deCODE ........................................ 18 3. STEERING COMMITTEE ............................................... 18 3.1 Members .......................................................... 18 3.2 Responsibilities ................................................. 18 3.3 Meetings ......................................................... 20 3.4 Decisions ........................................................ 21 3.5 Minutes .......................................................... 21 3.6 Expenses ......................................................... 22 4. DISCLOSURE OF KNOW-HOW ........................................... 22 4.1 Disclosure of deCODE Know-How .................................... 22 4.2 Disclosure of Roche Know-How ..................................... 22 4.3 Mechanism for Exchange of Know-How ............................... 22 5. COLLABORATIVE RESEARCH PROGRAM ................................... 23 5.1 Exclusivity ...................................................... 23 5.2 Diseases ......................................................... 23 5.3 Research Programs ................................................ 26 5.4 Research Funding ................................................. 27 5.5 Use of Funds ..................................................... 32 5.6 Roche Review Right ............................................... 32 5.7 Conduct .......................................................... 33 5.8 Records .......................................................... 34 5.9 Plasma Samples ................................................... 34 5.10 Cell Lines and Tissue Samples .................................... 35 5.11 Biological Materials Transfer .................................... 35 5.12 Research Term .................................................... 36 5.13 Post-Research Term Developments Proposal ......................... 37 5.14 Validation of Targets ............................................ 39 6. DEVELOPMENT AND COMMERCIALIZATION ................................ 39 6.1 Commercialization Efforts by Roche for Selected Diseases ......... 39 6.2 Notice of Failure by Roche to Use Efforts for a Selected Disease . 40 6.3 Abandonment Of a Selected Disease ................................ 42 6.4 Sale After Registration .......................................... 43 -i- 3 TABLE OF CONTENTS (continued) 6.5 Commercialization Efforts by deCODE and its Sublicensees .......... 44 6.6 Reports ........................................................... 45 6.7 Ownership of Regulatory Filings ................................... 45 7. GRANT OF LICENSES ................................................. 46 7.1 Grants ............................................................ 46 7.2 Rights of First Negotiation ....................................... 47 8. EQUITY, PAYMENTS AND ROYALTIES .................................... 47 8.1 Equity ............................................................ 47 8.2 Payments .......................................................... 48 8.3 Royalties ......................................................... 51 8.4 Royalty Reductions ................................................ 54 8.5 Obligation to Pay Royalties ....................................... 56 8.6 Roche Supply Obligation ........................................... 56 8.7 Barred Royalties .................................................. 56 9. PAYMENTS AND REPORTS .............................................. 56 9.1 Payment ........................................................... 56 9.2 Mode of Payment ................................................... 57 9.3 Records Retention ................................................. 58 9.4 Audit Request ..................................................... 58 9.5 Taxes ............................................................. 60 9.6 Blocked Currency .................................................. 60 9.7 Interest on Late Payments ......................................... 60 9.8 Mechanism for Adjustment to Royalties ............................. 60 10. OWNERSHIP; PATENTS ................................................ 60 10.1 Ownership ......................................................... 60 10.2 Patent Filing, Maintenance and Prosecution Regarding Inventions ... 61 11. PATENT ENFORCEMENT AND INFRINGEMENT ............................... 64 11.1 Patent Enforcement ................................................ 64 11.2 Notice of Certification ........................................... 66 11.3 Infringement Actions by Third Parties ............................. 66 12. INDEMNIFICATION ................................................... 67 12.1 Research Activities ............................................... 67 12.2 Product Liability ................................................. 67 -ii- 4 TABLE OF CONTENTS (continued) 12.3 Notice ........................................................... 67 13. PUBLICATION; NON-DISCLOSURE ...................................... 68 13.1 Publication ...................................................... 68 13.2 Non-Disclosure and Non-use; Exceptions ........................... 69 13.3 Authorized Disclosure ............................................ 70 13.4 Injunctive Relief ................................................ 70 13.5 Third Parties .................................................... 70 14. TERM; TERMINATION ................................................ 70 14.1 Term; Expiration ................................................. 70 14.2 Effect of Expiration ............................................. 71 14.3 Termination Without Cause ........................................ 71 14.4 Effect of Abandonment ............................................ 72 14.5 Breach by Roche Other than Under Section 6.2 or 6.4 .............. 75 14.6 Breach of Efforts Obligation by Roche ............................ 76 14.7 No Sales After Registration ...................................... 79 14.8 Breach by deCODE ................................................. 79 14.9 Obligations ...................................................... 80 14.10 Termination of Sublicenses ....................................... 80 14.11 Surviving Obligations ............................................ 81 14.12 No Waiver ........................................................ 81 14.13 Dispute .......................................................... 81 15. FORCE MAJEURE .................................................... 81 15.1 Events of Force Majeure .......................................... 81 16. MISCELLANEOUS .................................................... 82 16.1 Relationship of Parties .......................................... 82 16.2 Assignment ....................................................... 82 16.3 Disclaimer of Warranties ......................................... 82 16.4 Further Actions .................................................. 82 16.5 Notice ........................................................... 82 16.6 Use of Name ...................................................... 83 16.7 Public Announcements ............................................. 83 16.8 Waiver ........................................................... 84 16.9 Compliance with Law .............................................. 84 16.10 Severability ..................................................... 84 16.11 Amendment ........................................................ 85 -iii- 5 TABLE OF CONTENTS (continued) 16.12 Governing Law .................................................. 85 16.13 Arbitration .................................................... 85 16.14 Entire Agreement ............................................... 86 16.15 Parties in Interest and Bankruptcy ............................. 86 16.16 Descriptive Headings ........................................... 86 16.17 Counterparts ................................................... 86 16.18 Interpretation ................................................. 87 EXHIBITS Exhibit A Primary Diseases Exhibit B Secondary Diseases Exhibit C English Translation of Informed Consent Form Exhibit D Initial Steering Committee Exhibit E Form of Public Announcement -iv- 6 RESEARCH COLLABORATION AND CROSS-LICENSE AGREEMENT THIS RESEARCH COLLABORATION AND CROSS-LICENSE AGREEMENT (this "Agreement") dated as of February 1, 1998 is by and among Hoffmann-La Roche Inc., a corporation duly organized and existing under the laws of the state of New Jersey and having offices at 340 Kingsland Street, Nutley, New Jersey 07110 ("Roche-Nutley") and F.Hoffmann-La Roche Ltd, a corporation duly organized and existing under the laws of Switzerland and having offices at Grenzacherstrasse 124, CH-4070 Basel, Switzerland ("Roche-Basel"), and deCODE genetics, Inc., a corporation duly organized and existing under the laws of the state of Delaware, for and on behalf of itself and Islensk erfdagreining ehf., a wholly-owned subsidiary of deCODE genetics, Inc., duly organized and existing under the laws of Iceland, both having offices at Lynghalsi 1, IS-110 Reykjavik, Iceland (individually and collectively "deCODE"). PRELIMINARY STATEMENTS A. deCODE has developed an expertise in conducting research in the field of human genetics and human genomics, an objective of which is to discover potential targets and assays for use in drug discovery. B. deCODE has research facilities, experienced personnel and other capabilities conducive to conducting such research. C. Roche-Nutley and Roche Basel (individually and collectively "Roche") has expertise in drug discovery, and in developing, manufacturing and marketing diagnostic and pharmaceutical products. D. Roche and deCODE wish to collaborate to discover genetic variations that affect the pathogenesis of diseases. The purpose of this collaboration is to develop new methods to diagnose diseases and to obtain validated targets useful in drug discovery. E. The Parties recognize the importance of making the results of research into the genetics of human diseases publicly available. They also recognize the interest of participants in genetic studies of human disease to have the results of such studies made publicly available. deCODE and Roche do, however, consider it the most important interest of the participants to have the results of genetic studies turned into methods to prevent, treat and/or diagnose diseases. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and agreements of the Parties contained in this Agreement, and in a Series C -1- 7 Preferred Stock and Warrant Purchase Agreement between Roche Finance Ltd and deCODE ("Equity Agreement"), the Parties agree as follows: 1. DEFINITIONS. As used in this Agreement, the following terms will have those meanings set forth in this Section 1 unless the context dictates otherwise. 1.1 "Abandoned Products" shall mean: (a) all Therapeutic Products for a Selected Disease for which Roche terminates this Agreement pursuant to Section 6.3(a)(i) prior to the first Registration in any Major Country of a Therapeutic Product for such Selected Disease; (b) all Therapeutic Products in a given Major Country for a Selected Disease for which Roche terminates this Agreement in the Major Country pursuant to Section 6.3(a)(ii) after the first Registration in any Major Country of a Therapeutic Product for such Selected Disease; (c) all Diagnostic Products for a Selected Disease for which Roche terminates this Agreement pursuant to Section 6.3(b)(i) prior to the first Registration in any Major Country of a Diagnostic Product for such Selected Disease; (d) all Diagnostic Products in a given Major Country for a Selected Disease for which Roche terminates this Agreement in the Major Country pursuant to Section 6.3(b)(ii) after the first Registration in any Major Country of a Diagnostic Product for such Selected Disease; (e) a given Roche Product in a given country for which Roche terminates this Agreement pursuant to Section 6.4(c) after Registration in such country of such Roche Product; (f) all Therapeutic Products for a Selected Disease for which a Validated Target was obtained as of the effective date of termination of this Agreement by Roche pursuant to Section 14.3(b)(i); and (g) all Diagnostic Products for diagnosing a Disease that was a Selected Disease as of the effective date of termination of this Agreement by Roche pursuant to Section 14.3(b)(i). Notwithstanding the foregoing, an Abandoned Product shall not include a Roche Product which comprises a Roche Compound that, at the effective date of such termination, is being marketed, prepared for commercial launch or in clinical -2- 8 development or for which Roche, its Affiliate or sublicensee can document a substantial plan to clinically develop (provided that such Roche Compound is a Clinical Candidate), for an indication in a Selected Disease if Roche, its Affiliate or sublicensee, at the effective date of such termination, is then marketing, preparing for commercial launch, clinically developing, or can document a substantial plan for clinically developing a given product for the same indication; provided, that such given product, at the Effective Date, was not being marketed in any country by Roche, an Affiliate or sublicensee. 1.2 "Affiliate", with respect to any Party, shall mean (a) an organization at least fifty percent (50%) of which is owned and/or controlled directly or indirectly, by stock ownership or otherwise, by a Party, (b) an organization which directly or indirectly owns and/or controls a Party, by stock ownership or otherwise; or [CONFIDENTIAL TREATMENT REQUESTED]. 1.3 "Annual Research Plan" shall mean, for each Research Program, a reasonably detailed description of (i) the annual goals and scope of such Research Program, and (ii) the annual activities, including without limitation scientific work assigned to, and to be conducted by, each Party to discover Candidate Genes and develop Validated Targets for the Disease that is the subject of such Research Program. 1.4 "Antisense Agent" shall mean any pharmaceutically active agent which (a) [CONFIDENTIAL TREATMENT REQUESTED] and (e) is conceived and reduced to practice as a result of a Research Program by a Party, its Affiliate or its Collaborator at any time during a period commencing on the Effective Date and ending [CONFIDENTIAL TREATMENT REQUESTED] 1.5 "Biological Materials" shall mean [CONFIDENTIAL TREATMENT REQUESTED] 1.6 "Biological Pathway" shall have that meaning as determined by a Decision, made as necessary for the purposes of this Agreement and consistent with the criteria set forth in Section 3.2(r). -3- 9 1.7 "Candidate Gene" shall mean a Novel Gene which is the subject of a Candidate Gene Identification. 1.8 "Candidate Gene Confirmation" shall mean the Decision, as reflected in a Minutes, that a Candidate Gene is Confirmed. 1.9 "Candidate Gene Identification" shall mean the Decision, as reflected in a Minutes, that a Novel Gene affects the pathogenesis of a Disease in Iceland and that the knowledge of such affect is novel. 1.10 "Clinical Candidate" shall mean a Roche Compound or product that Roche, its Affiliate or sublicensee has subjected to formal toxicology and absorption, distribution, metabolism and excretion testing in non-human animals. 1.11 "Collaborator" shall mean, (i) for Roche, a Third Party with whom Roche has agreed jointly to research and/or develop one or more Roche Products who agrees to be bound by the terms and conditions of this Agreement, and (ii) for deCODE, a Third Party with whom deCODE has agreed jointly to research and/or develop one or more deCODE Products who agrees to be bound by the terms and conditions of this Agreement. 1.12 "Combination Product" shall mean: - (a) For a Product other than a Diagnostic Product, a Product containing both (i) at least one pharmaceutically active agent that is a Compound and (ii) one or more pharmaceutically active agents that are not Compounds. (b) For a Diagnostic Product other than a Plasma Diagnostic Product, a Product (i) useful in diagnosis, prognosis, prediction or disease management of a Selected Disease and at least one other disease that is not a Selected Disease, or (ii) containing (1) a component which causes such Combination Product to be a Diagnostic Product, and (2) at least one other component that is able to detect and/or quantify the presence or amount of (A) a gene other than a Disease Gene, or (B) a product of a gene other than a Disease Gene, or (C) a product of a gene that is not a member of the Biological Pathway of which a product of a Disease Gene is a member. (c) For a Plasma Diagnostic Product, a Product containing a component which causes such Product to be a Plasma Diagnostic Product and at least one other component that is able to detect and/or quantify the presence or amount of (i) a product of a gene other than a Disease Gene, or (ii) a product of a gene that is not a member of the Biological Pathway of which a product of a Disease Gene is a member. 1.13 "Compound" shall mean a deCODE Compound or a Roche Compound. -4- 10 1.14 "Confidential Information" shall mean any and all Technical Information that is (i) disclosed by one Party ("Disclosing Party") to the other Party ("Receiving Party") under this Agreement or the Secrecy Agreement between the Parties dated September 5, 1997, and which at the time of disclosure is clearly marked as "Confidential," but not Technical Information which is orally or visually disclosed to a Receiving Party unless such oral or visual disclosure is described or summarized in a writing, marked as "Confidential" and provided to the Receiving Party within forty-five (45) days after such oral or visual disclosure, or (ii) Program Know-How. 1.15 "Confirm" or "Confirmed" shall mean a Decision that a Candidate Gene has been confirmed as affecting the pathogenesis of a Disease. In any event, a demonstration by deCODE [CONFIDENTIAL TREATMENT REQUESTED] shall be the subject of a Decision that a Candidate Gene has been confirmed as affecting the pathogenesis of the Selected Disease. 1.16 "Decision" shall mean a decision pursuant to Section 3.4 and shall be effective as of the date the Minutes reflecting the decision are finalized as provided in Section 3.5. 1.17 "deCODE Compound" shall mean an Antisense Agent or a Gene Therapy Agent. 1.18 "deCODE Generalized Technology" shall mean any Technical Information relating to generalized methods for conducting genomics research and characterizing the function of genes which deCODE or its Affiliates, prior to or during the Research Term, owns or controls (provided that deCODE or its Affiliates has the right to license or otherwise make available such Technical Information to Roche). 1.19 "deCODE Invention" shall mean an Invention conceived and reduced to practice solely by one or more Representatives of deCODE. 1.20 "deCODE Know-How" shall mean (i) any Technical Information, excluding deCODE Generalized Technology, which deCODE or its Affiliates, prior to or during the Research Term, owns or controls (provided that deCODE or its Affiliates has the right to license or otherwise make available such Technical Information to Roche) which relates to the Research Programs or is necessary to make, have made, use, offer for sale, sell or import Roche Products, or (ii) any Program Know-How which deCODE or its Affiliates owns or controls, either solely or jointly with Roche. 1.21 "deCODE Patents" shall mean (i) any Patents, excluding Patents claiming deCODE Generalized Technology, which deCODE or its Affiliates, prior to or during the Research Term, owns or controls (provided that deCODE or its Affiliates has the right -5- 11 to license or otherwise make available such Patents to Roche) which relate to the Research Programs or are necessary to make, have made, use, offer for sale, sell or import Products, or (ii) any Program Patent which deCODE or its Affiliates owns or controls, either solely or jointly with Roche. 1.22 "deCODE Patent Valid Claim" shall mean: (i) a claim of any issued and unexpired deCODE Patent which has not been disclaimed, revoked or held unpatentable, invalid or unenforceable by final decision of a court or other governmental agency of competent jurisdiction, which decision is unappealable or unappealed within the time allowed for appeal, and which claim is otherwise enforceable, or (ii) a claim of a patent application that is a deCODE Patent that has not been on file in a given country with the applicable patent office for more than five (5) years from the earliest date from which the patent application was filed or claims priority in the given country. 1.23 "deCODE Product" shall mean any (i) pharmaceutical product which comprises, in whole or as a component thereof, as its pharmaceutically active agent, a deCODE Compound, or (ii) Abandoned Product, or (iii) Reverted Product. 1.24 "Development Program" shall mean the drug discovery and development activities performed by a Party in accordance with Section 6 to discover and/or develop Products. 1.25 "Diagnostic Product" shall mean any product in the form of a device, compound, kit or service useful for the diagnosis, prognosis, prediction or disease management of a Selected Disease which device, compound, kit or service contains a component which is (a) able to detect and/or quantify the presence or amount of [CONFIDENTIAL TREATMENT REQUESTED] such component being conceived and reduced to practice as a result of a Research Program by a Party, its Affiliate or its Collaborator, at any time during a period commencing on the Effective Date and ending [CONFIDENTIAL TREATMENT REQUESTED] Diagnostic Product shall also mean any product in the form of a device, compound, kit or service [CONFIDENTIAL TREATMENT REQUESTED], such component being conceived and reduced to practice as a result of a Research Program by a Party, its Affiliates or its Collaborator at any time during a period commencing on the Effective Date and ending [CONFIDENTIAL TREATMENT REQUESTED]. -6- 12 1.26 "Direct Gene Expression Agent Type 1" shall mean any pharmaceutically active agent which is (a) [CONFIDENTIAL TREATMENT REQUESTED] and (b) conceived and reduced to practice as a result of a Research Program by a Party, its Affiliate or its Collaborator at any time during a period commencing on the Effective Date and ending [CONFIDENTIAL TREATMENT REQUESTED]. 1.27 "Direct Gene Expression Agent Type 2" shall mean any pharmaceutically active agent which agent is (a) [CONFIDENTIAL TREATMENT REQUESTED] and (b) conceived and reduced to practice as a result of a Research Program by a Party, its Affiliate or its Collaborator at any time during a period commencing on the Effective Date and ending [CONFIDENTIAL TREATMENT REQUESTED] 1.28 "Direct Gene Expression Product Type 1" shall mean any pharmaceutical product which comprises, in whole or as a component thereof, as its pharmaceutically active agent, a Direct Gene Expression Agent Type 1. 1.29 "Direct Gene Expression Product Type 2" shall mean any pharmaceutical product which comprises, in whole or as a component thereof, as its pharmaceutically active agent, a Direct Gene Expression Agent Type 2. 1.30 "Disease Gene" shall mean a Candidate Gene that is the subject of a Candidate Gene Confirmation. 1.31 "Diseases" shall mean the Primary Diseases, Secondary Diseases, and Selected Diseases, collectively. 1.32 "Dollar" or "$" shall mean USA Dollars. 1.33 "Drug Type 1" shall mean any pharmaceutically active agent which (a) [CONFIDENTIAL TREATMENT REQUESTED] and (b) is conceived and reduced to practice as a result of a Research Program by a Party, its Affiliate or its Collaborator at any time during a period commencing on the Effective Date and ending [CONFIDENTIAL TREATMENT REQUESTED]; provided, however, that a Drug Type 1 is not an Antisense Agent, a Gene Therapy Agent, a Direct Gene Expression Agent Type 1 or a Direct Expression Agent Type 2. 1.34 "Drug Type 2" shall mean any pharmaceutically active agent which (a) [CONFIDENTIAL TREATMENT REQUESTED] -7- 13 [CONFIDENTIAL TREATMENT REQUESTED], and (b) is conceived and reduced to practice as a result of a Research Program by a Party, its Affiliate or its Collaborator at any time during a period commencing on the Effective Date and ending [CONFIDENTIAL TREATMENT REQUESTED]; provided, however, that a Drug Type 2 is not an Antisense Agent, a Gene Therapy Agent, a Direct Gene Expression Agent Type 1, a Direct Expression Agent Type 2 or a Drug Type 1. 1.35 "Drug Product Type 1" shall mean any pharmaceutical product which comprises, in whole or as a component thereof, as its pharmaceutically active agent, a Drug Type 1. 1.36 "Drug Product Type 2" shall mean any pharmaceutical product which comprises, in whole or as a component thereof, as its pharmaceutically active agent, a Drug Type 2. 1.37 "Effective Date" shall mean February 1, 1998; provided that the Parties have executed the Equity Agreement on or before February 1, 1998. Execution of the Equity Agreement shall be a condition precedent to this Agreement. 1.38 "Europe" shall mean the United Kingdom, France, Germany, Italy, and Spain. 1.39 "FDA" shall mean the USA Food and Drug Administration, or the successor thereto, or any corresponding foreign registration or regulatory authority. 1.40 "First Commercial Sale" shall mean, with respect to a Product in a country of the Territory, the first commercial sale to a Third Party (other than a sublicensee) by a Party, its Affiliates or sublicensees, as the case may be, of the Product in the country, after obtaining Registration for the Product in the given country or, if for a country where no Registration for the Product is required, the date of first commercial sale of such Product by the Party, its Affiliates or sublicensees to a Third Party (other than a sublicensee) in the country. "First Commercial Sale" shall not mean the sale of a Product for use in a clinical trial or for compassionate use. 1.41 "FTE" shall mean a full time equivalent scientific person year of scientific work on or in direct connection with a Research Program, carried out by a Representative of deCODE. Scientific work on or in direct connection with the Research Programs includes, but is not limited to, experimental laboratory work, recording and writing of results, reviewing literature and references, holding scientific discussions, managing and leading scientific staff and carrying out project management duties. -8- 14 1.42 "FTE Rate" shall mean [CONFIDENTIAL TREATMENT REQUESTED] per FTE. The FTE Rate shall include all personnel, equipment, reagents and all other expenses including support staff and overhead for or associated with an FTE. 1.43 "Gene Therapy Agent" shall mean any pharmaceutically active agent which (a) consists of nucleic acid or a functional analog, derivative or homolog thereof [CONFIDENTIAL TREATMENT REQUESTED], and (b) upon delivery by any means, compensates, either completely or partially, for the genetic defect that underlies the Selected Disease the pathogenesis of which is affected by the Disease Gene, and (c) is conceived and reduced to practice as a result a Research Program by a Party, its Affiliate or its Collaborator at any time during a period commencing on the Effective Date and ending [CONFIDENTIAL TREATMENT REQUESTED]. 1.44 "IND" shall mean an Investigational New Drug application, as defined in the Federal Food, Drug and Cosmetic Act and the regulations promulgated thereunder, conducted or sponsored by Roche, its Affiliates or sublicensees, for initiating in the USA human clinical testing for prevention or treatment of a Selected Disease using a Roche Product, or any corresponding foreign application, registration or certification in [CONFIDENTIAL TREATMENT REQUESTED]. 1.45 "IND Filing" shall mean the filing of an IND based upon which human clinical testing commences in [CONFIDENTIAL TREATMENT REQUESTED]. 1.46 "Invention" shall mean Program Know-How which is conceived or reduced to practice by one or more Representatives of a Party or jointly by Representatives of the Parties as a result of a Research Program. 1.47 "Joint Invention" shall mean an Invention conceived or reduced to practice jointly by Representatives of the Parties. 1.48 "Major Country" shall mean [CONFIDENTIAL TREATMENT REQUESTED]. 1.49 "Major Research Program" shall mean a research program directed to discovering genetic variations that affect the pathogenesis of a Primary Disease and obtaining validated targets useful in drug discovery for the Primary Disease. 1.50 "Minor Research Program" shall mean a research program directed to discovering genetic variations that affect the pathogenesis of a Secondary Disease and obtaining validated targets useful in drug discovery for the Secondary Disease. -9- 15 1.51 "Minutes" shall mean the final minutes of a Steering Committee meeting, as finalized under Section 3.5. 1.52 "NDA" shall mean a New Drug Application or a Product License Application, as the case may be, for a Roche Product, for prevention or treatment of a Selected Disease, filed with the FDA in the USA or any corresponding foreign application, registration or certification in [CONFIDENTIAL TREATMENT REQUESTED]. 1.53 "NDA Filing" shall mean, for a given NDA for a given Roche Product, a communication from the FDA that the NDA for the given product is accepted for review by the FDA in [CONFIDENTIAL TREATMENT REQUESTED], as the case may be. 1.54 "Net Sales" and the related term "Adjusted Gross Sales" shall have the following meanings: - (a) As to Roche: (i) "Adjusted Gross Sales" shall mean, with respect to any Roche Product, the amount of gross sales invoiced by Roche, its Affiliates or sublicensees to Third Parties for such Roche Product, commencing with the First Commercial Sale of such Roche Product, less deductions for the following items which are included in the invoiced amounts and do not exceed reasonable and customary amounts in the country in which such sale occurred: (1) returns (including withdrawals and recalls), (2) rebates (price reductions including Medicaid and similar types of rebates, e.g., chargebacks), (3) volume (quantity) discounts granted at the time of invoicing, (4) sales taxes and other taxes directly linked and included in the gross sales amount, as computed in the Roche's Sales Statistics for the countries concerned. Adjusted Gross Sales shall also include the amount or fair market value of all other consideration received by Roche, its Affiliates or sublicensees with respect to Roche Products, whether such consideration is in cash, payment in kind, exchange or another form. (ii) "Net Sales" shall mean the amount calculated by subtracting from Adjusted Gross Sales a lump sum deduction of [CONFIDENTIAL TREATMENT REQUESTED] of Adjusted Gross Sales for those sales related deductions which are not accounted for on a product-by-product basis (e.g. outward freights, postage, transportation insurance, packing materials for dispatch of goods, custom duties, discounts granted later than at the time of invoicing, cash discounts and other direct expenses). (b) As to deCODE: (i) "Adjusted Gross Sales" shall mean, with respect to any deCODE Product, the amount of gross sales invoiced by deCODE or its Affiliates to -10- 16 Third Parties for such deCODE Product, commencing with the First Commercial Sale of such deCODE Product, less deductions for the following items which are included in the invoiced amounts and do not exceed reasonable and customary amounts in the country in which such sale occurred: (1) returns (including withdrawals and recalls), (2) rebates (price reductions including Medicaid and similar types of rebates, e.g., chargebacks), (3) volume (quantity) discounts granted at the time of invoicing, and (4) sales taxes and other taxes directly linked and included in the gross sales amount. Net Sales shall also include the amount or fair market value of all other consideration received by deCODE or its Affiliates with respect to deCODE Products, whether such consideration is in cash, payment in kind, exchange or another form. (ii) "Net Sales" shall mean the amount calculated by subtracting from Adjusted Gross Sales a lump sum deduction of [CONFIDENTIAL TREATMENT REQUESTED] for those sales related deductions which are not accounted for on a product-by-product basis (e.g. outward freights, postage, transportation insurance, packing materials for dispatch of goods, custom duties, discounts granted later than at the time of invoicing, cash discounts and other direct expenses). (c) In the event the price of a Diagnostic Product (including a Diagnostic Product that becomes an Abandoned Product or a Reverted Product) includes an amount to cover instrument system costs or amortisation recovery under an Instrument System Rental Plan or similar plan, the Net Sales for such Diagnostic Product shall be reduced by [CONFIDENTIAL TREATMENT REQUESTED]of Net Sales. (d) For a Combination Product that is not a Diagnostic Product, the Parties shall meet approximately one (1) year prior to commercial launch of such Combination Product to negotiate in good faith and agree to an appropriate adjustment to Net Sales to reflect the relative significance of each Compound contained in the Combination Product. If, after good faith negotiations (not to exceed ninety (90) days, which can be extended by mutual agreement), the Parties can not agree to an appropriate adjustment, Net Sales shall be equal to Net Sales of the Combination Product multiplied by a fraction, the numerator of which is the reasonable fair market value of the Compound(s) and the denominator of which is the reasonable fair market value of all pharmaceutically active agents contained in the Combination Product. (e) For a Combination Product that is a Diagnostic Product, the Parties shall meet approximately three (3) months prior to commercial launch of such Combination Product to negotiate in good faith and agree to an appropriate adjustment to Net Sales to reflect the relative significance of each component of the Combination Product that causes such Combination Product to be a Diagnostic Product. If, after good faith negotiations (not to exceed thirty (30) days, which can be extended by mutual agreement), the Parties can not agree to an appropriate adjustment, Net Sales shall be equal to Net Sales of the Combination Product multiplied by a fraction, the numerator of which is the reasonable fair market value of the component(s) of said Product which -11- 17 cause said Product to be a Diagnostic Product, and the denominator of which is the reasonable fair market value of the Combination Product. (f) With respect to Products sold in combination with other products by Roche, its Affiliates or sublicensees with respect to Roche Products, and by deCODE or its Affiliates, with respect to deCODE Products, in a capitation or bundled transaction (each, a "Bundled Transaction"), the Parties agree to negotiate in good faith and agree on a reasonable mechanism for fairly calculating Net Sales resulting from such Bundled Transaction to reflect the relative value of the Product to the other products included in the Bundles Transaction. (g) For a Diagnostic Product that is a kit for nucleic acid amplification, the Parties shall meet approximately three (3) months prior to commercial launch of such Diagnostic Product to negotiate in good faith and agree to an appropriate adjustment to Net Sales to reflect the relative significance of each component (e.g., sample preparation, amplification and detection) of the Diagnostic Product. 1.55 "Novel Gene" shall mean a gene [CONFIDENTIAL TREATMENT REQUESTED] 1.56 "Participants" shall mean those persons who enroll to participate in harvesting programs or other studies being conducted as part of a Research Program. 1.57 "Party" shall mean deCODE or Roche and, when used in the plural, shall mean deCODE and Roche. 1.58 "Patents" shall mean all patents and patent applications throughout the Territory, and any extensions, renewals, continuations, continuations-in-part, divisions, patents-of-addition, reissues, reexaminations, registrations, patents of confirmation, patents of importation, and Supplementary Protection Certificates and foreign counterparts thereof. 1.59 "Plasma Diagnostic Product" shall mean a Diagnostic Product derived from Biological Materials. 1.60 "Primary Diseases" shall mean the Diseases listed in Exhibit A, as it may be modified from time to time. 1.61 "Product" shall mean Roche Products and deCODE Products, collectively. 1.62 "Program Know-How" shall mean any and all Technical Information, including any Invention, that is developed or conceived and reduced to practice solely by a Party, or jointly by both Parties, as a result of a Research Program; provided, -12- 18 however, that any Technical Information that is developed or conceived and reduced to practice as a result of a Research Program solely by one or more Representatives of deCODE relating to generalized methods for conducting genomics research and characterizing the function of genes shall be considered deCODE Generalized Technology but not Program Know-How. 1.63 "Program Patents" shall mean any and all Patents claiming an Invention. - 1.64 "Program Patent Valid Claim" shall mean: (i) a claim of any issued and unexpired Program Patent which has not been disclaimed, revoked or held unpatentable, invalid or unenforceable by final decision of a court or other governmental agency of competent jurisdiction, which decision is unappealable or unappealed within the time allowed for appeal, and which claim is otherwise enforceable, or (ii) a claim of a patent application that is a Program Patent that has not been on file in a given country with the applicable patent office for more than [CONFIDENTIAL TREATMENT REQUESTED] from the earliest date from which the patent application was filed or claims priority in the given country. 1.65 "Registration" shall mean, for a given country and a given Product for diagnosing, preventing or treating a Selected Disease, an official approval, resulting from an application for such official approval in the given country filed by Roche, its Affiliate or sublicensee, which is required by the government or health authority of the given country for the Product to be offered for sale in such country, including authorizations as may be required for the production, importation, pricing, reimbursement and sale of such Product in such country, and for subsequent regulatory filings for line extensions and/or additional indications of such Product. 1.66 "Representative of a Party" shall mean an employee of a Party or any other person who is contractually required to assign or grant exclusive rights in and to Program Know-How to a Party. 1.67 "Research Programs" shall mean the Major Research Programs and Minor Research Programs, collectively. A Research Program does not include steps involved in drug discovery and development of Products, including without limitation Development Programs. 1.68 "Research Term" shall mean, subject to Sections 5.12 and 5.13, a five (5) year period commencing on the Effective Date and ending on February 1, 2003, unless earlier terminated as otherwise provided in this Agreement. 1.69 "Reverted Products" shall mean: (a) all Therapeutic Products for a Selected Disease for which deCODE terminates this Agreement pursuant to Section 14.6(a)(i) prior to the first Registration in any Major Country of a Therapeutic Product for such Selected Disease; -13- 19 (b) all Therapeutic Products in a given Major Country for a Selected Disease for which deCODE terminates this Agreement in the Major Country pursuant to Section 14.6(a)(ii) after the first Registration in any Major Country of a Therapeutic Product for such Selected Disease; (c) all Diagnostic Products for a Selected Disease for which deCODE terminates this Agreement pursuant to Section 14.6(b)(i) prior to the first Registration in any Major Country of a Diagnostic Product for such Selected Disease; (d) all Diagnostic Products in a given Major Country for a Selected Disease for which deCODE terminates this Agreement in the Major Country pursuant to Section 14.6(b)(ii) after the first Registration in any Major Country of a Diagnostic Product for such Selected Disease; (e) a given Roche Product in a given country for which deCODE terminates this Agreement pursuant to Section 14.7 after Registration in such country of such Roche Product; (f) all Therapeutic Products for a Selected Disease for which a Validated Target was obtained as of the effective date of termination of this Agreement by deCODE pursuant to Section 14.5(a)(iii)(2); and (g) all Diagnostic Products for diagnosing a Disease that was a Selected Disease as of the effective date of termination of this Agreement by deCODE pursuant to Section 14.5(a)(iii)(2). Notwithstanding the foregoing, a Reverted Product shall not include a Roche Product which comprises a Roche Compound that, at the effective date of such termination, is being marketed, prepared for commercial launch or in clinical development or for which Roche, its Affiliate or sublicensee can document a substantial plan to clinically develop (provided that such Roche Compound is a Clinical Candidate), for an indication in a Selected Disease if Roche, its Affiliate or sublicensee, at the effective date of such termination, is then marketing, preparing for commercial launch, clinically developing, or can document a substantial plan for clinically developing a given product for the same indication; provided, that such given product, at the Effective Date, was not being marketed in any country by Roche, an Affiliate or sublicensee. 1.70 "Roche Compound" shall mean a Direct Gene Expression Agent Type 1, a Direct Gene Expression Agent Type 2, a Drug Type 1, or a Drug Type 2. 1.71 "Roche Invention" shall mean an Invention conceived and reduced to practice solely by one or more Representatives of Roche. -14- 20 1.72 "Roche Know-How" shall mean (i) any Technical Information which Roche or its Affiliates, prior to or during the Research Term, owns or controls (provided that Roche or its Affiliates has the right to license or otherwise make available such Technical Information to deCODE) which relates to the Research Programs or is necessary to make, have made, use, offer for sale, sell or import deCODE Products (excluding [CONFIDENTIAL TREATMENT REQUESTED]), or (ii) any Program Know-How which Roche or its Affiliates owns or controls either solely or jointly with deCODE. 1.73 "Roche Patents" shall mean (i) any Patents which Roche or its Affiliates, prior to or during the Research Term, owns or controls (provided that Roche or its Affiliates has the right to license or otherwise make available such Patents to deCODE) which relate to the Research Programs or are necessary to make, have made, use, offer for sale, sell or import Products (excluding [CONFIDENTIAL TREATMENT REQUESTED] or (ii) any Program Patent which Roche or its Affiliates owns or controls, either solely or jointly with deCODE. 1.74 "Roche Patent Valid Claim" shall mean: (i) a claim of any issued and unexpired Roche Patent which has not been disclaimed, revoked or held unpatentable, invalid or unenforceable by final decision of a court or other governmental agency of competent jurisdiction, which decision is unappealable or unappealed within the time allowed for appeal, and which claim is otherwise enforceable, or (ii) a claim of a patent application that is a Roche Patent that has not been on file in a given country with the applicable patent office for more than [CONFIDENTIAL TREATMENT REQUESTED] from the earliest date from which the patent application was filed or claims priority in the given country 1.75 "Roche Product" shall mean Diagnostic Products and Therapeutic Products, collectively. 1.76 "Royalty Sublicensing Income" shall mean that portion of Sublicensing Income directly attributable to royalties received by deCODE from its Third Party licensees with respect to such Third Party licensees' sales of a given deCODE Product in a given country. 1.77 "Royalty Term" shall mean: (a) As to Roche, for a given Roche Product in a given country in the Territory, a period of time commencing on the First Commercial Sale of the given Roche Product in the given country and ending on the later of: (i) [CONFIDENTIAL TREATMENT REQUESTED] from the date of the First Commercial Sale of such Roche Product in such country, or (ii) the last date on which the making, having made, using, offering for sale, selling or importing of the -15- 21 Roche Product in the given country by Roche, its Affiliates or sublicensees is claimed by a deCODE Patent Valid Claim or a Program Patent Valid Claim. (b) As to deCODE, for a given deCODE Product in a given country in the Territory, a period of time commencing (i) with respect to Net Sales, on the First Commercial Sale of the given deCODE Product in the given country, and (ii) with respect to Sublicensing Income, on the Effective Date, and ending on the later of: (1) [CONFIDENTIAL TREATMENT REQUESTED] from the date of the First Commercial Sale of such deCODE Product in such country, or (2) the last date on which the making, having made, using, offering for sale, selling or importing of the deCODE Product in the given country by deCODE, its Affiliates or sublicensees is claimed by a Roche Patent Valid Claim or a Program Patent Valid Claim. (c) If, in a country in the Territory, the above definition of Royalty Term is unenforceable, then for such country, Royalty Term shall mean the longest term as may be enforceable under the applicable laws of such country, provided that in no event shall the Royalty Term in such country exceed the maximum term above. 1.78 "Secondary Diseases" shall mean the Diseases listed in Exhibit B, as it may be modified from time to time. 1.79 "Selected Disease" shall mean a Primary Disease or a Secondary Disease for which a Candidate Gene is the subject of a Candidate Gene Confirmation. 1.80 "Steering Committee" shall mean the body organized and acting pursuant to Section 3. 1.81 "Sublicensing Income" shall mean all monetary consideration, including, for example, up-front payments, milestones, and royalties, received by deCODE from its Third Party licensees with respect to a given deCODE Product, but excluding any amounts received from Third Party licensees to reimburse deCODE for research and development expenses of deCODE which deCODE can reasonably document. 1.82 "Technical Information" shall mean information, data or know-how (whether patentable or not patentable), including without limitation, ideas, concepts, formulas, manufacture, methods, procedures, designs, compositions of matter, plans, applications, specifications, drawings, techniques, materials (including without limitation biological materials such as Biological Materials, RNA, DNA, DNA fragments, organisms, proteins, polypeptides, plasmids, vectors and the like) compounds, products, processes, research, technical data, apparatus, equipment, samples, inventions, discoveries, and the like, as well as improvements related thereto. 1.83 "Territory" shall mean the entire world -16- 22 1.84 "Therapeutic Products" shall mean any pharmaceutical product which comprises, in whole or as a component thereof, as its pharmaceutically active agent, a Roche Compound. 1.85 "Third Party" shall mean any party other than a Party, or an Affiliate of a Party. 1.86 "USA" shall mean the United States of America. - 1.87 "Validated Target" shall mean a biological molecule which is the subject of a Decision that such biological molecule is [CONFIDENTIAL TREATMENT REQUESTED]. 2. REPRESENTATIONS AND WARRANTIES. 2.1 Representations and Warranties of Both Parties. Each Party represents and warrants to the other Party that, as of the Effective Date: (a) such Party is duly organized and validly existing under the laws of the state or country of its incorporation and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof; and (b) such Party has taken all corporate action necessary to authorize the execution and delivery of this Agreement and the fulfilling of its obligations under this Agreement; and (c) such Party is not aware of any impediment which would inhibit its ability to fulfill the terms and conditions imposed on it by this Agreement; and (d) such Party has disclosed all material information in its possession or control requested by the other Party relating to the subject matter of this Agreement and other material information in its possession or control, which, in its reasonable opinion, would be material to the other Party entering into this Agreement, and to its knowledge such information does not contain any untrue statement of material fact or omit to state a material fact; and (e) such Party, without having conducted a formal investigation, is not aware of any patent rights or other proprietary rights of any Third Party which might be infringed by either Party carrying out its obligations under this Agreement; and (f) such Party has the right to grant the other Party the rights and licenses hereby granted under this Agreement. -17- 23 2.2 Representations of deCODE. deCODE represents and warrants to Roche that: (a) As of the Effective Date, there are no patents or patent applications that deCODE owns or controls in the Territory which could preclude Roche from carrying out its obligations under this Agreement and which deCODE does not have the right to license or otherwise make available to Roche; and (b) all Participants have signed, or will have signed before becoming a Participant, an informed consent form in accordance with the English language translation of an informed consent form in Exhibit C. 3. STEERING COMMITTEE. 3.1 Members. The Parties shall establish a Steering Committee, which shall consist of six (6) members, three (3) members from each Party. Two (2) members from each Party must be both (i) a member of senior management and (ii) a scientist. The initial members of the Steering Committee are set forth on Exhibit D. Members of the Steering Committee may be represented at any meeting by a designee appointed by such member for such meeting. The initial chairperson shall be selected by deCODE and is designated on Exhibit D. The initial chairperson shall serve as chairperson for the first contract year. Thereafter, the chairperson of the Steering Committee for a given contract year shall be selected within thirty (30) days of the beginning of such given contract year on an alternating basis between the Parties, and shall serve as chairperson during such given contract year. The initial secretary shall be selected by Roche and is designated on Exhibit D. The initial secretary shall serve as secretary for the first contract year. Thereafter, the secretary of the Steering Committee for a given contract year shall be selected within thirty (30) days of the beginning of such given contract year by the Party not designating the chairperson for the same given contract year, and shall serve as secretary during such given contract year. Each Party shall be free to change its members, on prior written notice to the other Party. Each Party may, in its discretion, invite non-Committee Representatives of such Party, provided that each Party approves the other Party's invitee(s) in advance. 3.2 Responsibilities. The Steering Committee shall: (a) oversee all Research Programs; (b) evaluate and determine scientific criteria to be implemented under all Research Programs; -18- 24 (c) establish a mechanism by which the Parties will exchange deCODE Know-How and Roche Know-How, including Program Know-How, and oversee the exchange of such Know-How; (d) commencing on the Effective Date, discuss and prepare an Annual Research Plan for each Research Program for the first year of the Research Term and, prior to thirty (30) days after the Effective Date, finalize an Annual Research Plan for each Research Program for the first year of the Research Term and have each such Annual Research Plan signed and dated by a representative of each Party on the Steering Committee; (e) not less than three (3) months prior to each anniversary of the Effective Date during the Research Term, discuss and prepare an Annual Research Plan for each ongoing Research Program, and, prior to each anniversary of the Effective Date during the Research Term, finalize an Annual Research Plan for each Research Program for the next year of the Research Term and have each such Annual Research Plan signed and dated by a representative of each Party on the Steering Committee; (f) decide upon approval of proposed amendments or modifications to any Annual Research Plan; (g) evaluate data from all Research Programs; (h) coordinate the activities of the Parties, and review and evaluate progress, under the Research Programs, provided that the Steering Committee shall not have authority to make any determination that either Party is in breach of its obligations under the Research Programs; (i) discuss, prepare and finalize an Annual Research Plan for a Research Program for any new Primary Disease or new Secondary Disease; (j) decide about: (1) whether any Novel Gene is a Candidate Gene, and (2) whether any Candidate Gene is Confirmed; (k) monitor qualifications for Representatives of deCODE who will perform deCODE's research obligations under the Research Programs contemplated under this Agreement; (l) decide if there is a scientific need for plasma samples [CONFIDENTIAL TREATMENT REQUESTED] each Research Program; -19- 25 (m) from time to time, if necessary, adjust the fee for plasma samples under Section 5.9 to reflect the actual costs and expenses incurred by deCODE in connection with providing such plasma samples to Roche; (n) decide if there may be a scientific need for cell lines and/or tissue samples for each Disease and, if so, determine from time to time the number of cell lines and/or tissue samples reasonably required for each Disease, which shall not be more than from [CONFIDENTIAL TREATMENT REQUESTED] Participants with a given Disease and [CONFIDENTIAL TREATMENT REQUESTED] Participants acting as control subjects with respect to the given Disease; (o) if cell lines and/or tissue samples are determined to be required from a Research Program by the Steering Committee, [CONFIDENTIAL TREATMENT REQUESTED]; (p) decide when a Disease has been mapped to a chromosomal location and whether a mapping reveals that what was considered one (1) Disease by the Parties as of the Effective Date is, instead, more than one (1) disease; (q) decide whether any Validated Targets have been obtained; (r) as and when necessary for purposes of this Agreement, decide whether: [CONFIDENTIAL TREATMENT REQUESTED]; and (s) perform any other activities related to the Research Programs as the Parties may request from time to time, other than deciding that a Party is in breach of an obligation under this Agreement. 3.3 Meetings. During the Research Term and until one (1) year after the end of the Research Term the Steering Committee shall meet at least twice every contract year, and more frequently as the Parties deem appropriate, on such dates, places and at such times as the Parties shall agree. Thereafter, during the term of this Agreement, the Steering Committee shall meet on an as needed basis on such dates, places and at such times as the Parties shall agree. The meetings shall alternate between the offices of the Parties unless the Parties otherwise agree. The chairperson shall, if practicable, send notice of all meetings to all members of the Steering Committee no less than twenty (20) days before the date of the meeting. The Steering Committee may also convene -20- 26 or be polled or consulted from time to time by means of telecommunications, video conferences or correspondence, as deemed necessary or appropriate; provided, however, that the Steering Committee meet in person at least twice every contract year during the Research Term and until one (1) year after the end of the Research Term. 3.4 Decisions. (a) The Steering Committee may decide on any subject matter that is subject to the Steering Committee's decision-making authority. All decisions of the Steering Committee shall be made by consensus of the members (or their designees) present at any meeting. Such consensus shall require that at least two (2) members of each Party are present at such meeting. (b) In the event that consensus cannot be reached by the Steering Committee after good faith discussions with respect to a matter that is subject to its decision-making authority, then (except as set forth in Section 8.2(a)(i)), the matter shall be referred for further review and resolution to the President of Global Pharma Research at Roche, or such other similar position designated by Roche from time to time, and the Chief Executive Officer at deCODE, or such other similar position designated by deCODE from time to time (such officers, collectively, the "Executive Officers"). The Executive Officers of each Party shall use reasonable efforts to resolve the matter within thirty (30) days after the matter is referred to them. If the Executive Officers cannot resolve the matter within thirty (30) days, then: (i) if the matter pertains to relations with Participants, or research sites, consultants, investigators or vendors in Iceland, or any governmental authority in Iceland, the matter shall be decided by the Executive Officer of deCODE in good faith, giving appropriate consideration to the reasonable business and scientific concerns of Roche; and (ii) if the matter pertains to any other subject, the matter shall be decided by the Executive Officer of Roche in good faith, giving appropriate consideration to the reasonable business and scientific concerns of deCODE. (c) No decision, either by the Steering Committee or an Executive Officer, on any matter that is subject to the Steering Committee's decision-making authority, may have the effect of materially increasing the economic burdens or the research responsibilities of a Party without the prior written approval of such Party. 3.5 Minutes. Promptly after each Steering Committee meeting, the secretary of the Steering Committee shall prepare and distribute to the chairperson draft minutes of the meeting, which shall provide a description in reasonable detail of the discussions had at the meeting and a list of any actions, decisions or determinations approved by the Steering Committee and a list of any issues to be resolved by the Executive Officers. The chairperson may then comment on the draft minutes. The secretary shall discuss with the chairperson any comments of the chairperson and circulate a final draft of the minutes to all members of the Steering Committee within fifteen (15) days of the -21- 27 meeting. The members of the Steering Committee shall then have fifteen (15) days after circulation of the final draft minutes to provide their comments thereon to the secretary of the Steering Committee. If a member of the Steering Committee does not comment to the secretary on the draft minutes within the fifteen (15) day period after circulation, said member is deemed to have agreed to the final draft minutes. Upon the expiration of the fifteen (15) day period after circulation, the secretary and the chairperson of the Steering Committee shall have an additional fifteen (15) days to discuss the other members' comments and finalize the minutes. The secretary and chairperson shall each sign and date the final minutes. The signature of the chairperson and the secretary on the final minutes shall indicate each Party's assent to the minutes. With the sole exception of specific items of the meeting minutes to which the chairperson and the secretary cannot agree and which are escalated as provided below, final minutes of all Steering Committee meetings shall be finalized no later than forty five (45) days after the meeting to which the minutes pertain. If at any time during the preparation and finalization of the Steering Committee meeting minutes the secretary and the chairperson of the committee do not agree on any issue with respect to the minutes, this issue shall be resolved by the escalation process provided in Section 3.4(b). The decision resulting from the escalation process shall be recorded by the secretary of the Steering Committee in an amended finalized minutes for said meeting. All other issues in the minutes which are not subject to such escalation shall be finalized within the above-mention forty-five (45) days. 3.6 Expenses. Each Party shall be responsible for all travel and related costs and expenses for its members and non-Committee invitees to attend meetings of, and otherwise participate on, the Steering Committee. 4. DISCLOSURE OF KNOW-HOW 4.1 Disclosure of deCODE Know-How. Promptly following the Effective Date, deCODE shall disclose to Roche all existing deCODE Know-How and thereafter. deCODE shall disclose to Roche on an ongoing basis during the Research Term all additional deCODE Know-How . 4.2 Disclosure of Roche Know-How. Promptly following the Effective Date, Roche shall disclose to deCODE such Roche Know-How and thereafter Roche shall disclose to deCODE on an ongoing basis during the Research Term all additional Roche Know-How. 4.3 Mechanism for Exchange of Know-How. The Steering Committee shall establish a mechanism by which the Parties will exchange deCODE Know-How and Roche Know-How, including Program Know-How, in accordance with this Agreement, and oversee the exchange of such Know-How. -22- 28 5. COLLABORATIVE RESEARCH PROGRAM. 5.1 Exclusivity. Nothing in this Agreement shall prohibit deCODE or its Affiliates from using Program Know-How relating to Disease Genes, Validated Targets or members of a Biological Pathway of which a Disease Gene is a member for: (i) carrying out research relating to generalized methods for conducting genomic research and relating to generalized methods for characterizing the function of genes, or (ii) making, having made, using, offering for sale, selling or importing deCODE Products. However, other than as provided in the preceding sentence, for a Selected Disease, during the period commencing on the Effective Date and ending [CONFIDENTIAL TREATMENT REQUESTED], neither deCODE nor its Affiliates shall use, for the benefit of a Third Party, without the prior written consent of Roche, Program Know-How relating to [CONFIDENTIAL TREATMENT REQUESTED]. In not event shall Roche unreasonably withhold such consent. 5.2 Diseases. (a) Primary Diseases. The Primary Diseases are set forth in Exhibit A, as it may be amended from time to time. Each Primary Disease shall be the subject of an independent and separate Major Research Program. For a period commencing on the Effective Date and ending [CONFIDENTIAL TREATMENT REQUESTED], Roche shall, at all times, fund [CONFIDENTIAL TREATMENT REQUESTED] to be allocated among the Primary Diseases as set forth in this Agreement or as the Parties may otherwise agree. (b) Secondary Diseases. The Secondary Diseases are set forth in Exhibit B, as it may be amended from time to time. Each Secondary Disease shall be the subject of an independent and separate Minor Research Program. For a period commencing on the Effective Date and ending [CONFIDENTIAL TREATMENT REQUESTED], Roche shall, at all times, fund [CONFIDENTIAL TREATMENT REQUESTED] to be allocated among the Secondary Diseases as set forth in this Agreement or as the Parties may otherwise agree. (c) Making a Disease a Selected Disease. - (i) For a given Primary or Secondary Disease, during the Research Term, should a Party in good faith believe that it has identified a Novel Gene with respect to a Disease, such Party shall promptly provide written notice to the Steering Committee identifying the Novel Gene, the Disease and the basis for such Party's belief. The Steering Committee shall, as promptly as practicable after receipt of such notification, meet to discuss whether such Novel Gene is, in the opinion of the -23- 29 Steering Committee, a Candidate Gene with respect to such Disease. The Steering Committee shall record its Decision in the Minutes of such meeting pursuant to Section 3.5. If the Steering Committee decides that the Novel Gene is a Candidate Gene with respect to such Disease, the Minutes shall identify the Disease and a detailed description of the Candidate Gene and the basis for the Steering Committee Decision, and such Minutes shall be considered a Candidate Gene Identification and such Novel Gene shall be considered a Candidate Gene. If the Steering Committee determines that such Novel Gene is not a Candidate Gene with respect to such Disease, the Minutes shall identify the Disease and a detailed description of the Novel Gene and the basis for the Steering Committee Decision, and such Minutes shall not be considered a Candidate Gene Identification and such Novel Gene shall not be considered a Candidate Gene. (ii) For a given Candidate Gene, should a Party in good faith believe that such Candidate Gene has been or should be considered confirmed as affecting the pathogenesis of a Disease, such Party shall promptly provide written notice to the Steering Committee identifying such Candidate Gene, the Disease and the basis for such Party's belief. The Steering Committee shall, as promptly as practicable after receipt of such notification, meet to discuss whether such Candidate Gene is in the opinion of the Steering Committee, Confirmed. The Steering Committee shall record its Decision in the Minutes of such meeting pursuant to Section 3.5. If the Steering Committee makes a Decision that such Candidate Gene is Confirmed, the Minutes shall identify the Disease and a detailed description of the Candidate Gene and the basis for the Steering Committee Decision, and such Minutes shall be considered a Candidate Gene Confirmation, and such Candidate Gene shall be considered a Disease Gene, and the Disease shall be considered a Selected Disease. If the Steering Committee makes a Decision that such Candidate Gene is not Confirmed, the Minutes shall identify the Disease and a detailed description of the Candidate Gene and the basis for the Steering Committee Decision, and such Minutes shall not be considered a Candidate Gene Confirmation, and the Candidate Gene shall not be considered a Disease Gene. (d) Abandonment for a Disease. Subject to the terms and conditions of this Agreement, commencing [CONFIDENTIAL TREATMENT REQUESTED] after the Effective Date, at any time during the Research Term, Roche may, for any reason, terminate this Agreement with respect to all Roche Products for a Disease other than a Selected Disease by giving [CONFIDENTIAL TREATMENT REQUESTED] prior written notice to deCODE. In such event, the effective date of termination shall be the date [CONFIDENTIAL TREATMENT REQUESTED] after Roche provides such written notice to deCODE. Following a termination of this Agreement by Roche with respect to all Roche Products for a Disease other than a Selected Disease pursuant to this Section 5.2(d), all licenses granted by deCODE to Roche under Section 7 and any other applicable Section of this Agreement shall terminate with respect to Roche Products for such Disease. In addition, at deCODE's request, within sixty (60) days after the date of such termination, Roche shall transmit to deCODE all reports, information and data in the possession or control of Roche, its Affiliates or its sublicensees for such Disease generated or developed as result of the relevant Research Program (provided that Roche -24- 30 has the right to make available such information to deCODE). After the effective date of such termination, in no event shall Roche, its Affiliates or sublicensees make, have made, use, offer for sale, sell or import Roche Products for such Disease. If Roche terminates this Agreement pursuant to this Section 5.2(d) with respect to Roche Products for a Disease, such Disease shall no longer be considered a Disease under this Agreement. (e) Switching Diseases. (i) Making a Secondary Disease a Primary Disease. Subject to the terms and conditions of this Agreement, Roche may, at any time during the Research Term, provide written notice to deCODE that Roche wishes to make a Secondary Disease a Primary Disease. Upon deCODE's receiving such notice, the Steering Committee shall, within sixty (60) days of such notice discuss, prepare and finalize an Annual Research Plan for the new Primary Disease. deCODE shall, within thirty (30) days of finalization by the Steering Committee of such Annual Research Plan, commence a separate and independent Major Research Program for such new Primary Disease and conduct such Major Research Program as described in such Annual Research Plan. (ii) Making a Primary Disease a Secondary Disease. Subject to the terms and conditions of this Agreement, Roche may, at any time during the Research Term, provide written notice to deCODE that Roche wishes to make a Primary Disease a Secondary Disease. Upon deCODE's receiving such notice, the Steering Committee shall, within sixty (60) days of such notice discuss, prepare and finalize an Annual Research Plan for the new Secondary Disease. deCODE shall, within thirty (30) days of finalization by the Steering Committee of such Annual Research Plan, commence a separate and independent Minor Research Program for such new Secondary Disease and conduct such Minor Research Program as described in such Annual Research Plan. (f) Adding a New Disease. Roche may, at any time during the Research Term, request in writing that the Parties discuss the selection of a new disease to be a Primary Disease or Secondary Disease. The parties shall then discuss whether or not to conduct a Research Program for such new disease. In the event that the Parties agree to conduct a Research Program for such new disease (a "New Disease"), such New Disease shall be deemed to be a Primary Disease or a Secondary Disease, as the case may be. The Steering Committee shall, within sixty (60) days thereafter, discuss, prepare and finalize an Annual Research Plan for such New Disease. deCODE shall, within thirty (30) days of finalization by the Steering Committee of such Annual Research Plan, commence a Major Research Program or a Minor Research Program, as the case may be, for such New Disease and conduct such Research Program as described in such Annual Research Plan. Nothing in this Section 5.2(f) shall obligate either Party to agree to any New Diseases. -25- 31 5.3 Research Programs. (a) Scope. (i) Major Research Programs. (1) Each Major Research Program shall have as its subject an independent and separate Primary Disease. For each Major Research Program, deCODE shall conduct, at its cost except as provided in Section 5.4(a), those activities that are assigned to deCODE in the Annual Research Plan for such Major Research Program. Unless otherwise mutually agreed in writing by Roche and deCODE, deCODE shall assign [CONFIDENTIAL TREATMENT REQUESTED] per Major Research Program per contract year during the Research Term. (2) For a period commencing on the Effective Date and ending [CONFIDENTIAL TREATMENT REQUESTED], there shall, at all times, be [CONFIDENTIAL TREATMENT REQUESTED] independent and separate Major Research Programs. (ii) Minor Research Programs. (1) During the Research Term, the Parties shall undertake each Minor Research Program to maintain sufficient Technical Information related to the Secondary Disease that is the subject of such Minor Research Program so that such Secondary Disease could become the subject of a Major Research Program within ninety (90) days of notice from Roche of its wish to make such Secondary Disease a Primary Disease. For each Minor Research Program, deCODE shall conduct, at its cost except as provided in Section 5.4(b), those activities that are assigned to deCODE in the Annual Research Plan for such Minor Research Program. Unless otherwise mutually agreed in writing by Roche and deCODE, deCODE shall assign [CONFIDENTIAL TREATMENT REQUESTED] per Minor Research Program per contract year during the Research Term. (2) For a period commencing on the Effective Date and ending [CONFIDENTIAL TREATMENT REQUESTED], there shall, at all times, be [CONFIDENTIAL TREATMENT REQUESTED] independent and separate Minor Research Programs. At any time during the Research Term, Roche shall not be required to provide funding for more than [CONFIDENTIAL TREATMENT REQUESTED] per contract year for all Minor Research Programs. (b) Oversight. The Steering Committee shall oversee each Research Program. (c) Annual Research Plan. For the first year of the Research Term, commencing on the Effective Date, the Steering Committee will discuss and prepare an Annual Research Plan for each Research Program and will finalize an Annual Research Plan for each Research Program on or prior to thirty (30) days after the Effective Date. -26- 32 Thereafter, during the Research Term, the Steering Committee shall (i) commencing not less than three (3) months prior to each anniversary of the Effective Date, discuss and prepare an Annual Research Plan for each Research Program for the upcoming contract year, and (ii) prior to each anniversary of the Effective Date during the Research Term, finalize an Annual Research Plan for each Research Program for the upcoming year of the Research Term. Each Annual Research Plan may be amended from time to time upon Steering Committee approval. Each Annual Research Plan, and any amendment thereto, shall be signed and dated by a representative of each Party on the Steering Committee. (d) FTE Rate Adjustment. For a period commencing on the Effective Date and until [CONFIDENTIAL TREATMENT REQUESTED], the FTE Rate shall be [CONFIDENTIAL TREATMENT REQUESTED]. Beginning on February 1, 2001, the FTE Rate shall be adjusted at the beginning of each contract year during the Research Term. The adjustment for the payments due on [CONFIDENTIAL TREATMENT REQUESTED] under Section 5.4 shall reflect the average of: (i) the difference between December [CONFIDENTIAL TREATMENT REQUESTED] and December 1997 in the Consumer Price Index for All Urban Consumers ("CPI-U") for All Items as reported in the CPI Detailed Report published by the U.S. Department of Labor Bureau of Labor Statistics, and (ii) the difference between December [CONFIDENTIAL TREATMENT REQUESTED] and December 1997 in the Product Price Index ("PPI") for All Products as reported in the PPI Detailed Report published by the U.S. Department of Labor Bureau of Labor Statistics. The adjustment for the payments due on [CONFIDENTIAL TREATMENT REQUESTED] under Section 5.4 shall reflect the average difference between the CPI-U between December [CONFIDENTIAL TREATMENT REQUESTED] and December [CONFIDENTIAL TREATMENT REQUESTED] and the PPI between December [CONFIDENTIAL TREATMENT REQUESTED] and December [CONFIDENTIAL TREATMENT REQUESTED]. With respect to any additional contract year during the Research Term, the adjustment to the FTE Rate shall be made in like manner. (e) Use of FTEs. The Parties acknowledge that deCODE's utilization of Representatives of deCODE during the course of each Research Program may fluctuate during the Research Term and that deCODE's obligation to allocate a certain number of FTEs to a Research Program, and satisfaction of such obligation, will be based on such allocation calculated over the course of a given year of the Research Term. 5.4 Research Funding. (a) Major Research Programs. Subject to the terms and conditions of this Agreement, for each Major Research Program then in effect on the relevant due date, Roche shall pay to deCODE the following amounts, which shall be due and payable as follows: -27- 33 [CONFIDENTIAL TREATMENT REQUESTED] -28- 34 [CONFIDENTIAL TREATMENT REQUESTED] -29- 35 (b) Minor Research Programs. Subject to the terms and conditions of this Agreement, for each Minor Research Program then in effect on the relevant due date, Roche shall pay to deCODE the following amounts, which shall be due and payable as follows: [CONFIDENTIAL TREATMENT REQUESTED] -30- 36 [CONFIDENTIAL TREATMENT REQUESTED] -31- 37 [CONFIDENTIAL TREATMENT REQUESTED] (c) Adjustment to Amount of Payment. The Parties acknowledge and agree that the amount of each quarterly payment set forth in Sections 5.4(a) and 5.4(b) are determined based on [CONFIDENTIAL TREATMENT REQUESTED] of the number of FTEs to be allocated to such Research Program by deCODE for an contract year [CONFIDENTIAL TREATMENT REQUESTED], multiplied by the FTE Rate. (d) Other Expenses. Subject to Sections 5.4(a) and 5.4(b), each Party shall be - responsible for its own costs and expenses related to each Research Program. (e) Method of Payment. Payments under this Section 5.4 shall be made by Roche to deCODE by wire transfer to: State Street Bank and Trust Co. 225 Franklin Street Boston, MA 02110-2804 Account No. 94262524 ABA No. 011000028 or such other account as deCODE may, from time to time, designate to Roche in writing. (f) FTE Support. At any time during the Research Term, Roche shall not be required to provide funding for more than [CONFIDENTIAL TREATMENT REQUESTED] per contract year for all Major Research Programs. At any time during the Research Term, Roche shall not be required to provide funding for more than [CONFIDENTIAL TREATMENT REQUESTED] per contract year for all Minor Research Programs. 5.5 Use of Funds. deCODE will use funding provided by Roche under this Section 5 only in support of the Research Programs. deCODE will not use any Third Party funding in direct support of a Research Program. The use of any Third Party funding by deCODE in indirect support of a Research Program shall not adversely impact Roche's rights and licenses under this Agreement. 5.6 Roche Review Right. (a) Within thirty (30) days following the end of each quarter of the Research Term, deCODE shall prepare and submit to Roche a statement setting forth for each Research Program the number of deCODE scientists who actually worked on -32- 38 such Research Program during the previous quarter and the portion of an FTE that each such deCODE scientist worked on such Research Program. (b) deCODE shall keep full, true and accurate books of account containing all information necessary to determine the correctness of the number of deCODE scientists who actually worked on any Research Program during any period of the Research Term and the portion of an FTE that each such deCODE scientist worked on any such Research Program. Such books of account shall be kept at deCODE's principal place of business. Not more than once per contract year during the Research Term, Roche or its authorized independent public accountant shall have the right to engage deCODE's independent public accountant, at reasonable times and upon reasonable notice, to examine on deCODE's premises, such records of deCODE. Results of any such examination shall be made available to both Parties. Roche shall bear the cost of such audit, unless such audit indicates an overstatement of the number of FTEs that worked on any Research Program by five percent (5%) or more, in which event deCODE shall bear the costs of such audit. 5.7 Conduct. (a) Each Party. Each Party shall for each Research Program: (i) conduct such Research Program as described in each Annual Research Plan for such Research Program; (ii) use reasonable diligence to (1) perform the activities assigned to such Party under the Annual Research Plan for such Research Program and (2) complete such activities on a timely basis; (iii) conduct such Research Program in good scientific manner, and in compliance in all material respects with all requirements of applicable laws, rules and regulations, and all other requirements of any applicable good laboratory practices to attempt to achieve its objectives efficiently and expeditiously; (iv) within thirty (30) days following the end of each calendar quarter during the Research Term, furnish the other Party with written reports summarizing (1) all scientific work performed by such Party and (2) Program Know-How developed by such Party (including without limitation a summary of Inventions and results and data generated), in the conduct of such Research Program during such calendar quarter; (v) within sixty (60) days after the end of a given Research Program or, as otherwise requested by the Steering Committee, furnish to the other Party a detailed written report relating to (1) all scientific work performed by such Party and (2) Program Know-How developed by such Party (including without limitation a -33- 39 summary of Inventions and results and data generated), in the conduct of such Research Program during such Research Program; (vi) promptly disclose Inventions to the other Party in accordance with Section 10; and (vii) during the Research Term, allow Representatives of the other Party, during normal business hours and with reasonable frequency, to visit the offices and laboratories of such Party where such Research Program is being conducted, and consult informally, during such visits or by telephone, with such Party's Representatives performing scientific work on or in direct connection with such Research Program; provided, however, that (1) such Representatives of the other Party are under an agreement binding such Representatives to protect Confidential Information to at least the same extent or greater as is required of such other Party under this Agreement and (2) the Party allowing any such visit approves in writing prior to such visit the other Party's Representatives, which approval shall not be unreasonably withheld. Any such visit shall not unreasonably interrupt the operations of the Party that is visited. (b) Of Roche. To the extent that validation of a target is not part of an Annual Research Plan for a Selected Disease, Roche shall use reasonable efforts to obtain a Validated Target for such Selected Disease. 5.8 Records. (a) During the Research Term and for each Research Program, deCODE and Roche each shall maintain records in sufficient detail and in such good scientific manner as to, in all material aspects, completely and accurately reflect all scientific work performed and results achieved in the conduct of such Research Program (including all Inventions and results and data generated in the conduct of such Research Program). Such records shall be maintained in separate, bound laboratory notebooks for each Research Program. The Parties shall maintain such records in a form required under all applicable laws and regulations of the Major Countries. (b) During the Research Term and for each Research Program, deCODE and Roche each shall have the right, during normal business hours and upon reasonable notice, and subject to such reasonable procedures as the other Party may require, to inspect all such records of the other Party relating to the Research Programs. deCODE and Roche each shall maintain such records of the other Party contained therein as Confidential Information in accordance with Section 13 and shall not use such records except to the extent otherwise permitted by this Agreement. 5.9 Plasma Samples. deCODE shall (i) harvest plasma samples from Participants and (ii) preserve - such harvested plasma samples. The Steering Committee shall determine if there is a scientific need for plasma samples [CONFIDENTIAL TREATMENT REQUESTED] -34- 40 [CONFIDENTIAL TREATMENT REQUESTED]. If the Steering Committee determines that there is a scientific need for plasma samples [CONFIDENTIAL TREATMENT REQUESTED] 5.10 Cell Lines and Tissue Samples. If the Steering Committee determines that there may be a - scientific need for cell lines and/or tissue samples for any Disease, [CONFIDENTIAL TREATMENT REQUESTED] 5.11 Biological Materials Transfer. (a) For any Biological Material, deCODE shall provide Roche with all related deCODE Know-How and shall inform Roche of any hazards or precautions which need to be taken with respect to the Biological Material that deCODE is aware of, or becomes aware of, during the term of this Agreement. deCODE shall properly label, package, and transport the Biological Material in accordance with all applicable laws and regulations and as reasonably requested by Roche. Nothing herein shall be construed as giving Roche any title or ownership to any Biological Materials. Roche may not use any Biological Material except in the conduct of a Research Program or a Development Program without the prior written consent of deCODE. Roche shall not supply any Biological Material to any Third Party, other than Collaborators, without the prior written consent of deCODE. In no event shall Roche use any Biological Materials to harvest DNA. Upon deCODE's written request during the Research Term or one (1) year thereafter, Roche shall destroy all unused Biological Materials. (b) THE BIOLOGICAL MATERIALS ARE PROVIDED "AS IS" AND WITHOUT ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, -35- 41 INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY PARTICULAR PURPOSE OR ANY WARRANTY THAT THE USE OF THE BIOLOGICAL MATERIALS WILL NOT INFRINGE OR VIOLATE ANY PATENT OR OTHER PROPRIETARY RIGHTS OF ANY THIRD PARTY. 5.12 Research Term. (a) End of Research Term. Subject to Sections 5.12(b), 5.12(c), 5.12(d), 5.12(e) and 5.13, the Research Term shall end on February 1, 2003. Subject to Section 5.13, at the end of the Research Term, any Disease that was the subject of an ongoing Research Program shall no longer be considered a Disease provided such Disease is not otherwise a Selected Disease. (b) Continuation. If Roche wishes to maintain [CONFIDENTIAL TREATMENT REQUESTED] independent and separate Major Research Programs for [CONFIDENTIAL TREATMENT REQUESTED] different Primary Diseases for the contract year commencing [CONFIDENTIAL TREATMENT REQUESTED], then Roche shall notify deCODE in writing no later than [CONFIDENTIAL TREATMENT REQUESTED] of Roche's intention to continue the Research Term for the one (1) year period commencing [CONFIDENTIAL TREATMENT REQUESTED]. If so continued, and if Roche wishes to maintain [CONFIDENTIAL TREATMENT REQUESTED] independent and separate Major Research Programs for [CONFIDENTIAL TREATMENT REQUESTED] different Primary Diseases for the contract year commencing [CONFIDENTIAL TREATMENT REQUESTED], then Roche shall notify deCODE in writing no later than [CONFIDENTIAL TREATMENT REQUESTED] of Roche's intention to continue the Research Term for the one (1) year period commencing [CONFIDENTIAL TREATMENT REQUESTED]. In any such notice, Roche shall list all Diseases for which Roche, at that time, is then interested in maintaining Major Research Programs and Minor Research Programs. The Research Term shall continue for such one (1) year period commencing [CONFIDENTIAL TREATMENT REQUESTED] or [CONFIDENTIAL TREATMENT REQUESTED], as the case may be, provided that Roche maintains [CONFIDENTIAL TREATMENT REQUESTED] independent and separate Major Research Programs for [CONFIDENTIAL TREATMENT REQUESTED] different Primary Diseases during each such year. In the event that any Primary Disease becomes a Selected Disease during any such year, Roche shall continue to fund [CONFIDENTIAL TREATMENT REQUESTED] FTEs during such year, which shall be allocated to the remaining Major Research Programs as the parties may agree. If Roche does not send a notice pursuant to this Section 5.12(b) by [CONFIDENTIAL TREATMENT REQUESTED], or if the Research Term is not otherwise continued pursuant to Section 5.12(c), then the Research Term shall end on [CONFIDENTIAL TREATMENT REQUESTED]. If Roche does not send a notice pursuant to this Section 5.12(b) by [CONFIDENTIAL TREATMENT REQUESTED], or if the Research Term is not otherwise continued pursuant to Section 5.12(c), then the [CONFIDENTIAL TREATMENT REQUESTED]. (c) Mutual Continuation. If Roche wishes to maintain less than [CONFIDENTIAL TREATMENT REQUESTED], but at least [CONFIDENTIAL TREATMENT REQUESTED], independent and separate Major Research Programs for less than [CONFIDENTIAL TREATMENT REQUESTED], but at least [CONFIDENTIAL TREATMENT REQUESTED], different Primary Diseases for the contract year commencing [CONFIDENTIAL TREATMENT REQUESTED], then Roche shall notify deCODE in writing no later than [CONFIDENTIAL TREATMENT REQUESTED] of Roche's desire to continue the Research Term for the one (1) year period commencing [CONFIDENTIAL TREATMENT REQUESTED]. If so continued or if continued for the contract year -36- 42 commencing [CONFIDENTIAL TREATMENT REQUESTED] pursuant to Section 5.12(b), and if Roche wishes to maintain less than [CONFIDENTIAL TREATMENT REQUESTED], but at least [CONFIDENTIAL TREATMENT REQUESTED], independent and separate Major Research Programs for less than [CONFIDENTIAL TREATMENT REQUESTED], but at least [CONFIDENTIAL TREATMENT REQUESTED], different Primary Diseases for the contract year commencing [CONFIDENTIAL TREATMENT REQUESTED], then Roche shall notify deCODE in writing no later than [CONFIDENTIAL TREATMENT REQUESTED] of Roche's desire to continue the Research Term for the one (1) year period commencing [CONFIDENTIAL TREATMENT REQUESTED]. In any such notice, Roche shall list all Diseases for which Roche, at that time, is then interested in maintaining Major Research Programs and Minor Research Programs. Upon consent of deCODE, the Research Term shall continue for such one (1) year period commencing [CONFIDENTIAL TREATMENT REQUESTED] or [CONFIDENTIAL TREATMENT REQUESTED], as the case may be, provided that Roche maintains such number of independent and separate Major Research Programs for such number of different Primary Diseases as the Parties have initially agreed upon during each such year. In the event that any Primary Disease becomes a Selected Disease during any such year, Roche shall continue to fund the same number of FTEs initially agreed upon by the parties during such year, which shall be allocated to the remaining Major Research Programs as the parties may agree. If Roche does not send a notice pursuant to this Section 5.12(c) by [CONFIDENTIAL TREATMENT REQUESTED], or if the Research Term is not otherwise continued pursuant to Section 5.12(b), then the Research Term shall end on [CONFIDENTIAL TREATMENT REQUESTED]. If Roche does not send a notice pursuant to this Section 5.12(c) by [CONFIDENTIAL TREATMENT REQUESTED], or if the Research Term is not otherwise continued pursuant to Section 5.12(b), then the Research Term shall end on [CONFIDENTIAL TREATMENT REQUESTED]. (d) Funding and FTE Commitment during Continuation Years. The level of funding provided by Roche to deCODE under Section 5.4 and the number of FTEs provided by deCODE under Section 5.3 for each such Research Program shall remain unchanged by any continuation of the Research Term under Section 5.12(b) or 5.12(c) (except for adjustments to reflect any adjustments to the FTE Rate pursuant to Section 5.3(d)), unless otherwise agreed in writing by the Parties. (e) Extensions. Provided the Research Term has continued under Sections 5.12(b) and/or (c) until [CONFIDENTIAL TREATMENT REQUESTED], the Parties may mutually agree to extend the Research Term beyond [CONFIDENTIAL TREATMENT REQUESTED]for such number of Diseases, and on such terms, as the Parties may mutually agree. In the event that Roche is interested in such an extension, Roche shall so notify deCODE in writing no later than [CONFIDENTIAL TREATMENT REQUESTED]. The level of funding to be provided by Roche to deCODE, the number of FTEs to be provided by deCODE shall be determined by the Parties at such time of any such mutual agreement of extension. Such extensions shall be deemed to be included in the Research Term for all purposes under this Agreement except as certain terms may be modified by the mutual agreement of the Parties. 5.13 Post-Research Term Developments Proposal. (a) After the Research Term, deCODE shall have no further obligations to conduct research activities. However, deCODE shall advise Roche, if during the six -37- 43 (6) month period after the end of the Research Term (without giving effect to any extension of the Research Term pursuant to this Section 5.13(a)), it obtains mapping data or other significant information with respect to a disease that at the end of the Research Term was a Disease (for example, new information that a gene affects the pathogenesis of a Disease or confirming a Candidate Gene). Then, Roche, in its sole discretion, may elect to provide funding to deCODE to continue a Major Research Program with respect to such Disease for one (1) additional six (6) month period. The funding for such Major Research Program will be at the level provided during the last contract year of the Research Term, either as provided in Section 5.4(a) (as adjusted due to any adjustment of the FTE Rate pursuant to Section 5.3(d)) or at the level agreed upon pursuant to Section 5.12(e), as the case may be, such work shall be deemed to be a part of a Major Research Program, and the Research Term shall be extended with respect to such Major Research Program. In addition, Roche shall reimburse deCODE for the work performed by deCODE with respect to such Disease for the period from the end of the original Research Term through the date that Roche elects to fund the additional six (6) month period. Such reimbursement shall be at the same level of funding that would have been provided for a Major Research Program during the last contract year of the Research Term, either as provided in Section 5.4(a) (as adjusted due to any adjustment of the FTE Rate pursuant to Section 5.3(d)) or at the level agreed upon pursuant to Section 5.12(e), as the case may be. (b) Notwithstanding anything to the contrary, for any disease that at the end of the Research Term was a Disease but was not a Selected Disease, the following shall apply: (i) If deCODE believes, at any time during the six (6) month period following the six (6) month period after the end of the Research Term (without giving effect to any extension of the Research Term pursuant to Section 5.13(a)), that a gene is either a Novel Gene, a Candidate Gene or a Disease Gene (collectively, "Proposed Gene") for the Disease, it shall so notify Roche in writing ("deCODE Notice"). (ii) If Roche, at any time within the sixty (60) day period following receipt of a deCODE Notice, notifies deCODE in writing that Roche is interested in negotiating for the rights to such Proposed Gene (a "Roche Notice"), then the Parties shall conduct good faith negotiations on an exclusive basis directed to Roche acquiring such rights. In the event that Roche does not provide a Roche Notice to deCODE during such sixty (60) day period, then deCODE shall be free to offer such rights to any Third Party under any terms and conditions without any obligations to Roche. (iii) In the event that, within six (6) months after the Roche Notice is provided, the Parties fail to execute an agreement related to Roche acquiring such rights, then deCODE shall be free to offer such rights to any Third Party on terms and conditions no more favorable, taken as a whole, than the most favorable terms last offered by Roche to deCODE for such rights. Within ten (10) days after the expiration -38- 44 of such six (6) month period, Roche shall provide deCODE with a written document setting forth such terms. 5.14 Validation of Targets. For a given Selected Disease, at any time during the term of the Agreement, [CONFIDENTIAL TREATMENT REQUESTED], such Party shall promptly provide written notice to the Steering Committee [CONFIDENTIAL TREATMENT REQUESTED]. The Steering Committee shall, as promptly as practicable after receipt of such notification, meet to discuss whether [CONFIDENTIAL TREATMENT REQUESTED]. The Steering Committee shall record its Decision in the Minutes of such meeting pursuant to Section 3.5. If the Steering Committee makes a Decision that [CONFIDENTIAL TREATMENT REQUESTED]. If the Steering Committee makes a Decision that [CONFIDENTIAL TREATMENT REQUESTED] 6. DEVELOPMENT AND COMMERCIALIZATION. - 6.1 Commercialization Efforts by Roche for Selected Diseases. (a) For a Selected Disease, once a first Validated Target is obtained, during the term of this Agreement, Roche, directly or through an Affiliate or sublicensee, will use reasonable commercial efforts [CONFIDENTIAL TREATMENT REQUESTED]. (b) Once a first Candidate Gene is Confirmed for a Selected Disease, during the term of this Agreement, Roche, directly or through an Affiliate or sublicensee, will use reasonable commercial efforts [CONFIDENTIAL TREATMENT REQUESTED]. (c) Therapeutic Efforts and Diagnostic Efforts, as the case may be, for a given Roche Product for a Selected Disease shall mean reasonable commercial efforts, consistent with sound and reasonable business practices and judgment, comparable to efforts exerted by Roche for its own products of a like kind and at a like stage of development and having similar potential, taking into account scientific, business and marketing considerations. (d) For a given Selected Disease, prior to the first Registration of a Therapeutic Product for such Selected Disease in any Major Country, Roche's exercise -39- 45 of Therapeutic Efforts is to be determined by judging Roche's Efforts taken as a whole in the Major Countries. For a given Selected Disease, prior to the first Registration of a Diagnostic Product for such Selected Disease in any Major Country, Roche's exercise of Diagnostic Efforts is to be determined by judging Roche's Efforts taken as a whole in the Major Countries. (e) For a given Selected Disease, after the first Registration of a Therapeutic Product for such Selected Disease in any Major Country, Roche's exercise of Therapeutic Efforts is to be determined by judging Roche's Efforts taken on a Major Country-by-Major Country basis. For a given Selected Disease, after the first Registration of a Diagnostic Product for such Selected Disease in any Major Country, Roche's exercise of Diagnostic Efforts is to be determined by judging Roche's Efforts taken as a whole taken on a Major Country-by-Major Country basis. 6.2 Notice of Failure by Roche to Use Efforts for a Selected Disease. (a) Therapeutic Products for a Disease. (i) For a given Selected Disease, prior to the first Registration in any Major Country of a Therapeutic Product for such Selected Disease, if deCODE reasonably believes that Roche is not using Therapeutic Efforts, [CONFIDENTIAL TREATMENT REQUESTED]. (ii) For a given Selected Disease, after the first Registration in any Major Country of a Therapeutic Product for such Selected Disease, if deCODE reasonably believes that Roche is not using Therapeutic Efforts in any Major Country, -40- 46 [CONFIDENTIAL TREATMENT REQUESTED], then deCODE shall be entitled to proceed under of Section 14.6(a)(ii) of this Agreement. (b) Diagnostic Products for a Disease. (i) For a given Selected Disease, prior to the first Registration in any Major Country of a Diagnostic Product for such Selected Disease, if deCODE reasonably believes that Roche is not using Diagnostic Efforts, [CONFIDENTIAL TREATMENT REQUESTED] -41- 47 [CONFIDENTIAL TREATMENT REQUESTED], then deCODE shall be entitled to proceed under Section 14.6(b)(i) of this Agreement. (ii) For a given Selected Disease, after the first Registration in any Major Country of a Diagnostic Product for such Selected Disease, if deCODE reasonably believes that Roche is not using Diagnostic Efforts in any Major Country, [CONFIDENTIAL TREATMENT REQUESTED], then deCODE shall be entitled to proceed under Section 14.6(b)(ii) of this Agreement. 6.3 Abandonment Of a Selected Disease. (a) For Therapeutic Products. (i) For a given Selected Disease, commencing [CONFIDENTIAL TREATMENT REQUESTED] Effective Date, at any time during the term of this Agreement prior to the first Registration in any Major Country of a Therapeutic Product for such Selected Disease, Roche may, for any reason, terminate this Agreement with respect to all Therapeutic Products for the Selected Disease by giving [CONFIDENTIAL TREATMENT REQUESTED] prior written notice to deCODE. In such event, the effective date of termination shall be the date [CONFIDENTIAL TREATMENT REQUESTED] after Roche provides such written notice to deCODE. The effects of such termination shall be governed by Section 14.4(a)(ii). After the effective date of such termination, in no event shall Roche, its Affiliates or sublicensees make, have made, use, offer for sale, sell or import Therapeutic Products for such Selected Disease. (ii) For a given Selected Disease, commencing [CONFIDENTIAL TREATMENT REQUESTED]after the Effective Date, at any time during the term of this Agreement after the first -42- 48 Registration in any Major Country of a Therapeutic Product for such Selected Disease, Roche may, for any reason, terminate this Agreement in a given Major Country with respect to all Therapeutic Products for the Selected Disease by giving six (6) months' prior written notice to deCODE. In such event, the effective date of termination shall be the date six (6) months after Roche provides such written notice to deCODE. The effects of such termination shall be governed by Section 14.4(a)(iii). After the effective date of such termination, in no event shall Roche, its Affiliates or sublicensees make, have made, use, offer for sale, sell or import Therapeutic Products for such Selected Disease in such given Major Country. (b) For Diagnostic Products. (i) For a given Selected Disease, commencing nine (9) months after the Effective Date, at any time during the term of this Agreement prior to the first Registration in any Major Country of a Diagnostic Product for such Selected Disease, Roche may, for any reason, terminate this Agreement with respect to all Diagnostic Products for the Selected Disease by giving six (6) months' prior written notice to deCODE. In such event, the effective date of termination shall be the date six (6) months after Roche provides such written notice to deCODE. The effects of such termination shall be governed by Section 14.4(b)(ii). After the effective date of such termination, in no event shall Roche, its Affiliates or sublicensees make, have made, use, offer for sale, sell or import Diagnostic Products for such Selected Disease. (ii) For a given Selected Disease, commencing nine (9) months after the Effective Date, at any time during the term of this Agreement after the first Registration in any Major Country of a Diagnostic Product for such Selected Disease, Roche may, for any reason, terminate this Agreement in a given Major Country with respect to all Diagnostic Products for the Selected Disease by giving six (6) months' prior written notice to deCODE. In such event, the effective date of termination shall be the date six (6) months after Roche provides such written notice to deCODE. The effects of such termination shall be governed by Section 14.4(b)(iii). After the effective date of such termination, in no event shall Roche, its Affiliates or sublicensees make, have made, use, offer for sale, sell or import Diagnostic Products for such Selected Disease in such given Major Country. (c) If Roche terminates this Agreement pursuant to this Section 6.3(a) and (b) with respect to all Therapeutic Products and all Diagnostic Products for a Disease, such Disease shall no longer be considered a Disease under this Agreement. 6.4 Sale After Registration. (a) Time Period. For a given Roche Product which is the subject of a Registration in a given country, Roche, its Affiliate or sublicensee shall, within one (1) -43- 49 year after such Registration, make a First Commercial Sale of the given Roche Product in the given country. (b) Notice of Failure. If Roche, its Affiliate or sublicensee has not, within one (1) year after Registration of a Roche Product in a given country, made a First Commercial Sale of the given Roche Product in the given country, deCODE may provide Roche written notice to Roche specifying the same. [CONFIDENTIAL TREATMENT REQUESTED], then deCODE shall be entitled to proceed under Section 14.7 of this Agreement. (c) Abandonment of a Roche Product after Registration. Notwithstanding anything to the contrary herein, at any time during the term of this Agreement, Roche may, for any reason, terminate this Agreement in a given country with respect to a given Roche Product that was the subject of a Registration in the given country by giving [CONFIDENTIAL TREATMENT REQUESTED] prior written notice to deCODE. In such event, the effective date of such termination shall be the date [CONFIDENTIAL TREATMENT REQUESTED] after Roche provides such written notice to deCODE. The effects of such termination shall be governed by Section 14.4(c). After the effective date of such termination, in no event shall Roche, its Affiliates or sublicensees make, have made, use, offer for sale, sell or import the given Roche Product in the given country. 6.5 Commercialization Efforts by deCODE and its Sublicensees. During the term of this Agreement, deCODE shall have no diligence obligation with respect to deCODE Products for a Selected Disease other than using reasonable efforts to identify -44- 50 and obtain a licensee for such deCODE Products in the event deCODE determines not to develop deCODE Products for the Selected Disease directly or through an Affiliate. In the event that deCODE grants rights to any deCODE Products for a Selected Disease to a licensee, deCODE shall require such licensee to use reasonable commercial efforts, in the Major Countries as a whole, directed to the commercialization of at least one (1) deCODE Product for such Selected Disease ("Sublicensee's Required Efforts"). 6.6 Reports. (a) By Roche. (i) At least once per year during the term of this Agreement, Roche will inform deCODE as to the goals and scope of each Roche Development Program. (ii) For a Selected Disease, commencing at the end of the Research Program for such Selected Disease, and until the Registration of a Diagnostic or Therapeutic Product in a given Major Country for such Selected Disease, within sixty (60) days after the end of each calendar year, Roche shall provide to deCODE a written summary of Roche's, its Affiliates and sublicensees Therapeutic Efforts and Diagnostic Efforts during such previous calendar year, provided that Roche is permitted by any such sublicensee to share such information with deCODE. The written summary shall also include information relating to the plan for pursuing regulatory approvals, the estimated date for making any IND Filing or NDA Filing, the expected date of receipt of approval of any IND or an NDA, and the anticipated launch date with respect to each Roche Product in each Major Country, to the extent such information is available. All such summaries shall be treated by deCODE as Confidential Information under Section 13. (b) By deCODE. For a Selected Disease, commencing at the end of the Research Program for such Selected Disease, and until the first registration of a deCODE Product in any Major Country, within sixty (60) days after the end of each calendar year, provided deCODE determines not to develop deCODE Products for the Selected Disease directly or through an Affiliate, deCODE shall provide to Roche a written summary of: (i) deCODE's and its Affiliates' efforts to identify and obtain a licensee for deCODE Products for the Selected Disease, and (ii) the Sublicensee's Required Efforts of deCODE's licensees in the Major Countries during such previous year; provided that deCODE is permitted by such sublicensee to share such information with Roche. All such summaries shall be treated by Roche as Confidential Information under Section 13. 6.7 Ownership of Regulatory Filings. Other than as explicitly provided for in this Agreement, nothing herein shall be construed as giving deCODE any title or ownership to any IND, NDA or other regulatory filings related to a Roche Product. Other than as explicitly provided for in this Agreement, nothing herein shall be construed as -45- 51 giving Roche any title or ownership to any IND, NDA or other regulatory filings related to a deCODE Product. 7. GRANT OF LICENSES. 7.1 Grants. (a) To Roche. Subject to the terms and conditions of this Agreement, deCODE grants to Roche and its Affiliates (i) the sole and exclusive worldwide right and license under deCODE Know-How and deCODE Patents, and (ii) a non-exclusive right and license to use deCODE Generalized Technology, to make, have made, use, offer for sale, sell and import Roche Products in the Territory. The Parties acknowledge that the above rights and licenses includes, without limitation, the right and license to make, have made and use Disease Genes and Validated Targets in the Territory to research and develop Roche Products. The rights and licenses granted to Roche pursuant to this Section 7.1(a) shall include the right to grant sublicenses thereto. Roche shall advise deCODE of all sublicenses granted under this Agreement. If Roche grants a sublicense, all of the terms and conditions of this Agreement shall apply to the sublicensee to the same extent as they apply to Roche for all purposes. Roche guarantees and assumes responsibility for the performance of all obligations so imposed on such sublicensee by reason of operation of any such sublicense. (b) To deCODE. Subject to the terms and conditions of this Agreement, Roche grants to deCODE and its Affiliates the sole and exclusive worldwide right and license, with the right to sublicense (subject to Section 7.2), under Roche Know-How and Roche Patents, to make, have made, use, offer for sale, sell and import deCODE Products in the Territory. The Parties acknowledge that the above right and license includes, without limitation, the right and license to make, have made and use Disease Genes and Validated Targets in the Territory to research and develop deCODE Products. The rights and licenses granted to deCODE pursuant to this Section 7.1(b) shall include the right to grant sublicenses thereto. deCODE shall advise Roche of all sublicenses granted under this Agreement. If deCODE grants a sublicense, all of the terms and conditions of this Agreement shall apply to the sublicensee to the same extent as they apply to deCODE for all purposes. (c) Research Programs. Each Party grants to the other Party and its Affiliates a fully paid-up, non-royalty bearing non-exclusive right and license, without the right to grant sublicenses, under such Party's respective Know-How and Patents, for the sole and exclusive purpose of the other Party fulfilling its research obligations under any and all Research Programs under this Agreement. -46- 52 7.2 Rights of First Negotiation. (a) deCODE Notice. If, at any time during the term of this Agreement, deCODE is interested in offering rights to a deCODE Product to a Third Party, deCODE shall give written notice ("deCODE Notice") to Roche of its interest. Such deCODE Notice shall include sufficient information regarding such deCODE Product as deCODE, in good faith, deems reasonably necessary for Roche to make a reasonably informed decision regarding whether or not Roche wishes to pursue negotiations for such rights. (b) Decision Period. Roche shall have a period of sixty (60) days, extendible by mutual agreement of the Parties, said period to commence on the receipt by Roche of the deCODE Notice ("Decision Period"), to decide whether or not it wishes to pursue negotiations for such rights. (c) Negotiations. In the event that Roche, within such Decision Period, provides written notice to deCODE that it is interested in pursuing negotiations for such rights, then the Parties shall conduct good faith negotiations on an exclusive basis directed to Roche acquiring such rights. (d) Third Party Terms. In the event that, within six (6) months after Roche provides written notice to deCODE that it is interested in pursuing negotiations for such rights, the Parties fail to execute an agreement related to Roche acquiring such rights, then deCODE shall be free to offer such rights to any Third Party on terms and conditions no more favorable, taken as a whole, than the most favorable terms last offered by Roche to deCODE for such rights. Within ten (10) days after the expiration of such six (6) month period, Roche shall provide deCODE with a written document setting forth such terms. (e) New Opportunity. In the event that Roche, within such Decision Period, does not provide written notice to deCODE that it is interested in pursuing negotiations for such rights, (i) deCODE shall be free to offer such rights to any Third Party under any terms and conditions, and (ii) in the event additional material new findings not yet presented to Roche are developed during a two (2) year period commencing on the date that is the end of the Decision Period, and unless prohibited by agreement or ongoing negotiations with a Third Party, deCODE shall give Roche the opportunity to review such additional data and to reconsider its interest in such negotiation. 8. EQUITY, PAYMENTS AND ROYALTIES. 8.1 Equity. Either prior to or contemporaneously with the execution of this Agreement, the Parties shall enter the Equity Agreement, upon such terms and conditions as are set forth in such Equity Agreement. -47- 53 8.2 Payments. (a) Discovery Payments. (i) Roche shall pay to deCODE a non-refundable payment of [CONFIDENTIAL TREATMENT REQUESTED] within thirty (30) days after [CONFIDENTIAL TREATMENT REQUESTED] and receipt by Roche of an invoice for such sum. The Steering Committee shall pursuant to Section 3.4(a) decide [CONFIDENTIAL TREATMENT REQUESTED]. In any event, only one (1) payment under this Section 8.2(a)(i) shall be due for each Disease, regardless of the [CONFIDENTIAL TREATMENT REQUESTED] (ii) Roche shall pay deCODE the following nonrefundable payments within thirty (30) days after the occurrence of the following events with respect to each Disease and receipt by Roche of an invoice for such sum: [CONFIDENTIAL TREATMENT REQUESTED] (b) Development Payments - Therapeutic Products. For a given Therapeutic Product, Roche shall pay to deCODE the following nonrefundable payments -48- 54 within thirty (30) days after the occurrence of the following events ("Events") as set forth below in Table I: [CONFIDENTIAL TREATMENT REQUESTED] (c) Payment Limitations. For a given Therapeutic Product, Roche will make each of such payments under Section 8.2(b) only once, for the first occurrence of an Event for the Therapeutic Product, independent of the number of occurrences of the Event for the Therapeutic Product. In the event that Roche's clinical development of any Therapeutic Product for a Selected Disease (an "Original Product") terminates and, at or after the time of such termination, Roche is engaged or subsequently becomes engaged in clinical development of any other Therapeutic Product for such Selected Disease (a "Replacement Product") and both the Original Product and the Replacement Product treat or prevent the Selected Disease through the same Biological Pathway, then Roche shall be entitled to a credit against milestone payments due pursuant to Section 8.2(b) with respect to the Replacement Product in the amount equal to all milestone payments actually paid with respect to the Original Product prior to termination of development thereof. By way of illustration, assume that for a given Selected Disease, where each Therapeutic Product treats or prevents the Selected Disease through the same Biological Pathway: (i) In Year 1: (1) Therapeutic Product 1, a Direct Gene Expression Product Type 1, reaches Event 1, -49- 55 (2) Therapeutic Product 2, a Direct Gene Expression Product Type 2, reaches Event 1, and (3) Therapeutic Product 3, a Drug Product Type 2, reaches Events 1 and 2. [CONFIDENTIAL TREATMENT REQUESTED] (ii) In Year 2: (1) Roche terminates the development of Therapeutic Product 1, (2) Therapeutic Product 2 reaches Event 2, (3) Therapeutic Product 3 reaches Event 3, and (4) Therapeutic Product 4, a Direct Gene Expression Product Type 1, reaches Events 1 and 4. [CONFIDENTIAL TREATMENT REQUESTED] (iii) In Year 3: (1) Roche terminates the development of Therapeutic Product 2, (2) Therapeutic Product 3 reaches Events 4 and 5, and (3) Therapeutic Product 4 reaches Event 5. [CONFIDENTIAL TREATMENT REQUESTED] -50- 56 [CONFIDENTIAL TREATMENT REQUESTED] (d) Diagnostic Product. Roche shall pay to deCODE the following nonrefundable payments within thirty (30) days after the occurrence of the following events ("Event") with respect to Diagnostic Products for each Selected Disease: [CONFIDENTIAL TREATMENT REQUESTED] Roche will make each of such payments under this Section 8.2(d) only once with respect to each Selected Disease, for the first occurrence of a respective Event with the first Diagnostic Product to reach such Event with respect to such Selected Disease. 8.3 Royalties. (a) Royalty Rates Paid by Roche. For a given Roche Product, during the Royalty Term for the Roche Product, Roche shall pay to deCODE a royalty on Net Sales of the given Roche Product, on a country-by-country basis, at the following rates as set forth in Table II: -51- 57 [CONFIDENTIAL TREATMENT REQUESTED] (b) Royalty Rates Paid by deCODE. (i) For a given deCODE Product other than an Abandoned Product or a Reverted Product, during the Royalty Term for the deCODE Product, deCODE shall pay to Roche a royalty of [CONFIDENTIAL TREATMENT REQUESTED] on Net Sales of the given deCODE Product, on a country-by-country basis, [CONFIDENTIAL TREATMENT REQUESTED] of the Sublicensing Income received by deCODE from its sublicensees with respect to the given deCODE Product. (ii) For a given deCODE Product that is an Abandoned Product, during the Royalty Term for the Abandoned Product, deCODE shall pay to Roche a royalty on Net Sales of the given Abandoned Product, on a country-by-country basis, at the following rates as set forth in Table III: [CONFIDENTIAL TREATMENT REQUESTED] If for a given deCODE Product that is an Abandoned Product, deCODE licenses rights to such Abandoned Product to a Third Party in a given country, then during the Royalty Term for the Abandoned Product deCODE shall pay to Roche: -52- 58 (1) [CONFIDENTIAL TREATMENT REQUESTED] of the Sublicensing Income received by deCODE from its sublicensees in the given country with respect to the given Abandoned Product that is a Drug Product Type 1 or Type 2, (2) [CONFIDENTIAL TREATMENT REQUESTED] of the Sublicensing Income received by deCODE from its sublicensees in the given country with respect to the a given Abandoned Product that is a Direct Gene Expression Product Type 1 or Type 2, and (3) [CONFIDENTIAL TREATMENT REQUESTED] of the Sublicensing Income received by deCODE from its sublicensees in the given country with respect to the given Abandoned Product that is a Diagnostic Product. Notwithstanding the above, the royalties otherwise due under this Section 8.3(b)(ii) to Roche for Abandoned Products other than a Diagnostic Product shall be reduced by [CONFIDENTIAL TREATMENT REQUESTED] if such Abandoned Product was not the subject of an IND Filing by Roche, its Affiliate or sublicensee prior to the date Roche gives notice of such abandonment. (iii) For a given deCODE Product that is a Reverted Product, if such Reverted Product is (1) a Therapeutic Product which, at the time of the effective date of termination was the subject of an IND Filing by Roche, its Affiliate or sublicensee, or (2) a Diagnostic Product, then during the Royalty Term for the Reverted Product, deCODE shall pay to Roche a royalty on Net Sales of the given Reverted Product, on a country-by-country basis, at the following rates as set forth in Table IV: [CONFIDENTIAL TREATMENT REQUESTED] If for a given deCODE Product that is a Reverted Product, where such Reverted Product is (1) a Therapeutic Product which, at the time of the effective date of termination was the subject of an IND Filing by Roche, its Affiliate or sublicensee, or (2) a Diagnostic Product, deCODE licenses rights to such Reverted Product to a Third Party in a given country, then during the Royalty Term for the Reverted Product deCODE shall pay to Roche: (1) [CONFIDENTIAL TREATMENT REQUESTED] of the Sublicensing Income received by deCODE from its sublicensees in the given country with respect to the given Reverted Product that is a Drug Product Type I or Type II, and (2) [CONFIDENTIAL TREATMENT REQUESTED] of the Sublicensing Income received by deCODE from its -53- 59 sublicensees in the given country with respect to the given Reverted Product that is a Diagnostic Product. 8.4 Royalty Reductions. (a) Reductions for no Valid Claim. (i) Reduction for Roche. The royalties otherwise due under Section 8.3(a) shall be reduced, on a country-by-country basis, by [CONFIDENTIAL TREATMENT REQUESTED] with respect to a given Roche Product in a given country if Roche's (i) making, having made or using Disease Genes and Validated Targets to make, have made, use, offer for sale, sell and import the Roche Product, or (ii) making, having made, using, offering for sale, selling or importing the Roche Product, is not claimed by a deCODE Patent Valid Claim or a Roche Patent Valid Claim in such country. (ii) Reduction for deCODE. The royalties or percentage of Royalty Sublicensing Income otherwise due under Section 8.3(b) shall be reduced, on a country-by-country basis, by [CONFIDENTIAL TREATMENT REQUESTED] with respect to a given deCODE Product in a given country if, deCODE's (i) making, having made or using Disease Genes and Validated Targets to make, have made, use, offer for sale, sell and import the deCODE Product, and (ii) making, having made, using, offering for sale, selling or importing the deCODE Product is not claimed by a Roche Patent Valid Claim of a Roche Patent solely owned by Roche in such country. (b) Reduction for Generic Competition. (i) By Roche. Roche may reduce the royalties otherwise due under Section 8.3(a), on a country-by-country basis, by [CONFIDENTIAL TREATMENT REQUESTED] with respect to a given Roche Product in a given country if, in such country, in any calendar quarter, one or more Third Parties markets a product ("Third Party Product") having as a pharmaceutically active ingredient the same Compound as the Roche Product, or its salt, where (1) the manufacture, use or sale of such Third Party Product is not claimed by a deCODE Patent Valid Claim of an issued deCODE Patent or a Roche Patent Valid Claim of an issued Roche Patent in such country, and (2) such Third Party Product(s), in aggregate, have at least [CONFIDENTIAL TREATMENT REQUESTED] of the aggregate unit volume of sales for such Roche Product and such Third Party Product in any calendar year in such country, as measured by IMS published data or such other index as the Parties may agree upon. (ii) By deCODE. deCODE may reduce the royalties or percentage of Royalty Sublicensing Income otherwise due under Section 8.3(b), on a country-by-country basis, by [CONFIDENTIAL TREATMENT REQUESTED] with respect to a given deCODE Product in a given country if, in such country, in any calendar quarter, one or more Third Parties markets a Third Party Product having as a pharmaceutically active ingredient the same -54- 60 Compound as the deCODE Compound, or its salt, where (1) the manufacture, use or sale of such Third Party Product is not claimed by a in a deCODE Patent Valid Claim of an issued deCODE Patent or a Roche Patent Valid Claim of an issued Roche Patent in such country, and (2) such Third Party Product(s), in aggregate, have at least [CONFIDENTIAL TREATMENT REQUESTED] of the aggregate unit volume of sales for such deCODE Product and such Third Party Product in any calendar year in such country, as measured by IMS published data or such other index as the Parties may agree upon. (c) Third Party Royalties. If, for a given Product in a given country, a Party believes that the making, having made, using, offering for sale, selling or importing the given Product in the given country would represent a significant risk of infringement of a Third Party Patent, the Party shall notify the other Party in writing, and the Parties will in good faith discuss the need to obtain a license from the Third Party ("Third Party License"). If the Parties fail to agree as to the need for such Third Party License, the Parties will submit the matter to patent counsel acceptable to both Parties for a legal opinion about the need to obtain such Third Party License. The Parties will [CONFIDENTIAL TREATMENT REQUESTED] the costs associated with such legal opinion. If the Parties agree on the need for the Third Party License, or if patent counsel provides reasons as to why the making, having made, offering for sale, selling or importing of the given Product in the given country would represent a significant risk of infringement of the Third Party Patent, the Party may reduce the royalties or percentage of Royalty Sublicensing Income otherwise due under Section 8.3 for the given Product by an amount equal to [CONFIDENTIAL TREATMENT REQUESTED] of the royalties and payments paid by the Party to such Third Party under the Third Party License. Notwithstanding the above, for a given Product, in no event shall such reduction apply to a Third Party License from a Collaborator where the Third Party License results from a collaboration having as its subject the Product. (d) Limit of Reductions to Royalties. Notwithstanding anything to the contrary, a Party may not reduce the royalties or percentage of Royalty Sublicensing Income due to the other Party for any calendar quarter on account of any reductions in royalties or percentage of Royalty Sublicensing Income provided for in this Section 8.4 by an amount which would reduce the amount of royalties or the amount of Royalty Sublicensing Income, as the case may be, otherwise due under Section 8.3 by more than [CONFIDENTIAL TREATMENT REQUESTED]. Any amount of reductions in royalties or percentage of Royalty Sublicensing Income which exceed the foregoing limits for a given calendar quarter may be applied by the Party in subsequent calendar quarters, subject again to the foregoing limitations. The limitations to the royalty and Royalty Sublicensing Income reductions provided in this Section 8.4 shall not apply against additional credits or reductions or deductions under any other Sections of this Agreement. -55- 61 8.5 Obligation to Pay Royalties. (a) Sales among Roche and its Affiliates and Sublicensees. The obligation to pay royalties to deCODE under Section 8.3 is imposed only once with respect to the same unit of Roche Product, regardless of the number of deCODE Patents pertaining thereto. There shall be no obligation to pay royalties to deCODE under Section 8.3 on sales of Roche Products among Roche and its Affiliates and its sublicensees, but in such instances the obligation to pay royalties shall arise only upon the sale by Roche, its Affiliates or its sublicensees to Third Parties (other than sublicensees of Roche). (b) Sales among deCODE and its Affiliates. The obligation to pay royalties to Roche under Section 8.3 is imposed only once with respect to the same unit of deCODE Product, regardless of the number of Roche Patents pertaining thereto. There shall be no obligation to pay royalties on Net Sales or a percentage of Royalty Sublicensing Income to Roche under Section 8.3 on sales of deCODE Products among deCODE and its Affiliates and its sublicensees, but in such instances the obligation to pay royalties on Net Sales shall arise only upon the sale by deCODE or its Affiliates to Third Parties (other than sublicensees of deCODE) and the obligation to pay a percentage of Royalty Sublicensing Income shall arise only upon the sale by deCODE's sublicensees to Third Parties. 8.6 Roche Supply Obligation. During the Royalty Term, Roche shall provide quantities of Roche Products necessary or required by the persons who are both citizens and residents of Iceland for the prevention, diagnosis and/or treatment of the Diseases at no charge. 8.7 Barred Royalties. If the royalties set out in this Section 8, after giving effect to all reductions and credits to such royalties allowable under this Agreement, are higher than the maximum royalties permitted by the law or regulations of a given country, the royalty payable for such country shall be equal to the maximum permitted under such law or regulations. 9. PAYMENTS AND REPORTS. 9.1 Payment. Except as otherwise provided in this Agreement, all royalties on Net Sales of Roche Products shall be calculated quarterly as of [CONFIDENTIAL TREATMENT REQUESTED] (each as being the last day of a [CONFIDENTIAL TREATMENT REQUESTED]) and shall be paid by Roche within sixty (60) days after the end of each [CONFIDENTIAL TREATMENT REQUESTED] for which such Net Sales are calculated. Each such payment shall be accompanied by a statement, Product-by-Product and country-by-country, of the amount of Net Sales during such calendar quarter and the amount of royalties due on such Net Sales. -56- 62 Except as otherwise provided in this Agreement, all royalties on Net Sales of deCODE Products and the amount of Sublicensing Income due shall be calculated quarterly as of March 31, June 30, September 30 and December 31 (each as being the last day of a calendar quarter) and shall be paid by deCODE within sixty (60) days after the end of each calendar quarter for which such Net Sales or Sublicensing Income are calculated. Each such payment shall be accompanied by a statement, Product-by-Product and country-by-country, of the amount of Net Sales, the amount of royalties due on such Net Sales, or the amount of Sublicensing Income due, as the case may be. 9.2 Mode of Payment. A Party shall make all payments required under this Agreement as directed by the other Party from time to time in United States Dollars or such other currency as the Parties may mutually agree. (a) For Roche and its Affiliates. For Roche and its Affiliates, whenever for the purpose of calculating royalty conversion from any foreign currency shall be required, such conversion shall be made as follows: when calculating the Adjusted Gross Sales, the amount of such sales in foreign currencies shall be converted into Swiss Francs as computed in the central Roche's Swiss Francs Sales Statistics for the countries concerned, using the average monthly rate of exchange at the time for such currencies as retrieved from the Reuters System; and when calculating the royalties on Net Sales, such conversion shall be at the average rate of the Swiss Franc to the Dollar, as retrieved from the Reuters System for the applicable [CONFIDENTIAL TREATMENT REQUESTED]. (b) For a Sublicensee of Roche in a Country. For a sublicensee of Roche, whenever for the purpose of calculating royalty conversion from any foreign currency shall be required, such conversion shall be made as follows: when calculating the Adjusted Gross Sales, the amount of such sales shall be reported by the sublicensee to Roche within thirty (30) days from the end of the [CONFIDENTIAL TREATMENT REQUESTED], after having converted each applicable monthly sales in foreign currency into the Dollar using the average rates of exchange published in The Wall Street Journal (or some other source agreed upon in writing by the Parties for the country) for each respective month of the applicable [CONFIDENTIAL TREATMENT REQUESTED]. (c) For deCODE and its Affiliates. For deCODE and its Affiliates, whenever for the purpose of calculating royalty conversion from any foreign currency shall be required, such conversion shall be made as follows: when calculating the Adjusted Gross Sales and Net Sales, the amount of such sales in foreign currencies shall be converted into Dollars, as computed for the country concerned using the average monthly rate of exchange listed in The Wall Street Journal (or some other source agreed upon in writing by the Parties for the country) for each applicable month of the applicable calendar quarter. (d) For a Sublicensee of deCODE in a Country. For a sublicensee of deCODE, the Sublicensing Income shall be calculated by conversion of such amount -57- 63 from the currency in which it was paid to deCODE into Dollars as computed for the country concerned using the average monthly rate of exchange listed in The Wall Street Journal (or some other source agreed upon in writing by the Parties for the country) for each applicable month of the applicable calendar quarter. 9.3 Records Retention. Each Party shall keep, and require its Affiliates and sublicensees to keep, full, true and accurate books of account in accordance with generally accepted accounting principles, consistently applied ("Books of Account") containing all particulars that may be necessary for the purpose of calculating all royalties and Sublicensing Income payable to the other Party under this Agreement for a period of three calendar (3) years after the end of the calendar year in which such sales occurred. Such Books of Account shall be kept at the principal place of business of the Party, its Affiliates or its sublicensees, as the case may be. 9.4 Audit Request. (a) By deCODE. At deCODE's expense, deCODE or its authorized independent public accountant has the right to engage Roche's independent public accountant to perform, on behalf of deCODE or its independent public accountant, an audit, conducted in accordance with generally accepted auditing standards in the USA, of such Books of Account of Roche, its Affiliates and sublicensees that are deemed necessary by Roche's independent public accountants to report on Adjusted Gross Sales and Net Sales of the Roche Products for the period or periods requested by deCODE. Results of any such examination shall be made available to both Parties. deCODE or its authorized independent public accountant shall have the right to review the reports prepared by Roche's independent public accountant and make inquiries of Roche's independent public accountant regarding such reports. Such audit shall not be performed more frequently than once per calendar year nor more frequently than once with respect to Books of Account covering any specific period of time, upon at least thirty (30) working days' prior written notice, and shall be conducted during regular business hours in such a manner as to not unnecessarily interfere with Roche's normal business activities. All Books of Account referred to under this Section 9.4(a) shall be used only for the purpose of verifying royalty statements or compliance with this Agreement and (ii) shall be treated by deCODE as Confidential Information under Section 13. The failure of deCODE to request verification of any royalty calculation during the period under Section 9.3 when Books of Account have to be retained shall be considered acceptance of the accuracy of such reporting. In the event that such audit shall indicate that in any calendar year the royalties which should have been paid by Roche are greater than those which were -58- 64 actually paid by Roche, then Roche shall promptly pay the underpaid amount to deCODE and, if the royalties which should have been paid by Roche are at least five percent (5%) greater than those which were actually paid by Roche, then Roche shall also reimburse deCODE for the reasonable cost of such audit. In the event that such audit shall indicate that in any calendar year the royalties which were actually paid by Roche are greater than those which should have been paid, then, at Roche's option, deCODE shall promptly reimburse to Roche the overpaid amount or Roche shall deduct the overpaid amount from the next royalty payment to be paid deCODE. (b) By Roche. At Roche's expense, Roche or its authorized independent public accountant has the right to engage deCODE's independent public accountant to perform, on behalf of Roche or its independent public accountant, an audit, conducted in accordance with generally accepted auditing standards in the USA, of such Books of Account of deCODE, its Affiliates and sublicensees that are deemed necessary by deCODE's independent public accountants to report on Adjusted Gross Sales, Net Sales and Sublicensing Income of the deCODE Products for the period or periods requested by Roche. Results of any such examination shall be made available to both Parties. Roche or its authorized independent public accountant shall have the right to review the reports prepared by deCODE's independent public accountant and make inquiries of deCODE's independent public accountant regarding such reports. Such audit shall not be performed more frequently than once per calendar year nor more frequently than once with respect to Books of Account covering any specific period of time, upon at least thirty (30) working days' prior written notice, and shall be conducted during regular business hours in such a manner as to not unnecessarily interfere with deCODE's normal business activities. All Books of Account referred to under this Section 9.4(b) shall be used only for the purpose of verifying royalty statements or compliance with this Agreement and (ii) shall be treated by Roche as Confidential Information under Section 13. The failure of Roche to request verification of any royalty calculation during the period under Section 9.3 when Books of Account have to be retained shall be considered acceptance of the accuracy of such reporting. In the event that such audit shall indicate that in any calendar year the royalties which should have been paid by deCODE are greater than those which were actually paid by deCODE, then deCODE shall promptly pay the underpaid amount to Roche and, if the royalties which should have been paid by deCODE are at least five percent (5%) greater than those which were actually paid by deCODE, then deCODE shall also reimburse Roche for the reasonable cost of such audit. In the event that such audit shall indicate that in any calendar year the royalties which were actually paid by deCODE are greater than those which should have been paid, then, at deCODE's option, -59- 65 Roche shall promptly reimburse to deCODE the overpaid amount or deCODE shall deduct the overpaid amount from the next royalty payment to be paid Roche. 9.5 Taxes. All amounts owing to a Party ("owed Party") specified in this Agreement shall be paid by the other Party ("paying Party") net of all applicable taxes, fees, and other charges excluding only taxes on the paying Party's income. In particular, any tax required to be withheld by a paying Party under the laws of any country for the account of the Owed Party ("Withholding Taxes"), shall be promptly paid by the paying Party for and on behalf of the owed Party to the appropriate governmental authority, and the paying Party shall furnish the owed Party with proof of payment of such tax. Any such tax actually paid on the owed Party's behalf shall be deducted from royalty payments due the owed Party. The Paying Party will reasonably assist the owed Party in minimizing the Withholding Taxes applicable to any payment made by the paying Party and in claiming tax refund at the owed Party's request. 9.6 Blocked Currency. In each country where the local currency is blocked by applicable law and cannot be removed from such country, royalties accrued in that country shall be paid to the owed Party in such country in local currency by deposit in a local bank designated by the owed Party. 9.7 Interest on Late Payments. Any payment under this Agreement that is not paid on or before the date such payment is due shall bear interest, to the extent permitted by applicable law, at the [CONFIDENTIAL TREATMENT REQUESTED] from time to time, or such other index as the Parties may agree in writing, [CONFIDENTIAL TREATMENT REQUESTED], calculated in the number of days such a payment is overdue. 9.8 Mechanism for Adjustment to Royalties. For the first calendar quarter of each calendar year during the term of this Agreement, a Party shall be entitled to deduct from the royalties owed to the other Party for that quarter any reductions, deductions or credits on royalties allowed under this Agreement during the previous calendar year provided the Party did not otherwise previously take such reductions or credits. In the event that any reductions, deductions or credits otherwise allowable to a Party in the last calendar year during the term of the Agreement have not been fully utilized by such Party upon the expiration of this Agreement, then the other Party shall reimburse such Party for the allowable amount. -60- 66 10. OWNERSHIP; PATENTS. 10.1 Ownership. (a) Technical Information. Except as otherwise provided in this Agreement, this Agreement does not grant either Party any rights in or to Technical Information, or any Patents related thereto, owned or controlled by the other Party. (b) Inventions. deCODE shall solely own deCODE Inventions and resulting Patents. Roche shall solely own Roche Inventions and resulting Patents. The Parties shall jointly own Joint Inventions and resulting Patents. The determination of inventorship shall be made in accordance with the patent laws of the relevant countries of the Territory. 10.2 Patent Filing, Maintenance and Prosecution Regarding Inventions. (a) Disclosure. As soon as a Party concludes that an Invention has been made, it shall promptly inform the Steering Committee, and provide a summary of the Invention. Should a Party be faced with a possible loss of rights in a Major Country, such communication may take place promptly after filing a priority patent application for the Invention. (b) Filing. (i) deCODE Inventions and Roche Inventions. For deCODE Inventions and Roche Inventions, the Party owning the Invention shall have the first right of election to prepare and file a priority patent application for the Invention, at its own cost. Should the Party owning the Invention elect not to prepare and/or file any such patent application, it shall (i) provide the other Party with written notice as soon as reasonably possible after making such election but in any event no later than sixty (60) days before the other Party would be faced with a possible loss of rights in a Major Country, (ii) give the other Party the right, at the other Party's election and sole expense, to prepare and file the priority application, and (iii) offer reasonable assistance to the other Party in connection with such preparation and filing at no cost to the other Party except for reimbursement of reasonable out-of-pocket expenses incurred by the Party owning the Invention in rendering such assistance. The filing Party shall perform corresponding foreign filings at its own cost, after having discussed the countries for foreign filings with the non-filing Party within nine (9) months after the priority filing. Should the Parties not agree on the countries for foreign filings, either Party will have the right to file the subject of the priority application in the name of both Parties in any country of its own choice at its own cost in any country where the Parties do not agree as to filing. -61- 67 (ii) Joint Inventions. For Joint Inventions, the Parties shall consult and agree upon (i) which Party shall have the first right of election to prepare and file a priority patent application for the Joint Invention, in the name of both Parties, and (ii) sharing of costs. The Party having the first right of election may elect to prepare and file any such patent application at its own cost. Notwithstanding anything to the contrary, if the Parties agreed to share costs, the non-filing Party shall reimburse the filing Party in an amount equal to one-half of the reasonable out-of-pocket expenses incurred by the filing Party in preparing and filing such patent application, within thirty (30) days after receipt of an itemized invoice from the filing Party. Should the Party having the first right of election elect not to prepare and/or file any such patent application, it shall (i) provide the other Party with written notice as soon as reasonably possible after making such election but in any event no later than sixty (60) days before the other Party would be faced with a possible loss of rights in a Major Country, (ii) give the other Party the right, at the other Party's election and sole expense, to prepare and file the priority application in the name of both Parties, and (iii) offer reasonable assistance to the other Party in connection with such preparation and filing at no cost to the other Party except for reimbursement of reasonable out-of-pocket expenses incurred by the Party owning the Invention in rendering such assistance. The filing Party shall perform corresponding foreign filings, at its own cost and in the name of both Parties, after having discussed the countries for foreign filings with the non-filing Party within nine (9) months after the priority filing. Notwithstanding anything to the contrary, for corresponding foreign filings filed in agreed upon countries, if the Parties agreed to share costs, the non-filing Party shall reimburse the filing Party in an amount equal to one-half of the reasonable out-of-pocket expenses incurred by the filing Party in preparing and filing such corresponding foreign filings, within thirty (30) days after receipt of an itemized invoice from the filing Party. Should the Parties not agree on the countries for foreign filings, either Party will have the right to file the subject of the priority application in the name of both Parties in any country of its own choice at its own cost in any country where the Parties do not agree as to filing. (c) Prosecution and Maintenance. (i) deCODE Inventions and Roche Inventions. The filing Party shall prosecute and reasonably maintain applications filed under Section 10.2(b)(i) and patents resulting therefrom at its own expense. On request of the filing Party, the non-filing Party will cooperate in all reasonable ways in connection with the prosecution and maintenance of such applications and patents resulting therefrom, at the expense of the filing Party for all out-of-pocket expenses incurred by the non-filing Party as a result of such cooperation. Upon written request, the filing Party shall inform the non-filing Party -62- 68 of the issuance of such patent application, initiation of an appeal of a rejection of such patent application, or initiation of an interference involving or an opposition to any such patent application or patent resulting therefrom. The filing Party shall provide the non-filing Party, upon the non-filing Party's written request, with copies of substantive communications to and from patent offices regarding such patent applications and patents resulting therefrom in sufficient time before the due date for response in order to give the non-filing Party an opportunity to comment on the content thereof. Should the filing Party no longer wish to prosecute and/or maintain any such patent application or patent resulting therefrom, the filing Party shall (i) provide the non-filing Party with written notice of its wish no later than sixty (60) days before the patent or patent application would otherwise become abandoned, (ii) give the non-filing Party the right, at the non-filing Party's election and sole expense (subject to the credit set forth below), to prosecute and/or maintain such patent or patent application, and (iii) offer reasonable assistance to the non-filing Party in connection with such prosecution and/or maintenance at no cost to the non-filing Party except for reimbursement of the filing Party's reasonable out-of-pocket expenses incurred by the filing Party in rendering such assistance. The non-filing Party shall be entitled to recoup one hundred percent (100%) of such Party's documented reasonable out-of-pocket expenses incurred to prosecute and/or maintain such patents and/or patent applications by taking a credit against any royalty payment otherwise due, as shown on the Net Sales statement provided under Section 9.1, up to a maximum credit, when combined with the credit provided pursuant to Section 10.2(c)(ii), in any given calendar quarter equal to twenty-five percent (25%) of such royalty payments otherwise due, until such amount has been fully credited. (ii) Joint Inventions. The filing Party shall prosecute and reasonably maintain applications filed under Section 10.2(b)(ii) and patents resulting therefrom. For a given patent application filed under Section 10.2(b)(ii), should the non-filing Party have had an obligation under Section 10.2(b)(ii) to reimburse the filing Party in an amount equal to one-half of the reasonable out-of-pocket expenses incurred by the filing Party in preparing and filing such patent application, then the non-filing Party shall reimburse the filing Party in an amount equal to one-half of the reasonable out-of-pocket expenses incurred by the filing Party in prosecuting and maintaining such application and patents resulting therefrom, within thirty (30) days after receipt of an itemized invoice from the filing Party. For a given patent application filed under Section 10.2(b)(ii), should the non-filing Party have had no obligation under Section 10.2(b)(ii) to reimburse the filing Party in an amount equal to one-half of the reasonable out-of-pocket expenses incurred by the filing Party in preparing and filing such patent application, then the filing Party shall prosecute and reasonably maintain such application and patents resulting therefrom at its own cost. -63- 69 On request of the filing Party, the non-filing Party will cooperate in all reasonable ways in connection with the prosecution and maintenance of such applications and patents resulting therefrom, at the expense of the filing Party for all out-of-pocket expenses incurred by the non-filing Party as a result of such cooperation. Upon written request, the filing Party shall inform the non-filing Party of the issuance of such patent application, initiation of an appeal of a rejection of such patent application, or initiation of an interference involving or an opposition to any such patent application or patent resulting therefrom. The filing Party shall provide the non-filing Party, upon the non-filing Party's written request, with copies of substantive communications to and from patent offices regarding such patent applications and patents resulting therefrom in sufficient time before the due date for response in order to give the non-filing Party an opportunity to comment on the content thereof. Should the filing Party no longer wish to prosecute and/or maintain any such patent application or patent resulting therefrom, the filing Party shall (i) provide the non-filing Party with written notice of its wish no later than sixty (60) days before the patent or patent application would otherwise become abandoned, (ii) give the non-filing Party the right, at the non-filing Party's election and sole expense (subject to the credit set forth below), to prosecute and/or maintain such patent or patent application, and (iii) offer reasonable assistance to the non-filing Party in connection with such prosecution and/or maintenance at no cost to the non-filing Party except for reimbursement of the filing Party's reasonable out-of-pocket expenses incurred by the filing Party in rendering such assistance. The non-filing Party shall be entitled to recoup the percentage of such Party's documented reasonable out-of-pocket expenses incurred to prosecute and/or maintain such patents and/or patent applications as the filing Party had agreed was its share of costs relating thereto pursuant to the first paragraph of Section 10.2(b)(ii). Such amount shall be recouped by the non-filing Party by taking a credit against any royalty payment otherwise due, as shown on the Net Sales statement provided under Section 9.1, up to a maximum credit, when combined with the credit provided pursuant to Section 10.2(c)(i), in any given calendar quarter equal to twenty-five percent (25%) of such royalty payments otherwise due, until such amount has been fully credited. 11. PATENT ENFORCEMENT AND INFRINGEMENT. 11.1 Patent Enforcement. (a) Notice. Each Party shall promptly provide written notice to the other Party during the term of this Agreement of any (i) known infringement or suspected infringement of a Program Patent, (ii) institution by a Third Party of a proceeding for the purpose of revoking or holding unpatentable, invalid or unenforceable a claim of a Program Patent, or (ii) unauthorized use or misappropriation of any Program Know-How by a Third Party of which it becomes aware. -64- 70 (b) Responsible Party. For Program Patents and Program Know-How solely owned by a Party, the Party owning such Program Patent or Program Know-How shall have the first right of election to (i) initiate an infringement suit or (ii) take such appropriate action as is reasonably required to defend against such potential revoking or holding unpatentable, invalid or unenforceable a claim of a Program Patent, or (iii) take such other appropriate action as is required to restrain or otherwise prevent such known or suspected infringement or unauthorized use or misappropriation ("Responsible Party"). For Program Patents and Program Know-How jointly owned by the Parties, within thirty (30) days after written notice under Section 11.1(a), the Parties shall consult and agree upon which Party shall be the Responsible Party. (c) Initiation of Suit or Action. Within a period of one hundred and twenty (120) days after the Responsible Party provides or receives written notice under Section 11.1(a), the Responsible Party, in its sole discretion, shall decide whether or not to (i) initiate an infringement suit, (ii) take such appropriate action as is reasonably required to defend against such potential revoking or holding unpatentable, invalid or unenforceable a claim of a Program Patent, or (iii) take such other appropriate action as is reasonably required to restrain or otherwise prevent such known or suspected infringement or unauthorized use or misappropriation ("Suit or Action", collectively). If, within the one hundred and twenty (120) day period, the Responsible Party advises the other Party of a decision to initiate a Suit or Action, the Responsible Party, at its own cost, shall promptly initiate such Suit or Action and provide written notice to the other Party of such initiation. In the event that the Responsible Party does not advise the other Party within the one hundred and twenty (120) day period a decision to initiate such Suit or Action, or if the Responsible Party advises the other Party within the one hundred and twenty (120) day period a decision not to initiate such Suit or Action, the other Party shall thereafter have the right, at its own cost, to initiate such Suit or Action. The Party initiating the Suit or Action ("Initiating Party") shall provide written notice to the Responsible Party of such initiation. The Initiating Party shall keep the other Party informed of the status of any such Suit or Action and, upon the other Party's written request, shall provide the other Party with copies of all substantive documents filed in, and all substantive communications relating to such Suit or Action. If necessary, the other Party shall join as a party to the Suit or Action but shall be under no obligation to participate except to the extent such participation is required as the result of being named party to the suit or proceeding. At the Initiating Party's written request, the other Party shall offer reasonable assistance to the Initiating Party at no charge except for reimbursement of reasonable out-of-pocket expenses incurred by the other Party in rendering such assistance. Reasonable assistance shall include, without limitation, the execution of such legal papers as are reasonably necessary for the prosecution, settlement or compromise of such Suit or Action. -65- 71 Each party shall have the right to be represented in any such Suit or Action by counsel of its own choice at its own expense. (d) Recovery. Any recovery obtained by any Party as a result of any Suit or Action shall be applied first to reimburse each Party for all costs and expenses related to such Suit or Action, and if after such reimbursement any funds shall remain from such recovery, such remaining funds shall be allocated [CONFIDENTIAL TREATMENT REQUESTED] to the Party instituting such Suit or Action, and [CONFIDENTIAL TREATMENT REQUESTED] to the other Party, but in no event shall the other Party be entitled to receive more than the amount of royalties such other Party would have received if the infringing Third Party's sales were deemed to be Net Sales under this Agreement. (e) Settlement. Neither Party shall settle or compromise any such Suit or Action in a manner which would restrict the scope or enforceability of any Program Patent or Program Know-How jointly owned by the Parties without the prior written consent of the other Party, which consent shall not be unreasonably withheld. 11.2 Notice of Certification. Notwithstanding anything to the contrary in Section 11.1, for a Program Patent claiming the making, having made, using, offering for sale, selling or importing of a Product, should either Party receive a certification from a Third Party under the "Drug Price Competition and Patent Term Restoration Act of 1984" (Public Law 98-417), as amended, or its comparable law in a country other than the USA, then such Party shall immediately give written notice to the other Party of such certification. The Responsible Party shall have twenty-one (21) days from the date such Party received the certification to initiate suit. In the event the twenty-one (21) day period expires without the Responsible Party having initiated a suit, the other Party shall have the right, but not the obligation, to immediately bring suit against the Third Party that filed the certification. If either Party initiates a suit within the forty-five (45) day period, it will immediately notify the other Party. 11.3 Infringement Actions by Third Parties. Each Party shall promptly notify the other Party in the event that a Third Party at any time provides written notice to, or commences an action, suit or proceeding against such Party or such Party's Affiliates or sublicensees accusing infringement of patent rights or unauthorized use or misappropriation of its technology owned or controlled by such Third Party, based on an assertion or claim arising out of (i) Roche's, its Affiliate's or its sublicensees making, having made, using, offering for sale, selling or importing Roche Products in the Territory under deCODE Know-How or deCODE Patents, including, without limitation, the making, having made, or using of Candidate Genes or Validated Targets under deCODE Patents or deCODE Know-How by Roche, its Affiliates or its Collaborators to research and/or develop Roche Products; (ii) deCODE's, its Affiliate's or its sublicensees making, having made, using, offering for sale, selling or importing deCODE Products in the Territory under Roche Know-How or Roche Patents, including, without limitation, the making, having made, or using of Candidate Genes or Validated Targets under Roche Patents -66- 72 or Roche Know-How by deCODE, its Affiliates or its Collaborators to research and/or develop deCODE Products; (iii) either Party's fulfilling its obligations under any and all Research Programs under this Agreement. The accused Party shall defend, settle or compromise such action, suit or proceeding at its own discretion and at its own cost; provided, however, that at the accused Party's written request, the other Party shall offer reasonable assistance to the accused Party at no charge except for reimbursement of reasonable out-of-pocket expenses incurred by the other Party in rendering such assistance. Reasonable assistance shall include, without limitation, the execution of such legal papers as are reasonably necessary for the defense, settlement or compromise of such action, suit or proceeding. Each party shall have the right to be represented in any such action, suit or proceeding by counsel of its own choice at its own expense. 12. INDEMNIFICATION. 12.1 Research Activities. Each Party agrees to indemnify, defend and hold the other Party, its Affiliates and its sublicensees, if any, and their respective directors, officers, employees and agents, harmless from and against any and all liabilities, damages, losses, or reasonable costs and expenses (including the reasonable fees of attorneys and other professionals) (collectively "Claims") arising out of the activities of the indemnifying Party in the conduct of any Research Program, except to the extent such Claims arose out of or resulted from the negligence, recklessness or wrongful intentional acts or omissions of the other Party, its Affiliates, or its sublicensees, if any, and their respective directors, officers, employees and agents. 12.2 Product Liability. Each Party shall indemnify, defend and hold the other Party, its Affiliates and its sublicensees, if any, and their respective directors, officers, employees and agents, harmless from and against any and all Claims arising out of the manufacture, use, distribution or sale of any Product by the indemnifying Party, its Affiliates or its sublicensees due to any negligence, recklessness or wrongful intentional acts or omissions by, or strict liability of, the indemnifying Party, its Affiliates or its sublicensees, if any, and their respective directors, officers, employees and agents, except, in each case, to the extent such Claims are due to the negligence, recklessness or wrongful intentional acts or omissions of the other Party, its Affiliates or its sublicensees, if any, and their respective directors, officers, employees and agents. 12.3 Notice. In the event that either Party is seeking indemnification under Section 12.1 or 12.2, such Party shall inform the indemnifying Party of a Claim as soon as reasonably practicable after it receives notice of the Claim, shall permit the indemnifying Party to assume direction and control, at its expense, of the defense of the Claim (including the sole right to settle the claim at the sole discretion of the indemnifying Party, provided that such settlement does not impose any material financial obligation on the indemnified Party), and shall cooperate as requested (at the expense of the indemnifying Party) in the defense of the Claim. The indemnified Party may, at -67- 73 its option and expense, be represented in the defense of the Claim by counsel of its own choice. 13. PUBLICATION; NON-DISCLOSURE. 13.1 Publication. (a) Manuscript. Both Parties recognize that each may wish to publish the results of their scientific work relating to the Research Programs. However, both Parties also recognize the importance of acquiring patent protection and of maintaining Confidential Information as proprietary. Consequently, subject to any applicable laws or regulations obligating either Party to do otherwise, any proposed publication or oral presentation by either Party shall comply with this Section 13.1. At least ninety (90) days before a manuscript is to be submitted to a publisher, the publishing Party will provide the chairperson and secretary of the Steering Committee with a copy of the manuscript]. If the publishing Party wishes to make an oral presentation, it will provide the other Party ("Reviewing Party") with a copy of the abstract (if one is submitted) at least forty (40) days before it is to be submitted. The publishing Party will also provide to the Reviewing Party a copy of the text of the presentation, including all slides, posters, and any other visual aids, at least forty (40) days before the presentation is made. (b) Review of Manuscript. The Reviewing Party in good faith will review the manuscript, abstract, text or any other material provided under Section 13.1(a) ("Proposed Publication") to determine whether the Proposed Publication (i) contains an Invention for which the Reviewing Party desires patent protection or (ii) could reasonably be expected to have a material adverse effect on the commercial value of any Confidential Information that the Reviewing Party reasonably wishes to have remain proprietary. The Reviewing Party will notify (each, a "Withdrawal Notice") the publishing Party within thirty (30) days of receipt of the Proposed Publication if the Reviewing Party, in good faith, determines that the Proposed Publication (i) contains an Invention for which the Reviewing Party desires patent protection or (ii) could reasonably be expected to have a material adverse effect on the commercial value of any Confidential Information that the Reviewing Party reasonably wishes to have remain proprietary. (c) Delay or Withdrawal. If the Reviewing Party provides a Withdrawal Notice that the Proposed Publication (i) contains an Invention for which the Reviewing Party desires patent protection, the publishing Party shall delay its publication or presentation for a period of ninety (90) days from the date of such Withdrawal Notice, extendible upon mutual agreement, to allow for the filing of a priority patent application claiming the Invention. If the Reviewing Party provides a Withdrawal Notice that the Proposed Publication could reasonably be expected to have a material adverse effect on the commercial value of any Confidential Information that the Reviewing Party reasonably wishes to have remain proprietary, the Reviewing Party shall recommend -68- 74 changes it reasonably believes necessary to preserve the Confidential Information as proprietary. If the Proposed Publication contains Confidential Information that was disclosed by the Reviewing Party to the publishing Party under this Agreement, the publishing Party shall incorporate such recommended changes. For all other Confidential Information, the Parties will consult in good faith and agree on mutually acceptable modifications to the Proposed Publication to avoid disclosure of such Confidential Information. 13.2 Non-Disclosure and Non-use; Exceptions. During the term of this Agreement and for five (5) years thereafter, a Receiving Party shall (i) treat Confidential Information provided by a Disclosing Party under this Agreement as it would treat its own Confidential Information of a similar nature and take all reasonable precautions not to disclose such Confidential Information to third parties except Affiliates or potential sublicensees who agree to be bound by the same terms and conditions as found in this Section 13, without the Disclosing Party's prior written authorization and (ii) not use such Confidential Information for other than fulfilling its obligations under this Agreement. The provisions of this Section 13.2 shall not apply to such Confidential Information which the Receiving Party can demonstrate by competent written proof: (a) was known or used by the Receiving Party or its Affiliates prior to the date of disclosure to the Receiving Party or its Affiliates by the Disclosing Party; or (b) either before or after the date of the disclosure to the Receiving Party or its Affiliates, is lawfully disclosed to the Receiving Party or its Affiliates by a third party rightfully in possession of such Confidential Information and not under an obligation of confidentiality to the Disclosing Party with respect to such Confidential Information; or (c) either before or after the date of the disclosure to the Receiving Party or its Affiliates, becomes published or generally known to the public through no fault or omission on the part of the Receiving Party or its Affiliates, but such inapplicability applies only after such Confidential Information is published or becomes generally known; or (d) is independently developed by the Receiving Party or its Affiliates without reference to or reliance upon Confidential Information of the Disclosing Party or its Affiliates; or (e) is required to be disclosed by the Receiving Party, its Affiliates or its sublicensees to comply with applicable laws, to defend or prosecute litigation or to comply with governmental regulations; provided, however, the Receiving Party, its Affiliate or sublicensee provides prior written notice of such disclosure to the Disclosing Party or its Affiliates and, to the extent practicable, takes reasonable and lawful actions to avoid and/or minimize the degree of such disclosure. -69- 75 13.3 Authorized Disclosure. The provisions of Section 13.2 shall not prevent either Party from (i) preparing, filing, prosecuting or maintaining patent applications or patents related to an Invention or a Product, or (ii) disclosing Confidential Information to persons working on behalf of the Receiving Party or to governmental agencies, to the extent the Receiving Party reasonably believes it is required or desirable to secure government approval for the development or marketing of a Product, or (iii) upon imminent Registration of a Product in a country, disclosing Confidential Information to the extent reasonably necessary to promote the use and sale of the Product in the country. 13.4 Injunctive Relief. The Parties acknowledge that monetary damages alone may not adequately compensate the Disclosing Party in the event of a breach by the Receiving Party of this Section 13, and that, in addition to all other remedies available to the Disclosing Party at law or in equity, it may be entitled to injunctive relief for the enforcement of its rights under this Section 13 and to an accounting of profits made during the period of any breach of the Receiving Party's obligations under this Section 13. 13.5 Third Parties. Unless otherwise agreed to in writing, each Party shall require all Third Parties, including consultants, Collaborators, subcontractors, sublicensees or agents involved in fulfilling its obligations under this Agreement, to be bound by the same terms and conditions as found in this Section 13. 14. TERM; TERMINATION. 14.1 Term; Expiration. This Agreement shall commence as of the Effective Date and, unless sooner - terminated as provided hereunder, shall expire as follows: (a) As to each Roche Product in each country in the Territory, this Agreement shall expire upon the expiration of the Royalty Term with respect to such Roche Product in such country. (b) As to each deCODE Product in each country in the Territory, this Agreement shall expire upon the expiration of the Royalty Term with respect to such deCODE Product in such country. (c) This Agreement shall expire in its entirety upon the termination of the Royalty Term with respect to all Roche Products and all deCODE Products throughout the Territory. -70- 76 14.2 Effect of Expiration. (a) Following expiration of the term of this Agreement with respect to a Roche Product in a country in the Territory pursuant to Section 14.1(a), Roche shall have the fully-paid, royalty-free, perpetual right and license to continue to make, have made, use, offer for sale, sell and import such Roche Product in such country. Following expiration of the term of this Agreement in its entirety with respect to all Roche Products pursuant to Section 14.1(c), Roche shall have the fully-paid, worldwide, royalty-free, perpetual right and license to continue to make, have made, use, offer for sale, sell and import all Roche Products in the Territory. (b) Following expiration of the term of this Agreement with respect to a deCODE Product in a country in the Territory pursuant to Section 14.1(b), deCODE shall have the fully-paid, royalty-free, perpetual right and license to continue to make, have made, use, offer for sale, sell and import such deCODE Product in such country. Following expiration of the term of this Agreement in its entirety with respect to all deCODE Products pursuant to Section 14.1(c), deCODE shall have the fully-paid, worldwide, royalty-free, perpetual right and license to continue to make, have made, use, offer for sale, sell and import all deCODE Products in the Territory. 14.3 Termination Without Cause. - (a) During the Research Term. During the Research Term, subject to Sections 14.5, 14.6, 14.7 and 14.8, neither Party may terminate this Agreement for any reason. (b) After the Research Term. (i) By Roche. Subject to Section 14.8, commencing at the end of the Research Term, at any time during the term of this Agreement, Roche may, for any reason, without affecting or altering Roche's other obligations under this Agreement, terminate all rights and licenses by deCODE to Roche under this Agreement by giving six (6) month's prior written notice to deCODE. In such event deCODE shall be entitled to continue to exercise the rights granted to it under this Agreement. The effective date of such termination shall be the date six (6) months after Roche provides such written notice to deCODE. After the effective date of such termination, in no event shall Roche, its Affiliates or sublicensees make, have made, use, offer for sale, sell or import any Roche Product for any Disease. (ii) By deCODE. deCODE may, at any time and for any reason, without affecting or altering deCODE's other obligations under this Agreement, terminate all rights and licenses by Roche to deCODE under this Agreement with respect to a Disease by giving six (6) month's prior written notice to Roche. In such event Roche shall be entitled to continue to exercise the rights granted to it under this Agreement. -71- 77 The effective date of such termination shall be the date six (6) months after deCODE provides such written notice to Roche. After the effective date of such termination, in no event shall deCODE, its Affiliates or sublicensees make, have made, use, offer for sale, sell or import any deCODE Product for any Disease. (c) Obligations. Termination of this Agreement by a terminating Party under Section 14.3(b) shall not release the terminating Party, or its Affiliates or sublicensees from any obligation to make payments or to pay royalties or the percentage of Sublicensing Income to the other Party under this Agreement that accrue prior to the effective date of such termination. (d) Inventory. In the event of termination by a Party under Section 14.3(b), the terminating Party, its Affiliates and sublicensees shall have the right for one (1) year after the effective date of such termination to sell or otherwise dispose of all Products then in its inventory, and shall pay royalties and the percentage of Sublicensing Income thereon, in accordance with the provisions of this Agreement, as though the Agreement had not terminated. After the first anniversary of the effective date of a termination by a terminating Party under Section 14.3(b), in no event shall the terminating Party, its Affiliates or sublicensees sell or otherwise dispose of a Product. (e) Effect of Termination Without Cause. Following any such termination of this Agreement by Roche pursuant to Section 14.3(b)(i): (i) all licenses granted by deCODE to Roche under Section 7 and any other applicable Section of this Agreement shall terminate; (ii) at deCODE's request, Roche shall transmit to deCODE all reports, information and data in the possession or control of Roche, its Affiliates or its sublicensees relating to Abandoned Products (provided that Roche has the right to make available such information to deCODE) within sixty (60) days after the date of such termination; and (iii) at deCODE's request, Roche shall assign, and shall cause its Affiliates and sublicensees to assign, to deCODE all regulatory filings and Registrations in the possession or control of Roche, its Affiliates or its sublicensees as would enable deCODE to carry on the development and/or marketing of Abandoned Products in the Territory, within sixty (60) days of such termination. Following any such termination of this Agreement by deCODE pursuant to Section 14.3(b)(ii), all licenses granted by Roche to deCODE under Section 7 and any other applicable Section of this Agreement shall terminate. 14.4 Effect of Abandonment. (a) Therapeutic Products for a Selected Disease. (i) Following a termination of this Agreement by Roche with respect to all Therapeutic Products for a Selected Disease pursuant to Section 6.3(a)(i) before obtaining a Validated Target for the Selected Disease, all licenses granted by -72- 78 deCODE to Roche under Section 7 and any other applicable Section of this Agreement shall terminate with respect to Therapeutic Products for such Selected Disease. At deCODE's request, within sixty (60) days after the date of such termination, Roche shall [CONFIDENTIAL TREATMENT REQUESTED]. (ii) Following a termination of this Agreement by Roche with respect to all Therapeutic Products for a Selected Disease pursuant to Section 6.3(a)(i) after obtaining a Validated Target for the Selected Disease and prior to the first Registration in any Major Country of a Therapeutic Product for the Selected Disease, all licenses granted by deCODE to Roche under Section 7 and any other applicable Section of this Agreement shall terminate with respect to Therapeutic Products for such Selected Disease. In addition, at deCODE's request, within sixty (60) days after the date of such termination: [CONFIDENTIAL TREATMENT REQUESTED]. (iii) Following a termination of this Agreement by Roche with respect to all Therapeutic Products for a Selected Disease in a given Major Country pursuant to Section 6.3(a)(ii) after the first Registration in any Major Country of a Therapeutic Product for the Selected Disease, all licenses granted by deCODE to Roche under Section 7 and any other applicable Section of this Agreement shall terminate with respect to Therapeutic Products for such Selected Disease in the given Major Country. In addition, at deCODE's request, within sixty (60) days after the date of such termination: [CONFIDENTIAL TREATMENT REQUESTED]. -73- 79 (b) Diagnostic Products for a Selected Disease. (i) Following a termination of this Agreement by Roche with respect to all Diagnostic Products for a Selected Disease pursuant to Section 6.3(b)(i) prior to the first Registration in any Major Country of a Diagnostic Product for the Selected Disease, all licenses granted by deCODE to Roche under Section 7 and any other applicable Section of this Agreement shall terminate with respect to such Diagnostic Products for such Selected Disease. In addition, at deCODE's request, within sixty (60) days after the date of such termination: [CONFIDENTIAL TREATMENT REQUESTED]. (ii) Following a termination of this Agreement by Roche with respect to all Diagnostic Products for a Selected Disease in a given Major Country pursuant to Section 6.3(b)(ii) after the first Registration in any Major Country of a Diagnostic Product for the Selected Disease, all licenses granted by deCODE to Roche under Section 7 and any other applicable Section of this Agreement shall terminate with respect to Diagnostic Products for such Selected Disease in the given Major Country. In addition, at deCODE's request, within sixty (60) days after the date of such termination: [CONFIDENTIAL TREATMENT REQUESTED]. (c) Roche Product. Following a termination of this Agreement in a given country by Roche with respect to a Roche Product pursuant to Section 6.4(c) after such Roche Product was the subject of a Registration in the given country, all licenses granted by deCODE to Roche under Section 7 and any other applicable Section of this Agreement shall terminate with respect to the Roche Product in the country. In addition, at deCODE's request, within sixty (60) days after the date of such termination: [CONFIDENTIAL TREATMENT REQUESTED] -74- 80 [CONFIDENTIAL TREATMENT REQUESTED] 14.5 Breach by Roche Other than Under Section 6.2 or 6.4. (a) Procedure. (i) Failure by Roche to comply with any of its material obligations contained in this Agreement, other than an obligation under Section 6.2 or 6.4, shall entitle deCODE to give to Roche written notice ("Default Notice") specifying the nature of the default and specifically stating that deCODE intends to terminate this Agreement in the event Roche should fail to cure the default. (ii) Roche shall have a period ("Cure Period") of thirty (30) days after a Default Notice to cure such default in the case of a payment default, and ninety (90) days after a Default Notice in the case of all other defaults. Such ninety (90) day period shall be extended to end one hundred and twenty (120) days after a Default Notice, or otherwise as the Parties may agree, if Roche within sixty (60) days after such Default Notice in good faith commences and diligently continue actions to cure such default. (iii) If, after a Cure Period, Roche does not cure the relevant default, deCODE shall be entitled, without prejudice to any of its other rights conferred on it by this Agreement, and in addition to any other remedies available to it by law or in equity, to give a written notice either: (1) terminating this Agreement in its entirety; or (2) without affecting or altering Roche's other obligations under this Agreement, terminating all rights licensed by deCODE to Roche under this Agreement, in which event deCODE shall be entitled to continue to exercise the rights granted to it under this Agreement. (iv) The effective date of any such termination shall be the date that Roche receives such notice pursuant to the preceding clause. -75- 81 (b) Effect of Such Breach. (i) If deCODE terminates this Agreement in its entirety, after the effective date of termination, in no event shall either Party, its Affiliates or sublicensees make, have made, use, offer for sale, sell or import any Product for any Disease. (ii) If deCODE, without affecting or altering Roche's other obligations under this Agreement, terminates all rights licensed by deCODE to Roche under this Agreement (in which event deCODE shall be entitled to continue to exercise the rights granted to it under this Agreement), then after the effective date of such termination in no event shall Roche, its Affiliates or sublicensees make, have made, use, offer for sale, sell or import any Roche Product for any Disease. In addition, as to any Selected Disease for which a Validated Target has been obtained, at deCODE's request, within sixty (60) days after the effective date of such termination: [CONFIDENTIAL TREATMENT REQUESTED]. 14.6 Breach of Efforts Obligation by Roche. (a) Therapeutic Efforts for a Disease. (i) If it is agreed by the Parties, or if it is resolved in accordance with Section 16.13, that Roche, within the Evidence Period provided for in Section 6.2(a)(i), has not [CONFIDENTIAL TREATMENT REQUESTED]. In addition, at deCODE's request, within sixty (60) days after the effective date of such termination: [CONFIDENTIAL TREATMENT REQUESTED] -76- 82 [CONFIDENTIAL TREATMENT REQUESTED] (ii) If it is agreed by the Parties, or if it is resolved in accordance with Section 16.13, that Roche, within the Evidence Period provided for in Section 6.2(a)(ii), has not [CONFIDENTIAL TREATMENT REQUESTED]. In addition, at deCODE's request, within sixty (60) days after the effective date of such termination: [CONFIDENTIAL TREATMENT REQUESTED]. (b) Diagnostic Products for a Disease. (i) If it is agreed by the Parties, or if it is resolved in accordance with Section 16.13, that Roche, within the Evidence Period provided for in Section 6.2(b)(i), has not [CONFIDENTIAL TREATMENT REQUESTED] -77- 83 [CONFIDENTIAL TREATMENT REQUESTED]. In addition, at deCODE's request, within sixty (60) days after the effective date of such termination: [CONFIDENTIAL TREATMENT REQUESTED] (ii) If it is agreed by the Parties, or if it is resolved in accordance with Section 16.13, that Roche, within the Evidence Period provided for in Section 6.2(b)(ii), has not [CONFIDENTIAL TREATMENT REQUESTED]. In addition, at deCODE's request, within sixty (60) days after the effective date of such termination: [CONFIDENTIAL TREATMENT REQUESTED] -78- 84 14.7 No Sales After Registration. (a) If it is agreed by the Parties, or if it is resolved in accordance with Section 16.13, that Roche, within the Evidence Period provided for in Section 6.4(b), has not [CONFIDENTIAL TREATMENT REQUESTED]. (b) In addition, at deCODE's request, within sixty (60) days after the date of such termination: [CONFIDENTIAL TREATMENT REQUESTED]. 14.8 Breach by deCODE. (a) Procedure. (i) Failure by deCODE to comply with any of its material obligations contained in this Agreement, shall entitle Roche to give to deCODE written notice ("Default Notice") specifying the nature of the default and specifically stating that Roche intends to terminate this Agreement in the event deCODE should fail to cure the default. (ii) deCODE shall have a period ("Cure Period") of thirty (30) days after a Default Notice to cure such default in the case of a payment default, and ninety (90) days after a Default Notice in the case of all other defaults. Such ninety (90) day period shall be extended to end one hundred and twenty (120) days after a Default Notice, or otherwise as the Parties may agree, if deCODE within sixty (60) days after -79- 85 such Default Notice in good faith commences and diligently continue actions to cure such default. (iii) If, after a Cure Period, deCODE does not cure the relevant default, Roche shall be entitled, without prejudice to any of its other rights conferred on it by this Agreement, and in addition to any other remedies available to it by law or in equity, to give a written notice either: (1) terminating this Agreement in its entirety; or (2) without affecting or altering deCODE's other obligations under this Agreement, terminating all rights licensed by Roche to deCODE under this Agreement in whole, in which event Roche shall be entitled to continue to exercise the rights granted to it under this Agreement. (iv) The effective date of termination shall be the date that deCODE receives such notice pursuant to the preceding clause. (b) Effect of Such Breach. (i) If Roche terminates this Agreement in its entirety, after the effective date of termination, in no event shall either Party, its Affiliates or sublicensees make, have made, use, offer for sale, sell or import any Product for any Disease. (ii) If Roche, without affecting or altering deCODE's other obligations under this Agreement, terminates all rights licensed by Roche to deCODE under this Agreement in whole (in which event Roche shall be entitled to continue to exercise the rights granted to it under this Agreement), after the effective date of such termination in no event shall deCODE, its Affiliates or sublicensees make, have made, use, offer for sale, sell or import any deCODE Product for any Disease. 14.9 Obligations. In no event shall a termination under Section 5.2(d), Section 6 or under this Section 14 release a Party or its Affiliates or sublicensees from any obligation to make payments or to pay royalties or a percentage of Sublicensing Income to the other Party under this Agreement that accrued prior to the effective date of termination. 14.10 Termination of Sublicenses. Upon any termination by Roche under Section 5.2, 6.3(a), 6.3(b), 6.4(c) or 14.3(b)(i), or by deCODE under Section 14.6(a), 14.6(b), 14.7 or 14.5(a)(iii), all sublicenses granted by Roche under this Agreement with respect to the rights and license being terminated shall terminate simultaneously, subject, nevertheless, in the case of termination by Roche under Section 14.3(b)(i), to Section 14.3(d). Upon any termination by deCODE under Section 14.3(b)(ii) or by Roche under Section 14.8, all sublicenses granted by deCODE under this Agreement with respect to -80- 86 the rights and license being terminated shall terminate simultaneously, subject, nevertheless, in the case of termination by deCODE under Section 14.3(b)(ii), to Section 14.3(d). 14.11 Surviving Obligations. Termination of this Agreement in its entirety or expiration of this Agreement shall not terminate the Parties' rights and obligations under Sections 5.6, 5.7(a)(v), 5.7(a)(vi), 5.8, 5.11(b), 9, 11 (only to the extent that a Suit or Action has been commenced prior to the date of such termination or expiration), 12, 13.2, 13.3, 13.5, 14, 16.3, 16.4, 16.6, 16.12 and 16.13 which shall survive termination or expiration hereof, as well as any other provision intended by the Parties to survive any such termination or expiration hereof. 14.12 No Waiver. The right of deCODE to terminate under Section 14.5, Section 14.6 or Section 14.7 and of Roche to terminate under Section 14.8, shall not be affected in any way by a waiver or failure to take action with respect to any previous default. An election of remedy by a Party for a material breach of this Agreement under this Section on one occasion shall not constitute a waiver as to any other remedy that may be available to such Party under this Section 14 as to any material breach on another occasion. 14.13 Dispute. And any dispute concerning whether a Party is in default under the terms of this Agreement shall be referred for resolution in accordance with Section 16.13. The effectiveness of any notice given pursuant to this Section shall be tolled during and until such resolution of such dispute. 15. FORCE MAJEURE. 15.1 Events of Force Majeure. Neither Party shall be held liable or responsible to the other Party nor be deemed to be in default under or in breach of any provision of this Agreement for failure or delay in fulfilling or performing any obligation of this Agreement when such failure or delay is due to force majeure, and without the fault or negligence of the Party so failing or delaying. For purposes of this Agreement, force majeure is defined as causes beyond the control of the Party, including, without limitation, acts of God; acts, regulations, or laws of any government; war; civil commotion; destruction of production facilities or materials by fire, flood, earthquake, explosion or storm; labor disturbances; epidemic; and failure of public utilities or common carriers. In such event Roche or deCODE, as the case may be, shall immediately notify the other Party of such inability and of the period for which such inability is expected to continue. The Party giving such notice shall thereupon be excused from such of its obligations under this Agreement as it is thereby disabled from performing for so long as it is so disabled and the thirty (30) days thereafter. The disabled Party shall also give notice immediately upon the termination of the force majeure. To the extent possible, each Party shall use reasonable efforts to minimize the duration of any force majeure. -81- 87 16. MISCELLANEOUS. 16.1 Relationship of Parties. Nothing in this Agreement is intended or shall be deemed to constitute a partnership, agency, employer-employee or joint venture relationship between the Parties. Each Party's performance under this Agreement is that of a separate entity. 16.2 Assignment. Neither Party shall be entitled to assign its rights hereunder without the express written consent of the other Party hereto, except that both Roche and deCODE may otherwise assign their respective rights and transfer their respective duties hereunder to any assignee of all or substantially all of their respective businesses (or that portion thereof to which this Agreement relates) or in the event of their respective merger or consolidation or similar transaction. No assignment and transfer shall be valid or effective unless and until the assignee/transferee shall agree in writing to be bound by the provisions of this Agreement. Notwithstanding anything to the contrary, during the Research Term, in no event shall deCODE be entitled to assign its rights hereunder without the express written consent of Roche. Notwithstanding anything to the contrary, without notice to the other Party, either Party may at any time and for any reason assign all or certain rights and obligations to its Affiliates who agree to be bound by the terms and conditions of this Agreement; provided that such Party shall remain liable for all obligations assigned to its Affiliates. 16.3 Disclaimer of Warranties. THE PARTIES EXPRESSLY DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT OF THIRD PARTY RIGHTS, UNLESS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT. 16.4 Further Actions. Each Party agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement. 16.5 Notice. Any notice or request required or permitted to be given under or in connection with this Agreement shall be deemed to have been sufficiently given if in writing and personally delivered or sent by certified mail (return receipt requested), or overnight express courier service (signature required), prepaid, to the Party for which such notice is intended, at the address set forth for such Party below: -82- 88 (a) In the case of Roche, to: F.Hoffmann-La Roche Ltd Grenzacherstrasse 124 CH-4070 Basel Switzerland Attention: Corporate Law and to: Hoffmann-La Roche Inc. 340 Kingsland Street Nutley, New Jersey 07110 Attention: Corporate Secretary (b) In the case of deCODE, to: deCODE genetics, Inc. Lynghalsi 1 IS-110 Reykjavik ICELAND Attention: President or to such other address for such Party as it shall have specified by like notice to the other Party, provided that notices of a change of address shall be effective only upon receipt thereof. If delivered personally, the date of delivery shall be deemed to be the date on which such notice or request was given, unless otherwise set forth in this Agreement. If sent by overnight express courier service, the date of delivery shall be deemed to be the next business day after such notice or request was deposited with such service, unless otherwise set forth in this Agreement. If sent by certified mail, the date of delivery shall be deemed to be the third business day after such notice or request was deposited with the U.S. Postal Service, or the foreign equivalent thereto, unless otherwise set forth in this Agreement. 16.6 Use of Name. Except as otherwise provided herein, neither Party shall have any right, express or implied, to use in any manner the name or other designation of the other Party or any other trade name or trademark of the other Party for any purpose, without the prior written consent of the other Party. 16.7 Public Announcements. (a) Disclosure of Agreement and Press Release. Except as required by law (including, without limitation, disclosure requirements of the U.S. Securities and Exchange Commission, Nasdaq or any other stock exchange on which securities issued -83- 89 by deCODE are traded) and as permitted by Section 13.1, neither Party shall make any public announcement concerning this Agreement, the Equity Agreement, or the subject matter hereof or thereof, without the prior written consent of the other Party, which shall not be unreasonably withheld. It shall not be unreasonable for a Party to withhold consent with respect to any public announcement containing any Confidential Information of such Party or the financial terms of this Agreement. In the event of a required public announcement, the Party making such announcement shall provide the other Party with a copy of the proposed text prior to such announcement sufficiently in advance of the scheduled release of such announcement to afford such other Party a reasonable opportunity to review and comment upon the proposed text, which comment shall be incorporated unless prohibited by law, as determined by counsel to the Party required to make such public announcements. The Parties agree that each may make an initial public announcement consistent with the form of announcement contained as Exhibit E. (b) Exceptions. Nothing in Section 13 or Section 16.7 shall prevent deCODE in connection with efforts to secure financing at any time during the term of this Agreement, from issuing statements as to achievements made or the status of the work being done by the Parties under this Agreement ("Statements"), so long as such Statements do not jeopardize the ability to obtain patent protection on Inventions or disclose Confidential Information; provided (except in the case of a public offering) the recipients of such Statements agree in writing to maintain such Statements in confidence. Nothing in Section 13 or Section 16.7 shall prevent deCODE from issuing Statements necessary to comply with applicable law (including the disclosure requirements of the U.S. Securities and Exchange Commission, Nasdaq or any other stock exchange on which securities issued by deCODE are traded); provided that deCODE shall provide Roche with a copy of the proposed text of such Statements sufficiently in advance of the scheduled release thereof to afford Roche a reasonable opportunity to review and comment upon the proposed text and discuss any disagreements thereon. 16.8 Waiver. A waiver by either Party of any of the terms and conditions of this Agreement in any instance shall not be deemed or construed to be a waiver of such term or condition for the future, or of any subsequent breach hereof. All rights, remedies, undertakings, obligations and agreements contained in this Agreement shall be cumulative and none of them shall be in limitation of any other remedy, right, undertaking, obligation or agreement of either Party. 16.9 Compliance with Law. Nothing in this Agreement shall be deemed to permit a Party to export, reexport or otherwise transfer any Technical Information or Product under this Agreement without compliance with applicable laws. 16.10 Severability. When possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any -84- 90 provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 16.11 Amendment. No amendment, modification or supplement of any provisions of this Agreement shall be valid or effective unless made in writing and signed by a duly authorized officer of each Party. 16.12 Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware. 16.13 Arbitration. (a) Escalation. In the event the Parties are unable to resolve any dispute, controversy or claim arising out of this Agreement, or the breach, termination or invalidity thereof ("Dispute"), the Parties shall refer such Dispute for further review and resolution to the Executive Officers of each Party. The Executive Officers of each Party shall use reasonable efforts to resolve the matter within thirty (30) days after the matter is referred to them. (b) Binding Arbitration. If the Executive Officers cannot resolve the Dispute within thirty (30) days, then such Dispute shall be settled by final and binding arbitration pursuant to the then current commercial arbitration rules of the American Arbitration Association ("AAA") as provided below: (i) The Arbitration Tribunal shall consist of three (3) arbitrators. Each Party shall nominate in the request for arbitration and the answer thereto one (1) arbitrator and the two (2) arbitrators so named will then jointly appoint the third arbitrator as chairman of the Arbitration Tribunal. If one Party fails to nominate its arbitrator or, if the Party's arbitrators cannot agree on the person to be named as chairman within sixty (60) days, the AAA shall make the necessary appointments of arbitrator or chairman. (ii) The place of arbitration shall be in New York, New York and the arbitration proceedings shall be held in English. (iii) The award of the Arbitration Tribunal shall be final and judgment upon such an award may be entered in any competent court or application may be made to any competent court for juridical acceptance of such an award and order of enforcement. (c) Injunctive Relief. Section 16.13(b) shall not prohibit a Party from seeking - injunctive relief from a court of competent jurisdiction in the event of a breach -85- 91 or prospective breach of this Agreement by the other Party which would cause irreparable harm to the first Party. 16.14 Entire Agreement. This Agreement, together with the Exhibits, which are attached hereto and made a part hereof, sets forth the entire agreement and understanding between the Parties as to the subject matter hereof and merges all prior discussions and negotiations between them, and neither of the Parties shall be bound by any conditions, definitions, warranties, understandings or representations with respect to such subject matter other than as provided herein or as duly set forth on or subsequent to the date hereof in writing and signed by a proper and duly authorized officer or representative of the Party to be bound thereby. 16.15 Parties in Interest and Bankruptcy. (a) All the terms and provisions of this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Parties hereto and their respective permitted successors and assigns under Section 16.2. (b) Notwithstanding anything to the contrary, in the event that either Party shall become insolvent, shall make an assignment to the benefit of creditors, or shall have a petition in bankruptcy filed for or against it (which, in the case of an involuntary petition, is not dismissed or stayed within sixty (60) days after such petition is filed) ("Bankrupt Party"), the other Party shall have the right to terminate this entire Agreement immediately upon written notice of such termination and the provisions of Section 14.5 or Section 14.8, as the case may be, shall apply. All rights and licenses granted by the Bankrupt Party under this Agreement are, and shall otherwise be deemed to be, for purposes of Section 365(n) of Title 11, US Code (the "Bankruptcy Code"), licenses of rights to "intellectual property" as defined under Section 101(60) of the Bankruptcy Code. Unless the other Party elects to terminate this Agreement under this Section 16.15(b), the Parties agree that the other Party, as a licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code, subject to the continued fulfillment of its obligations under this Agreement. 16.16 Descriptive Headings. The descriptive headings of this Agreement are for convenience only, and shall be of no force or effect in construing or interpreting any of the provisions of this Agreement. 16.17 Counterparts. This Agreement may be executed simultaneously in any number of counterparts, any one of which need not contain the signature of more than one Party but all such counterparts taken together shall constitute one and the same agreement. -86- 92 16.18 Interpretation. All defined terms used in this Agreement shall have the meaning assigned to such term under this Agreement whether used in the singular or plural. -87- 93 IN WITNESS WHEREOF Hoffmann-La Roche Inc., F.Hoffmann-LaRoche Ltd, and deCODE genetics, Inc. have caused this Agreement to be duly executed by their authorized representatives on the dates written below. HOFFMAN-LA ROCHE INC. By: /s/ Dennis Y. Loh Name: Dennis Y. Loh Title: Vice President Date: Jan. 23, 1998 F.HOFFMANN-LA ROCHE LTD By:/s/ R. Schaffner By: /s/ Jonathan K.C. Knowles Name: R. Schaffner Name: Jonathan K.C. Knowles Title:Head of Pharma Licensing Title: President of Global Research Date: Jan. 23, 1998 Date: Feb 2, 1998 DECODE GENETICS, INC. By:/s/ Kari Stefansson Name: Kari Stefansson Title: President Date: -88- 94 EXHIBIT A PRIMARY DISEASES [CONFIDENTIAL TREATMENT REQUESTED] -89- 95 EXHIBIT B SECONDARY DISEASES [CONFIDENTIAL TREATMENT REQUESTED] -90- 96 EXHIBIT C ENGLISH LANGUAGE TRANSLATION OF INFORMED CONSENT FORM -91- 97 DECLARATION OF CONSENT TO PARTICIPATE IN A STUDY OF THE HEREDITY OF XXXXX I, the undersigned, having agreed to participate in this study, have been apprised of the following: 1. The study involves research into the heredity of XXXXX in Icelandic families for the purpose of isolating and identifying the genetic factors that contribute to the disorder. The study has been approved by the Data Protection Commission and the Ethics Committee. I understand that I may unconditionally decline to participate or withdraw from participation in this study at any time. 2. I agree to be interviewed and respond to questions regarding this disorder so that the condition may be diagnosed as accurately as possible. 3. 50 ml of blood will be drawn from a vein in order to isolate its genetic components (deoxyribonucleic acid, DNA). Apart from the minor discomfort associated with normal blood tests, there is little risk of adverse effects beyond the possibility of bleeding, bruising and infection at the site of the puncture. 4. May name and identification number will be recorded in a computer and used to investigate my relation to other individuals who have been diagnosed with XXXXX. This study will be performed by comparing the data with computerized genealogical records with the authorization of the Data Protection Commission. The computer records will also be used in processing the data and results of the study. 5. Examination of the genetic specimens or mislabeling of tubes may result in indication of erroneous paternity. Any such specimens will be designated as mislabeled tubes, and the parties responsible for the study declare that they will not seek further information regarding the specimen. 6. Conclusions of studies may be published in medical journals. Such publications will contain no references to individuals or persons, and will refer exclusively to numerical and coded data. 7. The parties conducting the study have undertaken to hold in confidence any information provided by me and will to the best of their ability endeavor to limit the distribution of personal information. Thus, no personal identification will be used on specimens or documents; instead, bar codes will be used which can only be deciphered using a specific key and the required equipment. It will not be possible to gain access to any information regarding conclusions on an individual basis. 8. The study is conducted by and in co-operation between XXXXX and deCODE genetics, which is a company specializing in the study of genetic disorders. 9. I consent to the biological material and data collected on me being preserved in encoded form so that both may be used later for research on other disorders than those specified above, provided that such research is conducted for the purpose of discovering mechanisms which could lead to a cure or preventive measures. All handling of specimens and information shall conform to all the rules on security and handling of data laid out herein and all research is subject to the approval of the Data Protection Commission and the Ethics Committee, otherwise, the keys enabling the data or specimens to be traced to me shall be destroyed and the Data Protection Commission informed of the destruction. -92- 98 10. Our participation in this study will contribute to increase knowledge of the genetics of XXXXX and could be useful in treatment or prevention. Financial costs and work contribution in the study are paid for by the parties involved in the study, and the results of the study will be based on a group of participants as whole and not on individuals. I therefore renounce all claims to any potential profits or economic gain resulting from this research. In the event that the results can be sold, benefits will accrue to further research of this disorder. XXXXX, or other disorders where heredity is a contributing factor. - ---------------------------------------- ------------------------------- Signature of participant/custodian, date Signature of person responsible for the study, date. -93- 99 EXHIBIT D INITIAL STEERING COMMITTEE Initial Steering Committee Members from Roche: [CONFIDENTIAL TREATMENT REQUESTED] Initial Steering Committee Members from deCODE: Dr. Kari Stefansson Dr. Jeffrey Gulcher Dr. C. Augustine Kong Initial Steering Committee Chairperson Dr. Kari Stefansson Initial Steering Committee Secretary [CONFIDENTIAL TREATMENT REQUESTED] -94- 100 EXHIBIT E FORM OF PUBLIC ANNOUNCEMENT (Omitted) -95- EX-10.12 16 AMENDED & RESTATED INVESTOR RIGHTS AGREEMENT 1 EXHIBIT 10.12 AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT OF DECODE GENETICS, INC. AS FURTHER AMENDED AND RESTATED THROUGH MARCH 1, 2000 2 TABLE OF CONTENTS
Page 1. DEFINITIONS..............................................................................................2 2. RESTRICTIONS ON TRANSFER; REGISTRATION...................................................................4 2.1 Restriction on Transfer......................................................................4 2.2 Demand Registration..........................................................................5 2.3 Piggyback Registrations......................................................................7 2.4 Form S-3 Registration........................................................................8 2.5 Series C Investor Registration Rights........................................................9 2.6 Expenses of Registration....................................................................10 2.7 Obligation of the Company...................................................................10 2.8 Termination of Registration Rights..........................................................12 2.9 Delay of Registration; Furnishing Information...............................................12 2.10 Indemnification.............................................................................12 2.11 Assignment of Registration Rights...........................................................14 2.12 Acceptance of Registration Rights...........................................................14 2.13 Limitation on Subsequent Registration Rights................................................15 2.14 "Market Standoff" Agreement.................................................................15 2.15 Rule 144 Reporting..........................................................................15 3. COVENANTS OF THE COMPANY................................................................................16 3.1 Basic Financial Information and Reporting...................................................16 3.2 Inspection Rights...........................................................................17 3.3 Confidentiality of Records..................................................................17 3.4 Reservation of Common Stock.................................................................17 3.5 Key Man Insurance...........................................................................17 3.6 Visitation Observer Rights..................................................................17 3.7 Proprietary Information and Inventions Agreement............................................18 3.8 Directors' Liability and Indemnification....................................................18 3.9 Real Property Holding Corporation...........................................................18 3.10 Additional Major Investor...................................................................19 3.11 Termination of Covenants....................................................................19 4. RIGHTS OF FIRST REFUSAL.................................................................................19 4.1 Roche Right of First Refusal................................................................19 4.2 Investor Rights of First Refusal............................................................20 4.3 Termination of Rights.......................................................................21 4.4 Reserved....................................................................................21 4.5 Excluded Securities.........................................................................21 4.6 Reserved....................................................................................22
(i) 3
5. MISCELLANEOUS...........................................................................................22 5.1 Governing Law...............................................................................22 5.2 Future Employees............................................................................22 5.3 Survival....................................................................................22 5.4 Successors and Assigns......................................................................22 5.5 Severability................................................................................22 5.6 Amendment and Waiver........................................................................23 5.7 Delays or Omissions.........................................................................24 5.8 Notices.....................................................................................24 5.9 Titles and Subtitles........................................................................24 5.10 Counterparts................................................................................24
(ii) 4 TABLE OF CONTENTS (continued) Page EXHIBITS EXHIBIT A Series A Investors EXHIBIT B Series B Investors EXHIBIT C Series C Investors EXHIBIT D Investor Founders EXHIBIT E Form of Director Indemnification Contract (iii) 5 DECODE GENETICS, INC. AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT THIS AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (this "Agreement") dated as of February 2, 1998, by and among deCODE genetics, Inc., a Delaware corporation with offices at Lynghalsi 1, IS-110 Reykjavik, Iceland (the "Company"), the investors listed on Exhibit A attached, as amended from time to time (the "Series A Investors"), the investors listed on Exhibit B attached, as amended from time to time (the "Series B Investors"), the investor listed on Exhibit C attached, as amended from time to time (the "Series C Investor"), and, solely for those provisions specifically provided in this Agreement, Kari Stefansson and Jeffrey Gulcher, as listed on Exhibit D attached (the "Investor Founders"). The Series A Investors, the Series B Investors and the Series C Investor are collectively referred to as the "Investors" and each individually as an "Investor." PRELIMINARY STATEMENTS A. Certain of the Series A Investors purchased 11,790,375 shares of Series A Preferred Stock, $.001 par value per share, of the Company (the "Series A Preferred Stock") and warrants (the "Series A Warrants") to purchase 1,137,814 shares of Series A Preferred Stock (the "Series A Warrant Shares") pursuant to that certain Series A Preferred Stock and Warrant Purchase Agreement among the Series A Investors and the Company dated as of August 23, 1996 (the "Series A Purchase Agreement"). A certain other Series A Investor purchased 100,000 shares of Series A Preferred Stock, and is obligated to acquire up to an additional 300,000 shares of Series A Preferred Stock, pursuant to that certain Settlement Agreement between such Series A Investor and the Company dated as of December 31, 1997 (the "Settlement Agreement"). B. The Company contemplates that it will issue and sell to the Series B Investors, as initially determined at such time, up to 5,000,000 shares of Series B Preferred Stock, $.001 par value per share, of the Company (the "Series B Preferred Stock") pursuant to a Series B Preferred Stock Purchase Agreement among the Series B Investors and the Company (the "Series B Purchase Agreement"), on terms and conditions including the terms and conditions relating to the Series B Preferred Stock contained in this Agreement. C. The Series C Investor has on this date: (i) purchased 2,500,000 shares of Series C Preferred Stock, $.001 par value per share, of the Company (the "Series C Preferred Stock"), (ii) purchased warrants (the "Initial Warrants") to purchase up to 250,000 shares of Series C Preferred Stock (the "Initial Warrant Shares"), (iii) made a commitment to purchase an additional 1,111,111 shares of Series C Preferred Stock upon the achievement of certain milestones, (iv) obtained a three-year option to purchase an additional 555,556 shares of Series C Preferred Stock, and (v) acquired the right to purchase warrants (the "Subsequent Warrants") (the Initial Warrants and the Subsequent Warrants collectively, the "Series C Warrants") to purchase an aggregate of 166,667 shares of Series C Preferred Stock (the "Subsequent Warrant Shares") (the Initial Warrant Shares and the Subsequent Warrant Shares, the "Series C Warrant Shares"), pursuant to that certain Series C Preferred Stock 6 and Warrant Purchase Agreement of even date herewith between the Series C Investor and the Company (the "Series C Purchase Agreement"). D. The Series A Investors are parties to that certain Amended and Restated Investor Rights Agreement dated as of January 20, 1998 with the Company (the "Existing Investor Rights Agreement"). E. In order to induce the Series C Investor to enter into and consummate the transactions contemplated under the Series C Purchase Agreement, the Company and the Series A Investors have agreed to amend and restate the Existing Investor Rights Agreement to include the granting of certain rights to the Series B Investors and the Series C Investor, as set forth in this Agreement. NOW, THEREFORE, in consideration of foregoing statements and the mutual covenants and agreements of the Parties contained in this Agreement, the Series A Purchase Agreement, the Settlement Agreement and the Series C Purchase Agreement, and to be contained in the Series B Purchase Agreement, the parties mutually agree as follows: 1. DEFINITIONS. As used in this Agreement the following terms shall have the following respective meanings: 1.1 "Common Stock" means the Common Stock, $.001 par value per share, of the Company. 1.2 "Equity Securities" shall mean (i) any Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or other security of the Company, (ii) any security convertible, with or without consideration, into any Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or other security (including any option to purchase such a convertible security), (iii) any security carrying any warrant or right to subscribe to or purchase any Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or other security or (iv) any such warrant or right (including, without limitation, the Series A Warrants and the Series C Warrants). 1.3 "Exchange Act" means the United States Securities Exchange Act of 1934, as amended. 1.4 "Founders Shares" shall mean the Common Stock issued to the Investor Founders from time to time. 1.5 "Holder" means any person owning of record Shares or Registrable Securities that have not been sold to the public or any assignee of record of such Registrable Securities in accordance with Section 2.11. 1.6 "Initial Offering" means the Company's first firm commitment underwritten public offering of its Common Stock registered under the Securities Act. -2- 7 1.7 "Major Investor" means any Investor (with its affiliates) who owns not less than two percent (2%) of the Company's outstanding Common Stock (treating all shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock on an as-converted-to-Common Stock basis). 1.8 "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 effectiveness of such registration statement or document. 1.9 "Registrable Securities" means (i) Common Stock issued or issuable upon conversion of the Shares; and (ii) any Common Stock issued as (or issuable upon the conversion or exercise of any warrants, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the Common Stock described in clause (i). Notwithstanding the foregoing, Registrable Securities shall not include: (1) any Common Stock not issued or issuable to Holders of Series A Preferred Stock, Series B Preferred Stock and/or Series C Preferred Stock, except as specifically provided in Section 2.3(d), or (2) any securities sold by a person to the public either pursuant to a registration statement or Rule 144 promulgated under the Securities Act or sold in a private transaction in which the transferror's rights under Section 2 of this Agreement are not assigned. 1.10 "Registrable Securities then outstanding" shall be the number of shares determined by calculating the total number of shares of the Company's Common Stock that are Registrable Securities and either (i) are then issued and outstanding, or (ii) are issuable pursuant to then exercisable or convertible securities. 1.11 "Registration Expenses" shall mean all expenses incurred by the Company in complying with Sections 2.2, 2.3, 2.4 and 2.5, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements not to exceed Fifteen Thousand Dollars ($15,000) of a single special counsel for the Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). 1.12 "Securities Act" shall mean the United States Securities Act of 1933, as amended. 1.13 "Selling Expenses" shall mean all underwriting discounts and selling commissions applicable to the sale. 1.14 "Shares" shall mean: (i) the Series A Preferred Stock issued pursuant to the Series A Purchase Agreement, including the Series A Warrant Shares issued upon exercise of the Series A Warrants issued pursuant to the Series A Purchase Agreement, and the Series A Preferred Stock issued pursuant to the Settlement Agreement; (ii) the Series B Preferred Stock issued pursuant to the Series B Purchase Agreement; and (iii) the Series C Preferred Stock issued pursuant to the Series C Purchase Agreement, including the Series C Warrant Shares issued upon exercise of the Series C Warrants issued pursuant to, and upon the exercise of the option granted under, the Series C Purchase Agreement. -3- 8 1.15 "Form S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. 1.16 "SEC" or "Commission" means the United States Securities and Exchange Commission. 2. RESTRICTIONS ON TRANSFER; REGISTRATION. 2.1 Restriction on Transfer. (a) Each Holder agrees not to make any disposition of all or any portion of the Shares or Registrable Securities unless and until: (i) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (ii) (A) The transferee has agreed in writing to be bound by the terms of this Agreement, (B) such Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (C) if reasonably requested by the Company, such Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except when the Company reasonably believes, in unusual circumstances and after consultation with counsel, that Rule 144 may not be available with respect to a proposed transfer. (iii) Notwithstanding the provisions of Sections 2.1(a)(i) and (ii), no such registration statement or opinion of counsel shall be necessary for a transfer by a Holder in which no consideration is given and which is (A) a partnership to its partners or former partners in accordance with partnership interests, (B) a corporation to an affiliate or to its stockholders in accordance with their interest in the corporation, (C) a limited liability company to its members or former members in accordance with their interest in the limited liability company, or (D) to the Holder's family member or trust for the benefit of an individual Holder; provided, that the transferee will be subject to the terms of this Agreement to the same extent as if he or she were an original Holder under this Agreement. (b) Each certificate representing Shares or Registrable Securities shall (unless otherwise permitted by the provisions of this Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable United States federal or state securities laws or as provided elsewhere in this Agreement): -4- 9 THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. (c) The Company shall be obligated to reissue promptly unlegended certificates at the request of any holder thereof if the holder shall have obtained an opinion of counsel (which counsel may be counsel to the Company) reasonably acceptable to the Company to the effect that the securities proposed to be disposed of may lawfully be so disposed of without registration, qualification or legend. (d) Any legend endorsed on an instrument pursuant to applicable United States state securities laws and the stop-transfer instruction with respect to such securities shall be removed upon receipt by the Company of an order of the appropriate blue sky authority authorizing such removal. 2.2 Demand Registration. (a) Subject to the conditions of this Section 2.2, if the Company shall receive a written request from the Holders of more than fifty percent (50%) of the Registrable Securities then outstanding (the "Initiating Holders") that the Company file a registration statement under the Securities Act covering the registration of Registrable Securities having an aggregate offering price to the public of not less than $5,000,000 (a "Qualified Public Offering"), then the Company shall, within thirty (30) days of the receipt thereof, give written notice of such request to all Holders, and subject to the limitations of this Section 2.2, use its best efforts to effect, as soon as practicable, the registration under the Securities Act of all Registrable Securities that the Holders request to be registered. Notwithstanding the foregoing, in the event that Form S-3 (or any successor or similar form) is not available for offerings by the Company on, or at any time after, the date fifteen (15) months after the Initial Offering, then the Initiating Holders shall be deemed to be Holders of more than thirty percent (30%) of the Registrable Securities then outstanding, and a Qualified Public Offering shall be deemed to be Registrable Securities having an aggregate offering price to the public of not less than $2,000,000. (b) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 2.2 and the Company shall include such information in the written notice referred to in Section 2.2(a). In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such -5- 10 underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders (which underwriter or underwriters shall be reasonably acceptable to the Company). Notwithstanding any other provision of this Section 2.2, if the underwriter advises the Company that marketing factors require a limitation of the number of securities to be underwritten (including Registrable Securities), then the Company shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated to the Holders of such Registrable Securities on a pro rata basis based on the number of Registrable Securities held by all such Holders (including the Initiating Holders). Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration. (c) The Company shall not be required to effect a registration pursuant to this Section 2.2: (i) prior to August 23, 2000; or (ii) after the Company has effected two (2) registrations pursuant to this Section 2.2, and such registrations have been declared or ordered effective; or (iii) during the period starting with the date of filing, and ending on the date one hundred eighty (180) days following the effective date, of the registration statement pertaining to the Initial Offering; provided that the Company makes reasonable good faith efforts to cause such registration statement to become effective; (iv) if within thirty (30) days of receipt of a written request from Initiating Holders pursuant to Section 2.2(a), the Company gives notice to the Holders of the Company's intention to make its Initial Offering within ninety (90) days; (v) if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 2.2, a certificate signed by the Chairman of the Board stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders; provided that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period; or (vi) if, after allocation in accordance with Section 2.2(b), the Registrable Securities to be registered in such registration constitute (A) fifty percent (50%) or less of the Registrable Securities then outstanding or have an aggregate offering price to the public of less than $5,000,000; or (B) thirty percent (30%) or less of the Registrable Securities then outstanding or have an aggregate offering price to the public of less than $2,000,000, as applicable under Section 2.2(a). -6- 11 2.3 Piggyback Registrations. (a) The Company shall notify all Holders of Registrable Securities in writing at least thirty (30) days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to employee benefit plans or with respect to corporate reorganizations or other transactions under Rule 145 of the Securities Act), and will afford each such Holder an opportunity to include in such registration statement all or part of such Registrable Securities held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall, within fifteen (15) days after the above-described notice from the Company, so notify the Company in writing. Such notice shall state the intended method of disposition of the Registrable Securities by such Holder. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth in this Section 2.3. (b) If the registration statement under which the Company gives notice under this Section 2.3 is for an underwritten offering, the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided in this Section 2.3(b). All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of the Agreement, but subject to the immediately following sentence, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company (or to Roche in the case of a registration pursuant to Section 2.5); second, to the Holders on a pro rata basis based on the total number of Registrable Securities held by the Holders; and third, to any stockholder of the Company (other than a Holder) on a pro rata basis. Notwithstanding the foregoing, in no event shall the amount of securities of the selling Holders included in the registration be reduced below twenty-five percent (25%) of the total amount of securities included in such registration, unless such offering is the Initial Offering and such registration does not include shares of any other selling stockholders (other than Excess Shares pursuant to Section 2.5), in which event any or all of the Registrable Securities of the Holders may be excluded in accordance with the immediately preceding sentence. In no event will shares of any other selling stockholder (other than Excess Shares pursuant to Section 2.5) be included in such registration which would reduce the number of shares which may be included by Holders without the written consent of Holders of not less than seventy-five (75%) of the Registrable Securities proposed to be sold in the offering. (c) The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.3 prior to the effectiveness of such registration, whether or not any -7- 12 Holder has elected to include securities in such registration. The Registration Expenses of such withdrawn registration shall be borne by the Company in accordance with Section 2.6. (d) For purposes of this Section 2.3 only, all of the parties to this Agreement agree that Kari Stefansson shall have the rights and obligations of a Holder pursuant to this Section 2.3, and any shares of Common Stock of the Company held by Dr. Stefansson shall be deemed Registrable Securities for purposes of this Section 2.3. 2.4 Form S-3 Registration. In case the Company shall receive from any Holder or Holders of Registrable Securities a written request or requests that the Company effect a registration on Form S-3 (or any successor to Form S-3) or any similar short-form registration statement and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders of Registrable Securities; and (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.4: (i) if Form S-3 (or any successor or similar form) is not available for such offering by the Holders, or (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than $500,000 (following underwriter's cut-backs, if any), or (iii) if the Company shall furnish to the Holders a certificate signed by the Chairman of the Board of Directors of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 2.4; provided, that such right to delay a request shall be exercised by the Company not more than once in any twelve (12) month period, or (iv) if the Company has already effected two (2) registrations on Form S-3 for the Holders pursuant to this Section 2.4, or -8- 13 (v) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (c) Subject to the foregoing, the Company shall file a Form S-3 registration statement covering the Registrable Securities and other securities to be requested to be registered as soon as practicable after receipt of the request or requests of the Holders. All such Registration Expenses incurred in connection with registrations requested pursuant to this Section 2.4 after the first two (2) registrations shall be paid by the selling Holders pro rata in proportion to the number of shares sold by each. 2.5 Series C Investor Registration Rights. (a) Subject to the conditions of this Section 2.5, in the event that the initial Series C Investor, Roche Finance Ltd, or any of its affiliates (collectively, "Roche") shall be the beneficial owner (within the meaning of Rule 13d-3(d) promulgated under the Exchange Act, as interpreted by independent counsel selected by Roche and reasonably acceptable to the Company) of Registrable Securities in excess of 9.9% of the Common Stock immediately after the close of the Company's Initial Offering (such Registrable Securities, the "Excess Shares"), Roche shall have the right to require the Company to include such Excess Shares in the registration statement filed under the Securities Act pertaining to the Initial Offering. The Company shall notify Roche in writing at least thirty (30) days prior to the filing of any registration statement under the Securities Act pertaining to the Initial Offering. If Roche desires to include in such registration statement all or any part of the Excess Shares held by it, Roche shall, within fifteen (15) days after the above-described notice from the Company, so notify the Company in writing. Such notice shall state the intended method of disposition of the Excess Shares by Roche. Notwithstanding the foregoing, the Company shall not be obligated to include any Excess Shares in such registration statement pursuant to this Section 2.5 without the approval of the lead underwriter. If the lead underwriter does not consent to inclusion of the Excess Shares sought to be included by Roche in the registration statement pertaining to the Initial Offering or if the number of Excess Shares is cut back pursuant to Section 2.5(b), then the Company shall use its best efforts to effect registration of the Excess Shares: (i) if Roche requests inclusion of Excess Shares that are not included in the registration statement pertaining to the Initial Offering which have an aggregate price to the public of at least $2,000,000, within one hundred eighty (180) days after the effective date of the registration statement filed by the Company in connection with the Initial Offering; or (ii) if Roche requests inclusion of Excess Shares that are not included in the registration statement pertaining to the Initial Offering which have an aggregate price to the public of less than $2,000,000, within one (1) year after the effective date of the registration statement filed by the Company in connection with the Initial Offering. (b) The right of Roche to have Excess Shares included in a registration pertaining to the Company's Initial Offering pursuant to this Section 2.5 shall be conditioned upon Roche's participation in the underwriting and the inclusion of the Excess Shares in the underwriting to the extent provided in this Section 2.5. If Roche proposes to distribute the Excess Shares through -9- 14 such underwriting, Roche shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of this Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to Roche for the Excess Shares; third, to the Holders (under any other right provided to the Holders in this Section 2); and fourth, to any stockholder of the Company (other than a Holder) on a pro rata basis. No such reduction shall reduce the securities being offered by the Company for its own account to be included in the registration and underwriting. In no event will shares of any other selling stockholder be included in such registration which would reduce the number of Excess Shares which may be included by Roche without the written consent of Roche. (c) The Company shall have the right to terminate or withdraw any registration pertaining to the Company's Initial Offering initiated by it under this Section 2.5 prior to the effectiveness of such registration, whether or not Roche has elected to include securities in such registration. The Registration Expenses of such withdrawn registration shall be borne by the Company in accordance with Section 2.6. (d) The Company shall not be required to effect a registration pursuant to Section 2.5(a)(i) or (ii) if the Company shall furnish to Roche a certificate signed by the Chairman of the Board stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than ninety (90) days after the date any such registration would otherwise be required to be effective pursuant to Section 2.5(a)(i) or (ii). 2.6 Expenses of Registration. Except as specifically provided in this Agreement, all Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Section 2.2, or any registration under Section 2.3, 2.4 or Section 2.5, shall be borne by the Company. All Selling Expenses incurred in connection with any registrations under this Agreement shall be borne by the holders of the securities so registered, pro rata on the basis of the number of shares so registered. The Company shall not, however, be required to pay for expenses of any registration proceeding begun pursuant to Section 2.2 or 2.4, the request of which has been subsequently withdrawn by the Initiating Holders unless: (a) the withdrawal is based upon material adverse information concerning the Company of which the Initiating Holders were not aware of the time of such request, or (b) the Holders of a majority of Registrable Securities agree to forfeit their rights to one requested registration pursuant to Section 2.2 or Section 2.4, as applicable, (in which event such right shall be forfeited by all Holders). If the Holders are required to pay the Registration Expenses, such expenses shall be borne by the holders of securities (including Registrable Securities) requesting such registration in proportion to the number of shares for which registration was requested. If the Company is required to pay the Registration Expenses of a withdrawn offering pursuant to clause (a) of this Section 2.6, then the Holders shall not forfeit their rights pursuant to Section 2.2 or Section 2.4 to a demand registration. 2.7 Obligation of the Company. Whenever required to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: -10- 15 (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use all reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to ninety (90) days or, if earlier, until the Holder or Holders have completed the distribution related thereto. (b) Prepare and file with the SEC 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. (c) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use all reasonable efforts to register and qualify the securities covered by such registration statement under such other United States federal or state 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(s) 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 or Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Furnish, at the request of a majority of the Holders participating in the registration, on the date that such Registrable Securities are delivered to the underwriters for sale, 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 as of 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 and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities, and (ii) a letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants of the Company to underwriters in an underwritten public -11- 16 offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and if permitted by applicable accounting standards, to the Holders requesting registration of Registrable Securities. 2.8 Termination of Registration Rights. All registration rights granted under this Section 2 shall terminate and be of no further force and effect five (5) years after the date of the Company's Initial Offering. In addition, a Holder's registration rights shall expire if (i) the Company has completed its Initial Offering and is subject to the provisions of the Exchange Act, (ii) such Holder (together with its affiliates, partners and former partners) holds less than one percent (1%) of the Company's outstanding Common Stock (treating all shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock on an as-converted-to-Common Stock basis), and (iii) all Registrable Securities held by and issuable to such Holder may be sold under Rule 144 during any ninety (90) day period. 2.9 Delay of Registration; Furnishing Information. (a) No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2. (b) It shall be a condition precedent to the obligations of the Company to take any action pursuant to Section 2.2, 2.3, 2.4 or 2.5 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to effect the registration of their Registrable Securities. 2.10 Indemnification. In the event any Registrable Securities are included in a registration statement under Section 2.2, 2.3, 2.4 or 2.5: (a) To the extent permitted by United States federal or State of Delaware law, the Company will indemnify and hold harmless each Holder, the partners, officers, directors and legal counsel of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other United States federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation") by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any United States state securities law or any rule or registration promulgated under the Securities Act, the Exchange Act or any United States state securities law in connection with the offering covered by such registration statement; and the Company will reimburse each such Holder, partner, officer or director, underwriter or controlling person for any -12- 17 legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 2.10(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that is arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder. (b) To the extent permitted by United States federal or state law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify and hold harmless the Company, each of its directors, its officers, and legal counsel and each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder's partners, directors or officers or any person who controls such Holder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, or partner, director, officer or controlling person of such other Holder may become subject under the Securities Act, the Exchange Act or other United States federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder under an instrument duly executed by such Holder and stated to be specifically for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, or partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation; provided, however, that the indemnity agreement contained in this Section 2.10(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided further, that in no event shall any indemnity under this Section 2.10 exceed the net proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 2.10 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.10, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written -13- 18 notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.10, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.10. (d) If the indemnification provided for in this Section 2.10 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to in this Section 2.10, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable United States federal or State of Delaware law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim , damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party of by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by a Holder hereunder exceed the proceeds from the offering received by such Holder. (e) The obligations of the Company and Holders under this Section 2.10 shall survive completion of any offering of Registrable Securities in a registration statement. No Indemnifying Party, in the defense of any 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 of a release from all liability in respect to such claim or litigation. 2.11 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned by a Holder to a transferee or assignee of Registrable Securities which (i) is a partner, general partner, limited partner or retired partner of a Holder that is a partnership, (ii) is an affiliate of a Holder that is a corporation or to the stockholders of such a Holder in accordance with their interest in such Holder, (ii) is a Holder's family member or trust for the benefit of an individual Holder, or (iii) acquires at least one percent (1%) of the Company's outstanding Common Stock (treating all shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock on an as-converted-to-Common Stock basis); provided, however, (A) the transferor shall, within ten (10) days after such transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the securities with respect to which such registration are being assigned and (B) such transferee shall agree to be subject to all restrictions set forth in this Agreement. 2.12 Acceptance of Registration Rights. By acceptance of any benefits under this Section 2, Holders of Registrable Securities hereby agree to be bound by the provisions hereunder. -14- 19 2.13 Limitation on Subsequent Registration Rights. After the date of this Agreement, the Company shall not, without the prior written consent of the Holders of seventy-five percent (75%) of the Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company that would grant such holder registration rights senior to those granted to the Holders hereunder or that would reduce the number of shares includable by the Holders in the event of a registration pursuant to Section 2.3. 2.14 "Market Stand-Off" Agreement. If requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, each Holder shall not sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held by such Holder (other than those included in the registration) for a period specified by the representative of the underwriters not to exceed one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act, provided that: (a) such agreement shall apply only to the Company's Initial Offering; and (b) all officers and directors of the Company and holders of at least one percent (1%) of the Company's voting securities enter into similar agreements. The obligations described in this Section 2.14 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred eighty (180) day period. 2.15 Rule 144 Reporting. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and deemed in Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times after the effective date of the first registration filed by the Company for an offering of its securities to the general public; (b) File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; (c) So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request: a written statement by the Company as to its compliance with the reporting requirements of Rule 144, and of 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 as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration. -15- 20 2.16 Applicability. The provisions of Section 2 shall apply to the holders of the Company's Series B Preferred Stock originally issued pursuant to the Stock Purchase Agreement dated as of June 30,1999. For purposes of this Section 2 only and notwithstanding anything to the contrary contained in this Agreement, the shares of Series B Preferred Stock so issued shall be deemed to be Shares, as defined in Section 1.14 of this Agreement so that the shares of (i) Common Stock issued or issuable upon conversion of such Shares and (ii) any Common Stock issued as (or issuable upon the conversion or exercise of any warrants, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the Common Stock described in clause (i) shall be Registrable Securities and the holders thereof shall have all of the rights and obligations of Holders for purposes of Section 2. 3. COVENANTS OF THE COMPANY. 3.1 Basic Financial Information and Reporting. (a) The Company will maintain true books and records of account in which full and correct entries will be made of all its business transactions pursuant to a system of accounting established and administered in accordance with generally accepted accounting principles consistently applied, and will set aside on its books all such proper accruals and reserves as shall be required under generally accepted accounting principles consistently applied. (b) As soon as practicable after the end of each fiscal year of the Company, and in any event within one hundred twenty (120) days thereafter, the Company will furnish each Investor a consolidated balance sheet of the Company, as at the end of such fiscal year, and a consolidated statement of income and a consolidated statement of cash flows of the Company, for such year, all prepared in accordance with generally accepted accounting principles consistently applied and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail. Such financial statements shall be accompanied by a report and opinion thereon by independent public accountants of national standing selected by the Company's Board of Directors. (c) The Company will furnish each Series A Investor and the Series C Investor, as soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company, and in any event within forty-five (45) days thereafter, a consolidated balance sheet of the Company as of the end of each such quarterly period, and a consolidated statement of income and a consolidated statement of cash flows of the Company for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles, with the exception that no notes need be attached to such statements and year-end audit adjustments may not have been made. -16- 21 3.2 Inspection Rights. (a) Each Series A Investor who is a Major Investor (each, a "Major Series A Investor," and, collectively, the "Major Series A Investors") shall be entitled to consult with and advise management of the Company on significant business issues, including management's proposed annual operating plans. Each Major Series A Investor shall be entitled to discuss the affairs, finances and accounts of the Company or any of its subsidiaries with its officers. Management will meet with each Major Series A Investor regularly during each year at the Company's facilities, upon request by such Major Series A Investor, at mutually agreeable times for such consultation and advice and to review progress in achieving said plans. (b) Each Major Series A Investor may examine the books and records of the Company and visit and inspect the facilities and properties of the Company and any of its subsidiaries, and may request information at reasonable times and intervals concerning the general status of the Company's financial condition and operations; provided, however, that the Company shall not be obligated under this Section 3.2 with respect to a competitor of the Company or with respect to information which the Board of Directors determines in good faith is confidential and should not, therefore, be disclosed. 3.3 Confidentiality of Records. Each Investor agrees to use, and to use its best efforts to insure that its authorized representatives use, the same degree of care as such Investor uses to protect its own confidential information to keep confidential any information furnished to it which the Company identifies as being confidential or proprietary (so long as such information is not in the public domain), except that such Investor may disclose such proprietary or confidential information to any partner, subsidiary or parent of such Investor for the purpose of evaluating its investment in the Company as long as such partner, subsidiary or parent is advised of the confidentiality provisions of this Section 3.3. 3.4 Reservation of Common Stock. The Company will at all time reserve and keep available, solely for issuance and delivery upon the conversion of the Series A Preferred Stock, the Series B Preferred Stock and Series C Preferred Stock, all Common Stock issuable from time to time upon such conversion. 3.5 Key Man Insurance. Subject to the approval of the Board of Directors, the Company will use its best efforts to obtain and maintain in full force and effect term life insurance in the amount of one million dollars ($1,000,000) on the life of Kari Stefansson, M.D., naming the Company as beneficiary. 3.6 Visitation Observer Rights. If a Major Investor is a Series A Investor or a Series C Investor and is not represented on the Company's Board of Directors, the Company shall: (i) invite a representative of such Major Investor to attend all meetings of its Board of Directors ("Board Meetings") in a non-voting observer capacity, and in this respect shall give such representative (with a copy, if so requested, to another person as may be designated by such Major Investor from time to time) copies of all notices, minutes, consents, and other material that it provides to its directors, which shall include fiscal budgets and projections of the Company provided annually at least thirty -17- 22 (30) days prior to the beginning of each fiscal year of the Company, and (ii) give a representative of such Major Investor the right to meet with the President of the Company at the Company's facilities, at mutually agreeable times, to consult with and discuss the affairs, finances and accounts of the Company; provided, however, that the Company reserves the right to exclude such representative from access to any material or meeting or portion thereof if the Company believes upon advice of counsel that such exclusion is reasonably necessary to preserve the attorney-client privilege, to protect highly confidential proprietary information or for other similar reasons; and provided, further, that in no event shall the Series C Investor be entitled, as a result of or in connection with any such materials, visit and/or discussion, to any scientific, technical, financial and other information concerning, relating to or used in connection with any strategic alliance, joint venture, sponsored research program, licensing arrangement, or any other kind of agreement, relationship or arrangement entered into, or proposed to be entered into, by the Company with any third party for the purpose of gene discovery or the discovery, development, manufacture or commercialization of drugs. The Company will reimburse such representatives, except for such representatives of the Series C Investor, for expenses incurred in connection with their attendance at Board Meetings in accordance with its policy for reimbursing directors for attendance at Board Meetings. Such expenses of such representatives of the Series C Investor shall be borne by the Series C Investor. Such representative may participate in discussions of matters brought to the Board. Except as otherwise provided in Section 3.11(b), the rights granted under this Section 3.6 shall be nonassignable, and shall terminate and be of no further effect with respect to any Series A Investor or Series C Investor who is no longer a Major Investor. 3.7 Proprietary Information and Inventions Agreement. The Company shall require all employees and consultants to execute and deliver a Proprietary Information and Inventions Agreement in the form attached as Exhibit C. 3.8 Directors' Liability and Indemnification. The Company's Certificate of Incorporation and Bylaws shall provide: (i) for elimination of the liability of directors to the maximum extent permitted by Delaware, USA law, and (ii) for indemnification of directors for acts on behalf of the Company to the maximum extent permitted by Delaware, USA law. In addition, the Company shall enter into and use its best efforts to at all times maintain indemnification contracts substantially in the form attached as Exhibit E with each of its directors to indemnify such directors to the maximum extent permissible under Delaware, USA law. The Company will use its reasonable efforts to limit the liability, to the maximum extent permissible under Delaware, USA law, of any Investor represented by or affiliated with a Director of the Company. 3.9 Real Property Holding Corporation. The Company covenants that it will operate in a manner such that it will not become a "United States real property holding corporation" (a "USRPHC") as that term is defined in Section 897(c)(2) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder. The Company agrees to make determinations as to its status as a USRPHC, and will file statements concerning those determinations with the Internal Revenue Service, in the manner and at the times required under Reg. Section 1.897-2(h), or any supplementary or successor provision thereto. Within thirty (30) days of a request from an Investor or any of its partners, the Company will inform the requesting party, in the manner set forth in Reg. Section 1.897-2(h)(1)(iv) or any supplementary or successor provision thereto, whether that party's interest in the Company constitutes a United States real property interest (within the meaning of Internal -18- 23 Revenue Code Section 897(c)(1) and the regulations thereunder) and whether the Company has provided to the Internal Revenue Service all required notices as to its USRPHC status. 3.10 Additional Major Investor. (a) The parties hereto agree that Kari Stefansson shall have the rights and obligations of a Major Investor provided in Sections 3.1, 3.2, 3.3 and 3.6 hereof for so long as Dr. Stefansson continues to hold at least 250,000 shares of the Company's Common Stock or until the effective date of the registration statement pertaining to the Initial Offering. (b) The parties hereto further agree that Beth Israel Deaconess Medical Center, Inc. ("Beth Israel Deaconess") shall have the rights and obligations of a Major Investor provided for in Sections 3.1 and 3.2(b) hereof for as long as Beth Israel Deaconess continues to hold at least 100,000 Shares. The Company shall send relevant information to the representative appointed by Beth Israel Deaconess from time to time, upon notice to the Company. Beth Israel Deaconess agrees that members of its finance department shall be the sole persons to utilize and/or review the information that Beth Israel Deaconess receives pursuant to Sections 3.1 and 3.2(b). 3.11 Termination of Covenants. (a) Except as otherwise provided in Section 3.11(b), all covenants of the Company contained in this Section 3 shall expire and terminate as to each Investor on the effective date of the registration statement pertaining to the Initial Offering, except that the covenants contained in Section 3.1(b) and (c) of this Agreement shall continue after such effective date with respect to each Major Investor given such right in such Section. (b) The covenants contained in Section 3.6 with respect to Roche shall continue for so long as Roche continues to hold at least fifty percent (50%) in interest of the issued and outstanding Shares defined in Section 1.14(iii) (including shares of Common Stock into which any such Shares may have been converted), or until the end of the Research Term (as such term is defined in that certain Research Collaboration and License Agreement dated of even date herewith between the Company and Roche), whichever is later. 4. RIGHTS OF FIRST REFUSAL. 4.1 Roche Right of First Refusal. (a) Roche shall have a right of first refusal to purchase up to that number of the Equity Securities that the Company may, from time to time, propose to sell and issue after the date of this Agreement, other than the Equity Securities excluded by Section 4.5, which, when added to the Shares and the shares of Common Stock held by Roche as of the date of exercise of such right of first refusal, would make Roche the beneficial owner (within the meaning of Rule 13d-3(d) promulgated under the Exchange Act, as interpreted by independent counsel selected by Roche and reasonably acceptable to the Company) of 9.9% of the Company's Common Stock (calculated on an as-converted-to-Common Stock basis). -19- 24 (b) If the Company proposes to issue any Equity Securities, other than the Equity Securities excluded by Section 4.5, it shall give each Roche written notice of its intention, describing such Equity Securities, the price and the terms and conditions upon which the Company proposes to issue the same. Roche shall have ten (10) business days from the giving of such notice to agree to purchase up to the maximum number of the Equity Securities that it is entitled to purchase under this Section 4.1 for the price and upon the terms and conditions specified in the notice by giving written notice to the Company and stating therein the quantity of Equity Securities to be purchased. Notwithstanding the foregoing, the Company shall not be required to offer or sell such Equity Securities to Roche if such offer or sale would cause the Company to be in violation of applicable United States federal securities laws by virtue of such offer or sale. (c) If Roche fails to exercise in full its right of first refusal under this Section 4.1, the Company shall have seventy (70) days thereafter to sell the Equity Securities in respect of which Roche's right was not exercised, at a price and upon general terms and conditions materially no more favorable to the purchasers thereof (including, without limitation, Investor Founders) than specified in the Company's notice to Roche pursuant to Section 4.1(b). If the Company has not sold such Equity Securities within seventy (70) days of the notice provided pursuant to Section 4.1(b), the Company shall not thereafter issue or sell any Equity Securities, without first offering such securities to Roche in the manner provided above. 4.2 Investor Rights of First Refusal. (a) Subject to the rights of Roche under Section 4.1, each Investor Founder shall have a right of first refusal to purchase his pro rata share of all Equity Securities that the Company may, from time to time, propose to sell and issue after the date of this Agreement, other than the Equity Securities excluded by Section 4.5. Each Investor Founder's pro rata share shall be equal to the ratio of (A) the number of shares of the Company's Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Shares) which such Investor Founder is deemed to be a holder of immediately prior to the issuance of such Equity Securities, to (B) the total number of shares of the Company's outstanding Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Shares or upon the exercise of any outstanding warrants or options) immediately prior to the issuance of the Equity Securities. (b) If the Company proposes to issue any Equity Securities, other than the Equity Securities excluded by Section 4.5, and Roche shall not have purchased all of such Equity Securities pursuant to Section 4.1, the Company shall give each Investor Founder written notice of its intention, describing such Equity Securities, the price and the terms and conditions upon which the Company proposes to issue the same. Each Investor Founder shall have seven (7) days from the giving of such notice to agree to purchase his pro rata share of the Equity Securities for the price and upon the terms and conditions specified in the notice by giving written notice to the Company and stating therein the quantity of Equity Securities to be purchased. Notwithstanding the foregoing, the Company shall not be required to offer or sell such Equity Securities to any Investor Founder who would cause the Company to be in violation of applicable United States federal securities laws by virtue of such offer or sale. -20- 25 (c) If not all of the Investor Founders elect to purchase their pro rata share of the Equity Securities, then the Company shall promptly notify in writing such Investor Founders who do so elect and shall offer such Investor Founders the right to acquire such unsubscribed shares. Such Investor Founders shall have five (5) days after receipt of such notice to notify the Company of their election to purchase all or a portion thereof of the unsubscribed shares. If the Investor Founders fail to exercise in full the rights of first refusal, the Company shall have sixty (60) days thereafter to sell the Equity Securities in respect of which such Investor Founders' rights were not exercised, at a price and upon general terms and conditions materially no more favorable to the purchasers thereof than specified in the Company's notice pursuant to Section 4.2(b). If the Company has not sold such Equity Securities within sixty (60) days of the notice provided pursuant to Section 4.2(b), the Company shall not thereafter issue or sell any Equity Securities, without first offering such securities to the Investor Founders in the manner provided above. 4.3 Termination of Rights. The rights of first refusal established by this Section 4 shall not apply to, and shall terminate upon the effective date of, the registration statement pertaining to the Company's Initial Offering. 4.4 Reserved. 4.5 Excluded Securities. The rights of first refusal established by this Section 4 shall have no application to any of the following Equity Securities: (a) up to an aggregate amount of 5,000,000 shares of Common Stock (and/or options, warrants or other Common Stock purchase rights issued pursuant to such options, warrants or other rights) issued or to be issued to employees, officers or directors of, or consultants or advisors to the Company (including members of the Company's Scientific Advisory Board) or any subsidiary, pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board of Directors; (b) stock issued pursuant to any rights or agreements outstanding as of the date of this Agreement, options and warrants outstanding as of the date of this Agreement; and stock issued pursuant to any such rights or agreements granted after the date of this Agreement, provided that the rights of first refusal and co-investment established by this Section 4 applied with respect to the initial sale or grant by the Company of such rights or agreements; provided, however, that such right shall not apply to the issuance of the Series C Preferred Stock or the Series C Warrants being issued pursuant to the Series C Purchase Agreement simultaneously herewith, or the issuance of the Series C Warrant Shares upon the exercise of the Series C Warrants; and provided further, however, that such right shall not apply to the issuance of the Series B Preferred Stock to be issued pursuant to the Series B Purchase Agreement as contemplated hereunder; (c) any Equity Securities issued for consideration other than cash pursuant to a merger, consolidation, acquisition or similar business combination; (d) shares of Common Stock issued in connection with any stock split, stock dividend or recapitalization by the Company; -21- 26 (e) shares of Common Stock issued upon conversion of the Shares; (f) any Equity Securities issued pursuant to any equipment leasing arrangement, or debt financing from a bank or similar financial institution; (g) any Equity Securities that are issued by the Company pursuant to a registration statement filed under the Securities Act; and (h) any Equity Securities issued in connection with corporate partnering transactions, if such issuance is approved by the Board of Directors. 4.6 Reserved. 5. MISCELLANEOUS. 5.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of Delaware, USA as applied to agreements among Delaware, USA residents entered into and to be performed entirely within Delaware, USA. 5.2 Future Employees. The parties hereto agree that, in the event that shares of Common Stock held as of the date hereof by the Investor Founders are repurchased by the Company as a result of the termination of any Investor Founder's employment by or consulting relationship with the Company, it is the Company's policy that these shares be used to recruit future employees whose employment will be in the best interest of the Company. To the extent not inconsistent with such policy, it is also the Company's policy to seek to allocate the reissuance of such shares to residents or citizens of Iceland. 5.3 Survival. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by any Holder and the closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. 5.4 Successors and Assigns. Except as otherwise expressly provided in this Agreement, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of Registrable Securities from time to time; provided, however, that prior to the receipt by the Company of adequate written notice of the transfer of any Registrable Securities specifying the full name and address of the transferee, the Company may deem and treat the person listed as the holder of such shares in its records as the absolute owner and holder of such shares for all purposes, including the payment of dividends or any redemption price. 5.5 Severability. In case any provision of the Agreement shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any -22- 27 way be affected or impaired thereby. 5.6 Amendment and Waiver. (a) Except as otherwise expressly provided, neither this Agreement nor any provision herein may be amended or waived except by a written agreement signed by the parties hereto; provided, however, that: (i) any of the provisions of Section 2 may be amended or waived by the written consent of the Company and the Holders of at least sixty-seven percent (67%) of the Registrable Securities then outstanding; except that any amendment or waiver relating to (1) Section 2.5 shall require the written consent of the Company and Roche; and (2) Section 2.3(d) shall require the written consent of the Company and Kari Stefansson; and except that the provisions of Section 2 may be granted, pari passu, to additional purchasers of equity securities of the Company by the written consent of the Company and Holders of at least fifty percent (50%) of the Registrable Securities then outstanding; (ii) any of the provisions of Section 3 may be amended or waived by the written consent of the Company and Investors holding at least sixty-seven percent (67%) in interest of the then issued and outstanding Shares (including shares of Common Stock into which any such Shares may have been converted); except that any amendment or waiver relating to: (1) Section 3.2 shall require the written consent of the Company and Series A Investors holding at least fifty percent (50%) in interest of the then issued and outstanding Shares defined in Section 1.14(i) (including shares of Common Stock into which any such Shares may have been converted); (2) the rights of the Series A Investors under Section 3.6 shall require the written consent of the Company and Series A Investors holding at least fifty percent (50%) in interest of the then issued and outstanding Shares defined in Section 1.14(i) (including shares of Common Stock into which any such Shares may have been converted); (3) the rights of the Series C Investor under Section 3.6 and Section 3.11(b) shall require the written consent of the Company and the Series C Investors holding at least fifty percent (50%) in interest of the then issued and outstanding Shares defined in Section 1.14(iii) (including shares of Common Stock into which any such Shares may have been converted); (4) Section 3.10(a) shall require the written consent of the Company and Kari Stefansson; and (5) Section 3.10(b) shall require the written consent of the Company and Beth Israel Deaconess; (iii) any of the provisions of Section 4 may be amended or waived by the written consent of the Company and Series C Investors and Investor Founders holding at least sixty-seven percent (67%) in interest of the then issued and outstanding Series C Preferred Stock issued pursuant to the Series C Purchase Agreement, including the Series C Warrant Shares issued upon exercise of the Series C Warrants issued pursuant to, and upon the exercise of the option granted under, the Series C Purchase Agreement and the Founders Shares (including shares of Common Stock into which any such Shares may have been converted); except that any amendment or waiver relating to: (1) Section 4.1 shall require the written consent of the Company and Roche; and (2) the rights of the Investor Founders under Section 4.2 shall require the written consent of the Company and the Investor Founders holding at least sixty-seven percent (67%) in interest of the then issued and outstanding Founders Shares; and -23- 28 (iv) any of the provisions of Section 5 may be amended or waived by the written consent of the Company and Investors holding at least sixty-seven percent (67%) in interest of the then issued and outstanding Shares (excluding shares of Common Stock into which any such Shares may have been converted). (b) Notwithstanding the foregoing, this Agreement may be amended with only the written consent of the Company to include additional purchasers of Shares as "Investors," "Holders" and parties hereto. 5.7 Delays or Omissions. It is agreed that no delay or omission to exercise any right, power, or remedy accruing to any Holder, upon any breach, default or noncompliance of the Company under this Agreement shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent, or approval of any kind or character on any Holder's part of any breach, default or noncompliance under the Agreement or any waiver on such Holder's part 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, by law, or otherwise afforded to Holders, shall be cumulative and not alternative. 5.8 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally or internationally (as the case may be) recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent, if to the Company, to the address set forth in the introductory paragraph to this Agreement, and if to the Investors, to the address as set forth on Exhibit A, Exhibit B, Exhibit C or Exhibit D, as applicable, or at such other address as such party may designate by ten (10) days advance written notice to the other parties hereto. 5.9 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 5.10 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. -24- 29 IN WITNESS WHEREOF, the parties hereto have executed this Investor Rights Agreement, or have caused this Investor Rights Agreement to be executed by its duly authorized officer, as of the date first above written. deCODE genetics, Inc. By: /s/ Kari Stefansson --------------------------- Kari Stefansson President 30 (MULTIPLE SIGNATURE PAGES AND EXHIBITS OMITTED) EX-10.13 17 COLLABORATION AGREEMENT 1 EXHIBIT 10.13 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.13 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason ----------------------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 [NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] COLLABORATION AGREEMENT BETWEEN THE ICELANDIC HEART ASSOCIATION, HJARTAVERND AND ISLENSK ERFDAGREINING EHF. The Icelandic Heart Association, Hjartavernd, (hereinafter "HV") and Islensk erfdagreining ehf. (hereinafter "IE") hereby enter into the following Agreement on collaboration and financing of research into the heredity of certain disorders. I. DECLARATION OF INTENT HV and IE agree to collaborate on the basis of this Agreement on searching for genetic factors contributing to the genesis of certain disorders on which HV has information in its database. Decisions shall be made separately on each collaboration project, hereinafter referred to as "Research Projects" and a written protocol and written operating plan will be drawn up for each Research Project based on this Agreement, cf. Chapters II, IV and V. The parties to this Agreement undertake to treat all personal information as confidential, and the parties undertake to observe the guidelines of the Data Protection Commission (or a specially appointed representative of the Data Protection Commission) regarding the handling and processing of such information as well as the conditions of the Science Ethics Committee of the Ministry of Health. II. CONTRIBUTION OF THE PARTIES HV will supply each Research Project with clinical data and research conclusions based on the files of participants in previous studies of HV and other clinical information relating to individual projects. Specialised staff of HV will be in charge of relations with the individuals intended for participation in each Research Project, including the performance of blood sampling. Furthermore, HV will contribute the specialised knowledge of its heart specialists and genetics experts in the experimental design of each Research Project, the conduct of experiments and interpretation of their results. IE will contribute its expertise in molecular genetics and statistical genetics in all the areas required to achieve the established objectives of each Research Project. IE will also contribute its own equipment and research supplies (reagents) for use in specially defined projects. Furthermore, IE will pay to HV all additional costs resulting from the work of HV on each Research Project (finance the additional material and wage cost resulting from calling in participants for each individual Research Project and the necessary sampling). -1- 3 III. RIGHTS OF THE PARTIES IE will own all financial and commercial rights to individual Research Projects and their conclusions and IE shall have the right to sell them before or after each Research Project is concluded. If IE or its parent company, deCODE genetics Inc., succeeds in contracting for the sale of individual Research Projects or their conclusions or sells the results of a Research Project to a third party, HV will receive as its share [CONFIDENTIAL TREATMENT REQUESTED] of all payments to IE or to deCODE genetics Inc., as applicable, during the term of the contract less the payment of the research costs and the investment in IE or deCODE genetics Inc. If IE or deCODE genetics INC. concludes a contract with a third party pursuant to Paragraph 2 above, IE will pay to HV [CONFIDENTIAL TREATMENT REQUESTED] on signature of such contract, and thereafter an annual amount of [CONFIDENTIAL TREATMENT REQUESTED] during the course of the Research Project in question, the total amount never to exceed [CONFIDENTIAL TREATMENT REQUESTED]. In the event that the Research Project is concluded in a shorter time than five years by achieving the objective of the Research Project, HV will receive on such conclusion the amount which remains unpaid of the [CONFIDENTIAL TREATMENT REQUESTED] for the Research Project in question. This amount will be paid to HV for use in its own research other than the research covered by this Agreement, but not for administrative costs. This payment is in addition to and independent of the [CONFIDENTIAL TREATMENT REQUESTED] payment pursuant to Paragraph 2 of this Chapter III. In the event that it proves necessary to enter into collaboration with other parties in respect of individual Research Projects, a further agreement shall be reached on the division of payments between HV and such third party so that the total payment by IE pursuant to the above remain unchanged. On signature of this Agreement, IE will pay to HV in confirmation of their mutual intent to collaborate, [CONFIDENTIAL TREATMENT REQUESTED] which HV shall own and dispose of without specific commitment on the part of HV. [CONFIDENTIAL TREATMENT REQUESTED] IV. MANAGEMENT Decisions regarding each Research Project will be taken by HV and IE jointly, and a Steering Committee will be formed composed of an equal number of representatives from each party to this Agreement in order to formulate rules on the arrangement, control and implementation of each Research Project. The Co-ordinator of each Research Project shall be selected from among the members of the Steering Committee. The Steering Committee is also responsible for defining the objectives of each Research Project and establishing the professional requirements which the parties to this Agreement approve as appropriate to the conduct of research. The Steering Committee is responsible for the processing of data and publication of results pursuant to the rules of Chapter V hereof. -2- 4 V. PROCESSING AND DISSEMINATION OF INFORMATION The results of Research Projects will be published as soon as they fulfil academic requirements and are fit for publication. In the event that a third party submits to IE a request for postponement of the publication of results when they are ready for publication pursuant to the above, the publication may be delayed for a maximum of 90 days. Efforts shall be made at all times to safeguard the commercial value of the results by means other than 90 days' postponement. The Steering Committee for each Research Project shall decide beforehand on the Co-ordinator of the Project. As a rule, the Co-ordinator shall be the last author of scientific articles, but the order of authors shall in other respects conform to applicable rules in the international scientific community. VI. LIMITATIONS ON COLLABORATION WITH OTHER PARTIES HV covenants not to work with others on individual research projects on heredity on which a decision has been made to collaborate with IE during the course of such Research Project. In the event that IE or its parent company, deCODE genetics INC. have contracted for the sale of the Research Project in question and the Project leads to a discovery, HV covenants not to enter into collaboration with other parties on the part of the Research Project which led to the discovery for five years following the conclusion of the Research Project or the part of the Project which led to a discovery. However, if the Research Project does not lead to a discovery, HV is entitled to collaborate with other parties following the conclusion of the Research Project. However, HV shall retain its right to take up collaboration with other parties on genetic research into the risk factors of coronary diseases and arteriosclerosis, but only provided that individual Research Projects which IE and HV have decided to collaborate on do not deal with the same subject. IE covenants that during the course of a Research Project, IE will not take up collaboration with other parties in the area of the Research Project in question unless the Steering Committee regards such collaboration as necessary in order to achieve the objectives of a Research Project. In the event that it should prove necessary to add new partners to individual Research Projects, the Steering Committee shall decide on the choice. In the event of a dispute within the Steering Committee, HV will decide on the choice of additional partners. However, the provisions of this Paragraph shall not preclude collaboration by IE in the area of individual Research Projects with the parties who have negotiated the purchase of the Research Project in question or its conclusions or results, provided that such collaboration does not prejudice the rights of HV pursuant to Paragraph 2 of Chapter III. Subject to the provisions of Paragraph 1 of Chapter III, the parties to this Agreement agree that this Agreement is not transferable, in part or in its entirety, to other legal entities or individuals without the consent of both parties to this Agreement. VII. TERM AND CONCLUSION OF PROJECT Collaboration on any individual Research Project shall normally continue for a term of no longer than five years, or until individual research projects are concluded. At the conclusion of a Project, all clinical data (DNA and all information) shall, under all circumstances, be returned to HV. In the event that one or both parties see reason to -3- 5 continue their collaboration following the agreed term, such continuation shall be considered independently. VII. SETTLEMENT OF DISPUTES In the event of a dispute between the parties regarding the implementation of this Agreement or performance which cannot be resolved within the Steering Committee, two parties, one from each party to this Agreement, shall attempt to reach a consensus on settlement of the dispute. In the event that no settlement can be reached by these two parties within two weeks from the time that the dispute was submitted to them, each party to this Agreement shall appoint one arbitrator and the parties to this Agreement jointly request the appointment of a neutral third arbitrator by the District Court of Reykjavik to participate in the resolution of the dispute, and the three parties shall constitute an arbitration tribunal. The tribunal shall conclude their resolution of the dispute within one month from the time that the tribunal is fully constituted. The cost of the work of the arbitration tribunal shall be subject to the decision of the tribunal at each time. The work of the tribunal, procedure and conclusions before the tribunal shall in other respects be governed, as applicable, by Act No. 53/1989 on Contractual Arbitration. Notwithstanding the above provisions on arbitration, issues involving the collection of payments under this Agreement which are not in dispute between the parties to this Agreement may be submitted to the courts, as well as any disputes regarding financial claims which either party may make against the other party on the basis of the decision of the arbitration tribunal regarding the default or breach by the other party to this Agreement, provided that the claim has not previously been submitted to the arbitration tribunal. Such issues shall be submitted to the District Court of Reykjavik. This Agreement is done in two identical copies, one to be held by each party to this Agreement. Reykjavik 13 February 1998 For Hjartavernd: For Islensk erfdagreining ehf. Magnus Karl Petursson [sign.] Kari Stefansson [sign.] Guomundur Porgeirsson [sign.] Vilmundur Guonason [sign.] Nikulas Sigfusson [sign.] Aslaug Ottesen [sign.] -4- EX-10.14 18 COLLABORATION AGREEMENT 1 EXHIBIT 10.14 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.14 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason -------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 [NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] COLLABORATION AGREEMENT BETWEEN DR. HELGI JONSSON AND THORVALDUR INGVARSSON AND ISLENSK ERFDAGREINING EHF. Dr. Helgi Jonsson and Dr. Thorvaldur Ingvarsson (hereinafter "the Collaborating Physicians) and Islensk erfdagreining ehf. (hereinafter "IE") hereby enter into the following Agreement on research into osteoarthritis. I. SUBJECT OF THE COLLABORATION The Collaborating Physicians and IE agree to work together pursuant to this Agreement on searching for genetic factors contributing to the genesis of osteoarthritis. The proposed collaboration of the parties is hereinafter referred to as the "Research Project". II. CONTRIBUTION OF THE PARTIES The Collaborating Physicians will supply the Research Project with biological samples (blood samples), other clinical information and research data which they possess or have access to regarding patients afflicted with osteoarthritis and their relatives which are not afflicted with osteoarthritis. The Collaborating Physicians will be in charge of relations with the individuals intended for participation in the research, and/or their legal guardians, including calling them in for blood samples and obtaining the informed consent of the participants. Furthermore, the Collaborating Physicians will contribute their specialised knowledge and expertise regarding diagnosis of disorders, experimental design, conduct of experiments and interpretation of their results. IE will contribute its expertise in experimental design, conduct of experiments, assessment of the heredity of the disorder and interpretation of the results of research. IE will also contribute equipment, research supplies, reagents and staff to conduct experiments. IE will pay the cost of the Research Project, including the material and wage costs of calling in participants for examination and required samples. The Collaborating Physicians will submit a financial plan describing in further detail the projected material and wage costs of the Project, see Annex A. III. RIGHTS OF THE PARTIES IE will own all financial and commercial rights to the Research Project and its conclusions. IE will have the right to sell to a third party the conclusions of the Research Project or its results and to utilise the Research Project financially in any other manner consistent with recognised ethical standards, before or after the Research Project is concluded. -1- 3 IE and its parent company, deCODE genetics Inc., has contracted with a third party on the sale of the Research Project, its possible conclusions and results. The amount of the payment of such third party to IE and deCODE genetics Inc. will depend on the success [CONFIDENTIAL TREATMENT REQUESTED] of all payments by the third party to IE or to deCODE genetics Inc., as applicable, less the deduction of the financing by the third party of the research costs and investment in IE or deCODE genetics Inc. IE will pay to the Collaborating Physicians jointly [CONFIDENTIAL TREATMENT REQUESTED] on signature of this Agreement, and thereafter an annual amount of [CONFIDENTIAL TREATMENT REQUESTED] during the course of the Research Project, the total amount never to exceed [CONFIDENTIAL TREATMENT REQUESTED]. In the event that the Research Project is concluded in a shorter time than five years by achieving the objective of the Research Project, the Collaborating Physicians will be paid on such conclusion the amount which remains unpaid of the [CONFIDENTIAL TREATMENT REQUESTED] pursuant to this Paragraph. Payments pursuant to this Paragraph shall be paid to the Collaborating Physicians for use in their own research on osteoarthritis. The Collaborating Physicians may establish a separate research fund for such purpose. Payments pursuant to this Paragraph are in addition to and independent of the [CONFIDENTIAL TREATMENT REQUESTED] payment pursuant to Paragraph 2 of this Chapter III. Allocation among the individual Collaborating Physicians of the research cost payments made by IE to the Collaborating Physicians pursuant to this Paragraph shall be no concern of IE. IE is granted full authorisation by the Collaborating Physicians to deliver to the party accepting the initial payment of IE to the Collaborating Physicians on behalf of the Collaborating Physicians any payments which may be payable by IE to the Collaborating Physicians pursuant to the terms of this Agreement. The right of the Collaborating Physicians to payments pursuant to Paragraphs 2 and 3 of this Chapter III is based on the understanding that IE will not need to pay other parties for the data and information which the Collaborating Physicians have undertaken to supply pursuant to Paragraph 1 of Chapter II, and that it will not be necessary for IE to enter into further collaboration with other parties in Iceland regarding the study of osteoarthritis in order to achieve the objectives of the Research Project. In the event that it proves necessary for IE to negotiate payments to a third party in order to ensure access to the data and information referred to in Paragraph 1 of Chapter II, or if it proves necessary for IE to take up collaboration with other parties in Iceland to achieve the objectives of the research, then the provisions of Paragraphs 2 and 3 of this Chapter III shall be reviewed so that the total payments of IE to the Collaborating Physicians and the third party remain the same as the payments specified in Paragraphs 2 and 3. IV. MANAGEMENT Decisions regarding the Research Project will be taken by the Collaborating Physicians and IE jointly, and a Steering Committee will be formed composed of three representatives from each party to this Agreement in order to formulate rules on the arrangement, control and implementation of the Research Project. The Co-ordinator of the Research Project shall be selected from among the members of the Steering Committee. -2- 4 The Steering Committee is also responsible for defining the objectives of the Research Project and establishing the professional requirements which the parties to this Agreement approve as adequate to the conduct of the research. The Steering Committee is responsible for the processing of data and publication of results pursuant to the rules of Chapter V hereof. V. HANDLING PROCESSING AND DISSEMINATION OF INFORMATION The parties to this Agreement undertake to treat all personal information as confidential. The parties to this Agreement undertake to observe the guidelines of the Data Protection Commission and, as applicable, the specially appointed representative (observer) of the Data Protection Commission regarding the handling and processing of such information as well as the guidelines and conditions of the Science Ethics Committee, which is constituted pursuant to legislation on Patients' Rights. The results of the Research Project will be published as soon as they fulfil academic requirements and are fit for publication. However, IE may postpone such publication by a maximum of 90 days to provide sufficient time to secure property rights relating to any invention arising out of the research. In the event that a third party submits to IE a request for postponement of the publication of results when they are ready for publication pursuant to the above, the publication may be delayed for a maximum of 90 days. The Steering Committee for each Research Project shall decide beforehand on the Co-ordinator of the Project. As a rule, the Co-ordinator shall be the last author of scientific articles, but the order of authors shall in other respects conform to applicable rules in the international scientific community. VI. LIMITATIONS ON COLLABORATION WITH OTHER PARTIES The Collaborating Physicians covenant not to work, jointly or separately, with others on research into the heredity of osteoarthritis during the course of the Research Project. The individual Collaborating Physicians covenant not to enter into collaboration with other parties on the part of the Research Project which led to a discovery for five years following the conclusion of the Research Project pursuant to this Agreement. However, if the Research Project does not lead to a discovery, individual Collaborating Physicians are entitled to take up collaboration with other parties regarding research into the heredity of osteoarthritis following the conclusion of the Research Project. IE covenants that during the course of the Research Project, IE will not take up collaboration with other parties on research into the heredity of osteoarthritis unless the Steering Committee regards such collaboration as necessary in order to achieve the objectives of the Research Project. In the event that it should prove necessary to add new partners to the Research Project, the Steering Committee shall decide on the choice of such partner. In the event of a dispute within the Steering Committee, the Collaborating Physicians will decide on the choice of additional partners. Notwithstanding the above, the provisions of this Paragraph shall not preclude collaboration by IE in the area of the Research Project with the parties who have negotiated the purchase of the Research Project, its conclusions or results, provided -3- 5 that such collaboration does not prejudice the rights of the collaboration group pursuant to Paragraphs 2 and 3 of Chapter III. VII. TERM AND CONCLUSION OF PROJECT The Research Project shall continue for a term of five years following the signature of this Agreement unless it is concluded earlier. In the event of substantial default by either party to this Agreement the other party may terminate this Agreement. In the event of a dispute regarding the termination rights of a party, such dispute shall be resolved pursuant to the terms of Chapter VIII. At the conclusion of the Project, all clinical data (blood samples and clinical information) shall be returned to the Collaborating Physicians. In the event that one or both parties see reason to continue their collaboration following the agreed term, such continuation shall be considered independently. VIII. SETTLEMENT OF DISPUTES In the event of a dispute between the parties regarding the implementation of this Agreement or performance which cannot be resolved within the Steering Committee, two parties, one from each party to this Agreement, shall attempt to reach a consensus on settlement of the dispute. In the event that no consensus can be reached by these two parties within two weeks from the time that the dispute was submitted to them, each party to this Agreement shall appoint one arbitrator and the parties to this Agreement shall then jointly request the appointment of a neutral third arbitrator by the District Court of Reykjavik to participate in the resolution of the dispute, and the three parties shall constitute an arbitration tribunal. The tribunal shall conclude their resolution of the dispute within one month from the time that the tribunal is fully constituted. The cost of the work of the arbitration tribunal shall be subject to the decision of the tribunal at each time. The work of the tribunal, procedure and conclusions before the tribunal shall in other respects be governed, as applicable, by Act No. 53/1989 on Contractual Arbitration. Notwithstanding the above provisions on arbitration, issues involving the collection of payments under this Agreement which are not in dispute between the parties to this Agreement may be submitted to the courts, as well as any disputes regarding financial claims which either party may make against the other party on the basis of the decision of the arbitration tribunal regarding the default or breach by the other party to this Agreement, provided that the claim has not previously been submitted to the arbitration tribunal. Such issues shall be submitted to the District Court of Reykjavik. Reykjavik 31 March 1998 For the Collaborating Physicians: For Islensk erfdagreining ehf. Dr. Helgi Jonsson [sign.] Kari Stefansson, Managing Director [sign.] Dr. Thorvaldur Ingvarsson [sign.] -4- EX-10.15 19 COLLABORATION AGREEMENT 1 EXHIBIT 10.15 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.15 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason ---------------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 [NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] COLLABORATION AGREEMENT BETWEEN THE RESEARCH GROUP ON ARTERIAL HYPERTENSION AND ISLENSK ERFDAGREINING EHF. The Research Group on arterial hypertension (hereinafter "RA,") and Islensk erfdagreining ehf. (hereinafter "IE") hereby enter into the following Agreement on research into the heredity of arterial hypertension. I. SUBJECT OF THE COLLABORATION RA and IE agree to work together on searching for genetic factors contributing to arterial hypertension. The proposed collaboration of the parties is hereinafter referred to as the "Research Project". II. CONTRIBUTION OF THE PARTIES RA will supply the Research Project with biological samples (blood samples), other clinical information and research data which RA possesses or has access to regarding patients afflicted with arterial hypertension and their relatives which are not afflicted with arterial hypertension. RA will be in charge of relations with the individuals intended for participation in the research, or their legal guardians, including calling them in for blood samples and obtaining the informed consent of the participants. Furthermore, RA will contribute its specialised knowledge and expertise regarding diagnosis of disorders, experimental design, conduct of experiments and interpretation of their results. IE will contribute its expertise in experimental design, conduct of experiments, assessment of the heredity of the disorder and interpretation of the results of research. IE will also contribute equipment, research supplies, reagents and staff to conduct experiments. IE will pay all reasonable costs of the Research Project, including the material and wage costs of calling in participants for examination and sampling. RA will submit a financial plan following the signature of this Agreement when there is sufficient information to assess the scope of the Project. III. RIGHTS OF THE PARTIES IE will own all financial and commercial rights to the Research Project and its conclusions. IE will have the right to sell to a third party the conclusions of the Research Project or its results and to utilise the Research Project financially in any other manner consistent with recognised ethical standards, before or after the Research Project is concluded. IE and its parent company, deCODE genetics Inc., has contracted with a third party on the sale of the Research Project, its possible conclusions and results. The amount of the payment of such third party to IE and deCODE genetics Inc. will depend on the success of the Research Project. RA will receive as its share [CONFIDENTIAL TREATMENT REQUESTED] of all payments by the third party to IE or to deCODE genetics Inc., as applicable, during the term of -1- 3 such contract with the third party less the deduction of the financing by the third party of the research costs and investment in IE or deCODE genetics Inc. IE will pay to RA [CONFIDENTIAL TREATMENT REQUESTED] on signature of this Agreement, and thereafter an annual amount of [CONFIDENTIAL TREATMENT REQUESTED] during the course of the Research Project, the total amount never to exceed [CONFIDENTIAL TREATMENT REQUESTED]. In the event that the Research Project is concluded in a shorter time than five years by achieving the objective of the Research Project, RA will be paid on such conclusion the amount which remains unpaid of the [CONFIDENTIAL TREATMENT REQUESTED] pursuant to this Paragraph. Payments pursuant to this Paragraph shall be used by RA to finance its own research and purchase equipment for research. All payments will, following deduction of the cost of the research, will go to the Equipment and Scientific Research Fund of the Department of Internal Medicine of the National Hospital. Payments pursuant to this Paragraph are in addition to and independent of the [CONFIDENTIAL TREATMENT REQUESTED] payment pursuant to Paragraph 2 of this Chapter III. IE is granted full authorisation by all the individuals engaged in RA to deliver to the party accepting the initial payment of IE to RA on behalf of RA any payments which may be subsequently payable by IE pursuant to the terms of this Agreement. RA will employ a chartered accountant with full authority to monitor payments, finances and reception of payments in respect of the Research Project on behalf of RA, provided that IE receives verifiable notification thereof with reasonable notice. The right of RA to payments pursuant to Paragraphs 2 and 3 of this Chapter III is based on the understanding that IE will not need to pay other parties for the data and information which RA has undertaken to supply pursuant to Paragraph 1 of Chapter II, and that it will not be necessary for IE to enter into further collaboration with other parties in Iceland regarding the study of arterial hypertension in order to achieve the objectives of the Research Project. In the event that it proves necessary for IE to negotiate payments to a third party in order to ensure access to the data and information referred to in Paragraph 1 of Chapter II, or if it proves necessary for IE to take up collaboration with other parties in Iceland to achieve the objectives of the research, then the provisions of Paragraphs 2 and 3 of this Chapter III shall be reviewed so that the total payments of IE to RA and the third party remain the same as the payments specified in Paragraphs 2 and 3. RA is not financially liable to IE for the achievement of the scientific or commercial objectives of the research. In the event that a third party effects the discontinuation of the research, RA shall not be liable to IE in respect of such discontinuation, provided that all payments to RA which have not been disposed of for the payment of research costs are returned to IE. IV. MANAGEMENT Decisions regarding the Research Project will be taken by RA and IE jointly, and a Steering Committee will be formed composed of two representatives from each party to this Agreement in order to formulate rules on the arrangement, control and implementation of the Research Project. The Co-ordinator of the Research Project shall be selected from among the members of the Steering Committee nominated by RA. The Steering Committee is also responsible for defining the objectives of the Research Project and establishing the professional requirements which the parties to this Agreement approve as adequate to the conduct of the research. -2- 4 The Steering Committee is responsible for the processing of data and publication of results pursuant to the rules of Chapter V hereof. V. HANDLING, PROCESSING AND DISSEMINATION OF INFORMATION The parties to this Agreement undertake to treat all personal information as confidential. The parties to this Agreement undertake to observe the guidelines of the Data Protection Commission and, as applicable, the specially appointed representative (observer) of the Data Protection Commission regarding the handling and processing of such information as well as the guidelines and conditions of the Science Ethics Committee, which is constituted pursuant to Act No. 74/1997 on Patients' Rights. The results of the Research Project will be published as soon as they fulfil academic requirements and are fit for publication. However, IE may postpone such publication by a maximum of 90 days to secure property rights relating to any invention arising out of the research. In the event that a third party submits to IE a request for postponement of the publication of results when they are ready for publication pursuant to the above, the publication may be delayed for a maximum of 90 days. VI. LIMITATIONS ON COLLABORATION WITH OTHER PARTIES RA and individuals within the group covenant not to work, jointly or separately, with others on research into the heredity of arterial hypertension during the course of the Research Project. RA and individuals within the group covenant not to enter into collaboration with other parties on the part of the Research Project which led to a discovery for five years following the conclusion of the Research Project pursuant to this Agreement. However, if the Research Project does not lead to a discovery, individual parties within RA are entitled to take up collaboration with other parties regarding research into the heredity of arterial hypertension following the conclusion of the Research Project. This limitation does not, however, apply to the collaboration of RA with a Canadian party. IE covenants that during the course of the Research Project, IE will not take up collaboration with other parties on research into the heredity of arterial hypertension unless the Steering Committee regards such collaboration as necessary in order to achieve the objectives of the Research Project. In the event that it should prove necessary to add new partners to the Research Project, the Steering Committee shall decide on the choice of such partner. In the event of a dispute within the Steering Committee, RA will decide on the choice of additional partners. Notwithstanding the above, the provisions of this Paragraph shall not preclude collaboration by IE in the area of the Research Project with the parties who have negotiated the purchase of the Research Project, its conclusions or results, provided that such collaboration does not prejudice the rights of the research group pursuant to Paragraphs 2 and 3 of Chapter III. Subject to the provisions of Paragraphs 1 and 2 of Chapter III, the parties to this Agreement agree that this agreement is not transferable, partly or wholly, to other legal entities or individuals without the consent of both parties to this Agreement. VII. TERM AND CONCLUSION OF PROJECT The Research Project shall continue for a term of five years following the signature of this Agreement unless the Project is concluded earlier. In the event of substantial -3- 5 default by either party to this Agreement the other party may terminate this Agreement. In the event of a dispute regarding the termination rights of a party, such dispute shall be resolved pursuant to the terms of Chapter VIII. At the conclusion of the Project, all clinical data (blood samples and clinical information) shall be returned to RA. In the event that one or both parties see reason to continue their collaboration following the agreed term, such continuation shall be considered independently. In the event that a third party effects the discontinuation of this research, RA may terminate this Agreement with IE without compensation except as provided for in Paragraph 4 of Chapter III hereof. VIII SETTLEMENT OF DISPUTES In the event of a dispute between the parties regarding the implementation of this Agreement or performance which cannot be resolved within the Steering Committee, two parties, one from each party to this Agreement, shall attempt to reach a consensus on settlement of the dispute. In the event that no settlement can be reached by these two parties within two weeks from the time that the dispute was submitted to them, each party to this Agreement shall appoint one arbitrator and the parties to this Agreement shall then jointly request the appointment of a neutral third arbitrator by the District Court of Reykjavik to participate in the resolution of the dispute, and the three parties shall constitute an arbitration tribunal. The tribunal shall conclude their resolution of the dispute within one month from the time that the tribunal is fully constituted. The cost of the work of the arbitration tribunal shall be subject to the decision of the tribunal at each time. The work of the tribunal, procedure and conclusions before the tribunal shall in other respects be governed, as applicable, by Act No. 53/1989 on Contractual Arbitration. Notwithstanding the above provisions on arbitration, issues involving the collection of payments under this Agreement which are not in dispute between the parties to this Agreement may be submitted to the courts, as well as any disputes regarding financial claims which either party may make against the other party on the basis of the decision of the arbitration tribunal regarding the default or breach by the other party to this Agreement, provided that the claim has not previously been submitted to the arbitration tribunal. Such issues shall be submitted to the District Court of Reykjavik. This Agreement is in 8 chapters on five pages. It is done in two copies, one to be held by each party to this Agreement. Reykjavik 3 June 1998 For the Research Group on arterial For Islensk erfdagreining ehf. hypertension: Thordur Hardarson, Physician [sign.] Kari Stefansson, Managing Director [sign.] -4- 6 Arni Kristinsson, Physician [sign.] -5- EX-10.16 20 CONTRACT ON SALE AND LEASEBACK 1 EXHIBIT 10.16 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.16 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason -------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 CONTRACT ON SALE AND LEASEBACK 8 June 1998 ISLENSK ERFDAGREINING EHF. AND THE ICELANDIC INVESTMENT BANK The Icelandic Investment Bank (Fjarfestingarbanki atvinnulifsins hf). ID no. 501097-2179, Armuli 13, Reykjavik, hereinafter termed the lessor, and Islensk erfdagreining ehf., Lynghals 1, Reykjavik, hereinafter termed the lessee, have made an agreement that the lessor shall purchase from the lessee the property Lynghals 1, Reykjavik, pursuant to the attached contract of sale and transfer of title marked Appendix I (hereinafter "contract of sale") and that the lessee lease the property for the lessee's business, from the date of the contract of sale. The lessor and lessee have thus made the following. SALE AND LEASEBACK AGREEMENT ON THE PROPERTY LYNGHALS 1 1. PROPERTY The lessee leases from the lessor the property Lynghals 1, Reykjavik, together with the concomitant land-lease rights (hereinafter "the property.") This consists of industrial and office accommodation as described more fully in Appendix 1. 2. AMOUNT OF LEASE The purchase price of the property pursuant to the contract in Appendix 1 is a total of ISK170,000,000 (one hundred and seventy million ISK). The amount of the lease comprises the purchase price, contract charge and lessor's costs due to registration and stamp duty on the contract in Appendix 1. Details of the composition of the amount of the lease are to be found in Appendix II (summary of conditions). 3. INITIAL LEASE PERIOD The agreed period of the lease begins on 5 June 1998 and ends without formal notice on 4 June 2008. 4. CONDITION OF PROPERTY The lessee is familiar with the condition of the property and is satisfied with it in every way. 5. LEASE PAYMENTS Payments on the lease shall be made monthly in arrears, the date of payment being the 5th day of each month for the prior month. The first date of payment is 5 July 1998, and the last date of payment 5 June 2008. Payment dates thus total 120. If the date of payment is not a banking day, the due date shall be transferred to the next banking day following. A banking day shall be regarded as a day when banks are open both in Iceland and in the country of origin of the foreign currency in which the lease is denominated. The monthly lease payment agreed is USD 26,671.25, which shall be raised or lowered in accord with changes in LIBOR interest rates (London Inter Bank Offered -1- 3 Rate) on the inter-bank market in London for one-month USD loans, vis-a-vis the interest rate plus interest supplement stated in Appendix II of this contract. The lease payment each month shall be a sum equivalent to payments on a 10-year annuity loan with 12 repayments per year. When LIBOR interest is calculated, this shall be done on the basis of the interest rates published on Reuters BBA page at 11 am (GMT) two days before the due date, and this shall apply to the next period. Should the lease payment or other payments covered by this contract not be paid on the due date, the debt shall be subject to the highest legal penalty interest rates from due date to date of payment. The lessee shall pay, during the period of the lease, fees/costs due to collection and receipt of individual lease payments. All payments covered by his contract shall be made at a place to be decided by the lessor, who shall inform the lessee of this. 6. OPERATIONAL COSTS, ETC. The lessee shall, in addition to lease payments pursuant to Art. 5, pay all operational costs of the property, including all property taxes, contributions to joint maintenance work, costs due to improvements to the plot or the property, and cost of a managing committee for the building if applicable. Should the lessor pay operational costs payable by the lessee under the terms above, this amount is payable at the next due date for lease payments. The lessee shall reimburse the lessor for all taxes and duties that may be imposed upon this contract or in connection with it, including those due to the lessor's ownership of the property. The same applies to compensation that the lessor may be required to pay as owner of the property, not covered by ordinary property-owners' insurance, pursuant to Art. 7, para. 4. This does not, however, apply to taxes that may be levied on the lessor's revenue from this contract, or property tax that may be levied on the lessor's assets. 7. MAINTENANCE OF PROPERTY The lessee shall treat the property with care, and in keeping with the agreed use. The lessee shall be responsible, at the lessee's own expense, for all maintenance of the property, inside and out. The property shall be maintained in good condition, by such measures as painting the property and renewing flooring and other surfaces, in keeping with good practice regarding the maintenance of leased property. Should the property or its appurtenances be damaged, the lessee shall take measures to repair the damage at the lessee's own expense and as soon as possible. The lessee shall purchase property-owner's insurance in the name of the lessor with regard to the property, and continue this throughout the period of the lease. Should the lessee not fulfil the above obligations regarding maintenance and repair as specified above, the lessor may have maintenance or repairs carried out at the lessee's expense, and require reimbursement of the cost on the next due date of the lease. -2- 4 8. ADDITIONS AND CONSTRUCTION The lessee has the lessor's full permission to carry out those improvements and additions to the property that are necessary in order to make it suitable for the research work in human genetics and information technology that the lessee carries out, and is known to the lessor. Those changes or improvements made by the lessee to the property itself will automatically and without special reimbursement become the property of the lessor, in keeping with practice in the leasing and sale of commercial premises. The lessee shall seek the lessor's consent for all changes which may be regarded as unusual for the activity of the lessee. Should such changes or additions be made without the lessor's consent, the lessor may require the property to be restored to its original condition, without cost to the lessor. The lessor is aware that the lessee plans to extend the property at Lynghals 1 within a few years. Permission has been obtained from municipal authorities for an extension with a ground area of 1,500 sq.m. The lessor grants permission for this extension to be carried out, should the lessee decide to undertake it. All extensions to the existing property become the property of the lessee. Concomitant land-lease rights, in keeping with the proportional size of the present building and the extension to be constructed, will also become the property of the lessee. The lessor undertakes to agree to the making of a new agreement on the division of the property pursuant to the above, without any special fee being paid. Costs of making the contract of division are to be paid by the lessee. Should the lessee intend to transfer property rights in an extension to Lynghals 1 to a third party, the lessor shall have preemptive rights to equal the offer of the third party, whether this consists of sale, rental or sale and leaseback of the extension. The lessor's pre-emptive right is contingent upon the lessor still being owner of the property and payment of the outstanding amount of the lease not having taken place pursuant to Art. 12. 9. OWNERSHIP, TRANSFER OF RIGHTS, ETC. The lessor has, during the term of the lease, direct right of ownership in the property. The lessee shall, if liens should be imposed upon business equipment or other chattels located on the property, whether as collateral or for attachment of debts, ensure that the lien does not apply to the property. If any doubt exists about this at the time of the lien being imposed, the property shall be clearly excepted from the lien. The lessor may transfer rights and obligations under the terms of this lease, provided such as transfer does not in any way affect the rights of the lessee. The lessee may not transfer the right to use of the property without the written consent of the lessor. The lessor shall grant the lessee the right to sublet the property, if it is certain that this will in no way affect the interests of the lessor. Direct ownership of the property and other ownership rights are transferred at the end of the lease period to the lessee, or to a party nominated by the lessee, provided the lessee has in every way fulfilled the obligations on the lessee under the terms of this contract. -3- 5 10. INFORMATION The lessee must submit to the lessor, no later than 6 months after the end of the accounting year, a copy of the lessee's annual accounts. 11. RESCISSION AND SETTLEMENT The lessor may rescind this contract if the lessee defaults seriously on obligations under this contract. Examples of serious default are: 1. The lessee neglects maintenance or repair to the property, so that it is at risk of deterioration, or does not comply with the lessor's instructions to rectify matters within four weeks from receipt of the notice. 2. The lessee sublets rights under the lease or sublets the property without the consent of the lessor, and does not comply with the lessor's instructions to rectify matters within four weeks of receipt of the notice. 3. The lessee does not make payments due on the lease, or other payments payable to the lessor by the terms of this contract, on the due dates, and remains in default for more than four weeks. 4. The lessee requests a moratorium on debts, an unsuccessful attempt is made at attachment or impounding regarding the lessee, or liquidation proceedings are requested by the lessee or creditors of the lessee, on the basis of an unsuccessful attempt at attachment, the lessee seeks composition of debts, or a decision is made to cease trading. 5. The lessee's financial position deteriorates so seriously after the signing of the contract that it must be regarded as highly likely that the lessee cannot fulfil obligations to the lessor, and the lessee does not comply with the lessor's instruction to rectify the financial position within four weeks of receipt of the notice. Notices requiring rectification sent by the lessor to the lessee under the terms of this article shall be sent by provable means, and the rectification required shall be clearly stated. Notice of rescission of the contract shall be in writing, and sent by provable means. Should the lessor rescind the contract due to default by the lessee, the lessee shall within four weeks of the receipt of written notice of rescission pay to the lessor all due but unpaid lease payments and other payments covered by this contract which remain unpaid on the day of rescission, and all lease payments not yet due, calculated to current value on the basis of the contract's interest rate, minus half a percent (0.5% rescission supplement). The lessee's debt, thus calculated, shall be subject to the highest legal penalty interest rates from the above-mentioned due date until date of payment. In addition the lessee shall pay the lessor, based upon invoices submitted by the lessor, all the lessor's costs due to the default and rescission, including legal costs. When the settlement has been completed as stated above, and the lessee shall be free of all debt to the lessor, title to the property shall be transferred to the lessee pursuant to Art. 9, para. 4. -4- 6 If settlement to the lessor is not carried out within the time stated above, the lessor shall as soon as possible attempt to sell the property on the free market. In such attempts to sell, the lessor shall take into account the interests of the lessee. If the property is sold, the sales price, minus sales costs, shall be deducted from the lessee's debt as stated above, if and when the lessor has received the sales price in money. Payment by cheque, bank draft or bond is not regarded as payment in money. Attempt at sale does not affect the lessee's obligation to pay. 12. LESSEE'S RIGHT TO PAY OFF REMAINDER OF LEASE The lessee has the right to terminate this contract and reacquire the property and all rights pertaining to the plot and other rights specified in the contract of sale in Appendix I, at any time during the period of the lease, by paying off all due lease payments and those not yet due, together with interest accruing, in keeping with the provisions of the contract, calculated to present value on the basis of the interest rate of the contract, on the day of settlement. In the case of such a settlement, all ownership rights in the property are transferred to the lessee, pursuant to Art. 9, para. 4. 13. RETURN OF THE PROPERTY Should the period of the lease expire without transfer of rights pursuant to Art. 9 para 4, the lessee shall return the property to the lessor in the same condition as when it was received. The lessee bears sole and unlimited responsibility for compensation for deterioration of the property or damage to it, insofar as this is not classifiable as fair wear and tear due to normal or agreed use. Should a dispute arise between the lessor and lessee on the amount of compensation due to damage to the leased property, it shall be decided by the decision of one court-appointed assessor, whose decision shall be final. The assessor shall be appointed, and work, on the basis of laws on courts of arbitration. 14. NOTICE All notices to the lessee may be given at the address stated on the front of this contract, unless the lessee has provably informed the lessor of a new address. 15. APPENDICES The Appendices especially mentioned in the this contract and/or signed as appendices to the contract, are a part of the contract. 16. JURISDICTION Should a dispute arise from this contract, the case may be conducted in the Reykjavik District Court. 17. HEADINGS Headings of articles 1-17 form no part of the content of the contract. Reykjavik 8 June 1998 On behalf of the Icelandic Investment Bank (signed) Bjarni Armannsson -5- 7 On behalf of Islensk erfdagreining ehf. (signed) Kari Stefansson Appendices: I Contract and transfer of title dated 8 June 1998 II Summary of conditions dated 8 June 1998 Witness to correct date, signature and financial competence of the parties (signed) Tomas Sigurdsson, District Court Attorney ID no. 180966-3159 -6- 8 CONDITIONS OF SALE AND LEASEBACK AGREEMENT ON THE PROPERTY LYNGHALS 1, REYKJAVIK 08.06.1998
Lessee Islensk erfdagreining ehf. Lessor Icelandic Investment Bank Leased item Property Lynghals 1, Reykjavik Amount in ISK 170,000,000 Amount in USD 2,403,846.15 Exchange rate ISK/USD 70.72 Libor interest rate, BBA 5.65625% Interest supplement 1.15% Contract charge % 0.5% Contract charge, USD 12,019.23 Stamp duty on sales contract, ISK 453,776.00 Cost due to registration of sale, ISK 3,600.00 Lease payment per month, USD 27,671.25 Payable, USD 2,385,359.50 Date of payment 09.06.1998 Paid into account no. 115-38-129228 Frequency of lease payments monthly No. of lease payments 120 First due date 5.7.1998 Final due date 5.6.2008 Appendix I with sale and leaseback contract
-7- 9 Document drawn up by: Tomas Sigurdsson, District Court Attorney ID no. 180966-3159 Armuli 13a, 155 Reykjavik CONTRACT OF SALE AND TRANSFER OF TITLE Islensk erfdagreining ehf., ID no. 691295-3549, Lynghals 1, Reykjavik, hereinafter termed the seller, hereby sells and transfers to the Icelandic Investment Bank (Fjarfestingarbanki atvinnulifsins hf.), ID no. 501097-2179, Armuli 13a, Reykjavik, hereinafter termed the buyer, to full ownership and right of disposal of the property specified below. I. THE ITEM TRANSFERRED. The seller transfers to the buyer full ownership and right of disposal of the property Lynghals 1, Reykjavik, together with all appurtenances, including the appurtenant plot of land in keeping with land lease document numbered E-12887/1981. More precisely this consists of the following parts of the property, classified by the numbering system of the Evaluation Office of Iceland.
Evaluation no. Ev. Part Use Area Property evaluation 204-4238 01 0001 warehouse 1,113.1m2 33,613,000 204-4239 01 0101 industrial 1,241.2m2 48,071,000 204-4240 01 0201 offices 965.2m2 31,760,000 3,319.5m2 113,444,000
II. DELIVERY - CONDITION The property transferred is delivered to the buyer today. The buyer has examined the condition of the property and is entirely satisfied with it. III. SALES PRICE AND PAYMENT The agreed purchase price, ISK170,000,000, one hundred and seventy million ISK, has been paid in full. IV. OBLIGATIONS AND LIENS The property is sold free of all liens with the exception of the above. V. PROFITS AND COSTS The purchaser shall receive the profits and pay the expenses of the property sold from the day of delivery, but the seller until that time. The property is leased back to the seller by a sale and leaseback agreement dated today, under whose terms the seller shall pay all operational costs of the property. -8- 10 Should a dispute arise from the transfer of title, the case may be conducted in the Reykjavik District Court. In confirmation of which, signatures of the buyer and seller in the presence of witnesses. Reykjavik 8 June 1998 Seller On behalf of Islensk erfdagreining hf. (signed) Kari Stefansson Buyer On behalf of the Icelandic Investment Bank (signed) Bjarni Armannsson Witnesses to the correct date, signature and financial competence of the parties. (signed) (illegible) ID no. 080263-2289 (signed) Tomas Sigurdsson, district court attorney ID no. 180966-3159 Appendix II with sale and leaseback agreement. -9- EX-10.17 21 COTRACT ON FINANCIAL LEASING 1 EXHIBIT 10.17 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.17 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason -------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 CONTRACT ON FINANCIAL LEASING Lysing hf. Sudurlandsbraut 22, 108 Reykjavik Tel. 533 1500, Fax 533 1505. Free phone 800 6515 Document drawn up by: Gudridur Olafsdottir Lysing hf. CONTRACT ON FINANCIAL LEASING NO. 108237 copy LYSING HF. Sudurlandsbraut 22, 1208 Reykjavik, ID no. 491086-1229 Tel. 533 1500. Fax 533 1505. Free phone 800 6515 As lessor and Lessee: Islensk erfdagreining ehf. Address: Lynghals 1, 110 Reykjavik ID no: 691295 Tel. 570 1900 Hereinafter termed the lessee, make between them the following contract on financial leasing: ART. 1. THE LEASED ITEM Various machinery and equipment as specified in the seller's invoice. Photocopies of the original invoices are appended for further classification. Year: 1998 ART. 2. AMOUNT OF LEASE Amount of lease: ISK 400,000,000 VAT: 98,000,000 Total: 498,000,000 Indexed to USD: ISK 400,000,000 Total without VAT: ISK 400,000,000 Initial exchange rate: 71.39 In ISK and foreign currency: 5,603,026 ART. 3. SELLER Islensk erfdagreining hf. Lynghals 1 110 Reykjavik ID no. 691295 3549 Tel. 570 1900 -1- 3 ART. 4. INITIAL LEASE PERIOD From 21.7.1998 to 20.7.2002 Day of payment 11.6.1998 Date of first payment 20.7.1998 Number of payments 48 Number of months 48 ART. 5. PAYMENT ARRANGEMENTS DURING INITIAL LEASE PERIOD 21.07.1998 - 20.07.2002 No. of payments 48 Payments indexed to USD ISK 9,515,884 Payments based on initial exchange rate/index ISK 9,515,884 (excl. VAT), to be paid monthly incl. VAT. ART. 6. MONTHLY CONTINUATION OF LEASE FOLLOWS END OF INITIAL LEASE PERIOD From 21.07.2002 Payments indexed to USD ISK: 792,990 Payment excluding VAT based on initial exchange rate/index: 792,990 ART.7. INSURED BY: Vatryggingafelag Islands hf. Insurance amount: ISK400,000,000 Collection of premiums of chattels insurance: directly from the lessee ART. 8. SURETY Guarantor/owner of collateral: DeCode Genetics Inc. ART. 9 APPENDICES TO THE CONTRACT: Place of delivery Invoice ART. 10. SPECIAL CONDITIONS: Islensk erfdagreining is aware that this contract is guaranteed by Landsbanki Islands (National Bank of Iceland), which may take over this contract. A contract charge is payable on this contract, 0.75% of the lease amount The lessee shall pay interest on lease payments pursuant to Art. 13 of the contract. ART. 11. THE ITEM LEASED The item leased is specified in Art. 1, and the amount of this lease in Art. 2. In addition, documents that describe the leased item more fully are appended to this contract, and are a part of it. -2- 4 ART. 12 PERIOD OF LEASE The period of lease is specified in Arts. 4 and 6. The lessee cannot terminate this contract except with a month's notice, when one month remains of the initial lease period under the terms of Art. 4. Should the lessee not terminate the contract as specified above, it will be extended indefinitely under the terms of Art.6. The lessee can terminate the extended lease with one month's written notice. Should the lessee terminate this lease, the terms of Art. 29 apply to the return of the leased item, and costs accruing. ART. 13 PAYMENTS OF LEASE The lessee shall make payments on the lease on the days agreed. The payment is payable in advance, the first payment being at the beginning of the initial lease period under the terms of Art. 4. Should Lysing hf. pay the full or partial price of the leased item before the beginning of the initial lease period under the terms of Art. 4, the lessee shall pay, in addition to the first payment under the terms of Art.5, interest from the date of payment to the first day of the basic lease period under the terms of Art. 5. If the contract is not index-linked, Lysing hf. has the right to recalculate the payment specified in Arts. 5 and 6 to take into account changes in the interest rates on non-index-linked loans from banks and savings banks as specified in notices from the Central Bank of Iceland, after the date of this contract. Lysing hf. has the right to recalculate payments indexed to foreign currency exchange rates as specified in Arts. 5 and 6, in accord with changes that take place in the Libor interest rates on the foreign currency or currencies in which the lease payment is denominated. ART. 14 INDEXATION If the lease payment is index-linked, the lessee shall pay, in addition to the lease payment, an indexation supplement. The supplement shall be calculated on the basis of the changes that have occurred in the cost-of-living index to which this contract is linked by the terms of Art. 2, to the index that applies on each date of payment on the lease. A lower index, however, shall not be taken into account. Lease payments indexed to the changes in exchange rate of a currency abroad and/or the rate of exchange of foreign currencies vis-a-vis the Icelandic krona (ISK), are specified in ISK. -3- 5 The lease payment is payable in ISK. Calculation shall be based upon the published exchange rates of the Central Bank of Iceland for the currency or currencies on the date of issue of the invoice. ART. 15. OWNERSHIP Lysing hf. is the owner of the leased item. The company may require the leased item to be marked with a label supplied by the company to the lessee. The label must not be removed during the period of lease. At the lessee's expense, Lysing hf. will register its ownership of the leased item, if this is legally obligatory or if the company feels it necessary. The lessee may not undertake any declaration of legal consequence regarding the leased item, and it is not a valid subject for enforcement of the lessee's debts. The lessee may not permit others to use the leased item, nor pass it to another party, without the consent of Lysing hf. ART. 16. INSPECTION The lessee has chosen the leased item, and shall undertake on behalf of Lysing hf. to examine it, as the purchaser is obliged to do by the terms of the Act on purchase of chattels No. 39/1922 and/or other legal rulings. Lysing hf. takes no responsibility for the leased item. Lease payments must be made even if the lessee is not satisfied with the leased item, or if it does not have the qualities the lessee expected. ART. 17. DELIVERY The lessee takes the risk of the leased item being destroyed, damaged or deteriorating after the seller has delivered the leased item, or after the risk has passed from the seller to the purchaser under the terms of the Act on purchase of chattels no. 39/1922, or other legal rulings. ART. 18. COST OF TRANSPORT AND REGISTRATION All costs incurred due to the packing and transportation of the leased item from the seller to the lessee, as well as all costs pertaining to installation of the leased item at the place of use, are the lessee's responsibility, payable by the lessee. The lessee shall also pay all costs pertaining to registration and transfer of ownership. ART. 19. SELLER'S DEFAULT The lessee shall inform Lysing hf. in writing or by other equally reliable means, should the leased item be faulty, or if a delay occurs in delivery by the seller, so that all necessary measures may be taken against the seller due to the default. -4- 6 The lessee shall pay lease payments, even if the seller defaults on the contract with Lysing hf. and/or the lessee. The lessee may however be entitled to a reduction, compensation or reimbursement as specified here: a) Should the seller's default lead to a reduction of the purchase price, or compensation payable by the seller, the lessee shall benefit fully from this in the form of lower lease payments, and the lessee shall have no further claim on Lysing hf. Otherwise, this contract shall remain valid. b) Should the seller's default be so serious that the contract may be rescinded, Lysing hf. shall make this decision and inform the lessee of its decision. When the contract of purchase has been rescinded, a settlement shall take place under the terms of Art. 30 between the lessee and Lysing hf. Refunds and/or compensation shall be deductible from the claims of Lysing hf. against the lessee, other than due and payable payments on the lease. Should the settlement between Lysing hf. and the lessee not be completed within 30 days of the contract being rescinded, Lysing hf. can demand settlement from the lessee under the terms of Art. 30. The lessee has a right to a refund should the settlement of Lysing hf. and the seller lead to payment of compensation by the seller. The lessee shall pay the costs pertaining to presentation of the claim against the seller due to the seller's default, whether the claim is made in the name of Lysing hf. or of the lessee on behalf of the company. ART. 20. HANDLING OF THE LEASED ITEM The lessee shall maintain the leased item in good condition, and have all damage repaired as soon as it occurs, as well as following all the manufacturer's/seller's instructions on its use. The lessee shall attend all service examinations recommended by the agent, and have all maintenance and repair work carried out by the manufacturer/seller or a party recognised by them, at the lessee's expense and without right to reimbursement from Lysing hf. In addition the lessee shall always have the equipment lubricated and have oil and filters changed as laid down in the service manual. In the case of motor vehicles, this shall be done at least every 5,000 km, and shall be recorded in a lubrication record book for the vehicle. The lessee shall ensure that laws are obeyed regarding all handling and use of the leased item. Special care shall be taken that the leased item is equipped with legally obligatory protective and safety equipment, in order to avoid the risk of accident or illness. If safety equipment is removed, this is at the lessee's risk. The lessee shall consult with public monitoring bodies if this is -5- 7 required by law or regulations. The lessee shall pay all costs pertaining to this, without right of reimbursement. The lessee bears responsibility for the equipment being used only within the limits prescribed by insurance companies for the use of the equipment, and by those who are insured while using it. The equipment may not be subleased, used in teaching or in competitive events, except with the written agreement of Lysing hf. The lessee may not alter the leased item. Should the lessee, in spite of the above, have made changes to the leased item, it must be restored to its original condition at the lessee's expense. The lessee may join the leased item with items belonging to the lessee or to other parties, provided that there is no risk to the right of ownership of Lysing hf. In the case of a vehicle, the lessee may attach a towing mechanism to the leased item, provided that the equipment is especially insured for the towing operation to be carried out, and that it is within the limits tolerated by the equipment, according to information provided by the seller. The place of use shall be the lessee's place of business, unless the lessee specifically requests otherwise, and the consent of Lysing hf. shall be stated in this contract. If the assets with which the leased item is connected are subject to a lien, the lessee shall except the leased item from the lien by means of registering a declaration of Lysing hf.'s ownership of the leased item on the form for registration of liens pertaining to the item to which the leased item is attached, together with a statement of consent of the holder of the lien. In subsequent documents regarding the lien, it shall also be stated that the leased item is excepted from the lien. The lessee may not transport the leased item out of the country without the written consent of Lysing hf. ART. 21. DAMAGE TO THE LEASED ITEM The lessee is responsible for, and must compensate Lysing hf. for, all damage that may occur to the leased item when it is in the lessee's keeping, or when the lessee is otherwise responsible for risk to it. The lessee shall inform Lysing hf. immediately in writing, or by other equally reliable means, of such damage. Should it be possible, in the view of Lysing hf., to repair the leased item, the lessee shall do so without delay. The lessee bears responsibility for the repairs carried out after damage being carried out by the seller's repair workshop, or a party recommended by the seller, and that the repair be carried out satisfactorily and without delay. The lessee's obligation to make payments is not affected by the leased item being unusable due to damage or mechanical failure. If damage to the leased item is so great that a doubt exists as to whether it would be economical to repair it, the final decision shall be made by Lysing hf. and the lessee -6- 8 shall abide by that decision. Should the conclusion be that it is not economical to repair the leased item, the contracting parties have the following options: a) Should the lessee wish to renew the leased item, and if the insurance compensation suffices to buy a comparable leased item, the terms of this contract shall remain valid without change, regarding payments, period of lease, etc. b) The lessee can ask for the leased item to be replaced by another similar or identical one, even if the price of the new item is up to 10% higher than the insurance compensation for the leased item lost or destroyed. The terms of the original contract shall apply, but the payments until the end of the period of contract is recalculated. c) Should the lessee not desire to renew the leased item, or if the purchase price of the new leased item is more than 10% higher than the insurance compensation, a settlement shall be made between the parties within 30 days, under the terms of Art. 30. The insurance compensation is deductible from the claim of Lysing hf. against the lessee, or is payable to the lessee, if the settlement has been completed between Lysing hf. and the lessee before the insurance compensation is paid. ART. 22. DAMAGE CAUSE BY THE LEASED ITEM During the period of this contract, the lessee bears responsibility for damage that the leased item may cause, directly or indirectly. Should Lysing hf. be compelled to pay compensation for such damage, the company has the right to require reimbursement from the lessee. ART. 23. INSURANCE The leased item shall be insured during the period of the lease. Lysing hf. has the right to purchase the necessary insurance for the leased item at the lessee's expense. Insurance premiums are variable according to the terms of the policy. During the period of the lease, insurance shall be based upon the purchase price of the leased item. The insurance does not apply to transportation of the equipment from the place of delivery to the place of use, nor to additional equipment, or installation of the leased item, which shall be paid by the lessee, and the lessee must insure these items specifically. The lessee may purchase further insurance regarding the leased item, provided that this does not affect the rights of Lysing hf. The lessee shall be liable for damage below the minimum specified in the insurance policy, and also for all claims made by the insurance company due to violations of the conditions of insurance. -7- 9 Invoices for premiums are sent direct to the lessee, but if they are not paid within the period allowed, Lysing may, at the insurance company's request, pay the premium and require reimbursement from the lessee, together with penalty interest and collection costs under the terms of Art. 27. ART. 24. RIGHT OF INSPECTION A member of staff of Lysing hf. and/or a representative of the company has the right to inspect the leased item during the period of lease. In the case of a vehicle, the lessee acknowledges the right of Lysing hf. to call the leased item in for inspection at any time, at seven days' notice, so that its condition may be examined and its instruments read. Should the lessee not comply with the request for inspection, Lysing's staff may examine the item at its place of use or remove it to a place of examination at the lessee's expense, wherever the item may be found, without any order of attachment. The lessee shall for this purpose grant the lessee full access to the leased item and the place where it is kept. ART. 25. CHANGE OF ADDRESS The lessee shall inform Lysing hf. at once of any change of address. ART. 26. TAXES AND DUTIES In addition to the lease payments, the lessee shall pay Lysing hf. a fee as stated in the company's scale of charges, and all taxes or duties that may be increased or imposed upon the leased item, the lease or the itself, including value added tax. The lessee is also responsible for all costs pertaining to the use or keeping of equipment. The lessee shall also pay all fines that may be imposed, such as police fines, for example. ART. 27. DEFAULT Should the lessee not pay lease payments and other required payments on the due date, the lessee shall pay Lysing hf. the maximum permissible punitive interest on the amount outstanding, together with costs according to the list of charges previously submitted by Lysing hf., and all other costs that may be incurred, such as legal fees and charges. Lysing hf. may continue to apply indexation to the sum owing. ART. 28. REPUDIATION OF CONTRACT Lysing hf. may repudiate this contract without notice should the lessee be in default or violate the terms of the lease. For example: -8- 10 a) If the lessee does not make the required payments as stated in this contract on the due dates, or if Lysing hf. has had to pay unpaid compensation, duties or fines for which the registered owner is responsible vis-a-vis a third party, cp, Arts 22 and 26 of this contract. b) If the lessee neglects to bring the equipment for inspection or neglects its maintenance or repair of damage, as stated in the contract, or otherwise fails to comply with the terms of Art. 20 on the handling of the leased item. c) If the lessee does not grant the lessor or other person nominated by the lessor access to the leased item on request. d) If the lessee transports the leased item out of the country without the lessor's consent. e) If the above conditions of rescission apply to other leasing or loan agreements subsisting between Lysing hf. and the lessee. Lysing hf. may also rescind this agreement without notice if the following circumstances apply: a) If the estate of the lessee (or, if the lessee is a company with unlimited liability, the estate of one of its owners) is subject to bankruptcy proceedings, or if the lessee seeks composition with creditors. b) If the financial position of the lessee (or if with unlimited liability, the financial position of one of its owners) deteriorates considerably. c) If such changes are made to the operations or organisation of the lessee's business that the lessee's obligations under this contract cannot be fulfilled. ART. 29. RETURN OF LEASED ITEM Should this contract be terminated under the terms of Art. 12, 19, or 21, or rescinded under the terms of Art. 28, the lessee shall without delay return the leased item to the place specified by Lysing hf. The leased item shall be returned undamaged and in normal condition for normal use incurred pursuant to Art 20 of the lease. The lessee may remove all additions which were not included in this contract and are not counted as maintenance, but all damage caused by the attachment must be repaired. The leased item shall be accompanied by a registration certificate if the equipment is registered, service records and handbooks from the manufacturer. Until the leased item has been returned, it is the responsibility of the lessee. The lessee shall pay all costs pertaining to returning the leased item, such as for disconnection, packing, loading, transport and insurance, in addition to all costs for cleaning, servicing, repair and legal inspection of the leased item. -9- 11 Should the lessee not return the equipment as stated above, the lessee acknowledges by signature on this contract the right of the owner to repossess the leased item whenever and wherever it can be found, without an order of attachment. The lessee shall for this purpose grant the lessor full access to the place where the leased item is kept. ART. 30. SETTLEMENT Settlement between Lysing hf, and the lessee due to the contract being terminated under the terms of Art. 19, 21 or 18 shall be as follows: 1. The lessee shall pay all outstanding lease payments as specified in Arts. 5 and 6, together with punitive interest and costs, pursuant to Art. 27. 2. The lessee shall pay all lease payments not yet due as specified in Art. 5 of the contract and taxes and duties pursuant to Art. 26, insurance pursuant to Art. 23 and all other costs pertaining to the leased item. 3. The lessee shall pay all costs pursuant to Art. 29 pertaining to the termination or rescission of the contract and debt collection measures, together with compensation for any damage that Lysing hf. may suffer due to the cancellation of this contract before the initial lease period has expired. Lysing hf. cannot, however, demand compensation unless the contract is rescinded due to default by the lessee. 4. Punitive interest shall be charged on items 2-3 should settlement not be completed within 15 days of the cancellation or rescission of the contract. 5. From the lessee's payment to Lysing hf. as specified in items 2-4 above, the value of the leased item shall be deducted, when it has been returned and it has been sold or leased to another party, and the new selling price shall be the basis of calculation, after deduction of sales costs, repairs and other costs pursuant to Art. 29. Should it not prove possible to sell or lease the leased item within 30 days of the cancellation or rescission of the contract, Lysing hf. may require a settlement to be made between the parties, as stated above, on the basis of an evaluation of the cash value of the leased item, which evaluation shall be carried out by Lysing hf. Should this evaluation (including the selling price of the leased item) be disputed, either party may request that court-appointed assessors, under Chapter IX of Act no. 91/1991, be appointed to evaluate the leased item, provided the lessee has made a written objection to the evaluation or settlement within 10 days of being informed of it. Otherwise, the lessee must abide by the evaluation. In the same way, reimbursements or damages from the seller of the leased item due to defects or default pursuant to Art. 19, and insurance compensation if the leased item is lost or destroyed, shall be deducted from the payment from the lessee to Lysing hf. under items 2-4 above. -10- 12 Should the settlement of the lease result in credit payable to the lessee, Lysing hf. may, instead of paying this balance to the lessee, pay it toward other claims or leases subsisting between the two parties. ART. 31. LATENT DEFECTS AND OUTSTANDING CLAIMS Should compensation or repair costs be incurred by Lysing hf. due to latent faults or neglect, which was known or should have been known to the lessee, but which was not made known when the leased item was returned, or delivered to a new lessee, Lysing hf. has a right to demand reimbursement from the lessee, together with all costs incurred at a result, including legal costs. The same applies to all claims payable by the lessee such as taxes, duties and fines, that were not evident when the lease ended or when the settlement was made. ART. 32. BOOKKEEPING The manner in which the payments are entered in the lessee's accounts is the responsibility of the lessee and the lessee's accountant. ART.33. TRANSFER Lysing hf. may transfer this contract to a bank or other leasing company, provided such a transfer does not affect the legal rights of the lessee. The lessee may not transfer rights under this contract except with the consent of Lysing hf. ART 34. AMENDMENTS Amendments to this contract may only be made by means of a written appendix, signed by the contracting parties. ART. 35 JURISDICTION Cases of dispute regarding this contract may be conducted in the Reykjavik District Court. The undersigned lessee and guarantors have examined and have no objection to all the conditions of this contract, Articles 1-35 and especially Article 20 on the handling of the leased item and Articles 19, 21 and 22 that limit the responsibility of the lessor, the terms on rescission in Article 28, the special rights of the lessor in Articles 24 and 29 to repossess the leased item without an attachment ruling, and the terms of settlement in Article 30. The lessee and guarantors have also made a close examination of all appendices with the contract. The lessee grants Lysing hf. the right to enquire about the lessee's bank business during the period of validity of this lease. -11- 13 Place: Reykjavik. Date 19.6.98 On behalf of Lysing hf, (signed) Olafur Helgi Olafsson (illegible) Witnesses to correct signature, date and financial competence of the parties Hannes Smarason ID no. 251167-3389 (sign.) Elin Pordardottir ID no. 060763-4969(sign.) Lessee: on behalf of Islensk erfdagreining ehf. ID no. 691295-3549 Kari Stefansson (sign.) We the undersigned undertake to stand surety for this contract on behalf of DeCode Genetics Inc. Kari Stefansson (sign.) Hannes Smarason (sign.) -12- 14 Lysing hf Islensk erfdagreining ehf. Lynghals 1 110 Reykjavik Reykjavik, 19 June 1998 Re: contract on financial leasing no. 108237 It is hereby confirmed that Islensk erfdagreining has the right to terminate the above contract at any time by paying off the amount outstanding. On behalf of Lysing hf. (signed) Olafur Helgi Olafsson CEO -13- EX-10.18 22 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.18 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.18 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason -------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 [deCODE GENETICS LOGO] EMPLOYMENT CONTRACT DeCODE Genetics ehf. (Islensk erfdagreining ehf.), State Registration No. 691295-3549, of Lynghals 10, Reykjavik ("the Employer"), on the one hand, and Axel Nielsen 060665-3549 - ---------------------------------- ------------------------------------- (Employee name) (identification number) whose address is __________ Hrismoar 1___________________ (" the Employee") on the other hand enter into the following Employment Contract: 1. FIELD OF WORK. The Employee is hired to work as a/an ___VP of Finance, CFO____________ (job title, position) for the Employer. The workplace is the Employer's base of operations at Lynghals 1, Reykjavik, but if the Employer's base of operations in Reykjavik changes or increases in number, the Employee agrees to a change in his workplace. The Employee's work will involve financial management and he or she will work under the supervision of Kari Stefansson The Employer reserves the right to make changes in the Employee's projects or supervision if the Employer deems this necessary. 2. PERIOD OF EMPLOYMENT The Employee began work for the Employer on 2 June 1998. Termination of employment by either party shall be with one week's notice for the first three months of the employment period, which shall be a trial period. For the next three months following the trial period, the mutual notice period for termination shall be one month. After six months' work, the mutual notice period for termination shall be three months. At the completion of the trial period, termination shall be in writing and be based on the end of the month. -1- 3 3. JOB OBLIGATIONS The Employee pledges to do the work he undertakes with a sense of duty and diligence. While working for the Employer, the Employee may not, unless with the Employer's written consent, work at other jobs or participate in other employment that competes with the Employer's operations, or that can conflict in some other way with the Employee's work for the Employer. Upon termination of his employment, the Employee has a duty to turn over all documents and identification papers in his custody that pertain to the Employer. 4. WORKING HOURS The Employee's fixed working hours are from 9 o'clock to 5 o'clock Monday through Friday, unless otherwise agreed. The Employee shall also work other hours, if necessary, depending on to what extent the nature of his projects so require, unless urgent circumstances prevent his doing so. The days off are the holidays of the National Church, the First Day of Summer, 1 May, 17 June and the first Monday in August. If an urgent necessity comes up, the Employer can call the Employee to work at any time outside normal working hours. Mealtime, 30 minutes, shall be during the period 11:30 - 13:30 and is not counted as part of working hours. On regular workdays, there shall be two 15-minute coffee breaks, which are counted as part of working hours. During the period of employment, the Employer and Employee can agree on an arrangement of working hours other than the one above. 5. WAGES The Employee's fixed monthly wages are ISK .......................... . Payment for work done outside regular working hours and for any kind of work-related tasks is included in the above monthly wages. Wages shall be paid monthly on the last working day of each month. The wages stated above are complete remuneration for the work done by the Employee. In addition, the Employee is granted an option to buy a certain number of shares, pursuant to the attached agreement. Wages and other wage terms shall be re-examined every year, taking into consideration general wage changes and work results. The rights of the Employee to vacation and parental leave will be according to law. When the Employee has earned a full right to vacation by working for the Employer in the last vacation year, upon beginning his vacation or no later than 15 August each year, he shall receive a special lump-sum payment. This vacation supplement, based on full-time employment in the preceding vacation year, shall be ISK 8,400, or a -2- 4 proportional amount of this sum if part-time work or a shorter period of work is involved. Vacation pay is not paid for vacation supplements. The Employee pays 4% of his total wages as a premium into a pension fund of his own choice, and the Employer pays 6% of the same amount. 6. ACCIDENTS, ILLNESS AND INSURANCE In the event that the Employee has an accident at work, the Employer shall pay for getting the Employee home or to hospital and, for each instance, reimburse him for up to four weeks of normal, out-of-pocket medical expenses which are not covered by district health insurance or Social Security. In each instance of an accident at work or a work-related illness caused on the job or by it, or occurring during transport to and from the workplace, the Employer shall pay up to three months' wages according to the Employee's wage scale in effect when the accident or illness occurs, provided that per diem paid for these days by the State Social Security Institute and/or the district health insurance are paid to the Employer. The provisions of this paragraph shall not prejudice any additional rights the Employee may have under the law. Wage payments to the Employee during absences due to illness shall be arranged the first year so that two days are paid for each month worked. When the Employee has worked for the Employer for one year or longer, wage payments during absences due to illness shall be arranged as follows: After one year, two months for every 12 months. After five years of work for the Employer, four months for every 12 months, and after 10 years working for the Employer, six months for every 12 months. If an Employee becomes ill and for this reason cannot attend work, he shall immediately notify his superior, who shall decide whether a health certificate shall be provided. The certificate shall be from a consulting physician if so requested. The Employer shall pay for the health certificate if the above conditions are met. After the first month at work a parent shall, without any deduction from wages, be entitled to spend a total of seven workdays of every 12-month period in ministering to his sick children under the age of 13, provided that other care cannot be procured. The Employer shall insure the Employee against death and permanent or temporary disability caused by an accident while at work or while travelling a normal route between his home and the workplace. If, because of his work, the Employee has accommodations away from his home, the accommodations replace his home, but the insurance shall also cover normal trips between his home and these accommodations. Compensation for death will be (as of 1 Jan. 1998): 1. If the deceased was not married and is not survived by a child and has not been supporting an aged parent 67 years of age or older, ISK 342,100. 2. If the deceased was not married but is survived by a child (children) under 17 and/or has demonstrably supported an aged parent or parents (aged 67 or older), ISK 1,083,500. -3- 5 3. If the deceased was married, the compensation to the spouse shall be ISK 1,479,700. 4. If the deceased is survived by a child (adopted child, foster child) under 17 years of age, for each child ISK 284,800. 5. Compensation is paid under only one of sub-paragraphs no. 1, 2 or 3. In addition to sub-paragraphs 2 and 3, compensation may be paid under sub-paragraph 4. The beneficiaries of death compensation provisions are: 1) Legal heirs. 2) Relevant parties equally 3) Surviving spouse. 4) Relevant children, but paid to surviving spouse if he/she is one of the parents, or to an executor and/or trustee. Compensation for permanent disability is paid in proportion to the insurance amount of ISK 2,589,000 so that each degree of disability from 26% to 50% is counted double, and each degree of disability from 51% to 100% works triple. For temporary disability, per diem benefits of ISK 5,884 is paid per week four weeks after the accident occurred and until the injured person becomes able to work, although for no more than 48 weeks. ISK 785 per week are added to the per diem for each child under the age of 17 that the injured person is supporting. The amounts of insurance will be reviewed twice a year, 1 January and 1 July, and increased in correspondence with changes in the cost-of-living index. The insurance goes into force as soon as the Employee begins work and expires as soon as he stops working. The policy terms of the insurance shall be the general policy terms in force for wage earner job accident insurance at the Association of Icelandic Insurance Companies at the time of signature of this Employment contract is. In the event that the Employer becomes liable for damages in respect of the Employee, accident compensation and per diem paid to the Employee under provisions of this Employment Contract shall be fully deductible from any damages that the Employer may be made to pay. While the payment of wages continues, per diem is paid to the Employer. 7. CONFIDENTIALITY The Employee fills a job involving responsibility and confidentiality for the Employer. He shall maintain the utmost confidentiality about whatever he has become aware of in his job regarding the Employer and the Employer's customers, and which can damage the interests of these parties. Due to the nature of his work, the Employee is under obligation to handle all information, documents and data to which he has access in his work with the utmost confidentiality. This confidentiality continues in force after termination of employment. -4- 6 While the Employee works for the Employer and for one (1) year thereafter, the Employee shall not encourage any of the Employer's employees to leave the employment of the Employer. If the Employee quits working for the Employer, he undertakes not to accept work either directly or indirectly at competing companies or with other competing parties, or to start up or join such operations for at least two years after termination of employment. 8. PROPRIETARY INFORMATION AND INVENTIONS Concurrently with the signing of this Employment Contract, the Employer and Employee enter into an Agreement on Proprietary Information and Inventions. That agreement is deemed a premise for and part of this Employment Contract. Reykjavik, 1 July 1998. Employee On behalf of DECODE GENETICS, EHF. Axel Nielsen [sign.] Olafur E. Fridriksson [sign.] -5- EX-10.19 23 COLLABORATION AGREEMENT 1 EXHIBIT 10.19 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.19 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason -------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 [NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] COLLABORATION AGREEMENT BETWEEN A COLLABORATION GROUP ON ALZHEIMER'S DISEASE AND RELATED DISORDERS AND ISLENSK ERFDAGREINING EHF. The Collaborative Group on Alzheimer's Disease and Related Disorders (hereinafter "CGAD,") and Islensk erfdagreining ehf (hereinafter "IE") hereby enter into the following Agreement on research into the heredity of Alzheimer's Disease and related disorders. I. SUBJECT OF THE COLLABORATION CGAD and IE agree to work together pursuant to this Agreement on searching for genetic factors contributing to the genesis of Alzheimer's Disease and related disorders. The proposed collaboration of the parties is hereinafter referred to as the "Research Project". II. CONTRIBUTION OF THE PARTIES CGAD will supply the Research Project with biological samples (blood samples), other clinical information and research data which CGAD possesses or has access to regarding patients afflicted with Alzheimer's Disease and related disorders and their relatives which are not afflicted with Alzheimer's Disease or related disorders. CGAD will be in charge of relations with the individuals intended for participation in the research, or their legal guardians, including calling them in for blood samples and obtaining the informed consent of the participants. Furthermore, CGAD will contribute its specialised knowledge and expertise regarding diagnosis of disorders, experimental design, conduct of experiments and interpretation of their results. IE will contribute its expertise in experimental design, conduct of experiments, assessment of the heredity of the disorder and interpretation of the results of research. IE will also contribute equipment, research supplies, reagents and staff to conduct experiments. IE will pay all costs of the Research Project, including the material and wage costs of calling in participants for examination and required sampling. CGAD will submit a financial plan on signature of the Agreement assessing the projected material and wage costs of the Project, see Annex A. III. RIGHTS OF THE PARTIES IE will own all financial and commercial rights to the Research Project and its conclusions. IE will have the right to sell to a third party the conclusions of the Research Project or its results and to utilise the Research Project financially in any other manner consistent with recognised ethical standards, before or after the Research Project is concluded. IE and its parent company, deCODE genetics Inc., has contracted with a third party on the sale of the Research Project, its possible conclusions and results. The amount -1- 3 of the payment of such third party to IE and deCODE genetics Inc. will depend on the success of the Research Project. CGAD will receive as its share [CONFIDENTIAL TREATMENT REQUESTED] of all payments by the third party to IE or to deCODE genetics Inc., as applicable, during the term of such contract with the third party less the deduction of the financing by the third party of the research costs and investment in IE or deCODE genetics Inc. IE will pay to CGAD [CONFIDENTIAL TREATMENT REQUESTED] on signature of this Agreement, and thereafter an annual amount of [CONFIDENTIAL TREATMENT REQUESTED] during the course of the Research Project, the total amount never to exceed [CONFIDENTIAL TREATMENT REQUESTED]. In the event that the Research Project is concluded in a shorter time than five years by achieving the objective of the Research Project, CGAD will be paid on such conclusion the amount which remains unpaid of the [CONFIDENTIAL TREATMENT REQUESTED] pursuant to this Paragraph. Payments pursuant to this Paragraph shall be used by CGAD to finance its own research on Alzheimer's Disease and related disorders. CGAD may establish a separate research fund for such purpose. Payments pursuant to this Paragraph are in addition to and independent of the [CONFIDENTIAL TREATMENT REQUESTED] payment pursuant to Paragraph 2 of this Chapter III. IE is granted full authorisation by all the individuals engaged in CGAD to deliver to the party accepting the initial payment of IE to CGAD on behalf of CGAD any payments which may be subsequently payable by IE pursuant to the terms of this Agreement. The right of CGAD to payments pursuant to Paragraphs 2 and 3 of this Chapter III is based on the understanding that IE will not need to pay other parties for the data and information which CGAD has undertaken to supply pursuant to Paragraph 1 of Chapter II, and that it will not be necessary for IE to enter into further collaboration with other parties in Iceland regarding the study of Alzheimer's Disease and related disorders in order to achieve the objectives of the Research Project. In the event that it proves necessary for IE to negotiate payments to a third party in order to ensure access to the data and information referred to in Paragraph 1 of Chapter II, or if it proves necessary for IE to take up collaboration with other parties in Iceland to achieve the objectives of the research, then the provisions of Paragraphs 2 and 3 of this Chapter III shall be reviewed so that the total payments of IE to CGAD and the third party remain the same as the payments specified in Paragraphs 2 and 3. CGAD is not financially liable to IE for the achievement of the scientific or commercial objectives of the research. IV. MANAGEMENT Decisions regarding the Research Project will be taken by CGAD and IE jointly, and a Steering Committee will be formed composed of two representatives from each party to this Agreement in order to formulate rules on the arrangement, control and implementation of the Research Project. The Co-ordinator of the Research Project shall be selected from among the members of the Steering Committee. The Steering Committee is also responsible for defining the objectives of the Research Project and establishing the professional requirements which the parties to this Agreement approve as adequate to the conduct of the research. The Steering Committee is responsible for the processing of data and publication of results pursuant to the rules of Chapter V hereof. -2- 4 V. HANDLING, PROCESSING AND DISSEMINATION OF INFORMATION The parties to this Agreement undertake to treat all personal information as confidential. The parties to this Agreement undertake to observe the guidelines of the Data Protection Commission and, as applicable, the specially appointed representative (observer) of the Data Protection Commission regarding the handling and processing of such information as well as the guidelines and conditions of the Science Ethics Committee, which is constituted pursuant to Act No. 74/1997 on Patients' Rights. The results of the Research Project will be published as soon as they fulfil academic requirements and are fit for publication. However, IE may postpone such publication by a maximum of 90 days to provide sufficient time to secure property rights relating to any invention arising out of the research. In the event that a third party submits to IE a request for postponement of the publication of results when they are ready for publication pursuant to the above, the publication may be delayed for a maximum of 90 days. VI. LIMITATIONS ON COLLABORATION WITH OTHER PARTIES CGAD and individuals within the group covenant not to work, jointly or separately, with others on research into the heredity of Alzheimer's Disease and related disorders during the course of the Research Project. CGAD and individuals within the group covenant not to enter into collaboration with other parties on the part of the Research Project which led to a discovery for five years following the conclusion of the Research Project pursuant to this Agreement. However, if the Research Project does not lead to a discovery, individual parties within CGAD are entitled to take up collaboration with other parties regarding research into the heredity of Alzheimer's Disease and related disorders following the conclusion of the Research Project. IE covenants that during the course of the Research Project, IE will not take up collaboration with other parties on research into the heredity of Alzheimer's Disease and related disorders unless the Steering Committee regards such collaboration as necessary in order to achieve the objectives of the Research Project. In the event that it should prove necessary to add new partners to the Research Project, the Steering Committee shall decide on the choice of such partner. In the event of a dispute within the Steering Committee, CGAD will decide on the choice of additional partners. Notwithstanding the above, the provisions of this Paragraph shall not preclude collaboration by IE in the area of the Research Project with the parties who have negotiated the purchase of the Research Project, its conclusions or results, provided that such collaboration does not prejudice the rights of the collaboration group pursuant to Paragraphs 2 and 3 of Chapter III. VII. TERM AND CONCLUSION OF PROJECT The Research Project shall continue for a term of five years following the signature of this Agreement unless it is concluded earlier. In the event of substantial default by either party to this Agreement the other party may terminate this Agreement. In the event of a dispute regarding the termination rights of a party, such dispute shall be resolved pursuant to the terms of Chapter VIII. At the conclusion of the Project, all clinical data (blood samples and clinical information) shall be returned to CGAD. -3- 5 In the event that one or both parties see reason to continue their collaboration following the agreed term, such continuation shall be considered independently. VIII. SETTLEMENT OF DISPUTES In the event of a dispute between the parties regarding the implementation of this Agreement or performance which cannot be resolved within the Steering Committee, two parties, one from each party to this Agreement, shall attempt to reach a consensus on settlement of the dispute. In the event that no consensus can be reached by these two parties within two weeks from the time that the dispute was submitted to them, each party to this Agreement shall appoint one arbitrator and the parties to this Agreement shall then jointly request the appointment of a neutral third arbitrator by the District Court of Reykjavik to participate in the resolution of the dispute, and the three parties shall constitute an arbitration tribunal. The tribunal shall conclude their resolution of the dispute within one month from the time that the tribunal is fully constituted. The cost of the work of the arbitration tribunal shall be subject to the decision of the tribunal at each time. The work of the tribunal, procedure and conclusions before the tribunal shall in other respects be governed, as applicable, by Act No. 53/1989 on Contractual Arbitration. Notwithstanding the above provisions on arbitration, issues involving the collection of payments under this Agreement, which are not in dispute between the parties to this Agreement may be submitted to the courts, as well as any disputes regarding financial claims which either party may make against the other party on the basis of the decision of the arbitration tribunal regarding the default or breach by the other party to this Agreement, provided that the claim has not previously been submitted to the arbitration tribunal. Such issues shall be submitted to the District Court of Reykjavik. IX. RESERVATION REGARDING THE CONCLUSION OF A FRAMEWORK AGREEMENT BETWEEN THE REYKJAVIK MUNICIPAL HOSPITAL AND IE This Agreement is concluded subject to the existence of a valid framework agreement on collaboration between the Reykjavik Municipal Hospital and IE and that this Agreement between CGAD and IE is confirmed by the Executive Board of the Reykjavik Municipal Hospital. This Agreement is in 9 chapters on five pages and accompanied by Annex A. It is done in two copies, one to be held by each party to this Agreement. Reykjavik 19 July 1998 For the Collaboration Group on For Islensk erfdagreining ehf. Alzheimer's Disease and related disorders: Jon Snaedal, Head Physician, Geriatric Kari Stefansson, Managing Director Ward, Reykjavik Municipal Hospital [sign.] [sign.] Palmi Jonsson, Head Physician, Geriatric -4- 6 Ward, Reykjavik Municipal Hospital [sign.] Sigurbjorn Bjornsson, Specialist, Geriatric Ward, Reykjavik Municipal Hospital [sign.] -5- 7 ANNEX A Cost estimate per month on the research collaboration of CGAD and IE [CONFIDENTIAL TREATMENT REQUESTED] Notes: 1. Item 1: A data collection period of 18 months is foreseen. This time could by shortened by adding staff, but this would also increase cost. 2. Items 2-3: incidental costs; equal payments are assumed. Costs of items 2-3, as well as any other incidental costs, will be submitted to the Steering Committee of the research project for approval. CGAD will submit invoices to IE for all the above costs as well as any other incidental costs. -6- EX-10.20 24 COLLABORATION AGREEMENT 1 EXHIBIT 10.20 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.20 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason -------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 [NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] COLLABORATION AGREEMENT BETWEEN THE RESEARCH GROUP ON OSTEOPOROSIS AND ISLENSK ERFDAGREINING EHF. The Research Group on ostoeporosis (hereinafter "RO,") and Islensk erfdagreining ehf. (hereinafter "IE") hereby enter into the following Agreement on research into the heredity of osteoporosis and related disorders. I. SUBJECT OF THE COLLABORATION RO and IE agree to work together on searching for genetic factors contributing to osteoporosis and related disorders. The proposed collaboration of the parties is hereinafter referred to as the "Research Project". II. CONTRIBUTION OF THE PARTIES RO will supply the Research Project with biological samples (blood samples), other clinical information and research data which RO possesses or has access to regarding patients afflicted with osteoporosis and related disorders and their relatives which are not afflicted with osteoporosis or related disorders. RO will be in charge of relations with the individuals intended for participation in the research, or their legal guardians, including calling them in for blood samples and obtaining the informed consent of the participants. Furthermore, RO will contribute its specialised knowledge and expertise regarding diagnosis of disorders, experimental design, conduct of experiments and interpretation of their results. IE will contribute its expertise in experimental design, conduct of experiments, assessment of the heredity of the disorder and interpretation of the results of research. IE will also contribute equipment, research supplies, reagents and staff to conduct experiments. IE will pay all reasonable costs of the Research Project, including the material and wage costs of calling in participants for examination and samples. RO will submit a financial plan assessing the projected material and wage costs of the Project when there is sufficient information to assess its scope. III. RIGHTS OF THE PARTIES IE will own all financial and commercial rights to the Research Project and its conclusions. IE will have the right to sell to a third party the conclusions of the Research Project or its results and to utilise the Research Project financially in any other manner consistent with recognised ethical standards, before or after the Research Project is concluded. IE and its parent company, deCODE genetics Inc., has contracted with a third party on the sale of the Research Project, its possible conclusions and results. The amount of the payment of such third party to IE and deCODE genetics Inc. will depend on the success of the Research Project. RO will receive as its share [CONFIDENTIAL TREATMENT REQUESTED] of all payments by the third party to IE or to deCODE genetics Inc., as applicable, during the term of 1 3 such contract with the third party less the deduction of the financing by the third party of the research costs and investment in IE or deCODE genetics Inc. IE will pay to RO [CONFIDENTIAL TREATMENT REQUESTED] on signature of this Agreement, and thereafter an annual amount of [CONFIDENTIAL TREATMENT REQUESTED] during the course of the Research Project, the total amount never to exceed [CONFIDENTIAL TREATMENT REQUESTED]. In the event that the Research Project is concluded in a shorter time than five years by achieving the objective of the Research Project, RO will be paid on such conclusion the amount which remains unpaid of the [CONFIDENTIAL TREATMENT REQUESTED] pursuant to this Paragraph. Payments pursuant to this Paragraph shall be used to finance research on osteoporosis and related disorders. Payments pursuant to this Paragraph are in addition to and independent of the [CONFIDENTIAL TREATMENT REQUESTED] payment pursuant to Paragraph 2 of this Chapter III. IE is granted full authorisation by all the individuals engaged in RO to deliver to the party accepting the initial payment of IE to RO on behalf of RO any payments which may be subsequently payable by IE pursuant to the terms of this Agreement. All payments pursuant to Paragraphs 2 and 3 shall be made to the Research laboratory on bone fracture and osteoporosis at the Reykjavik Municipal Hospital. The right of RO to payments pursuant to Paragraphs 2 and 3 of this Chapter III is based on the understanding that IE will not need to pay other parties for the data and information which RO has undertaken to supply pursuant to Paragraph 1 of Chapter II, and that it will not be necessary for IE to enter into further collaboration with other parties in Iceland regarding the study of osteoporosis and related disorders in order to achieve the objectives of the Research Project. In the event that it proves necessary for IE to negotiate payments to a third party in order to ensure access to the data and information referred to in Paragraph 1 of Chapter II, or if it proves necessary for IE to take up collaboration with other parties in Iceland to achieve the objectives of the research, then the provisions of Paragraphs 2 and 3 of this Chapter III shall be reviewed so that the total payments of IE to RO and the third party remain the same as the payments specified in Paragraphs 2 and 3. IV. MANAGEMENT Decisions regarding the Research Project will be taken by RO and IE jointly, and a Steering Committee will be formed composed of two representatives from each party to this Agreement in order to formulate rules on the arrangement, control and implementation of the Research Project. The Co-ordinator of the Research Project shall be selected from among the members of the Steering Committee. The Steering Committee is also responsible for defining the objectives of the Research Project and establishing the professional requirements which the parties to this Agreement approve as appropriate to the conduct of the research. The Steering Committee is responsible for the processing of data and publication of results pursuant to the rules of Chapter V hereof. V. HANDLING PROCESSING AND DISSEMINATION OF INFORMATION The parties to this Agreement undertake to treat all personal information as confidential. The parties to this Agreement undertake to observe the guidelines of the Data Protection Commission and, as applicable, the specially appointed representative (observer) of the Data Protection Commission regarding the handling and processing 2 4 of such information as well as the guidelines and conditions of the Science Ethics Committee, which is constituted pursuant to Act No. 74/1997 on Patients' Rights. The results of the Research Project will be published as soon as they fulfil academic requirements and are fit for publication. However, IE may postpone such publication by a maximum of 90 days to secure property rights relating to any invention arising out of the research. In the event that a third party submits to IE a request for postponement of the publication of results when they are ready for publication pursuant to the above, the publication may be delayed for a maximum of 90 days. VI. LIMITATIONS ON COLLABORATION WITH OTHER PARTIES RO and individuals within the group covenant not to work, jointly or separately, with others on research into the heredity of osteoporosis and related disorders during the course of the Research Project. RO and individuals within the group covenant not to enter into collaboration with other parties on the part of the Research Project which led to a discovery for five years following the conclusion of the Research Project pursuant to this Agreement. However, if the Research Project does not lead to a discovery, individual parties within RO are entitled to take up collaboration with other parties regarding research into the heredity of osteoporosis and related disorders following the conclusion of the Research Project. IE covenants that during the course of the Research Project, IE will not take up collaboration with other parties on research into the heredity of osteoporosis and related disorders unless the Steering Committee regards such collaboration as necessary in order to achieve the objectives of the Research Project. In the event that it should prove necessary to add new partners to the Research Project, the Steering Committee shall decide on the choice of such partner. In the event of a dispute within the Steering Committee, RO will decide on the choice of additional partners. Notwithstanding the above, the provisions of this Paragraph shall not preclude collaboration by IE in the area of the Research Project with the parties who have negotiated the purchase of the Research Project, its conclusions or results, provided that such collaboration does not prejudice the rights of the research group pursuant to Paragraphs 2 and 3 of Chapter III. VII. TERM AND CONCLUSION OF PROJECT The Research Project shall continue for a term of five years following the signature of this Agreement unless the Project is concluded earlier. In the event of substantial default by either party to this Agreement the other party may terminate this Agreement. In the event of a dispute regarding the termination rights of a party, such dispute shall be resolved pursuant to the terms of Chapter VIII. At the conclusion of the Project, all clinical data (blood samples and clinical information) shall be returned to RO. In the event that one or both parties see reason to continue their collaboration following the agreed term, such continuation shall be considered independently. VIII. SETTLEMENT OF DISPUTES In the event of a dispute between the parties regarding the implementation of this Agreement or performance which cannot be resolved within the Steering Committee, 3 5 two parties, one from each party to this Agreement, shall attempt to reach a consensus on settlement of the dispute. In the event that no settlement can be reached by these two parties within two weeks from the time that the dispute was submitted to them, each party to this Agreement shall appoint one arbitrator and the parties to this Agreement shall then jointly request the appointment of a neutral third arbitrator by the District Court of Reykjavik to participate in the resolution of the dispute, and the three parties shall constitute an arbitration tribunal. The tribunal shall conclude their resolution of the dispute within one month from the time that the tribunal is fully constituted. The cost of the work of the arbitration tribunal shall be subject to the decision of the tribunal at each time. The work of the tribunal, procedure and conclusions before the tribunal shall in other respects be governed,, as applicable, by Act No. 53/1989 on Contractual Arbitration. Notwithstanding the above provisions on arbitration, issues involving the collection of payments under this Agreement which are not in dispute between the parties to this Agreement may be submitted to the courts, as well as any disputes regarding financial claims which either party may make against the other party on the basis of the decision of the arbitration tribunal regarding the default or breach by the other party to this Agreement. Such issues shall be submitted to the District Court of Reykjavik. IX. RESERVATION REGARDING THE CONCLUSION OF A FRAMEWORK AGREEMENT BETWEEN THE REYKJAVIK MUNICIPAL HOSPITAL AND IE This Agreement is concluded subject to the existence of a valid framework agreement on collaboration between the Reykjavik Municipal Hospital and IE and that this Agreement between RO and IE is confirmed by the Reykjavik Municipal Hospital. This Agreement is in 9 chapters on four pages. It is done in two copies, one to be held by each party to this Agreement. Reykjavik 19 July 1998 For the Research Group on Osteoporosis: For Islensk erfdagreining ehf. Gunnar Sigurdsson, Head Physician [sign.] Kari Stefansson, Managing Director [sign.] Isleifur Olafsson, Head Physician [sign.] 4 EX-10.21 25 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.21 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.21 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason -------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 [deCODE GENETICS LOGO] EMPLOYMENT CONTRACT DeCODE Genetics ehf. (Islensk erfdagreining ehf.), State Registration No. 691295-3549, of Lynghals 10, Reykjavik ("the Employer"), on the one hand, and Kristjan Erlendsson 300949-2669 - --------------------------------------------- --------------------------------- (Employee name) (identification number) whose address is __________ Vadlasel 12___________________ (" the Employee") on the other hand enter into the following Employment Contract: 1. FIELD OF WORK. The Employee is hired to work as a/an ___ VP for Clinical and Academic Collaborations_________________ (job title, position) for the Employer. The workplace is the Employer's base of operations at Lynghals 1, Reykjavik, but if the Employer's base of operations in Reykjavik changes or increases in number, the Employee agrees to a change in his workplace. The Employee's work will be relations with co-operating physicians and he or she will work under the supervision of Kari Stefansson The Employer reserves the right to make changes in the Employee's projects or supervision if the Employer deems this necessary. 2. PERIOD OF EMPLOYMENT The Employee began work for the Employer on 1 September 1998. Termination of employment by either party shall be with one week's notice for the first three months of the employment period, which shall be a trial period. For the next three months following the trial period, the mutual notice period for termination shall be one 3 month. After six months' work, the mutual notice period for termination shall be three months. At the completion of the trial period, termination shall be in writing and be based on the end of the month. 3. JOB OBLIGATIONS The Employee pledges to do the work he undertakes with a sense of duty and diligence. While working for the Employer, the Employee may not, unless with the Employer's written consent, work at other jobs or participate in other employment that competes with the Employer's operations, or that can conflict in some other way with the Employee's work for the Employer. Upon termination of his employment, the Employee has a duty to turn over all documents and identification papers in his custody that pertain to the Employer. 4. WORKING HOURS The Employee's fixed working hours are from 9 o'clock to 5 o'clock Monday through Friday, unless otherwise agreed. The Employee shall also work other hours, if necessary, depending on to what extent the nature of his projects so require, unless urgent circumstances prevent his doing so. The days off are the holidays of the National Church, the First Day of Summer, 1 May, 17 June and the first Monday in August. If an urgent necessity comes up, the Employer can call the Employee to work at any time outside normal working hours. Mealtime, 30 minutes, shall be during the period 11:30 - 13:30 and is not counted as part of working hours. On regular workdays, there shall be two 15-minute coffee breaks, which are counted as part of working hours. During the period of employment, the Employer and Employee can agree on an arrangement of working hours other than the one above. 5. WAGES The Employee's fixed monthly wages are ISK .......................... . Payment for work done outside regular working hours and for any kind of work-related tasks is included in the above monthly wages. Wages shall be paid monthly on the last working day of each month. The wages stated above are complete remuneration for the work done by the Employee. In addition, the Employee is granted an option to buy a certain number of shares, pursuant to the attached agreement. Wages and other wage terms shall be re-examined every year, taking into consideration general wage changes and work results. The rights of the Employee to vacation and parental leave will be according to law. 2 4 When the Employee has earned a full right to vacation by working for the Employer in the last vacation year, upon beginning his vacation or no later than 15 August each year, he shall receive a special lump-sum payment. This vacation supplement, based on full-time employment in the last vacation year, shall be ISK 8,400, or a proportional amount of this sum if part-time work or a shorter period of work is involved. Vacation pay is not paid for vacation supplements. The Employee pays 4% of his total wages as a premium into a pension fund of his own choice, and the Employer pays 6% of the same amount. 6. ACCIDENTS, ILLNESS AND INSURANCE In the event that the Employee has an accident at work, the Employer shall pay for getting the Employee home or to hospital and, for each instance, reimburse him for up to four weeks of normal, out-of-pocket medical expenses which are not covered by district health insurance or Social Security. In each instance of an accident at work or a work-related illness caused on the job or by it, or occurring during transport to and from the workplace, the Employer shall pay up to three months' wages according to the Employee's wage scale in effect when the accident or illness occurs, provided that per diem paid for these days by the State Social Security Institute and/or the district health insurance are paid to the Employer. The provisions of this paragraph shall not prejudice any additional rights the Employee may have under the law. Wage payments to the Employee during absences due to illness shall be arranged the first year so that two days are paid for each month worked. When the Employee has worked for the Employer for one year or longer, wage payments during absences due to illness shall be arranged as follows: After one year, two months for every 12 months. After five years of work for the Employer, four months for every 12 months, and after 10 years working for the Employer, six months for every 12 months. If an Employee becomes ill and for this reason cannot attend work, he shall immediately notify his superior, who shall decide whether a health certificate shall be provided. The certificate shall be from a consulting physician if so requested. The Employer shall pay for the health certificate if the above conditions are met. After the first month at work a parent shall, without any deduction from wages, be entitled to spend a total of seven workdays of every 12-month period in ministering to his sick children under the age of 13, provided that other care cannot be procured. The Employer shall insure the Employee against death and permanent or temporary disability caused by an accident while at work or while travelling a normal route between his home and the workplace. If, because of his work, the Employee has accommodations away from his home, the accommodations replace his home, but the insurance shall also cover normal trips between his home and these accommodations. Compensation for death will be (as of 1 Jan. 1998): 1. If the deceased was not married and is not survived by a child and has not been supporting an aged parent 67 years of age or older, ISK 342,100. 3 5 2. If the deceased was not married but is survived by a child (children) under 17 and/or has demonstrably supported an aged parent or parents (aged 67 or older), ISK 1,083,500. 3. If the deceased was married, the compensation to the spouse shall be ISK 1,479,700. 4. If the deceased is survived by a child (adopted child, foster child) under 17 years of age, for each child ISK 284,800. 5. Compensation is paid under only one of sub-paragraphs no. 1, 2 or 3. In addition to sub-paragraphs 2 and 3, compensation may be paid under sub-paragraph 4. The beneficiaries of death compensation provisions are: 1) Legal heirs. 2) Relevant parties equally 3) Surviving spouse. 4) Relevant children, but paid to surviving spouse if he/she is one of the parents, or to an executor and/or trustee. Compensation for permanent disability is paid in proportion to the insurance amount of ISK 2,589,000 so that each degree of disability from 26% to 50% is counted double, and each degree of disability from 51% to 100% works triple. For temporary disability, per diem benefits of ISK 5,884 is paid per week four weeks after the accident occurred and until the injured person becomes able to work, although for no more than 48 weeks. ISK 785 per week are added to the per diem for each child under the age of 17 that the injured person is supporting. The amounts of insurance will be reviewed twice a year, 1 January and 1 July, and increased in correspondence with changes in the cost-of-living index. The insurance goes into force as soon as the Employee begins work and expires as soon as he stops working. The policy terms of the insurance shall be the general policy terms in force for wage earner job accident insurance at the Association of Icelandic Insurance Companies at the time of signature of this Employment Contract is. In the event that the Employer becomes liable for damages in respect of the Employee, accident compensation and per diem paid to the Employee under provisions of this Employment Contract shall be fully deductible from any damages that the Employer may be made to pay. While the payment of wages continues, per diem is paid to the Employer. 7. CONFIDENTIALITY The Employee fills a job involving responsibility and confidentiality for the Employer. He shall maintain the utmost confidentiality about whatever he has become aware of in his job regarding the Employer and the Employer's customers, and which can damage the interests of these parties. Due to the nature of his work, the Employee 4 6 is under obligation to handle all information, documents and data to which he has access in his work with the utmost confidentiality. This confidentiality continues in force after termination of employment. While the Employee works for the Employer and for one (1) year thereafter, the Employee shall not encourage any of the Employer's employees to leave the employment of the Employer. If the Employee quits working for the Employer, he undertakes not to accept work either directly or indirectly at competing companies or with other competing parties, or to start up or join such operations for at least two years after termination of employment. 8. PROPRIETARY INFORMATION AND INVENTIONS Concurrently with the signing of this Employment Contract, the Employer and Employee enter into an Agreement on Proprietary Information and Inventions. That agreement is deemed a premise for and part of this Employment Contract. Reykjavik, 4 September 1998. Employee On behalf of DECODE GENETICS, EHF. Kristjan Erlendsson [sign.] Olafur E. Fridriksson [sign.] 5 EX-10.22 26 CO-OPERATION AGREEMENT 1 EXHIBIT 10.22 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.22 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason -------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 CO-OPERATION AGREEMENT BETWEEN REYKJAVIK HOSPITAL AND ISLENSK ERFDAGREINING EHF. INTRODUCTION The Act on Patients' Rights stipulates that medical records shall be preserved in the health institutions where they are recorded. The Data Protection Commission, appointed by the Minister of Justice, and the Science Ethics Committee can, however, grant access to information from medical records, including biosamples, for purposes of scientific research as defined by law. Islensk erfdagreining ehf. searches, in co-operation with various scientists, for genes that contribute to the causes of diseases or symptoms of diseases. The objective of the Co-operation Agreement between the above parties is to ensure the swift and efficient execution of research projects and facilitate access to the information necessary for their completion. Reykjavik Municipal Hospital (hereafter referred to as "the Hospital"), State Reg. No. 531195-2999, Fossvogur, Reykjavik, and Islensk erfdagreining ehf. (hereafter referred to as "Ie"), State Reg. No. 691295-3549, Lynghals 1, Reykjavik, hereby agree to co-operate on research. This Agreement will provide a framework for individual research contracts that Ie has entered into with individuals or teams employed by the Hospital, regarding specific research projects. Such research projects shall always be conducted on the basis of written contracts and measures shall be taken to ensure that such contracts conform in all respects to this co-operation Agreement. Ie and the Hospital have therefore entered into the following Co-operation Agreement CHAPTER 1 DEFINITIONS In this Co-operation Agreement the following concepts shall have the meaning set out below: Surveillance Committee: A committee composed of representatives of Ie and the Hospital, having the task of monitoring the implementation of this Co-operation Agreement. Executive Committee: A committee composed of representatives of research parties and Ie, having the task of supervising the execution of individual research projects. Research Parties: I) Employees of the Hospital participating in the conduct of any research project in co-operation with Ie, and/or II) Other parties participating in the conduct of any research project jointly with the parties specified under I) above. Neither the Hospital nor Ie is a research party in this sense. 3 Research Data: Health information, including biosamples, and any further clinical information that has a bearing on a given research project. Each research contract shall contain a definition of all relevant research data. Research Contract: A contract between research parties on the one hand and Ie on the other regarding a particular research project. Research Projects: A complete or partial research activity with the participation of Ie, the objective of which is to find genetic factors that cause a specific disease, disease symptoms or a response to treatment. CHAPTER 2 SCOPE The provisions of this Co-operation Agreement shall apply to all research projects, regarding which a specific research contract has been made relating to a specified research project in which employees of the Hospital participate and are granted access to research data in the custody of the Hospital. A specific research contract, in writing, shall be made between the research parties and Ie for each separate research project. Such contracts shall refer to the Co-operation Agreement between the Hospital and Ie. Such contracts shall also specify that no contracts shall take effect for the Hospital until such time as the Hospital has confirmed its acceptance by signature. Ie undertakes not to commence work on a research project until such contract has been signed by the Hospital. Under normal circumstances it is understood that the Hospital will come to a decision regarding contracts within 4 weeks after all required documents have been submitted. The term of research contracts shall be specified and they shall expire without express termination at the end of the term. In individual research contracts the contracting parties may negotiate a specific mutual period of notice of termination during the term of the contract. In the event that the research parties are unable to complete a research project within the specified time limit or wish to continue work on a research project, the term of the relevant research contract may be extended by one year at a time, provided that the Hospital approves such extension. CHAPTER 3 OBTAINING PERMITS Under this Agreement, access to research data preserved by the Hospital shall be subject to prior approval by the Science Ethics Committee, appointed by the Minister for Health and Insurance pursuant to State Regulation No. 449/1997 on scientific research in the health sector, following comments from the Hospital's Ethics Committee. Scientific research shall also be subject to the approval of the Data Protection Commission, appointed by the Minister of Justice. 2 4 CHAPTER 4 SUPERVISION, SURVEILLANCE, AND CONFIDENTIALITY 4.1 Supervision of Individual Research Projects: The supervision of individual research projects shall be jointly in the hands of the relevant research parties and Ie, which will form an Executive Committee. Further provisions regarding supervision shall be included in the research contract. 4.2 Surveillance Committee: The Hospital and Ie shall appoint a Surveillance Committee, composed of four members, to monitor the execution of this Co-operation Agreement. Two representatives of each of the parties to the Agreement shall be appointed to the committee. Each party shall also appoint two alternate members to replace committee members in their absence. The committee shall meet once every month, or as often as the committee may decide. Should either of the parties to the Agreement think there is cause for a meeting, such party may instruct his representatives in the surveillance committee to take steps to call such a meeting, which shall then be called with five days' notice. 4.3 Obligation of Ie et al. to Inform Ie undertakes to submit to the surveillance committee all contracts made between Ie and individuals or teams employed by the Hospital at the time that such contract is made or subsequently employed by the Hospital. The surveillance committee shall have complete access to all research data of any given research project on which a research contract has been made. The Surveillance Committee shall have unlimited access to the accounts of Ie relating to research projects covered by a research contract. The accounts of each research project shall be kept separately from other accounts of Ie. Ie further undertakes to submit to the surveillance committee complete information regarding payments under a research contract, and as regards the sale of a research project, its results or findings to a third party. The access that the Hospital has to the accounts of Ie under this Article shall have the purpose of enabling the Hospital to preserve its financial interests in its dealings with Ie. Ie undertakes to submit to the Hospital all contracts concluded before this Co-operation Agreement took effect, between Ie and individuals or teams employed by the Hospital at the time this Co-operation Agreement is made. Such contracts shall be subject to the provisions of this Co-operation Agreement. Where it is stated in this Agreement that the surveillance committee may require information, access to accounts or research data etc., it shall be assumed that each representative of the Hospital shall have such rights regardless of the view of other committee members. 4.4 Confidentiality The representatives of the Hospital on the surveillance committee shall be bound by complete confidentiality regarding all matters of which they may acquire knowledge in the course of their work. This applies equally to the contents of contracts, research plans, results from research, business plans and all other information that should fairly 3 5 and reasonably remain confidential in the interest of Ie. Under no circumstances may the substance of such information be divulged to a third party without the express permission of Ie. The confidentiality obligations of a Hospital representative shall remain effective even if he resigns his employment or this Agreement is terminated. Directors and employees of the Hospital who, in the course of their work, must deal with information of a sensitive nature provided to them by Hospital representatives on the surveillance committee, are under the same obligation. Confidentiality obligations as defined under this Article apply equally to Ie representatives on the surveillance committee with respect to the Hospital. CHAPTER 5 EXPENSES All expenses incurred by each research project shall be paid by Ie. Ie will pay the additional expenses incurred by the Hospital in connection with the performance of a research project after a research contract has taken effect, i.e. material and wage costs. This does not apply to administrative expenses of the Hospital. The Hospital shall submit to Ie a monthly invoice, which Ie undertakes to pay within 10 days of issue. Payments under this Article shall be considered as expense outlay under Section 7.3 of this Agreement, and be added to fixed payments, variable payments and other payments under the same Section 7.3. CHAPTER 6 TREATMENT OF RESEARCH DATA Research parties shall have access to necessary research data in the custody of the Hospital for use in a specific research project for which a research contract has been made, the data having been defined therein, subject to compliance with law, regulations, government stipulations and the provisions of this Agreement. Exempt from access under Paragraph 1 of this Article are biosamples that the Hospital has collected for other use than that described in this Agreement and individual research contracts. Ie shall only be granted access to such biosamples if permitted by the Board of Directors/Director of the biosample bank in question and the Medical Director of the Hospital, and then only to such extent as permitted by them at each time. The custody of research data shall conform to the provisions of law at each time, currently the provisions of Articles 14 and 15 of Act No. 74/1997 on Patients' Rights. Furthermore, the provisions of Act No. 121/1989 on the Recording and Handling of Personal Data shall be observed. Ie may not remove from Iceland any research data defined in a research contract and provided by the Hospital for a specific research project. On the completion of a research project, Ie shall within four weeks return all research data to the Hospital that were obtained from that institution. The Hospital is entitled to copies of any research data to which the Hospital has granted access in respect of the research project in question. The provisions of this Paragraph shall remain in effect regardless of the cause of termination of the research project, whether this is caused 4 6 by the expiration of the term of the research contract, cancellation or termination thereof or other reasons. CHAPTER 7 RIGHTS OF PARTIES 7.1 Financial Rights to Research Results Unless otherwise agreed, Ie shall become the owner of all financial and commercial rights over research projects under this Agreement and their results with due regard, however, to Paragraph 2 of Section 7.3 hereof. Ie has the right to sell results or findings from research projects to a third party, and to utilise them in any other way consistent with accepted ethical criteria both before and after the research projects are completed. 7.2 Making of Research Agreements Employees of the Hospital intending to enter into co-operation with Ie should first consult with the Medical Director of the Hospital. 7.3 Payments to the Hospital Ie shall pay a fixed proportion and/or a fixed payment out of all funds obtained on the basis of projects in which the employees of the Hospital participate according to research contracts made under this Agreement. The total amount of payments for research projects shall be negotiated for each research contract. Each research contract shall provide for fixed annual payments, reimbursement for expense outlay of the Hospital during research as stated in Chapter 5 hereof, and a variable payment determined by the outcome of a research project, results or findings thereof being sold to a third party. The amount of the variable payment negotiated in each research contract shall never be lower than 5% of all payments rendered by the third party to Ie. Individual research contracts may depart from the above provision on variable payment based on the outcome of the sale of a research project or results or findings thereof, provided that a provision is inserted into the research contract in its place to ensure payment of amounts which are at least equal to the specified minimum. All payments under research contracts shall accrue to a special fund in the custody of the Hospital. The total amount of fixed payments, variable payments and other payments as described in Paragraph 2 of this Section 7.3 shall be used to support scientific activity within the Hospital. Payments under Paragraph 2 shall be divided as follows: 25% shall be allocated to general scientific activity as determined by the Hospital, and 75% shall be allocated to scientific activity as decided by the employees of the Hospital who contributed to the work for which the payments were received. The above manner of dividing payments shall apply unless otherwise agreed between the employees in question and the Hospital. In the event that individuals or teams employed by the Hospital enter into a research contract with Ie and a third party, not connected with the Hospital, the manner of division of payments to each party shall be stipulated in the research contract. The research contract shall specifically define the grounds on which the division of payments is decided, and state the arguments behind that division. Employees of the 5 7 Hospital shall not be considered as third parties, not connected with the Hospital, in the sense defined in this Co-operation Agreement. 7.4 Treatment Methods based on Research Results Ie undertakes to endeavour, in its negotiations with third parties regarding purchase of results or findings of all research projects under this Agreement, to ensure that the Hospital, for the benefit of its patients, is granted free access to any methods or pharmaceuticals that the third party may develop on the basis of results from research projects under this Agreement to prevent, diagnose and treat disease. CHAPTER 8 TERM OF THIS AGREEMENT AND TERMINATION This Agreement shall remain in effect for as long as it is not formally terminated. Either party to the Agreement may terminate the Agreement with one year's notice. However, termination of the Agreement does not include research contracts that have already been made regarding specific research projects and approved by the Hospital. Such research contracts may be completed even if this Agreement has been terminated, provided that the term of such contracts does not exceed 5 years. Individual research contracts, however, may be terminated during their term of effect, provided that the contracts in question contain provisions for such termination. In the event that either party to a research contract is of the opinion that the other party has violated the provisions of the research contract, that party shall without delay submit his comments. If the other party has not remedied the fault within 4 weeks from receiving the comments, the complaining party may terminate the research contract with 3 months' notice. This shall apply whether the research contract contains provisions for termination or not, and irrespective of the length of any notice of termination that may have been agreed therein, cf. the provisions of Paragraph 3 of Chapter 2. Payments that Ie has already made or have become due prior to termination pursuant to Paragraphs 1 and 2, shall be non-refundable from the Hospital. CHAPTER 9 DEFAULT AND DEFAULT PROVISIONS If either party to this Co-operation Agreement is guilty of substantial default, the other party may cancel the Agreement. Substantial default can, for instance, refer to non-payment of the agreed payments, improper or unauthorised use of research data, unreasonable restrictions of research parties' access to research data of the Hospital pursuant to this Agreement. Should the Agreement be cancelled by the Hospital on the basis of this provision, all research contracts are thereby cancelled, including those that have been approved by the Hospital. Payments that Ie has already made, or have become due prior to cancellation of the Agreement, shall be non-refundable from the Hospital. The provisions of chapter 8 of this Agreement do not apply to cancellation of this kind. In the event of any dispute regarding a party's right to cancel the Agreement, the settlement procedure for such disputes shall be in accordance with the provisions of chapter 12. Should Ie cease research during the term of a research contract, or events or circumstances cause research under such contract to halt or cease, the research 6 8 contract shall be regarded as terminated. Such an event or circumstance may, for example, consist of the revelation that normal progress and continuous research under a given research contract is halted for a minimum of 6 months. All provisions of the research contract, including the provisions regarding limitations imposed on co-operation between the relevant employees of the Hospital and third parties, will then become null and void. CHAPTER 10 LIABILITY FOR DAMAGES As it is not a commercial enterprise, the Hospital exempts itself from any kind of liability for damages that may arise as a result of this Agreement, or research contracts made on the basis of this Agreement, or any other event that may arise during co-operation between the parties to the Agreement. This exemption covers all events and circumstances that may lead to the Hospital becoming liable for damages. The reasons for such liability, e.g. errors, defects, information leak, improper use of research data, injuries, actions or behaviour of employees etc., are irrelevant in this context. CHAPTER 11 OTHER ITEMS 11.1 This Agreement is non-transferable This Agreement, or any right thereunder, is non-transferable except by consent of both parties thereto. The Agreement becomes void upon termination, cancellation, or in the event that Ie becomes unable to perform its obligations. 11.2 Scientific and Commercial Responsibility The Hospital is in no way responsible for the achievement of any scientific or commercial objectives of individual research projects. 11.3 Court Decisions - Amendments of Legislation If any amendments to legislation are made or court decisions are passed that in any way disrupt the premises or basis on which the contracts are made, the parties thereto shall review the existing contracts for the purpose of bringing them into conformity as necessary. 11.4 On the Publication of Research Results Research results shall be published as soon as they comply with academic requirements and are fit for publication. However, Ie may postpone publication for a maximum of 90 days in order to ensure that there will be enough time to secure the property rights relating to any inventions that may be produced by research. In the event that a third party requests that Ie does not publish results when ready as described above, publication may be postponed for a maximum of 90 days. 11.5 Treatment of Samples etc. This Agreement in no way limits the Hospital's right to send samples or other data to other places in Iceland or abroad for research etc, or to take normal action in diagnosing diseases and providing patients with service as necessary at any time. This shall apply even if a research contract has been made between Ie and certain employees of the Hospital regarding the same diseases or comparable disease symptoms, and such contract has been approved by the Hospital. 7 9 11.6 Limitations on Co-operation under Research Contracts Provisions in individual research contracts entered into by individuals or teams in the employ of the Hospital that stipulate limitations regarding co-operation with third parties in searching for the genetic factors of diseases under the relevant research contracts, entail no obligations of any kind for the Hospital. Provisions in individual research contracts, entered into by individuals or teams in the employ of the Hospital, that stipulate limitations regarding co-operation with third parties in circumstances when a contract on the sale of a research project has been concluded confer no obligations of any kind upon the Hospital. The fact that individual research contracts are signed by the Hospital does not in any way alter the substance of Articles 1 and 2. CHAPTER 12 SETTLEMENT OF DISPUTES 12.1 Settlement of Disputes In the event of a dispute between the parties to this Agreement regarding performance or compliance that cannot be resolved by the surveillance committee, two persons, one from each party, shall endeavour to reach an agreement on its settlement. If a settlement is not reached between those two persons within two weeks of the submission of the dispute, each party to the Agreement shall appoint one arbitrator and then jointly request the appointment of an impartial third arbitrator by the District Court of Reykjavik to assist in the resolution of the dispute, thus forming a tribunal of three arbitrators. The arbitration tribunal shall reach a decision in the matter within 3 months from the appointment of the third arbitrator. The cost of the work of the tribunal shall be determined by the tribunal at each time. The work, procedure and rulings of the arbitration tribunal shall otherwise be governed, as appropriate at any time, by Act No. 53/1989 on Contractual Arbitration. Notwithstanding the above provisions on arbitration, cases involving the collection of payments under this Agreement which are not in dispute between the parties may be submitted to the public courts. The same applies to cases of financial claims made by one party against the other, based on rulings of the arbitration tribunal regarding non-performance or breach by the latter of this Agreement. Such cases shall be submitted to the District Court of Reykjavik. Interim Provisions Ie undertakes, immediately upon the signing of this Agreement, to initiate a revision of all research contracts made on individual research projects under this Agreement for the purpose of bringing their provisions on terms of payment into conformance with the provisions of Section 7.3 of this Agreement, and in other ways adapting them to the provisions of this Agreement. This revision process shall be completed within approximately three months from the signing of this Agreement. All research contracts shall then be submitted to the Hospital for approval pursuant to the provisions of chapter 2 hereof. REYKJAVIK, 4 NOVEMBER 1998 For Reykjavik Hospital For Islensk erfdagreining ehf. 8 EX-10.23 27 AMENDED & RESTATED PROMISSORY NOTE 1 Exhibit 10.23 AMENDED AND RESTATED NON-RECOURSE PROMISSORY NOTE $479,880 Reykjavik, Iceland March 24, 1999 FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to pay to the order of deCODE genetics, Inc., a Delaware corporation (the "Company"), at the Company's principal office or at such other place as the holder hereof may designate in writing, on 1 February, 2003, in lawful money of the United States of America and in immediately available funds, the total price of 479,880 Dollars ($479,880), together with interest, compounded annually, from 16 November, 1998 on the unpaid principal at the rate of 6% per annum. This Note may not be prepaid. The full amount of this Note is secured by a pledge of shares of Common Stock of the Company, and is subject to all of the terms and provisions of the Amended and Restated Early Exercise Stock Purchase Agreement and the Amended and Restated Pledge Agreement, each of even date herewith between the undersigned and the Company. The Company's recovery against the undersigned for failure to pay any amount owing hereunder when due shall be limited solely to the shares of Common Stock or other collateral of the undersigned pledged to the Company in the Amended and Restated Pledge Agreement. The undersigned shall not be liable or have any personal liability in any other respect for the payment of any amount due under this Note. The undersigned hereby represents and agrees that the amounts due under this Note are not consumer debt, and are not incurred primarily for personal, family or household purposes, but are for business and commercial purposes only. The undersigned hereby waives presentment, protest and notice of protest, demand for payment, notice of dishonor and all other notices or demands in connection with the delivery, acceptance, performance, default or endorsement of this Note. This Note shall be governed by, and construed, enforced and interpreted in accordance with, the laws of the State of Delaware, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. 2 This Amended and Restated Non-Recourse Promissory Note reflects amendments to the Non-Recourse Promissory Note delivered to the Company by the undersigned on 16 November, 1998, which amendments were agreed upon between the Company and the undersigned on March 24, 1999. It supersedes and replaces in all respects such Non-Recourse Promissory Note. /s/ Sigurdur I. Bjornsson ------------------------------------ (signature) Sigurdur I. Bjornsson ------------------------------------ (print name) EX-10.24 28 CO-OPERATION AGREEMENT 1 EXHIBIT 10.24 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.24 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason -------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 CO-OPERATION AGREEMENT BETWEEN THE ICELAND STATE HOSPITAL AND ISLENSK ERFDAGREINING EHF. INTRODUCTION The Act on Patients' Rights stipulates that medical records shall be preserved in the health institutions where they are recorded. The Data Protection Commission, appointed by the Minister of Justice, and the Science Ethics Committee can, however, grant access to information from medical records, including biosamples, for purposes of scientific research as defined by law. Islensk erfdagreining ehf. searches, in co-operation with various scientists, for genes that contribute to the causes of diseases or symptoms of diseases. The objective of the Co-operation Agreement between the above parties is to ensure the swift and efficient execution of research projects and facilitate access to the information necessary for their completion. The Iceland State Hospital (hereafter referred to as "the Hospital"), State Reg. No. 540269-6379, Raudararstigur 31, Reykjavik, and Islensk erfdagreining ehf. (hereafter referred to as "Ie"), State Reg. No. 691295-3549, Lynghals 1, Reykjavik, hereby agree to co-operate on research. This Agreement will provide a framework for individual research contracts that Ie has entered into with individuals or teams employed by the Hospital, regarding specific research projects. Such research projects shall always be conducted on the basis of written contracts and measures shall be taken to ensure that such contracts conform in all respects to this co-operation Agreement. Ie and the Hospital have therefore entered into the following Co-operation Agreement CHAPTER 1 DEFINITIONS In this Co-operation Agreement the following concepts shall have the meaning set out below: Surveillance Committee: A committee composed of representatives of Ie and the Hospital, having the task of monitoring the implementation of this Co-operation Agreement. Executive Committee: A committee composed of representatives of research parties and Ie, having the task of supervising the execution of individual research projects. Research Parties: I) Employees of the Hospital participating in the conduct of any research project in co-operation with Ie, and/or II) Other parties participating in the conduct of any research project jointly with the parties specified under I) above. Neither the Hospital nor Ie is a research party in this sense. 3 Research Data: Health information, including biosamples, and any further clinical information that has a bearing on a given research project. Each research contract shall contain a definition of all relevant research data. Research Contract: A contract between research parties on the one hand and Ie on the other regarding a particular research project. Research Projects: A complete or partial research activity with the participation of Ie, the objective of which is to find genetic factors that cause a specific disease, disease symptoms or a response to treatment. CHAPTER 2 SCOPE The provisions of this Co-operation Agreement shall apply to all research projects, regarding which a specific research contract has been made relating to a specified research project in which employees of the Hospital participate and are granted access to research data in the custody of the Hospital. A specific research contract, in writing, shall be made between the research parties and Ie for each separate research project. Such contracts shall refer to the Co-operation Agreement between the Hospital and Ie. Such contracts shall also specify that no contracts shall take effect for the Hospital until such time as the Hospital has confirmed its acceptance by signature. Ie undertakes not to commence work on a research project until such contract has been signed by the Hospital. Under normal circumstances it is understood that the Hospital will come to a decision regarding contracts within 4 weeks after all required documents have been submitted. The term of research contracts shall be specified and they shall expire without express termination at the end of the term. In individual research contracts the contracting parties may negotiate a specific mutual period of notice of termination during the term of the contract. In the event that the research parties are unable to complete a research project within the specified time limit or wish to continue work on a research project, the term of the relevant research contract may be extended by one year at a time, provided that the Hospital approves such extension. CHAPTER 3 OBTAINING PERMITS Under this Agreement, access to research data preserved by the Hospital shall be subject to prior approval by the Science Ethics Committee, appointed by the Minister for Health and Insurance pursuant to State Regulation No. 449/1997 on scientific research in the health sector, following comments from the Hospital's Ethics Committee. Scientific research shall also be subject to the approval of the Data Protection Commission, appointed by the Minister of Justice. 2 4 CHAPTER 4 SUPERVISION, SURVEILLANCE, AND CONFIDENTIALITY 4.1 Supervision of Individual Research Projects: The supervision of individual research projects shall be jointly in the hands of the relevant research parties and Ie, which will form an Executive Committee. Further provisions regarding supervision shall be included in the research contract. 4.2 Surveillance Committee: The Hospital and Ie shall appoint a Surveillance Committee, composed of four members, to monitor the execution of this Co-operation Agreement. Two representatives of each of the parties to the Agreement shall be appointed to the committee. Each party shall also appoint two alternate members to replace committee members in their absence. The committee shall meet once every month, or as often as the committee may decide. Should either of the parties to the Agreement think there is cause for a meeting, such party may instruct his representatives in the surveillance committee to take steps to call such a meeting, which shall then be called with five days' notice. 4.3 Obligation of Ie et al. to Inform Ie undertakes to submit to the surveillance committee all contracts made between Ie and individuals or teams currently or previously employed by the Hospital at the time that such contract was made or before such contract was made. The surveillance committee shall have complete access to all research data of any given research project on which a research contract has been made. The Surveillance Committee shall have unlimited access to the accounts of Ie relating to research projects covered by a research contract. The accounts of each research project shall be kept separately from other accounts of Ie. Ie further undertakes to submit to the surveillance committee complete information regarding payments under a research contract, and as regards the sale of a research project, its results or findings to a third party. The access that the Hospital has to the accounts of Ie under this Article shall have the purpose of enabling the Hospital to preserve its financial interests in its dealings with Ie. Ie undertakes to submit to the Hospital all contracts concluded before this Co-operation Agreement took effect, between Ie and individuals or teams employed by the Hospital at the time this Co-operation Agreement is made. Such contracts shall be subject to the provisions of this Co-operation Agreement. Where it is stated in this Agreement that the surveillance committee may require information, access to accounts or research data etc., it shall be assumed that each representative of the Hospital shall have such rights regardless of the view of other committee members. 4.4 Confidentiality The representatives of the Hospital on the surveillance committee shall be bound by complete confidentiality regarding all matters of which they may acquire knowledge in the course of their work. This applies equally to the contents of contracts, research plans, results from research, business plans and all other information that should fairly 3 5 and reasonably remain confidential in the interest of Ie. Under no circumstances may the substance of such information be divulged to a third party without the express permission of Ie. The confidentiality obligations of a Hospital representative shall remain effective even if he resigns his employment or this Agreement is terminated. Directors and employees of the Hospital who, in the course of their work, must deal with information of a sensitive nature provided to them by Hospital representatives on the surveillance committee, are under the same obligation. Confidentiality obligations as defined under this Article apply equally to Ie representatives on the surveillance committee with respect to the Hospital. CHAPTER 5 EXPENSES All expenses incurred by each research project shall be paid by Ie. Ie will pay the additional expenses incurred by the Hospital in connection with the performance of a research project after a research contract has taken effect, i.e. material and wage costs. This does not apply to administrative expenses of the Hospital. The Hospital shall submit to Ie a monthly invoice, which Ie undertakes to pay within 10 days of issue. Payments under this Article shall be considered as expense outlay under Section 7.3 of this Agreement, and be added to fixed payments, variable payments and other payments under the same Section 7.3. CHAPTER 6 TREATMENT OF RESEARCH DATA Research parties shall have access to necessary research data in the custody of the Hospital for use in a specific research project for which a research contract has been made, the data having been defined therein, subject to compliance with law, regulations, government stipulations and the provisions of this Agreement. Exempt from access under Paragraph 1 of this Article are biosamples that the Hospital has collected for other use than that described in this Agreement and individual research contracts. Ie shall only be granted access to such biosamples if permitted by the Board of Directors/Director of the biosample bank in question and the Medical Director of the Hospital, and then only to such extent as permitted by them at each time. The custody of research data shall conform to the provisions of law at each time, currently the provisions of Articles 14 and 15 of Act No. 74/1997 on Patients' Rights. Furthermore, the provisions of Act No. 121/1989 on the Recording and Handling of Personal Data shall be observed. Ie may not remove from Iceland any research data defined in a research contract and provided by the Hospital for a specific research project. On the completion of a research project, Ie shall within four weeks return all research data to the Hospital that were obtained from that institution. The Hospital is entitled to copies of any research data to which the Hospital has granted access in respect of the research project in question. The provisions of this Paragraph shall remain in effect regardless of the cause of termination of the research project, whether this is caused 4 6 by the expiration of the term of the research contract, cancellation or termination thereof or other reasons. CHAPTER 7 RIGHTS OF PARTIES 7.1 Financial Rights to Research Results Unless otherwise agreed, Ie shall become the owner of all financial and commercial rights over research projects under this Agreement and their results with due regard, however, to Paragraph 2 of Section 7.3 hereof. Ie has the right to sell results or findings from research projects to a third party, and to utilise them in any other way consistent with accepted ethical criteria both before and after the research projects are completed. 7.2 Making of Research Agreements Employees of the Hospital intending to enter into co-operation with Ie should first consult with the Medical Director of the Hospital. 7.3 Payments to the Hospital Ie shall pay a fixed proportion and/or a fixed payment out of all funds obtained on the basis of projects in which the employees of the Hospital participate according to research contracts made under this Agreement. The total amount of payments for research projects shall be negotiated for each research contract. Each research contract shall provide for fixed annual payments, reimbursement for expense outlay of the Hospital during research as stated in Chapter 5 hereof, and a variable payment determined by the outcome of a research project, results or findings thereof being sold to a third party. The amount of the variable payment negotiated in each research contract shall never be lower than 5% of all payments rendered by the third party to Ie. Individual research contracts may depart from the above provision on variable payment based on the outcome of the sale of a research project or results or findings thereof, provided that a provision is inserted into the research contract in its place to ensure payment of amounts which are at least equal to the specified minimum. All payments under research contracts shall accrue to a special fund in the custody of the Hospital. The total amount of fixed payments, variable payments and other payments as described in Paragraph 2 of this Section 7.3 shall be used to support scientific activity within the Hospital. Payments under Paragraph 2 shall be divided as follows: 25% shall be allocated to general scientific activity as determined by the Hospital, and 75% shall be allocated to scientific activity as decided by the employees of the Hospital who contributed to the work for which the payments were received. The above manner of dividing payments shall apply unless otherwise agreed between the employees in question and the Hospital. In the event that individuals or teams employed by the Hospital enter into a research contract with Ie and a third party, not connected with the Hospital, the manner of division of payments to each party shall be stipulated in the research contract. The research contract shall specifically define the grounds on which the division of payments is decided, and state the arguments behind that division. Employees of the 5 7 Hospital shall not be considered as third parties, not connected with the Hospital, in the sense defined in this Co-operation Agreement. 7.4 Treatment Methods based on Research Results Ie undertakes to endeavour, in its negotiations with third parties regarding purchase of results or findings of all research projects under this Agreement, to ensure that the Hospital, for the benefit of its patients, is granted free access to any methods or pharmaceuticals that the third party may develop on the basis of results from research projects under this Agreement to prevent, diagnose and treat disease. CHAPTER 8 TERM OF THIS AGREEMENT AND TERMINATION This Agreement shall remain in effect for as long as it is not formally terminated. Either party to the Agreement may terminate the Agreement with one year's notice. However, termination of the Agreement does not include research contracts that have already been made regarding specific research projects and approved by the Hospital. Such research contracts may be completed even if this Agreement has been terminated, provided that the term of such contracts does not exceed 5 years. Individual research contracts, however, may be terminated during their term of effect, provided that the contracts in question contain provisions for such termination. In the event that either party to a research contract is of the opinion that the other party has violated the provisions of the research contract, that party shall without delay submit his comments. If the other party has not remedied the fault within 4 weeks from receiving the comments, the complaining party may terminate the research contract with 3 months' notice. This shall apply whether the research contract contains provisions for termination or not, and irrespective of the length of any notice of termination that may have been agreed therein, cf. the provisions of Paragraph 3 of Chapter 2. Payments that Ie has already made or have become due prior to termination pursuant to Paragraphs 1 and 2, shall be non-refundable from the Hospital. CHAPTER 9 DEFAULT AND DEFAULT PROVISIONS If either party to this Co-operation Agreement is guilty of substantial default, the other party may cancel the Agreement. Substantial default can, for instance, refer to non-payment of the agreed payments, improper or unauthorised use of research data, unreasonable restrictions of research parties' access to research data of the Hospital pursuant to this Agreement. Should the Agreement be cancelled by the Hospital on the basis of this provision, all research contracts are thereby cancelled, including those that have been approved by the Hospital. Payments that Ie has already made, or have become due prior to cancellation of the Agreement, shall be non-refundable from the Hospital. The provisions of chapter 8 of this Agreement do not apply to cancellation of this kind. In the event of any dispute regarding a party's right to cancel the Agreement, the settlement procedure for such disputes shall be in accordance with the provisions of chapter 12. Should Ie cease research during the term of a research contract, or events or circumstances cause research under such contract to halt or cease, the research 6 8 contract shall be regarded as terminated. Such an event or circumstance may, for example, consist of the revelation that normal progress and continuous research under a given research contract is halted for a minimum of 6 months. All provisions of the research contract, including the provisions regarding limitations imposed on co-operation between the relevant employees of the Hospital and third parties, will then become null and void. CHAPTER 10 LIABILITY FOR DAMAGES As it is not a commercial enterprise, the Hospital exempts itself from any kind of liability for damages that may arise as a result of this Agreement, or research contracts made on the basis of this Agreement, or any other event that may arise during co-operation between the parties to the Agreement. This exemption covers all events and circumstances that may lead to the Hospital becoming liable for damages. The reasons for such liability, e.g. errors, defects, information leak, improper use of research data, injuries, actions or behaviour of employees etc., are irrelevant in this context. CHAPTER 11 OTHER ITEMS 11.1 This Agreement is non-transferable This Agreement, or any right thereunder, is non-transferable except by consent of both parties thereto. 11.2 Scientific and Commercial Responsibility The Hospital is in no way responsible for the achievement of any scientific or commercial objectives of individual research projects. 11.3 Court Decisions - Amendments of Legislation If any amendments to legislation are made or court decisions are passed that in any way disrupt the premises or basis on which the contracts are made, the parties thereto shall review the existing contracts for the purpose of bringing them into conformity as necessary. 11.4 On the Publication of Research Results Research results shall be published as soon as they comply with academic requirements and are fit for publication. However, Ie may postpone publication for a maximum of 90 days in order to ensure that there will be enough time to secure the property rights relating to any inventions that may be produced by research. In the event that a third party requests that Ie does not publish results when ready as described above, publication may be postponed for a maximum of 90 days. 11.5 Treatment of Samples etc. This Agreement in no way limits the Hospital's right to send samples or other data to other places in Iceland or abroad for research etc, or to take normal action in diagnosing diseases and providing patients with service as necessary at any time. This shall apply even if a research contract has been made between Ie and certain employees of the Hospital regarding the same diseases or comparable disease symptoms, and such contract has been approved by the Hospital. 7 9 11.6 Limitations on Co-operation under Research Contracts Provisions in individual research contracts entered into by individuals or teams in the employ of the Hospital that stipulate limitations regarding co-operation with third parties in searching for the genetic factors of diseases under the relevant research contracts, entail no obligations of any kind for the Hospital. Provisions in individual research contracts, entered into by individuals or teams in the employ of the Hospital, that stipulate limitations regarding co-operation with third parties in circumstances when a contract on the sale of a research project has been concluded confer no obligations of any kind upon the Hospital. The fact that individual research contracts are signed by the Hospital does not in any way alter the substance of Articles 1 and 2. CHAPTER 12 SETTLEMENT OF DISPUTES 12.1 Settlement of Disputes In the event of a dispute between the parties to this Agreement regarding performance or compliance that cannot be resolved by the surveillance committee, two persons, one from each party, shall endeavour to reach an agreement on its settlement. If a settlement is not reached between those two persons within two weeks of the submission of the dispute, each party to the Agreement shall appoint one arbitrator and then jointly request the appointment of an impartial third arbitrator by the District Court of Reykjavik to assist in the resolution of the dispute, thus forming a tribunal of three arbitrators. The arbitration tribunal shall reach a decision in the matter within 3 months from the appointment of the third arbitrator. The cost of the work of the tribunal shall be determined by the tribunal at each time. The work, procedure and rulings of the arbitration tribunal shall otherwise be governed, as appropriate at any time, by Act No. 53/1989 on Contractual Arbitration. Notwithstanding the above provisions on arbitration, cases involving the collection of payments under this Agreement which are not in dispute between the parties may be submitted to the public courts. The same applies to cases of financial claims made by one party against the other, based on rulings of the arbitration tribunal regarding non-performance or breach by the latter of this Agreement. Such cases shall be submitted to the District Court of Reykjavik. Interim Provisions Ie undertakes, immediately upon the signing of this Agreement, to initiate a revision of all research contracts made on individual research projects under this Agreement for the purpose of bringing their provisions on terms of payment into conformance with the provisions of Section 7.3 of this Agreement, and in other ways adapting them to the provisions of this Agreement. This revision process shall be completed within approximately three months from the signing of this Agreement. All research contracts shall then be submitted to the Hospital for approval pursuant to the provisions of chapter 2 hereof. REYKJAVIK, 15 DECEMBER 1998 For The Icelandic State Hospital For Islensk erfdagreining ehf. 8 EX-10.25 29 EMPLOYMENT CONTRACT 1 EXHIBIT 10.25 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.25 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason -------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 Islensk erfdagreining ehf., State Reg. No. 691295-3549, (IE) and Sigurdur Ingibergur Bjornsson, Id. No. 300863-4859, ("the Employee") hereby enter into the following EMPLOYMENT CONTRACT 1. JOB TITLE AND FIELD OF WORK The Employee is hired to work as Vice President and CEO of the Health-Care Database for IE. The workplace is the Employer's base of operations at Lynghals 1, Reykjavik, but if the Employer's base of operations in Reykjavik changes or increases in number, the Employee agrees to a change in his workplace. The field of work covers all aspects in relation to the definition, installation and operation of the projected centralised Health-Care Database. All deviation from this definition shall be subject to the approval of the Employee and IE. The immediate superior of the Employee shall be the President and CEO of IE. Islensk erfdagreining ehf. plans to establish an independent subsidiary company for the operation of the centralised Database, upon which the Employee will become the president of that company. The Employee shall have the right to serve on boards of directors of other companies, provided that such membership is not detrimental to the operation of IE or the Employee's ability to perform his duties. 2. WORKING HOURS The Employee's working hours shall be determined by the requirements of projects at any time. The Employee has the right, within reasonable limits, to arrange his working hours as he sees fit. 3. WAGES AND WAGE TERMS OF EMPLOYEE The Employee shall receive the following remuneration for his work: o Fixed monthly wages in the amount of ISK 750,000 or 9,000,000 per year. No separate payments shall be made for overtime work, and the above payment shall be a payment in full to the Employee for his work during the year. o The Employee shall receive an option to buy to 120,000 shares in deCODE genetics Inc., the parent company of IE. The purchase price of each share shall be $4. The Employee shall acquire this right for a period of four years, so that in each year he shall have the right to buy 1/4 of the above shares. However, one year shall elapse before he acquires the above right, after which the right shall accumulate on a monthly basis. o The Employee shall be entitled to a performance-related bonus payment, to be decided by a special Compensation Committee. The amount of such a bonus shall be variable, but could amount to 20-40% of the annual wages of the Employee. 3 o The Employee shall pay a contribution amounting to 4% of his total wages to a pension fund of his own choice, and the Employer shall pay 6% of the same amount. o Other fringe benefits shall be in accordance with those enjoyed by comparable directors of IE. 4. PROVISIONS ON TERMINATION OF EMPLOYMENT The Agreement may be terminated by either party with six-months' notice. However, the Agreement shall not be terminated by IE until 31 December 1999, from which time the termination shall not take effect until 1 July 2000. In the event that the Employee terminates the Agreement before 31 December 1999, IE shall, however, only be obligated to fulfil its obligations pursuant to this Agreement for six months immediately following the date of termination. 5. ACCIDENTS, ILLNESS AND INSURANCE In the event that the Employee has an accident at work, the Employer shall pay for the transport of the Employee home or to hospital and, for each instance, reimburse him for up to four weeks of normal, out-of-pocket medical expenses which are not covered by district health insurance or Social Security. In each instance of an accident at work or a work-related illness caused on the job or by it, or occurring during transport to and from the workplace, the Employer shall pay up to three months' wages according to the Employee's wage scale in effect when the accident or illness occurs, provided that per diem benefits paid for these days by the State Social Security Institute and/or the district health insurance are paid to the Employer. The provisions of this paragraph shall not prejudice any additional rights which the Employee may have under the law. Wage payments to the Employee during absences due to illness shall be arranged in the first year so that two days are paid for each month worked. When the Employee has worked for the Employer for one year or longer, wage payments during absences due to illness shall be arranged as follows: after one year, two months for every 12 months; after five years of work for the Employer, four months for every 12 months; and after 10 years working for the Employer, six months for every 12 months. If an Employee becomes ill and for this reason cannot attend work, he shall immediately notify his superior, who shall decide whether a health certificate shall be requested. The certificate shall be from a consulting physician if so requested. The Employer shall pay for the health certificate if the above conditions are met. After the first month at work a parent shall, without any deduction from wages, be entitled to spend a total of seven workdays of every 12-month period in ministering to his ill children under the age of 13, provided that other care cannot be procured. The Employer shall insure the Employee against death and permanent or temporary disability caused be an accident while at work or while travelling a normal route between his home and the workplace. 4 If, because of his work, the Employee has accommodations away from his home, the accommodations replace his home, but the insurance shall also cover normal trips between his home and these accommodations. Compensation for death will be (as of 1 Jan. 1998): 1. If the deceased was not married and is not survived by a child and has not been supporting an aged parent 67 years of age or older, ISK 342,100. 2. If the deceased was not married but is survived by a child (children) under 17 and/or has demonstrably supported an aged parent or parents (aged 67 or older), ISK 1,083,500. 3. If the deceased was married, the compensation to the spouse shall be ISK 1,479,700. 4. If the deceased is survived by a child (adopted child, foster child) under 17 years of age, for each child ISK 284,800. 5. Compensation is paid under only one of sub-paragraphs no. 1, 2 or 3. In addition to sub-paragraphs 2 and 3, compensation may be paid under sub-paragraph 4. The beneficiaries of death compensation provisions are: 1) Legal heirs. 2) Relevant parties equally 3) Surviving spouse. 4) Relevant children, but paid to surviving spouse if he/she is one of the parents, or to an executor and/or trustee. Compensation for permanent disability is paid in proportion to the insurance amount of ISK 2,589,000 so that each degree of disability from 26% to 50% is counted double, and each degree of disability from 51% to 100% works triple. For temporary disability, per diem benefits of ISK 5,884 are paid per week four weeks after the accident occurred and until the injured person becomes able to work, although for no more than 48 weeks. ISK 785 per week are added to the per diem for each child under the age of 17 that the injured person is supporting. The amounts of insurance will be reviewed twice a year, 1 January and 1 July, and increased in correspondence with changes in the cost-of-living index. The insurance takes effect as soon as the Employee begins work and expires as soon as he stops working. The policy terms of the insurance shall be the general policy terms in effect for wage earner job accident insurance at the Association of Icelandic Insurance Companies at the time of signature of this Employment Contract. 5 In the event that the Employer becomes liable for damages in respect of the Employee, accident compensation and per diem benefits paid to the Employee under provisions of this Employment Contract shall be fully deductible from any damages that the Employer may be made to pay. While the payment of wages continues, per diem benefits shall be paid to the Employer. 6. CONFIDENTIALITY The Employee fills a job involving responsibility and confidentiality for the Employer. He shall maintain the utmost confidentiality about whatever he has become aware of in his job regarding the Employer and the Employer's customers, and which can damage the interests of these parties. Due to the nature of his work, the Employee is under obligation to handle all information, documents and data to which he has access in his work with the utmost confidentiality. This confidentiality continues in force after termination of employment. While the Employee works for the Employer and for one (1) year thereafter, the Employee shall not encourage any of the Employer's Employees to leave the employment of Employer. If the Employee quits working for the Employer, he undertakes not to accept work either directly or indirectly at competing companies or with other competing parties, or to start up or join such operations for at least two years after termination of employment. 7. PROPRIETARY INFORMATION AND INVENTIONS Concurrently with the signing of this Employment Contract, the Employer and Employee enter into an agreement on proprietary information and inventions. That agreement is deemed a premise for and part of this Employment Contract. Reykjavik, 15 January On behalf of Islensk erfdagreining Kari Stefansson [sign.] Sigurdur Ingibergur Bjornsson [sign.] EX-10.26 30 LEASE DATED FEBRUARY 18, 1999. 1 EXHIBIT 10.26 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.26 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason ------------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 LEASE FRIDAR SF., REG. NO. 66.01.99-2929, domiciled at Efstasund 58, Reykjavik, as a Lessor, and ISLENSK ERFDAGREINING EHF., REG. NO. 691295-3549, domiciled at Lynghals 1, Reykjavik, as a Lessee, enter into the following Lease 1. The Lessor leases to the lessee approximately 395 square meters of office space at Hlidarsmari 19 in Kopavogur, especially marked as storey No: 02-01 in that building, including a share in the common area. 2. Tenancy begins as of such time as the lessor delivers the storey, cf. description, see attached document Nos. 1 and 2. The tenancy shall, however, be considered to begin no later than 2 months after the design drawings for electrical installations and the interior of the house are on hand and have been approved by respective parties. Tenancy is 5 years. After that time the agreement may be terminated with at least 6 months' notice by either party. The Lessee may sublet the premises with the consent of the Lessor. Following the term of tenancy this lease agreement shall be extended without a fixed term. 3. The rent is determined at ISK 950 pr. square meter, per month. The rent will be adjusted based on the consumer price index every 3 months, calculating as the base price index the month the lessee leases the premises. Monthly rent is calculated from the first day of each month to the first day of the following month and shall be paid in advance, one month at a time. The final due date of payment shall be calculated 15 days later. Penalty interest is calculated as of the 16th day, if rent has not been paid by the final due date, at the posted penalty interest rate current at any time. Electricity and heating is not included in the rent, considering the proposed use of the place by the lessee. The lessee shall pay all electrical and heating costs of the property defined above, No. 02-01, on the same conditions as above regarding payment of rent with respect to due dates and final payment dates. The Lessee shall pay a maintenance fee every month, as decided at each time, based on the proportion between the storey and the entire building, i.e. 10.99%. The maintenance fee covers the expense of operating the common area. 4. The Lessee undertakes to treat the leased property with care and cleanliness. The Lessee shall pay full compensation for any damage that he may cause with careless treatment of the leased property. In addition, he shall attend to all indoor maintenance in the leased premises at his own cost, as of the time that the Lease takes effect and the Lessor has fulfilled his obligations in relation to the delivery of the storey, cf. the attached documents Nos. 1 and 2. The Lessor shall attend to and pay the cost of all ordinary outdoor maintenance and pay all public levies on the premises. 3 5. In the event that the Lessee moves from the premises, he shall return it in good order in every respect other than normal wear. When the tenancy period has ended or on termination of the tenancy, all fixed appurtenances shall become the property of the Lessor, whereas all unfixed facilities which the Lessee uses in the office are his property which he may remove when the tenancy period has ended. During the tenancy, the Lessee may make changes to the office at his own cost and in consultation with the Lessor, whose property such changes shall become as provided for above. 6. In the event of material default on the part of the Lessee, the Lessor may require that the Lessee vacate the leased property. 7. This Lease shall be subject to the provisions of the Leasehold Act No. 36/1994 in so far as no agreement to the contrary has been made, as applicable. This Lease is made in two identical copies one to be held by each of the parties to this Lease. 8. Any dispute arising out of this Lease shall be brought before the District Court of Reykjavik. 9. In witness whereof, the Lessor and Lessee attach their signatures below in the presence of witnesses. Reykjavik, 18 February 1999. For the Lessor, For the Lessee, ssorvarour Gunnarsson [sign.] Hannes Smarason [sign.] Witnesses to the correct date, the legal competence of the parties to manage their financial affairs, and their signatures. Unreadable [sign.] 300863-4859 Unreadable [sign.] 200564-2279 EX-10.27 31 RESEARCH CONTRACT 1 EXHIBIT 10.27 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.27 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason --------------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 [NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] RESEARCH CONTRACT ON THE CO-OPERATION OF A RESEARCH TEAM FOR AGE-RELATED MACULAR DEGENERATION AND ISLENSK ERFDAGREINING EHF A research team for age related macular degeneration, on the one hand, hereinafter referred to as RTARMD, and, on the other hand, Islensk erfdagreining ehf., hereinafter referred to as IE, enter into the following Contract on co-operation in the research of the inheritability of age related macular degeneration. CHAPTER 1 THE SUBSTANCE OF THE CO-OPERATION RTARMD and IE agree to co-operate, on the basis of this Contract, in the search of genes involved in the genesis of age related macular degeneration, hereinafter referred to as ARMD. The proposed co-operation between the parties will hereinafter be referred to as the Research Project. CHAPTER 2 CONTRIBUTIONS OF THE PARTIES TO THE RESEARCH PROJECT 2.1 Research Materials and their Procurement RTARMD shall provide biosamples (blood samples), other clinical data and research materials which RTARMD may possess or have access to, in relation to patients suffering from ARMD and their relatives who do not suffer from ARMD. RTARMD shall supervise relations with individuals intended to participate in the research and/or their legal guardians, e.g. calling them in for blood tests, diagnoses, examination of disease symptoms and the procurement of the informed consent of participants. RTARMD and individuals within the team undertake to do whatever is in their power so that the procurement of research materials pursuant to this paragraph shall proceed with expedience and safety. In this respect, account shall be taken of the Research Plan, which includes milestone dates and is to attached to this Contract as Annex A ("Research Plan and Cost Estimation for the Research of IE and RTARMD on ARMD"). Annex A shall specify which research materials are intended for use in the research and from which health-care institutions or laboratories of independent health-care workers the materials derive. RTARMD and individuals within the team declare that it is not intended to use materials from other health-care institutions or laboratories of independent health-care workers than specified in Annex A. All clinical research materials delivered to the IE research laboratory shall first be encrypted at the Genetic Research Service Centre, a private institution domiciled at Noatun 17, Reykjavik, before being transported to IE, in accordance with the instructions of the Data Protection Commission. 1 3 2.2. EXPERTISE, EQUIPMENT AND RESEARCH FACILITIES RTARMD shall provide expertise and knowledge in relation to the diagnosis of diseases, the design and organisation of the Research Project, the conduct of experiments and the interpretation of their results. RTARMD shall also provide specialised equipment, housing and staff for the part of the research involving examination of patients and other participants in the research. IE and RTARMD shall provide expertise for the design and organisation of the research. IE shall also be responsible for the research and testing of blood samples and genetic material, the assessment of the inheritance of the disease and the interpretation of the findings of the research. IE shall provide equipment, research resources, laboratory reagents and personnel for these purposes. 2.3. PAYMENT OF RESEARCH EXPENSES IE shall cover all expenses of the Research Project necessary to achieve the objectives of the Project, including materials and wage costs in relation to calling in participants for research and necessary sampling, in accordance with Section 2.2. RTARMD and IE shall jointly submit a special budget plan on signature of this Contract, in which the projected materials and wage costs of the Project are estimated, see Annex A. Annex A shall also further delineate the itemisation of individual cost items and the manner in which the procurement of consent and the payment of bills shall be conducted. 2.4. INTELLECTUAL PROPERTY PROTECTION RTARMD and individuals within the team undertake to provide IE the assistance necessary to enable IE to ensure international intellectual property protection of the findings of the Research Project, including application for patents together with IE when necessary, provided that IE pays all expenses in relation to intellectual property protection. CHAPTER 3 RIGHTS OF THE PARTIES 3.1. FINANCIAL AND COMMERCIAL RIGHTS ATTACHED TO THE FINDINGS OF THE RESEARCH PROJECT IE shall be sole owner of all financial and commercial rights attached to the Research Project and its results. IE shall have the right to sell the results and findings of the Research Project to a third party, whether this takes place before or after the completion of the Research Project. 3.2. FIXED PAYMENTS FROM IE FOLLOWING THE SALE OF THE RESEARCH PROJECT TO A THIRD PARTY In the event that IE or its parent company, deCODE genetics Inc (hereinafter referred to as deCODE) enters into a contract with a third party (hereinafter referred to as the Purchaser) on the sale of the Project, its results or findings, IE shall pay RTARMD [CONFIDENTIAL TREATMENT REQUESTED] immediately following the signature of such a contract with the Purchaser and an annual payment of [CONFIDENTIAL TREATMENT REQUESTED] thereafter until a total of [CONFIDENTIAL TREATMENT REQUESTED] have been paid including the initial payment. In the event that the Research 2 4 Project ends within five years from the effective date of a contract between IE/deCODE and the Purchaser, upon achieving the objective of the Research Project, IE shall pay the remaining amount so that a total of [CONFIDENTIAL TREATMENT REQUESTED] shall have been paid, pursuant to this Paragraph. 3.3. PERFORMANCE-RELATED PAYMENTS FROM IE FOLLOWING THE SALE OF THE RESEARCH PROJECT TO THE PURCHASER If IE/deCODE manage to enter into a contract with a Purchaser on the sale of the Research Project, its results or findings, cf. Section 3.2., IE/deCODE shall make an agreement with the Purchaser to the effect that the Purchaser shall pay special conditional payments to IE/deCODE which shall be totally dependent on the scientific and/or practical results achieved in the performance of the Project. The performance-related milestones specified which activate the Purchaser's obligation to pay shall be further specified in the in the contract between IE/deCODE and the Purchaser. IE shall pay RTARMD [CONFIDENTIAL TREATMENT REQUESTED] of the performance-related payments from the Purchaser to IE, pursuant to Paragraph 1. All other payments from the Purchaser to IE shall be paid in full to IE/deCODE. This refers to reimbursements from the Purchaser to IE such as the Purchaser's financing of cash outlay of IE for the Research Project, as defined in the contract between IE and the Purchaser, as well as the investment of the Purchaser in IE or deCODE. RTARMD shall be entitled to study the provisions of contracts between IE/deCODE and the Purchaser involving performance-related payments. Also, RTARMD is authorised by IE/deCODE to seek the confirmation of the companies' auditor, concurrently with the quarterly statement, of whether and when a milestone payment was received for the Research Project. 3.4. ARRANGEMENT OF PAYMENTS FROM IE FOLLOWING THE SALE OF THE RESEARCH PROJECT TO THE PURCHASER All payments from IE pursuant to Sections 3.2 and 3.3 shall be spent on research on eye diseases. Funds obtained by RTARMD pursuant to Sections 3.2 and 3.3 shall be preserved in a Research Fund which shall be established by RTARMD. The Fund shall operate in accordance with a constitution approved by the Ministry of Justice and audited in accordance with the current laws on private institutions at each time. RTARMD shall submit a copy of the constitution to IE when it has been confirmed. 3.5. PROVISO ON CO-OPERATION WITH RESEARCH PARTIES UNRELATED TO RTARMD The right of receiving payments pursuant to Sections 3.2 and 3.3 is based on the assumption that IE is not required to pay other parties than RTARMD and/or institutions which employ individual parties within RTARMD for materials and data to which it is necessary to gain access for the achievement of the objectives of the Research Project. The same applies if it proves necessary for IE to enter into co-operation with other parties to achieve the objectives of the Research Project. If it proves necessary for IE to enter into co-operation with other parties pursuant to the above, the provisions of Chapter 3 shall be reviewed on the basis that the total payments from IE to RTARMD and/or institutions related to them, on the one hand, and a third party, on the other hand, shall remain unchanged from the payments described in Sections 3.2 and 3.3. 3 5 CHAPTER 4 MANAGEMENT AND LIABILITY Decisions relating to the performance of the Research Project shall be made jointly by RTARMD and IE. A special Executive Committee shall be established, to which two representatives shall be appointed from each party to this Contract to draw up rules on the arrangement, control and performance of the Research Project. The Chief Supervisor of the Research Project shall be elected from among the members of the Executive Committee. It is also the responsibility of the Committee to define the objectives of the Research Project and set forth the professional requirements which the parties to this Contract agree to be satisfactory for the performance of the research. Decisions on incurring expenses in relation to the Research Project shall be submitted in advance and confirmed by the Executive Committee. In November each year the Executive Committee shall prepare a budget for the Research Project in the following calendar year. The Executive Committee shall supervise the processing of data and the publication of conclusions in accordance with the rules of Chapter 5. RTARMD and individuals within the Team shall not be financially responsible to IE or other parties with interests in the achievement of the commercial or financial objectives of the research, on the condition that RTARMD has fulfilled its obligations in relation to the procurement of research materials pursuant to Chapter 2 and Annex A. CHAPTER 5 HANDLING, PROCESSING AND COMMUNICATION OF INFORMATION The parties to this Contract undertake to maintain all personal information in confidence. The parties to this Contract undertake to comply with the instructions of the Data Protection Commission and, as applicable, the special representative (inspector) of the Data Protection Commission on the handling and processing of such data, as well as with the instructions and conditions of the Science Ethics Committee, which operates pursuant to the Act on Patients' Rights. The findings of the Research Project shall be immediately published as soon as they fulfil scientific requirements and are fit for publication. However, IE or the Purchaser of the Project may have the publication of the findings postponed for 90 days, if necessary to ensure rights of ownership related to the findings of the Project. The Executive Committee of the Project shall decide in advance who shall be Chief Supervisor of the Research Project. As a rule, the first cited author of scientific articles shall be Chief Supervisor. If the Chief Supervisor is a member of RTARMD, the last cited author of scientific articles shall be from IE, and vice versa. In other respects, the order of authors shall be in accordance with current rules in the international scientific community. The parties to this Contract promise mutual confidentiality as regards information in relation to the substance of this Contract, business plans, the progress of the Project and its conclusions. Information of this kind may not be communicated to an outside party without the consent of both parties. 4 6 CHAPTER 6 LIMITATION ON CO-OPERATION WITH OTHER PARTIES RTARMD and individuals within the Team promise to work neither jointly nor separately with other parties on research into the inheritability of ARMD during the Research Project. If IE or deCODE have contracted with a third party on the sale of the Research Project, its results or findings, and the Research Project leads to a discovery, RTARMD and individual parties within the Team promise not to enter into co-operation with other parties on the part of the Research Project which led to the discovery for five years immediately following the conclusion of the Project pursuant to this Contract. On the other hand, if the Research Project does not lead to a discovery, individual parties within the co-operating team have the right to enter into co-operation with other parties on research into the inheritability of ARMD after the Research Project has ended. Thus, the provisions of this Paragraph do not prevent co-operation between parties within RTARMD and other parties, on the condition that IE shall be informed of the substance of such co-operation with a third party. IE promises not to begin collaboration with other parties in the research of the inheritability of ARMD during the Research Project, unless the Executive Committee considers such collaboration necessary to achieve the objective of the Research Project. In the event that the addition of new co-operating parties to the Research Project is considered necessary, the Executive Committee shall be in charge of the selection of such a party. In the event of a dispute within the Executive Committee, RTARMD shall have the final decision on the selection of additional co-operating parties. The provisions of this Paragraph shall not, however, prevent IE from collaborating in the field of the Research Project with parties that have negotiated the purchase of the Research Project, its conclusions or findings, provided that such actions do not reduce the right to payments pursuant to Chapter 3. CHAPTER 7 TERM OF THE CONTRACT AND PROJECT COMPLETION The Research Project shall have a duration of five years immediately following signature of this Contract or until it is concluded. If either party has materially defaulted on the Contract, the other party may terminate the Contract. In the event of a dispute on the right of the parties to terminate the Contract, the settlement procedures regarding such dispute shall be pursuant to Chapter 8. The return of all original materials of RTARMD (blood samples and clinical data) shall be returned to RTARMD, unless an agreement to the contrary is made between RTARMD and IE, e.g. if the materials are used in another research, on the condition that the approval of the participants and a permit from the public authorities with the authority to permit such an arrangement have been obtained. In the event that either or both parties see reason to continue the co-operation after the agreed period, this shall be considered separately. CHAPTER 8 SETTLEMENT OF DISPUTES 5 7 In the event of a dispute between the parties to this Contract regarding performance or compliance that cannot be resolved by the Executive Committee, two persons, one from each party, shall endeavour to reach an agreement on its settlement. If a settlement is not reached between those two persons within two weeks of the submission of the dispute, each party to the Contract shall appoint one arbitrator and then jointly request the appointment of an impartial third arbitrator by the District Court of Reykjavik to assist in the resolution of the dispute, thus forming a tribunal of three arbitrators. The arbitration tribunal shall reach a decision in the matter within one months from the appointment of the third arbitrator. The cost of the work of the tribunal shall be determined by the tribunal at each time. The work, procedure and rulings of the arbitration tribunal shall otherwise be governed, as appropriate at any time, by Act No. 53/1989 on Contractual Arbitration. Notwithstanding the above provisions on arbitration, cases involving the collection of payments under this Contract which are not in dispute between the parties may be submitted to the public courts. The same applies to cases of financial claims made by one party against the other, based on rulings of the arbitration tribunal regarding non-performance or breach by the latter of this Contract. Such cases shall be submitted to the District Court of Reykjavik. 6 8 This Contract, which comprises 8 chapters on 7 pages, in addition to Appendix A, is made in two identical copies, one copy to be held by each of the parties to the Contract. Reykjavik, 27 April 1999. On behalf of the Research On behalf of Islensk Erfdagreining ehf. Team forARMD Einar Stefansson [sign.] Kari Stefansson [sign.] Opthalmologist President Fridbert Jonsson [sign.] Kristjan Erlendsson [sign.] Ophthalmologist VP for Clinical and Academic Collaborations Gudmundur Viggoson [sign.] Ophthalmologist Haraldur Sigurdsson [sign.] Ophthalmologist Gudleif Helgadottir [sign.] Registered Nurse Ingimundur Gislason [sign.] Ophthalmologist Pordur Sverrison [sign.] Ophthalmologist 7 EX-10.28 32 RESEARCH CONTRACT 1 EXHIBIT 10.28 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.28 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason -------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 [NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] RESEARCH CONTRACT ON THE CO-OPERATION OF A RESEARCH TEAM FOR PERIPHERAL ARTERY OCCLUSIVE DISEASE AND ISLENSK ERFDAGREINING EHF A Research Team for Peripheral Artery Occlusive Disease, on the one hand, hereinafter referred to as the Research Team, and, on the other hand, Islensk erfdagreining ehf., hereinafter referred to as IE, enter into the following A g r e e m e n t on co-operation in the research of the inheritability of Peripheral Artery Occlusive Disease. This Contract is made on the basis of the Co-Operation Agreement between the Reykjavik Municipal Hospital and IE of 4 November 1998 and the Co-Operation Agreement between State Hospitals and IE of 15 December 1998, both of which shall prevail over this Contract in the event of discrepancy between individual provisions of the agreements. CHAPTER 1 THE SUBSTANCE OF THE CO-OPERATION The Research Team and IE agree to co-operate, on the basis of this Contract, in the search and isolation of genes involved in the genesis of Peripheral Artery Occlusive Disease. The proposed co-operation between the parties will hereinafter be referred to as the Research Project. In addition, the Research Team and IE enter into a separate agreement on a additional research into the disease aortic aneurysm. A separate protocol, attached to this Contract in Annex D, applies to this By-Research and its relation to the Research Project. CHAPTER 2 CONTRIBUTIONS OF THE PARTIES TO THE RESEARCH PROJECT 2.1 RESEARCH MATERIALS AND THEIR PROCUREMENT The Research Team shall provide biological samples (blood samples), other clinical data and research materials which the Research Team may possess or have access to, in relation to patients suffering from aortic aneurysm and their relatives. The Research Team shall supervise relations with individuals intended to participate in the research and/or their legal guardians, e.g. calling them in for blood tests, diagnoses, examination of participants and the procurement of the informed consent of participants. IE, on the one hand, and the Research Team and individuals within the Team, on the other hand, undertake to do whatever is in their power so that the procurement of research materials pursuant to this paragraph shall proceed with expedience and safety. In this respect, account shall be taken of the Research Plan, which includes milestone dates and is to attached to this Contract, as Annex A ("Research Plan and Cost Estimation for the Research of IE and a Research Team on Peripheral Artery Occlusive Disease"). Annex A shall specify which research 1 3 materials are intended for use in the research and from which health-care institutions the materials derive. All research materials delivered to the IE research laboratory shall first be encrypted at the Genetic Research Service Centre, a private institution domiciled at Noatun 17, Reykjavik, before being transported to IE, in accordance with the instructions of the Data Protection Commission. 2.2. EXPERTISE, EQUIPMENT AND RESEARCH FACILITIES The Research Team shall provide expertise and knowledge in relation to the diagnosis of diseases as well as the design and organisation of the Research Project. IE and the Research Team shall provide expertise for the design and organisation of the research. IE shall also be responsible for the research and testing of blood samples and genetic material, the assessment of the inheritance of the disease and the interpretation of the findings of the research. IE shall provide equipment, research resources, laboratory reagents and personnel for these purposes. 2.3. PAYMENT OF RESEARCH EXPENSES IE shall cover all expenses of the Research Project necessary to achieve the objectives of the Project, including materials and wage costs in relation to calling in participants for research and necessary sampling. The Research Team and IE shall jointly submit a total budget plan on signature of this Contract, in which the projected materials and wage costs of the Project are estimated, see Annex A. Annex A shall also further delineate the itemisation of individual cost items and the manner in which the procurement of consent and the payment of bills shall be conducted. The State Hospitals and the Reykjavik Municipal Hospital may request information on wage payments covered by IE to employees of these institutions working on the Research project. CHAPTER 3 RIGHTS OF THE PARTIES 3.1. RIGHTS OF HEALTH-CARE INSTITUTIONS The parties to this Contract are aware that identical Co-Operation Agreements (hereinafter the Institutional Agreement(s)) are in force between, on the one hand, IE and, on the other hand, the State Hospitals and the Reykjavik Municipal Hospital. The Institutional Agreements are annexed as supporting documents to this Research Contract, see Annexes B (State Hospitals) and C (Reykjavik Municipal Hospital). The provisions of the Institutional Agreements shall apply to this Research Contract, as applicable, in relation to the part of the research concerning the State Hospitals/the Reykjavik Municipal Hospital and their staff. The State Hospitals and the Reykjavik Municipal Hospital, on the one hand, and the Research Team, on the other hand, have entered into a separate agreement, dated 28 May 1999, on their own behalf and on behalf of AEdaskurdlaekningafelag Islands (an Icelandic association for vascular surgery), annexed to this Contract, see Annex E. The agreement provides for, i.a., the division, custody and auditing of funds disbursed by IE to the Research Team and the State Hospitals/the Reykjavik Municipal Hospital, pursuant to Chapters 3.3 and 3.4., cf. Chapter 3.6, of this Research Contract. 2 4 IE and its parent company, deCODE genetics Inc. (hereinafter referred to as deCODE) have entered into an agreement with the Swiss pharmaceutical company Hoffman La-Roche (hereinafter referred to as the Purchaser) on the sale of the Research Project, its findings and returns. 3.3. FIXED PAYMENTS FROM IE TO THE RESEARCH TEAM IN RELATION TO THE SALE OF THE RESEARCH PROJECT IE shall pay the Research Team [CONFIDENTIAL TREATMENT REQUESTED] on the effective date of this Contract. Subsequently, IE shall pay [CONFIDENTIAL TREATMENT REQUESTED] per year, until a total of [CONFIDENTIAL TREATMENT REQUESTED] have been paid, including the initial payment. Payments from IE to the Research Team pursuant to this Chapter shall be paid on the following payment dates: [CONFIDENTIAL TREATMENT REQUESTED] In the event that the Research Project ends within five years from the effective date of this Contract, upon achieving the objective of the Research Project, IE shall immediately pay the remaining amount so that a total of [CONFIDENTIAL TREATMENT REQUESTED] shall have been paid, pursuant to this Chapter. Payments pursuant to this Section are additional to and independent of conditional, performance-related payments pursuant to Section 3.4. 3.4. PERFORMANCE-RELATED PAYMENTS FROM IE IN RELATION TO THE SALE OF THE RESEARCH PROJECT IE/deCODE have made an agreement with the Purchaser of the Project that the Purchaser shall pay special conditional payments to IE/deCODE which shall be totally dependent on the scientific and practical results achieved in the performance of the Research Project. The performance-related milestones which activate the Purchaser's obligation to pay have been further specified in the agreement between IE/deCODE and the Purchaser. If the above-mentioned milestones are not achieved, no payments shall be made pursuant to this Section. IE shall pay the Research Team [CONFIDENTIAL TREATMENT REQUESTED] of the performance-related payments from the Purchaser to IE/deCODE, pursuant to Paragraph 1, if success is achieved. Other payments from the Purchaser to IE/deCODE in relation to the reimbursement of IE's cash outlay for the Research Project, as specified in the agreement between IE and the Purchaser, as well as investment in IE or deCODE, shall be paid in full to IE/deCODE. IE shall report to the Research Team as soon as the Purchaser has confirmed that a milestone has been achieved which activates his obligation to pay. IE promises to pay the Research Team its share in the performance-related payment as soon as such payment has been received by IE/deCODE. The Research Team is authorised by IE/deCODE to seek the confirmation of the companies' auditor, concurrently with the quarterly statement, of whether and when a milestone payment was received for the Research Project. 3 5 3.5. PROVISO ON CO-OPERATION WITH RESEARCH PARTIES UNRELATED TO THE RESEARCH TEAM The payments pursuant to Section 3.4. are based on the assumption that co-operation with research parties outside the Research Team and institutions related to the Research Team will not prove necessary for the achievement of the Research Project's objectives. If the Executive Committee of the Project finds it necessary to begin co-operation with other parties, as defined in the foregoing, the provisions of Sections 3.4. and 3.6. shall be reviewed on the basis that the total payments from IE to the Research Team and institutions related to the Research Team, on the one hand, and, on the other hand, the third party, as specified in Section 3.4., shall remain unchanged, i.e. the third party may acquire a claim to a part of the payments pursuant to Section 3.4., which would otherwise have been paid in full to the Research Team. 3.6. ARRANGEMENT OF PAYMENTS AND THE DISPOSAL OF PAYMENTS FROM IE PURSUANT TO SECTION 3.3. AND 3.4., CF. ALSO SECTION 7.3. IN THE INSTITUTIONAL AGREEMENT All payments from IE to the Research Team pursuant to Sections 3.3. and 3.4. of this Contract shall be divided and paid as follows, cf. the provisions of Section 7.3. of the Institutional Agreement as well as other provisions of the Institutional Agreement. The following division of payments is based on an understanding between the parties to this Contract and their evaluation of the importance of each person's contribution to the Research Project. The following division is also based on the agreement cited in Paragraph 2 of Section 2.1., see Appendix E. In accordance with the foregoing, all payments from IE pursuant to Sections 3.3. and 3.4. shall be divided in the following proportions: [CONFIDENTIAL TREATMENT REQUESTED] All funds whose appropriation is in the hands of the Research Team shall be used for scientific activity in the field of Peripheral Artery Occlusive Disease conducted by the Scientific Fund of AEdaskurdlaekningafelag Islands. Further arrangements for the handling of the above-mentioned monies of the Scientific Fund, as well as the arrangement of the Fund's auditing, shall conform to the agreement provided for in Appendix E, and is not a concern of IE CHAPTER 4 MANAGEMENT AND LIABILITY Decisions relating to the performance of the Research Project shall be made jointly by the Research Team and IE. A special Executive Committee shall be established, to which two representatives shall be appointed from each party to this Contract to draw up rules on the arrangement, control and performance of the Research Project. The Chief Supervisor of the Research Project shall be elected from among the members of the Executive Committee. 4 6 Another responsibility of the Committee is to define the objectives of the Research Project and set forth the professional requirements which the parties to this Contract agree to be satisfactory for the performance of the Project. Decisions on incurring expenses in relation to the Research Project shall be submitted in advance and confirmed by the Executive Committee. As applicable, the Executive Committee may enter into agreements with health-care institutions on the use of their manpower and facilities for the performance of certain work procedures pertaining to the clinical aspect of the Research Project. In November each year the Executive Committee shall prepare a budget for the clinical aspect of the Research Project in the following year. The Executive Committee shall supervise the processing of data and the publication of conclusions in accordance with the rules of Chapter 5. The Research Team and individuals within the Team shall not be financially responsible to IE or parties with which IE has entered into agreements, for the achievement of the commercial or financial objectives of the research. In the event that a third party causes the research to be cancelled, or the Contract is terminated for reasons for which the Research Team is not responsible, the Research Team and parties within the Research Team shall not be held financially responsible to IE for such a project ending. The same applies if the research must be altered as a result of amendments to legislation or regulations or decisions of public authorities. IE shall cover the expense of procuring liability insurance for individuals within the Research Team employed by the State Hospitals or the Reykjavik Municipal Hospital when this Contract takes effect, as well as for staff working for them. This shall apply to all work of these parties in the interest of the Research Project. CHAPTER 5 HANDLING, PROCESSING AND COMMUNICATION OF INFORMATION The parties to this Contract undertake to maintain all personal information in confidence. The parties to this Contract undertake to comply with the instructions of the Data Protection Commission and, as applicable, the special representative (inspector) of the Data Protection Commission on the handling and processing of such data, as well as with the instructions and conditions of the Science Ethics Committee, which operates pursuant to the Act on Patients' Rights. The findings of the Research Project shall be immediately published as soon as they fulfil scientific requirements and are fit for publication. However, IE or the Purchaser of the Project may have the publication of the findings postponed for 90 days, if necessary for the procurement of patents and other rights of ownership related to the findings of the Project. The Executive Committee of the Project shall decide in advance who shall be Chief Supervisor of the Research Project. Otherwise, the first cited author of scientific articles shall be Chief Supervisor. The order of authors shall be in accordance with current rules in the international scientific community. The parties to this Contract promise mutual confidentiality as regards information in relation to the substance of this Contract, business plans, the progress of the Project 5 7 and its conclusions. Information of this kind may not be communicated to an outside party without the consent of both parties. CHAPTER 6 LIMITATION ON CO-OPERATION WITH OTHER PARTIES The Research Team promise to work neither jointly nor separately with other parties on research into the inheritability of Peripheral Artery Occlusive Disease during the Research Project. In the event that the Research Project leads to a discovery of financial significance for IE, the Research Team and individual parties within the Team promise not to co-operate with other parties on the part of the Research Project which led to the discovery for five years immediately following the conclusion of the Project pursuant to this Contract. On the other hand, if the Research Project does not lead to a discovery, individual parties within the co-operating team have the right to enter into co-operation with other parties on the research into the inheritability of Peripheral Artery Occlusive Disease after the Research Project has ended. IE promises not to begin collaboration with other parties in the research of the inheritability of Peripheral Artery Occlusive Disease during the Research Project, unless the Executive Committee considers such collaboration necessary to achieve the objective of the Research Project. In the event that the addition of new co-operative parties to the Research Project is considered necessary, the Executive Committee shall be in charge of the selection of such a party. In the event of a dispute within the Executive Committee, the Research Team shall decide on what basis to select additional co-operative parties. The provisions of this Paragraph shall, however, not prevent IE from collaborating in the field of the Research Project with parties that have negotiated the purchase of the Research Project, its conclusions or returns, on the condition that such actions do not reduce the right to payments pursuant to Chapter 3. CHAPTER 7 DURATION OF CONTRACT AND PROJECT COMPLETION The effective date of this Contract shall be the date (hereinafter the date of this Contract) on which this Contract has both been signed by the parties to this Contract and confirmed by the State Hospitals and the Reykjavik Municipal Hospital, in accordance with Paragraph 2 of Chapter 2 of the Institutional Agreement. The Research Project shall have a duration of five years immediately following this Contract's effective date, unless the Project is concluded earlier in the view of the Executive Committee. If either party has materially defaulted on the Contract, the other party may terminate the Contract. In the event of a dispute on the right of the parties to terminate the Contract, the settlement procedures regarding such dispute shall be pursuant to Chapter 8. The return of original data of the State Hospitals/the Reykjavik Municipal Hospital shall be pursuant to Paragraph 5 of Chapter 6 of the Institutional Agreements. In the event that either or both parties are interested in continuing the co-operation after the Research Project has ended, an agreement shall be made to this effect. 6 8 Despite a conclusion of the research pursuant to this Contract, whether owing to the completion of the Project or termination or breach of the Contract, the obligation of IE/deCODE to cover payments pursuant to Section 3.4. shall remain in force until IE/deCODE's right of payments from the Purchaser is cancelled at any time, e.g. when a patent expires. CHAPTER 8 SETTLEMENT OF DISPUTES In the event of a dispute between the parties to this Contract regarding performance or compliance that cannot be resolved by the Executive Committee, two persons, one from each party, shall endeavour to reach an agreement on its settlement. If a settlement is not reached between those two persons within two weeks of the submission of the dispute, each party to the Contract shall appoint one arbitrator and then jointly request the appointment of an impartial third arbitrator by the District Court of Reykjavik to assist in the resolution of the dispute, thus forming a tribunal of three arbitrators. The arbitration tribunal shall reach a decision in the matter within 3 months from the appointment of the third arbitrator. The cost of the work of the tribunal shall be determined by the tribunal at each time. The work, procedure and rulings of the arbitration tribunal shall otherwise be governed, as appropriate at any time, by Act No. 53/1989 on Contractual Arbitration. Notwithstanding the above provisions on arbitration, cases involving the collection of payments under this Contract which are not in dispute between the parties may be submitted to the public courts. The same applies to cases of financial claims made by one party against the other, based on rulings of the arbitration tribunal regarding non-performance or breach by the latter of this Contract. Such cases shall be submitted to the District Court of Reykjavik. 7 9 This Contract, which comprises 8 chapters on 8 pages, in addition to appendices A, B, C, D and E, is made in two identical copies, one copy to be held by the parties to the Contract. Reykjavik, 28 May 1999. On behalf of the Research Team On behalf of Islensk Erfdagreining ehf. for Peripheral Artery Occlusive Disease Stefan E. Matthiasson [sign.] Kari Stefansson [sign.] Reykjavik Municipal Hospital President Halldor Johannsson [sign.] Kristjan Erlendsson [sign.] The State Hospitals Executive Director of IE Co-operative Projects Confirmed on behalf of the Reykjavik Municipal Hospital Reykjavik ___________________________ Magnus Petursson [sign.] Certified that the above is a faithful English translation of a signed Confirmed on behalf of Icelandic document. the State Hospitals ___________________________ Reykjavik Magnus Petursson [sign.] 8 EX-10.29 33 RESEARCH CONTRACT 1 EXHIBIT 10.29 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.29 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason --------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 [NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] RESEARCH CONTRACT ON THE CO-OPERATION OF A RESEARCH TEAM FOR ALLERGY AND ASTHMA AND ISLENSK ERFDAGREINING EHF A research team for allergy and asthma, on the one hand, hereinafter referred to as RTAA, and, on the other hand, Islensk erfdagreining ehf., hereinafter referred to as IE, enter into the following Contract on co-operation on the research of the inheritability of allergy and asthma. This Contract is made on the basis of the Co-operation Agreement between the State Hospitals and Islensk erfdagreining [e]hf. from 15 December 1998, which shall prevail over this Contract in case of any discrepancy between their individual provisions. CHAPTER 1 THE SUBSTANCE OF THE CO-OPERATION RTAA and IE agree to co-operate, on the basis of this Contract, in the search for genes involved in the genesis of allergy and asthma. The proposed co-operation between the parties will hereinafter be referred to as the Research Project. The part of the co-operation involving RTAA shall be supervised by the senior physicians David Gislason and Porarinn Gislason and specialist Unnur Steina Bjornsdottir. CHAPTER 2 CONTRIBUTIONS OF THE PARTIES TO THE RESEARCH PROJECT 2.1 RESEARCH MATERIALS AND THEIR PROCUREMENT RTAA shall provide biosamples (including blood samples and tissue samples), other clinical data and research materials which RTAA may provide, by the permit of the Data Protection Commission for the research, in relation to patients suffering from allergy and/or asthma and their relatives who do not suffer from allergy and/or asthma, cf. Article 5 of this Contract for further details. The research population shall comprise patients who have been diagnosed as allergic or asthmatic at the clinics of the physicians David Gislason and Unnur Steina Bjornsdottir, in addition to patients suffering from the same diseases who have been treated at the out-patient ward of the National Hospitals' Lung Clinic. RTAA shall supervise relations with individuals invited to participate in the research and/or their legal guardians. This includes procuring the informed consent of participants, information on health, blood tests or other sampling and examination of disease symptoms (e.g. further diagnosis). RTAA, on the one hand, and individuals within the Team, on the other hand, undertake to do whatever is in their power so that the procurement of research materials pursuant to this sub-chapter shall proceed with 1 3 expedience and safety. In this respect, account shall be taken of the Research Plan, which includes milestone dates and will be attached to this Contract as Annex A (`Research Plan and Cost Estimation for the Research of IE and RTAA on Allergy and Asthma'). All research materials delivered to the IE research laboratory shall first be encrypted at the Genetic Research Service Centre, a private institution domiciled at Noatun 17, Reykjavik, before being transported to IE, in accordance with the instructions of the Data Protection Commission. 2.2. EXPERTISE, EQUIPMENT AND RESEARCH FACILITIES RTAA shall provide expertise and knowledge in relation to the diagnosis of diseases, the design and organisation of the Research Project, the conduct of experiments and the interpretation of their results. IE and RTAA shall provide expertise for the design and organisation of the research. IE shall also be responsible for the research and testing of blood samples and genetic material, the assessment of the inheritance of the disease and the interpretation of the findings of the research. IE shall provide equipment, research resources, laboratory reagents and personnel for these purposes. 2.3. PAYMENT OF RESEARCH EXPENSES IE shall cover all expenses of the Research Project necessary to achieve the objectives of the Project, including materials and wage costs in relation to calling in participants for research and necessary sampling. RTAA and IE shall jointly submit a special budget on signature of this Contract, in which the projected materials and wage costs of the Project are estimated, see Annex A. Annex A shall also further delineate the itemisation of individual cost items and the manner in which the procurement of consent and the payment of bills shall be conducted. In the event of direct cash outlay on the part of the State Hospitals in relation to the conduct of this Research Project, IE and the State Hospitals shall make a special agreement on the payment of such cost, cf. the Co-operation Agreement between the Hospitals and Islensk erfdagreining ehf. The State Hospitals may request information from IE on wages paid by IE to individual employees of the State Hospitals working on the Research Project. 2.4. INTELLECTUAL PROPERTY PROTECTION RTAA and individuals within the team undertake to provide IE with the assistance necessary to enable IE to ensure international intellectual property protection of the findings of the Research Project, including application for patents together with IE when necessary, provided that IE pays all expenses in relation to intellectual property protection. CHAPTER 3 RIGHTS OF THE PARTIES 3.1. THE RIGHTS OF HEALTH-CARE INSTITUTIONS AND THE EFFECTIVE DATE OF THIS CONTRACT The parties to this Contract are aware that a co-operation agreement (hereinafter referred to as the Institutions Agreement) between IE and the State Hospitals (hereinafter referred to as SH) is currently in effect. This agreement is attached to this Contract as Annex B. The provisions of the Institutions Agreement shall be valid for 2 4 this Research Agreement, where applicable. All other payments from IE to RTAA pursuant to chapters 3.3. and 3.4. of this Contract shall be in accordance with the provisions of Chapter 7.3 of the Institutions Agreement. 3.2. FINANCIAL AND COMMERCIAL RIGHTS ATTACHED TO THE FINDINGS OF THE RESEARCH PROJECT IE shall be sole owner of all financial and commercial rights attached to the Research Project and its results. IE shall have the right to sell the results and findings of the Research Project to a third party and utilise the Research Project financially in any other way consistent with approved ethical standards, irrespective of whether this takes place before or after the completion of the Research Project. deCODE shall never be considered the purchaser of the Project in the understanding of this contract. 3.3. FIXED PAYMENTS FROM IE AFTER THE SALE OF THE RESEARCH PROJECT TO A THIRD PARTY On the effective date of this Contract, IE shall pay RTAA/SH [CONFIDENTIAL TREATMENT REQUESTED]. In the event that IE or its parent company, deCODE genetics Inc. (hereinafter referred to as deCODE), makes a contract with a third party (hereinafter referred to as the Purchaser) on the sale of the Project, its results or findings, IE shall pay RTAA/SH [CONFIDENTIAL TREATMENT REQUESTED] immediately following the signature of such a contract, i.e. on the sale date of the Project (hereinafter referred to as the date of the sale) and an annual payment of [CONFIDENTIAL TREATMENT REQUESTED] thereafter until a total of [CONFIDENTIAL TREATMENT REQUESTED] have been paid including the initial payment. Thus, payments from IE under this chapter shall take place on the following payment dates: [CONFIDENTIAL TREATMENT REQUESTED] In the event that the Research Project ends within five years after IE/deCODE enters into a contract with a purchaser, upon achieving the objective of the Research Project, IE shall pay the remaining amount so that a total of [CONFIDENTIAL TREATMENT REQUESTED] shall have been paid, pursuant to Paragraph 2 of this sub-chapter. Payments pursuant to this chapter are additional and independent to conditional payments under Chapter 3.4. In the event that IE/deCODE enters into more than one contract of sale on the results of the Research Project, IE and RTAA shall negotiate specially on possible fixed payments from IE to RTAA/SH in response to such an additional contract or contracts, in addition to payments paid to RTAA pursuant to Paragraphs 2-3 of this sub-chapter after IE enters into the first contract of sale with a third party. Such payments shall be based on the net proceeds of IE/deCODE from the latter sale of research results, the contribution of RTAA and whether the sale is a total sale of rights attached to the Research Project or only a partial sale of such rights. Payments under 3 5 this paragraph shall, however, never exceed the total amount of the payments specified in Paragraph 2 of this sub-chapter. 3.4. PERFORMANCE-RELATED PAYMENTS FROM IE AFTER THE SALE OF THE RESEARCH PROJECT TO A PURCHASER If IE/deCODE manage to make a contract on the sale of the Project, cf. Chapter 3.3, IE/deCODE shall negotiate an agreement to the effect that the Purchaser shall pay special conditional payments to IE/deCODE which shall be totally dependent on the scientific and/or practical results achieved in the performance of the Project. The definitions of performance-related milestones which activate the Purchaser's obligation to pay will be further specified in the contract between IE/deCODE and the Purchaser. In the event that the above milestones are not achieved, no payments pursuant to this paragraph shall be made. IE shall pay RTAA [CONFIDENTIAL TREATMENT REQUESTED] of the performance-related payments from the Purchaser to IE pursuant to Paragraph 1 of this sub-chapter. All other payments from the Purchaser to IE in relation to the repayment of the cash outlay of IE for the Research Project, as defined in the contract between IE and the Purchaser, and the Purchaser's investment in IE or deCODE shall be paid in full to IE/deCODE. IE shall report to RTAA as soon as the Purchaser has confirmed that a milestone which activates the Purchaser's obligation to pay has been achieved. The share of RTAA in the milestone-related payment shall be paid when the milestone payment from the Purchaser has been delivered to IE/deCODE. RTAA is authorised by IE/deCODE to seek the confirmation of the companies' auditor, concurrently with the quarterly statement, of whether and when a milestone payment has been achieved in relation to the Research Project. Performance-related payments from IE to RTAA under this sub-chapter shall be calculated from the performance-related payments from the third party to IE/deCODE as regards contracts of sale which IE/deCODE may enter into on the results of the Research Project. 3.5. ARRANGEMENT OF PAYMENTS AND DISPOSAL OF PAYMENTS FROM IE PURSUANT TO CHAPTERS 3.3 AND 3.4., CF. ALSO CHAPTER 7.3 OF THE INSTITUTIONS AGREEMENT All payments from IE to RTAA/SH pursuant to Chapters 3.3. and 3.4. shall be paid into a special fund in the custody of SH, cf. Paragraph 2 of Chapter 7.3. of the Institutions Agreement, cf. also the provisions of that Agreement in other respects. All funds raised by RTCOPD pursuant to the provisions of Chapters 3.3. and 3.4. of this Contract the application of which will be governed by RTCOPD under the Institutions Agreement and further agreement between RTCOPD and SH, shall be allocated by RTCOPD to the research of allergy and asthma. Such moneys may not be used for any other purposes. All moneys which will be in the custody of RTCOPD pursuant to the above shall be put into the Research Fund of the Faculty for Pulmonary Research of the State Hospitals, which operates according to an organisational charter which has been confirmed by the Ministry of Justice, in accordance with the Foundations Act, currently Act No. 19/1988. The organisational charter is attached to this Research Contract as Annex C. The accounting of the above fund shall be the responsibility of SH. The financial management of the fund can, 4 6 upon further agreement, be in the hands of its board of directors, according to the provisions of its articles of association. 3.6. PROVISO ON CO-OPERATION WITH RESEARCH PARTIES UNRELATED TO RTCOPD The right of receiving payments pursuant to Sub-Chapters 3.3 and 3.4 is based on the assumption that IE will not pay other parties than RTCOPD and institutions which employ individual parties within RTCOPD for contribution to the Research Project and expertise to which it is necessary to gain access for the achievement of the objectives of the Research Project in the view of the Executive Committee. If the Executive Committee is of the opinion that it is necessary to enter into co-operation with more parties pursuant to the above, the provisions of Sub-Chapters 3.3. and 3.4. shall be reviewed on the basis that the total payments from IE to RTCOPD and/or institutions related to them, on the one hand, and a third party, on the other hand, shall remain unchanged from the payments specified in Chapters 3.3 and 3.4. CHAPTER 4 MANAGEMENT AND LIABILITY Decisions relating to the performance of the Research Project shall be made jointly by RTAA and IE. A special Executive Committee shall be established, which shall be composed of three members from each party to this Contract. This Committee shall supervise the performance of the Research Project. The Chief Supervisor of the Research Project shall be elected from among the members of the Executive Committee. It is also the responsibility of the Committee to define the objectives of the Research Project and set forth the professional requirements which the parties to this Contract agree to be satisfactory for the performance of the Research Project. The Executive Committee shall also seek a settlement of disputes which may arise between the parties to the Contract. Decisions on incurring expenses in relation to the Research Project shall be submitted in advance and confirmed by the Executive Committee. When applicable, the Executive Committee may enter into agreements with health-care institutions on the use of the their manpower and facilities for performing individual tasks in relation to the clinical part of the research. In November each year the Executive Committee shall prepare a budget for the Research Project in the following calendar year. The Executive Committee shall supervise the processing of data and the publication of conclusions in accordance with the rules of Chapter 5. RTAA and individuals within the Team shall not be financially responsible to IE or other parties with interests in the achievement of the commercial or financial objectives of the research. IE shall pay expenses in relation to the procurement of liability insurance for individuals within RTAA as well as staff employed by them. This applies to all work undertaken by these parties in the interest of the Research Project. CHAPTER 5 HANDLING, PROCESSING AND COMMUNICATION OF INFORMATION The parties to this Contract undertake to maintain all personal information in confidence. The parties to this Contract undertake to comply with the instructions of 5 7 the Data Protection Commission and, as applicable, the special representative (inspector) of the Data Protection Commission on the handling and processing of such data, as well as with the instructions and conditions of the Science Ethics Committee, which operates pursuant to the Act on Patients' Rights. This entails that only information which the Data Protection Commission has authorised access to may be used. The results of the Research Project shall be immediately published as soon as they fulfil scientific requirements and are fit for publication. However, IE or the Purchaser of the Project may have the publication of the results postponed for 90 days, if necessary to ensure rights of ownership related to the findings of the Project. The Executive Committee of the Project shall decide in advance who shall be Chief Supervisor of the Research Project. As a rule, the first cited author of scientific articles shall be Chief Supervisor. The order of authors shall be in accordance with current rules in the international scientific community. The parties to this Contract promise mutual confidentiality as regards information in relation to the substance of this Contract, business plans, the progress of the Project and its conclusions. Information of this kind may not be communicated to an outside party without the consent of both parties. CHAPTER 6 LIMITATION ON CO-OPERATION WITH OTHER PARTIES RTAA and individuals within the Team promise to work neither jointly nor separately with other parties on research into the inheritability of allergy and asthma during the Research Project. If IE or deCODE have contracted with a third party on the sale of the Research Project, its results or findings, and the Research Project leads to a discovery which has financial significance for IE, RTAA and individual parties within the Team promise not to enter into co-operation with other parties on the part of the Research Project which led to the discovery for five years immediately following the conclusion of the Project as defined in this Contract. On the other hand, if the Research Project does not lead to a discovery, individual parties within the co-operating team have the right to enter into co-operation with other parties on research into the inheritability of allergy and asthma after the Research Project has ended. Notwithstanding the provisions of Paragraph 1, individuals within RTAA shall be permitted to complete research projects in which they are involved with a third party which began before the making of this Contract. IE promises not to begin collaboration with other parties in the research of the inheritability of allergy and asthma during the Research Project, unless the Executive Committee considers such collaboration necessary to achieve the objective of the Research Project. If the addition of new co-operating parties to the Research Project is considered necessary, the Executive Committee shall be in charge of the selection of such a party. In the event of a dispute within the Executive Committee, RTAA shall have the final decision on the selection of additional co-operating parties. The provisions of this Paragraph shall not, however, prevent IE from collaborating in the field of the Research Project with parties that have negotiated the purchase of the 6 8 Research Project, its conclusions or findings, provided that such actions do not reduce the right to payments pursuant to Chapter 3. CHAPTER 7 TERM OF THE CONTRACT AND PROJECT COMPLETION The effective date of this Contract shall be the date on which this Contract has been both signed by the parties to the Contract and confirmed in signature by SH in accordance with Paragraph 2 of Chapter 2 of the Institutions Agreement. The Research Project shall have a duration of five years immediately following the effective date of this Contract, unless completed before such time in the view of the Executive Committee. If either party has materially defaulted on the Contract, the other party may terminate the Contract. In the event of a dispute on the right of the parties to terminate the Contract, the settlement procedures regarding such dispute shall be pursuant to Chapter 8. On completion of the Project, the return of all original materials of RTAA shall be returned to RTAA, unless an agreement to the contrary is made between RTAA and IE, e.g. if the materials are used in another research, on the condition that the approval of the participants and a permit from the public authorities with the authority to permit such an arrangement have been obtained. The return of research materials from SH on completion of the Research Project shall be conducted in accordance with Paragraph 5 of Chapter 6 of the Institutions Agreement. In the event that either or both parties see reason to continue the co-operation after the agreed period, this shall be considered separately. Notwithstanding a cessation of the research pursuant to this Contract, whether as a result of the completion, cancellation or termination of the Project, the obligation of IE/deCODE to effect payments pursuant to Chapter 3.4. shall remain intact until the right of IE /deCODE to payments from the Purchaser is cancelled each time, e.g. when a patent expires. CHAPTER 8 SETTLEMENT OF DISPUTES In the event of a dispute between the parties to this Contract regarding performance or compliance that cannot be resolved by the Executive Committee, two persons, one from each party, shall endeavour to reach an agreement on its settlement. If a settlement is not reached between those two persons within two weeks of the submission of the dispute, each party to the Contract shall appoint one arbitrator and then jointly request the appointment of an impartial third arbitrator by the District Court of Reykjavik to assist in the resolution of the dispute, thus forming a tribunal of three arbitrators. The arbitration tribunal shall reach a decision in the matter within one month from the appointment of the third arbitrator. The cost of the work of the tribunal shall be determined by the tribunal at each time. The work, procedure and rulings of the arbitration tribunal shall otherwise be governed, as appropriate at any time, by Act No. 53/1989 on Contractual Arbitration. 7 9 Notwithstanding the above provisions on arbitration, cases involving the collection of payments under this Contract which are not in dispute between the parties may be submitted to the public courts. The same applies to cases of financial claims made by one party against the other, based on rulings of the arbitration tribunal regarding non-performance or breach by the latter of this Contract. Such cases shall be submitted to the District Court of Reykjavik. 8 10 This Contract, which comprises 8 chapters on 9 pages, in addition to Appendices A, B, and C, is made in two identical copies, one copy to be held by each of the parties to the Contract. Reykjavik, 1 July 1999. On behalf of the Research On behalf of Islensk Erfdagreining ehf. Team for Allergy and Asthma David Gislason [sign.] Kari Stefansson [sign.] Senior Physician, SH President of IE Porarinn Gislason [sign.] Kristjan Erlendsson [sign.] Senior Physician, SH VP for Clinical and Academic Collaborations Unnur S. Bjornsdottir [sign.] Specialist, SH SH hereby confirms this Research Contract on its behalf, Reykjavik, 20 August 1999 Magnus Petursson [sign.] 9 EX-10.30 34 SERIES A PREFERRED STOCK REPURCHASE AGREEMENT 1 EXHIBIT 10.30 DECODE GENETICS, INC. SERIES A PREFERRED STOCK REPURCHASE AGREEMENT This Series A Preferred Stock Repurchase Agreement ("Agreement") is made effective as of July 12, 1999 by and between deCODE genetics, Inc., a Delaware corporation (the "Company"), and the holders of Series A Preferred Stock of the Company listed on Exhibit A hereto (the "Sellers"). PRELIMINARY STATEMENTS A. The Sellers are the owners of certain shares of the Company's Series A Preferred Stock (the "Series A Stock"). B. Each Seller wishes to sell to the Company, and the Company wishes to purchase from each Seller, the number of shares of Series A Stock set forth opposite the Seller's name on Exhibit A hereto or such other number as may be agreed upon by such Seller and the Company (the "Shares"). NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. SALE AND PURCHASE OF THE SHARES. 1.1 Sale and Purchase. Subject to the terms and conditions hereof, each Seller agrees to sell, and the Company agrees to purchase, the Shares for a purchase price of Seven Dollars and Fifty Cents ($7.50) per share. 1.2 Payment for Shares. Following execution and delivery of this Agreement by the Company and a Seller, the Company shall pay the purchase price of the Shares to be sold to the Company by such Seller by check or wire transfer to such account as such Seller shall designate. 1.3 Delivery of Certificates. Upon full payment by the Company of the purchase price of its Shares, each Seller will deliver to the Company one or more certificates representing the Shares. In the event that less than all of the shares represented by a certificate are repurchased, the Company will deliver to the Seller a new certificate representing the unpurchased shares. Notwithstanding the foregoing, from and after payment by the Company as provided in Section 1.2 hereof, all rights of the Seller as a holder of the Shares shall cease and terminate. 2. REPRESENTATIONS OF THE SELLERS. Each Seller hereby represents and warrants to the Company as follows: 2 2.1 Power and Authority. It has full power and authority to sell the Shares and to enter into and perform this Agreement and any other agreements and instruments to be executed and delivered herewith, and such sale and such agreements (i) have been duly authorized, (ii) are legal, valid, binding and enforceable against such Seller and (iii) are not in contravention of any law, order or agreement by which such Seller is bound. 2.2 Title. It has made no prior assignment of the Shares or of any interest therein. It is the sole legal and beneficial owner of the Shares and has good and marketable title thereto, free and clear of all liens, claims and encumbrances of any kind, and will transfer to the Company such good and marketable title, free and clear of any liens, claims and encumbrances of any kind. 2.3 Company Information. It is a sophisticated seller with respect to the Shares, has adequate information concerning the business and financial condition of the Company to make an informed decision regarding the sale of the Shares, and has independently, without reliance upon the Company (other than reliance upon the representations and warranties of the Company set forth herein) and based on such information as it deemed appropriate, made its own analysis and decision to enter into this Agreement, and such Seller acknowledges and agrees that the Company may possess material information with respect to the Company not known to such Seller ("Company Information"), that such Seller has not requested the Company Information and that the Company shall have no liability to such Seller with respect to the nondisclosure of the Company Information and such Seller hereby releases the Company therefrom. 3. REPRESENTATIONS OF THE COMPANY. The Company hereby represents and warrants to the Sellers that it has full power and authority to purchase the Shares and to enter into and perform this Agreement and any other agreements and instruments to be executed and delivered herewith, and such purchase and such agreements (i) have been duly authorized, (ii) are legal, valid, binding and enforceable against the Company and (iii) are not in contravention of any law, order or agreement by which the Company is bound. 4. MISCELLANEOUS. 4.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents made and to be performed entirely within the State of Delaware. 4.2 Binding Effect; Successors and Assigns. This Agreement shall be deemed to be an agreement between the Company and each of the Sellers and shall be binding upon each Seller executing the Agreement without regard to whether any other Seller shall have executed the Agreement. Except as otherwise expressly 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. 2 3 4.3 Entire Agreement. This Agreement constitutes the full and entire understanding and agreement among the parties with regard to the subject matter hereof. 4.4 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. 4.5 Further Action. Each party shall, without further consideration, take such further action and execute and deliver such further documents as may be reasonably requested by any other party in order to carry out the provisions and purposes of this Agreement. * * * This Series A Preferred Stock Repurchase Agreement is hereby executed as of the date first above written. deCODE genetics, Inc. By: /s/ Kari Stefansson ----------------------------------- Kari Stefansson, President 3 4 ALTA CALIFORNIA PARTNERS, L.P. By: Alta California Management Partners, L.P. By: /s/ Guy Nohra ------------------------------------------------- Name: Guy Nohra ------------------------------------------------- Title General Partner ------------------------------------------------- Address: Attention: Elaine Walker One Embarcadero Center, Suite 4050 San Francisco, CA 94111 Facsimile: (415) 362-6178 ALTA EMBARCADERO PARTNERS, LLC By: /s/ Eileen McCarthy ------------------------------------------------ Name: Eileen McCarthy ------------------------------------------------ Title Member ------------------------------------------------ Address: Attention: Elaine Walker One Embarcadero Center, Suite 4050 San Francisco, CA 94111 Facsimile: (415) 362-4178 4 5 ARCH VENTURE FUND II, L.P. By: ARCH Management Partners II, L.P., Its General Partner By: ARCH Venture Partners, L.P., Its General Partner By: ARCH Venture Corporation, Its General Partner By: /s/ Keith Crandell ------------------------------------ Name: Keith Crandell ------------------------------------ Title Managing Director ------------------------------------ Address: Attention: Melanie Davis 8725 W. Higgins Suite 290 Chicago, IL 60631 Facsimile: (773) 380-6606 5 6 ATLAS VENTURE FUND II, L.P. By: Atlas Venture Associates II, L.P. By: /s/ Jean-Francois Formela --------------------------------------------- Name: Jean-Francois Formela --------------------------------------------- Title General Partner --------------------------------------------- Address: 222 Berkeley Street, Suite 1950 Boston, MA 02116 Facsimile: (617) 859-9292 ATLAS VENTURE EUROPE FUND B.V. By: /s/ Johan Gerhard Bosman -------------------------------------------- Name: J. G. Bosman -------------------------------------------- Title CFO -------------------------------------------- Address: Naarderpoort 1 1411 MA Naarden The Netherlands Facsimile: 31 35 695 4888 6 7 FALCON TECHNOLOGY PARTNERS II, L.P. A Delaware Limited Partnership By: Falcon Technology Management Corporation A Delaware Corporation, Its General Partner By: /s/ James Rathman ------------------------------------------------ Name: James L. Rathman ------------------------------------------------ Title President ------------------------------------------------ Address: 600 Dorset Rd. Devon, PA 19333 7 8 MEDICAL SCIENCE PARTNERS II, L.P. By: Medical Science Ventures II, L.P. By: /s/ Joseph E. Lovett ------------------------------------------------ Name: Joseph E. Lovett ------------------------------------------------ Title General Partner ------------------------------------------------ Address: Attention: Joseph Lovett 20 William Street, Suite 250 Wellesley, MA 02181 Facsimile: (617) 237-3773 MEDICAL SCIENCE II CO-INVESTMENT, L.P. By: Medical Science Ventures II, L.P. By: /s/ Joseph E. Lovett ------------------------------------------------ Name: Joseph E. Lovett ------------------------------------------------ Title General Partner ------------------------------------------------ Address: Attention: Joseph Lovett c/o Medical Science Partners 20 William Street, Suite 250 Wellesley, MA 02181 Facsimile: (617) 237-3773 8 9 UEMCO XI LIMITED PARTNERSHIP By: /s/ Joseph E. Lovett ------------------------------------------------ Name: Joseph E. Lovett ------------------------------------------------ Title General Partner ------------------------------------------------ Address: Attention: Joseph Lovett c/o Medical Science Partners 20 William Street, Suite 250 Wellesley, MA 02181 Facsimile: (617) 237-3773 EAGLE CONSTELLATION FUND LTD. By: /s/ Joseph E. Lovett ------------------------------------------------ Name: Joseph E. Lovett ------------------------------------------------ Title General Partner ------------------------------------------------ Address: Attention: Joseph Lovett c/o Medical Science Partners 20 William Street, Suite 250 Wellesley, MA 02181 Facsimile: (617) 237-3773 9 10 BEACON HILL FINANCIAL By: /s/ R.F. Johnston ---------------------------------------------- Name: Robert F. Johnston ---------------------------------------------- Title President ---------------------------------------------- Address: Attention: Robert Johnson 19 Elm Street Cohasset, MA 02025 Facsimile: (781) 383-2330 10 11 NORAM TRUST By: /s/ James Conroy --------------------------------------------- Name: James Conroy --------------------------------------------- Title Trustee --------------------------------------------- Address: c/o Windels, Marx, Davies, Ives Attention: James P. Conroy 156 West 56th Street New York, NY 10019 Facsimile: (212) 262-1215 11 12 AL-MIDANI INVESTMENT COMPANY By: /s/ Mhd. Nabil Al-Midani ------------------------------------------------ Name: Mhd. Nabil Al-Midani ------------------------------------------------ Title Director ------------------------------------------------ Address: c/o Mhd. Nabil Al-Midani Al-Kharj Road, Kilo 7 P.O. Box 40761 Riyadh 11511, Saudi Arabia Facsimile: 011-966-1-495-5488 12 13 GUTRAFIN LTD. By: /s/ F.C. Lang ---------------------------------------------- Name: F.C. Lang ---------------------------------------------- Title: Senior Investment Representative ---------------------------------------------- Address: 40 Egerton Crescent London SW3 26B Great Britain 13 14 POLARIS VENTURE PARTNERS, L.P. By: Polaris Venture Management co., LLC, Its General Partner By: /s/ John J. Gannon ------------------------------------------------ Name: John J. Gannon ------------------------------------------------ Title Member ------------------------------------------------ Address: 100 Winter Street Suite 3550 Waltham, MA 02451 Facsimile: (781) 290-0880 POLARIS VENTURE FOUNDERS' FUND, L.P. By: Polaris Venture Management co., LLC Its General Partner By: /s/ John J. Gannon ------------------------------------------------ Name: John J. Gannon ------------------------------------------------ Title Member ------------------------------------------------ Address: 100 Winter Street Suite 3550 Waltham, MA 02451 Facsimile: (781) 290-0880 14 15 ROVENT II LIMITED PARTNERSHIP By: Advent International Limited Partnership, General Partner By: Advent International Corporation, General Partner By: /s/ Jason Fisherman ------------------------------------------------ Name: Jason Fisherman ------------------------------------------------ Title Vice President ------------------------------------------------ Address: c/o Advent International Corporation 75 State Street, 29th Floor Boston, MA 02109 Facsimile: (617) 951-0566 ADVENT PERFORMANCE MATERIALS LIMITED PARTNERSHIP By: Advent International Limited Partnership, General Partner By: Advent International Corporation, General Partner By: /s/ Jason Fisherman ------------------------------------------------ Name: Jason Fisherman ------------------------------------------------ Title Vice President ------------------------------------------------ Address: c/o Advent International Corporation 75 State Street, 29th Floor Boston, MA 02109 Facsimile: (617) 951-0566 15 16 ADVENT PARTNERS LIMITED PARTNERSHIP By: Advent International Corporation, General Partner By: /s/ Jason Fisherman ---------------------------------------------- Name: Jason Fisherman ---------------------------------------------- Title Vice President ---------------------------------------------- Address: c/o Advent International Corporation 75 State Street, 29th Floor Boston, MA 02109 Facsimile: (617) 951-0566 16 17
EXHIBIT A SELLING STOCKHOLDERS SERIES A SHAREHOLDER NUMBER OF %AGE NUMBER OF REDEMPTION TOTAL PROCEEDS SHARES HELD TO BE SHARES BEING PRICE REDEEMED REDEEMED Advent Partners Ltd 36,972 20% 7,394 U.S.$7.50 $55,455.00 Advent Performance Materials L.L.P 520,750 20% 104,150 U.S.$7.50 $781,125.00 Rovent II Limited Partnership 1,006,088 20% 201,218 U.S.$7.50 $1,509,135.00 Alta Embarcadero Partners, LLC 67,795 20% 13,559 U.S.$7.50 $101,692.50 Alta California Partners, L.P. 2,538,557 20% 507,711 U.S.$7.50 $3,807,832.50 ARCH Venture Fund II, L.P. 781,905 20% 156,381 U.S.$7.50 $1,172,857.50 Atlas Venture Europe Fund B.v. 1,303,176 20% 260,635 U.S.$7.50 $1,954,762.50 Atlas Venture Fund II, L.P. 1,303,176 20% 260,635 U.S.$7.50 $1,954,762.50 Falcon Technology Partners II, L.P. 646,180 20% 129,236 U.S.$7.50 $969,270.00 Medical Science Partners II, L.P. 733,142 20% 146,628 U.S.$7.50 $1,099,710.00 Medical Science II Co-Investment, L.P. 198,431 20% 39,686 U.S.$7.50 $297,645.00 Al-Midani Investment Company 5,834 20% 1,167 U.S.$7.50 $8,752.50 Beacon Hill Financial 24,617 20% 4,923 U.S.$7.50 $36,922.50 Gutrafin Ltd. 500,000 20% 100,000 U.S.$7.50 $750,000.00 Noram Trust 6,666 20% 1,333 U.S.$7.50 $9,997.50 Eagle Constellation Fund Ltd. 11,564 20% 2,313 U.S.$7.50 $17,347.50 UEMCO XI Limited Partnership 11,753 20% 2,351 U.S.$7.50 $17,632.50 Polaris Venture Partners Founders' Fund, 115,201 20% 23,040 U.S.$7.50 $172,800.00 L.P. Polaris Venture Partners L.P. 1,978,568 20% 395,714 U.S.$7.50 $2,967,855.00 TOTAL OF PREFERRED A-STOCK: 11,790,375 20% 2,358,074 U.S.$7.50 $17,685,555.00
17 18 DECODE GENETICS, INC. ADDENDUM TO SERIES A PREFERRED STOCK REPURCHASE AGREEMENT This Addendum to Series A Preferred Stock Repurchase Agreement (this "Addendum") is made effective as of March 1, 2000 (the "Effective Date") by and between deCODE genetics, Inc., a Delaware corporation (the "Company"), and the holders of Series A Preferred Stock of the Company listed on Exhibit A hereto (the "Sellers"). PRELIMINARY STATEMENTS A. The Company and the Sellers entered into a Series A Preferred Stock Repurchase Agreement, dated July 12, 1999 (the "Series A Repurchase Agreement"), pursuant to which the Corporation repurchased, in the aggregate, 2,358,074 shares (the "Series A Shares") of the Corporation's Series A Preferred Stock from the Sellers at a closing held on August 11, 1999 (the "Closing Date"). B. It was the understanding among the Company and the Sellers that the purchase price for the Series A Shares would be equal to the price per share, net of commissions and other fees payable to the purchaser (the "Purchaser"), at which the Company sold shares of its Series B Preferred Stock pursuant to a stock purchase agreement dated as of June 30, 1999 (the "Series B Offering"). C. Contemporaneously with the execution of the Series A Repurchase Agreement, the Company and the Sellers entered into an oral agreement that if any contingent portion of the purchase price in the Series B Offering became payable, the purchase price for the Series A Shares would be adjusted upward accordingly, with the amount of such adjustment to be paid to the Sellers by the Company after such contingent portion of the purchase price in the Series B Offering became payable. D. The Company and the Purchaser have entered into an Addendum to Stock Purchase Agreement confirming that on December 28, 1999, they agreed that a contingent payment of $7.50, less commissions and other fees payable to the Purchaser in an amount equal to seven percent (7%) of the sum of the original purchase price and the contingent payment, was due and payable. NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. ADJUSTMENT TO PURCHASE PRICE; PAYMENT OF DEFICIENCY. The adjusted purchase price for the Series A Shares as of the Closing Date is US$13.95 per share. Within five business days of the Effective Date, the Company shall pay, by check or wire transfer to such account as such Seller shall designate, US$6.45 (representing the adjusted purchase price of US$13.95 less the US$7.50 already paid) for each of the Series A Shares sold to the Company by such Seller under the Series A Repurchase Agreement. 1 19 2. RATIFICATION OF AMENDMENT OF AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT. The amendment of the Amended and Restated Investors' Rights Agreement dated as of February 2, 1998, as amended, among the Company and certain of its stockholders to grant the provisions of Section 2 thereof to the holders of the Series B Preferred Stock sold in the Series B Offering is hereby ratified, approved and confirmed. 3. MISCELLANEOUS. This Addendum shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents made and to be performed entirely within the State of Delaware. Except as otherwise expressly 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. This Addendum, together with the Series A Repurchase Agreement constitutes the full and entire understanding and agreement among the parties with regard to the subject matter hereof. This Addendum may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. Except as set forth herein, all terms of the Series A Repurchase Agreement remain unchanged and in full force and effect. This Addendum to Series A Preferred Stock Repurchase Agreement is hereby executed to be effective as of the date first above written. deCODE genetics, Inc. Date By: /s/ Kari Stefansson ---------------------------------------- Kari Stefansson, President 2 20 ALTA CALIFORNIA PARTNERS, L.P. By: Alta California Management Partners, L.P. Date: 2/24/00 By: /s/ Guy Nohra --------------------------------------------- Name: Guy Nohra --------------------------------------------- Title General Partner --------------------------------------------- Address: Attention: Elaine Walker One Embarcadero Center, Suite 4050 San Francisco, CA 94111 Facsimile: (415) 362-6178 ALTA EMBARCADERO PARTNERS, LLC Date: 2/24/00 By: /s/ Jean Deleage --------------------------------------------- Name: Jean Deleage --------------------------------------------- Title Member --------------------------------------------- Address: Attention: Elaine Walker One Embarcadero Center, Suite 4050 San Francisco, CA 94111 Facsimile: (415) 362-4178 3 21 ARCH VENTURE FUND II, L.P. By: ARCH Management Partners II, L.P., Its General Partner By: ARCH Venture Partners, L.P., Its General Partner By: ARCH Venture Corporation, Its General Partner Date: 2.25.00 By: /s/ Robert Nelsen ------------------------------- Name: Robert Nelsen ------------------------------- Title Managing Director ------------------------------- Address: Attention: Melanie Davis 8725 W. Higgins Suite 290 Chicago, IL 60631 Facsimile: (773) 380-6606 4 22 ATLAS VENTURE FUND II, L.P. By: Atlas Venture Associates II, L.P. Date: By: /s/ Jean-Francois Formela ------------------------------------------- Name: Jean-Francois Formela ------------------------------------------- Title General Partner ------------------------------------------- Address: 222 Berkeley Street, Suite 1950 Boston, MA 02116 Facsimile: (617) 859-9292 ATLAS VENTURE EUROPE FUND B.V. Date: By: /s/ Johan Gerhard Bosman ------------------------------------------- Name: J.G. Bosman ------------------------------------------- Title: Managing Director ------------------------------------------- Address: Naarderpoort 1 1411 MA Naarden The Netherlands Facsimile: 31 35 695 4888 5 23 FALCON TECHNOLOGY PARTNERS II, L.P. A Delaware Limited Partnership By: Falcon Technology Management Corporation A Delaware Corporation, Its General Partner Date: 2/24/00 By: /s/ James Rathman -------------------------------------- Name: James L. Rathman -------------------------------------- Title President -------------------------------------- Address: Greystone 60 15 Highlands. Avon, CO 81620 6 24 MEDICAL SCIENCE PARTNERS II, L.P. By: Medical Science Ventures II, L.P. Date: 2/24/00 By: /s/ Joseph E. Lovett ---------------------------------------- Name: Joseph E. Lovett ---------------------------------------- Title General Partner ---------------------------------------- Address: Attention: Joseph Lovett 161 Worcester Rd. Framingham, MA 01701 Facsimile: MEDICAL SCIENCE II CO-INVESTMENT, L.P. By: Medical Science Ventures II, L.P. Date: By: /s/ Joseph E. Lovett ---------------------------------------- Name: Joseph E. Lovett ---------------------------------------- Title General Partner ---------------------------------------- Address: Attention: Joseph Lovett c/o Medical Science Partners 161 Worcester Rd. Framingham, MA 01701 Facsimile: 7 25 UEMCO XI LIMITED PARTNERSHIP Date: 2/24/00 By: /s/ Joseph E. Lovett ------------------------------------------- Name: Joseph E. Lovett ------------------------------------------- Title General Partner ------------------------------------------- Address: Attention: Joseph Lovett c/o Medical Science Partners 161 Worcester Rd. Framingham, MA 01701 Facsimile: EAGLE CONSTELLATION FUND LTD. Date: 2/24/00 By: /s/ Joseph E. Lovett ------------------------------------------- Name: Joseph E. Lovett ------------------------------------------- Title General Partner ------------------------------------------- Address: Attention: Joseph Lovett c/o Medical Science Partners 161 Worcester Rd. Framingham, MA 01701 Facsimile: 8 26 BEACON HILL FINANCIAL Date: 25/2/00 By: /s/ R.F. Johnston ---------------------------------- Name: Robert F. Johnston ---------------------------------- Title President ---------------------------------- Address: Attention: Robert Johnston 19 Elm Street Cohasset, MA 02025 Facsimile: (781) 383-2330 9 27 NORAM TRUST Date: By: /s/ James Conroy ---------------------------------- Name: James Conroy ---------------------------------- Title Trustee ---------------------------------- Address: c/o Windels, Marx, Davies, Ives Attention: James P. Conroy 156 West 56th Street New York, NY 10019 Facsimile: (212) 262-1215 10 28 AL-MIDANI INVESTMENT COMPANY Date: February 25, 2000 By: /s/ Mhd. Nabil Al-Midani ------------------------------------- Name: Mhd. Nabil Al-Midani ------------------------------------- Title Director ------------------------------------- Address: c/o Mhd. Nabil Al-Midani Al-Kharj Road, Kilo 7 P.O. Box 40761 Riyadh 11511, Saudi Arabia Facsimile: 011-966-1-495-5488 11 29 GUTRAFIN LTD. Date: 25 Feb 2000 By: /s/ F.C. Lang -------------------------------------- Name: F.C. Lang -------------------------------------- Title: Senior Investment Representative -------------------------------------- Address: 40 Egerton Crescent London SW3 26B Great Britain 12 30 POLARIS VENTURE PARTNERS, L.P. By: Polaris Venture Management co., LLC, Its General Partner Date: By: /s/ Terrence McGuire ------------------------------------- Name: ------------------------------------- Title ------------------------------------- Address: 100 Winter Street Suite 3550 Waltham, MA 02451 Facsimile: (781) 290-0880 POLARIS VENTURE FOUNDERS' FUND, L.P. By: Polaris Venture Management co., LLC Its General Partner Date: By: /s/ Terrence McGuire ------------------------------------- Name: ------------------------------------- Title ------------------------------------- Address: 100 Winter Street Suite 3550 Waltham, MA 02451 Facsimile: (781) 290-0880 13 31 ROVENT II LIMITED PARTNERSHIP By: Advent International Limited Partnership, General Partner By: Advent International Corporation, General Partner Date: 2/24/00 By: /s/ Jason Fisherman ------------------------------------------- Name: Jason Fisherman ------------------------------------------- Title Vice President ------------------------------------------- Address: c/o Advent International Corporation 75 State Street, 29th Floor Boston, MA 02109 Facsimile: (617) 951-0566 ADVENT PERFORMANCE MATERIALS LIMITED PARTNERSHIP By: Advent International Limited Partnership, General Partner By: Advent International Corporation, General Partner Date: 2/24/00 By: /s/ Jason Fisherman ------------------------------------------- Name: Jason Fisherman ------------------------------------------- Title Vice President ------------------------------------------- Address: c/o Advent International Corporation 75 State Street, 29th Floor Boston, MA 02109 Facsimile: (617) 951-0566 14 32 ADVENT PARTNERS LIMITED PARTNERSHIP By: Advent International Corporation, General Partner Date: 2/24/00 By: /s/ Jason Fisherman ------------------------------------------- Name: Jason Fisherman ------------------------------------------- Title Vice President ------------------------------------------- Address: c/o Advent International Corporation 75 State Street, 29th Floor Boston, MA 02109 Facsimile: (617) 951-0566 15 EX-10.31 35 SERIES C PREFERRED STOCK REPURCHASE AGREEMENT 1 EXHIBIT 10.31 DECODE GENETICS, INC. SERIES C PREFERRED STOCK REPURCHASE AGREEMENT This Series C Preferred Stock Repurchase Agreement ("Agreement") is made effective as of July 12, 1999 by and between deCODE genetics, Inc., a Delaware corporation (the "Company"), and Roche Finance Ltd. (the "Seller"). PRELIMINARY STATEMENTS A. The Seller is the owner of certain shares of the Company's Series C Preferred Stock (the "Series C Stock") . B. The Seller wishes to sell to the Company, and the Company wishes to purchase from the Seller, 100,000 shares of Series C Stock (the "Shares"). NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. SALE AND PURCHASE OF THE SHARES. 1.1 Sale and Purchase. Subject to the terms and conditions hereof, the Seller agrees to sell , and the Company agrees to purchase, the Shares for a purchase price of Seven Dollars and Fifty Cents ($7.50) per share. 1.2 Payment for Shares. Following execution and delivery of this Agreement by the Company and the Seller, the Company shall pay the purchase price of the Shares by check or wire transfer to such account as the Seller shall designate. 1.3 Delivery of Certificates. Upon full payment by the Company of the purchase price of the Shares, the Seller will deliver to the Company one or more certificates representing the Shares. In the event that less than all of the shares represented by a certificate are repurchased, the Company will deliver to the Seller a new certificate representing the unpurchased shares. Notwithstanding the foregoing, from and after payment by the Company as provided in Section 1.2 hereof, all rights of the Seller as a holder of the Shares shall cease and terminate. 2. REPRESENTATIONS OF THE SELLER. The Seller hereby represents and warrants to the Company as follows: 2.1 Power and Authority. It has full power and authority to sell the Shares and to enter into and perform this Agreement and any other agreements and instruments to be executed and delivered herewith, and such sale and such agreements (i) have been duly authorized, (ii) are legal, valid, binding and enforceable against the Seller and (iii) are not in contravention of any law, order or agreement by which the Seller is bound. 2 2.2 Title. It has made no prior assignment of the Shares or of any interest therein. It is the sole legal and beneficial owner of the Shares and has good and marketable title thereto, free and clear of all liens, claims and encumbrances of any kind, and will transfer to the Company such good and marketable title, free and clear of any liens, claims and encumbrances of any kind. 2.3 Company Information. It is a sophisticated seller with respect to the Shares, has adequate information concerning the business and financial condition of the Company to make an informed decision regarding the sale of the Shares, and has independently, without reliance upon the Company (other than reliance upon the representations and warranties of the Company set forth herein) and based on such information as it deemed appropriate, made its own analysis and decision to enter into this Agreement, and the Seller acknowledges and agrees that the Company may possess material information with respect to the Company not known to the Seller ("Company Information"), that the Seller has not requested the Company Information and that the Company shall have no liability to the Seller with respect to the nondisclosure of the Company Information and the Seller hereby releases the Company therefrom. 3. REPRESENTATIONS OF THE COMPANY. The Company hereby represents and warrants to the Seller that it has full power and authority to purchase the Shares and to enter into and perform this Agreement and any other agreements and instruments to be executed and delivered herewith, and such purchase and such agreements (i) have been duly authorized, (ii) are legal, valid, binding and enforceable against the Company and (iii) are not in contravention of any law, order or agreement by which the Company is bound. 4. MISCELLANEOUS. 4.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents made and to be performed entirely within the State of Delaware. 4.2 Binding Effect; Successors and Assigns. Except as otherwise expressly 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. 4.3 Entire Agreement. This Agreement constitutes the full and entire understanding and agreement among the parties with regard to the subject matter hereof. 4.4 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. 2 3 4.5 Further Action. Each party shall, without further consideration, take such further action and execute and deliver such further documents as may be reasonably requested by the other party in order to carry out the provisions and purposes of this Agreement. 4.6 Reissuance of Shares. The Company will not sell or otherwise reissue the Shares without the Seller's written consent. * * * This Series C Preferred Stock Repurchase Agreement is hereby executed as of the date first above written. deCODE genetics, Inc. By: /s/ Kari Stefansson ----------------------------------- Kari Stefansson, President 3 4 ROCHE FINANCE LTD By: /s/ Bruno Maier ----------------------------------- Name: Dr. Bruno Maier ----------------------------------- Title Director ----------------------------------- By: /s/ Peter Matter ----------------------------------- Name Peter Matter ----------------------------------- Title: Director ----------------------------------- Address: 124 Grenzacherstrasse CH-4070 Basel SWITZERLAND Attention: CFDV Building 21 Room 292 Facsimile No.: 41-61-688-4169 4 5 DECODE GENETICS, INC. ADDENDUM TO SERIES C PREFERRED STOCK REPURCHASE AGREEMENT This Addendum to Series C Preferred Stock Repurchase Agreement (this "Addendum") is made effective as of March 1, 2000 (the "Effective Date") by and between deCODE genetics, Inc., a Delaware corporation (the "Company"), and Roche Finance Ltd. (the "Seller"). PRELIMINARY STATEMENTS A. The Company and the Seller entered into a Series C Preferred Stock Repurchase Agreement, dated July 12, 1999 (the "Series C Repurchase Agreement"), pursuant to which the Corporation repurchased 100,000 shares (the "Series C Shares") of the Corporation's Series C Preferred Stock from the Seller at a closing held on August 24th, 1999 (the "Closing Date"). B. It was the understanding among the Company and the Sellers that the purchase price for the Series C Shares would be equal to the price per share, net of commissions and other fees payable to the purchaser (the "Purchaser"), at which the Company sold shares of its Series B Preferred Stock pursuant to a stock purchase agreement dated as of June 30, 1999 (the "Series B Offering"). C. Contemporaneously with the execution of the Series C Repurchase Agreement, the Company and the Sellers entered into an oral agreement that if any contingent portion of the purchase price in the Series B Offering became payable, the purchase price for the Series C Shares would be adjusted upward accordingly, with the amount of such adjustment to be paid to the Sellers by the Company after such contingent portion of the purchase price in the Series B Offering became payable. D. The Company and the Purchaser have entered into an Addendum to Stock Purchase Agreement confirming that on December 28, 1999, they agreed that a contingent payment of $7.50, less commissions and other fees payable to the Purchaser in an amount equal to seven percent (7%) of the sum of the original purchase price and the contingent payment, was due and payable. NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. ADJUSTMENT TO PURCHASE PRICE; PAYMENT OF DEFICIENCY. The adjusted purchase price for the Series C Shares as of the Closing Date is US$13.95 per share. Within five business days of the Effective Date, the Company shall pay, by check or wire transfer to such account as the Seller shall designate, US$6.45 (representing the adjusted purchase price of US$13.95 less the US$7.50 already paid) for each of the Series C Shares sold to the Company by the Seller under the Series C Repurchase Agreement. 2. RATIFICATION OF AMENDMENT OF AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT. The amendment of the Amended and Restated Investors' Rights Agreement dated as of February 2, 1998, as amended, among the Company and certain of its stockholders to grant 6 the provisions of Section 2 thereof to the holders of the Series B Preferred Stock sold in the Series B Offering is hereby ratified, approved and confirmed. 3. MISCELLANEOUS. This Addendum shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents made and to be performed entirely within the State of Delaware. Except as otherwise expressly 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. This Addendum, together with the Series C Repurchase Agreement, constitutes the full and entire understanding and agreement among the parties with regard to the subject matter hereof. This Addendum may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. Except as set forth herein, all terms of the Series C Repurchase Agreement remain unchanged and in full force and effect. This Addendum to Series C Preferred Stock Repurchase Agreement is hereby executed to be effective as of the date first above written. 7 DECODE GENETICS, INC. Dated:_______________________ By: /S/ Kari Stefansson Kari Stefansson, President ROCHE FINANCE LTD Dated: 29 February 2000 By: /s/ Bruno Maier Name: Dr. Bruno Maier Title: Director By: /s/ Beat Krahenmann Name: Dr. Beat Krahenmann Title: Deputy Director Address: 124 Grenzacherstrasse CH-4070 Basel SWITZERLAND Attention: CFDV Building 21 Room 292 EX-10.32 36 COMMON STOCK REPURCHASE AGREEMENT 1 EXHIBIT 10.32 DECODE GENETICS, INC. COMMON STOCK REPURCHASE AGREEMENT This Common Stock Repurchase Agreement ("Agreement") is made effective as of July 12, 1999 by and between deCODE genetics, Inc., a Delaware corporation (the "Company"), and Kari Stefansson (the "Seller"). PRELIMINARY STATEMENTS A. The Seller is the owner of certain shares of the Company's Common Stock (the "Common Stock") . B. The Seller wishes to sell to the Company, and the Company wishes to purchase from the Seller, 333,333 shares of Common Stock (the "Shares"). NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. SALE AND PURCHASE OF THE SHARES. 1.1 Sale and Purchase. Subject to the terms and conditions hereof, the Seller agrees to sell, and the Company agrees to purchase, the Shares. The consideration for the Shares shall be 5.625/7.50 of a share of the Company's Series B Preferred Stock for each Share (for a total of 250,000 shares of Series B Preferred Stock). 1.2 Closing. The closing of the sale and purchase of the Shares under this Agreement shall be held on July 12, 1999, at the offices of the Company or at such other time and place as the Company and the Seller may agree (the "Closing"). 1.3 Delivery. At the Closing and upon delivery by the Company of certificates representing the Series B Preferred Stock to be issued in exchange for the Shares, the Seller will deliver to the Company one or more certificates representing the Shares. In the event that less than all of the shares represented by a certificate are repurchased, the Company will deliver to the Seller a new certificate representing the unpurchased shares. 2. REPRESENTATIONS OF THE SELLER. The Seller hereby represents and warrants to the Company as follows: 2.1 Power and Authority. He has full power and authority to sell the Shares and to enter into and perform this Agreement and any other agreements and instruments to be executed and delivered herewith, and such sale and such agreements (i) have been duly authorized, (ii) are legal, valid, binding and enforceable against him and (iii) are not in contravention of any law, order or agreement by which he is bound. 1 2 2.2 Title He has made no prior assignment of the Shares or of any interest therein. He is the sole legal and beneficial owner of the Shares and has good and marketable title thereto, free and clear of all liens, claims and encumbrances of any kind, and will transfer to the Company such good and marketable title, free and clear of any liens, claims and encumbrances of any kind. 2.3 Company Information. He is a sophisticated seller with respect to the Shares, has adequate information concerning the business and financial condition of the Company to make an informed decision regarding the sale of the Shares, and has independently, without reliance upon the Company (other than reliance upon the representations and warranties of the Company set forth herein) and based on such information as he deemed appropriate, made his own analysis and decision to enter into this Agreement, and he acknowledges and agrees that the Company may possess material information with respect to the Company not known to him ("Company Information"), that he has not requested the Company Information and that the Company shall have no liability to him with respect to the nondisclosure of the Company Information and he hereby releases the Company therefrom. 3. REPRESENTATIONS OF THE COMPANY. The Company hereby represents and warrants to the Seller that it has full power and authority to purchase the Shares and to enter into and perform this Agreement and any other agreements and instruments to be executed and delivered herewith, and such purchase and such agreements (i) have been duly authorized, (ii) are legal, valid, binding and enforceable against the Company and (iii) are not in contravention of any law, order or agreement by which the Company is bound. 4. MISCELLANEOUS. 4.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents made and to be performed entirely within the State of Delaware. 4.2 Successors and Assigns. Except as otherwise expressly 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. 4.3 Entire Agreement. This Agreement constitutes the full and entire understanding and agreement among the parties with regard to the subject matter hereof. 4.4 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. 2 3 4.5 Further Action. Each party shall, without further consideration, take such further action and execute and deliver such further documents as may be reasonably requested by any other party in order to carry out the provisions and purposes of this Agreement. * * * This Common Stock Repurchase Agreement is hereby executed as of the date first above written. deCODE genetics, Inc. By: /s/ Hannes Smarason ---------------------------------- Hannes Smarason, Senior Vice President & Chief Financial Officer /s/ Kari Stefansson ----------------------------------- Kari Stefansson 3 EX-10.33 37 STOCK PURCHASE AGREEMENT 1 EXHIBIT 10.33 STOCK PURCHASE AGREEMENT This Stock Purchase Agreement ("Agreement") is made effective as of June 30, 1999 by and between deCODE genetics, Inc., a Delaware corporation (the "Company"), and each of the undersigned. PRELIMINARY STATEMENT A. Each of the undersigned wishes to purchase from the Company, and the Company wishes to sell to each of the undersigned, the number of shares of the Company's Series B Preferred Stock, par value US$0.001 per share ("Series B Preferred Stock"), set forth opposite each of the undersigned's signature or such other number as may be agreed upon by the undersigned and the Company (the "Shares"). B. The parties wish to provide for the terms and conditions of the purchase and sale of the Shares. NOW, THEREFORE, in consideration of the premises and the mutual promises hereinafter set forth, the parties hereby agree as follows: 1. Sale and Purchase of Shares. (a) Upon the terms and subject to the conditions set forth in this Agreement and upon the representations and warranties made herein, the Company shall sell, grant, convey, assign, transfer and deliver to the undersigned, and the undersigned shall purchase and acquire from the Company, the Shares. Upon Closing under this Agreement, all of the Shares shall be fully paid and nonassessable. (b) In exchange for issuance of the Shares, each of the undersigned agrees to pay to the Company $7.50 per share (the "Purchase Price") on the Closing Date (as defined below). The Purchase Price shall be payable by certified or bank check or by wire transfer or other immediately available funds to the Company to such bank accounts as designated by the Company in writing. It is understood that such payment may come from the undersigned or its affiliates. (c) The closing of the sale to, and purchase by, the undersigned of the Shares (the "Closing") shall occur at the offices of the Company on or before July 31, 1999 or such other date as the parties shall mutually agree (the "Closing Date"). (d) At the Closing, the Company shall deliver to each of the undersigned stock certificates representing the Shares, registered in the name of each of the undersigned, against payment of the amount of the Purchase Price as set forth above. 2. Representations and Warranties of Undersigned. By executing this Agreement, each of the undersigned: 2 (a) acknowledges that it understands that as a condition to the Company's sale of the Shares to the undersigned, the undersigned must become a party to that certain Amended and Restated Investor Rights Agreement by and among the Company and the other parties thereto (the "Investor Rights Agreement"), dated as of February 2, 1998, a copy of which has been provided to the undersigned, that execution of this Agreement shall constitute execution of the Investor Rights Agreement, and that the Shares and the shares (the "Conversion Shares") of Common Stock of the Company, par value US$0.001 per share, issued upon conversion of the Shares may be transferred only in accordance with the provisions of the Investor Rights Agreement; (b) represents and warrants that the undersigned is able to bear the economic risk of losing the undersigned's entire investment in the Shares and has such knowledge and experience in business and financial matters and with respect to investments in securities to enable the undersigned to understand and evaluate the risks of ownership of the Shares and to form an investment decision with respect thereto; (c) acknowledges that a copy of the Amended and Restated Certificate of Incorporation of the Company (the "Certificate of Incorporation") which describes the relative rights and preferences of the Series B Preferred Stock has been provided to it and that all material documents, records and books pertaining to this investment have, on request, been made available to the undersigned's advisors and the undersigned; (d) acknowledges that the Company has made available to the undersigned and the undersigned's representatives the opportunity to ask questions of, and receive answers from, the Company concerning the Company and the transaction contemplated hereby; (e) represents and warrants that the undersigned received, executed and deposited for delivery to the Company this Agreement at the address set forth on the signature page below; (f) represents and warrants that the undersigned is not a "U.S. person," as such term is defined in Regulation S ("Regulation S") promulgated pursuant to the Securities Act of 1933, as amended (the "Securities Act"), a copy of which definition has been provided to the undersigned, is not purchasing the Shares for the account or benefit of a "U.S. person" and if the undersigned is other than an individual, that the undersigned was not formed by a "U.S. person" principally for the purpose of investing in securities not registered under the Securities Act; (g) understands that the Shares and the Conversion Shares are subject to substantial restrictions on transfer in the United States and to "U.S. persons" and that, except as set forth in the Investor Rights Agreement, the Company has no obligation to take any action to make such transfers possible; (h) agrees that the undersigned will resell the Shares and Conversion Shares only in accordance with the provisions of Regulation S, or pursuant to registration under the Securities Act or to an exemption therefrom, and will not engage in hedging transactions with regard to the Shares and Conversions Shares unless in compliance with the Securities Act. Furthermore, the 2 3 undersigned agrees that the Company shall refuse to register any transfer of the Shares or Conversion Shares not made in accordance with the provisions of this subsection 2(h); and (i) acknowledges that, if the undersigned is purchasing the Shares subscribed for hereby in a fiduciary capacity, the above representations and warranties in this Section 2 shall be deemed to have been made on behalf of the person or persons for whom the undersigned is so purchasing. 3. Indemnification. The undersigned acknowledges that the undersigned understands the meaning of the representations made by the undersigned in this Agreement and that the Company will rely upon the truth and accuracy of such representations. The undersigned hereby agrees to indemnify and hold harmless the Company and all persons deemed to be in control of the Company from and against any and all claims, actions, loss, costs, expenses, damages and liabilities (including, without limitation, court costs and attorneys' fees) arising out of or due to a breach by the undersigned of any such representations. All representations shall survive the delivery of this Stock Purchase Agreement and the purchase by the undersigned of any Shares. 4. Restrictions on Transfer. The undersigned hereby agrees with the Company as follows: (a) In addition to the restrictions on transfer imposed by the Investor Rights Agreement, the undersigned will not transfer the Shares or the Conversion Shares, or any of them, in the United States or to a "U.S. person" unless registered under the Securities Act or unless the Company has received an opinion of counsel satisfactory to the Company and its counsel that such registration is not required. (b) In addition to the legend set forth in Section 2.1(b) of the Investor Rights Agreement, the certificates evidencing the Shares that the undersigned has agreed to purchase and the Conversion Shares, and each certificate issued in transfer thereof, will bear legends substantially as follows: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR THE SECURITIES ACT OF ANY STATE AND THEY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES ACTS OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION OR IS IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE ACT. HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE ACT. 5. Pre-Closing Covenants. Prior to the Closing, the Company hereby covenants and agrees to: 3 4 (a) Obtain the consent of its Board of Directors to the transactions contemplated hereby; (b) Obtain the consent of its stockholders and all other required consents or approvals of third parties to the transactions contemplated hereby; (c) File an amendment to the Certificate of Incorporation with the Secretary of State of Delaware which increases the number of authorized shares of Series B Preferred Stock from 5,000,000 to 1,000,000; and (d) Take all other actions which are necessary or proper in connection with the transactions contemplated hereby. 6. Conditions to Closing. The obligation of the undersigned to purchase the Shares shall be conditioned on the Company's performance of each of the covenants set forth in Section 5 hereof. If at the Closing any of such covenants shall not have been fulfilled to the reasonable satisfaction of any the undersigned, such undersigned, at its election, shall be relieved of all further obligations under this Agreement. 7. Miscellaneous. (a) Should any one or more of the provisions of this Agreement be determined to be illegal or unenforceable, all other provisions of this Agreement shall be given effect separately from the provision or provisions determined to be illegal or unenforceable and shall not be affected thereby. (b) The internal substantive laws, without regard to the laws of conflicts, of the State of Delaware shall govern this Agreement. The parties hereto hereby irrevocably submit to the exclusive jurisdiction of any Delaware state or federal court sitting in the State of Delaware, for any action or proceeding arising out of or related to this Agreement, and the parties hereto hereby irrevocably agree that all claims in respect of any such action or proceeding may be heard and determined in Delaware state court or, to the extent permitted by law, in such federal court. The parties hereto hereby irrevocably waive, to the fullest extent they may effectively do so, the defense of an inconvenient forum to the maintenance of any such action or proceeding. (c) This Agreement constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and supersedes any and all prior or contemporaneous agreements or understandings of the parties relating to the subject matter hereof. All such agreements shall terminate and be of no further force or effect. (d) This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, with the same effect as if all parties had signed the same document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. 4 5 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on their behalf. deCODE genetics, Inc. By: /S/ Kari Stefansson --------------------------- Kari Stefansson, President 5 6 SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT AND INVESTOR RIGHTS AGREEMENT PURCHASER: By: /s/ Yves Schmit /s/ Carine Bittler --------------------------------------- Name: Biotek Invest S.A. Title: Director Date: June 30, 1999 Address: 41 Avenue de La Gare L-1611 Luxemburg Number of Shares Being Purchased: 5,000,000 6 7 DECODE GENETICS, INC. ADDENDUM TO STOCK PURCHASE AGREEMENT This Addendum to Stock Purchase Agreement (this "Addendum"), is made as of February 24, 2000 (the "Effective Date") by and between deCODE genetics, Inc., a Delaware corporation (the "Company"), and Biotek Invest, S.A. (the "Purchaser"). PRELIMINARY STATEMENTS A. On June 30, 1999 the Company and the Purchaser entered into a Stock Purchase Agreement pursuant to which the Purchaser agreed to purchase from the Company 5,000,000 shares (the "Series B Shares") of the Company's Series B Preferred Stock (the "Series B") at a price (the "Original Purchase Price") of US$7.50 per share. B. Contemporaneously with the execution of the Stock Purchase Agreement, the Company and the Purchaser entered into an oral agreement pursuant to which they agreed that the Original Purchase Price would be increased to $15.00 per share (the "Adjusted Purchase Price"), with the amount in excess of the Original Purchase Price (the "Contingent Payment") to be payable only if the Purchaser were able to sell at least 50% of the Series B Shares at or above the Adjusted Purchase Price and if the trading price in the Icelandic market, as determined by agreement of the parties, remained at or above the Adjusted Purchase Price from the time of such resale to the end of 1999. C. The Company and the Purchaser further agreed that if the Contingent Payment became payable, the Company would pay the Purchaser a commission of 7% on the aggregate Adjusted Purchase Price and the Purchaser would pay the Company interest at the rate of 6% per annum on the Contingent Payment from the date of closing of the transaction under the Stock Purchase Agreement (the "Closing Date"), to the date of payment of the Contingent Payment. D. On August 8, 1999, the Closing Date, the Purchaser advised the Company that it had arranged for the sale of at least 50% of the Series B Shares at a price of $15.00. E. On December 28, 1999, the Company and the Purchaser agreed that the trading price in the Icelandic market had remained at or above the Adjusted Purchase Price from August 8, 1999 through December 28, 1999 and that the Purchaser would pay the Contingent Payment plus interest but net of commission, on or before February 25, 2000. NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. ADJUSTMENT TO PURCHASE PRICE; PAYMENT OF DEFICIENCY. The parties hereby confirm that the conditions for the Contingent Payment were satisfied. The Purchaser has paid the Company the sum of US$ 33,476,712 representing the Contingent Payment, with interest thereon less the Commission (as defined herein). 8 2. COMMISSION. The Purchaser has received a credit against the Contingent Payment in the amount of US$5,250,000 (the "Commission"), representing 7% of the total aggregate Adjusted Purchase Price for the Series B Shares. 3. MISCELLANEOUS. This Addendum shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents made and to be performed entirely within the State of Delaware. Except as otherwise expressly 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. This Addendum, together with the Stock Purchase Agreement, constitutes the full and entire understanding and agreement among the parties with regard to the subject matter hereof. This Addendum may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. Except as set forth herein, all terms of the Stock Purchase Agreement remain unchanged and in full force and effect. ******* 9 This Addendum to Stock Purchase Agreement is hereby executed to be effective as of the date first above written. deCODE genetics, Inc. Dated: 24.02.2000 By: /s/ Hannes Smarason Name: Hannes Smarason Title: Senior Vice President Biotek Invest, S.A. Dated: 24.02.2000 By: /s/ Yve Schmidt Name: Yve Schmit Title: Director EX-10.34 38 CO-OPERATION AGREEMENT 1 EXHIBIT 10.34 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.34 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason -------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 CO-OPERATION AGREEMENT BETWEEN AKUREYRI CENTRAL HOSPITAL AND ISLENSK ERFDAGREINING EHF. INTRODUCTION The Act on Patients' Rights stipulates that medical records shall be preserved in the health institutions where they are recorded. The Data Protection Commission, appointed by the Minister of Justice, and the Science Ethics Committee can, however, grant access to information from medical records, including biosamples, for purposes of scientific research as defined by law. Islensk erfdagreining ehf. searches, in co-operation with various scientists, for genes that contribute to the causes of diseases or symptoms of diseases. The objective of the Co-operation Agreement between the above parties is to ensure the swift and efficient execution of research projects and facilitate access to the information necessary for their completion. The Akureyri Central Hospital, State Reg. No. 580269-2229, (hereafter referred to as ACH) and Islensk erfdagreining ehf, State Reg. No. 691295-3549, domiciled at Lynghals 1, Reykjavik, (hereafter referred to as IE) hereby enter into an agreement on co-operation in the area of research. This Agreement will provide a framework for individual research contracts which Islensk Erfdagreining ehf. can enter into with individual employees or teams employed by ACH regarding further specified research projects. Such research projects shall always be conducted on the basis of written contracts, and measures shall be taken to ensure that such contracts conform in all respects to the provisions of this Co-operation Agreement. ACH and IE have therefore entered into the following Co-Operation Agreement CHAPTER 1 DEFINITIONS In this Co-operation Agreement, the following concepts shall have the meaning set out below: Surveillance Committee: A committee composed of representatives of ACH and IE, having the task of monitoring the implementation of this Co-operation Agreement. Executive Committee: A committee composed of representatives of research parties and IE, having the task of supervising the execution of individual research projects. Research Parties: I) Employees of ACH participating in the conduct of a research project in co-operation with IE and/or II) Other parties participating in the conduct of a research project jointly with the parties specified under I) above. Neither ACH nor IE are considered research parties in this sense. 3 Research Materials: Information on health, including biosamples and all other clinical information, which has a bearing on the specified research project. Each research contract shall contain a definition of all relevant research materials. Research Contract: A contract between the research parties, on the one hand, and IE, on the other hand, regarding a particular research project. Research Project: A research or a part of a research with the participation of IE, the objective of which is to find genetic factors causing a specific disease, disease symptoms or a response to treatment. CHAPTER 2 SCOPE The provisions of this Co-operation Agreement shall apply to all research projects for which a specific research contract has been made and relating to a specified research project in which employees of ACH participate and are granted access to research materials in the custody of ACH. A special research contract shall be made in writing between the research parties and IE for each separate research project. Such contracts shall refer to the Co-operation Agreement between ACH and IE. Such contracts shall also specify that no contracts shall take effect, as far as ACH is concerned, until such time as ACH has confirmed its acceptance by signature. IE undertakes vis-a-vis ACH not to commence work on a research project until such a contract has been signed. Under normal circumstances it is understood that ACH will have come to a decision regarding a contract within four weeks after all necessary documents have been submitted. The term of research contracts shall be specified and they shall expire without express termination at the end of the term. In individual research contracts, the contracting parties may negotiate a specific mutual period of notice of termination during the term of the contract. In the event that the research parties are unable to complete a research project within the specified time limit or wish to continue work on a research project, the term of the relevant research contract may be extended by one year at a time, provided ACH approves such extension. CHAPTER 3 OBTAINING PERMITS Under this Agreement, access to research materials preserved by ACH shall be subject to prior approval by the Science Ethics Committee, appointed by the Minister for Health and Insurance pursuant to State Regulation No. 449/1997 on scientific research in the health sector, following comments from ACH's Ethics Committee. Scientific research shall also be subject to the approval of the Data Protection Commission, appointed by the Minister of Justice. 4 CHAPTER 4 SUPERVISION, SURVEILLANCE, AND CONFIDENTIALITY 4.1 Supervision of Individual Research Projects: The supervision of individual research projects shall be jointly in the hands of the relevant research parties and IE, which will form an Executive Committee. Further provisions regarding supervision shall be included in the research contract. 4.2 Surveillance Committee: ACH and IE shall appoint a Surveillance Committee, composed of four members, to monitor the execution of this Co-operation Agreement. Two representatives of each of the parties to the Agreement shall be appointed to the Committee. Each party shall also appoint two alternate members to replace committee members in their absence. The Committee shall normally meet once every month, or as often as the Committee may decide. Should either of the parties to the Agreement think there is cause for a meeting, such party may instruct his representatives in the Surveillance Committee to convene such a meeting. Such a meeting shall be convened with five days' notice. 4.3 Obligation of IE et al. to Inform IE undertakes to submit to the Surveillance Committee all contracts made between IE and employees or teams employed by ACH at the time that such a contract is made or subsequently employed by ACH. The Surveillance Committee shall have full access to all research materials of any given research project on which a research contract has been made. The Surveillance Committee shall have unlimited access to the accounts of IE relating to research projects covered by a research contract. The accounts of each research project shall be kept separate from other accounts of IE. IE further undertakes to submit to the Surveillance Committee complete information regarding payments under a research contract, such as regards the sale of a research project, its results or findings to a third party. The access that ACH has to the accounts of IE under this Article shall have the purpose of enabling ACH to preserve its financial interests in its dealings with IE. IE undertakes to submit to ACH all contracts concluded before this Co-operation Agreement took effect, between IE and individuals or teams employed by ACH at the time of, or prior to, the conclusion of such contract. Such contracts shall be subject to the provisions of this Co-operation Agreement. Where it is stated in this Agreement that the Surveillance Committee may require information, access to accounts or research data etc., it shall be assumed that each representative of ACH in the Surveillance Committees shall have such rights regardless of the view of other committee members. 4.4 Confidentiality The representatives of ACH on the Surveillance Committee shall be bound by complete confidentiality regarding all matters of which they may acquire knowledge in the course of their work. This applies equally to the contents of contracts, research plans, results from research, business plans and all other information that should fairly and reasonably remain confidential in the interest of IE. Under no circumstances may 5 the substance of such information be divulged to a third party without the express permission of IE. The confidentiality obligations of an ACH representative shall remain effective even if he resigns his employment or this Agreement is terminated. Directors and employees of ACH who, in the course of their work, must deal with information of a sensitive nature provided to them by ACH representatives on the Surveillance Committee, are under the same obligation. Confidentiality obligations as defined under this Article apply equally to IE representatives on the Surveillance Committee with respect to ACH. CHAPTER 5 THE PAYMENT OF EXPENSES All expenses incurred by each research project shall be paid by IE. IE shall pay the additional expenses incurred by ACH in connection with the conduct of a research project after a research contract has taken effect, i.e. material and wage costs. This does not apply to administrative expenses of ACH. ACH shall submit to IE a monthly invoice, which IE undertakes to pay within 10 days of issue. Payments under this Article shall be considered as expense outlay under Section 7.3 of this Agreement, and be added to fixed payments, variable payments and other payments under the same Section 7.3. CHAPTER 6 TREATMENT OF RESEARCH MATERIALS Research parties shall have access to necessary research materials in the custody of ACH for use in a specified research project for which a research contract has been made, the materials having been defined therein, subject to compliance with the provisions of law, regulations, government stipulations and the provisions of this Co-operation Agreement. Exempt from access under Paragraph 1 of this Article are biosamples that ACH has collected for other use than described in this Agreement or individual research contracts. IE shall only be granted access to such biosamples if permitted by the Board of Directors/Director of the biosample bank in question and the Director/Medical Director of ACH, and then only to the extent permitted by them at each time. The custody of research materials shall conform to the provisions of law at each time, currently the provisions of Articles 14 and 15 of Act No. 74/1997 on Patients' Rights. Furthermore, the provisions of Act No. 121/1989 on the Recording and Handling of Personal Data shall be observed. IE may not remove from Iceland any research materials defined in a research contract and provided by ACH for a specified research project. On the completion of a research project, IE shall within four weeks return all research materials to ACH that were obtained from that institution. ACH is entitled to copies of any research materials to which ACH has granted access in respect of the research project in question. The provisions of this Paragraph shall remain in effect regardless of the cause of termination of the research project, whether this is caused by the 6 expiration of the term of the research contract, cancellation or termination thereof or other reasons. CHAPTER 7 RIGHTS OF PARTIES 7.1 Financial Rights to Research Results Unless otherwise agreed, IE shall become the owner of all financial and commercial rights over research projects under this Agreement and their results with due regard, however, to Paragraph 2 of Section 7.3 hereof. IE has the right to sell results or findings from research projects to a third party, and to utilise them in any other way consistent with accepted ethical criteria both before and after the research projects are completed. 7.2 Making of Research Contracts Employees of ACH intending to enter into co-operation with IE should first consult with the Medical Director of the hospital. 7.3 Payments to ACH IE shall pay a fixed proportion and/or a fixed payment out of all funds obtained on the basis of projects in which the employees of ACH participate according to research contracts made under this Agreement. The total amount of payments for research projects shall be negotiated for each research contract. Each research contract shall provide for fixed annual payments, reimbursement for expense outlay of ACH from the performance of the research as stated in Chapter 5 hereof, and a variable payment determined by the outcome of the research project, results or findings thereof being sold to a third party. The amount of the variable payment negotiated in each research contract shall never be lower than 5% of all performance-related payments rendered by the third party to IE. Individual research contracts may depart from the above provision on variable payment based on the outcome of the sale of a research project or results or findings thereof to a third party, provided that a provision is inserted into the research contract in its place to ensure payment of amounts which are at least equal to the specified minimum. All payments under research contracts shall accrue to a special fund in the custody of ACH. The total amount of fixed payments, variable payments and other payments as described in Paragraph 2 of this Section 7.3 shall be used to support scientific activity within ACH. Payments under Paragraph 2 shall be divided as follows: 25% shall be allocated to general scientific activity as determined by ACH, and 75% shall be allocated to scientific activity as decided by the employees who contributed to the work for which the payments were received. The above manner of dividing payments shall apply unless otherwise agreed between the employees in question and ACH. In the event that individuals or teams employed by ACH enter into a research contract with IE and a third party not connected with ACH, the manner of division of payments to each party shall be stipulated in the research contract. The research contract shall specifically define the grounds on which the division of payments is decided, and state the arguments behind that division. Employees of ACH shall not be 7 considered as third parties not connected with ACH, in the sense defined in this Co-operation Agreement. 7.4 Treatment Methods based on Research Results IE undertakes to endeavour in its negotiations with third parties on the purchase of results or findings of all research projects under this Agreement to ensure that ACH, for the benefit of its patients, is granted free access to any methods or pharmaceuticals that the third party may develop on the basis of results from research projects under this Agreement to prevent, diagnose and treat disease. CHAPTER 8 TERM OF THIS AGREEMENT AND TERMINATION This Agreement shall remain in effect for as long as it is not formally terminated. Either party to the Agreement may terminate the Agreement with one year's notice. However, termination of the Agreement does not include research contracts that have already been made regarding specific research projects and approved by ACH. Such research contracts may be completed even if this Agreement has been terminated, provided that the term of such contracts does not exceed 5 years. Individual research contracts, however, may be terminated during their term of effect, provided that the contracts in question contain provisions for such termination. In the event that either party to a research contract is of the opinion that the other party has violated the provisions of the research contract, that party shall without delay submit his comments. If the other party has not remedied the fault within four weeks from receiving the comments, the complaining party may terminate the research contract with three months' notice. This shall apply whether the research contract contains provisions for termination or not and irrespective of the length of any notice of termination that may have been agreed therein, cf. the provisions of Paragraph 3 of Chapter 2. Payments which IE has already made or have become due prior to termination pursuant to Paragraphs 1 and 2 shall be non-refundable from ACH. CHAPTER 9 DEFAULT AND DEFAULT PROVISIONS If either party to this Co-operation Agreement is guilty of substantial default, the other party may cancel the Agreement. Substantial default can, for instance, refer to non-payment of the agreed payments, improper or unauthorised use of research materials and unreasonable restrictions of the access of research parties to research materials of ACH pursuant to this Agreement. Should the Agreement be cancelled by ACH on the basis of this provision, all research contracts are thereby cancelled, including those that have been approved by ACH. Payments which IE has already made or have become due prior to cancellation of the Agreement shall be non-refundable from ACH. The provisions of Chapter 8 of this Agreement do not apply to cancellation of this kind. In the event of any dispute regarding a party's right to cancel the Agreement, the settlement procedure for such disputes shall be in accordance with the provisions of Chapter 12. Should IE cease research during the term of a research contract, or events or circumstances cause research under such contract to halt or cease, the research 8 contract shall be regarded as terminated. Such an event or circumstance may, for example, consist of the discovery that normal progress and continuous research under a given research contract is halted for a minimum of 6 months. All provisions of the research contract, including the provisions regarding limitations imposed on co-operation between the relevant employees of ACH and third parties, will then become null and void. CHAPTER 10 LIABILITY FOR DAMAGES As it is not a commercial enterprise, ACH exempts itself from any kind of liability for damages that may arise as a result of this Agreement, research contracts made on the basis of this Agreement or any other event that may arise as a result of co-operation between the parties to this Agreement. This exemption covers all events and circumstances that may lead to ACH becoming liable for damages. The reasons for such liability, e.g. errors, defects, information leak, improper use of research materials, injuries, actions or behaviour of employees etc., are irrelevant in this context. CHAPTER 11 OTHER ITEMS 11.1 This Agreement is non-transferable This Agreement, or any right thereunder, is non-transferable except by consent of both parties thereto. 11.2 Scientific and Commercial Responsibility ACH is in no way responsible for the achievement of any scientific or commercial objectives of individual research projects. 11.3 Court Decisions - Amendments of Legislation If any amendments to legislation are made or court decisions are passed that in any way disrupt the premises or basis on which contracts are made, the parties thereto shall review the existing contracts for the purpose of bringing them into conformity as necessary. 11.4 On the Publication of Research Results Research results shall be published as soon as they comply with academic requirements and are fit for publication. However, IE may postpone publication for a maximum of 90 days in order to ensure that there will be enough time to secure the property rights relating to any inventions that may be produced by research. In the event that a third party requests that IE does not publish results when ready as described above, publication may be postponed for a maximum of 90 days. 11.5 Treatment of Samples etc. This Agreement in no way limits ACH's right to send samples or other materials, within Iceland or abroad, for research etc, or to take normal action to diagnose diseases and provide patients with service as necessary at each time. This shall apply even if a research contract has been made between IE and certain employees of ACH regarding the same diseases or comparable disease symptoms, and such contract has been approved by ACH. 9 11.6 Limitations on Co-operation under Research Contracts Provisions in individual research contracts entered into by individuals or teams employed by ACH that stipulate limitations regarding co-operation with third parties in searching for the genetic factors of diseases under the relevant research contracts entail no obligations of any kind for ACH. Provisions in individual research contracts, entered into by individuals or teams employed by ACH, that stipulate limitations regarding co-operation with third parties in circumstances when a contract on the sale of a research project has been concluded confer no obligations of any kind upon ACH. The fact that individual research contracts are signed by ACH does not in any way alter the substance of Paragraphs 1 and 2. CHAPTER 12 SETTLEMENT OF DISPUTES 12.1 Settlement of Disputes In the event of a dispute between the parties to this Agreement regarding performance or compliance of the Agreement that cannot be resolved by the Surveillance Committee, two persons, one from each party, shall endeavour to reach a settlement. If a settlement is not reached between those two persons within two weeks of the submission of the dispute, each party to the Agreement shall appoint one arbitrator and then jointly request the appointment of an impartial third arbitrator by the District Court of Reykjavik to assist in the resolution of the dispute, thus forming a tribunal of three arbitrators. The arbitration tribunal shall reach a decision in the matter within three months from the full appointment of the tribunal. The tribunal shall determine the cost of the work of the tribunal at each time. The work, procedure and rulings of the arbitration tribunal shall otherwise be governed, as appropriate at any time, by Act No. 53/1989 on Contractual Arbitration. Notwithstanding the above provisions on arbitration, cases involving the collection of payments under this Agreement which are not in dispute between the parties may be submitted to the public courts. The same applies to cases of financial claims made by one party against the other, based on rulings of the arbitration tribunal regarding default or breach by the latter of this Agreement. Such cases shall be submitted to the District Court of Reykjavik. Interim Provisions IE undertakes, immediately upon the signing of this Agreement, to initiate a revision of all research contracts made on individual research projects under this Agreement for the purpose of bringing their provisions on terms of payment into conformance with the provisions of Section 7.3 of this Agreement, and in other ways adapting them to the provisions of this Agreement. This revision process shall be completed within approximately three months from the signing of this Agreement. All research contracts shall then be submitted to ACH for approval pursuant to the provisions of Chapter 2 hereof. 10 REYKJAVIK, 26 OCTOBER 1999 For Akureyri Central Hospital For Islensk erfdagreining ehf. Halldor Jonsson [sign.], Director Kari Stefansson [sign.], President Thorvaldur Ingvarsson [sign.], Kristjan Erlendsson [sign.], Medical Director VP for Clinical and Academic Collaborations 11 DECLARATION The Akureyri Central Hospital and Islensk erfdagreining ehf. hereby confirm the following understanding of the provision of Clause 3 of Paragraph 2 of Section 7.3. in the Contract between the parties: The provision of the above Clause on variable payment to the Akureyri Central Hospital in relation to the sale of a research project, results or findings thereof to a third party shall be based on performance-related payments from a project purchaser to Islensk erfdagreining ehf. Performance-related payments shall be paid when milestones, as further specified in the contract between Islensk erfdagreining and the project purchaser, are achieved. Reykjavik, 26 October 1999 HALLDOR JONSSON [SIGN.] KARI STEFANSSON [SIGN.] For Akureyri Central Hospital For Islensk erfdagreining ehf. EX-10.35 39 NON-RECOURSE PROMISSORY NOTE 1 EXHIBIT 10.35 NONRECOURSE PROMISSORY NOTE $1,462,240 Reykjavik, Iceland 15 September 1999 FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to pay to the order of deCODE genetics, Inc., a Delaware corporation (the "Company"), at the Company's principal office or at such other place as the holder hereof may designate in writing, on 1 November 2003, in lawful money of the United States of America and in immediately available funds, the total price of $1,462,240 Dollars, together with interest, compounded annually, from the date hereof on the unpaid principal at the rate of 6% per annum. This Note may not be prepaid. The full amount of this Note is secured by a pledge of shares of Common Stock of the Company, and is subject to all of the terms and provisions of the Early Exercise Stock Purchase Agreement and the Pledge Agreement, each of even date herewith between the undersigned and the Company. The Company's recovery against the undersigned for failure to pay any amount owing hereunder when due shall be limited solely to the shares of Common Stock or other collateral of the undersigned pledged to the Company in the Pledge Agreement. The undersigned shall not be liable or have any personal liability in any other respect for the payment of any amount due under this Note. The undersigned hereby represents and agrees that the amounts due under this Note are not consumer debt, and are not incurred primarily for personal, family or household purposes, but are for business and commercial purposes only. The undersigned hereby waives presentment, protest and notice of protest, demand for payment, notice of dishonor and all other notices or demands in connection with the delivery, acceptance, performance, default or endorsement of this Note. -1- 2 This Note shall be governed by, and construed, enforced and interpreted in accordance with, the laws of the State of Delaware, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. /s/ Hannes Smarason ---------------------------------------------- (signature) Hannes T. Smarason ---------------------------------------------- (print name) -2- EX-10.36 40 RESEARCH CONTRACT 1 EXHIBIT 10.36 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.36 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason -------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 [NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.] RESEARCH CONTRACT ON THE CO-OPERATION OF A RESEARCH TEAM FOR CEREBRAL HAEMORRHAGE AND ISLENSK ERFDAGREINING EHF A research team for cerebral haemorrhage, on the one hand, hereinafter referred to as the Research Team, and, on the other hand, Islensk erfdagreining ehf., hereinafter referred to as IE, enter into the following Contract on co-operation on the research of the inheritability of cerebral haemorrhage. This Contract is made on the basis of the Co-operation Agreement between the Reykjavik Municipal Hospital and IE from 4 November 1998 and the Co-operation Agreement between the State Hospitals and IE from 15 December 1998, the two of which shall prevail over this Contract in case of any discrepancy between their individual provisions. CHAPTER 1 THE SUBSTANCE OF THE CO-OPERATION The Research Team and IE agree to co-operate, on the basis of this Contract, in the search and isolation of genes involved in the genesis of cerebral haemorrhage. The co-operation between the parties will hereinafter be referred to as the Research Project. CHAPTER 2 CONTRIBUTIONS OF THE PARTIES TO THE RESEARCH PROJECT 2.1 RESEARCH MATERIALS AND THEIR PROCUREMENT The Research Team shall provide biosamples (blood samples), other clinical data and research materials which the Research Team may already possess or have access to, in relation to patients suffering from cerebral haemorrhage and their relatives. These materials derive from the National Association for the Prevention of Heart Diseases, Hjartavernd, (hereinafter referred to as NAPHDH), the State Hospitals (hereinafter referred to as SH) and the Reykjavik Municipal Hospital (hereinafter referred to as RMH). The Research Team and IE agree that expertise and other contributions from the above institutions are equally important in terms of quality and significance for the Research Project. The Research Team shall supervise relations with individuals intended to participate in the research and/or their legal guardians, including calling in participants for blood testing, diagnoses, examination of participants and the procurement of the informed consent of participants. IE, on the one hand, and the Research Team and individuals within the Team, on the other hand, undertake to do whatever is in their power so that the procurement of research materials pursuant to this paragraph shall proceed with expedience and safety. In this respect, account shall be taken of the Research Plan, which includes milestone dates and is attached to this Contract as Annex A ("Research Plan and Cost Estimation for the Research of IE and the Research Team on Cerebral Haemorrhage"). Annex A shall specify which research materials are 3 intended for use in the research and from which health-care institutions these materials derive. All research materials delivered to the IE research laboratory shall first be encrypted at the Genetic Research Service Centre, a private institution domiciled at Noatun 17, Reykjavik, before being transported to IE, in accordance with the instructions of the Data Protection Commission. 2.2. EXPERTISE, EQUIPMENT AND RESEARCH FACILITIES The Research Team shall provide expertise and knowledge in relation to the diagnosis of diseases as well as the design and organisation of the Research Project. IE and the Research Team shall provide expertise for the design and organisation of the research. IE shall also be responsible for the research and testing of blood samples and genetic material, the assessment of the inheritance of the disease and the interpretation of the findings of the research. IE shall provide equipment, research resources, laboratory reagents and personnel for these purposes. 2.3. PAYMENT OF RESEARCH EXPENSES IE shall cover all expenses of the Research Project necessary to achieve the objectives of the Project, including materials and wage costs in relation to calling in participants for research, necessary sampling and the procurement of clinical materials. The Research Team and IE shall jointly submit a comprehensive budget on signature of this Contract, in which the projected materials and wage costs of the Project are estimated, see Annex A. Annex A shall also further delineate the itemisation of individual cost items and the manner in which the procurement of consent and the payment of bills shall be conducted. In the event of direct cash outlay on the part of SH/RMH in relation to the conduct of this Research Project, IE and SH/RMH shall make a special agreement on the payment of such cost, cf. the Institutions Agreement. SH and RMH may request information from IE on wages paid by IE to individual employees of these institutions working on the Research Project. 2.4. ASSISTANCE WITH THE PROCUREMENT OF A PATENT The Research Team and individuals within the Team undertake to provide IE with the assistance necessary to enable IE to ensure international patent protection of the findings of the Research Project, by signing applications for patents together with IE when necessary, provided that IE pays all expenses in relation to patent protection. CHAPTER 3 RIGHTS OF THE PARTIES 3.1. THE RIGHTS OF HEALTH-CARE INSTITUTIONS The parties to this Contract are aware that a framework agreement on co-operation between NAPHDH and IE on research on the inheritability of certain diseased is currently in effect. The provisions of the framework agreement between NAPHDH and IE are valid for the part of the Research Project involving NAPHDH. The parties to this Contract are also aware that identical co-operation agreements between, IE, on the one hand, and SH and RMH, on the other hand, (hereinafter referred to as the Institutions Agreement(s)) are currently in effect. The Institutions Agreements are attached to this Research Contract as Annex B (SH) and C (RMH). The provisions of 2 4 the Institutions Agreements shall be valid for this Research Agreement, where applicable, as regards the part of the research involving SH/RMH and their staff. 3.2. FINANCIAL AND COMMERCIAL RIGHTS ATTACHED TO THE FINDINGS OF THE RESEARCH PROJECT IE shall be sole owner of all financial and commercial rights attached to the Research Project and its results. IE shall have the right to sell the results and findings of the Research Project to a third party and utilise it financially in any other way consistent with approved ethical standards, irrespective of whether this takes place before or after the completion of the Research Project. deCODE shall never be considered the purchaser of the Project in the understanding of this Contract. IE and its parent company, deCODE genetics Inc. (herinafter referred to as deCODE) have made a contract with the Swiss pharmaceutical company Hoffman La-Roche (hereinafter referred to as the Purchaser) on the sale of the Research Project, its results and findings. 3.3. FIXED PAYMENTS FROM IE TO THE RESEARCH TEAM IN RELATION TO THE SALE OF THE RESEARCH PROJECT IE shall pay the Research Team [CONFIDENTIAL TREATMENT REQUESTED] on the effective date of this Contract. Also, IE shall pay [CONFIDENTIAL TREATMENT REQUESTED] on 1 July 1999, the same amount on 15 March 2000 and annually thereafter until a total of [CONFIDENTIAL TREATMENT REQUESTED] have been paid including the initial payment. Thus, payments from IE to the Research Team under this chapter shall take place on the following payment dates: [CONFIDENTIAL TREATMENT REQUESTED] In the event that the Research Project ends before 15 March 2002, upon achieving its objective, IE shall pay the remaining amount so that a total of [CONFIDENTIAL TREATMENT REQUESTED] shall have been paid pursuant to this chapter. Payments pursuant to this chapter are additional and independent to conditional, performance-related payments under Chapter 3.4. 3.4. PERFORMANCE-RELATED PAYMENTS FROM IE IN RELATION TO THE SALE OF THE RESEARCH PROJECT IE/deCODE have made an agreement with the Purchaser of the Project to the effect that the Purchaser shall pay special conditional payments to IE/deCODE which shall be totally dependent on the scientific and practical results achieved in the performance of the Research Project. The performance-related milestones which activate the Purchaser's obligation to pay have been further specified in the contract between IE/deCODE and the Purchaser. In the event that the above milestones are not achieved, no payments pursuant to this chapter shall be made. 3 5 IE will pay the Research Team [CONFIDENTIAL TREATMENT REQUESTED] of the performance-related payments from the Purchaser to IE/deCODE pursuant to Paragraph 1 if success is achieved. Other payments from the Purchaser to IE/deCODE in relation to the repayment of the cash outlay of IE for the Research Project, as defined in the contract between IE and the Purchaser, and the Purchaser's investment in IE or deCODE shall be paid in full to IE/deCODE. IE shall report to the Research Team as soon as the Purchaser has confirmed that a milestone which activates the Purchaser's obligation to pay has been achieved. IE promises to pay the share of the Research Team in the performance-related payment as soon as such payment has been delivered to IE/deCODE. The Research Team may appoint a special auditor who has access to the accounts of IE/deCODE regarding milestone payments concurrently with the quarterly statement of the companies, in order to seek confirmation whether and when a milestone payment was obtained for the Research Project as well as of the amount of that payment. 3.5. PROVISO ON CO-OPERATION WITH RESEARCH PARTIES UNRELATED TO THE RESEARCH TEAM The Research Team's right of receiving payments pursuant to Chapters 3.3 and 3.4 is based on the assumption that IE will not pay other parties than the Research Team and its related institutions which employ individual parties within the Research Team for contribution to the Research Project and expertise to which it is necessary to gain access for the achievement of the objectives of the Research Project in the view of the Executive Committee of the Project. If the Executive Committee is of the opinion that it is necessary to enter into co-operation with other parties pursuant to the above, the provisions of Chapters 3.3. and 3.4. shall be reviewed on the basis that the total payments from IE to the Research Team and/or institutions related to them, on the one hand, and a third party, on the other hand, shall remain unchanged from the payments described in Chapters 3.3 and 3.4. 3.6. THE ARRANGEMENT OF PAYMENTS FROM IE AND THE INTERNAL DIVISION OF PAYMENTS BETWEEN PARTIES WITHIN THE RESEARCH TEAM All payments from IE to the Research Team pursuant to Chapter 3.3. and 3.4. of this Contract shall be divided and paid as follows, cf. the provisions of Chapter 7.3. of the Institutions Agreement and the provisions of the Institutions Agreement in other respects, cf. also the framework agreement between IE and NAPHDH. The following division of payments is based on an agreement between the parties to this Contract and their evaluation of the importance of each party's contribution to the Research Project. According to the above, the division of payments shall be proportioned as follows: [CONFIDENTIAL TREATMENT REQUESTED] The above division of payments shall not be binding for IE until such time as all health-care institutions which contribute materials for the research have confirmed this Contract in signature, cf. Paragraph 2 of Chapter 2 of the Institutions Agreement as regards SH and RMH. The institutions in question shall invoice IE for payments 4 6 pursuant to Chapter 3.3. which shall be paid in accordance with the provisions of the Institutions Agreements which have been made between IE/deCODE, on the one hand, and SH/RMH, on the other hand. The same rules shall apply in relation to payments to NAPHDH. The following paragraph only applies to the allocation of funds raised by parties within the Research Team who are employed by SH/RMH when this Contract is made. All funds raised by SH/RMH staff within the Research Team pursuant to the provisions of Chapters 3.3. and 3.4. of this Contract the application of which is governed by such staff pursuant to the Institutions Agreement and further agreement with the institution in question shall be utilised for the research of cerebral haemorrhage and other nervous diseases. Further arrangement of the custody and application of the above funds within the scope of the Institutions Agreement shall be pursuant to a further agreement between the institution and staff in question and is of no consequence to IE. All funds raised by SH/RMH staff pursuant to the above shall be preserved in a research fund. The accounting and financial matters of the fund shall be supervised by SH/RMH each of which shall have one member on the board of directors of the fund. CHAPTER 4 MANAGEMENT AND LIABILITY Decisions relating to the performance of the Research Project shall be made jointly by the Research Team and IE. A special Executive Committee shall be established, which shall be composed of an equal number of members from each party to this Contract, to draw up rules on the arrangement, surveillance and performance of the Research Project. The Chief Supervisor of the Research Project shall be elected from among the members of the Executive Committee. It shall also be the responsibility of this Committee to define the objectives of the Research Project and set forth the professional requirements which the parties to this Contract agree to be satisfactory for the performance of the Research Project. Decisions on incurring expenses in relation to the Research Project shall be submitted in advance and confirmed by the Executive Committee. When applicable, the Executive Committee may enter into agreements with health-care institutions on the use of the their manpower and facilities for performing individual tasks in relation to the clinical part of the Research Project. In November each year the Executive Committee shall prepare a budget for the clinical part of the Research Project in the following calendar year. The Executive Committee shall supervise the processing of data and the publication of conclusions in accordance with the rules of Chapter 5. The Research Team and individuals within the Team shall not be financially responsible to IE or parties with which IE has entered into an agreement as regards the achievement of the scientific, commercial or financial objectives of the research. 5 7 In the event that a third party causes a cancellation of the research or the Contract is terminated for reasons for which the Research Team is not responsible, the Research Team and individual parties within the Team shall not be financially responsible to IE for such cancellation of the project. The same applies if the research or research plan needs to be altered owing to legal amendments, regulations or the decisions of public authorities. IE shall pay the cost of procuring liability insurance for individuals within the Research Team who are employed by SH/RMH when this Contract takes effect as well as the Research Team staff. This applies to all work undertaken by these parties in the interest of the Research Project. CHAPTER 5 HANDLING, PROCESSING AND COMMUNICATION OF INFORMATION The parties to this Contract undertake to maintain all personal information in confidence. The parties to this Contract undertake to comply with the instructions of the Data Protection Commission and, as applicable, the special representative (inspector) of the Data Protection Commission on the handling and processing of such data, as well as with the instructions and conditions of the Science Ethics Committee, which operates pursuant to the Act on Patients' Rights. When individual participants are elected for participation in two or more research projects undertaken by IE, original research materials (i.e. biosamples) may be used for the benefit of all projects, on the condition that the permits of the Data Protection Commission and the Science Ethics Committee have been obtained for such shared use. The approval of the Executive Committee is a prerequisite, in addition to the permits of the Data Protection Commission and the Science Ethics Committee, if the original research materials are to be used in their entirety or to a considerable extent in other research projects of IE, e.g. if the material of two or more research projects is merged into a new research. The results of the Research Project shall be immediately published as soon as they fulfil scientific requirements and are fit for publication. However, IE or the Purchaser of the Project may have the publication of the results postponed for 90 days, if necessary to ensure patents and other rights of ownership related to the findings of the Project. However, an effort shall be made at all times to preserve the value of the findings by way of other measures than a postponement of publication for 90 days. The Executive Committee of the Research Project shall decide in advance who shall be Chief Supervisor of the Project. As a rule, the first cited author of scientific articles shall be Chief Supervisor. The order of authors shall be in accordance with current rules in the international scientific community. The parties to this Contract promise mutual confidentiality as regards information in relation to the substance of this Contract, business plans, the progress of the Project and its conclusions. Information of this kind may not be communicated to an outside party without the consent of both parties. 6 8 CHAPTER 6 LIMITATION ON CO-OPERATION WITH OTHER PARTIES The Research Team and individuals within the Team promise to work neither jointly nor separately with other parties on research into the inheritability of cerebral haemorrhage during the Research Project. In the event that the Research Project leads to a discovery which has financial significance for IE, the Research Team and individual parties within the Team promise not to enter into co-operation with other parties on the part of the Research Project which led to the discovery for four years and six months immediately following the conclusion of the Project pursuant to this Contract. On the other hand, if the Research Project does not lead to a discovery, the Team and individual parties within it have the right to enter into co-operation with other parties on research into the inheritability of cerebral haemorrhage after the Research Project has ended. IE promises not to begin collaboration with other parties in the research of the inheritability of cerebral haemorrhage during the Research Project, unless the Executive Committee considers such collaboration necessary to achieve the objective of the Research Project. In the event that the addition of new co-operating parties to the Research Project is considered necessary, the Executive Committee shall be in charge of the selection of such a party. In the event of a dispute within the Executive Committee, the Research Team shall have the final decision on the selection of additional co-operating parties. The provisions of this Paragraph shall not, however, prevent IE from collaborating in the field of the Research Project with parties that have negotiated the purchase of the Research Project, its conclusions or findings, provided that such actions do not reduce the right to payments pursuant to Chapter 3. CHAPTER 7 TERM OF THE CONTRACT AND PROJECT COMPLETION The effective date of this Contract shall be the date (referred to herein as the effective date) on which this Contract has been both signed by the parties to the Contract and confirmed by SH and RMH in accordance with Paragraph 2 of Chapter 2 of the Institutions Agreement, in addition to NAPHDH. The Research Project shall have a duration of five years and six months immediately following 15 March 1998, unless completed before such time. Pursuant to the above, the termination of the project shall be 15 September 2003. If either party has materially defaulted on the Contract, the other party may terminate the Contract. In the event of a dispute on the right of the parties to terminate the Contract, the settlement procedures regarding such dispute shall be pursuant to Chapter 8. The return of original materials from SH/RMH/NAPHDH on completion of the Research Project shall be pursuant to Paragraph 5 of Chapter 6 of the Institutions Agreement or comparable provisions of the framework agreement between IE and NAPHDH. In the event that either or both parties see reason to continue the co-operation after the completion of the Research Project, an agreement shall be made to this effect. 7 9 Notwithstanding the cessation of the research pursuant to this Contract, whether as a result of the completion, cancellation or termination of the Project, the obligation of IE/deCODE to effect payments pursuant to Chapter 3.4. shall remain intact until the right of IE /deCODE to payments from the Purchaser is cancelled each time, e.g. when a patent expires. CHAPTER 8 SETTLEMENT OF DISPUTES In the event of a dispute between the parties to this Contract regarding performance or compliance that cannot be resolved by the Executive Committee, two persons, one from each party, shall endeavour to reach an agreement on its settlement. If a settlement is not reached between those two persons within two weeks of the submission of the dispute, each party to the Contract shall appoint one arbitrator and then jointly request the appointment of an impartial third arbitrator by the District Court of Reykjavik to assist in the resolution of the dispute, thus forming a tribunal of three arbitrators. The arbitration tribunal shall reach a decision in the matter within one months from the appointment of the third arbitrator. The cost of the work of the tribunal shall be determined by the tribunal at each time. The work, procedure and rulings of the arbitration tribunal shall otherwise be governed, as appropriate at any time, by Act No. 53/1989 on Contractual Arbitration. Notwithstanding the above provisions on arbitration, cases involving the collection of payments under this Contract which are not in dispute between the parties may be submitted to the public courts. The same applies to cases of financial claims made by one party against the other, based on rulings of the arbitration tribunal regarding non-performance or breach by the latter of this Contract. Such cases shall be submitted to the District Court of Reykjavik. TEMPORARY PROVISION This Contract shall not take effect until it has been confirmed in signature by SH and RMH, in accordance with the provisions of Paragraph 2 of Chapter 2 of the Institutions Agreement, in addition to NAPHDH. 8 10 This Contract, which comprises 8 chapters on 9 pages, in addition to appendices A-D, is made in two identical copies, one copy to be held by each of the parties to the Contract. Reykjavik, 3 November 1999. On behalf of the Research On behalf of Islensk Erfdagreining ehf. Team for Cerebral Haemorrhage
Einar Mar Valdimarsson [sign.] Kari Stefansson [sign.] Physician, RMH CEO, IE Finnbogi Jakobsson [sign.] Kristjan Erlendsson [sign.] Physician, RMH VP for Clinical and Academic Collaborations Gisli Einarsson [sign.] Physician, SH Gudmundur Porgeirsson [sign.] Physician NAPHDH Sigurlaug Sveinbjornsdottir [sign.] Approved on behalf of the National Physician, SH Association for the Prevention of Heart Diseases, Hjartavernd Uggi Agnarsson [sign.] Reykjavik, 4/11/99 Physician, NAPHDH Gunnar Sigurdsson [sign.] Vilmundur Gudnason [sign.] Physician, NAPHDH Approved on behalf of SH - --------------------------------- Reykjavik, Certified that the above is a Magnus Petursson [sign.] faithful English translation of a signed Icelandic document - --------------------------------- Approved on behalf of RMH Reykjavik, Magnus Petursson [sign.]
9 EX-10.37 41 LEASE 1 EXHIBIT 10.37 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.37 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason --------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 LEASE 1. MAIN ITEMS OF THE LEASE 1.01. Lessor: the Computer Centre of the Icelandic Savings Banks, State Reg. No. 700389-1119, domiciled at Hlidarsmari 19, Kopavogur. 1.02. Lessee: Islensk erfdagreining ehf., State Reg. No. 691295-3549, domiciled at Lynghals 1, Reykjavik. 1.03. Leased property: office space at Hlidarsmari 19, Kopavogur. The leased property is 138.5 square metres on a mezzanine floor over the third storey, marked as 03-03. The leased property is 148.3 square metres, but a 10-square metre ventilation room is excluded. 1.04. Activities: development work. 1.05. Period of lease: 18 months. 1.06. First date of Lease: 1 December 1999. 1.07. Final date of Lease: 1 June 2001. 1.08. Type of Lease: temporary. 1.09. Terms of Lease: Monthly payments of ISK 800 per square metre. 1.10. Share in common cost: 4.95% of the total cost of the building. The cost of electricity is collected according to estimated use (a certified electrical contractor of the building is preparing a plan for this purpose). 1.11. Place of lease and other payments: to the account of the Computer Centre of the Icelandic Savings Banks No. 1100-26-2600 at Icebank Ltd. 1.12. Surety for lease payments and the payment of shared costs: a surety bond in the amount of ISK 330,000. 2. TYPE OF LEASE 2.1 By this Lease, which constitutes a temporary lease pursuant to the Leasehold Act No. 36/1994, the Lessee leases the leased property under the conditions and terms further specified herein. The period of lease shall begin on 24 November 1999 and end without specific termination or notice on 24 May 2001. Following this period, the parties may extend the Lease by three months at a time. 3 3. LEASE AMOUNT AND PAYMENT The rent for the leased property is ISK 110,800 per month. The rent shall be adjusted in accordance with changes in the consumer price index, on the basis of the base index of November 1999, i.e. 193.3 points. Payments on the lease shall be effected on the first date of each month, and are payable one month in advance at each time. In the event that the Lessee does not effect payment on the rent within seven days from the due date, he shall pay the maximum punitive interest permitted by law for the amount outstanding until the date on which payment is made. 4. SURETY TO THE LESSOR For the surety of payments of the lease, cost or possible damage caused to the premises by the Lessee or persons representing the Lessee, the Lessee shall submit a bill of exchange as a surety bond in the amount of ISK 330,000. The bill of exchange shall be issued and accepted by Islensk erfdagreining ehf. 5. OPERATING COSTS 5.1 The Lessee shall pay the cost of the leased property as regards the use of hot and cold water as well as electricity. The Lessee shall pay the cost of cleaning the leased property and a share in the cost of cleaning the common area, cf. Article 1.10. Also, the Lessee shall pay costs in relation to the clearing of snow, in proportion with the share of the leased property in the area surrounding the premises. 5.2 The Lessee shall pay all real property charges on the leased property, including sewage charges and special tax on business premises, outdoor space rent, fire insurance and home-owner's insurance. 5.3 Operating costs which the Lessor pays for the Lessee shall be paid by the Lessee on his receipt of an invoice from the Lessor. In the event that the Lessee pays operating cost which should be paid by the Lessor, the Lessee may deduct such cost from the next lease payment. 6. ALTERATIONS OF THE LEASED PROPERTY 6.1 The Lessee may not make changes to the premises, except with the written approval of the Lessor. The Lessor shall oppose alterations by the Lessee only with good reason. Such reasons include effect of the alterations on the appearance, carrying capacity, common area or use of the building. Minor repairs of the leased property, such as in relation to detachable fixtures, partition walls, wall ornaments etc. do not require the approval of the Lessor. All of the above alterations by the Lessee shall be at his own expense, including costs which may fall on the Lessor, other owners or lessees as a result of such alterations or their approval. 2 4 6.2 All fixtures resulting from alterations shall become the property of the Lessor at the end of the lease period, unless the Lessor requests that the Lessee restore the leased property, in its entirety or in part, to its former condition. 7. MAINTENANCE OF THE LEASED PROPERTY 7.1 The Lessee has inspected the leased property thoroughly and made no comments. The premises are clean, window panes are intact, and locks, switches, lavatory facilities, water pipes and drainage pipes are in good order. The Lessor is not under any obligation to make any changes to the premises, nor paint or repair it. No inspection of the leased property shall be carried out, unless such inspection is requested by either party within one week, at the latest, of the first day of this Lease. On receipt of the leased property, the Lessee acknowledges that the leased property is suitable for the activities for which it is leased, and that it is in a good condition and well maintained. 7.2 The Lessee undertakes to treat the leased property with care and in accordance with its agreed use. The Lessee shall at his own cost perform all maintenance of the specified leased property, including paintwork and repair of locks, faucets, electrical connections, fixtures etc. In the event that the leased property or its appurtenances are damaged by the Lessee, staff or other persons which the Lessee has granted use of or access to the premises, the Lessee shall make arrangements to compensate for the damage as soon as possible. If the Lessee neglects his obligations in this respect, the Lessor may request repair of the damage at the expense of the Lessee. The Lessor shall seek the opinion of the municipal building inspector before having the repair carried out, and obtain the inspector's approval of the cost when the repair has been completed. 7.3 When the lease period has ended, the Lessee shall return the leased property to the Lessor together with its appurtenances in the same condition as he received it. The Lessee bears unlimited liability for the compensation of all deterioration and damage to the premises, in so far as such deterioration or damage is not a normal consequence of its agreed or ordinary use. 7.4 Both parties may request inspection of the leased property at the beginning and end of the lease period. The parties shall pay equal shares in the cost of the inspection, unless either party is obviously the cause of the dispute according to the arbitrator's claims. 7.5 The Lessee shall be responsible for outdoor maintenance as well as the maintenance of the common area, including the lift; furthermore, the maintenance of windows from the outside, electrical installations and pipes to the premises used by the Lessee alone. In the event that the Lessee is responsible for the need for repairs to any of the above, he shall pay the cost of such repair. 3 5 7.6 In the event that the Lessee considers the maintenance by the Lessor inadequate, the Lessee shall request that the Lessor make improvements and outline in which respect improvements are needed in his opinion. 7.7 Maintenance personnel of the Lessor shall be granted the necessary access to the leased property during repair work. The Lessor shall take measures to minimise the disturbance caused to the Lessee by the repair. 8. USE OF THE LEASED PROPERTY 8.1 The Lessee may use the leased property as an office. He may not use the leased property in any other manner, except with the approval of the Lessor. However, the Lessor shall not obstruct other use of the premises by the Lessee if such use affects neither the Lessor nor other parties operating in the building. 8.2 The Lessee may not engage in any activities or store any such items in the leased property which may cause damage to the Lessor or other parties, or contravenes law or regulations. 8.3 The Lessee shall at all times treat the leased property with due care and tidiness observe generally accepted practises and rules of conduct regarding cleanliness, hygiene and healthiness. The Lessee shall observe generally accepted rules of courtesy, and ensure that habitual use of the building by others is not disturbed and that other occupants are not subjected to discomfort or annoyance. The Lessee shall observe any rules of conduct in the building which have been or may be established. The Lessor shall ensure that the Lessee enjoys the rights resulting from such rules of conduct. 9. ACCESS OF THE LESSOR TO THE LEASED PROPERTY 9.1 The Lessor shall have the right of access to the leased property with a reasonable prior notice and in consultation with the Lessee in the presence of the Lessee or his representative, to carry out improvements of the leased property, and for the inspection of its condition and treatment. Also, the Lessor may exhibit the leased property to potential purchasers or lessees, provided that he informs the Lessee with at least 24 hours' notice. 9.2 The Lessor reserves the right to keep in his possession a key at all times to the leased property, so that he can at any time enter the ventilation room which is situated within the leased space. The ventilation room shall be the responsibility of the Lessor in all respects, and the Lessee shall have no access to the room. For routine inspection and maintenance of equipment in the ventilation room, the Lessor shall consult the Lessee on the time for such work to be carried out. 4 6 10. TRANSFER OF RENTAL RIGHTS 10.1 The Lessee may not transfer his rental rights or sub-lease the leased property without the consent of the Lessor. 11. CANCELLATION OF LEASE 11.1 This Lease shall be subject to the rules on termination of Chapter III of the Leasehold Act No. 36/1994. 12. OTHER 12.1 Any dispute arising out of this Lease shall be brought before the District Court of Reykjavik. 12.2 Any issues which the provisions of this Lease do not cover shall be subject to the Leasehold Act No. 36/1994. In witness whereof, the Lessor and Lessee attach their signatures to this Lease in the presence of witnesses. Reykjavik, 24 November 1999. On behalf of On behalf of the Computer Centre of Islensk erfdagreining ehf. the Icelandic Savings Banks [Company signature] Kari Stefansson [sign.] Witnesses: Helga Stefansdottir [sign.] Elin Poroardottir [sign.], Id. No. 060763-4969 5 EX-10.38 42 RESEARCH COLLABORATION AGREEMENT 1 EXHIBIT 10.38 RESEARCH COLLABORATION AGREEMENT between Islenskar hveraorverur ehf., Keldnaholti 112, Reykjavik, Iceland, National ID No 620698-2379, and Islensk erfdagreining ehf, National ID No 691295-3549, Lynghalsi 1, 110 Reykjavik, Iceland, both companies incorporated under the laws of Iceland. 1. PRELIMINARY STATEMENTS 1.1. Islensk erfdagreining (IE) operates an advanced, high-throughput genotyping laboratory and DNA sequencing facility and possesses the infrastructure and expertise necessary to generate, store and analyze vast amounts of genetic information, 1.2. Islenskar hveraorverur ehf. (IH) has an extensive experience in thermophile research. 1.3. For the past 2 years IH and deCODE have been jointly engaged in research collaboration ("Collaboration") in the field of discovery of novel enzymes and other useful compounds derived from thermophilic organisms. Specifically, the focus of the work has been on 2 research projects, i.e. long-range thermostable DNA polymerases and resolvases for enzymatic mutation detection, which are described in Appendix A in more detail. 1.4. The company Islensk natturuefni ehf. (IN) and IE have collaborated to discover new and useful compounds from lichens for therapeutic purposes. By the decision of shareholders of IH and IN, these companies will merge under the name of IH. 1.5. In 1999 a provisional patent application was filed with the United States Patent and Trademark Office, claiming novel nucleic acids and polypeptides from a thermophilic bacteriophage, and uses thereof, invented jointly by employees of IH and IE. 2. RESEARCH FUNDING AND PROJECTS. As of year end 1999, IE had provided a total of USD 593.955 in research funding for both IH and IN. IE will continue to provide USD 100.000 in research funding per quarter for the Collaboration, according to quarterly operating and finance plans that must be accepted in advance by IE. The parties have decided to expand the Collaboration to include research on lichens and may decide to expand it to other research projects. 3. INTELLECTUAL PROPERTY RIGHTS AND OWNERSHIP. The parties agree that IE will own all patents, research data and other intellectual property rights relating to the Collaboration, that have been created and will be created during the term of this agreement. IH undertakes to assign and have its employees assign all patent rights to IE. 2 4. TERM AND GOVERNING LAW. This agreement will remain in force until terminated by either party. Either party may terminate this Agreement upon 90 days written notice to the other party. This agreement shall be construed and governed by Icelandic law. Reykjavik, December 28, 1999. On behalf of Islensk erfdagreining ehf. Kari Stefansson [SIGN] Kari Stefansson On behalf of Islenskar hveraorverur ehf. Jakob Kristjansson [SIGN] Jakob Kristjansson 3 Appendix A. AIM OF PROJECT 1: LONG-RANGE THERMOSTABLE DNA POLYMERASES A major possibility lies in the development of thermophilic DNA polymerases for accurate long-range PCR and long-range sequencing. Accurate in vitro synthesis of long tracts of DNA as templates for sequencing and diagnosis is also an attractive technique which is likely to gain wide acceptance. Thermophilic counterparts of phage T7 DNA polymerase are likely to exhibit greater processivity and fidelity than Taq DNA polymerase and other currently available PCR enzymes. Through specific PCR-based gene fishing methods IT will discover a range of new DNA polymerases that will be tested by deCODE for their in-house applications. AIM OF PROJECT 2: RESOLVASES FOR ENZYMATIC MUTATION DETECTION Resolvases from mesophilic bacteriophages can recognize a single base mismatch and subsequently cut one DNA strand. This property could be used as a basis for improved and rapid mutation detection. Thermostable resolvases would allow more stringent conditions and therefore more accurate recognition of the mismatches. Currently no thermostable resolvase is known but thermophilic bacteriophages such as those IT is working on are the most likely source. IT will select such thermophilic bacteriophages and sequence their genomes (totally or in part) to seek enzymes that can be used for mutation and SNP detection. The enzymes will be cloned, produced and handed over to deCODE for testing in their in-house applications. EX-10.39 43 AGREEMENT DATED JANUARY 21, 2000 1 EXHIBIT 10.39 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.39 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason -------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 AGREEMENT BETWEEN THE MINISTER FOR HEALTH AND SOCIAL SECURITY AND ISLENSK ERFDAGREINING EHF. RELATING TO THE ISSUE OF AN OPERATING LICENCE FOR THE CREATION AND OPERATION OF A HEALTH SECTOR DATABASE The Minister for Health and Social Security, representing the Icelandic Government, hereinafter referred to as "the Issuer" and Islensk erfdagreining ehf., State Reg. No. 691295-3549, of Lynghals 1, Reykjavik, hereinafter referred to as "the Licensee", both parties hereinafter referred to as "the Parties", hereby enter into the following AGREEMENT ARTICLE 1 BASIS The Issuer will, on Saturday 22 January 2000, issue to the Licensee a temporary Operating Licence for the creation and operation of a Centralised Health Sector Database, hereinafter referred to as the "OPERATING LICENCE". With reference, i.a. to Paragraph 5 of Article 4 and Sub-Paragraph 11 of Paragraph 2 of Article 5 in Act No. 139/1998 on a Health Sector Database, and Sections 9.5 and 10.6 of the Operating Licence, the Parties have come to a consensus on conclusion of the present Agreement and the provisions thereof. ARTICLE 2 ACTIVITIES OUTSIDE THE REYKJAVIK METROPOLITAN AREA The Licensee declares that in the operation of the Database during the term of the Operating Licence, he will seek, and take measures, to ensure that part of his activities, the activities of his subsidiaries, and/or partner companies will be conducted outside the Reykjavik Metropolitan Area. This refers, i.a., to software programming, data transfer and other related activities. On the part of the Licensee, measures will be taken to establish working facilities outside the Reykjavik Metropolitan Area where such measures are in the interests of the Company and/or seek co-operation or collaboration with service providers outside the Reykjavik Metropolitan Area who are capable of performing such a role in a comparable manner. 1 3 ARTICLE 3 ANNUAL FIXED PAYMENT In addition to the payments stipulated in Act No. 139/1998, the Government Regulation on the Health Sector Database and the Operating Licence itself, the Licensee shall pay a separate annual fee to the Icelandic Government as further stipulated hereinafter in Articles 4, 5, and 6. The fee shall be used by the Issuer to promote health care and for research and development pursuant to Paragraph 5 of Article 4 of Act No. 139/1998. ARTICLE 4 AMOUNT OF THE ANNUAL FEE During the term of the Licence, over the years 2000 through 2011, the Licensee shall pay an annual fee to the Icelandic Government in the amount of ISK 70,000,000 - seventy million Icelandic kronur -. The fee shall from the start and throughout the term of the Licence be adjusted based on changes in the consumer price index for the indexation of savings and loans, based initially on the base index of the month of January, 2000, i.e. 194.0 points. ARTICLE 5 REVISION OF THE ANNUAL FEE As of the time that 6 years have passed from the issue of the Operating Licence, the Licensee may request a review of the Annual Fee pursuant to Article 4 for the remainder of the licence term, provided that the basis of operations and business plans of the Licensee have changed substantially and it is foreseeable that the company will not return a profit over the next 2 to 3 years. Such a review shall, however, at no time have the effect that the licence fee pursuant to Article 4 falls below the amount of ISK 50,000,000 -fifty million Icelandic kronur -, indexed as stipulated in Article 4, for the remainder of the Licence term. If and when such a review is conducted pursuant to the provisions of this Article 5, any payments due shall not be subjected to review. ARTICLE 6 PROFIT SHARE In addition to the Annual Fee pursuant to Article 4, cf. Article 5, the Licensee shall, in respect of the years 2000-2011, inclusive, pay an additional fee to the Icelandic Government amounting to 6% of the profits of Islensk erfdagreining ehf before taxes for the year in question. Profit in this context refers to the income tax base of the Licensee pursuant to Sub-Paragraph 2 of Article 62 on Income Tax and Net Worth Tax No. 75/1981. Notwithstanding the above, the additional fee pursuant to this Article 6 shall never exceed the amount of ISK 70,000,000 - seventy million Icelandic kronur - index-adjusted pursuant to the provisions of Article 4. ARTICLE 7 PAYMENT OF FEES Payment of the Annual Fee pursuant to Article 4, cf. Article 5, shall take place in a single payment on 1 July of each year for the year in question, first on 1 July 2000 for that year, cf., however, Paragraph 2 of Article 9. Payment of the additional fee pursuant to Article 4, cf. Articles 5 and 6 hereof, shall never exceed the amount of ISK 140,000,000 - one hundred and forty million Icelandic kronur - index-adjusted pursuant to the provisions of Article 4. 2 4 ARTICLE 8 PLACE OF PAYMENT The Licensee shall make all his payments to the Icelandic Government pursuant to this Agreement in the office of the State Treasury. ARTICLE 9 AGREEMENTS WITH HEALTH INSTITUTIONS On the initiative of the Licensee, the Parties will make joint efforts to ensure that agreements of the Licensee with health institutions and self-employed health service workers on access to data from medical records and the handling of such data can be concluded as soon as possible. The intention is for the conclusion and signature of such agreements to be accomplished at the end of the year 2000. Notwithstanding the provisions of Paragraph 1 of Article 7, the first payment of the Annual Fee shall not take place until the Licensee has succeeded in concluding agreements with the Reykjavik Hospitals and/or the Icelandic State Hospital, the Regional Hospital in Akureyri and two other health institutions in other districts of Iceland pursuant to the terms of the Operating Licence, in particular Article 4, cf. Article 5 thereof, regarding agreements of the Licensee with health institutions and self-employed health service workers on access to data from medical records and the handling of such data. In the event of a delay in the conclusion of such agreements, the Annual Fee pursuant to Article 4, cf. Article 5 hereof, as accrued and index adjusted pursuant to the guidelines of Article 4, shall be paid as a lump sum when the agreements with the said institutions have been reached. In the event that it proves impossible for unforeseeable reasons to conclude agreements with more institutions than the institutions referred to above within two years from the issue of the Operating Licence, the Parties agree to subject the Annual Fee pursuant to Article 4 to review. ARTICLE 10 OPERATION FOR MAXIMUM PERIOD OF 9 MONTHS For a period of a maximum of 9 months following the expiration of the Operating Licence or its termination for other reasons, the Licensee is under obligation, without special remuneration, to provide the Issuer or the Monitoring Committee pursuant to Article 6 of Act No. 139/1998, with access to all hardware necessary for the creation and operation of the Health Sector Database and "Software" and "Intellectual Property Rights" as such terms are defined in Section 8.1 of the Operating Licence. The Issuer shall during the course of this period pay service fees and other comparable fees for the necessary rights provided by the Licensee to the Issuer, including any licence fees for patents and registration fees relating to the necessary rights of the Licensee which may be payable during the period. ARTICLE 11 OPERATION FOR NON-BUSINESS PURPOSES In the event that the Issuer or the Monitoring Committee or any party in their place continues the operation and creation of the Database after the expiration of the Operating Licence and/or in continuation of the maximum 9-month period pursuant to Article 10 of this Agreement, and if the Database is operated only in the service of the health care system, the general public and public entities, for non-business purposes, the Licensee shall not be entitled to remuneration for "Software" and "Intellectual Property Rights" as such terms are defined in Section 8.1 of the Operating Licence, which are delivered to the Issuer and which he has at his future disposal. The Issuer, Monitoring Committee or any party in their place shall, following the end of the maximum 3 5 9-month period, pay service fees and other comparable fees for the necessary rights provided by the Licensee to the Issuer, including any licence fees for patents and registration fees relating to the necessary rights. ARTICLE 12 OPERATION FOR BUSINESS PURPOSES In the event that the Issuer or the Monitoring Committee or any party in their place continues the operation and creation of the Database for business purposes after the expiration of the Operating Licence in continuation of the maximum 9-month period pursuant to Article 10 of this Agreement, or if the operation of the Database for business purposes is recommenced within 5 years of the end of the term of the Licence pursuant to Section 15.1 of the Operating Licence, the Licensee shall be entitled to remuneration for "Software" and "Intellectual Property Rights" as such terms are defined in Section 8.1 of the Operating Licence, and which are delivered to the Issuer and which he has at his future disposal. The Issuer, Monitoring Committee or any party in their place shall, following the end of the maximum 9-month period pay service fees and other comparable fees for the necessary rights provided by the Licensee to the Issuer, including any licence fees for patents and registration fees relating to the necessary rights. ARTICLE 13 ASSESSMENT OF REMUNERATION The assessment of the remuneration for the software and/or rights delivered by the Licensee and in respect of which the Licensee is entitled to remuneration for pursuant to Article 12 shall be based on the future use of the Issuer, the Monitoring Committee or any party in their place of the software and/or rights for business purposes. Furthermore, account shall be taken of the future usefulness of the software and rights and their market price on the date of delivery. Each of the Parties shall appoint one party to assess the financial value and payment arrangements. There shall be no further payment to the Licensee for the future use of the items which are delivered and which are of permanent future use. ARTICLE 14 ARBITRATION In the event that an agreement cannot be reached between the Parties regarding the review of the Annual Fee pursuant to Article 5 or the amount of remuneration pursuant to Article 13, the decision shall be referred to an arbitration tribunal which shall conduct its activities pursuant to Act No. 53/1989 on Contractual Arbitration. Each of the Parties shall then appoint one arbitrator and the Parties then jointly request the court appointment of a neutral third arbitrator by the District Court of Reykjavik to participate in the process of the dispute, such arbitrators to form an arbitration tribunal of three arbitrators. The arbitration tribunal shall conclude its conduct of proceedings within three months from the time that the tribunal has been fully constituted. The decision of the arbitration shall be final as regards the dispute of the Parties and cannot be referred to the public courts. ARTICLE 15 INDEMNITY The Licensee declares that he will not during the effective term of the Operating Licence, or later with reference thereto, make any claims of any kind against the Issuer, representing the Icelandic Government, in respect of any amendments made to legislation or rules relating to the Database on the grounds that such legislation or rules are regarded as inconsistent with the rules of the European Economic Area or other international rules and agreements to which Iceland is a party 4 6 or to which Iceland may later accede. The Issuer declares, furthermore, that in the event that the Issuer or the Icelandic State by final judgement for any reason, alone or together with the Licensee, is regarded as liable or subject to payment to any third party as a result of legislation and/or the issue of the Operating Licence, the Licensee undertakes to assume all the obligations of the Issuer and the Icelandic Government, to the extent possible, and furthermore to reimburse the Icelandic Government for any compensation for which the Icelandic Government may be required to pay in respect of such liability together with all interest and all cost of the Icelandic Government rising from such liability and obligation to pay, provided always that the Icelandic Government has maintained a full defence in the issues in question. In the event that the Icelandic Government enters into negotiations with a third party regarding payment of compensation on the basis of the liability of the Icelandic Government arising from legislation on the Database and its operation and/or the issue of the Operating Licence, the Licensee undertakes to pay such compensation and to reimburse the Icelandic Government for any compensation which the Icelandic Government may have paid for such reasons together with accrued costs, provided that the Icelandic Government demonstrates that the Icelandic Government was justified and under obligation to make the payments or pay the compensation in question. ARTICLE 16 PROVISIONS OF CONTRACTUAL LAW The Parties have agreed and approved the provisions of Articles 3, 4, 5, 6, 10, 11, 12, 13, 14 and 15 above in full knowledge of the termination provisions of Chapter III, particularly Article 36, of Act No. 7/1936 on contracts, authorisation and invalid legal instruments, as amended by Act No. 11/1986 and Act No. 14/1995. ARTICLE 17 TERM OF EFFECT This Agreement shall remain in effect during the term of the Operating Licence. However, the Agreement may be subjected to review and amended during the term of the Operating Licence by an Annex provided that both Parties so agree. ARTICLE 18 DISCUSSIONS ON AN OPERATING LICENCE The Parties declare that during the course of the review of the Operating Licence pursuant to Section 15.3 of the Operating Licence, the Parties will enter into discussions on the renewal of the Operating Licence, provided that the Licensee at that time meets all the general requirements of current legislation on the Health Sector Database, regulation on the Health Sector Database and the Operating Licence. Such discussion shall be based on objective principles and conform to current law, rules and international agreements to which Iceland is a party. The renewal of the Operating Licence is furthermore subject to a new or supplementary agreement being reached in place of this Agreement. ARTICLE 19 CONDITIONS AND REVOCATION OF LICENCE Since this Agreement is one of the conditions for the issue of an Operating Licence to the Licensee, cf. Sections 9.5 and 10.6 of the Operating Licence, as well as its performance by the Licensee during the term of the Operating Licence, the Licensee is fully aware that any non-performance of the provisions of this Agreement and delays in payment on his part could result in revocation of the Operating Licence. 5 7 This Agreement is signed by the Parties in the presence of witnesses confirming the correct signatures and date. Reykjavik, 21 January 2000 For the Government of Iceland For Islensk erfdagreining ehf. Ingibjorg Palmadottir Kari Stefansson Minister for Health and Social Security Managing Director Witnesses: David B. Gunnarsson, Id. No. 090744-3219 Baldur Gudlaugsson, Id. No. 081246-2629 6 EX-10.40 44 OPERATING LICENSE 1 EXHIBIT 10.40 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.40 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason --------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 THE MINISTER FOR HEALTH AND SOCIAL SECURITY MAKES KNOWN: that pursuant to Act No. 139/1998 on a Health Sector Database ISLENSK ERFDAGREINING EHF STATE REG. NO. 691295-3549 LYNGHALS 1 REYKJAVIK has on this day been granted an exclusive Operating Licence for the creation and operation of a Health Sector Database The Operating Licence is issued with the objective of creating and operating in Iceland a Centralised Health Sector Database with non-personally identifiable health data for the purpose of increasing knowledge for the improvement of health and the promotion of health services. The creation and operation of the Database is intended to result in an integrated collection of data with records of numerical data from the majority of the medical records already existing and which will exist during the term of the Operating Licence in Iceland. The data shall be processed with a view to serving the health system as a whole, individual health institutions, self-employed health service workers and the nation as a whole. The Operating Licence is issued with all the conditions, rights and obligations contained in the Operating Licence itself, Act No. 139/1998 on a Health Sector Database, as current at any time, and regulations issued on the basis of the said act during the term of the Licence The Ministry of Health and Social Security 22 January 2000 Ingibjorg Palmadottir [sign.] David R. Gunnarsson [sign.] OPERATING LICENCE 1 3 OPERATING LICENCE ISSUED TO ISLENSK ERFDAGREINING EHF. STATE REG. NO. 691295-3549 LYNGHALS 1 REYKJAVIK FOR THE CREATION AND OPERATION OF A HEALTH SECTOR DATABASE MINISTRY OF HEALTH AND SOCIAL SECURITY JANUARY 2000 OPERATING LICENCE 2 4 TABLE OF CONTENTS Article 1: Preamble......................................................................3 Article 2: Definitions...................................................................4 Article 3: General and Financial Conditions..............................................6 Article 4: Transfer of Data..............................................................7 Article 5: Role of the Monitoring Committee..............................................9 Article 6: Role of the Data Protection Commission.......................................10 Article 7: Conditions for Processing and Handling of Data...............................11 Article 8: Intellectual Property Rights.................................................13 Article 9: Process on the Revocation of the Operating Licence...........................15 Article 10: Payment of Costs Etc........................................................16 Article 11: Surveillance................................................................17 Article 12: Assignment and Enforcement..................................................18 Article 13: Disputes....................................................................18 Article 14: Revocation of Licence, Sanctions, Penalties and Compensation................18 Article 15: Term, Review and Issue of Licence...........................................18
LIST OF ANNEXES ANNEX A: GENERAL SPECIFICATIONS ANNEX B: TRANSFER OF DATA TO THE HEALTH SECTOR DATABASE ANNEX C: THE MAIN FORMAL AND SUBSTANTIVE CONTENTS OF AGREEMENTS ANNEX D: STATUS REPORT ON HEALTH DATA ANNEX E: TERMS OF FINANCIAL SEGREGATION ANNEX F: REGISTER OF HEALTH PROFESSIONS ANNEX G: TECHNOLOGY, SECURITY AND ORGANISATION TERMS OF THE DATA PROTECTION COMMISSION OPERATING LICENCE 3 5 OPERATING LICENCE ISSUED TO ISLENSK ERFDAGREINING EHF. STATE REG. NO. 691295-3549 LYNGHALS 1 REYKJAVIK FOR THE CREATION AND OPERATION OF A HEALTH SECTOR DATABASE ARTICLE 1 PREAMBLE 1.1 This Operating Licence is issued with the objective of creating and operating in Iceland a Centralised Health Sector Database, in the Operating Licence also referred to as "the Health Sector Database" or "the Database", with non-personally identifiable health data for the purpose of increasing knowledge for the improvement of health and the promotion of health services. 1.2 The creation and operation of the Database is intended to result in an integrated collection of data with records of numerical and encoded data from the majority of the medical records already existing and which will exist during the term of the Operating Licence in Iceland and to which access is not restricted pursuant to the provisions of this Operating Licence. The data shall be processed with a view to serving the health system as a whole, individual health institutions, self-employed health service workers and the nation as a whole. 1.3 The Operating Licence is issued by the Minister for Health and Social Security, who in this Licence is referred to as the "Issuer," pursuant to Act No. 139/1998 on a Health Sector Database. 1.4 The Operating Licence is issued to Islensk erfdagreining ehf., State Reg. No. 691295-3549, of Lynghals 1, Reykjavik, referred to in this Operating Licence as the Licensee, with all the conditions, rights and obligations contained in this Operating Licence, Act No. 139/1998 on a Health Sector Database and regulations issued on the basis of the said act on the effective date of the Operating Licence and during the term of its effect. 1.5 This Operating Licence is issued on the basis of information on the scope of activities, projects and work plan of the Licensee, which have been submitted by the Licensee, and on the basis of Technology, Security and Organisation Terms of the Data Protection Commission, which are attached to this Operating Licence as ANNEX G. OPERATING LICENCE 4 6 1.6 The Operating Licence extends to the creation and operation of a centralised Health Sector Database pursuant to Act No. 139/1998, on a Health Sector Database, as current at any time, and regulations issued pursuant to that Act. 1.7 The Operating Licence, the operation of the Database and the operation of a Centralised Health Sector Database, and the handling of data from the Database shall at all times be consistent with Icelandic law and regulations, as current at any time, international agreements and any international commitments to which Iceland is or becomes a party. 1.8 All data that enters the Health Sector Database is the common property of the Icelandic nation and in the care and under the responsibility of the Minister for Health and Social Security, acting for the Icelandic Government. This applies both during the time that the Operating Licence is in effect and after its expiration. 1.9 The Operating Licence provides for the conditions which form the original basis for the issue of an Operating Licence for the creation and operation of a Health Sector Database. During the term of the Operating Licence these conditions may change in the light of experience and further requirements by surveillance authorities, the Issuer and the Licensee. 1.10 Individual provisions of the Operating Licence refer to Annexes attached to the Operating Licence and all bear the identification of the Ministry for Health and Social Security, and they are all inseparable parts of the Operating Licence. The Annexes, seven in number, are identified with the letters A-G, as shown in the list of annexes attached to the Operating Licence on p. 22 [page no. of original Icel. document]. ARTICLE 2 DEFINITIONS 2.1 The following terms, wherever they appear in this Operating Licence, shall have the meaning specified below: a) "General Specifications" means the general specifications for medical records systems, as current and as updated by the Ministry of Health and Social Security at any time, currently the updated report of the Ministry of January 2000, attached to this Operating Licence as ANNEX A. b) "Direct access" means access to the primary data in the Database or copies thereof, cf. Paragraph 3 of Article 10 of the Act. c) "Encryption" means the transformation of words or numbers into an unintelligible sequence of symbols. d) "One-way encryption" means the transformation of words or numbers into an unintelligible sequence of symbols which cannot be traced back using a decryption key. e) "Genetic data" means any data pertaining to the inheritable features of an individual or the hereditary pattern of such features within a group of related individuals, and furthermore all data pertaining to the transfer of genetic information (genes) pertaining to features which determine the diseases and health of individuals and groups of related individuals, regardless of whether such features can be identified or not. f) "Transfer of data to the Database" means the summary of the handling and transfer of data to the Health Sector Database attached to this Operating Licence as Annex B. OPERATING LICENCE 5 7 g) "Query layer" means the software intended to process research or queries in the Health Sector Database. h) "Health Sector Database" means a collection of data containing the medical data registered in a co-ordinated systematic manner in a single centralised database intended for processing and dissemination of information as further provided for in Act No. 139/1998, on a Health Sector Database, the regulation on a Health Sector Database and this Operating Licence. i) "Medical data" means data pertaining to the health of individuals, including genetic data. j) "The Main Formal and Substantive Contents of Agreements" means a summary of formal and substantive contents of agreements between the Licensee and health institutions and self-employed health service workers and attached to the Operating Licence as ANNEX C. k) "Intellectual property rights" means the following rights: i.) Any rights in the area of intellectual property rights to software which is necessary for the creation and operation of the Database, i.e. copyright, trade mark rights, patent rights, design rights, business and technical know-how or other rights. Software in this context refers to computer programmes, any systems descriptions and related documents and any handbooks and other accompanying documents. ii.) Any rights in the area of intellectual property rights to the Database, i.e. copyrights, sui generis rights pursuant to EU Directive No. 96/9 of 11 March 1996 on the legal protection of databases, trade mark rights, patent rights, design rights, business and technical know-how or other rights. iii.) Any rights in the area of intellectual property rights, i.e. copyright, trademarks, patents, design rights, business and technical know-how or other rights, even if they extend directly neither to software or a database, if the rights are necessary for the creation or the operation of the Database. In all cases, this is a reference to rights, whether they are presently known or established later, and both to the rights in their entirety and licences to use such rights. l) "Centralised Health Sector Database" and "Database" means the Health Sector Database pursuant to Act No. 139/1998, on a Health Sector Database, the Regulation on a Health Sector Database and this Operating Licence. m) "Non-personally identifiable data" means data on an individual which are not identifiable according to the definition of Subsection (n) below. n) "Personal data" means all data on an identified or identifiable individual. An individual is regarded as identifiable if he can be identified, directly or indirectly, e.g. by reference to an identity number or one or more features specific to his physical, physiological, mental, economic, cultural or social identity. o) "Regulation" means the Regulation on a Health Sector Database. p) "Operating Licence" means this Operating Licence. q) "The Terms on Financial Segregation" means further conditions and terms on the financial segregation of the operation by the Licensee of the Database and other operations of the Licensee, attached to this Operating Licence as ANNEX E. r) "Register of Health Professions" means a separate register of certified health professions, attached to this Operating Licence as ANNEX F. OPERATING LICENCE 6 8 s) "The Monitoring Committee" means the Committee on the Creation and Operation of a Health Sector Database pursuant to Article 6 of Act No. 139/1998, and Chapter V of the Regulation. t) "Status Report on Health Data" means the Status Report on Health Data as current at any time and as updated by the Ministry of Health and Social Security, currently the updated report of the Ministry of January 2000, attached to this Operating Licence as ANNEX D. u) "Query classes" means specific classes of queries which are comparable and processed using software in the query layer of the Health Sector Database. v) "Data Protection Commission" means the Data Protection Commission pursuant to Act No. 121/1989 on the registration and handling of personal data, cf. also Sub-Section 2 of Article 5 and Paragraph 1 of Article 12 in Act No. 139/1998, and Chapter VII of the Regulation on a Health Sector Database. w) "Science Ethics Committee" means the Science Ethics Committee pursuant to Article 1 of Regulation No. 552/1999, on Scientific Research in the Health Sector, cf. Paragraph 4 of Article 2 in Act No. 74/1998 on Patients' Rights. x) "Interdisciplinary Ethics Committee" means the Interdisciplinary Ethics Committee pursuant to Article 12 of Act No. 139/1998 and Chapter VI of the Regulation. y) "Security Terms of the Data Protection Commission" means the conditions and security requirements in the Technology, Security and Organisation Terms of the Health Sector Database, as well as the main security requirements and conditions of the Data Protection Commission for the operation of the Database as current at any time, currently in the second edition of the Data Protection Commission dated 19 January 2000, attached to this Operating Licence as ANNEX G. ARTICLE 3 GENERAL AND FINANCIAL CONDITIONS 3.1 The Licensee shall without exception meet all the conditions laid down in this Operating Licence. 3.2 The Licensee shall endeavour to maintain at all times good co-operation with the Ministry of Health and Social Security, the Directorate of Public Health, health institutions and self-employed health service workers, the Monitoring Committee, the Data Protection Commission, the Interdisciplinary Ethics Committee and the National Audit Bureau. 3.3 The Licensee shall in all respects observe applicable and current legal provisions on health services, currently Act No. 97/1990, as amended. The Directorate of Public Health is responsible for monitoring of the Licensee's observance of the provisions of legislation and regulations regarding health in general and the security of patients and the public. 3.4 The Health Sector Database shall be located exclusively in Iceland. Processing from the Database shall take place exclusively in Iceland. The Licensee shall not transfer any data to which he is granted access to other databases or merge them or connect with activities taking place elsewhere, unless the consent of the surveillance authorities has been obtained pursuant to the instructions laid down in the Act, Regulation or Operating Licence. 3.5 The Licensee shall not begin processing in the Health Sector Database until an assessment has been conducted by an independent expert in the field of information OPERATING LICENCE 7 9 systems security. The Operating Committee is responsible for the conduct of such an assessment. 3.6 The Licensee is, in his business transactions with third parties in respect of the creation and operation of a Health Sector Database, bound by the provisions of the Competition Act, No. 8/1993, and the provisions of the EEA Agreement, cf. Act No. 2/1993, as applicable, cf. in particular the provisions of Chapter IV of the EEA Agreement. The Licensee shall in the creation and operation of the Health Sector Database refrain from abusing his position as Licensee in his business with parties purchasing his services, e.g. through unreasonable fees for the services, by refusing business with competitors or by discriminating among his business partners through the use of dissimilar business terms or other onerous business terms. Special business terms, such as discounts for extensive business, shall be based on general and transparent business terms. 3.7 The operation of the Health Sector Database shall be financially segregated from other activities of the Licensee, cf. Paragraph 2 of Article 14 in the Competition Act No. 8/1993. The operation of the Health Sector Database shall be conducted within a separate operating unit or department, and keep separate accounts. Accounting shall be conducted in conformance with rules of law on accounting. A separate Initial Balance Sheet shall be established. Assets regarded as pertaining to the activities covered by the Operating Licence shall be appraised at market value where possible, or at replacement value following reasonable depreciation. Liabilities of the activities covered by the Operating Licence shall include only liabilities connected with such activities alone. 3.8 All joint use of the operation subject to the Operating Licence and the competitive operations of the Licensee, such as use of real estate, machinery and human resources, shall be valued at market price on an arm's length basis. In the event that market price is not available, the value shall be based on cost price plus a reasonable mark-up. Similarly, business between the operation subject to the Operating Licence and other departments shall be conducted on an arm's length basis. When the utilisation of the Health Sector Database has begun, the party responsible for the day-to-day administration of the operation subject to the Operating Licence shall not be responsible for the administration of the departments of the Licensee engaged in competitive activities. 3.9 The Licensee shall meet the further conditions on the arrangement of financial segregation of the Licensee contained in the Annex "Terms of Financial Segregation", attached to the Operating Licence as ANNEX E. ARTICLE 4 TRANSFER OF DATA 4.1 The Licensee shall observe directions on the collection, transfer, preservation and processing of data pursuant to recognised international rules on science ethics and rules established on the basis of such international rules and current in Iceland at any time. 4.2 The Licensee is aware of the fact that a patient may at any time request that information concerning him should not be transferred to the Health Sector Database. A patient's request to such effect may involve all information already available on the patient in medical records or which may be recorded, or further specified information. Such a request from a patient shall also be observed after his death. In the event that a patient wishes to have information on him transferred to the Health Sector Database, despite the fact that a health institution or self-employed health service worker has not entered into an agreement on such transfer of information, the patient shall submit a request to this OPERATING LICENCE 8 10 effect to the Directorate of Public Health. The Directorate of Public Health shall ensure that such a request from a patient is carried out. 4.3 Information may be delivered to the Licensee which has been processed from medical records, for transfer into the Health Sector Database with the approval of health institutions or self-employed health service workers. The transfer of information shall conform to the security requirements of the Data Protection Commission. 4.4 Before the commencement of transfer of data into the Database, the Licensee shall enter into written agreements with the health institutions in question or self-employed health service workers on access to information from medical records and the handling of such information, containing, at a minimum, the items specified in ANNEX C "Main Formal and Substantive Contents of Agreements". 4.5 Medical information shall be recorded so as to form an integrated data collection where information is recorded from the medical records currently available and becoming available during the term of the Operating Licence in Iceland and to which access is not limited pursuant to the terms of this Operating Licence. 4.6 The recording of health data for transfer to the Health Sector Database specified in ANNEX B shall proceed in stages. First, medical data reaching back to 1986 shall be processed. During the second stage, the intention is to process data from medical information before 1986. The Monitoring Committee shall, on the recommendation of the Ministry of Health and Social Security and the Directorate of Public Health, take responsibility for co-ordination in this regard in the conclusion of agreements with health institutions and self-employed health service workers. 4.7 Information processed pursuant to Section 4.6 may be transferred to the Licensee through the Encryption Agency of the Data Protection Commission, cf. the Security Terms of the Data Protection Commission. Such information consists on the one hand of data from the National Register and on the other hand encoded and other numerical data. ANNEX B, "Transfer of Data to the Database" lists the categories of data on which the Licensee may negotiate for transfer with health institutions and self-employed health service workers. 4.8 After a co-ordinated medical record has been taken into use, medical data will be recorded in accordance with the structure of an electronic medical file. Encoded and other numerical data defined in ANNEX B "Transfer of Data to the Database" may be transferred from electronic patient records to the Licensee through the Encryption Agency of the Data Protection Commission. 4.9 Data from specific systems created for scientific research may not be transferred to the Health Sector Database unless an agreement has been made with the originators and owners of such systems and the transfer is consistent with the Security Terms of the Data Protection Commission. Furthermore, data from specific systems set up for experimental or development purposes may not be transferred to the Health Sector Database unless a separate agreement to such effect has been concluded. No data which is not specified in ANNEX B, "Transfer of Data to the Database" may be transferred to the Database without special permission of the Data Protection Commission, as further provided in ANNEX B. 4.10 Health institutions and self-employed health service workers shall notify the Data Protection Commission and the Operating Company immediately if the security of data and personal privacy are endangered. OPERATING LICENCE 9 11 ARTICLE 5 ROLE OF THE MONITORING COMMITTEE 5.1 The Monitoring Committee shall supervise the making of agreements of the Licensee with health institutions, on the one hand, and self-employed health service workers, on the other hand, in order to ensure the necessary consistency. The Monitoring Committee shall protect the interests of the public health authorities, health institutions, self-employed health service workers and scientists in the making of agreements. 5.2 Agreements between parties pursuant to Section 5.1 shall provide for remuneration payable by the Licensee pursuant to Paragraph 2 of Article 6 of Act No. 139/1998, and other substantive items contained in the Annex "Main Formal and Substantive Contents of Agreements", attached to this Operating Licence as ANNEX C. 5.3 The Licensee shall keep the Monitoring Committee informed on the position of negotiations at any time. Confirmation by the Monitoring Committee of an agreement between the Licensee and individual health institutions or self-employed health service workers is a prerequisite for the validity of the agreement. The parties shall be notified of the Committee's conclusion within two weeks from the time that the agreement was submitted to the Committee for confirmation. 5.4 The Licensee shall provide the Monitoring Committee with all information which may be relevant to the work and duties of the Committee. 5.5 The Licensee shall ensure that the Monitoring Committee always has access to information on all research or queries or classes of queries submitted to the Licensee for processing and information on the research parties and parties submitting queries. 5.6 The Licensee shall deliver to the Monitoring Committee for safe-keeping backup copies of the Database. A representative of the Monitoring Committee shall be present at the making of the backup copies. The backup copies shall be designed to enable the Monitoring Committee to take over the operation of the Database in the event that the Licensee discontinues its operation for any reason. The Committee shall be delivered equipment or provided access to equipment to verify whether the backup copies are adequate. The backup copies shall be transported by an employee of the Monitoring Committee and deposited in fireproof and guarded premises controlled by the Committee or in a Bank safety deposit box. The Monitoring Committee shall perform tests of the backup procedure at regular intervals. 5.7 Before processing in the Database begins, the Licensee shall submit to the Monitoring Committee for approval a detailed description of the process of making backup copies, which shall include the following information: - A general description of the backup process - The process of making a backup copy - The input and output of the backup process - Description of the type of backup medium being used (what operating system, software and hardware) and whether, and if so how, it is re-used and what the lifetime of the backup medium is. - What the source of the backup is, i.e. software and hardware. OPERATING LICENCE 10 12 - When the backup takes place according to a backup schedule, i.e. how often a full backup is made, how often incremental backups are made and how far back in time backup copies are preserved. - Who performs the backup. - Whether any errors have been reported. - How backup copies are destroyed. - What backup copies are in existence and their dates. - The method of ascertaining whether a backup has been successful - That configuration control is used. 5.8 When the Monitoring Committee has approved the description by the Licensee of the process of making backup copies, the Committee shall deliver the description to the Data Protection Commission which shall establish security requirements and terms which shall be used in making, transporting, and safe-keeping backup copies. ARTICLE 6 ROLE OF THE DATA PROTECTION COMMISSION 6.1 The Licensee shall meet the current Technology, Security and Organisation Terms of the Data Protection Commission at any time in the creation and operation of the Database in conformity with the terms set out in APPENDIX G. 6.2 The Data Protection Commission may review the Technology, Security and Organisation Terms to be met by the Licensee in the light of new technology, experience or changed circumstances, and establish a deadline for the Licensee to comply with the new requirements. 6.3 The Licensee shall not make any alterations in matters of technology, security and Organization, including changes in software or hardware, except pursuant to rules established by the Data Protection Commission. 6.4 In the event of circumstances where the security of data may be at risk, the Data Protection Commission may prohibit further processing in the Database until such time as the Data Protection Commission is satisfied that data security is adequate. 6.5 The Data Protection Commission shall operate an Encryption Agency which shall carry out the transfer of all data to the Health Sector Database. The Encryption Agency of the Data Protection Commission shall take delivery of encrypted health data from health institutions and self-employed health service workers which have concluded agreements with the Licensee. 6.6 The Licensee shall establish rules of procedure and work processes which meet the conditions of the Data Protection Commission in order to ensure privacy protection in the cross-referencing of data from the Health Sector Database, a genealogical database and a database containing genetic data. The Data Protection Commission shall attach such conditions to its approval of the rules of procedure and work processes of the Licensee as it considers necessary at any time to ensure privacy protection and data security in the Health Sector Database. Among the conditions for the approval of the Data Protection Commission is that the results should be non-personally identifiable. 6.7 If it becomes evident that results obtained from cross-referencing of data are personally identifiable, the Data Protection Commission may order the destruction of such results in OPERATING LICENCE 11 13 their entirety or in part and revoke its approval. During the course of investigation, the Data Protection Commission may prohibit further cross-referencing of data on the basis of its approval and take custody of the results. In the event that the Licensee does not observe the conditions of the Data Protection Commission on the cross-referencing of data, the Data Protection Commission may revoke its approval pursuant to Section 6.6. 6.8 In order to preserve the security of personal data, the Data Protection Commission may establish rules to be observed during the collection, registration and processing of medical data in the medical records system in preparation for their transfer to the Encryption Agency of the Data Protection Commission. Those employees of Health Institutions and self-employed health service workers who are directly employed in the transfer of health data to the Health Sector Database shall not be involved in the Licensee's operation of the Database. Health Institutions and self-employed health service workers are responsible for the delivery of health data to the Encryption Agency of the Data Protection Commission. 6.9 The Data Protection Commission is responsible for monitoring the creation and operation of the Health Sector Database as regards the recording and processing of medical data and the security of data in the Health Sector Database. The Data Protection Commission shall take measures to monitor observance of the conditions established by the Commission. 6.10 The Data Protection Commission may inspect the technology, security and organisation aspects of the Health Sector Database whenever necessary. The Data Protection Commission may conduct any tests or inspection or take any surveillance action it may regard as necessary and demand the required assistance of the personnel of the Licensee in taking such action. 6.11 The Data Protection Commission may require from the Licensee and any of the Licensee's employees any information necessary for the Commission to perform its tasks, including information to determine whether a particular activity falls under the provisions of regulations and legislation on the Health Sector Database. The Data Protection Commission may also summon personnel of the Licensee and persons employed by the Licensee to appear before the Commission and provide oral information and explanations. 6.12 In the course of its surveillance duties, the Data Protection Commission shall have free access to the premises where the Health Sector Database is preserved and processing takes place. The Data Protection Commission may, by a special resolution, entrust specific employees and consultants with certain aspects of the work entrusted to the Data Protection Commission pursuant to Act No. 139/1998, on a Health Sector Database and the Regulation issued on the basis of the Act. ARTICLE 7 CONDITIONS FOR PROCESSING AND HANDLING OF DATA 7.1 The recording and processing of medical data for transfer to the Health Sector Database shall be performed or controlled by employees who are licensed health-care professionals in order to ensure accurate recording and confidentiality. The "Register of Health-Care Professions" attached to this Operating Licence in ANNEX F is a list of licensed health-care professions. 7.2 The Ministry of Health and Social Security and the Directorate of Public Health shall at all times have access to statistical data from the Database. The data shall be in accessible OPERATING LICENCE 12 14 form and meet the specifications of the health authorities as current at any time. The data shall be prepared so as to be directly usable for the preparation of health reports, plans, policies and projects of the Ministry and the Directorate of Public Health. The data shall be supplied to the above parties free of charge. The access of the above parties is subject to the approval and surveillance of the Data Protection Commission. 7.3 The Licensee shall meet the conditions and requirements contained in the Annex "Status Report on Health Data", attached to the Operating Licence as ANNEX D, and all subsequent amendments, whether in place of or in addition to the said "Status Report on Health Data". In other respects, the parties shall consult on changes resulting from special needs and requests in individual fields and developments and innovations which may emerge during the term of the Operating Licence. 7.4 Data shall be prepared for transfer to the Health Sector Database in such a way as to meet the needs of the institutions or self-employed health service workers for a co-ordinated information system, the needs of specialist fields and the needs of public health authorities, and in such a way as to be of use in scientific research. 7.5 The Executive Boards of health institutions shall take the initiative in consulting with the relevant professional associations, head physicians of institutions, head physicians of divisions and nursing supervisors in order to ensure that the data is as useful as possible for administration and research. Furthermore, consultations shall be held with the above parties regarding what information should be processed from medical files and whether any information is of such a nature that it should not be transferred to the centralised Database. 7.6 The Licensee shall meet the conditions and requirements laid down in the Annex "General Specifications" attached to the Operating Licence as ANNEX A and all subsequent amendments, whether in place of or in addition to the said "General Specifications". The Licensee shall furthermore meet the guidelines laid out in the appendix "Transfer of Data to the Database" attached to the Operating Licence as ANNEX B. In other respects the parties shall consult on additions or alterations with respects to the specialised part of electronic patient records, special needs and requests in individual fields and developments and innovations which may emerge during the term of the Operating Licence. 7.7 In the handling of files, other data and information, the conditions regarded as necessary by the Data Protection Commission at any time shall be observed. Personal identifiers shall be encrypted prior to transfer to the Database in order to ensure that the employees of the Licensee work only with non-personally identifiable data. The employees of the health institutions in questions or self-employed health service workers shall prepare data for transfer to the Health Sector Database. Medical data shall be transferred in encrypted form in order to preserve their security. Personal identifiers shall be one-way encrypted, i.e. using encryption which cannot be traced back using an identifying key. Access to data in medical records is in other respects governed by the Act on Patients' Rights, the Act on Health Service and the Act on the Recording and Handling of Personal Data. 7.8 Data which are recorded or obtained by processing in the Health Sector Database may be utilised to develop new or improved methods of promoting health, prognosis, diagnosis and treatment of diseases, to seek the most efficient methods in the operation of health systems and in the interests of reporting in the area of health. The Licensee is authorised to process data in the Health Sector Database from the medical data of medical records recorded in the Database provided that measures are taken to ensure that in the course of OPERATING LICENCE 13 15 processing and cross-referencing of data, no information can be linked to personally identifiable individuals. 7.9 The Licensee may not grant direct access to the Database. 7.10 Before processing is begun in the Database, the Licensee shall inform the Monitoring Committee which parties in his employ work with the Database, its operation and development of software and which parties in his employ have access to the query layer. Furthermore, their roles and responsibilities shall be defined, as well as their access authorisation. The Licensee shall notify the Monitoring Committee of any intentions to confer responsibilities on new parties pursuant to this provision and ensure that the Security Terms of the Data Protection Commission are strictly observed. 7.11 Providing information on individuals from the Health Sector Database is prohibited. Only statistical information involving groups of individuals may be provided. ARTICLE 8 INTELLECTUAL PROPERTY RIGHTS 8.1 In Articles 8 and 9 of this Operating Licence, the terms "software" and "intellectual property rights", as intellectual property rights are defined in the Operating Licence, refer to software and intellectual property rights which are necessary following the expiration or termination of the term of this Operating Licence for the creation, operation and maintenance of the Health Sector Database in the interests of public health authorities, health institutions and self-employed health service workers, including for scientific research, cf. Articles 6 and 9, and Paragraph 1 of Article 10 in Act No. 139/1998. Software and intellectual property rights include software and rights utilised in the interests of the above parties during the term of the Operating Licence. Software and intellectual property rights pursuant to Articles 8 and 9 of this Operating Licence do not include the software and rights which, during the term of this Operating Licence are used only in the interests of the Licensee himself, or for commercial purposes pursuant to agreements with third parties. 8.2 Article 8 hereof applies to all agreements concluded by the Licensee for the purpose of obtaining intellectual property rights, cf. Sections 2.1(k) and 8.1, including but not limited to the contracts concluded by the Licensee with contractors on the creation of the Database, custom software, and on the adaptation of solutions with special reference to the Database, any agreements on the acquisition of utility licenses/utilisation rights, development of software or software solutions and any contracts on the purchase of or licences to components for software. Article 8 also extends to contracts of the Licensee with his employees and contracts with registration parties which the Licensee may conclude for the transfer of data to the Database. 8.3 The Licensee shall, on the expiration of the Licence pursuant to its provisions, ensure that the Issuer, or the party entrusted by the Issuer with the operation of the Database, receives without time limits, based on the term of the Licence, all use of intellectual property rights necessary for the creation and operation of the Database. This refers to any party which the Issuer may unilaterally decide to entrust with the operation of the Database following the expiration of the term of the Licence, whether this is an individual, legal entity, company or institution. 8.4 The Licensee shall ensure that utilisation, on his part, of intellectual property rights in respect of operating the Database is not subject to time limits which are based on the term of the Operating Licence. In cases where there are no rights of ownership, steps shall be OPERATING LICENCE 14 16 taken to ensure that licences or comparable rights are not restricted by such time limits, and the Issuer or such party as the Issuer may entrust with the operation of the Database shall have the option of renewing such contracts, at least on an equal basis with the Licensee, to the extent necessary for the utilisation of the rights. 8.5 The Licensee shall ensure, and take full responsibility, that the software used by him for the creation and operation of the Database is not in violation of any third-party rights. The same applies to the Database and other intellectual property rights. 8.6 In the event that the Licensee obtains a copyright on software, whether through contracts with a third party or through his own software design, the Licensee shall ensure that following the expiration of the Licence, he shall be capable of delivering to the Issuer all data necessary for the Issuer or such party as the Issuer may entrust with the operation of the Database, to continue the development and maintenance of the Software. Such data may only be used to develop software for the operation of the Health Sector Database. The Licensee shall ensure, e.g., that he acquires rights to the software contemporaneously with the creation of such rights by the other contracting party and that the Issuer, or such party as the Issuer may entrust with the operation of the Database, is permitted to accept delivery of the said data notwithstanding the fact that such data is in the possession of a party other than the Licensee, in the event that the estate of the contracting party is subjected to bankruptcy proceedings or if the other party is for some other reasons incapable of performing the contract. Furthermore, the Licensee shall ensure that he is authorised to transfer the rights to the software to the Issuer or subsequent licensees. 8.7 In the event that the Licensee, by contract, becomes the holder of licence rights, utilisation rights or other comparable rights to use software, the Licensee shall ensure that following the end of the term of the Operating Licence the Licensee will be capable of delivering or transferring to the Issuer, or such party as the Issuer may entrust with the operation of the Database, the number of user licenses pursuant to licensing and service contracts which are necessary to continue the creation and operation of the Database. The Licensee shall, in the event that the contracting party ceases to issue licenses or provide service for the software, or if the estate of the contracting party is subjected to bankruptcy proceedings, or if such party is for some other reasons incapable of performing the contract, attempt to ensure that the Issuer, Ministry of Health and Social Security, or the party to which the Minister may decide to entrust with the operation of the Database, shall be entitled to receive delivery of the information which may be necessary to maintain and develop the software notwithstanding the fact that such information is in the possession of a party other than the Licensee. The Licensee shall ensure the aforesaid in all contracts on custom manufacture, adaptation or development of software. 8.8 The Licensee shall ensure that all employees in his service, permanent or part-time, who participate or have participated in the engenderment of intellectual property rights, including the creation of the Database and the development, design or maintenance of software, undertakes in his employment contract, or through some other written undertaking, provisions to the effect that the software and intellectual property rights are wholly and fully the possession of the Licensee, and that the Licensee is authorised to utilise and transfer such rights in Iceland and in other countries by any method currently known or later practised, to any third party, in part or in full, and modify and continue to develop such work as the rights may extend to. 8.9 The employment contract or undertaking pursuant to Section 8.7 shall include a declaration by the employee to the effect that he may not provide access to any third OPERATING LICENCE 15 17 party to information or data pertaining to the software or intellectual property rights or use such data or information in his own interests or in the interests of others. 8.10 The Licensee shall not transfer to any third party or grant to any third party the rights to software, Database or other intellectual property rights which would prevent the Issuer, or such party as the Issuer may entrust with the operation of the Database, from utilising the software, database or rights in the operation of the Database, following the expiration of the Operating Licence. The Licensee shall ensure that the provisions of this Section are enforced, e.g. in any agreements on delivery of data from the Database. 8.11 At the end of the term of the Operating Licence, the Licensee is under obligation to take whatever steps necessary to enable the Issuer, or such party as the Issuer may entrust with the operation of the Database, to utilise intellectual property rights, e.g. to execute certain agreements with the Issuer, issue confirmations to any third party or for the registration of any rights if necessary in Iceland or abroad. 8.12 In the event that the Licensee, at the time that the Operating Licence expires or is terminated, is the owner of copyrights to software or the owner of other intellectual property rights which are used in the creation and operation of the Database, he shall for two years following the expiration of the Licence, provide the Issuer, or such party as the Issuer may entrust with the operation of the Database, with access to new versions which he may develop of the software. 8.13 The Licensee shall ensure that all data relating to software, including manuals, systems descriptions, and source programs, and data relating to the Database and other intellectual property rights are preserved in a secure and organised manner. The handling of such data during the term of the Operating Licence shall at all times be such as to ensure that, in the event of the revocation of the Operating Licence, the data may be delivered to the Issuer, or such party as the Issuer may entrust with the operation of the Database, and that the creation or operation of the Database can be taken over immediately. 8.14 One year from the time of issue of this Operating Licence, and annually thereafter during the term of the Operating Licence, the Monitoring Committee may order the performance of an inspection of the data of the Licensee in order to verify that the provisions of Article 8 of the Operating Licence and the provisions of Annex G on the Technology, Security and Organisation Terms of the Data Protection Commission on the handling of data are observed. The Licensee is under obligation to provide access to his premises and data for this purpose. ARTICLE 9 PROCESS ON THE REVOCATION OF THE OPERATING LICENCE 9.1 When the Operating Licence expires pursuant to the provisions of Section 15.1 or in the event that the Operating Licence is revoked or the Licensee deprived of the License pursuant to the provisions of law, regulations or provisions of the Licence itself, the Issuer shall make a decision on the disposal and operation of the Database. The Monitoring Committee shall operate the Database until a final decision has been made on its future operation. 9.2 The Licensee shall, on the expiration or termination of the Operating Licence, deliver to the Issuer or such party as the Minster may entrust with the operation of the Database, the Database and all data relating to the software to which the Licensee has proprietary rights and which are necessary for the creation and operation of the Database, including systems descriptions and source programs. Furthermore, the Licensee shall deliver all necessary OPERATING LICENCE 16 18 documents for the transfer or provision of rights to other software which is necessary for the creation and operation of the Database. Delivery of data shall comply with the instructions of Annex G on the Technology, Security and Organisation Terms of the Data Protection Commission on the handling of data or, as applicable, the document which replaces it on the review of the terms. 9.3 On the expiration of the Operating Licence, the Licensee shall in the nine months immediately following the expiration provide the Issuer and the Monitoring Committee, without special remuneration, with the use of all hardware and software which may be necessary for the creation and operation of the Databse. The Issuer shall, during the course of this period, pay service fees and comparable fees in respect of the software, including license fees on patents and registration fees in respect of ther rights which may be due during the period. 9.4 During the nine month period immediately following the expiration of the Operation Licence pursuant to Section 15.1 or for other reasons, the Licensee shall ensure that intellectual property rights do not lapse or become lost for other reasons. The Licensee, in consultation with the Issuer and the Operaing Committee, take any necessary measures in this respect, e.g. pursuant to agreements of the Licensee with a third party, to register rights as well as any other measures which may be provided for by law. 9.5 An independent agreement between the Licensee and Issuer, signed on the issue of the Operating Licence, stipulates how the established rights of the Licensee shall be transferred to the Issuer on the expiration or termination of the Operating Licence. One of the conditions for the issue of the Operating Licence is the existence and validity of such an agreement. Breach of the agreement may result in loss of the Operating Licence. ARTICLE 10 PAYMENT OF COSTS ETC. 10.1 The Licensee shall during the term of the Operating Licence pay to the Icelandic government costs and fees as further provided hereinbelow in Sections 10.2 - 10.8 and in the Regulation on the Health Sector Database. 10.2 The Licensee shall pay all costs of the preparation and issue of the Operating Licence, the payment of such cost to be provided for in a Government Regulation on the Health Sector Database. 10.3 The Licensee shall pay all costs of the work of the Monitoring Committee. Following the end of each month the Licensee shall be invoiced for the cost of the work of the Committee in the preceding month. The invoice shall be paid within 15 days of its issue. 10.4 The Licensee shall pay all costs relating to service and monitoring of the operation of the Database, including the monitoring of the Data Protection Commission and the Cost of the Directorate of Public Health of publishing and promoting information on patients' rights, cf. Article 8 of the Act on a Health Sector Database. Following the end of each month the Licensee shall be invoiced for costs pursuant to Section 10.4 in the preceding month. The invoice shall be paid within 15 days of its issue. 10.5 The Licensee shall pay all costs incurred in the processing of data for transfer to the Health Sector Database, i.e. all costs of processing the data of health institutions and self-employed health service workers for transfer to the Database, and the costs of producing an integrated information system, cf. Section 4.8, as further provided in agreements of the Licensee with the parties in question. OPERATING LICENCE 17 19 10.6 In addition to costs pursuant to Sections 10.1 to 10.5, the Licensee shall, on the basis of an independent agreement with the Issuer which has been signed on the issue of the Operating Licence and constitutes one of the conditions for the issue of the Licence, pay a fixed remuneration to the Icelandic government and a share of the profit from the operation of Islensk erfdagreining ehf, such share to be used to promote health services, research and development. 10.7 The Licensee shall effect all payments pursuant to Sections 10.2, 10.3 and 10.4 in the office of the State Treasury. Payments pursuant to Sections 10.5 and 10.6 are subject to further agreement. 10.8 In the event of default by the Licensee as regards the payments due during the term of the Operating Licence pursuant to this Article or pursuant to the Agreement referred to in Section 10.6, the Minister for Health and Social Security may revoke the Operating Licence. ARTICLE 11 SURVEILLANCE 11.1 The Monitoring Committee shall ensure the observance of all provisions of the Act, government regulations issued on the basis of the Act and the conditions of the Operating Licence in the operation of the Health Sector Database. The Committee shall monitor all queries and processing from the Database and report regularly to the Science Ethics Committee on all queries made to the Database, including information on the parties submitting the queries. The Committee shall inform the Minister and the Data Protection Commission without delay if the Committee has reason to believe that there is any impropriety in the operation of the Database. The Committee shall also advise the Ministry of Health and Social Security and the Directorate of Public Health regarding the utilisation of information from the Database. 11.2 The Data Protection Commission is responsible for monitoring the creation and operation of the Health Sector Database with regard to the recording and handling of personal data and the security of data in the Database as well as monitoring adherence to its terms. 11.3 The Interdisciplinary Ethics Committee is responsible for assessing research conducted within the company of the Licensee and queries received. The assessment of the Committee shall reveal that there are no scientific or ethical objections to the performance of research or processing of queries. 11.4 The auditor of the annual financial statement of the Licensee shall annually, immediately following approval of the Licensee's annual financial statement, send to the Issuer confirmation of the fact that the provisions of the Operating Licence on financial segregation have been observed. The National Audit Bureau is responsible for monitoring that payments and statements of the Licensee proceed in conformance with the provisions of the Operating Licence and applicable legislation. The Licensee shall provide the National Audit Bureau with access to all relevant documents and information. 11.5 The Licensee shall not begin transfer of data to the Database and processing in the Database until such time as all conditions of the Operating Licence are met in the opinion of the parties responsible for monitoring the operation of the Database. 11.6 In the event of violation by the Licensee of provisions of the Operating Licence or the Act, the Minister shall issue a written warning with a reasonable deadline for amends. Inaction on the part of the Licensee, intent and gross negligence are subject to revocation of the Licence. OPERATING LICENCE 18 20 ARTICLE 12 ASSIGNMENT AND ENFORCEMENT 12.1 The Operating Licence and the Health Sector Database are neither assignable nor subject to enforcement of claims. The Operating Licence and the Database may not be pledged against any financial liability. ARTICLE 13 DISPUTES 13.1 In the event of any dispute regarding performance pursuant to the Operating Licence or on the interpretation of the Operating Licence in other respects, such disputes shall be settled before the Icelandic courts. However, the parties may refer such disputes to arbitration if they so agree. ARTICLE 14 REVOCATION OF LICENCE, SANCTIONS, PENALTIES AND COMPENSATION 14.1 As regards withdrawal and revocation of the Operating Licence, penalties and compensation, reference is made to Chapter VI of the Act on a Health Sector Database, cf. Articles 13-17 of the said Act. ARTICLE 15 TERM, REVIEW AND ISSUE OF LICENCE 15.1 The Operating Licence shall take effect on its date of issue with all the conditions, rights and obligations contained in the Licence. The Operating Licence is effective until and including 21 January 2012. 15.2 Processing in the Database shall not begin until such time as all the conditions of the Operating Licence have been met according to the assessment of surveillance authorities. 15.3 The Operating Licence shall be subjected to review no later than 1 October 2008. The Operating Licence may be subjected to review following a request to such effect from the Licensee or the Minister for Health and Social Security. 15.4 The Operating Licence is entirely subject to the provisions of Act No. 139/1998, on a Health Sector Database and government regulations issued on the basis of the Act. The Licence shall be subjected to review on the part of the Minister for Health and Social Security if amendments are made to the Act or regulations issued on the basis of the Act. The Operating Licence shall also be subjected to review if it is inconsistent with Icelandic law or rules or international agreements, conventions and covenants to which Iceland is a party at any time. Ministry of Health and Social Security 22 January 2000 Ingibjorg Palmadottir [sign.] David A. Gunnarsson [sign.] OPERATING LICENCE 19 EX-10.41 45 SERIES B PREFERRED STOCK AGREEMENT 1 EXHIBIT 10.41 DECODE GENETICS, INC. SERIES B PREFERRED STOCK AGREEMENT This Series B Preferred Stock Agreement (this "Agreement") is made as of March 1, 2000 (the "Effective Date") by and between deCODE genetics, Inc., a Delaware corporation (the "Company"), and Kari Stefansson (the "Seller"). PRELIMINARY STATEMENTS A. The Company and the Seller entered into a Common Stock Repurchase Agreement, dated July 12, 1999 (the "Common Repurchase Agreement"), pursuant to which the Company purchased 333,333 shares of Common Stock from the Seller in exchange for 250,000 shares of Series B Preferred Stock (the "Series B Shares"). B. The Company repurchased the Series B Shares, at a closing held on August 8, 1999 (the "Closing Date"), for a purchase price per share which the parties agreed would be equal to the price per share, net of commissions and other fees payable to the purchaser (the "Purchaser"), at which the Company sold shares of its Series B Preferred Stock pursuant to a stock purchase agreement dated as of June 30, 1999 (the "Series B Offering"). C. On the Closing Date, the Company and the Seller entered into an oral agreement that if any contingent portion of the purchase price in the Series B Offering became payable, the purchase price for the Series B Shares would be adjusted upward accordingly, with the amount of such adjustment to be paid to the Seller by the Company after such contingent portion of the purchase price in the Series B Offering became payable. D. The Company and the Purchaser have entered into an Addendum to Stock Purchase Agreement confirming that on December 28, 1999, they agreed that a contingent payment of $7.50, less commissions and other fees payable to the Purchaser in an amount equal to seven percent (7%) of the sum of the original purchase price and the contingent payment, was due and payable. NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. ADJUSTMENT TO PURCHASE PRICE; PAYMENT OF DEFICIENCY. The adjusted purchase price for the Series B Shares as of the Closing Date is US$13.95 per share. Within five business days of the Effective Date, the Company shall pay to the Seller, by check or wire transfer to such account as the Seller shall designate, US$6.45 (representing the adjusted purchase price of US$13.95 less the US$7.50 already paid) for each of the Series B Shares sold to the Company by the Seller on the Closing Date. 2. MISCELLANEOUS. This Agreement shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents made and to be performed entirely within the State of Delaware. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, 1 2 and administrators of the parties hereto. This Agreement constitutes the full and entire understanding and agreement among the parties with regard to the subject matter hereof. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. ***** 2 3 This Agreement is hereby executed to be effective as of the date first above written. deCODE genetics, Inc. Dated: 1/3/00 By: /S/ Hannes T. Smarason Hannes T. Smarason, Senior Vice President & Chief Business Officer Dated: /s/ Kari Stefansson Kari Stefansson 3 EX-10.42 46 AGREEMENT DATED FEBRUARY 15, 2000 1 EXHIBIT 10.42 OFFICER'S CERTIFICATE I, the undersigned, do hereby certify and represent that: 1. I am the duly elected Senior Vice President and Chief Business Officer of deCODE genetics, Inc., a Delaware Corporation. 2. Pursuant to Rule 306(a) of Regulation S-T, the following exhibit 10.42 to deCODE genetics, Inc.'s Registration Statement on Form S-1 is a fair and accurate English translation of a document prepared in the Icelandic language. IN WITNESS WHEREOF, I have signed this Officer's Certificate in my capacity as Senior Vice President and Chief Business Officer of deCODE genetics, Inc. on this 7th day of March, 2000. By: /s/ Hannes T. Smarason -------------------------- Name: Hannes T. Smarason Title: Senior Vice President and Chief Business Officer 2 AGREEMENT The University of Iceland, Islensk Erfdagreining ehf., and the City of Reykjavik hereby enter into the following Agreement, with the aim of promoting co-operation and encouraging the development of vigorous scientific and professional activities in the field of health science in the University District for the benefit of all the parties hereto: 1. The City of Reykjavik undertakes, in co-operation with the University of Iceland, to amend the land use plan of the University District so as to permit the construction of a building which will house the operations of Islensk Erfdagreining ehf., on the site marked with the letter H on the design plan of the District. Permission shall be granted for a building of approximately of 10,000 square metres. 2. Provisions of the land use plan regarding the maximum size of buildings permitted in the University District shall not change, notwithstanding the permission granted for the construction of a larger building on site H than the maximum currently allowed by the plan. 3. Amendment of the land use plan shall be completed as soon as possible, and shall be fully completed within three months from the date of signature of this Agreement. 4. The City of Reykjavik will allocate the site in question to Islensk erfdagrreining ehf. as soon as the land use plan has been amended. For the site and accompanying construction rights, Islensk erfdagreining ehf. shall pay to the City of Reykjavik the amount of ISK 104,180,000, based on a building of 10,000 square metres in size. The payment shall be divided into two equal halves, one half to be used in the interests of the University of Iceland. The land use plan shall include provisions stipulating that the only activities permitted in the building shall be high-technology, research and university-level teaching. The site lease agreement shall provide for rights of first refusal of the University regarding the purchase of any facilities on the site. Should the University be offered first refusal rights at a price which the institution regards as unacceptable, the University may then purchase the aforesaid facilities at assessed value, i.e. the real estate itself, not including interior fixtures and other chattels. Price and terms of payment will be decided by two court-appointed appraisers and based on the replacement value of the buildings with due consideration to their condition. 5. All parties to this Agreement agree that the site forms a part of the University District. By the allocation of the site to Islensk erfdagreining ehf. the University of Iceland will develop closer ties to the Icelandic industries, especially to the growing sector involved in the creation of knowledge and high technology. Should Islensk erfdagrreining ehf. cease its operations on the site, the purchasing rights of the University shall enter into effect, as described in item 4 above. 6. Islensk erfdagreining ehf. undertakes to construct the building on the site within two years after the amendments to the land use plan have been made and the formal allotment of the site has taken place. 7. Islensk erfdagreining ehf. shall arrange a closed competition for the design of the building, i.e. purchase at least three proposals from as many independent architect firms, and select the one it considers of the greatest merit after giving the University an opportunity to express its opinions of the proposals. Specifications of the project assigned to the architects shall include a requirement that it must be possible to connect the building by an enclosed walkway to other buildings that the University may subsequently 3 construct to the west of the site. The University shall be consulted on this part of the project description. 8. The University of Iceland shall be granted limited use of a lecture hall, conference room, and teaching and student facilities in the building of Islensk erfdagreining ehf. to the extent permitted by the operations of the company. A separate agreement shall be made between the University and Islensk erfdagreining ehf. regarding the former party's use of the building owned by the Company. 9. Islensk erfdagreining ehf. shall have the right to assign construction rights or buildings on the site to a third party, with the terms, obligations and undertakings described in this Agreement. For example, Islensk erfdagreining ehf. may arrange for a leasing firm to construct, own, or operate a building on the site, provided that this in no way diminishes or curtails the rights or interests of the University of Iceland. Islensk erfdagreining ehf. may purchase construction rights or buildings on the site from a third party without giving rise to a right of first refusal by the University as described in item 4 above. 10. This Agreement is made in three identical copies and signed in the presence of witnesses. Each party shall retain one copy of the Agreement. REYKJAVIK, 15 FEBRUARY 2000 ON BEHALF OF THE UNIVERSITY OF ICELAND Pall Skulason [sign.] ON BEHALF OF ISLENSK ERFDAGREINING EHF. Kari Stefansson [sign.] ON BEHALF OF THE CITY OF REYKJAVIK Ingibjorg Solrun Gisladottir [sign.] Witnessed by: Kristin A. Arnadottir [sign.] EX-10.44 47 FORM OF EMPLOYEE CONFIDENTIALITY 1 Exhibit 10.44 EMPLOYEE CONFIDENTIALITY, INVENTION ASSIGNMENT AND NON-COMPETE AGREEMENT THIS EMPLOYEE CONFIDENTIALITY, INVENTION ASSIGNMENT AND NON-COMPETE AGREEMENT ("Agreement") is made as of _________________________________________, between deCODE genetics, Inc. (the "Company"), and _____________________________ ("Employee"). In consideration of the Employee's employment or continued employment by the Company, with the intention that this Agreement shall apply to the entire period of Employee's employment with Inspire (including the period prior to the date of this Agreement), the Employee hereby agrees as follows: 1. CONFIDENTIAL INFORMATION DEFINED. "Confidential Information" means trade secrets, proprietary information, and confidential knowledge and information which includes, but is not limited to, matters of a technical nature (such as discoveries, ideas, concepts, designs, drawings, specifications, techniques, models, diagrams, test data, scientific methods and know-how), and matters of a business nature (such as the identity of customers and prospective customers, the nature of work being done for or discussed with customers or prospective customers, suppliers, marketing techniques and materials, marketing and development plans, pricing or pricing policies, financial information, plans for further development, and any other information of a similar nature not available to the public). 2. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION OF THE COMPANY. Employee acknowledges that, during the period of Employee's employment with the Company, Employee has had or will have access to Confidential Information of the Company. Therefore, Employee agrees that both during and after the period of Employee's employment with the Company, Employee shall not, without the prior written approval of the Company, directly or indirectly (a) reveal, report, publish, disclose or transfer any Confidential Information the Company to any person or entity, or (b) use any Confidential Information of the Company for any purpose or for the benefit of any person or entity, except as may be necessary in the performance of Employee's work for the Company. 3. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION OF OTHERS. Employee acknowledges that, during the period of Employee's employment with the Company, Employee may have had or will have access to Confidential Information of third parties who have given the Company the right to use such Confidential Information, subject to a non-disclosure agreement between the Company and such third party. Therefore, Employee agrees that both during and after the period of Employee's employment with the Company, Employee shall not, without the prior written approval of the Company, directly or indirectly (a) reveal, report, publish, disclose or transfer any Confidential Information of such third parties to any person or entity, or (b) use any Confidential Information of such third parties for any purpose or for the benefit of any person or entity, except as may be 1 2 necessary in the performance of Employee's work for the Company. 4. PROPERTY OF THE COMPANY. Employee acknowledges and agrees that all Confidential Information of the Company and all reports, drawings, blueprints, data, notes, and other documents and records, whether printed, typed, handwritten, videotaped, transmitted or transcribed on data files or on any other type of media, made or compiled by Employee, or made available to Employee, during the period of Employee's employment with the Company (including the period prior to the date of this Agreement) concerning the Company's Confidential Information are and shall remain the Company's property and shall be delivered to the Company within five (5) business days after the termination of such employment with the Company or at any earlier time on request of the Company. Employee shall not retain copies of such Confidential Information, documents and records. 5. PROPRIETARY NOTICES. Employee shall not, and shall not permit any other person to, remove any proprietary or other legends or restrictive notices contained in or included in any Confidential Information. 6. INVENTIONS. (a) Employee shall promptly, from time to time, fully inform and disclose to the Company in writing all inventions, copyrightable material, designs, improvements and discoveries of any kind which Employee now has made, conceived or developed (including prior to the date of this Agreement), or which Employee may later make, conceive or develop, during the period of Employee's employment with the Company, which pertain to or relate to the Company's business or any of the work or businesses carried on by the Company ("Inventions"). This covenant applies to all such Inventions, whether or not they are eligible for patent, copyright, trademark, trade secret or other legal protection; and whether or not they are conceived and/or developed by Employee alone or with others; and whether or not they are conceived and/or developed during regular working hours; and whether or not they are conceived and/or developed at the Company's facility or not. (b) All Inventions shall be the sole and exclusive property of the Company, and shall be deemed part of the Confidential Information of the Company for purposes of this Agreement, whether or not fixed in a tangible medium of expression. Employee hereby assigns all Employee's rights in all Inventions and in all related patents, copyrights and trademarks, trade secrets and other proprietary rights therein to the Company. Without limiting the foregoing, Employee agrees that any copyrightable material shall be deemed to be "works made for hire" and that the Company shall be deemed the author of such works under the United States Copyright Act, provided that in the event and to the extent such works are determined not to constitute "works made for hire", Employee hereby irrevocably assigns and transfers to the Company all right, title and interest in such works. (c) Employee shall assist and cooperate with the Company, both during and after the period of Employee's employment with the Company, at the Company's sole expense, to allow the Company to obtain, maintain and enforce patent, copyright, trademark, trade secret and other legal protection for the Inventions. Employee shall sign 2 3 such documents, and do such things necessary, to obtain such protection and to vest the Company with full and exclusive title in all Inventions against infringement by others. Employee hereby appoints the Secretary of the Company as Employee's attorney-in-fact to execute documents on Employee's behalf for this purpose. (d) Employee shall not be entitled to any additional compensation for any and all Inventions made during the period of Employee's employment with the Company. 7. COVENANT NOT TO COMPETE. Employee and the Company agree that the services rendered by the Employee are unique and irreplaceable, and that competitive use and knowledge of any Confidential Information would substantially and irreparably injure the Company's business, prospects and good will. Employee and the Company also agree that the Company's business is global in nature due to the type of products and/or services being provided. Therefore, Employee agrees that during the period of Employee's employment with the Company and for a period of two (2) years thereafter, Employee shall not, directly or indirectly, through any other person, firm, corporation or other entity (whether as an officer, director, employee, partner, consultant, holder of equity or debt investment, lender or in any other manner or capacity): (a) develop, sell, market, offer to sell products and/or services anywhere in the world similar to that being developed, offered or sold by the Company on the date of the termination of Employee's employment with the Company for any reason; (b) solicit, induce, encourage or attempt to induce or encourage any employee or consultant of the Company to terminate his or her employment or consulting relationship with the Company, or to breach any other obligation to the Company; (c) solicit, interfere with, disrupt, alter or attempt to disrupt or alter the relationship, contractual or otherwise, between the Company and any other person including, without limitation, any consultant, contractor, customer, potential customer, or supplier of the Company; or (d) engage in or participate in any business conducted under any name that shall be the same as or similar to the name of the Company or any trade name used by the Company. Employee acknowledges that the foregoing geographic, activity and time limitations contained in this Section 7 are reasonable and properly required for the adequate protection of the Company's business. In the event that any such geographic, activity or time limitation is deemed to be unreasonable by a court, Employee shall submit to the reduction of either said activity or time limitation to such activity or period as the court shall deem reasonable. In the event that Employee is in violation of the aforementioned restrictive covenants, then the time limitation thereof shall be extended for a period of time equal to the pendency of such proceedings, including appeals. 3 4 8. REPRESENTATIONS. Employee represents that Employee has the right to enter into this Agreement, and that Employee's performance of all the terms of this Agreement and his duties as an employee of the Company will not breach any confidential information agreement, non-competition agreement or other agreement with any former employer of his services, either as an employee, consultant, contractor or independent contractor, or with any other party. Employee represents that Employee will not disclose to the Company any trade secrets or confidential or proprietary information of any third party that are not generally available to the public. 9. DISCLOSURE OF THIS AGREEMENT. Employee hereby authorizes the Company to notify others, including but not limited to customers of the Company and any of Employee's future employers, of the terms of this Agreement and Employee's responsibilities under this Agreement. 10. SPECIFIC PERFORMANCE. Employee acknowledges that money damages alone would not adequately compensate the Company in the event of a breach or threatened breach by Employee of this Agreement, and that, in addition to all other remedies available to the Company at law or in equity, the Company shall be entitled to injunctive relief for the enforcement of its rights and to an accounting of profits made during the period of such breach. 11. NO RIGHTS GRANTED. Employee understands that nothing in this Agreement shall be deemed to constitute, by implication or otherwise, the grant by the Company to the employee of any license or other right under any patent, patent application or other intellectual property right or interest belonging to the Company. 12. SEVERABILITY. (a) Each of the covenants provided in this Agreement are separate and independent covenants. If any provision of this Agreement shall be determined to be invalid or unenforceable, the remainder of this Agreement shall not be affected thereby and any such invalid or unenforceable provision shall be reformed so as to be valid and enforceable to the fullest extent permitted by law. (b) It is not a defense to the enforcement of any provision of this Agreement that the Company has breached or failed to perform any obligation or covenant hereunder or under any other agreement or understanding between Employee and the Company. 13. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to conflict of law rules. 14. SUPERSEDES OTHER AGREEMENTS. This Agreement contains the entire agreement of the parties with respect to subject matter hereof and supersedes all previous agreements and understandings between the parties with respect to its subject matter. 4 5 15. AMENDMENTS. This Agreement may not be changed, modified, released, discharged, abandoned or otherwise terminated in whole or in part except by an instrument in writing, agreed to and signed by the Employee and a duly authorized officer of the Company. 16. ACKNOWLEDGEMENTS. THE EMPLOYEE ACKNOWLEDGES THAT (i) THE EMPLOYEE HAS READ AND FULLY UNDERSTANDS THIS AGREEMENT; (ii) THE EMPLOYEE HAS BEEN GIVEN THE OPPORTUNITY TO ASK QUESTIONS; (iii) THE EMPLOYEE HAS RECEIVED A COPY OF THIS AGREEMENT, THE ORIGINAL OF WHICH WILL BE RETAINED IN THE EMPLOYEE'S PERSONNEL FILE; AND (iv) THE EMPLOYEE'S OBLIGATIONS UNDER THIS AGREEMENT SURVIVE THE TERMINATION OF THE EMPLOYEE'S EMPLOYMENT WITH THE COMPANY FOR ANY REASON. * * * IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. deCODE genetics, Inc. By: _____________________________________ Name: ___________________________________ Title: __________________________________ WITNESS OR ATTEST: EMPLOYEE: _______________________________ __________________________________ Name: ___________________________________ Address: ________________________________ 5 EX-21.1 48 SUBSIDIARIES OF DECODE GENETICS, INC. 1 EXHIBIT 21.1 Subsidiaries of the deCODE genetics, Inc. Islensk erfdagreining ehf., an Icelandic private limited company EX-23.1 49 CONSENT OF PRICEWATERHOUSECOOPERS EHF 1 [EXHIBIT 23.1] CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on form S-1 of our report dated March 8, 2000 relating to the consolidated financial statements of deCODE genetics, Inc., which appears in such Registration Statement. We also consent to the references to us under the headings "Experts" and "Selected Consolidated Financial Data" in such Registration Statement. PricewaterhouseCoopers ehf. Reykjavik, Iceland March 8, 2000 EX-27.1 50 FINANCIAL DATA SCHEDULE
5 EXHIBIT 27.1 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OUR DECEMBER 31, 1997, 1998 AND 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR YEAR YEAR DEC-31-1997 DEC-31-1998 DEC-31-1998 JAN-01-1997 JAN-01-1998 JAN-01-1999 DEC-31-1997 DEC-31-1998 DEC-31-1999 2,714,225 25,075,844 29,668,249 0 0 0 226,984 979,998 35,695,960 0 0 0 0 0 0 2,941,209 26,055,842 65,364,209 2,824,824 14,528,695 17,802,672 590,810 2,044,422 4,794,035 6,770,492 38,540,115 79,130,186 2,743,285 6,657,829 26,071,030 1,331,156 6,946,330 4,874,291 0 0 0 12,603,990 42,044,519 116,209,595 6,035 9,382 9,604 (9,907,939) (17,117,945) (68,034,334) 6,770,492 38,540,115 79,130,186 0 12,705,000 16,444,075 0 12,705,000 16,444,075 0 0 0 8,047,780 24,175,566 39,687,249 0 0 1,484,081 0 0 0 8,461 (562,336) 1,549,481 8,056,241 10,908,230 23,177,774 0 0 0 8,056,241 10,908,230 23,177,774 0 0 0 (620,385) (2,571,523) 38,429,831 0 0 0 (8,676,626) (13,479,753) (61,607,605) (3.85) (3.06) (9.56) (3.85) (3.06) (9.56)
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