Ambit Bio Sciences AMBT 20101105 S1 0

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FORM S-1
AMBIT BIOSCIENCES CORP - AMBT
Filed: November 05, 2010 (period: )
General form for registration of securities under the Securities Act of 1933
Table of Contents As filed with the Securities and Exchange Commission on November 5, 2010 Registration No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AMBIT BIOSCIENCES CORPORATION

(Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 2834 (Primary Standard Industrial Classification Code Number) 33-0909648 (I.R.S. Employer Identification Number)
4215 Sorrento Valley Boulevard San Diego, California 92121 (858) 334-2100 (Address, including zip code, and telephone number, including area code, of registrants principal executive offices) Alan J. Lewis, Ph.D. President and Chief Executive Officer Ambit Biosciences Corporation 4215 Sorrento Valley Blvd. San Diego, California 92121 (858) 334-2100 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Thomas A. Coll, Esq. Kenneth J. Rollins, Esq. Cooley LLP 4401 Eastgate Mall San Diego, California 92121 (858) 550-6000 Alan F. Denenberg, Esq. Davis Polk & Wardwell LLP 1600 El Camino Real Menlo Park, California 94025 (650) 752-2000
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer x (Do not check if a smaller reporting company) Smaller reporting company
CALCULATION OF REGISTRATION FEE Title of each class of securities to be registered Common Stock, $0.001 par value per share (1) (2) Proposed maximum aggregate offering price (1) $86,250,000 Amount of registration fee (2) $6,150
Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. Includes the offering price of shares that the underwriters have the option to purchase to cover over-allotments, if any. Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum offering price.
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 Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010
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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.
Subject to completion, dated November 5, 2010
Shares
COMMON STOCK
This is the initial public offering of common stock of Ambit Biosciences Corporation. We are selling shares of common stock. Prior to this offering, there has been no public market for our common stock. The initial public offering price of our common stock is expected to be between $ and $ per share.
We expect to apply for listing of our common stock on the Nasdaq Global Market under the symbol AMBT.
Per Share
Total
Initial public offering price Underwriting discounts and commissions Proceeds to Ambit, before expenses We have granted the underwriters an option to purchase up to
$ $ $ additional shares of common stock to cover over-allotments.
$ $ $
Investing in our common stock involves risks. See Risk Factors beginning on page 9.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The underwriters expect to deliver the shares on or about , 2011.
J.P.Morgan
Leerink Swann Wedbush PacGrow Life Sciences , 2011
Credit Suisse
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TABLE OF CONTENTS
Page Page
Prospectus Summary The Offering Summary Consolidated Financial Information Risk Factors Cautionary Note Regarding Forward-Looking Statements Use of Proceeds Dividend Policy Industry and Market Data Capitalization Dilution Selected Consolidated Financial Data Managements Discussion and Analysis of Financial Condition and Results of Operations
1 5 7 9 36 37 37 37 38 41 43 46
Business Management Executive and Director Compensation Related Party Transactions Principal Stockholders Description of Capital Stock Shares Eligible for Future Sale Material U.S. Federal Income Tax Consequences to Non-U.S. Holders Underwriting Legal Matters Experts Where You Can Find More Information Index to Financial Statements
66 93 102 129 134 139 145 148 151 155 155 155 F-1
We have not authorized anyone to provide you with any information other than that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus may only be used where it is legal to offer and sell shares of our common stock. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock. Until , 2011 (25 days after the commencement of this offering), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. For investors outside the United States: We have not and the underwriters have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States. i
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PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the Risk Factors section beginning on page 9 and our consolidated financial statements and the related notes beginning on page F-1, before making an investment decision. Overview Ambit Biosciences Corporation is a biotechnology company engaged in discovering, developing and commercializing targeted small molecule therapeutics for the treatment of cancer. Our drug candidates are directed against an important family of enzymes called kinases, known to be involved in a range of human diseases. We are developing our lead drug candidate, quizartinib (formerly AC220), for the treatment of acute myeloid leukemia, or AML, under our global collaboration with Astellas Pharma Inc. and Astellas US LLC, collectively Astellas. Quizartinib is a once-daily, orallyadministered, potent and selective kinase inhibitor currently in a pivotal Phase 2 clinical trial as monotherapy in relapsed/refractory AML. According to the American Cancer Society, approximately 13,000 adults were newly diagnosed with AML in 2009 in the United States with approximately 9,000 expected to die of the disease in that year. Quizartinib is being developed in concert with a companion diagnostic test to identify and treat the approximately one-third of AML patients with activating mutations in the FLT3 gene that drive a particularly aggressive and deadly form of this disease. We believe a targeted and personalized medicine approach to the treatment of AML has significant potential to improve patient outcomes and may transform what is an aggressive and deadly disease into a manageable condition. Novartis Gleevec (imatinib), a targeted kinase inhibitor, accomplished a similar transformation in the treatment of chronic myeloid leukemia. In addition to quizartinib, we have a pipeline of kinase inhibitors aimed at addressing significant unmet medical needs with potential advantages over existing therapeutics. Based on the positive efficacy and tolerability observed in our 76-patient Phase 1/2 clinical trial and subsequent discussions with the United States Food and Drug Administration, or FDA, in November 2009 we initiated a single-arm, open-label pivotal Phase 2 clinical trial of quizartinib as monotherapy in relapsed/refractory AML patients. This trial is designed to evaluate the efficacy and safety of quizartinib in relapsed/refractory AML patients with internal tandem duplication, or ITD, mutations in the FLT3 gene, which we refer to as FLT3-ITD positive. ITD mutations account for the majority of activating mutations in FLT3. We plan to enroll at least 180 patients worldwide and have enrolled 100 patients as of November 1, 2010. The trial is designed to measure the rate of complete response, or CR, complete response rate with incomplete platelet recovery, or CRp, complete response rate with incomplete neutrophil recovery, or CRi, and partial response, or PR. The co-primary endpoints of the trial are (1) CR and (2) composite complete response, or CR + CRp + CRi. Secondary endpoints include duration of remission, disease-free survival and overall survival. Our pivotal Phase 2 clinical trial included an interim data analysis once 60 patients received at least one cycle of treatment, which occurred in September 2010. Clinical trial site-read data from this interim analysis has shown that 52% of patients exhibited a composite complete response, consisting of 5% CR, 7% CRp and 40% CRi. An additional 25% exhibited a partial response. These data are preliminary and may vary following central pathology review. A drug safety monitoring committee meeting will be held in the fourth quarter of 2010 to discuss any modifications to the trial. We anticipate enrollment in the trial will be completed during the first half of 2011 and expect to report data within six months of completion of enrollment. If successful, this trial is expected to form the basis for a new drug application, or NDA, to be submitted to the FDA for the accelerated approval of quizartinib as monotherapy for relapsed/refractory AML patients. In addition to our ongoing pivotal Phase 2 clinical trial of quizartinib in relapsed/refractory AML, we plan to initiate trials to evaluate the efficacy of quizartinib when combined with chemotherapy and subsequently as monotherapy maintenance in newly diagnosed AML patients, and as monotherapy in AML patients without the 1
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FLT3-ITD mutation. Since quizartinib is a potent inhibitor of a second receptor tyrosine kinase, KIT, we are also planning to explore the use of quizartinib as a treatment for certain solid tumors, including gastrointestinal stromal tumors, or GIST, and melanoma. Beyond quizartinib, we have a pipeline of kinase inhibitors in development for the treatment of various cancers. In October 2007, we licensed from Bristol-Myers Squibb Company, or BMS, exclusive worldwide rights to AC480, a once-daily, orally-administered, potent and selective inhibitor of the HER family of receptors. We are studying the oral formulation of AC480 in a Phase 1 clinical trial in patients with glioblastoma multiforme, or GBM. We also expect to advance an intravenous, or IV, formulation of AC480 into Phase 1 clinical trials in the fourth quarter of 2010 for the treatment of various solid tumors, including metastatic breast cancer and non-small cell lung cancer, or NSCLC. Our preclinical pipeline includes AC430, an orally-administered, potent and selective inhibitor of JAK2, AC710, an orally-administered, potent inhibitor of CSF1R, and CEP-32496, a B-raf kinase inhibitor being developed by Cephalon. An investigational new drug application, or IND, for AC430 was filed in September 2010 and we expect to initiate a Phase 1 clinical trial for AC430 in the fourth quarter of 2010. We expect to initiate IND-enabling studies for AC710 in 2011. We believe our drug discovery capability, coupled with the panel of 442 kinase assays developed by us, provides a distinct competitive advantage that enables us to advance kinase inhibitors into clinical development more quickly and efficiently than our competitors. Since 2005, we have selected and advanced five kinase inhibitor drug candidates into preclinical and clinical development: quizartinib, AC480, AC430, AC710, and CEP-32496. Our Pipeline of Targeted Therapies The following table summarizes the status of our product pipeline:
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Our Strategy Our objective is to develop and commercialize products that treat serious unmet medical needs in patients suffering from cancer. The key components of our business strategy are: Develop and commercialize our lead drug candidate, quizartinib, in AML and certain solid tumors in partnership with Astellas. Advance our pipeline of clinical and preclinical drug candidates. Establish strategic partnerships to accelerate development timelines and maximize the commercial potential of our drug candidates. Leverage our discovery capabilities and our understanding of the human kinome to be a leading company in the discovery and development of targeted kinase drugs. Build capabilities to allow us to effectively commercialize our drug candidates.
Our Collaboration with Astellas In December 2009, we entered into a worldwide agreement with Astellas to jointly research, develop and commercialize FLT3 kinase inhibitors. As partial consideration for the exclusive license rights granted to Astellas, we received an upfront payment of $40.0 million. In addition, we may receive payments of up to $350.0 million upon the achievement of development and regulatory milestones. We are also entitled to receive tiered double-digit royalty payments on sales as well as annual sales-based milestones. The agreement provides that we and Astellas will conduct a joint fiveyear research program related to certain designated follow-on compounds to quizartinib. We share development costs in the United States and European Union and research costs on follow-on compounds equally with Astellas. Astellas is responsible for all other development costs and costs associated with commercialization of products covered by the agreement. We retain the right to co-promote and share profits with Astellas on both quizartinib and any follow-on drugs in the United States. Risks Associated with Our Business Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the Risk Factors section of this prospectus beginning on page 9. In particular: We are dependent on the success of our lead product candidate, quizartinib, which is still in clinical development, and we cannot give any assurance that it, or any other product candidates, will receive regulatory approval, which is necessary before they can be commercialized. We share oversight of the development of quizartinib globally with Astellas and therefore depend upon Astellas in our efforts to obtain regulatory approval and to commercialize quizartinib. Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. The FDA regulatory approval process is lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for quizartinib, our business will be substantially harmed. We face significant competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively. We have a limited operating history, have incurred significant operating losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. 3
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If our efforts to protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not be able to compete effectively in our market. If we fail to obtain additional financing we may be unable to complete the development and commercialization of quizartinib or other product candidates, or continue our research and development programs.
Our Corporate Information We were incorporated as Aventa Biosciences Corporation in Delaware in May 2000. We changed our name to Ambit Biosciences Corporation in November 2001. Our principal executive offices are located at 4215 Sorrento Valley Blvd., San Diego, California 92121, and our telephone number is (858) 334-2100. Our website address is www.ambitbio.com. The information contained on, or that can be accessed through, our website is not a part of this prospectus. Investors should not rely on any such information in deciding whether to purchase our common stock. We have included our website address in this prospectus solely as an inactive textual reference. Unless the context indicates otherwise, as used in this prospectus, the terms Ambit, Ambit Biosciences we, us and our refer to Ambit Biosciences Corporation, a Delaware corporation, and its subsidiaries taken as a whole, unless otherwise noted. We use AMBIT as a registered trademark in the United States, European Union and Japan. This prospectus also includes references to trademarks and service marks of other entities, and those trademarks and service marks are the property of their respective owners. 4
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THE OFFERING Common stock offered Common stock to be outstanding after this offering Over-allotment option Use of proceeds shares shares shares We estimate that the net proceeds from this offering will be approximately $ million, or approximately $ million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We expect to use the net proceeds from this offering to fund development and commercialization of quizartinib, our lead product candidate, to fund the development of our other product candidates and for working capital and other general corporate purposes. See Use of Proceeds on page 37 for a more complete description of the intended use of proceeds from this offering. You should read the Risk Factors section of this prospectus beginning on page 9 for a discussion of factors to consider carefully before deciding to invest in shares of our common stock. AMBT
Risk Factors
Proposed Nasdaq Global Market symbol
The number of shares of our common stock to be outstanding after this offering is based on shares of common stock outstanding as of October 31, 2010 after giving effect to the conversion of all of our convertible preferred stock into common stock upon the closing of this offering and excludes: 5,839,779 shares of common stock issuable upon exercise of stock options outstanding as of October 31, 2010 at a weighted-average exercise price of $1.14 per share; an aggregate of 452,470 shares of common stock reserved for future issuance under our 2001 equity incentive plan as of October 31, 2010 and an aggregate of additional shares of common stock that will be available under our 2010 equity incentive plan, our 2010 nonemployee directors stock award plan and our 2010 employee stock purchase plan upon the closing of this offering; and 3,189,163 shares of common stock issuable upon the exercise of warrants outstanding as of October 31, 2010 at a weighted-average exercise price of $1.79 per share.
Unless otherwise noted, the information in this prospectus assumes: a - for reverse stock split of our common stock to be effected prior to the closing of this offering;
the filing of our restated certificate of incorporation and the adoption of our restated bylaws as of the closing date of this offering; no exercise by the underwriters of their option to purchase shares of common stock to cover over-allotments; the issuance by us of 1,538,461 shares of our Series C-2 redeemable convertible preferred stock and 612,649 shares of Series D redeemable convertible preferred stock prior to the closing of this offering upon exercise of a put right held by GrowthWorks Canadian Fund Ltd., or the GrowthWorks put right; 5
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the conversion of all of our outstanding shares of convertible preferred stock, including the shares issued upon exercise of the GrowthWorks put right, into an aggregate of 24,608,183 shares of common stock upon the closing of this offering; the adjustment of all outstanding warrants to purchase shares of our convertible preferred stock into warrants to purchase 649,573 shares of common stock upon the closing of this offering; the issuance of shares of our common stock upon the closing of this offering as a result of the automatic conversion of $13.3 million of secured convertible notes (including accrued interest thereon) that we issued in September 2010 assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and assuming the conversion occurs on , 2011 (for purposes of calculating the accrued interest on the notes to be converted into shares of common stock); and the issuance of shares of our common stock upon the closing of this offering as a result of the automatic exercise of a warrant that we issued in September 2010 in connection with the issuance by Ambit Canada of a note for $1.7 million, which note will be cancelled concurrently with the automatic exercise of the warrant, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and assuming the exercise occurs on , 2011 (for purposes of calculating the accrued interest on the note and the associated number of exercise shares). 6
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION The following summary consolidated financial information should be read together with our financial statements and accompanying notes and Managements Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this prospectus. The summary financial data in this section are not intended to replace our financial statements and the related notes. Our historical results are not necessarily indicative of our future results. The summary statement of operations data for the years ended December 31, 2007, 2008 and 2009 are derived from our audited financial statements appearing elsewhere in this prospectus. The summary statement of operations data for the six months ended June 30, 2009 and 2010 are derived from our unaudited financial statements appearing elsewhere in this prospectus. The unaudited financial statements have been prepared on a basis consistent with our audited financial statements included in this prospectus and include, in our opinion, all adjustments, consisting of normal recurring adjustments necessary for the fair presentation of the financial information in those statements.
Years Ended December 31, 2008 2009 Six Months Ended June 30, 2009 2010 (unaudited) (in thousands except share and per share data)
2007
Statement of Operations Data: Revenues: Collaboration arrangements Kinase profiling services (held-for-sale) Total revenues Operating expenses: Research and development General and administrative In-process research and development Cost of kinase profiling services revenue (held-for-sale) Total operating expenses Loss from operations Other income (expense): Interest expense Other income (expense) Change in fair value of redeemable convertible preferred stock warrant liabilities Total other income (expense) Loss before income taxes Provision for (benefit from) income taxes Consolidated net loss Net loss attributable to redeemable non-controlling interest Net loss attributable to Ambit Biosciences Corporation Accretion to redemption value of redeemable convertible preferred stock Change in fair value of redeemable non-controlling interest Net loss attributable to common stockholders Net loss per share attributable to common stockholders, basic and diluted(1) Weighted-average shares outstanding, basic and diluted (1) Pro forma net loss per share, basic and diluted (unaudited) (1) Weighted-average pro forma shares outstanding, basic and diluted (unaudited) (1) (1)
3,621 10,692 14,313 19,386 6,466 25,000 2,993 53,845 (39,532) (1,874) 946 278 (650) (40,182) 196 (40,378) 411 (39,967) (3,867) (180)
3,621 24,480 28,101 26,884 6,581 4,194 37,659 (9,558) (1,736) 1,202 258 (276) (9,834) (9,834) 86 (9,748) (61) 1,737
3,466 14,647 18,113 29,280 5,788 3,777 38,845 (20,732) (4,899) (364) (658) (5,921) (26,653) (191) (26,462) 2,177 (24,285) (61) (7,567)
1,810 6,917 8,727 13,512 2,991 1,821 18,324 (9,597) (701) (77) (132) (910) (10,507) (10,507) 698 (9,809) (31) (1,753)
9,993 3,860 13,853 18,494 4,501 882 23,877 (10,024) (9,185) (1) (90) (9,276) (19,300) (19,300) 1,184 (18,116) (31) (1,414)
$ (44,014) $ (47.30) 930,465
$ (8,072) $ (8.38) 963,390
$ $ $
(31,913) (15.47) 2,063,489 (1.37) 18,828,136
$ (11,593) $ (11.97) 968,123
$ $ $
(19,561) (6.03) 3,242,898 (0.91) 21,139,162
Please see Note 1 to our consolidated financial statements for an explanation of the method used to calculate the historical and pro forma net loss per share attributable to common stockholders and the number of shares used in computation of the per share amounts. 7
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The following table sets forth our summary balance sheet data as of June 30, 2010 (unaudited): on an actual basis; on a pro forma basis to give effect to: (1) the issuance by us of 1,538,461 shares of our Series C-2 redeemable convertible preferred stock and 612,649 shares of Series D redeemable convertible preferred stock prior to the closing of this offering upon exercise of the GrowthWorks put right and the resultant reclassification of our redeemable non-controlling interest to additional paid-in capital, a component of stockholders deficit; the conversion of all of our outstanding shares of convertible preferred stock, including the shares issued upon the exercise of the GrowthWorks put right, into an aggregate of 24,608,183 shares of common stock upon the closing of this offering; and the adjustment of all of our outstanding warrants to purchase convertible preferred stock into warrants to purchase 649,573 shares of common stock upon the closing of this offering, and the resultant reclassification of our redeemable convertible preferred stock warrant liabilities to additional paid-in capital, a component of stockholders deficit;
(2) (3)
on a pro forma as adjusted basis to additionally give effect to the sale of shares of common stock in this offering, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus), after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
As of June 30, 2010 Actual Pro Forma (unaudited, in thousands) Pro Forma as Adjusted
Balance Sheet Data: Cash and cash equivalents Working capital Total assets Redeemable convertible preferred stock warrant liabilities Redeemable non-controlling interest Notes payable Redeemable convertible preferred stock Convertible preferred stock Accumulated deficit Total stockholders deficit 8 $ 31,287 23,195 40,791 2,441 11,419 11,158 95,893 13,752 (158,679) (138,074) $ 31,287 23,195 40,791 11,158 (158,679) (14,569) $
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RISK FACTORS Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this prospectus, including our financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our common stock. If any of the following risks actually occurs, our business, prospects, operating results and financial condition could suffer materially, the trading price of our common stock could decline and you could lose all or part of your investment. Risks Related to Our Business and Industry We are dependent on the success of our lead product candidate, quizartinib, which is still in clinical development, and we cannot give any assurance that it, or any other product candidates, will receive regulatory approval, which is necessary before they can be commercialized. Our future success is substantially dependent on our ability to obtain regulatory approval for, and then successfully commercialize quizartinib, our lead product candidate, which is currently in a pivotal Phase 2 clinical trial. Our other drug candidates are in earlier stages of development. Our business depends entirely on the successful development and commercialization of our product candidates. We currently generate no revenues from sales of any drugs, and we may never be able to develop a marketable drug. Quizartinib will require additional clinical development, evaluation of clinical, preclinical and manufacturing activities, regulatory approval in multiple jurisdictions, substantial investment and significant marketing efforts before we generate any revenues from product sales. The United States Food and Drug Administration, or FDA, has also informed us that an approved companion diagnostic is required in order to support the approval of quizartinib. We are not permitted to market or promote quizartinib, or any other product candidates, before we receive regulatory approval from the FDA, or comparable foreign regulatory authorities. We expect to file for initial regulatory approval of quizartinib for the treatment of certain patients with acute myeloid leukemia, or AML, based on our current pivotal Phase 2 clinical trial and our planned initiation of a Phase 3 clinical trial in the second half of 2011. We cannot anticipate when or if we will seek regulatory review of quizartinib for any other indications. We have not previously submitted a New Drug Application, or NDA, to the FDA, or similar foreign authorities, for quizartinib or received marketing approval for quizartinib, and we cannot be certain that this product candidate will be successful in clinical trials or receive regulatory approval. If we do not receive regulatory approvals and successfully commercialize quizartinib, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market quizartinib, our revenues will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval and have commercial rights. If the markets for the treatment of AML are not as significant as we estimate, our business and prospects will be harmed. We, with our partners Astellas Pharma Inc. and Astellas US LLC, or collectively Astellas, plan to seek regulatory approval to commercialize quizartinib both in the United States and in some foreign countries. While the scope of regulatory approval is similar in other countries, in some countries there are additional regulatory risks and we cannot predict success in these jurisdictions. We share oversight of the development of quizartinib globally with Astellas and therefore depend upon Astellas in our efforts to obtain regulatory approval and to commercialize quizartinib. We jointly research and develop FLT3 kinase inhibitors, including quizartinib, in oncology and non-oncology indications with Astellas. Astellas plays a significant role in the conduct of the clinical trials and the subsequent collection and analysis of data. Employees of Astellas are not our employees, and we have limited ability to control the amount of time or resources they devote to quizartinib or other compounds covered by our collaboration. If Astellas is unable to perform in a manner consistent with the standard contemplated by our agreement, it may delay the potential approval of our regulatory applications as well as the potential commercialization and manufacturing of quizartinib. A material breach by Astellas of our collaboration 9
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agreement may also delay potential regulatory approval and commercialization of quizartinib. Moreover, although we have non-compete restrictions in place with Astellas, Astellas may have relationships with other commercial entities, some of which may compete with us. Astellas may also elect to focus its resources and priorities on other programs that it is pursuing rather than on quizartinib. If Astellas assists our competitors or fails to adequately support the quizartinib program, it could harm our competitive position. We will rely on Genoptix, Inc. to obtain marketing clearance or approval of the companion diagnostic test for quizartinib. There is no guarantee that the FDA will grant timely clearance or approval of this test, if at all, and failure to obtain such timely clearance or approval would adversely affect our ability to obtain approval for quizartinib. We are initially seeking approval of quizartinib in relapsed/refractory AML patients with internal tandem duplication, or ITD, mutations in the FLT3 gene, which we refer to as FLT3-ITD positive. The initial proposed drug label being sought for quizartinib specific to this patient population would indicate a potential for enhanced efficacy and/or a greater likelihood of a positive response in patients that carry the FLT3-ITD positive genotype. Accordingly, the pivotal trial designed to obtain marketing approval for quizartinib uses a diagnostic test to select patients that are FLT3-ITD positive. In the United States, the FDA requires that the diagnostic test used to select patients in a pivotal trial be approved in parallel with the drug candidate as a companion diagnostic. As a result, we believe it will be critical to the approval of quizartinib to develop a companion genetic test to test for the FLT3-ITD positive genotype. Companion diagnostic tests are subject to regulation by the FDA and may, in the future, become subject to regulation by comparable agencies in various foreign countries. The process of complying with the requirements of the FDA and possibly of comparable agencies is costly, time consuming and burdensome. We have entered into an agreement with Genoptix, Inc., or Genoptix, pursuant to which Genoptix will be responsible for determining the appropriate regulatory pathway for the companion diagnostic and obtaining market clearance or approval from the FDA. Based on FDA guidance, Genoptix will need to submit a Pre Market Approval application, or PMA, for such test, which we anticipate will happen in parallel with our submission of an NDA for quizartinib. We do not believe that any clinical trials other than the quizartinib pivotal trial will be required for the companion diagnostic test PMA. However, the FDA may require Genoptix to perform further tests requiring access to patient samples for the test submission and/or future products. We intend to provide access to patient samples to Genoptix for such purposes and our informed consents with clinical trial sites allow us to permit a third-party to test these samples, as required. Despite the time and expense expended, regulatory clearance or approval is never guaranteed. If regulatory clearance or approval is delayed, or if Genoptix is unable to obtain FDA approval of the companion diagnostic test at all or in parallel with the approval of quizartinib, or is unable to commercialize the test successfully and in a manner that effectively supports our commercial efforts, or if the information concerning the differential response to quizartinib resulting from certain genetic variation is not included in the approved label for quizartinib, the commercial launch of quizartinib may be significantly and adversely affected. Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. Clinical testing is expensive and can take many years to complete, and its outcome is uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. We may experience delays in clinical trials of our product candidates. Quizartinib has completed a Phase 1/2 clinical trial for the treatment of AML. We initiated a pivotal Phase 2 clinical trial of quizartinib in patients with relapsed/refractory AML in the fourth quarter of 2009 and anticipate completing enrollment in the first half of 10
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2011. We anticipate that enrollment in this trial will be completed during the first half of 2011 and expect to report data within six months of completion of enrollment. We plan to initiate additional clinical trials in AML and other indications. We do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays related to: obtaining regulatory approval to commence a trial; reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; obtaining institutional review board approval at each site; recruiting suitable patients to participate in a trial; having patients complete a trial or return for post-treatment follow-up; clinical sites deviating from trial protocol or dropping out of a trial; adding new sites; or manufacturing sufficient quantities of product candidate for use in clinical trials.
Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians and patients perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating. Furthermore, we rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and while we have agreements governing their committed activities, we have limited influence over their actual performance. We could encounter delays if prescribing physicians encounter unresolved ethical issues associated with enrolling patients in clinical trials of our product candidates in lieu of prescribing existing treatments that have established safety and efficacy profiles. Further, a clinical trial may be suspended or terminated by us, our collaborators, the FDA or other regulatory authorities due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates. The FDA regulatory approval process is lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for quizartinib, our business will be substantially harmed. The time required to obtain approval by the FDA and similar foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials, depending upon numerous factors. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a products clinical development. We have not obtained regulatory approval for any product candidate. 11
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Our product candidates could fail to receive regulatory approval for many reasons, including the following: the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials; we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for any indication; the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval; we may be unable to demonstrate that a product candidates clinical and other benefits outweigh its safety risks; the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials; the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere; the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we or our collaborators contract for clinical and commercial supplies; the FDA may fail to approve the PMA for the companion diagnostic, and this may apply in other jurisdictions, if applicable; and the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.
Based on our consultation with the FDA and in light of the serious unmet need for the treatment of AML, we designed our current quizartinib pivotal Phase 2 clinical trial for AML patients with a FLT3 mutation as an open-label trial to be used as a registration trial for NDA approval. An openlabel trial allows for rapid patient enrollment and therefore a potentially faster regulatory approval process. However, open-label studies carry with them certain regulatory risks. In particular, results are determined based on the qualitative judgment of the FDA rather than pure statistics and the FDAs acceptance of the trial results to support NDA approval is uncertain. We may be required to suspend or discontinue clinical trials due to adverse side effects or other safety risks that could preclude approval of quizartinib or any of our future product candidates. Our clinical trials may be suspended or terminated at any time by us, our collaborators, institutional review boards, the FDA or other regulatory authorities for a number of reasons, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, unforeseen safety issues or adverse side effects for participants, failure to demonstrate a benefit from using the investigational drug, or negative or equivocal findings of the Data Safety Monitoring Board, or DSMB, or the institutional review board for a clinical trial. If we elect or are forced to suspend or terminate any clinical trial of any product candidates that we develop, the commercial prospects of such product candidates will be harmed and our ability to generate product revenues from any of these product candidates will be delayed or eliminated. Any of these occurrences may harm our business, financial condition and prospects significantly. To date, patients treated with quizartinib have experienced drug-related side effects including nausea, diarrhea, dysgeusia (the distortion of the sense of taste), peripheral edema (swelling of the legs), fever, vomiting, anemia, fatigue, headache, and abdominal pain. In addition, changes in ECG pattern called QTc prolongation have been observed. Such QTc prolongation may be associated with changes in electric conduction in the heart and may cause irregularities of the heart beat which could be potentially serious, life-threatening or fatal and require ECG monitoring and treatment. Results of our trials could reveal a high and unacceptable severity and 12
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prevalence of these or other side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The drugrelated side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly. Additionally if quizartinib receives marketing approval, and we or others later identify undesirable side effects caused by the product, a number of potentially significant negative consequences could result, including: regulatory authorities may withdraw approvals of quizartinib; regulatory authorities may require additional warnings on the label; we may be required to create a medication guide outlining the risks of such side effects for distribution to patients; we could be sued and held liable for harm caused to patients; and our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of quizartinib and could significantly harm our business, results of operations and prospects. If we, along with our partner, Astellas, fail to gain and maintain approval from regulatory authorities in international markets for quizartinib and any future product candidates for which we have rights in international markets, our market opportunities will be limited and our business will be adversely impacted. Sales of our product candidates outside of the United States will be subject to foreign regulatory requirements governing clinical trials and marketing approval. Even if the FDA grants marketing approval for a product candidate, comparable regulatory authorities of foreign countries must also approve the manufacturing and marketing of our product candidates in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the United States, including additional preclinical studies or clinical trials. In many countries outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for our product is also subject to approval. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and our partner, Astellas, and could delay the introduction of our products in certain countries. Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not ensure approval in any other country. In addition, the failure to obtain regulatory approval in any country may delay or have negative effects on the process for regulatory approval in others. None of our product candidates is approved for sale in any international market. If Astellas fails to comply with regulatory requirements in our international markets or to obtain and maintain required approvals, our target market will be reduced and our ability to generate revenues will be diminished, which would significantly harm our business, results of operations and prospects. If we are unable to obtain FDA approval of our product candidates, we will not be able to commercialize them in the United States and our business will be adversely impacted. We need FDA approval prior to marketing our product candidates in the United States. If we fail to obtain FDA approval to market our product candidates, we will be unable to sell our product candidates in the United States, which will significantly impair our ability to generate any revenues. This regulatory review and approval process, which includes evaluation of preclinical studies and clinical trials of our product candidates as well as the evaluation of our manufacturing processes and our third-party contract manufacturers facilities, is lengthy, expensive and uncertain. To receive approval, we must, among other things, demonstrate with substantial evidence from clinical trials that the product candidate is both safe and 13
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effective for each indication for which approval is sought, and failure can occur in any stage of development. Satisfaction of the approval requirements typically takes several years and the time needed to satisfy them may vary substantially, based on the type, complexity and novelty of the pharmaceutical product. We cannot predict if or when we might receive regulatory approvals for any of our product candidates currently under development. Moreover, any approvals that we obtain may not cover all of the clinical indications for which we are seeking approval, or could contain significant limitations in the form of narrow indications, warnings, precautions or contra-indications with respect to conditions of use. In such event, our ability to generate revenues from such products would be greatly reduced and our business would be harmed. The FDA has substantial discretion in the approval process and may either refuse to consider our application for substantive review or may form the opinion after review of our data that our application is insufficient to allow approval of our product candidates. If the FDA does not consider or approve our application, it may require that we conduct additional clinical, preclinical or manufacturing validation studies and submit that data before it will reconsider our application. Depending on the extent of these or any other studies, approval of any applications that we submit may be delayed by several years, or may require us to expend more resources than we have available. It is also possible that additional studies, if performed and completed, may not be successful or considered sufficient by the FDA for approval or even to make our applications approvable. If any of these outcomes occur, we may be forced to abandon one or more of our applications for approval, which might significantly harm our business and prospects. Even if we do receive regulatory approval to market a product candidate, any such approval may be subject to limitations on the indicated uses for which we may market the product. It is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain the appropriate regulatory approvals necessary for us or our collaborators to commence product sales. Any delay in obtaining, or an inability to obtain, applicable regulatory approvals would prevent us from commercializing our product candidates, generating revenues and achieving and sustaining profitability. Even if we receive regulatory approval for any of our product candidates, we will be subject to ongoing FDA obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products. Any regulatory approvals that we or our strategic partners receive for our product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. In addition, if the FDA approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current good manufacturing practices and good clinical practices for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things: restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls; fines, warning letters or holds on clinical trials; refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our strategic partners, or suspension or revocation of product license approvals; 14
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product seizure or detention, or refusal to permit the import or export of products; and injunctions or the imposition of civil or criminal penalties.
The FDAs policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business. We and our collaborators rely on third parties to conduct our preclinical and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we and our collaborators may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed. We have agreements with third-party CROs to provide monitors for and to manage data for our ongoing preclinical and clinical programs. We rely heavily on these parties for execution of our preclinical and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol. We and our CROs are required to comply with current good clinical practices, which are regulations and guidelines enforced by the FDA for all of our products in clinical development. The FDA enforces these good clinical practices regulations through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fails to comply with applicable good clinical practices regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA will determine that any of our clinical trials comply with good clinical practices regulations. In addition, our clinical trials must be conducted with product produced under good manufacturing practices regulations, and will require a large number of test subjects. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. Our CROs have the right to terminate their agreements with us in the event of an uncured material breach. In addition, some of our CROs have an ability to terminate their respective agreements with us if it can be reasonably demonstrated that the safety of the subjects participating in our clinical trials warrants such termination, if we make a general assignment for the benefit of our creditors or if we are liquidated. If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed. Switching or adding additional CROs involves substantial cost and requires extensive management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects. 15
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We will rely on Genoptix to develop the quizartinib companion diagnostic test and the product sales and profitability of quizartinib will suffer if Genoptix fails to do so. We have contracted with Genoptix to develop a companion diagnostic test for quizartinib. If Genoptix or its third-party suppliers were to cease or interrupt production of or otherwise fail to perform the companion diagnostic test, or the materials required to perform it, in a timely manner or at all, we could be unable to obtain a replacement laboratory for an indeterminate period of time. This could adversely affect our ability to satisfy demand for quizartinib, which could cause product sales and profitability of quizartinib to suffer and could have an adverse effect on our business, financial condition and prospects. We rely completely on third parties to manufacture our preclinical and clinical drug supplies and we intend to rely on third parties to produce commercial supplies of any approved product candidate, and our commercialization of any of our product candidates, including quizartinib, could be stopped, delayed or made less profitable if those third parties fail to obtain approval of the FDA, fail to provide us with sufficient quantities of drug product or fail to do so at acceptable quality levels or prices. The facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA pursuant to inspections that will be completed after we submit our NDA to the FDA. We do not control the manufacturing process of quizartinib and are completely dependent on our contract manufacturing partners for compliance with the FDAs requirements for manufacture of finished quizartinib drug product. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the FDAs strict regulatory requirements, they will not be able to secure and/or maintain FDA approval for the manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates. We rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates for our clinical trials. There are a small number of suppliers for certain capital equipment and raw materials that we use to manufacture our drugs. We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. Moreover, we currently do not have any agreements for the commercial production of these raw materials. Although we generally do not begin a clinical trial unless we believe we have a sufficient supply of a product candidate to complete the clinical trial, any significant delay in the supply of a product candidate or the raw material components thereof for an ongoing clinical trial due to the need to replace a third- party manufacturer could considerably delay completion of our clinical trials, product testing and potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these raw materials after regulatory approval has been obtained for our product candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of our product candidates. In addition, we do not have the capability to package quizartinib finished drug product for distribution to hospitals and other customers. Consequently, we have entered into an agreement with a contract manufacturer to supply us with finished product. Prior to commercial launch, we intend to enter into a similar agreement with an alternate fill/finish drug product supplier for quizartinib so that we can ensure proper supply chain management once we are authorized to make commercial sales of quizartinib. Once finalized, we expect that the selected alternate supplier will provide us with finished drug product. If we receive marketing approval from the FDA, we intend to sell drug product finished and packaged by either our current contract manufacturer or this alternate supplier. We have not entered into long-term agreements with our current contract manufacturers or with any alternate fill/finish suppliers, and though we intend to do so prior to commercial launch of quizartinib in order to ensure that we maintain adequate supplies of finished drug product, we may be unable to enter into such an agreement or do so on commercially reasonable terms, which could have a material adverse impact upon our business. 16
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We believe we have sufficient quantities of manufactured drug substance to support planned development activities. Further, we plan to have our existing contract manufacturers and any alternate suppliers later identified manufacture and package additional bulk drug substance and finished drug product in connection with commercial launch in the event quizartinib is approved for sale by regulatory authorities. If we are unable to do so in a timely manner, the commercial introduction of quizartinib, if approved by the FDA, would be adversely affected. Obtaining Fast Track designation from the FDA for our product candidate quizartinib does not guarantee faster approval. We have applied for Fast Track designation for our product candidate quizartinib for the treatment of AML. Fast track designation is a process designed to facilitate the development and expedite the review of new drugs to treat serious or life-threatening conditions and that have the potential to address an unmet medical need. Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. For a Fast Track product, the FDA may consider for review on a rolling basis sections of the NDA before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA. Even if we receive Fast Track designation for quizartinib, the FDA may later decide that quizartinib no longer meets the conditions for qualification. In addition, obtaining Fast Track designation may not provide us with a material commercial advantage. We currently have no marketing and sales organization and have no experience in marketing drug products. If we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to generate product revenues. We currently do not have a sales organization for the marketing, sales and distribution of pharmaceutical products. In order to commercialize any products, we must build our marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. We contemplate establishing our own sales force to promote quizartinib in the United States, together with Astellas. However, the establishment and development of our own sales force to market any products we may develop will be expensive and time-consuming and could delay any product launch. Moreover, we cannot be certain that we will be able to successfully develop this capability. We will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel. We also face competition in our search for collaborators and co-promoters. To the extent we rely on third parties to commercialize our approved products, if any, we may have little or no control over the marketing and sales efforts of such third parties and our revenues from product sales may be lower than if we had commercialized these products ourselves. In the event we are unable to develop our own marketing and sales force or collaborate with a third-party marketing and sales organization, we would not be able to commercialize our product candidates. In addition to being reliant on Astellas to co-commercialize quizartinib in the United States, if appropriate regulatory approvals are obtained, we will be reliant on Astellas for commercializing quizartinib in international markets. In the event Astellas fails to adequately commercialize quizartinib because it fails to gain regulatory approvals, lacks adequate financial or other resources or decides to focus on other initiatives, our ability to successfully commercialize quizartinib would be limited, which would adversely affect our business, financial condition, results of operations and prospects. If we fail to develop and commercialize other products or product candidates, we may be unable to grow our business. A key element of our strategy is to commercialize a portfolio of other product candidates in addition to quizartinib. As a significant part of our growth strategy, we intend to develop and commercialize additional 17
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products and product candidates through our research program using our scientific expertise and experience in kinase drug discovery. The success of this strategy depends upon our ability to identify, select and acquire pharmaceutical product candidates and products that fit into our development plans on terms that are acceptable to us. Any product candidate we identify will require additional, time-consuming development efforts prior to commercial sale, including preclinical studies, extensive clinical trials and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to the risks of failure that are inherent in pharmaceutical product development, including the possibility that the product candidate will not be shown to be sufficiently safe and/or effective for approval by regulatory authorities. In addition, we cannot assure you that any such products that are approved will be manufactured or produced economically, successfully commercialized or widely accepted in the marketplace or be more effective than other commercially available alternatives. A significant portion of the research that we are conducting involves new and unproven technologies. Research programs to identify new disease targets and product candidates require substantial technical, financial and human resources whether or not we ultimately identify any candidates. If we are unable to develop suitable potential product candidates through internal research programs or by obtaining rights to novel therapeutics from third parties, our business and prospects will suffer. We cannot be certain that our product candidates will produce commercially viable drugs that safely and effectively treat cancer or other diseases. To date, our technology platform has yielded only a small number of product candidates other than quizartinib. In addition, we have limited clinical data with respect to any of these other potential product candidates. Even if we are successful in completing clinical development and receiving regulatory approval for one commercially viable drug for the treatment of one disease, we cannot be certain that we will also be able to develop and receive regulatory approval for other drug candidates for the treatment of other forms of that disease or other diseases. If we fail to develop and commercialize viable drugs, we will not be successful in developing a pipeline of potential product candidates to follow quizartinib, and our business prospects would be harmed significantly. Our commercial success depends upon attaining significant market acceptance of our product candidates, if approved, including quizartinib, among physicians, patients, healthcare payors and, in the cancer market, acceptance by the major operators of cancer clinics. Even if we obtain regulatory approval for quizartinib or any other product candidate that we may develop or acquire in the future, the product may not gain market acceptance among physicians, health care payors, patients and the medical community. Market acceptance of quizartinib or any other product candidates for which we receive approval depends on a number of factors, including: the efficacy and safety as demonstrated in clinical trials; the clinical indications for which the drug is approved; acceptance by physicians, major operators of cancer clinics and patients of the drug as a safe and effective treatment; the potential and perceived advantages of product candidates over alternative treatments; the safety of product candidates seen in a broader patient group, including its use outside the approved indications; the cost of treatment in relation to alternative treatments; the availability of adequate reimbursement and pricing by third parties and government authorities; relative convenience and ease of administration; 18
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the prevalence and severity of adverse side effects; and the effectiveness of our sales and marketing efforts.
If our approved drugs fail to achieve market acceptance, we will not be able to generate significant revenues. We face significant competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively. The biotechnology and pharmaceutical industries are intensely competitive. We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, biotechnology companies and universities and other research institutions. Many of our competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on an exclusive basis drug products that are more effective or less costly than quizartinib or any drug candidate that we are currently developing or that we may develop. Currently there are no approved therapies for relapsed/refractory AML beyond traditional chemotherapy. Quizartinib may face competition in the United States from commercially available kinase inhibitors such as Bayer and Onyxs Nexavar (sorafenib) and Pfizers Sutent (sunitinib), two multikinase inhibitors that inhibit the FLT3 kinase approved for the treatment of certain solid tumors. However, these multi-kinase inhibitors are not currently approved for the treatment of AML. In addition, several other companies have small molecule and biologic drug candidates in development that target the FLT3 pathway and, if approved, could compete with quizartinib, including Novartis PKC-412. Our ability to compete successfully will depend largely on our ability to leverage our experience in drug discovery and development to: discover and develop medicines that are superior to other products in the market; attract qualified scientific, product development and commercial personnel; obtain patent and/or other proprietary protection for our medicines and technologies; obtain required regulatory approvals; and successfully collaborate with pharmaceutical companies in the discovery, development and commercialization of new medicines.
The availability of our competitors products could limit the demand, and the price we are able to charge, for quizartinib. We will not achieve our business plan if the acceptance of quizartinib is inhibited by price competition or the reluctance of physicians to switch from existing drug products to quizartinib, or if physicians switch to other new drug products or choose to reserve quizartinib for use in limited circumstances. The inability to compete with existing or subsequently introduced drug products would have a material adverse impact on our business, financial condition and prospects. Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our product candidates less competitive. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA approval or discovering, developing and commercializing medicines before we do, which would have a material adverse impact on our business. 19
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Reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our products profitably. We and our partner, Astellas, intend to seek approval to market our future products in both the United States and in selected foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to our product. In some foreign countries, particularly in the European Union, the pricing of prescription pharmaceuticals and biologics is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product candidate. In addition, market acceptance and sales of our product candidates will depend significantly on the availability of adequate coverage and reimbursement from third-party payors for any of our product candidates and may be affected by existing and future health care reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs they will pay for and establish reimbursement levels. Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payors determination that use of a product is: a covered benefit under its health plan; safe, effective and medically necessary; appropriate for the specific patient; cost-effective; and neither experimental nor investigational.
Obtaining coverage and reimbursement approval for a product from a government or other third-party payor is a time consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our products to the payor. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. If reimbursement of our future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability. In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory changes to the health care system that could impact our ability to sell our products profitably. In particular, the Medicare Modernization Act of 2003 revised the payment methodology for many products under Medicare in the United States. This has resulted in lower rates of reimbursement. In 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, collectively, the Healthcare Reform Act, was enacted. The Heathcare Reform Act contains a number of provisions, including those governing enrollment in federal healthcare programs, the increased use of comparative effectiveness research on healthcare products, reimbursement and fraud and abuse changes, which will impact existing government healthcare programs and will result in the development of new programs. An expansion in the governments role in the U.S. healthcare industry may further lower rates of reimbursement for pharmaceutical products. There have been, and likely will continue to be, legislative and regulatory proposals at the federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect: the demand for any drug products for which we may obtain regulatory approval; our ability to set a price that we believe is fair for our products; our ability to generate revenues and achieve or maintain profitability; 20
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the level of taxes that we are required to pay; and the availability of capital.
In addition, governments may impose price controls, which may adversely affect our future profitability. We may form strategic alliances in the future, and we may not realize the benefits of such alliances. We may form strategic alliances, create joint ventures or collaborations or enter into licensing arrangements with third parties that we believe will complement or augment our existing business. We face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for any future product candidates and programs because our research and development pipeline may be insufficient, our product candidates and programs may be deemed to be at too early of a stage of development for collaborative effort and/or third parties may not view our product candidates and programs as having the requisite potential to demonstrate safety and efficacy. If we license products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture. We cannot be certain that, following a strategic transaction or license, we will achieve the revenues or specific net income that justifies such transaction. Any delays in entering into new strategic partnership agreements related to our product candidates could also delay the development and commercialization of our product candidates and reduce their competitiveness even if they reach the market. If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy. Our ability to compete in the highly competitive biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on our management, scientific and medical personnel, including our President and Chief Executive Officer, Dr. Alan J. Lewis, our Executive Vice President of Research and Development, Dr. Wendell Wierenga, our Chief Operating Officer, Christopher J. Morl and our Chief Medical Officer and Senior Vice President, Clinical Development, Dr. Robert Corringham. In order to induce valuable employees to remain at Ambit, we have provided incentive stock options that vest over time. The value to employees of stock options that vest over time is significantly affected by movements in our stock price that are beyond our control, and may at any time be insufficient to counteract more lucrative offers from other companies. Our scientific team has expertise in many different aspects of drug discovery and development. We conduct our operations at our facility in San Diego, California. This region is headquarters to many other biopharmaceutical companies and many academic and research institutions. As a result, currently there is a shortage of experienced scientists, which is likely to continue. Competition for skilled personnel in our market is very intense and competition for experienced scientists may limit our ability to hire and retain highly qualified personnel on acceptable terms. Despite our efforts to retain valuable employees, members of our management, scientific and development teams may terminate their employment with us on short notice. Although we have employment agreements with all of our employees, these employment arrangements provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without notice. The loss of the services of any of our executive officers or other key employees and our inability to find suitable replacements could potentially harm our business, financial condition and prospects. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior scientific and medical personnel. Many of the other biotechnology and pharmaceutical companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some 21
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of these characteristics may be more appealing to high quality candidates than what we have to offer. If we are unable to continue to attract and retain high quality personnel, the rate and success at which we can discover, develop and commercialize drug candidates will be limited. We will need to grow the size of our organization, and we may experience difficulties in managing this growth. As of October 31, 2010, we employed 77 employees. As our development and commercialization plans and strategies develop, we expect to need additional managerial, operational, sales, marketing, financial and other resources. Future growth would impose significant added responsibilities on members of management, including: managing our clinical trials effectively; identifying, recruiting, maintaining, motivating and integrating additional employees; managing our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors, collaborators and other third parties; and improving our operational, financial and management controls, reporting systems and procedures.
Our management may also have to divert a disproportionate amount of its attention away from day-to-day activities and devote a substantial amount of time to managing these growth activities. Our future financial performance and our ability to commercialize quizartinib and other product candidates will depend, in part, on our ability to effectively manage any future growth. Business disruptions could seriously harm our future revenues and financial condition and increase our costs and expenses. Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or manmade disasters or business interruptions, for which we are predominantly selfinsured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. Our corporate headquarters is located in California and other critical business operations and some of our suppliers are located in California near major earthquake faults and fire zones. The ultimate impact on us, our significant suppliers and our general infrastructure of being located near major earthquake faults and fire zones and being consolidated in certain geographical areas is unknown, but our operations and financial condition could suffer in the event of a major earthquake, fire or other natural disaster. A variety of risks associated with marketing our product candidates internationally could materially adversely affect our business. If approved for commercialization, we expect quizartinib to be marketed worldwide. Consequently, we expect that we will be subject to additional risks related to operating in foreign countries including: differing regulatory requirements for drug approvals in foreign countries; the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local prices, opts to import goods from a foreign market (with low or lower prices) rather than buying them locally; unexpected changes in tariffs, trade barriers and regulatory requirements; economic weakness, including inflation, or political instability in particular foreign economies and markets; compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; 22
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foreign taxes, including withholding of payroll taxes; foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country; workforce uncertainty in countries where labor unrest is more common than in the United States; production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and business interruptions resulting from geo-political actions, including war and terrorism.
These and other risks associated with our international operations may materially adversely affect our ability to attain or maintain profitable operations. Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements. We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standards we have established, comply with federal and state health-care fraud and abuse laws and regulations, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions. If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates. We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in: decreased demand for our product candidates or products that we may develop; injury to our reputation; withdrawal of clinical trial participants; initiation of investigations by regulators; costs to defend the related litigation; 23
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a diversion of managements time and our resources; substantial monetary awards to trial participants or patients; product recalls, withdrawals or labeling, marketing or promotional restrictions; loss of revenues; and the inability to commercialize our product candidates.
Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop. We currently carry product liability insurance covering our clinical trials. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. If we use hazardous and biological materials in a manner that causes injury or violates applicable law, we may be liable for damages. Our research and development activities involve the controlled use of potentially hazardous substances, including chemical, biological and radioactive materials. In addition, our operations produce medical, radioactive and hazardous waste products. Federal, state and local laws and regulations in the United States govern the use, manufacture, storage, handling and disposal of medical, radioactive and hazardous materials. Although we believe that our procedures for use, handling, storing and disposing of these materials comply with legally prescribed standards, we may incur significant additional costs to comply with applicable laws in the future. Also, even if we are in compliance with applicable laws, we cannot completely eliminate the risk of contamination or injury resulting from medical, radioactive or hazardous materials. As a result of any such contamination or injury we may incur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from medical radioactive or hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development and production efforts, which could harm our business, financial condition and prospects. Risks Related to Our Financial Position and Capital Requirements We have a limited operating history, have incurred significant operating losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. Our operations began in 2000 and we have only a limited operating history upon which you can evaluate our business and prospects. In addition, as an early stage company, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical area. We have financed our consolidated operations primarily through private placements of convertible debt and preferred stock, venture debt and our collaboration and license arrangements, and have incurred significant operating losses since our inception, including consolidated net losses of $40.4 million, $9.8 million and $26.5 million for the years ended December 31, 2007, 2008 and 2009, respectively and $10.5 million and $19.3 million for the six months ended June 30, 2009 and 2010, respectively. As of June 30, 2010, we had an accumulated deficit of $158.7 million. We do not know whether or when we will become profitable. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders equity and working capital. Our losses have resulted principally from costs incurred in our discovery and development activities. We anticipate that our 24
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operating losses will substantially increase over the next several years as we execute our plan to expand our discovery, research, development and commercialization activities, including the clinical development and planned commercialization of our lead product candidate, quizartinib. We have limited sources of revenues and have not generated any revenues to date from product sales. We may never achieve or sustain profitability, which would depress the market price of our common stock, and could cause you to lose all or a part of your investment. Our ability to become profitable depends upon our ability to generate revenues from drug sales. To date, we have no products approved for commercial sale and have not generated any revenues from drug sales and we may never be able to develop marketable drugs. Thus far, substantially all of our revenues have been generated from fees for research services, from license or collaboration agreements and from our screening business which we sold in October 2010. We do not anticipate generating revenues, if any, from sales of quizartinib until 2012 at the earliest and we will never generate revenues from quizartinib if we do not obtain regulatory approval. Our ability to generate future revenues depends heavily on our success in: developing and securing United States and/or foreign regulatory approvals for quizartinib; commercializing quizartinib and any other product candidates for which we receive approval; and generating a pipeline of innovative product candidates utilizing our drug discovery platform or through licensing strategies.
Even if we do generate product sales, we may never achieve or sustain profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations. If we fail to obtain additional financing, we may be unable to complete the development and commercialization of quizartinib or other product candidates, or continue our other research and development programs. Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts to: continue the clinical development of quizartinib and other product candidates; launch and commercialize any product candidates for which we receive regulatory approval, including building our own sales force to address certain markets; and continue our research and development programs to advance our internal product pipeline.
We estimate that our net proceeds from this offering will be approximately $ million, based upon an assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover of this prospectus) after deducting underwriting discounts and commissions and offering expenses payable by us. We expect that the net proceeds from this offering, together with our existing cash, cash equivalents and short-term investments will be sufficient to fund our capital requirements for at least the next 12 months. We will require additional capital to complete the development and commercialization of our lead product candidate quizartinib and may also need to raise additional funds sooner if we choose to expand more rapidly than we presently anticipate. We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates or one or more of our other research and development initiatives. We also could be required to: significantly delay, scale back or discontinue the development or commercialization of quizartinib or our other clinical and preclinical programs; 25
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seek collaborators for one or more of our current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available; relinquish or license on unfavorable terms our rights to technologies or product candidates that we otherwise would seek to develop or commercialize ourselves; or license or acquire additional product candidates.
Any of the above events could significantly harm our business, financial condition and prospects. Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates. We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us. The timing of the milestone and royalty payments we are required to make to BMS are uncertain and could adversely affect our business, financial condition and prospects. We are party to license agreements with Bristol-Myers Squibb Company, or BMS, pursuant to which we acquired an exclusive license to certain intellectual property related to our AC480 product candidate. We are obligated to make certain cash milestone payments to BMS upon completion of certain development milestones and the receipt of certain regulatory approvals of such product candidate. In addition, we are required to make certain cash royalty payments upon our achievement of target levels of commercial sales of such product candidate. The timing of our achievement of the events that trigger milestone payments to BMS are subject to factors relating to the preclinical, clinical and regulatory development and commercialization of the programs, many of which are beyond our control. Though we believe that these royalty rates and milestone payments are reasonable in light of our business plan, we will require large amounts of capital to satisfy these obligations. We may become obligated to make a milestone payment when we do not have the cash on hand to make such payment, which could require us to delay our clinical trials, curtail our operations, scale back our commercialization and marketing efforts or seek funds to meet these obligations on terms unfavorable to us. In addition, if we are unable to make any payment when due or if we fail to use commercially reasonable efforts to achieve certain development and commercialization milestones within the timeframes required by our license agreements, the other parties may have the right to terminate the agreement and all of our rights to develop and commercialize the associated product candidate. We are substantially dependent on milestone and other payments due to us under our collaboration agreements with our partners. Pursuant to the collaboration agreement we entered into with Astellas in December 2009, we and Astellas share oversight of the research and development of quizartinib and other FLT3 kinase inhibitor candidates and are each obligated to use commercially reasonable efforts to perform the tasks and activities assigned to us under each research and development plan. Astellas paid us an upfront, non-refundable fee of $40.0 million, and upon the successful achievement of clinical development and regulatory milestones, we are eligible to receive from Astellas up to an additional $350.0 million. Further, we are entitled to receive from Astellas tiered, double-digit 26
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royalty payments calculated as a percentage of aggregate net sales and additional annual sales milestone payments. If quizartinib or the other collaboration compounds fail to meet clinical development or regulatory milestones or if we or Astellas fail to meet our respective obligations under the agreement our ability to achieve the milestones may be impacted and potential milestone payments due to us may be delayed or forfeited which would materially adversely affect our business, operating results and financial condition. Pursuant to the collaboration agreement we entered into with Cephalon in November 2006 we licensed collaboration compounds including CEP32496 to Cephalon. We have received a $1.0 million milestone payment under the agreement to date and we may be entitled to receive up to $46.5 million in additional payments upon the achievement of certain development, regulatory and sales milestones along with tiered royalty payments calculated as a percentage of net sales of the collaboration compounds. If the collaboration compounds fail to meet development, regulatory or sales milestones or if we or Cephalon fail to meet our respective obligations under the agreement, we may not receive the milestone payments which would adversely impact our business, operating results and financial condition. Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited. Under Section 382 of the Internal Revenue Code, if a corporation undergoes an ownership change (generally defined as a greater than 50% change (by value) in its equity ownership over a three year period), the corporations ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We believe that, as a result of this initial public offering, our most recent private placement and other transactions that have occurred over the past three years, we have experienced or may, upon completion of this offering, experience an ownership change. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership. Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price. As widely reported, global credit and financial markets have been experiencing extreme disruptions in the past several years, including severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected by the recent economic downturn and volatile business environment and continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate further, or do not improve, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not survive these difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget. At June 30, 2010, we had $31.3 million of cash. While as of the date of this prospectus, we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents or marketable securities since June 30, 2010, no assurance can be given that further deterioration in conditions of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or marketable securities or our ability to meet our financing objectives. Further dislocations in the credit market may adversely impact the value and/or liquidity of marketable securities owned by us. There is a possibility that our stock price may decline, due in part to the volatility of the stock market and the general economic downturn. 27
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Risks Related to Our Intellectual Property If our efforts to protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not be able to compete effectively in our market. We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our technologies. Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market. The strength of patents in the biotechnology and pharmaceutical field involves complex legal and scientific questions and can be uncertain. The patent applications that we own or license may fail to result in issued patents in the United States or in other foreign countries. Even if the patents do successfully issue, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, our patents and patent applications, including those that we license to Cephalon and Astellas, may not adequately protect our intellectual property or prevent others from designing around our claims. If the breadth or strength of protection provided by the patent applications we hold with respect to quizartinib or the patents we hold or pursue with respect to other product candidates is threatened, it could dissuade companies from collaborating with us to develop, and threaten our ability to commercialize, our product candidates. Further, if we encounter delays in our clinical trials, the period of time during which we could market our drug candidates under patent protection would be reduced. Since patent applications in the United States and most other countries are confidential for a period of time after filing, we cannot be certain that we were the first to file any patent application related to quizartinib or our other candidates. Furthermore, an interference proceeding can be provoked by a third-party or instituted by the United States Patent and Trademark Office, or the U.S. PTO, to determine who was the first to invent any of the subject matter covered by the patent claims of our applications. In addition to the protection afforded by patents, we seek to rely on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of our drug discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. Although we require all of our employees to assign their inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how, information or technology to enter into confidentiality agreements, we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to prevent material disclosure of the intellectual property related to our technologies to third parties, we will not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business, operating results and financial condition. Third-party claims of intellectual property infringement may prevent or delay our drug discovery and development efforts. Our commercial success depends in part on our and our collaborators avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including interference and reexamination proceedings before the U.S. PTO or oppositions and other comparable proceedings in foreign jurisdictions. Numerous United States and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we and our collaborators are developing drug candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that our drug candidates may give rise to claims of infringement of the patent rights of others. 28
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Third parties may assert that we are employing their proprietary technology without authorization. There may be third-party patents of which we are currently unaware with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of quizartinib and/or our other product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our product candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of any of our drug candidates, any molecules formed during the manufacturing process or any final product itself, the holders of any such patents may be able to block our ability to commercialize such drug candidate unless we obtained a license under the applicable patents, or until such patents expire or they are finally determined to be held invalid or unenforceable. Similarly, if any third-party patent were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use, including combination therapy or patient selection methods, the holders of any such patent may be able to block our ability to develop and commercialize the applicable drug candidate unless we obtained a license or until such patent expires or is finally determined to be held invalid or unenforceable. In either case, such a license may not be available on commercially reasonable terms or at all. We are aware of a third party patent that relates to an inactive ingredient that we use in quizartinib, as well as a third party patent related to diagnostic testing for certain FLT3 mutations. We cannot predict whether we or our partners would be able to obtain a license to either of the above, or if a license were available, whether it would be available on commercially reasonable terms. If such patents have a valid claim relating to our use of the inactive ingredient or diagnostic testing required to detect FLT3 mutations and, in either case, a license under the applicable patent is unavailable on commercially reasonable terms, or at all, our ability to commercialize quizartinib may be impaired or delayed, which could in turn significantly harm our business. Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, including treble damages and attorneys fees for willful infringement, obtain one or more licenses from third parties, pay royalties or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure. We cannot predict whether any such license would be available at all or whether it would be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates, and we have done so from time to time. We may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further develop and commercialize one or more of our product candidates, which could harm our business significantly. We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time consuming and unsuccessful. Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing. Interference proceedings provoked by third parties or brought by the U.S. PTO may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our collaborators or licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer 29
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us a license on commercially reasonable terms. Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our trade secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the United States. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of entities that disclose such information to us as part of our past providing screening services or of other third parties. Prior to our sale of our profiling services screening business in October 2010, customers for our screening services provided confidential and proprietary information to us for screening. In addition, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of our customers or our employees former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial cost and be a distraction to our management and other employees. Risks Related to This Offering and Ownership of our Common Stock We do not know whether an active, liquid and orderly trading market will develop for our common stock or what the market price of our common stock will be and as a result it may be difficult for you to sell your shares of our common stock. Prior to this offering there has been no market for shares of our common stock. Although we expect that our common stock will be approved for listing on The Nasdaq Global Market, an active trading market for our shares may never develop or be sustained following this offering. The initial public offering price for our common stock was determined through negotiations with the underwriters, and the negotiated price may not be indicative of the market price of the common stock after the offering. This initial public offering price may vary from the market price of our common stock after the offering. As a result of these and other factors, you may be unable to resell your shares of our common stock at or above the initial public offering price. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire companies or products by using our shares of common stock as consideration. The price of our stock may be volatile, and you could lose all or part of your investment. The trading price of our common stock following this offering is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this Risk Factors section and elsewhere in this prospectus, these factors include: any delay in filing our NDA for quizartinib and any adverse development or perceived adverse development with respect to the FDAs review of the NDA, including without limitation the FDAs issuance of a refusal to file letter or a request for additional information; failure to meet or exceed revenues and financial projections we provide to the public; actual or anticipated variations in quarterly operating results; failure to meet or exceed the estimates and projections of the investment community; 30
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overall performance of the equity markets; adverse regulatory decisions; adverse results or delays in clinical trials; changes in laws or regulations applicable to our products, including but not limited to clinical trial requirements for approvals; our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial; inability to obtain adequate product supply for any approved drug product or inability to do so at acceptable prices; developments concerning our collaborations, including but not limited to those with our sources of manufacturing supply; the termination of a collaboration or the inability to establish additional collaborations; unanticipated serious safety concerns related to the use of quizartinib or any of our other product candidates; introduction of new products or services offered by us or our competitors; announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors; our ability to maintain an adequate rate of growth; our ability to effectively manage our growth; our ability to successfully enter new markets; disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies; our failure to commercialize quizartinib, develop additional drug candidates and commercialize additional drug products; termination of our collaboration agreement by Astellas; additions or departures of key scientific or management personnel; issuances of debt or equity securities; significant lawsuits, including patent or stockholder litigation; changes in the market valuations of similar companies; sales of our common stock by us or our stockholders in the future; trading volume of our common stock; publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts; ineffectiveness of our internal controls; general political and economic conditions; effects of natural or man-made catastrophic events; and other events or factors, many of which are beyond our control. 31
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In addition, the stock market in general, and The Nasdaq Global Market and biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. In the past, following periods of volatility in the market price of a companys securities, securities class action litigation has often been instituted against companies. This type of litigation, if instituted, could result in substantial costs and a diversion of managements attention and resources, which would harm our business, operating results or financial condition. We do not intend to pay dividends on our common stock so any returns will be limited to the value of our stock. We have never declared or paid any cash dividend on our common stock. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, our ability to pay cash dividends is currently prohibited by the terms of one of our debt financing arrangements, and any future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. Any return to stockholders will therefore be limited to the appreciation of their stock. Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval. Prior to this offering, our executive officers, directors, 5% stockholders and their affiliates owned approximately % of our voting stock and, upon the closing of this offering, that same group will hold approximately % of our outstanding voting stock (assuming no exercise of the underwriters over-allotment option) in each case assuming an initial public offering price of $ per share (the midpoint of the range set forth on the cover page of this prospectus) and a conversion date of 2011 (for purposes of calculating the accrued interest on the notes to be converted into shares of common stock and the number of shares to be issued upon the automatic exercise of a warrant to purchase common stock). Therefore, even after this offering these stockholders will have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders. If you purchase our common stock in this offering, you will incur immediate and substantial dilution in the book value of your shares. The initial public offering price is substantially higher than the net tangible book value per share of our common stock. Investors purchasing common stock in this offering will pay a price per share that substantially exceeds the book value of our tangible assets after subtracting our liabilities. As a result, investors purchasing common stock in this offering will incur immediate dilution of $ per share, based on an initial public offering price of $ per share. Further, investors purchasing common stock in this offering will contribute approximately % of the total amount invested by stockholders since our inception, but will own only approximately % of the shares of common stock outstanding after giving effect to this offering. This dilution is due to our investors who purchased shares prior to this offering having paid substantially less than the price offered to the public in this offering when they purchased their shares and the exercise of stock options granted to our employees. In addition, as of June 30, 2010, options to purchase 3,487,051 shares of our common stock at a weighted-average exercise price of $0.85 per share and warrants exercisable for up to 2,596,321 shares of our common stock at a weighted-average price of $1.84 per share were outstanding. The exercise of any of these options or warrants would result in additional dilution. As a result of the dilution to 32
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investors purchasing shares in this offering, investors may receive significantly less than the purchase price paid in this offering, if anything, in the event of our liquidation. For a further description of the dilution that you will experience immediately after this offering, see Dilution. We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives. As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as rules subsequently adopted by the SEC and The Nasdaq Global Market to implement provisions of the SarbanesOxley Act, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect these rules and regulations to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations. The increased costs will decrease our net income or increase our consolidated net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, we will be required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management and our independent registered public accounting firm to report, commencing in our annual report on Form 10-K for the year ending December 31, 2012, on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner or if we or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would require additional financial and management resources. New laws and regulations as well as changes to existing laws and regulations affecting public companies, including the provisions of the SarbanesOxley Act of 2002 and rules adopted by the SEC and by Nasdaq, would likely result in increased costs to us as we respond to their requirements. Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall. If our existing stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market after the lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline. Based on shares of common stock outstanding as of June 30, 2010, upon the closing of this offering, we will have outstanding a total of shares of common stock, assuming no exercise of the underwriters overallotment option and no exercise of outstanding options and warrants. Of these shares, only the shares of common stock sold in this offering by us, plus any shares sold upon exercise of the underwriters overallotment option, will be freely tradable, without restriction, in the 33
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public market immediately following this offering. J.P. Morgan Securities LLC and Credit Suisse Securities (USA) LLC, however, may, in their sole discretion, permit our officers, directors and other stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements. We expect that the lock-up agreements pertaining to this offering will expire 180 days from the date of this prospectus (subject to extension upon the occurrence of specified events). After the lock-up agreements expire, up to an additional shares of common stock will be eligible for sale in the public market, of which shares are held by directors, executive officers and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, assuming an initial public offering price of $ per share (the midpoint of the range set forth on the cover page of this prospectus) and a conversion date of , 2011 (for purposes of calculating the accrued interest on the notes to be converted into shares of common stock and the number of shares to be issued upon the automatic exercise of a warrant to purchase common stock). In addition, shares of common stock that are either subject to outstanding options or reserved for future issuance under our employee benefit plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline. After this offering, the holders of shares of our common stock, or % of our total outstanding common stock as of June 30, 2010, will be entitled to rights with respect to the registration of their shares under the Securities Act of 1933, as amended (or the Securities Act), subject to the 180-day lock-up agreements described above and assuming an initial public offering price of $ per share (the midpoint of the range set forth on the cover page of this prospectus) and a conversion date of , 2011 (for purposes of calculating the accrued interest on the notes to be converted to shares of common stock and the number of shares to be issued upon the automatic exercise of a warrant to purchase common stock). Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock. Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall. We expect that significant additional capital will be needed in the future to continue our planned operations. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to those of holders of our common stock, including shares of common stock sold in this offering. Pursuant to our 2010 equity incentive plan, our management is authorized to grant stock options to our employees, directors and consultants. The number of shares available for future grant under our 2010 equity incentive plan will automatically increase each year by an amount equal to % of all shares of our capital stock outstanding as of January 1 st of each year, subject to the ability of our board of directors to take action to reduce the size of such increase in any given year. We have broad discretion in the use of the net proceeds from this offering and may not use them effectively. Our management will have broad discretion in the application of the net proceeds from this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment. We expect to use the net proceeds from this offering to fund clinical trials and other research and development activities for quizartinib and other drug candidates and for working capital, capital expenditures and general 34
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corporate purposes. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities. These investments may not yield a favorable return to our stockholders. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline. Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management. Provisions in our amended and restated certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third-party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders or remove our current management. These provisions include: authorizing the issuance of blank check preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval; limiting the removal of directors by the stockholders; creating a staggered board of directors; prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders; eliminating the ability of stockholders to call a special meeting of stockholders; permitting our board of directors to accelerate the vesting of outstanding option grants upon certain transactions that result in a change of control; and establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. We are also subject to certain anti-takeover provisions under Delaware law which may discourage, delay or prevent someone from acquiring us or merging with us whether or not it is desired by or beneficial to our stockholders. Under Delaware law, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction. Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock. If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline. The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no securities or industry analysts commence coverage of our company, the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline. 35
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this prospectus, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words may, will, could, would, should, expect, intend, plan, anticipate, believe, estimate, predict, project, potential, continue, ongoing or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. The forward-looking statements in this prospectus include, among other things, statements about: the success and timing of our preclinical studies and clinical trials; our ability to obtain and maintain regulatory approval of our product candidates, including quizartinib, and the labeling under any approval we may obtain; our plans to develop and commercialize our product candidates, including quizartinib; the loss of key scientific or management personnel; the size and growth of the potential markets for our product candidates and our ability to serve those markets; regulatory developments in the United States and foreign countries; the rate and degree of market acceptance of any future products; our use of the proceeds from this offering; the accuracy of our estimates regarding expenses, future revenues and capital requirements; our ability to obtain and maintain intellectual property protection for our product candidates; the successful development of our sales and marketing capabilities; the success of competing drugs that are or become available; and the performance of third-party manufacturers.
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this prospectus, particularly in the Risk Factors section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus is a part completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements in this prospectus represent our views as of the date of this prospectus. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this prospectus. This prospectus also contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. This data involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified the statistical and other industry data generated by independent parties and contained in this prospectus. In addition, projections, assumptions and estimates of our future performance and the future performance of the markets in which we operate are necessarily subject to a high degree of uncertainty and risk. 36
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USE OF PROCEEDS We estimate that the net proceeds from our issuance and sale of shares of common stock in this offering will be approximately $ million, assuming an initial public offering price of $ per share (the midpoint of the price range listed on the cover page of this prospectus) and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) our net proceeds from this offering by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, we estimate that the net proceeds from this offering will be approximately $ million, assuming an initial public offering price of $ per share (the midpoint of the price range listed on the cover page of this prospectus) and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We expect to use the net proceeds from this offering to fund development and commercialization of quizartinib, our lead product candidate, to fund the development of our other product candidates and for working capital and other general corporate purposes. The expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures depend on numerous factors, including the ongoing status of and results from clinical trials and other studies, as well as any strategic partnerships that we may enter into with third parties for our product candidates and any unforeseen cash needs. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering. Pending use of the proceeds from this offering, we intend to invest the proceeds in a variety of capital preservation investments, including shortterm, investment-grade and interest-bearing instruments. DIVIDEND POLICY We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination related to dividend policy will be made at the discretion of our board of directors. In addition, unless waived, the terms of our Venture Loan and Security Agreement with Compass Horizon Funding Company LLC and Oxford Finance Corporation prohibit us from paying dividends on our common stock. INDUSTRY AND MARKET DATA We obtained the industry, market and competitive position data in this prospectus from our own internal estimates and research as well as from industry and general publications and research surveys and studies conducted by third parties. While we believe that each of these studies and publications is reliable, we have not independently verified market and industry data from third-party sources. While we believe our internal company research is reliable and the market definitions we use are appropriate, neither such research nor these definitions have been verified by any independent source. 37
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CAPITALIZATION The following table sets forth our cash, current portion of debt and capitalization as of June 30, 2010 (unaudited): on an actual basis; on an a pro forma basis to give effect to: a -forreverse stock split of our common stock to be effected prior to the closing of this offering;
the filing of our restated certificate of incorporation and the adoption of our restated bylaws as of the closing date of this offering; no exercise by the underwriters of their option to purchase shares of common stock to cover over-allotments; the issuance by us of 1,538,461 shares of our Series C-2 redeemable convertible preferred stock and 612,649 shares of Series D redeemable convertible preferred stock prior to the closing of this offering upon exercise of a put right held by GrowthWorks Canadian Fund Ltd., or the GrowthWorks put right; the conversion of all of our outstanding shares of convertible preferred stock, including the shares issued upon exercise of the GrowthWorks put right, into an aggregate of 24,608,183 shares of common stock upon the closing of this offering; and the adjustment of all outstanding warrants to purchase shares of our convertible preferred stock into warrants to purchase 649,573 shares of common stock upon the closing of this offering.
on a pro forma as adjusted basis to additionally give effect to the sale of shares of common stock in this offering, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) after deducting underwriting discounts and commissions and estimated offering expenses payable by us. 38
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Our cash, current portion of debt and capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with our consolidated financial statements and the related notes appearing at the end of this prospectus, the sections entitled Selected Consolidated Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations and other financial information contained in this prospectus.
As of June 30, 2010 Pro Forma Actual Pro Forma as Adjusted(1) (unaudited, in thousands except share and per share data)
Cash and cash equivalents Current portion of notes payable, net of debt discount Capitalization: Notes payable, net of current portion Redeemable convertible preferred warrant liabilities Redeemable non-controlling interest Series A convertible preferred stock, $0.001 par value: 162,519 shares authorized; 46,666 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted Series B convertible preferred stock, $0.001 par value: 1,975,677 shares authorized; 1,549,128 shares issued and outstanding actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted Series C redeemable convertible preferred stock, $0.001 par value: 7,076,718 shares authorized, 5,139,734 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted Series C-2 redeemable convertible preferred stock, $0.001 par value: 1,538,462 shares authorized; no shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted Series D redeemable convertible preferred stock, $0.001 par value: 17,950,000 shares authorized; 15,721,545 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted Preferred stock, $0.001 par value: no shares authorized, issued or outstanding, actual; 10,000,000 shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted Common stock, $0.001 par value: 38,200,000 shares authorized, 3,255,405 shares issued and outstanding, actual; 200,000,000 shares authorized, 27,863,588 shares issued and outstanding, pro forma; 200,000,000 shares authorized and shares issued and outstanding, pro forma as adjusted Additional paid-in capital Accumulated other comprehensive income Accumulated deficit Total stockholders deficit Total capital deficit (1)
$ 31,287 $ $ 1,257 9,901 2,441 11,419
$ 31,287 $ $ 1,257 9,901
$ $
445
13,307
21,899
73,994
3 20,434 168 (158,679) (138,074) $ (4,668) $
28 143,914 168 (158,679) (14,569) (4,668) $
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share (which is the midpoint of the price range listed on the cover page of this prospectus) would increase (decrease) the pro forma as adjusted amount of each of cash, cash equivalents and marketable securities, additional paid-in capital, total stockholders equity (deficit) and total capitalization by approximately $ million, 39
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assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The number of shares of our common stock to be outstanding after this offering is based on 27,863,588 shares of common stock outstanding as of June 30, 2010 and excludes: 3,487,051 shares of common stock issuable upon exercise of stock options outstanding as of June 30, 2010 at a weighted-average exercise price of $0.85 per share; 649,573 shares of convertible preferred stock issuable upon the exercise of warrants outstanding as of June 30, 2010 at a weighted-average exercise price of $4.64 per share (such warrants will be adjusted into warrants to purchase 649,573 shares of common stock upon the consummation of this offering); 1,946,748 shares of common stock issuable upon the exercise of warrants outstanding as of June 30, 2010 at a weighted-average exercise price of $0.91 per share; and an aggregate of 1,105,989 shares of common stock reserved for future issuance under our 2001 equity incentive plan as of June 30, 2010 and an aggregate of additional shares of common stock that will be available under our 2010 equity incentive plan, our 2010 nonemployee directors stock award plan and our 2010 employee stock purchase plan upon the closing of this offering. 40
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DILUTION If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share of our common stock after this offering. Our historical net tangible book deficit of our common stock as of June 30, 2010 was approximately $138.1 million, or approximately $42.41 per share, based on the number of shares of common stock outstanding as of June 30, 2010. Historical net tangible book deficit per share is determined by dividing the number of shares of common stock outstanding as of June 30, 2010 into our total tangible assets (total assets less intangible assets) less total liabilities and convertible preferred stock. On a pro forma basis, after giving effect to the conversion of all outstanding shares of convertible preferred stock into 24,608,183 shares of common stock, including the shares issued upon exercise of the GrowthWorks put right, the exercise of the GrowthWorks put rights, with the resulting reclassification of our redeemable non-controlling interest to additional paid-in capital, a component of stockholders deficit, and the reclassification of our redeemable convertible preferred stock warrant liabilities to additional paid-in capital, a component of stockholders deficit, our net tangible book deficit per share as of June 30, 2010 would have been approximately $14.6 million, or approximately $0.52 per share. Investors participating in this offering will incur immediate, substantial dilution. After giving effect to the sale of common stock offered by us in this offering at an assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) net of underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2010 would have been approximately $ million, or approximately $ per share of common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $ per share to existing stockholders, and an immediate dilution of $ per share to investors participating in this offering. The following table illustrates this per share dilution: Assumed initial public offering price per share Historical net tangible book value (deficit) per share as of June 30, 2010 (unaudited) Pro forma decrease in net tangible book deficit per share attributable to conversion of convertible preferred stock and the exercise of our redeemable convertible preferred stock put liabilities Pro forma net tangible book value (deficit) per share as of June 30, 2010 (unaudited) Pro forma increase in net tangible book value per share attributable to investors participating in this offering Pro forma as adjusted net tangible book value per share after this offering Pro forma dilution per share to investors participating in this offering $ $ $(42.41) 41.89 (0.52)
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) our pro forma as adjusted net tangible book value as of June 30, 2010 by approximately $ million, the pro forma as adjusted net tangible book value per share after this offering by $ and the dilution in pro forma as adjusted net tangible book value to new investors in this offering by $ per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full to purchase additional shares of common stock in this offering, the pro forma as adjusted net tangible book value per share after the offering would be $ per share, the increase in the pro forma net tangible book value per share to existing stockholders would be $ per share and the dilution to new investors purchasing common stock in this offering would be $ per share. 41
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The following table summarizes, on a pro forma as adjusted basis as of June 30, 2010, the differences between the number of shares of common stock purchased from us, the total consideration and the average price per share paid to us by existing stockholders and by investors participating in this offering, before deducting underwriting discounts and commissions and estimated offering expenses payable by us, at an assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus):
Shares purchased Number Percentage Total consideration Amount Percentage Average price per share
Existing stockholders before this offering Investors participating in this offering Total
% 100%
$ $
% 100%
$ $
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase (decrease) total consideration paid to us by investors participating in this offering by approximately $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Except as otherwise indicated, the discussion and tables above assume no exercise of the underwriters over-allotment option or any outstanding options or warrants. If the underwriters over-allotment option is exercised in full, the number of shares of common stock held by existing stockholders will be reduced to % of the total number of shares of common stock to be outstanding after this offering, and the number of shares of common stock held by investors participating in this offering will be further increased to , or % of the total number of shares of common stock to be outstanding after this offering. The number of shares of our common stock outstanding as of June 30, 2010 was 27,863,588 shares and excludes: 3,487,051 shares of common stock issuable upon the exercise of outstanding options under our 2001 Equity Incentive Plan as of June 30, 2010 having a weighted-average exercise price of $0.85 per share; 649,573 shares of convertible preferred stock issuable upon the exercise of warrants outstanding as of June 30, 2010 at a weighted-average exercise price of $4.64 per share (such warrants will be adjusted into warrants to purchase 649,573 shares of common stock upon the consummation of this offering); 1,946,748 shares of common stock issuable upon the exercise of outstanding warrants having a weighted-average exercise price of $0.91 per share; and an aggregate of 1,105,989 shares of common stock reserved for future issuance under our 2001 equity incentive plan as of June 30, 2010 and an aggregate of additional shares of common stock that will be available under our 2010 equity incentive plan, our 2010 nonemployee directors stock award plan and our 2010 employee stock purchase plan upon the closing of this offering.
Effective immediately upon the signing of the underwriting agreement for this offering, an aggregate of shares of our common stock will be reserved for issuance under our 2010 equity incentive plan, 2010 non-employee directors stock option plan and 2010 employee stock purchase plan, respectively, which includes shares of common stock reserved for future issuance under our 2001 Equity Incentive Plan that will be allocated to our 2010 equity incentive plan, and these share reserves will also be subject to automatic annual increases in accordance with the terms of the plans. Furthermore, we may choose to raise additional capital through the sale of equity or convertible debt securities due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that any of these options or warrants is exercised, new options are issued under our equity incentive plans or we issue additional shares of common stock, other equity securities or convertible debt securities in the future, there will be further dilution to investors participating in this offering. 42
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SELECTED CONSOLIDATED FINANCIAL DATA The following selected financial data should be read together with our financial statements and accompanying notes and Managements Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this prospectus. The selected financial data in this section are not intended to replace our financial statements and the related notes. Our historical results are not necessarily indicative of our future results. The selected statement of operations data for the years ended December 31, 2007, 2008 and 2009 and the selected balance sheet data as of December 31, 2008 and 2009 are derived from our audited financial statements appearing elsewhere in this prospectus. The selected statement of operations data for the years ended December 31, 2005 and 2006 and the selected balance sheet data as of December 31, 2005, 2006 and 2007 are derived from our audited financial statements which are not included in this prospectus. The selected statement of operations data for the six months ended June 30, 2009 and 2010 and the selected balance sheet data as of June 30, 2010 are derived from our unaudited financial statements appearing elsewhere in this prospectus. The unaudited financial statements have been prepared on a basis consistent with our audited financial statements included in this prospectus and include, in our opinion, all adjustments, consisting of normal recurring adjustments necessary for the fair presentation of the financial information in those statements. 43
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Statement of Operations Data:

Years Ended December 31, 2007 2008 Six Months Ended June 30, 2009 2010 (unaudited)
2005
2006
2009
(in thousands except share and per share data)
Revenues: Collaboration arrangements Kinase profiling services (held-for-sale) Total revenues Operating expenses: Research and development General and administrative In-process research and development Cost of kinase profiling services revenue (heldfor-sale) Total operating expenses Loss from operations Other income (expense): Interest expense Other income (expense) Change in fair value of redeemable convertible preferred stock warrant liabilities Total other income (expense) Loss before income taxes Provision for (benefit from) income taxes Consolidated net loss Net loss attributable to redeemable noncontrolling interest Net loss attributable to Ambit Biosciences Corporation Accretion to redemption value of redeemable convertible preferred stock Change in fair value of redeemable noncontrolling interest Net loss attributable to common stockholders Net loss per share attributable to common stockholders, basic and diluted (1) Weighted-average shares outstanding, basic and diluted(1) Pro forma net loss per share, basic and diluted (unaudited) (1) Weighted-average pro forma shares outstanding, basic and diluted (unaudited) (1) (1)
3,481 3,481 12,022 4,259 16,281 (12,800) (400) 521 121 (12,679) (12,679) 49 (12,630) (4,359) 1,615
604 7,401 8,005 15,061 4,438 2,658 22,157 (14,152) (1,717) 705 297 (715) (14,867) 38 (14,905) 260 (14,645) (4,627) 1,602
3,621 10,692 14,313 19,386 6,466 25,000 2,993 53,845 (39,532) (1,874) 946 278 (650) (40,182) 196 (40,378) 411 (39,967) (3,867) (180)
3,621 24,480 28,101 26,884 6,581 4,194 37,659 (9,558) (1,736) 1,202 258 (276) (9,834) (9,834) 86 (9,748) (61) 1,737
3,466 14,647 18,113 29,280 5,788 3,777 38,845 (20,732) (4,899) (364) (658) (5,921) (26,653) (191) (26,462) 2,177 (24,285) (61) (7,567)
1,810 6,917 8,727 13,512 2,991 1,821 18,324 (9,597) (701) (77) (132) (910) (10,507) (10,507) 698 (9,809) (31) (1,753)
9,993 3,860 13,853 18,494 4,501 882 23,877 (10,024) (9,185) (1) (90) (9,276) (19,300) (19,300) 1,184 (18,116) (31) (1,414)
$ (15,374) $ (17.20) 893,848
$ (17,670) $ (19.64) 899,825
$ (44,014) $ (47.30) 930,465
$ (8,072) $ (8.38) 963,390
$ $
(31,913) (15.47) 2,063,489
$ (11,593) $ (11.97) 968,123
$ $
(19,561) (6.03) 3,242,898
(1.37) 18,828,136
(0.91) 21,139,162
Please see Note 1 to our consolidated financial statements for an explanation of the method used to calculate the historical and pro forma net loss per share attributable to common stockholders and the number of shares used in computation of the per share amounts. 44
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Balance Sheet Data:

2005 2006 As of December 31, 2007 2008 2009 As of June 30, 2010 (unaudited)
(in thousands)
Cash, cash equivalents and short-term investments Working capital (deficit) Total assets Total debt Redeemable convertible preferred stock Convertible preferred stock Accumulated deficit Total stockholders deficit
$ 18,631 15,580 25,501 7,069 35,963 18,283 (49,438) (48,953)
$ 23,141 9,930 31,997 13,856 40,590 18,283 (66,563) (66,426) 45
$ 55,392 14,505 64,366 13,547 75,635 18,283 (106,530) (94,851)
$ 15,364 (4,240) 26,169 8,320 75,696 18,283 (116,278) (104,289)
$ 40,798 26,712 48,762 25,868 67,081 13,752 (140,563) (120,838)
31,287 23,195 40,791 11,158 95,893 13,752 (158,679) (138,074)
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing at the end of this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read the Risk Factors section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Overview We are a biotechnology company engaged in discovering, developing and commercializing targeted small molecule therapeutics for the treatment of cancer. Our drug candidates are directed against an important family of enzymes called kinases, known to be involved in a range of human diseases. We are developing our lead drug candidate, quizartinib (formerly AC220), for the treatment of acute myeloid leukemia, or AML, under our global collaboration with Astellas Pharma Inc. and Astellas US LLC, collectively Astellas. Quizartinib is a once-daily, orally-administered, potent and selective kinase inhibitor currently in a pivotal Phase 2 clinical trial as monotherapy in relapsed/refractory AML. Quizartinib is being developed in concert with a companion diagnostic test to identify and treat the approximately one-third of AML patients with activating mutations in the FLT3 gene that drive a particularly aggressive and deadly form of this disease. We believe a targeted and personalized medicine approach to the treatment of AML has significant potential to improve patient outcomes and may transform what is an aggressive and deadly disease into a manageable condition. Novartis Gleevec (imatinib), a targeted kinase inhibitor, accomplished a similar transformation in the treatment of chronic myeloid leukemia. In addition to quizartinib, we have a pipeline of kinase inhibitors aimed at addressing significant unmet medical needs with potential advantages over existing therapeutics. In December 2009, we entered into a worldwide agreement with Astellas to jointly research, develop and commercialize FLT3 kinase inhibitors. As partial consideration for the exclusive license rights granted to Astellas, we received an upfront payment of $40.0 million. In addition, we may receive payments of up to $350.0 million upon the achievement of development and regulatory milestones. We are also entitled to receive tiered double-digit royalty payments on sales as well as annual sales-based milestones. The agreement provides that we and Astellas will conduct a joint five-year research program related to certain designated follow-on compounds to quizartinib. We and Astellas share development costs in the United States and European Union and the research costs on follow-on compounds equally. Astellas is responsible for all other development costs and the costs associated with commercialization of products covered by the agreement. We retain the right to co-promote quizartinib and any follow-on drugs in the United States, in which case we and Astellas will share equally any commercialization costs in the United States. We were incorporated in Delaware and commenced operations in 2000. Since 2005, most of our activities have related to the research and development of our product candidates. Prior to 2005, we were focused on the development of a kinase screening platform and services related to that platform. In order to focus on drug discovery and development, in October 2010 we sold all of the assets relating to our kinase profiling services business to DiscoveRx Corporation, or DiscoveRx, pursuant to an asset purchase agreement. In consideration for the sale of such assets, DiscoveRx paid us $7.3 million at the closing of the transaction and may be required to pay us up to an additional $4.9 million upon the achievement of certain sales and operational milestones. In the event of certain changes of control of DiscoveRx prior to December 31, 2012, up to $4.5 million of any unpaid milestones could become immediately due and payable to us. We are obligated to purchase from DiscoveRx a minimum of $0.6 million of screening services during each calendar quarter through December 31, 2012. As part of the asset purchase agreement we have acquired from DiscoveRx a nonexclusive, worldwide, sublicensable and royalty-free license to the intellectual property related to our former kinase profiling services business, as 46
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such intellectual property rights existed as of the date of their sale to DiscoveRx. We have agreed with DiscoveRx only to grant sublicenses to such intellectual property rights to third parties that have agreed to conduct research and development programs regarding products to which we have substantial rights and/or material interests other than royalties, or which result from our internal development efforts. We have further agreed that we will not utilize such licensed intellectual property rights other than in connection with such research and development programs. To date, we have not generated any revenues from product sales and we have incurred significant operating losses since our inception. We have generated revenues from upfront payments associated with our collaboration agreements and from our former kinase profiling services business. We have incurred consolidated net losses of approximately $40.4 million, $9.8 million and $26.5 million in the years ended December 31, 2007, 2008 and 2009, respectively, and approximately $10.5 million and $19.3 million during the six months ended June 30, 2009 and 2010 respectively. As of June 30, 2010 we had an accumulated deficit of approximately $158.7 million. We expect to incur significant and increasing operating losses for the foreseeable future as we advance our product candidates from discovery through preclinical studies and clinical trials, seek regulatory approval and pursue eventual commercialization. We will need additional financing to support our operating activities. We will seek to fund our operations through public or private equity or debt financings or other sources, such as strategic partnerships. Adequate additional funding may not be available to us on acceptable terms, or at all. We expect that research and development expenses will increase along with general and administrative costs, as we grow and operate as a public company. We will need to generate significant revenues to achieve profitability and we may never do so. We conduct the majority of our activities through our parent company, Ambit Biosciences Corporation, from our primary facility in San Diego, California. Additionally, we own 50% of Ambit Biosciences (Canada) Corporation, or Ambit Canada, which conducts some of our research and development activities in Toronto. As discussed further in Note 2 to our consolidated financial statements, Ambit Canada is consolidated for financial reporting purposes. The following information is presented on a consolidated basis to include the accounts of us, our wholly owned subsidiary Ambit Europe Limited (Ambit Europe), located in the United Kingdom, and our controlled subsidiary, Ambit Canada, each of which have limited operations. All intercompany transactions and balances are eliminated in consolidation. Financial Overview Revenues To date, we have not generated any revenues from product sales. We have generated revenues from two primary sources: (i) payments from collaboration arrangements and (ii) kinase profiling services fees through October 2010, at which time the service business was sold. Collaboration arrangements typically include payment to us of one or more of the following: nonrefundable, upfront license fees; milestone payments; sponsored research payments (fees for research and development services rendered); and royalty payments on product sales. We currently have no products approved for sale, and we have not generated any revenues from product sales or product royalties and do not expect to receive any revenues from any product candidates unless and until they obtain regulatory approval. To date, we have not submitted any drug candidate for regulatory approval. Kinase profiling services relate to our former use of our panel of kinase assays for third parties. In the future, we may generate revenues from a combination of product sales, license fees, milestone payments and research and development payments and royalties in connection with strategic partnerships. We expect that any revenues we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees, research and development reimbursements, milestone and other payments received under our strategic partnerships, and the payments that we receive upon the sale of our products, to the extent any are approved and successfully commercialized. If we or our strategic partners fail to complete the development of our drug candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenues, and our results of operations and financial position, would be materially adversely affected. 47
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Additionally, we do not expect future revenues from kinase profiling services as we sold the service portion of our business in October 2010 to focus on drug discovery and development. Research and Development Research and development expenses relate to the discovery and development of our product candidates. Our business model is dependent upon our continuing to conduct a significant amount of research and development. Product candidates in late stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of late stage clinical trials. We plan to increase our research and development expenses for the foreseeable future as we seek to complete development of our most advanced product candidate, quizartinib, and to further advance the earlier-stage research and development programs in our pipeline. Quizartinib represents the largest portion of our research and development expense. Under our agreement with Astellas, we share quizartinib development costs in the United States and European Union and research costs on follow-on compounds equally with Astellas. Astellas is responsible for all other development costs. Our research and development expenses consist primarily of: expenses incurred under agreements with contract research organizations, or CROs, investigative sites and consultants that conduct our clinical trials and a substantial portion of our preclinical studies; employee-related expenses, which include salaries and benefits; the cost of acquiring and manufacturing clinical trial materials; facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities and equipment, and depreciation of fixed assets; stock-based compensation expense to employees and consultants; and costs associated with other research activities and regulatory approvals.
Research and development costs are expensed as incurred. The following table indicates our research and development expense by project/category for the periods indicated:
2007 Years Ended December 31, 2008 2009 (in thousands) Six Months Ended June 30, 2009 2010 (unaudited) (unaudited)
Quizartinib AC430 Discovery projects Kinase profiling services AC480 R&D administration AC710 Total
$ 2,669 1,562 8,515 4,388 1,744 508 $19,386
$ 5,493 2,613 9,798 3,096 3,968 1,916 $26,884
$12,276 2,361 3,030 3,150 3,565 1,974 2,924 $29,280
4,966 859 1,685 1,638 1,712 1,243 1,409
9,285 2,202 2,169 1,901 1,095 953 889
$ 13,512
$ 18,494
At this time, due to the inherently unpredictable nature of preclinical and clinical development and given the early stage of our preclinical programs, we are unable to estimate with any certainty the costs we will incur in the continued development of quizartinib and our other clinical and preclinical programs. Clinical development timelines, the probability of success and development costs can differ materially from expectations. While we are currently focused on advancing quizartinib and our preclinical program, our future research and development expenses will depend on the preclinical and clinical success of each product candidate that we develop, as well as ongoing assessments of the commercial potential of such product candidates. In addition, we cannot forecast with any degree of certainty which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. 48
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We expect to incur increased research and development expenses as we continue to enroll patients in our current pivotal Phase 2 clinical trial of quizartinib as monotherapy in relapsed/refractory AML patients with internal tandem duplication, or ITD, mutations in the FLT3 gene, which we refer to as FLT3-ITD positive patients. In addition, we expect to incur significant research and development costs as we initiate future trials including a Phase 2 clinical trial to evaluate the efficacy of quizartinib in relapsed/refractory patients without ITD mutations in FLT3 and a confirmatory Phase 3 clinical trial of quizartinib in FLT3-ITD positive patients, both expected to begin in the first half and second half of 2011, respectively. Research and development expenditures will continue to increase as we advance the development of our proprietary pipeline of novel drug candidates, including AC480, AC430 and AC710. The costs of clinical trials may vary significantly over the life of a project owing to but not limited to the following: per patient trial costs; the number of sites included in the trials; the countries in which the trial is conducted; the length of time required to enroll eligible patients; the number of patients that participate in the trials; the number of doses that patients receive; the drop-out or discontinuation rates of patients; potential additional safety monitoring or other studies requested by regulatory agencies; the duration of patient follow-up; and the efficacy and safety profile of the product candidate.
General and Administrative Expenses General and administrative expenses consist principally of salaries and related costs for personnel in executive, finance, business development, information technology, marketing, and legal functions. Other general and administrative expenses include facility costs (not otherwise included in cost of kinase profiling services or research and development expenses), patent filing costs, and professional fees for legal, consulting, auditing and tax services. We anticipate that our general and administrative expenses will increase for, among others, the following reasons: as a result of increased payroll, expanded infrastructure and higher consulting, legal, accounting and investor relations costs, and director and officer insurance premiums associated with being a public company; to support our research and development activities, which we expect to expand as we continue the development of our product candidates; and to build a sales and marketing team before we receive regulatory approval of a product candidate in anticipation of commercial launch.
In-Process Research and Development In October 2007, we and Bristol-Myers Squibb Company, or BMS, entered into: (i) a license agreement pursuant to which we acquired an exclusive license to certain patents and other intellectual property related to AC480, and (ii) a licensing and profiling services agreement. Under the terms of the agreements, we received a 49
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$6.0 million upfront payment and received the worldwide product rights to AC480. In exchange for the cash payment and the worldwide product rights to AC480, we were obligated to provide kinase profiling services to BMS for which we would not receive additional compensation. This obligation was fulfilled in the first half of 2010. We recorded the receipt of the worldwide product rights to AC480 based on their fair value. The fair value of the AC480 compound was determined utilizing the market approach, assuming that the fair value of the AC480 compound rights can be determined by a review of available valuations of identified comparable compounds to approximate the value of the AC480 compound. The market approach makes use of publicly available information on assets that are deemed to be similar to the AC480 compound. In selecting comparable compounds, we targeted then-approved kinase inhibitors or kinase inhibitors under clinical development as comparable compounds to AC480. After selecting comparable compounds, a review of license agreements involving the comparable compounds was conducted. For purposes of the application of this method, only upfront cash payments and committed cash R&D support were used to determine the implied value of the comparables. Milestone, royalty, or profit splits were excluded from the fair value calculation due to the early nature of these compounds and the uncertainty regarding the timing and achievability of any milestone, royalty, or profit split terms. Under the methodology described above, we identified four comparable Phase 1 cancer licensing deals whose upfront payments and R&D support payments were in the range of $20.0 million to $30.0 million. We estimated that the midpoint of the range, or $25.0 million, was the appropriate basis for assigning a fair value to the AC480 compound. Because the acquired AC480 compound is in the early stage of the development cycle, the in-process R&D project was expensed immediately upon receipt from BMS. Cost of Kinase Profiling Services (held-for-sale) Cost of kinase profiling services represents expenses associated with the delivery of kinase profiling services to third parties. Cost of kinase profiling services consists primarily of raw materials, compensation, benefits and other employee related expenses, as well as an allocation of facility costs. We do not expect these costs to continue in the future as we sold the kinase profiling service portion of our business in October 2010 to focus on drug discovery and development. Interest Expense Interest expense consists primarily of coupon interest, amortization of debt discount, beneficial conversion charges, accretion to principal repayment premiums and amortization of deferred financing costs associated with our loans payable. Other Income (Expense) Other income (expense) consists primarily of: (i) interest income earned on our cash and cash equivalents and marketable securities and (ii) exchange rate gains and losses on transactions denominated in a currency other than the functional currency. Change in Fair Value of Redeemable Convertible Preferred Stock Warrant Liabilities For redeemable convertible preferred stock warrants and put instruments that are accounted for as liabilities, the value of such instruments is remeasured at each financial reporting period. As the value of such instruments is primarily related to the fair value of our stock, in periods where the underlying stock value has gone up, a non-operating expense is recorded. Conversely, if our stock price declines, the decrease in the liability results in non-operating other income being recorded. 50
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Critical Accounting Policies and Significant Judgments and Estimates Our managements discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described in Note 1 to our consolidated financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements. Revenue Recognition Our revenues generally consist of: (i) payments from collaboration arrangements and (ii) kinase profiling services fees through October 21, 2010, at which point the kinase profiling service business was sold. Revenues are recognized when all four of the following criteria are met: (i) persuasive evidence that an arrangement exists; (ii) delivery of the products and/or services has occurred; (iii) the selling price is fixed or determinable; and (iv) collectability is reasonably assured. Additional information on each revenue type is outlined below. Collaboration Arrangements We have entered into various collaboration arrangements, including those with Astellas, BMS and Cephalon, Inc., which contain multiple elements. A variety of factors are considered in determining the appropriate method of revenue recognition under these arrangements, such as whether the various elements can be considered separate units of accounting, whether there is objective and reliable evidence of fair value for these elements and whether there is a separate earnings process associated with a particular element of an agreement. Where there are multiple deliverables that do not have stand-alone value to the collaborator, the non-contingent consideration from these deliverables are combined into separate units of accounting based on their relative fair values. Applicable revenue recognition criteria are considered separately for each unit of accounting. Non-contingent revenues from the combined unit of accounting are deferred and recognized over the period that we remain obligated to perform services or deliver product. The specific methodology for the recognition of the revenues (e.g., straight-line or according to specific performance criteria) is determined on a case-by-case basis according to the facts and circumstances applicable to a given contract. Specifically, the revenue recognition methodology for the various elements in our multiple element arrangements is as follows: Upfront licensing fees. The Company recognizes revenues from nonrefundable, upfront license fees for which the separation criteria were not met, due to continuing involvement in the performance of research and development services on a straight-line basis over the contracted or estimated period of performance, which is typically the research or development term. Milestones. Milestone payments are derived from the achievement of predetermined events under collaboration arrangements and are assessed on an individual basis. Revenues are not recognized for milestones that are subject to contingencies until the revenues are earned, as evidenced by acknowledgment from the collaborator, provided that (i) the milestone event is substantive and its achievability was not reasonably assured at the inception of the agreement, (ii) the milestone represents the culmination, or progress towards the 51
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culmination, of an earnings process and (iii) the milestone payment is non-refundable. Where separate milestones do not meet these criteria, we default to a performance-based model, with revenue recognition following delivery of effort as compared to an estimate of total expected effort. Milestones that are received after all substantive deliverables have occurred are considered to be bonus payments and are recognized upon receipt of the cash, assuming all of the other revenue recognition criteria are met. Collaborative research payments. Collaborative research payments are primarily based on (i) time worked using a contractual cost per full-time equivalent employee working on the project and (ii) direct costs associated with the project. We recognize revenues related to these payments as the services are performed and costs are incurred over the related funding periods for each agreement, assuming all other revenue recognition criteria have been met. Payments received in excess of revenue recognized are recorded as deferred revenues until (i) sufficient time billable to the project has been incurred and/or (ii) related project costs have been expended. Collaboration arrangements also include potential payments for product royalty, commercial product supply, and sharing of operating profits. To date, we have not received payments or recorded revenues from any of these sources. Kinase Profiling Services (held-for-sale) Kinase profiling services were provided on a fee-for-service basis through October 21, 2010, the date we sold this business, and were billed when the profiling results data was provided to the customers. We recognized revenues upon delivery of the profiling data to the customer, assuming all other revenue recognition criteria have been met. Amounts received in advance of services performed were recorded as deferred revenues until earned. Accrued Clinical Expenses As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued clinical expenses include: fees paid to CROs in connection with clinical trials; fees paid to investigative sites in connection with clinical trials; fees paid to contract manufacturers in connection with the production of clinical trial materials; and fees paid to vendors in connection with the preclinical development activities.
We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with research institutions and CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period. 52
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Stock-Based Compensation We account for stock-based compensation by measuring and recognizing compensation expense for all stock-based payments made to employees and directors based on estimated grant date fair values. We use the straight-line method to allocate compensation cost to reporting periods over each optionees requisite service period, which is generally the vesting period. We estimate the fair value of our stock-based awards to employees and directors using the Black-Scholes option-valuation model. The Black-Scholes model requires the input of subjective assumptions, including the expected stock price, volatility, the calculation of expected term and the fair value of the underlying common stock on the date of grant, among other inputs. The following table summarizes our weighted-average assumptions used in the Black-Scholes model:
Years Ended December 31, 2007 2008 2009 Six Months Ended June 30, 2009 2010
Risk-free interest rate Expected dividend yield Expected volatility Forfeiture rate Expected term of options (years)
4.5% 63.2% 14.8% 6.1
3.0% 59.5% 13.7% 6.2
2.3% 61.0% 12.2% 6.1
2.2% 61.0% 12.2% 6.1
2.6% 61.7% 12.2% 6.1
Risk-free Interest Rate. The risk-free interest rate assumption was based on zero coupon United States Treasury instruments that had terms consistent with the expected term of our stock option grants. Expected Dividend Yield. future. We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable
Expected Volatility. The expected volatility rate used to value stock option grants is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the pharmaceutical and biotechnology industry in a similar stage of development. Forfeiture Rate. We estimate forfeitures based on historical experience at the time of grant and revise our estimate, if necessary, in subsequent periods if actual forfeitures differ from such estimates. Expected Term. We elected to utilize the simplified method for plain vanilla options to estimate the expected term of stock option grants. Under this approach, the weighted-average expected term is presumed to be the average of the vesting term and the contractual term of the option. Common Stock Fair Value. From inception through June 30, 2010, due to the absence of an active market for our common stock, the exercise prices for all options granted were at the estimated fair value as determined contemporaneously on the date of grant by our board of directors prepared in accordance with methodologies outlined in the AICPA Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . Our board of directors, which includes members who are experienced in valuing the securities of biotechnology/pharmaceutical companies, considered a number of subjective and objective factors including: the prices of our convertible preferred stock sold to outside investors in arms-length transactions, and the rights, preferences and privileges of our convertible preferred stock as compared to those of our common stock, including the conversion rights and liquidation preferences of our convertible preferred stock; our results of operations, financial position and the status of our research and development efforts, including results from our clinical trials; our stage of development and business strategy; the composition of and changes to our management team; the market value of a comparison group of publicly-held pharmaceutical and biotechnology companies that are in a stage of development similar to ours; 53
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the lack of liquidity of our common stock as a private company; contemporaneous valuation data provided by management; the likelihood of achieving a liquidity event for the shares of our common stock and underlying stock options, such as an initial public offering, given prevailing market conditions; and the material risks related to our business.
Based on these factors, our board of directors granted options at exercise prices that have ranged from a low of $0.50 per share in 2004 up to a high of $1.54 per share in October 2010. In connection with the preparation of the financial statements necessary for inclusion in the registration statement related to this offering, we reassessed the estimated fair value of our common stock during each quarterly period in 2009 and 2010. The reassessment included both the determination of the appropriate valuation model and related inputs. For grants made between January 1, 2009 and February 4, 2009, we concluded that the reassessed fair value of common stock was lower than the exercise price of options granted. For option grants made February 5, 2009 through June 30, 2010, we concluded that the reassessed fair value of common stock was higher than the exercise price of options granted. We used these fair value reassessments to determine stock-based compensation expense which is recorded in our financial statements. Our reassessment analysis was based on a methodology that first estimated the fair value of our business as a whole, or enterprise value. The determination of enterprise value was based on three primary factors: (i) a market approach using publicly traded comparables, (ii) a market approach using mergers and acquisitions, or M&A, transaction comparables, and (iii) an income approach using discounted cash flow analysis. The market approach using publicly traded comparables is based on revenue multiples derived from already public companies that are focused on oncology and have other similar characteristics, including size and business model. The market approach using M&A transaction comparables is based on revenue and other multiples derived from M&A transactions for companies in the oncological pharmaceutical industry. The income approach using a discounted cash flow analysis is based on the residual value and free cash flow from our multi-year forecast discounted to present value based on our calculated weightedaverage cost of capital. Once our enterprise value was determined under each method, we adjusted for our interest bearing debt, and then allocated such value to our different classes of equity using the option pricing method. The option pricing method utilizes the conversion rights and liquidation preferences of each class of stock and the Black-Scholes options pricing model to calculate the fair value of each class of stock based on each securitys relative right to our enterprise value, as adjusted for outstanding interest bearing debt, and the lack of marketability of our common stock. We selected the option pricing method to allocate our enterprise value from several alternative methods, including the probability weighted expected return method, or PWERM, due to our lack of clarity as to the timing and form of a potential liquidity event at the time the reassessed valuations were prepared. These analyses were performed prior to receiving the results from our pivotal Phase 2 clinical trial for quizartinib. Since the option pricing method utilizes conversion rights and liquidation preferences to allocate our enterprise value, such methodology allocates a large portion of our enterprise value to our convertible preferred stock. The disparity in preferred and common stock values is reflective of the significant development risks outstanding at the date of each reassessment. The following table summarizes the fair values of our common stock on a quarterly basis:
Reassessed Fair Value
March 31, 2009 June 30, 2009 September 30, 2009 December 31, 2009 June 30, 2010 (unaudited) 54
0.61 0.81 0.96 1.54 1.62
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The aggregate $0.35 per share increase in the fair value of our common stock during the second and third quarters of 2009 is representative of modest increases in our overall enterprise value as we advanced our business model, particularly the progression towards our obtaining FDA clearance to initiate our pivotal Phase 2 clinical trial for quizartinib. Within the second quarter of 2009, we did not reflect any increase in valuation until June when we received additional financing from our investors. Prior to that time, we had significant liquidity risk as we continued to operate with very limited cash reserves. There were no identifiable milestones or events from an operating perspective that would have offset the increasing liquidity risk and increased overall intrinsic value. The $0.58 per share increase in the fair value of our common stock between September 30, 2009 and December 31, 2009 is primarily attributed to the increase in our enterprise value in connection with our global collaboration agreement with Astellas which was executed on December 18, 2009. The collaboration agreement resulted in a $40.0 million upfront cash payment and provides for cost sharing and potential milestone and royalty payments going forward. The $0.08 increase in the fair value of our common stock from December 31, 2009 to June 30, 2010 reflects an increase in our enterprise value consistent with our continued enrollment in our pivotal Phase 2 clinical trial, and the filing with the FDA of our IND for AC480 in April 2010. Determining the fair market value of our common stock involves complex and subjective judgments including estimates of revenues, assumed market growth rates and estimated costs, as well as appropriate discount rates. At the time of each valuation, the significant estimates used in the discounted cash flow approach included estimates of our revenues and revenue growth rates for several years into the future. Although each time we prepared such forecasts for use in the preparation of a valuation report, we did so based on assumptions that we believed to be reasonable and appropriate, there can be no assurance that any such estimates for earlier periods or for future periods will prove to be accurate. Summary of Stock Option Grants The following table compares the originally determined fair value (exercise price) and reassessed fair value:
Shares Subject to Options Granted Exercise Price per Share Reassessed Fair Value of Common Stock per Share at Date of Grant Intrinsic Value Per Share at Date of Grant
Grant Date
February 4, 2009 March 31, 2009 April 30, 2009 May 21, 2009 May 29, 2009 November 3, 2009 November 30, 2009 June 29, 2010 (unaudited)
291,613 30,000 30,000 200,000 20,000 45,000 56,500 507,500
0.91 0.59 0.59 0.59 0.59 0.59 0.59 1.54
0.63 0.61 0.61 0.61 0.61 0.96 0.95 1.62
0.02 0.02 0.02 0.02 0.37 0.36 0.08
Subsequent to June 30, 2010 we granted an aggregate of 2,532,380 options to purchase our common stock at an exercise price of $1.54 per share. As a result of our initiation of the initial public offering process and our greater clarity as to the form and timing of potential liquidity events, we will use a PWERM based valuation to determine the fair value of our common stock for grants subsequent to June 30, 2010. Total stock-based compensation expense included in the statement of operations was allocated as follows:
2007 Year Ended December 31, 2008 2009 (in thousands) Six Months Ended June 30, 2009 2010 (unaudited)
Research and development General and administrative Total
$ $
59 25 84
$ $
128 112 240
$ $
125 114 239
$ $
59 45 104
$ $
85 119 204
Total share-based compensation expense related to unvested stock option grants not yet recognized as of June 30, 2010 was approximately $0.8 million and the weighted-average period over which these grants are expected to vest is 2.61 years. 55
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Based on the assumed initial public offering price of $ per share (the midpoint of the range set forth on the cover page of this preliminary prospectus), the intrinsic value of stock options outstanding as of June 30, 2010 would be $ , of which $ and $ would have been related to stock options that were vested and unvested, respectively, at that date. Equity instruments issued to non-employees are recorded at their fair values and are periodically revalued as the options vest and are recognized as expense over the related service period. We recorded share-based compensation for options granted to non-employees of approximately $4,000 and $15,000 for the years ended December 31, 2007 and 2008. No non-employee share-based compensation expense was recorded for the year ended December 31, 2009 or the six month periods ended June 30, 2009 and 2010. Common Stock Warrants We have estimated the fair value of all outstanding common stock warrants as of the date of grant. Such values were estimated using the BlackScholes option-pricing model and an estimated term equal to each warrants contractual term of ten years. The value is included as a component of stockholders deficit. Redeemable Convertible Preferred Stock Warrant Liabilities We have issued freestanding warrants to purchase shares of our redeemable convertible preferred stock. The redeemable convertible preferred stock warrants are exercisable for shares of Series C and Series D redeemable convertible preferred stock and are classified as liabilities in the accompanying consolidated balance sheets, as the terms for redemption of the underlying security are outside our control. The redeemable convertible preferred stock warrants are recorded at fair value using either the Black-Scholes option pricing model or a binomial model, depending on the characteristics of the warrants. The fair value of these warrants is re-measured at each financial reporting period with any changes in fair value being recognized in change in fair value of redeemable convertible preferred stock warrant and put liabilities, a component of other income (expense), in the accompanying consolidated statements of operations. We will continue to re-measure the fair value of the warrant liability until: (i) exercise, (ii) expiration of the related warrant, or (iii) upon conversion of the redeemable convertible preferred stock underlying the security into common stock in connection with an initial public offering. Redeemable Non-Controlling Interest The redeemable non-controlling interest in our subsidiary Ambit Canada was created through the issuance of redeemable convertible preferred stock put obligations, or the puts, which have elements similar to a liability instrument and are classified as liabilities in the accompanying consolidated balance sheets at fair value. At each reporting period, we adjust the carrying value of the redeemable non-controlling interest by the net loss attributable to the redeemable non-controlling interest. Any difference between the fair value and the adjusted carrying value of the redeemable non-controlling interest is recorded as an adjustment to additional paid-in capital and presented as a component of net loss attributable to common stockholders in the accompanying consolidated statements of operations. The redeemable non-controlling interest will continue to be measured at fair value until the earlier of: (i) exercise of the underlying put rights or (ii) the time at which GrowthWorks no longer holds Class C and Class D shares in Ambit Canada, at which time the redeemable non-controlling interest will be reclassified to additional paid-in capital. The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by United States generally accepted accounting principles, GAAP. There are also areas in which our managements judgment in selecting any available alternative would not produce a materially different result. Please see our audited financial statements and notes thereto included elsewhere in this prospectus, which contain accounting policies and other disclosures required by GAAP. 56
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Results of Operations Comparison of the Six Months Ended June 30, 2009 and 2010 (unaudited) Revenues The following table summarizes our revenues for the six months ended June 30, 2009 and 2010:
Six Months Ended June 30, 2009 2010 (in thousands) Increase (Decrease)
Collaboration arrangements Kinase profiling services
$ 1,810 6,917 $ 8,727
$ 9,993 3,860 $13,853
$ 8,183 (3,057) $ 5,126
Collaboration Arrangements Revenues. In December 2009, we entered into a collaboration arrangement with Astellas, which resulted in revenues during the six-month period ended June 30, 2010 of approximately $9.0 million. In addition, we recognized a milestone payment of $1.0 million under our collaboration with Cephalon in February 2010. Revenues from collaboration arrangements in 2009 were primarily related to our 2006 agreement with Cephalon, which terminated in November 2009 resulting in no revenues from this agreement during the six-month period ended June 30, 2010. Kinase Profiling Services Revenues . Services revenues decreased primarily due to decreases of $3.4 million and $0.4 million in screening activity for BMS and Cephalon, respectively, as obligations under these contracts were met. These decreases were partially offset by a $0.7 million increase in commercial fees for services provided to several other customers. We do not expect future revenues from kinase profiling services as we sold the service portion of our business in October 2010. Operating Expenses The following table summarizes our operating expenses for the six months ended June 30, 2009 and 2010:
Six Months Ended June 30, 2009 2010 (in thousands) Increase (Decrease)
Research and development General and administrative Cost of kinase profiling services
$ 13,512 2.991 1,821 $ 18,324
$ 18,494 4,501 882 $ 23,877
$ 4,982 1,510 (939) $ 5,553
Research and Development Expense. Research and development expenses in the six months ended June 30, 2009 and 2010, respectively, related primarily to the continued development of quizartinib and other preclinical programs. The increase in 2010 was primarily driven by (i) a $4.3 million increase in quizartinib costs associated with clinical trial expenses, and (ii) a $1.3 million increase in AC430 costs associated with preclinical testing and a $0.5 million increase in discovery projects for potential commercialization. These increases were partially offset by decreases of $0.6 million and $0.5 million in AC480 and AC710 costs, respectively, due to increased focus on quizartinib. We expect research and development costs to increase as a result of the clinical trial program for quizartinib and the continued development of AC480, AC430, AC710 and our ongoing research activities. General and Administrative Expense. General and administrative expenses increased primarily due to: (i) a severance charge of approximately $1.3 million associated with a former officer, (ii) $0.4 million in professional services, including completion of our 2009 financial audit and related costs to prepare for reporting as a public company, and (iii) an increase of approximately $0.1 million associated with stock-based 57
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compensation. These increases were partially offset by a (i) $0.1 million decrease in salaries and related benefits associated with the former officers departure and (ii) approximately a $0.1 million decrease in legal expenses. Cost of Kinase Profiling Services Revenues . Cost of services consists primarily of compensation, benefits and other employee related expenses, as well as an allocation of facility costs. The decrease in cost of profiling revenues was driven by a corresponding decrease in services revenues and related activities. We do not expect these costs to continue in the future as we sold the service portion of our business in October 2010. Other Income (Expense) The following table summarizes our other income (expense) activity for the six months ended June 30, 2009 and 2010:
Six Months Ended June 30, 2009 2010 (in thousands) (Increase) Decrease
Interest expense Other income (expense) Change in fair value of redeemable convertible preferred stock warrant liabilities
(701) (77) (132) (910)
(9,185) (1) (90) (9,276)
$ (8,484) 76 42 $ (8,366)
Interest Expense. The increase in interest expense was primarily due to: (i) accretion of the June 2009 bridge loan to settlement value resulting in an additional $6.1 million in non-cash expense during the six months ended June 30, 2010 compared to the prior year, (ii) $1.0 million in amortization expense associated with the common stock warrants issued in connection with the closing of the July 2009 bridge loan, and (iii) approximately a $1.0 million increase in interest expense associated with the interest on our outstanding debt. Change in Fair Value of Redeemable Convertible Preferred Stock Warrant Liabilities . The change in fair value of the redeemable convertible preferred stock warrant liabilities in 2010 as compared to 2009 was due primarily to the change in the fair value of the underlying securities. The fair value of the Series C and Series D redeemable convertible preferred stock increased 0.6% and 4.8%, respectively, during the six-month period ended June 30, 2010 compared to increases of 21.8% and 12.3%, respectively, during the six-month period ended June 30, 2009. This favorable change was partially offset by the issuance of 284,584 Series D redeemable convertible preferred stock warrants during the first six months of 2010. Comparison of the Years Ended December 31, 2008 and 2009 Revenues The following table summarizes our revenues for the years ended December 31, 2008 and 2009:
Year Ended December 31, 2008 2009 (in thousands) Increase (Decrease)
$ 3,621 24,480 $ 28,101
3,466 14,647
(155) (9,833)
$ 18,113
$ (9,988)
Collaboration Agreement Revenues. In 2008 and for most of 2009, our revenues from collaboration arrangements, including revenues from license arrangements, were generated solely from our 2006 collaboration agreement with Cephalon. In November 2009, the contract research program under this agreement terminated, 58
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resulting in a decrease in revenues, of approximately $0.6 million compared to 2008. This decrease was partially offset by revenues of $0.4 million associated with the Astellas agreement signed in December 2009. Kinase Profiling Services Revenues . Kinase profiling services revenues decreased primarily as a result of a reduction in screening activity performed under our 2005 and 2007 kinase profiling service agreements with BMS. Services revenues recorded under the BMS agreement was approximately $17.1 million and $9.7 million for the years ended December 31, 2008 and 2009, respectively. Operating Expenses The following table summarizes our operating expenses for the years ended December 31, 2008 and 2009:
Research and development General and administrative Cost of kinase profiling services
$ 26,884 6,581 4,194 $ 37,659
$ 29,280 5,788 3,777 $ 38,845
$ 2,396 (793) (417) $ 1,186
Research and Development Expense. Research and development expenses in 2009 primarily related to the continued development of quizartinib, compared to 2008 when research and development expense was more evenly allocated between development of quizartinib and other discovery projects. The increase in 2009 was primarily driven by costs associated with the quizartinib clinical trials, representing a $6.8 million increase over the prior year, and the commencement of work on AC710 resulting in an additional increase of $3.0 million. These increases were principally offset by decreases of $6.8 million in discovery projects, $0.4 million in AC480 costs and $0.3 million in AC430 costs due to increased focus on quizartinib. General and Administrative Expense . The decrease in general and administrative expenses in 2009 primarily related to: (i) a $0.3 million severance accrual for a former officer in 2008, with no similar accrual in 2009, (ii) a $0.2 million reduction in travel and related expenses, (iii) a $0.2 million saving in outside professional fees, including legal expenses and (iv) a reduction in the average number of employees. Cost of Kinase Profiling Services Revenues . decrease in service revenues and related activities. Other Income (Expense) The following table summarizes our other income (expense) activity for the years ended December 31, 2008 and 2009:
Year Ended December 31, 2008 2009 (in thousands) (Increase) Decrease
The decrease in the cost of services revenues from 2008 to 2009 was driven by a corresponding
$ (1,736) 1,202 258 $ (276)
$ (4,899) (364) (658) $ (5,921)
$ (3,163) (1,566) (916) $ (5,645)
Interest Expense. The increase in interest expense was primarily due to: (i) accretion of the June 2009 bridge loan to settlement value resulting in additional expense of $3.1 million, with no comparable expense in 2008, and (ii) $0.2 million in amortization expense associated with the amortization of common stock warrants issued in connection with the July 2009 bridge loan. 59
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Other Income (Expense). The overall decrease in other income (expense) was primarily due to: (i) a $0.8 million reduction, in other income, compared to 2008, associated with our investments, which matured in early 2009 and (ii) a net $0.4 million foreign currency loss on a $3.8 million intercompany loan (from our Canadian subsidiary to our U.S. parent company) and the 2009 Canadian bridge loan. The intercompany loan was repaid in December 2009 and the bridge loan converted to stock in June 2010. No similar loans existed in 2008. Change in Fair Value of Redeemable Convertible Preferred Stock Warrant Liabilities . The overall change in fair value of the redeemable convertible preferred stock warrant liabilities is due to an increase in the fair value of the underlying securities compared to the prior year. The fair value of the Series C and Series D redeemable convertible preferred stock increased 105.1% and 73.0%, respectively, during the year ended December 31, 2009 compared to decreases in fair value during the year ended December 31, 2008 of 20.4% and 29.1%, respectively. The increase in fair value during 2009 was primarily due to the execution of the Astellas collaboration agreement for quizartinib in December 2009. Comparison of the Years Ended December 31, 2007 and 2008 Revenues The following table summarizes our revenues for the years ended December 31, 2007 and 2008:
$ 3,621 10,692 $ 14,313
3,621 24,480
13,788
$ 28,101
$ 13,788
Collaboration Agreement Revenues. For both 2007 and 2008, collaboration agreement revenues related exclusively to the November 2006 collaboration agreement with Cephalon. As part of the collaboration agreement, we provided contract research services over a three year period, ending November 2009. The upfront cash payment attributable to this activity was deferred and recognized on a straight-line basis over the three-year term of the agreement, resulting in an equal amount of revenue recognition in 2007 and 2008. Kinase Profiling Services Revenues . The increase in kinase profiling services revenues from 2007 to 2008 was attributable to: (i) an increase in screening activity performed under the 2007 kinase profiling service agreement with BMS, resulting in additional revenues of approximately $14.0 million, and (ii) an increase of approximately $2.6 million in screening services performed for our retail customers. These increases were partially offset by a $2.8 million decrease in screening revenues from Cephalon due to timing of screening demand. Operating Expenses The following table summarizes our operating expenses for the years ended December 31, 2007 and 2008:
Research and development General and administrative In-process research and development Cost of kinase profiling services
$ 19,386 6,466 25,000 2,993 $ 53,845 60
$ 26,884 6,581 4,194 $ 37,659
$ 7,498 115 (25,000) 1,201 $(16,186)
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Research and Development Expense. Research and development expenses in 2008 primarily related to development of quizartinib and other discovery projects. In 2007, the focus was primarily related to discovery projects for potential commercialization. The increase in 2008 was primarily due to: (i) costs associated with our quizartinib, AC480 and AC430 studies, representing increases of $2.8 million, $2.2 million, and $1.1 million, respectively, and (ii) $1.4 million in research and development administration costs associated with our various discovery and development efforts. General and Administrative Expense . The increase in general and administrative expenses during 2008 primarily related to: (i) a $0.2 million increase in consulting services associated with a study related to the profiling business, and (ii) $0.1 million in costs associated with recruiting. These increases were partially offset by a $0.1 million reduction in travel costs. In-Process Research and Development. As a result of our collaboration agreement with BMS, we acquired in-process research and development, or IPR&D, projects with a fair value of $25.0 million. Due to the early stages within the development cycle and the lack of future alternative uses, the amount allocated to IPR&D was recorded as expense upon execution of the agreement with BMS. Cost of Kinase Profiling Services Revenues . corresponding period. Other Income (Expense) The following table summarizes our other income (expense) activity for the years ended December 31, 2007 and 2008:
Year Ended December 31, 2007 2008 (in thousands) (Increase) Decrease
The increase in costs is directly attributable to the increase in services revenues for the
$ (1,874) 946 278 $ (650)
$ (1,736) 1,202 258 $ (276)
138 256 (20) 374
Interest Expense. Interest expense decreased in 2008 as compared to 2007 as a result of a decrease in the overall principal balance for our various debt facilities. This decrease of approximately $0.2 million was partially offset by approximately a $59,000 increase in amortization of convertible debt issuance costs. Other Income (Expense). Other income (expense) increased compared to 2007 primarily as a result of a $0.2 million increase in investment income during 2008 associated with interest paid to us on cash received in the fourth quarter of fiscal 2007 from the issuance of Series D preferred stock. Change in Fair Value of Redeemable Convertible Preferred Stock Warrant Liabilities . During 2007, the number of shares subject to Series C redeemable convertible preferred stock from outstanding warrants increased by approximately 98,000 shares. During 2008, there were no changes in the number of shares subject to Series C redeemable convertible preferred stock warrants outstanding. The increase in the change in fair value of redeemable convertible preferred stock warrant liabilities resulted from a decrease in the fair value of the underlying security, offset by nine months of additional expense, during 2008, related to the issuance of warrants for 98,000 shares in 2007. Liquidity and Capital Resources We have incurred losses since our inception and, as of June 30, 2010, we had an accumulated deficit of $158.7 million. We anticipate that we will continue to incur net losses for the foreseeable future as we incur expenses for the development and commercialization of quizartinib, work to discover and develop additional product candidates through our research and development programs and expand our corporate infrastructure, 61
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including costs associated with being a public company. As a result, we will seek to fund our operations through public or private equity or debt financings or other sources, such as strategic partnership agreements. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategies. Management believes that with cash on hand and proceeds from the offering it has sufficient funds for operations for at least 12 months. From our inception through June 30, 2010, we have funded our consolidated operations primarily through the private placements of approximately $126.6 million of equity securities, including amounts from bridge notes that have been converted to equity, and approximately $61.5 million in upfront payments from our collaboration arrangements. Additionally, we have funded a portion of our operations from debt, service revenues, and additional funding under our collaboration arrangements. As of June 30, 2010, we had cash and cash equivalents of approximately $31.3 million. Cash in excess of immediate requirements is invested in accordance with our investment policy which places primary emphasis on capital preservation and liquidity. The following table sets forth a summary of the net cash flow activity for each of the periods set forth below:
2007 Years Ended December 31, 2008 2009 (in thousands) Six Months Ended June 30, 2009 2010
Net cash (used in) provided by operating activities Net cash (used in) provided by investing activities Net cash provided by (used in) financing activities Effect of exchange rate on cash Net increase (decrease) in cash and cash equivalents
$(16,015) (24,161) 48,698 662 $ 9,184
$(31,094) 27,842 (5,558) (1,426) $(10,236)
$10,491 1,036 14,546 611 $26,684
$ (14,666) 1,196 2,777 245 $ (10,448)
$ (17,316) (304) 8,190 (81) $ (9,511)
The use of cash in operating activities primarily resulted from our consolidated net losses and changes in our working capital accounts. The cash used in operations increased for the six-month period ended June 30, 2010 as compared to the six-month period ended June 30, 2009 primarily as a result of: (i) recording of a $2.8 million receivable from Astellas related to cost sharing under our collaboration agreement, (ii) a $1.0 million increase in external clinical trial costs for quizartinib due to the initiation of our pivotal Phase 2 clinical trial. In 2009, cash generated from operating activities was primarily as a result of a $40.0 million upfront payment from our collaboration partner Astellas, received in December 2009. The increase in cash used in operations in 2008 as compared to 2007 was due primarily to an increase in research and development activities related to the development of our lead product candidate, quizartinib. During the six-month period ended June 30, 2010, cash used in investing activities related to the purchase of property and equipment, primarily computer equipment and software. During the six-month period ended June 30, 2009, the inflow of cash related to the maturity of our remaining shortterm investments, which proceeds were not reinvested. Purchases of property and equipment during the six-month period ended June 30, 2009, were insignificant. Cash generated from investing activities during 2008 and 2009 was attributable primarily to the sale or maturity of short-term investments that were not reinvested. During 2007, our net investing activities resulted in a cash use of $24.2 million primarily for the purpose of investing excess cash into short-term investments. During the six-month period ended June 30, 2010, we incurred new debt of approximately $12.0 million, compared to $6.0 million during the sixmonth period ended June 30, 2009. Principal debt payments remained flat at $3.2 million. Cash provided by financing activities in 2009 was a result of the sale and issuance of secured convertible promissory notes in a private placement to certain of our existing investors for net proceeds of $19.4 million, offset by $4.9 million in cash payments on debt to third parties. During 2008, there were no significant financing inflows of cash through debt or equity resulting in net cash used in financing activities for scheduled loan payments under our debt facilities. Cash provided by financing activities in 2007 was primarily a result of the sale and issuance of 9.1 million shares of Series D redeemable convertible preferred stock for net proceeds of $45.8 million. 62
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The financial statements of our Canadian subsidiary are measured using the local currency as the functional currency. The effect of exchange rate on cash relates to the fluctuation in exchange rate of the Canadian dollar to the U.S. dollar. Operating Capital Requirements . We anticipate that we will continue to incur net losses for the next several years as we incur expenses for our clinical trials and nonclinical studies for quizartinib, complete preclinical trials and initiate clinical development of other programs, build commercial capabilities and expand our corporate infrastructure. We may not be able to complete the development and initiate commercialization of these programs if, among other things, our preclinical research and clinical trials are not successful, the FDA does not approve quizartinib or any product candidates arising out of our current clinical and preclinical programs when we expect, or at all or Astellas discontinues its funding under our collaboration agreement with them. We believe that the net proceeds from this offering and our existing cash and cash equivalents, committed research and development funding and milestone payments that we expect to receive under our existing partnership and license agreements, will be sufficient to fund our operations through at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. If we are unable to raise sufficient additional capital we may need to substantially curtail our planned operations. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed in Risk Factors. The net proceeds from this offering alone will not be sufficient to fund our long-term strategic plan, which includes development and commercialization of quizartinib as well as other product candidates in our pipeline. As a result, we will need to raise substantial additional capital following this offering to fund our operations and continue to conduct clinical trials to support potential regulatory approval of quizartinib and our other product candidates. To raise additional capital, we may seek to sell additional equity or debt securities or incur indebtedness. The sale of additional equity and convertible debt securities may result in additional dilution to our stockholders. If we raise additional funds through the issuance of convertible debt securities or preferred stock, these securities could have rights senior to those of our common stock and could contain covenants that would restrict our operations. We may also seek funding through collaborations or other similar arrangements with third parties. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on many factors, including, but not limited to: the number and characteristics of the product candidates we pursue; the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical and clinical trials; the costs and timing of obtaining regulatory approvals for our product candidates; the costs and timing of clinical and commercial manufacturing supply arrangements for our product candidates; the costs of establishing sales or distribution capabilities; the success of the commercialization of our products; our ability to establish and maintain strategic collaborations, including licensing and other arrangements; the costs involved in enforcing or defending patent claims or other intellectual property rights; and the timing, receipt and amount of sales of, or royalties on, our future products, if any. 63
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Contractual Obligations. Under our collaborative agreement with Astellas, we share equally with Astellas all development costs related to quizartinib in the United States and European Union, and research costs on other compounds under the agreement. The actual amounts that we pay Astellas will depend on numerous factors outside of our control, including the success of our clinical development efforts with respect to quizartinib, the content and timing of decisions made by the FDA. Our most significant clinical trial expenditures are to CROs. The contracts with CROs generally are cancellable, with notice, at our option and do not have any cancellation penalties. These items are not included in the table below. The following table summarizes our contractual obligations at June 30, 2010 (unaudited) including interest.
Less Than 1 Year Payments Due by Period 13 35 Years Years (in thousands) More Than 5 Years
Total
Long-term debt Operating lease obligations Total contractual obligations
$16,304 7,483 $23,787
$ 1,084 890 $ 1,974
$10,191 3,601 $13,792
$5,029 2,992 $8,021
$ $
Our commitment for long-term debt relates primarily to a $12.0 million venture loan, executed in March 2010. Additionally, long-term debt includes various facilities for working capital as well as the financing of purchases of laboratory and other equipment. As of June 30, 2010, there were no funds available for additional borrowing under any of the various loan facilities. Our commitments for operating leases relate to our lease of office and laboratory space in San Diego, California. Redeemable Convertible Preferred Stock. We are obligated to redeem the outstanding shares of Series D redeemable convertible preferred stock, if after October 30, 2012, the holders of at least 67% of the shares elect to cause us to redeem the stock. The redemption would occur over 12 equal quarterly installments at a price of $5.06 per share. Immediately prior to the closing of this offering, all of our outstanding shares of redeemable convertible preferred stock will convert into shares of common stock and the redemption right will terminate. We are obligated to redeem the outstanding shares of Series C redeemable convertible preferred stock and Series C-2 redeemable convertible preferred stock if all of the outstanding shares of Series D redeemable convertible preferred stock had been redeemed and the holders of at least 67% of the Series C redeemable convertible preferred stock and the Series C-2 redeemable convertible preferred stock shares elect to cause us to redeem the stock. The redemption would occur over 12 equal quarterly installments beginning after Series D redemptions have been satisfied. The redemption price of the Series C redeemable convertible preferred stock is $4.30 per share and the redemption price of the Series C-2 redeemable convertible preferred stock is $3.25 per share. Immediately prior to the closing of this offering, all of our outstanding shares of preferred stock will convert into shares of common stock and the redemption right will terminate. Off-Balance Sheet Arrangements We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. Related Party Transactions For a description of our related party transactions, see Related Party Transactions beginning on page 129. 64
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Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk Our cash and cash equivalents as of June 30, 2010 consisted of cash and money market funds. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of United States interest rates. However, because of the short-term nature of the instruments in our portfolio, a sudden change in market interest rates would not be expected to have a material impact on our financial condition and/or results of operation. Our long-term debt and capital lease obligations bear interest at a fixed rate and therefore have minimal exposure to changes in interest rates. Foreign Currency Risk Our balance sheet as of June 30, 2010 includes cash and cash equivalent balances of $2.8 million, which are denominated in Canadian dollars through our Canadian subsidiary, Ambit Canada. The majority of Ambit Canadas operational activities are denominated in Canadian Dollars with the exception of intercompany loans which are denominated in U.S. Dollars. We do not participate in any foreign currency hedging activities and we do not have any other derivative financial instruments. During the year ended December 31, 2009 and the six months ended June 30, 2009 and 2010, exchange rate losses recognized in the consolidated statement of operations totaled $0.4 million, $0.1 million and $2,000, respectively. There were no recognized losses due to exchange rate fluctuations for the year ended December 31, 2008. Effects of Inflation We do not believe that inflation and changing prices had a significant impact on our results of operations for any periods presented herein. Recent Issued Accounting Standards In February 2010, new accounting guidance was issued which requires evaluation of subsequent events through the date the financial statements are issued for SEC filers, amends the definition of an SEC filer, and changes required disclosures. The new accounting guidance became effective on February 24, 2010 and did not have a material financial impact on our financial statements. In January 2010, new accounting guidance was issued which amended the existing fair value measurements and disclosures guidance to require additional disclosures regarding fair value measurements. Specifically, the new guidance requires entities to disclose the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers, the reasons for any transfer in or out of Level 3, and information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuance and settlements on a gross basis. In addition, the new guidance also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for additional disclosures related to Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. We do not expect adoption of the new guidance to have a material impact on its financial statements or results of operations. In October 2009, new accounting guidance was issued to require companies to allocate revenues in multiple-element arrangements based on an elements estimated selling price if vendor-specific or other third- party evidence of value is not available. The new accounting guidance is effective for us beginning January 1, 2011. Earlier application is permitted. We are currently evaluating both the timing and the impact of the pending adoption of the new accounting guidance on its financial statements. 65
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BUSINESS Overview Ambit Biosciences Corporation is a biotechnology company engaged in discovering, developing and commercializing targeted small molecule therapeutics for the treatment of cancer. Our drug candidates are directed against an important family of enzymes called kinases, known to be involved in a range of human diseases. We are developing our lead drug candidate, quizartinib (formerly AC220), for the treatment of acute myeloid leukemia, or AML, under our global collaboration with Astellas Pharma Inc. and Astellas US LLC, collectively Astellas. Quizartinib is an orally-administered, potent and selective kinase inhibitor currently in a pivotal Phase 2 clinical trial as monotherapy in relapsed/refractory AML. According to the American Cancer Society, approximately 13,000 adults were newly diagnosed with AML in 2009 in the United States with approximately 9,000 expected to die of the disease in that year. Quizartinib is being developed in concert with a companion diagnostic test to identify and treat the approximately one-third of AML patients with activating mutations in the FLT3 gene that drive a particularly aggressive and deadly form of this disease. We believe a targeted and personalized medicine approach to the treatment of AML has significant potential to improve patient outcomes and may transform what is an aggressive and deadly disease into a manageable condition. Novartis Gleevec (imatinib), a targeted kinase inhibitor, accomplished a similar transformation in chronic myeloid leukemia, or CML. In addition to quizartinib, we have a pipeline of kinase inhibitors aimed at addressing significant unmet medical needs with potential advantages over existing therapeutics. Based on the positive efficacy and tolerability observed in our 76-patient Phase 1/2 clinical trial and subsequent discussions with the United States Food and Drug Administration, or FDA, in November 2009 we initiated a single-arm, open-label pivotal Phase 2 clinical trial of quizartinib as monotherapy in relapsed/refractory AML patients. This trial is designed to evaluate the efficacy and safety of quizartinib in relapsed/refractory AML patients with internal tandem duplication, or ITD, mutations in the FLT3 gene, which we refer to as FLT3-ITD positive. ITD mutations account for the majority of activating mutations in FLT3. We plan to enroll at least 180 patients worldwide and have enrolled 100 patients as of November 1, 2010. This trial is designed to measure the rate of complete response, or CR, complete response rate with incomplete platelet recovery, or CRp, complete response rate with incomplete neutrophil recovery, or CRi, and partial response, or PR. The co-primary endpoints of the trial are (1) CR and (2) composite complete response, or CR + CRp + CRi. Secondary endpoints include duration of remission, disease-free survival and overall survival. Our pivotal Phase 2 clinical trial included an interim data analysis once 60 patients received at least one cycle of treatment, which occurred in September 2010. Clinical trial site-read data from this interim analysis has shown that 52% of patients exhibited a complete response, consisting of 5% CR, 7% CRp and 40% CRi. An additional 25% exhibited a partial response. These data are preliminary and may vary following central pathology review. A drug safety monitoring committee meeting will be held in the fourth quarter of 2010 to discuss any modifications to the trial. We anticipate enrollment in the trial will be completed during the first half of 2011 and expect to report data within six months of completion of enrollment. If successful, this trial is expected to form the basis for a new drug application, or NDA, to be submitted to the FDA for the accelerated approval of quizartinib as monotherapy for relapsed/refractory AML patients. In December 2009, we entered into a worldwide agreement with Astellas to jointly research, develop and commercialize FLT3 kinase inhibitors. As partial consideration for the exclusive license rights granted to Astellas, we received an upfront payment of $40.0 million to us. In addition, we may receive payments of up to $350.0 million upon the achievement of certain development and regulatory milestones. We are also entitled to receive tiered double-digit royalty payments on sales as well as annual sales-based milestones. The agreement provides that we and Astellas will conduct a joint five-year research program related to certain designated follow-on compounds to quizartinib. We share development costs in the United States and European Union and the research costs on follow-on compounds equally with Astellas. Astellas is responsible for all other development costs and the costs associated with commercialization of products covered by the agreement. We retain the right to co-promote and share profits with Astellas on both quizartinib and any follow-on drugs in the United States. 66
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In addition to our ongoing pivotal Phase 2 clinical trial of quizartinib in relapsed/refractory AML, we plan to initiate trials to evaluate the efficacy of quizartinib when combined with chemotherapy, as monotherapy maintenance in newly diagnosed AML patients, and as monotherapy in AML patients without the FLT3-ITD mutation. Since quizartinib is a potent inhibitor of a second receptor tyrosine kinase, KIT, we are also planning to explore the use of quizartinib as a treatment for certain solid tumors, including gastrointestinal stromal tumors, or GIST, and melanoma. Beyond quizartinib, we have a pipeline of kinase inhibitors in development for the treatment of various cancers. In October 2007 we licensed from Bristol-Myers Squibb Company, or BMS, exclusive worldwide rights to AC480, a once-daily, orally-administered, potent and selective inhibitor of the HER family of receptors. We are studying the oral formulation of AC480 in a Phase 1 clinical trial in patients with glioblastoma multiforme, or GBM. We also expect to advance an intravenous, or IV, formulation of AC480 into Phase 1 clinical trials in the fourth quarter of 2010 for the treatment of various solid tumors including metastatic breast cancer and non-small cell lung cancer, or NSCLC. Our preclinical pipeline includes both AC430, an orally-administered, potent inhibitor of JAK2, AC710, an orally-administered, potent and an inhibitor of CSF1R and CEP-32496, a B-raf inhibitor being developed by Cephalon. An investigational new drug application, or IND, for AC430 was filed in September 2010, and we expect to initiate a Phase 1 clinical trial for AC430 in the fourth quarter of 2010. We expect to initiate IND-enabling studies for AC710 in 2011. We believe our drug discovery capability, coupled with the use of the panel of 442 kinase assays developed by us, provides a distinct competitive advantage that enables us to advance kinase inhibitors into clinical development more quickly and efficiently than our competitors. Since 2005, we have selected and advanced five kinase inhibitor drug candidates into preclinical and clinical development: quizartinib, AC480, AC430, AC710, and CEP32496. Our Strategy Our objective is to develop and commercialize products that treat serious unmet medical needs in patients suffering from cancer. The key components of our business strategy are: Develop and commercialize our lead drug candidate, quizartinib, in AML and certain solid tumors in partnership with Astellas. We are developing quizartinib, our internally-discovered, potent and selective inhibitor of FLT3 and KIT, in multiple cancer types, with our partner Astellas. We are initially targeting relapsed/refractory AML, which represents a significant market opportunity that we believe is not adequately addressed by existing therapies. Quizartinib is the subject of a pivotal Phase 2 clinical trial as monotherapy in relapsed/refractory FLT3-ITD positive AML patients. In addition, we intend to initiate a confirmatory, randomized Phase 3 clinical trial of quizartinib in FLT3-ITD positive AML patients in the second half of 2011. Based on its ability to also inhibit KIT, we are conducting a Phase 1 clinical trial of quizartinib as monotherapy for the treatment of certain solid tumors. Advance our pipeline of clinical and preclinical drug candidates. Our expertise in kinase drug discovery and development is demonstrated by our pipeline of targeted kinase inhibitors for the treatment of cancer. In addition to quizartinib, we have selected and advanced AC480, AC430 and AC710 as drug candidates. AC480 oral, a pan-HER inhibitor, has completed a Phase 2 clinical trial for the treatment of various solid tumors and a Phase 1 clinical trial of AC480 IV in combination with sanofi-aventis Taxotere (docetaxel) is expected to commence in the fourth quarter of 2010. We filed an IND in September 2010 for AC430 and plan to initiate a Phase 1 clinical trial in the fourth quarter of 2010. We expect to initiate IND-enabling studies for AC710 in 2011. Establish strategic partnerships to accelerate development timelines and maximize the commercial potential of our drug candidates. We currently have worldwide rights to AC480, AC430, AC710 and other early stage drug candidates. We intend to continue to pursue strategic partnerships for our drug candidates that add the development, regulatory and commercial strengths of our partners to our own, 67
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while retaining selected rights primarily in oncology indications in the United States to co-commercialize our drug candidates. Leverage our discovery capabilities and our understanding of the human kinome to be a leading company in the discovery and development of targeted kinase drugs. Of the more than 500 human kinases, currently-marketed selective kinase inhibitor drugs target fewer than 10. As a result, we believe a significant opportunity exists to discover and develop additional targeted kinase inhibitors. Our drug candidate discovery capability, coupled with the panel of 442 kinase assays developed by us, accelerates our discovery and development of potent and selective kinase inhibitors. We believe that our capabilities position us to be a leader in the discovery and development of targeted kinase inhibitors. Build capabilities to allow us to effectively commercialize our drug candidates. We intend to build a targeted, specialty sales force in the United States to support the commercialization of our drug candidates. Assuming we exercise our co-promotion option under our agreement with Astellas, we initially intend to focus our efforts on co-promoting with Astellas our lead drug candidate, quizartinib. Astellas has sole responsibility for the cost of commercialization of quizartinib outside of the United States.
Background Existing Cancer Therapies and Opportunities for Targeted Therapies According to the World Health Organization, cancer is a leading cause of death worldwide. Chemotherapy, radiation and surgical resection of tumors are the most common approaches for treating cancer. While heightened vigilance, new diagnostic tests, combination therapies and improved treatment regimens have resulted in improvements in quality of life and overall survival for many cancer patients, we believe the treatment of cancer remains inadequate because currently available treatments typically address each cancer as a single disease as opposed to a collection of different disease subtypes. We believe that in order to advance the treatment of cancer, targeted therapeutics are required to address the underlying targeted gene driving the particular disease subtypes present in particular patient populations within different cancers. We believe that for most types of cancer, targeted therapies, or the tailoring of a disease treatment to a specific tumor or disease profile, will be more effective and have fewer side effects than traditional chemotherapy drugs, which kill healthy cells along with cancer cells. Targeted therapies impact the underlying mechanisms of the disease in contrast to indiscriminately killing cancerous and normal cells. Examples of successful targeted therapies include Gleevec for the treatment of CML and Roches Herceptin (trastuzumab) for the treatment of breast cancer. We believe that the use of targeted therapies, often in combination with other targeted agents and chemotherapy, will be an important component in the evolution of the treatment of cancer. Physicians administering targeted therapies, where possible, rely on the use of a diagnostic test to identify patients that are most likely to respond favorably to the particular therapy. For example, Gleevec and Herceptin, both of which are prescribed for cancer in patients that have tumors driven by a particular genetic signature, are often administered following a diagnostic test designed to select patients most likely to respond favorably based on the genetic signature of their cancer. The use of diagnostic tests as enrollment criteria in clinical trials allows for patients to be selected and enrolled who are more likely to respond given the genetic signature of their cancer. This approach has the potential to improve the likelihood of a positive trial outcome and reduce both the number of patients and the time otherwise needed to successfully complete the trial. Targeted therapies and companion diagnostics are at the heart of personalized medicine and together offer the prospect of a patient-tailored approach to the treatment of cancers and potentially other diseases that is characterized by improved outcomes with lower overall healthcare costs. 68
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KinasesA Rich Source for Targeted Therapies Kinases are a large enzyme family with central roles in regulating and promoting cell growth and other cellular processes. In many diseases, kinases function abnormally, making them an important source of therapeutic targets. Over the last decade, the sequencing of the human genome and advances in molecular biology have made it possible to identify more than 500 members of this protein family. This facilitated the discovery of abnormal kinase activity in many cancers. Several of these kinase targets were validated by studying genetic differences between cancerous and normal tissues to identify tumor-specific mutations that may be implicated in the onset of disease. Kinases have also been implicated as targets in a number of other diseases including inflammatory and autoimmune diseases. Since 2001, 11 small molecule kinase inhibitors have been approved by the FDA for the treatment of various cancer indications. Combined sales of these therapies in 2009 were approximately $8.4 billion. Gleevec alone generated sales of more than $3.9 billion and has revolutionized the outlook for patients with CML. Notably, Gleevec has increased the five-year survival rate of patients with CML and has resulted in CML being treated as a chronic condition for most patients. Our Pipeline of Targeted Therapies We have developed a pipeline of small molecule targeted therapies using our expertise in kinase drug discovery and development. The panel of 442 kinase assays developed by us has allowed us to assemble a broad catalog of potential drug candidates screened against more than 80% of known human kinases for potential interaction and activity. Our approach has made it possible for us to move projects from inception to the nomination of high quality candidates for development in 18 months or less, yielding the following pipeline of kinase inhibitor drugs. The following table summarizes the status of our product pipeline:
Our Lead Clinical Development ProgramQuizartinib Our lead drug candidate, quizartinib, is a once-daily, orally-administered, potent and selective kinase inhibitor initially in development for the treatment of AML. There is a significant unmet need for more effective treatment of AML, particularly for the subset of patients that do not respond well to existing therapies. Based on the single-agent 69
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activity observed in our Phase 1/2 clinical trial, we advanced quizartinib into a pivotal Phase 2 clinical trial. We currently have Orphan Drug designation in the United States and European Union and in September 2010 applied for Fast Track designation in the United States for quizartinib for the treatment of AML. Quizartinib is being developed in concert with a companion diagnostic to identify FLT3-ITD positive patients. In addition to the companion diagnostic which will help us overcome the challenge of patient selection, quizartinib is distinguished from earlier FLT3 inhibitors by a combination of potency, selectivity and favorable pharmacokinetic properties that allow for once-daily dosing. Role of FLT3 and KIT Inhibition in the Treatment of Leukemia and Solid Tumors FLT3 and KIT are both receptor tyrosine kinases involved in growth signaling. Signaling through FLT3 plays an important role in the survival, proliferation and differentiation of progenitor cells into mature, functioning lymphocytes, such as T cells and B cells. Mutations in FLT3 are believed to play an important role in the development of certain cancers such as AML. ITD mutations in the FLT3 gene are the most common mutations associated with AML and are a prognostic for particularly poor disease outcomes. Similar to FLT3 mutations in AML, mutations in KIT can lead to certain cancers including GIST. Several drugs targeting KIT have been approved as monotherapies to treat GIST, including Gleevec and Pfizers Sutent (sunitinib). Several investigational drugs that target FLT3, including Novartis PKC-412 and Cephalons CEP-701, have shown some degree of promise in the treatment of AML patients, but only when combined with chemotherapy. However, these agents all have one or more drawbacks, including (a) insufficient potency, which requires high doses that can increase the likelihood of side effects due to inhibiting unintended targets, referred to as off-target toxicities, (b) poor selectivity, or promiscuity, which can also cause off-target toxicities that result in poor tolerability, which, in turn, can make continuous dosing problematic and make the agent difficult to combine with chemotherapies, which are themselves poorly tolerated and (c) short half-life, which requires multiple doses per day and makes it difficult to continuously inhibit signaling through the targeted receptor tyrosine kinase. Advantages of Quizartinib Based on our preclinical studies and clinical trials conducted to date, we believe that the properties of quizartinib offer a number of potential advantages over both currently available therapies and those in development. These include: Targeted Activity. Quizartinib specifically inhibits two potentially cancer-causing targets, FLT3 and KIT.
Companion Diagnostic. Initially, we are developing quizartinib as a targeted therapy and, in conjunction with our partner, Genoptix, Inc., we are developing a laboratory diagnostic test to identify FLT3-ITD positive patients. Our ability to focus on the patients most likely to benefit from quizartinib enabled us to obtain the support of the FDA to conduct an open-label, single-arm pivotal Phase 2 clinical trial in FLT3-ITD positive patients. Potent and Selective. Based on published data (Zarrinkar, et al. Blood, 2009) of approved drugs and drug candidates in both preclinical and clinical settings, we believe quizartinib is the most potent and selective FLT3 and KIT inhibitor. We believe these characteristics will enable quizartinib to demonstrate a high degree of efficacy with reduced off-target toxicities. Active as Monotherapy. Quizartinib has shown promise as monotherapy in relapsed/refractory AML patients. While other agents showed some ability to clear leukemia from the circulating blood, quizartinib has shown significant ability to clear leukemic cells from the bone marrow, where the disease originates. Well-tolerated; Suitable for Combination Therapy. In our clinical trials to date, quizartinib has been shown to be well-tolerated, with the most common side effects being gastrointestinal in nature, 70
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including mild nausea and vomiting, which are well-controlled by other medications. As a result, we believe that quizartinib has the potential to be combined with other treatments, such as chemotherapy. Convenient to Dose. We believe quizartinibs potency and selectivity for inhibiting FLT3 and KIT signaling and its long half-life will allow for once-daily oral dosing. We believe that continuous and sustained inhibition of FLT3 is required for single-agent activity in AML.
As a result of these properties, we believe that quizartinib is positioned to transform the treatment of certain cancers in which FLT3 and KIT play an important role. Our most advanced clinical program for quizartinib is focused on AML patients that have the FLT3-ITD mutation; however, we are also exploring treatment with quizartinib in other AML patient populations and solid tumors. Development of Quizartinib in Acute Myeloid Leukemia AML Background. AML, the most common type of acute leukemia in adults representing 29% of all new leukemia cases in 2009, results in uncontrolled growth and accumulation of malignant cells, or blasts, which fail to function normally and inhibit the production of normal blood cells. According to the American Cancer Society, approximately 13,000 adults were newly diagnosed with AML in 2009 in the United States with approximately 9,000 expected to die of the disease in that year. AML is generally a disease of older people and is uncommon before the age of 40. The average age of a patient with AML is 67 and median survival for these patients is less than six months. Standard-of-care treatment for AML has not changed appreciably for decades. However, factors such as age, cytogenetics and other prognostic factors, including FLT3-ITD status, play a critical role in determining the appropriate course of treatment. Therapy typically begins with induction chemotherapy followed by post-remission, or consolidation, chemotherapy. Currently approved therapies for AML include chemotherapy drugs such as cytarabine, daunorubicin and mitoxantrone. However, these therapies have low cure rates, usually lead to relatively short disease remissions and can have life-threatening side effects such as severe neutropenia, especially in older patients. Although most adult AML patients may respond to initial treatment, the majority will relapse within five years and those that are FLT3-ITD positive often relapse in less than one year. Due to the high relapse rate and poor long-term survival, the treatment goal for healthier AML patients is tumor eradication for a period of at least three months to permit time for the identification of a suitable donor and preparation of patients for procedures such as BMT. However, although BMT may offer a higher probability of cure, it is not an option for many patients due to potential toxicity of this procedure or the absence of an appropriate donor. Accordingly, we believe there is a significant need for well-tolerated, targeted therapies for patients who cannot tolerate or are unlikely to benefit from chemotherapy or BMT. Targeted therapies have the potential to improve the prognosis for AML patients as they have for patients with other leukemias. Prior to 2001, CML was treated with chemotherapy and, like AML, had poor long-term survival rates. Following the approval in 2001 of Gleevec, the first targeted therapy for the treatment of CML, long-term patient survival rates improved dramatically. Today, patients diagnosed with CML no longer have to endure arduous chemotherapy regimens that are associated with nausea, fatigue, hair loss and potential death. Instead, patients are prescribed a welltolerated, once-daily pill that selectively inhibits the enzyme responsible for their cancer. Role of FLT3 in AML. Both FLT3 and KIT are highly expressed on hematopoietic progenitor cells (immature blood cells) and play a critical role during the maturation and differentiation of immune system cells in the blood. Mutations in FLT3 that lead to inappropriate and constant activation of the kinase activity of the receptor have been identified in approximately one-third of AML patients. Most activating mutations are internal tandem duplications, or ITDs. AML is particularly aggressive and deadly in patients with FLT3-ITD mutations, and the prognosis for these patients is significantly worse. Clinical evidence suggests that, in some patients without mutations in FLT3, the disease is nevertheless driven through this receptor, likely due to genetic abnormalities in other genes that also result in a hyperactive FLT3 receptor kinase. 71
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The following table is a compilation of historical clinical outcomes between 1995 and 2005 stratified by FLT3-ITD mutation status (adapted from Gale et al., Blood, vol. 111, No. 5, p. 2776, March 2008). These data are for adult AML; for elderly AML patients the relapsed rate, time to relapse, and survival are typically half of these values.
High ITD Intermediate ITD Low ITD ITD Negative
Complete Response Rate (following initial treatment) Overall Survival (at 5 years) Relapse Rate (at 5 years) Median Time to Relapse (months) Median Survival (months)
85% 15% 82% 7.3 9.9
83% 28% 64% 12.9 14.6
82% 31% 69% 13.7 17.6
84% 42% 49% > 60 29.6
Several kinase inhibitors with activity against FLT3 have been evaluated as single agents in AML patients, including CEP-701, PKC-412, Sutent, and Nexavar. In Phase 1 and Phase 2 clinical trials, conducted primarily in relapsed or refractory AML patients, reduction in peripheral blasts were consistently observed with each of these drugs, however, these reductions were generally limited and not durable. However, these studies demonstrated a correlation between the likelihood of observing a clinical response and the extent and duration of FLT3 inhibition, highlighting the importance of substantial and sustained inhibition of FLT3. None of the earlier inhibitors were capable of producing sustained or substantial inhibition of FLT3, most commonly due to side-effects that precluded chronic dosing of the compounds at high enough doses to completely inhibit FLT3. Of these, we believe that only PKC-412 is still in development for the treatment of AML (in combination with chemotherapy as part of a cooperative group trial). As a result, there is a significant unmet need for a well-tolerated FLT3 inhibitor that can be dosed as a continuous, once-daily, orally-administered treatment to produce complete responses in AML patients. Phase 1/2 Clinical Trial in AML. We evaluated quizartinib in an open-label Phase 1/2 dose-escalation trial of quizartinib as monotherapy in 76 AML patients. The primary objectives of the trial were to determine the safety and tolerability, including dose limiting toxicity, of oral quizartinib when administered daily to patients with relapsed or refractory AML, and to determine the pharmacokinetic parameters of quizartinib. The secondary objectives of the trial were to determine the pharmacodynamic and biological activities and parameters of orally-administered quizartinib and to demonstrate any preliminary evidence of anti-leukemic activity. The trial utilized a standard dose escalation scheme with 50% dose increments. Dosing initially was on a 14-day-on, 14-day-off schedule, with a starting dose of 12 mg/day. The patients in this trial had undergone an average of four prior treatment regimens. During the course of the trial the protocol was amended to provide for continuous dosing due to observed tolerability and efficacy and because of marked disease progression during drug holidays. The maximum tolerated dose, or MTD, with continuous dosing was determined to be 200 mg/day. The most commonly reported adverse events were gastrointestinal events, peripheral edema (swelling of lower legs), and dysguesia (taste impairment), which were Grade 1 or 2 and were not, we believe, dose related. The dose limiting toxicity was Grade 3, asymptomatic QTc prolongation, or changes in the patients electrocardiogram pattern. The following table summarizes the response data from the Phase 1/2 trial:
ITD Positive ITD Negative ITD Undetermined Total
Response Composite Complete Response (CR + CRi + CRp) Partial Response (PR) Total Responses Total Patients (Responders + Non-responders)
5 (28%) 5 (28%) 10 (56%) 18(100%)
3 ( 7%) 6 (13%) 9 (20%) 45(100%)
2 (15%) 2 (15%) 4 (31%) 13(100%)
10 (13%) 13 (17%) 23 (30%) 76(100%)
CR is complete response; CRp is complete response rate with incomplete platelet recovery; CRi is complete response rate with incomplete neutrophil recovery; PR is partial response. Responses were observed in 23 (30%) patients. PRs and composite complete responses were observed as low as the 18 and 40 mg cohorts, respectively, with most responses occurring by the end of the first cycle of 28 days. Of those with a response, 72
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10 (13%) had a composite complete response (2 CR, 6 CRi, 2 CRp) and 13 (17%) had a PR. The median duration of response was 16 weeks, and median survival was 14 weeks. Median duration of survival was longer in responders (27 weeks) compared to non-responders (nine weeks), for FLT3-ITD positive patients. Ten (56%) of 18 FLT3-ITD positive patients responded (1 CR, 4 CRi, 5 PR), compared to nine (20%) of 45 FLT3-ITD negative patients (1 CRi, 2 CRp, 6 PR) and four (31%) of 13 with undetermined FLT3 status (1 CR, 1 CRi, 2 PR). The median duration of response for patients with and without FLT3-ITD was 12 weeks and 32 weeks, respectively. At 200 mg continuous dose, four of six patients with FLT3-ITD responded (1 CR, 2 CRi, 1 PR). Interestingly, two of these patients had failed prior therapy with Nexavar and the two non-responding patients had received six and eight prior lines of therapy, respectively. Based on the single-agent activity we observed in the heavily-pretreated Phase 1/2 clinical trial patient population and the safety and tolerability profile of quizartinib, we initiated discussions with the FDA on the design of a clinical trial to facilitate accelerated enrollment. After extensive discussions with the FDA, we finalized the protocol for a single-arm, open label pivotal Phase 2 clinical trial to evaluate the efficacy and safety of quizartinib as monotherapy in FLT3-ITD positive AML patients. Ongoing Pivotal Phase 2 Clinical Trial. We initiated the pivotal Phase 2 clinical trial of quizartinib as monotherapy in FLT3-ITD positive AML patients in November 2009. We expect to enroll a minimum of 180 patients worldwide in two equal cohorts and the trial is designed as a single-arm, open label trial. A single-arm, open-label trial allows for rapid patient enrollment and therefore a potentially faster regulatory approval process. The first cohort consists of patients 60 years of age or older who have relapsed or did not respond after one induction chemotherapy regimen. The second cohort consists of patients 18 years of age or older who experienced a second relapse, or did not respond or relapsed after BMT. Initially, quizartinib was orally-administered at up to 200 mg once daily on a continuous basis. In the first 20 patients, there was a significant proportion of patients where asymptomatic QTc prolongation was observed. Asymptomatic QTc prolongation was also observed at a higher rate in females compared to males. After reviewing safety data from the first 20 patients in the pivotal Phase 2 clinical trial, the independent drug safety monitoring committee concurred with our recommendation that the quizartinib dose should be reduced to 135 mg/day and 90 mg/day for males and females, respectively. This dose reduction was applied to all subsequent patients and successfully decreased the extent of asymptomatic QTc prolongation observed at the 200 mg dose, while maintaining inhibition of FLT3. The trial is designed to measure the rate of CR, CRp and CRi. The co-primary endpoints of the trial are (1) CR and (2) composite complete response, or CR + CRp + CRi. Secondary endpoints include duration of remission, disease-free survival and overall survival. Our pivotal Phase 2 clinical trial includes an interim data analysis once 60 patients received at least one cycle of treatment, which occurred in September 2010. The following table summarizes preliminary clinical trial site-read response data from the interim data analysis. These data are preliminary and subject to central pathology review.
Starting Dose 135 mg/day
90 mg/day
200 mg/day
Total
Response CR CRi CRp Composite Complete Response (CR + CRi + CRp) Partial Response (PR) Total Responses Total Patients (Responders + Non-responders)
3 (18%) 5 (29%) 1 ( 6%) 9 (53%) 2 (12%) 11 (65%) 17(100%)
12 (46%) 2 ( 8%) 14 (54%) 7 (27%) 21 (81%) 26(100%)
7 (41%) 1 ( 6%) 8 (47%) 6 (35%) 14 (82%) 17(100%)
3 ( 5%) 24 (40%) 4 ( 7%) 31 (52%) 15 (25%) 46 (77%) 60(100%)
We expect to meet with the independent drug safety monitoring committee in the fourth quarter of 2010 to discuss any modifications to the trial. We anticipate that enrollment in the trial will be complete during the first half of 2011 and expect to report data within six months of completion of enrollment. If successful, this trial is 73
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expected to form the basis for an NDA to be submitted to the FDA for the accelerated approval of quizartinib as monotherapy for relapsed/refractory AML patients. Companion Phase 2 Clinical Trial. We intend to initiate a companion Phase 2 clinical trial in AML patients without the FLT3-ITD mutation in the first half of 2011. This trial will explore the activity of quizartinib in patients without FLT3-ITD mutations, a population in which some responses were observed in our Phase 1/2 clinical trial, albeit at a lower rate than in the FLT3-ITD positive population. The design of this companion trial, including the patient population and endpoints, mirrors that of our ongoing pivotal Phase 2 clinical trial, with the exception of the FLT3-ITD status of patients. Sixty patients will be enrolled in this companion trial. Enrollment is anticipated to be complete during the first half of 2011 and we expect to have results in the second half of 2011. If we see efficacy of quizartinib in this patient population, we intend to seek approval from the FDA for use in this broader population, in which the FDA would likely require a follow up trial. Confirmatory Phase 3 Clinical Trial. We and our partner Astellas also intend to initiate a confirmatory, randomized Phase 3 clinical trial of quizartinib in FLT3-ITD positive AML patients in the second half of 2011. Initiation of this trial, but not completion, is required by the FDA to support the accelerated approval of quizartinib in the United States. This trial is expected to be conducted to support marketing approval submissions to be made by Astellas in the European Union, Japan and potentially other countries. Other Opportunities in AML. FLT3 inhibitors currently on the market or in development have not demonstrated effectiveness as monotherapy for the treatment of AML. However, many of them exhibit some degree of efficacy in combination with chemotherapy. Despite these observations, one challenge of combining these agents with chemotherapy is the increased toxicity that results from the combination. We believe a better-tolerated FLT3 inhibitor, such as quizartinib, combined with chemotherapy will improve outcomes for patients relative to treatment with chemotherapy alone. We are also planning to explore the use of quizartinib in combination with standard chemotherapy and as single-agent maintenance for newly diagnosed AML patients following chemotherapy. We expect to initiate a Phase 1 clinical trial to assess the safety of quizartinib when given in combination with chemotherapy in the first half of 2011. In the first half of 2012, we plan to initiate a Phase 3 clinical trial of quizartinib as frontline therapy following chemotherapy. In addition, a Phase 1/2 clinical trial in FLT3-ITD positive patients post bone marrow transplant is in the planning stages. The goal of this trial will be to evaluate the durability of remission using quizartinib monotherapy as maintenance treatment. The role of FLT3 in pediatric leukemia is also well documented and one of the pediatric leukemia cooperative groups has secured funding for a Phase 1 clinical trial of quizartinib in combination for front-line pediatric AML. Opportunities for Quizartinib in Solid Tumors We believe that quizartinib has utility in indications in which inhibition of KIT is known or suspected to yield a therapeutic benefit, including GIST and KIT-mutant positive melanoma. Existing KIT inhibitors are generally effective in GIST patients, although the duration of response is limited. As a result, there is need for new treatments for relapsed and non-responding GIST patients. We initiated a Phase 1 clinical trial of quizartinib in patients with advanced solid tumors in January 2010. This trial is designed to assess the safety and tolerability of quizartinib in patients not known to have compromised bone marrow and hematopoiesis in order to determine the MTD of quizartinib in these patients. The trial uses a standard 3+3 dose escalation scheme with 50% dose increments. Once an MTD has been determined, the trial will focus on patients with tumors in which KIT mutations are commonly found, particularly GIST. AC480: A pan-HER Inhibitor AC480 is a small molecule kinase inhibitor that selectively inhibits the HER family of receptors, HER1, HER2, HER3 and HER4. It has potent preclinical activity and appears to be more active in mouse tumors 74
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compared to GlaxoSmithKlines Tykerb (lapatinib), approved for use in breast cancer. Preclinical and preliminary data from a Phase 1 clinical trial in GBM patients also suggest significant brain penetration with AC480, indicating the potential of AC480 for development to treat brain cancers. Published data indicate that other oral HER inhibitors, such as Roches Tarceva (erlotinib) have poor brain penetration in GBM. We are developing AC480 in both an oral and an IV formulation. BMS completed multiple Phase 1 and Phase 2 clinical trials evaluating oral AC480 in various solid tumors and we have recently completed a Phase 2 open-label, dose- finding and efficacy trial in advanced solid tumors. Our IND for the IV formulation of AC480 was filed in April 2010 and we plan to initiate a Phase 1 clinical trial in the fourth quarter of 2010. This trial will explore safety and pharmacokinetics of AC480 IV as high-dose pulsed administration as both monotherapy and in combination with Taxotere in patients with advanced solid tumors, including metastatic breast cancer and NSCLC. We believe this approach will allow us to determine early signs of activity when AC480 IV is used in combination with Taxotere. We licensed worldwide rights to AC480 from BMS in October 2007. Importance of pan-HER Signaling in Cancer . Excessive HER signaling has been associated with the development of a wide variety of types of solid tumors, including those found in lung, breast, head and neck and brain cancers. As key signaling proteins involved in the regulation of cell growth, the HER family of receptors is believed to play a key role in the development and malignancy of these tumors. Currently marketed HER inhibitors inhibit only one or two of the HER family members. We believe that a drug that inhibits all of the HER receptors would be effective in more cancer types. AC480 Intravenous Development . We developed AC480 IV to test the hypothesis that high, pulsatile doses of a HER inhibitor administered in combination with chemotherapeutic agents, such as a taxane, can have significant anti-tumor activity. Published data with oral HER inhibitors administered in combination with taxanes, such as docetaxel and abraxane, demonstrated activity in clinical studies. These clinical data are supported by preclinical data demonstrating that combining HER inhibitors with taxanes produces synergistic anti-tumor activity. However, currently-approved oral HER inhibitors, such as Tarceva and Tykerb, are difficult to administer at the high doses required to show this synergy, since such dosing regimens can involve ingesting more than twenty tablets per day and which may not be adequately absorbed. We believe AC480 IV is the only intravenous formulation of a pan-HER inhibitor in development suitable for delivering high, pulsatile doses in combination with taxanes. The AC480 IV IND was filed in April 2010, and we expect to initiate a Phase 1 clinical trial of AC480 IV in combination with docetaxel in patients with advanced solid tumors, including lung and breast cancer, in the fourth quarter of 2010. AC480 Oral Development Oral AC480 has been evaluated in multiple Phase 1 clinical trials and a Phase 2 clinical trial was recently completed. In the completed Phase 1 clinical trials, oral AC480 was generally safe and well tolerated at doses up to 600 mg/day, with most treatment-related adverse events being mild to moderate in severity, including nausea, vomiting, diarrhea, fatigue, cough, elevation of the liver enzymes, and rash. Investigators assessments of efficacy across these clinical trials indicated 25 (42%) patients had stable disease from three to 14 months and 17 patients (30%) had stable disease greater than five months. We evaluated oral AC480 in a Phase 2, open-label, dose-ranging and efficacy trial in advanced solid tumors. Results indicate that oral AC480 is generally safe and well tolerated in patients taking a total of up to 600 mg/day administered on a twice-daily, or BID, schedule. Dose limiting toxicity characterized by Grade 3 hyperbilirubinemia, or a condition in which there is excessive bilirubin in the blood, was declared at 800 mg and the MTD is 600 mg (300 mg BID). Of the 26 patients treated, 62% had stable disease and 14% had stable disease for more than four months. We are also conducting a Phase 1 clinical trial of oral AC480 in patients with GBM. In this trial, oral AC480 is administered at 300 mg BID. Our objective is to explore the intra-tumoral and plasma pharmacokinetics of oral AC480 and to evaluate the anti-proliferative activity of oral AC480 after two weeks of dosing, determined by PET scan prior to surgery. This Phase 1 clinical trial has enrolled five patients and 75
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preliminary data from three patients indicates that AC480 can be detected in surgically resected GBM tumor. Results reported for Tarceva suggest a very low glioblastoma tumor to plasma ratio. If these results are confirmed in the ongoing GBM trial, then oral AC480 may represent a significant advance in the treatment for both GBM and brain metastases, which can be a consequence of other cancers, including lung or breast cancer. AC430: A JAK2 Inhibitor AC430 is a potent and specific small molecule inhibitor of JAK2. In preclinical studies, AC430 is well-tolerated with favorable oral pharmacokinetic properties. JAK2 has been implicated as a target for therapy in both oncology and autoimmune disease. Activating mutations in JAK2 are found in patients with myeloproliferative disorders, or MPDs, conditions characterized by inappropriate proliferation of hematopoietic progenitor cells. Currently there are no approved treatments for the underlying causes of MPDs. Importance of JAK2 JAK2 is a receptor tyrosine kinase that, like FLT3 and KIT, plays an important role during the maturation and differentiation of hematopoietic cells. The discovery of activating mutations in JAK2 highlights the parallels between MPDs, where these mutations are predominantly found, and CML, driven by the activating mutations in the BCR-ABL kinase, as well as AML, driven by activating mutations in FLT3. The inhibition of mutant kinases is emerging as an effective treatment for many cancers and proliferative disorders. Given its role in promoting immune responses, JAK2 is the target of several compounds being developed for autoimmune diseases. Several JAK2 inhibitors have demonstrated promising efficacy in early clinical trials including Pfizers CP-690550 (tasocitinib) in rheumatoid arthritis, Incytes INCB-28050 in rheumatoid arthritis, and Incytes INCB-18424 in MPDs. The compounds have shown activity in both cancer and autoimmune indications, and several are currently in registration trials. AC430 Development AC430 was specifically developed to be a best-in-class JAK2 inhibitor. In preclinical studies, AC430 has exhibited potency against JAK2 in cellbased models that is at least equivalent, and in most cases superior to, competing JAK2 inhibitors, and also has excellent oral pharmacokinetic properties. In preclinical oncology and autoimmune models, AC430 is well tolerated and has significant efficacy at oral doses as low as 10 mg/kg/day. IND-enabling studies with AC430, including 28-day toxicology studies in monkeys and rats, were recently completed. Results indicate that AC430 is well tolerated at significant multiples of doses exhibiting efficacy, given orally once-a-day. We filed an IND for AC430 in September 2010 and anticipate initiating a Phase 1 clinical trial to determine the safety, tolerability and pharmacokinetics of AC430 in healthy volunteers in the fourth quarter of 2010. Other Preclinical Programs AC710 AC710 is a small molecule protein kinase inhibitor that is highly selective for the receptor tyrosine kinases: CSF1R, FLT3, KIT and PDGFR. Inhibiting CSF1R is a novel strategy for the treatment of cancer, and should complement existing standards of care. CSF1R regulates the differentiation, proliferation, and survival of monocyte-derived lineages such as macrophages and osteoclasts, and in doing so provides multiple possibilities for a therapeutic effect with a single point of intervention. Inhibition of osteoclasts is an established strategy for the treatment of bone metastases, with drugs such as RANKL inhibitors like Amgens Prolia (denosumab) and bisphosphonates such as Novartis Zometa (zoledronic acid). Separately, and more recently, tumor-associated macrophages, or TAMs, have been identified as key promoters of tumor cell survival and malignant behavior, and the presence of TAMs in certain tumors have been strongly associated with increased likelihood of refractory disease and poorer patient prognosis. Additionally, there is some evidence that CSF1R expression in certain types 76
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of tumors has a direct impact in driving tumor cell survival, proliferation and malignancy. Thus, we believe a small molecule CSF1R inhibitor may have therapeutic utility across a wide range of cancers including solid tumors such as ovarian and breast cancers and hematological malignancies such as nonHodgkins lymphoma and multiple myeloma, and may provide therapeutic benefit by inhibiting not just one, but multiple, pathological processes associated with tumor malignancy. AC710 is orally-administered with a pharmacokinetic profile that has shown pharmacological inhibition of the CSF1R target for up to 72 hours after a single oral dose. In preclinical studies, AC710 has shown potent preclinical activity in tumor xenografts using cell lines driven by CSF1R signaling, and on pharmacodynamic endpoints evaluating effects on skin macrophages. We expect to initiate IND-enabling studies in 2011. We intend to pursue development of AC710 for oncology indications. CEP-32496 CEP-32496 is a small molecule B-raf kinase inhibitor being developed by our partner, Cephalon. Mutations in the B-raf gene are among the most commonly identified mutations in human cancers including melanoma, thyroid, colon, ovarian and lung cancers. We believe that CEP-32496 shows particular potential in these cancers because, in addition to targeting B-raf mutations, it also targets related family members thereby maximizing inhibition of the pathway that drives the disease. CEP-32496 is currently in IND-enabling studies. Other Research Programs Through our discovery efforts we have built a library of compounds that has been screened against the vast majority of human kinases, providing significant opportunities for the development of novel kinase inhibitors. We have the ability to pursue additional validated kinase targets with the intent to produce best-in-class drugs. Our Approach to Kinase Drug Discovery Our integrated approach to drug discovery and development combines our libraries of kinase-focused compounds and proprietary analytical tools with expertise in medicinal chemistry, molecular and cellular biology, pharmacology and pharmacokinetics. This approach has enabled us to build a pipeline of potent and selective drug candidates and we intend to continue to leverage our tools and expertise to discover and develop small molecule kinase inhibitors. Scientific Background All 500 human protein kinases share a similarly-shaped active site. Since most kinase inhibitors target this active site, they have the potential to interact with a significant portion of the kinase protein family. While Gleevec is quite selective and well tolerated, most approved kinase-targeted drugs are quite non-selective, or promiscuous. Historically, promiscuity has been a characteristic of kinase inhibitors as a class and it has been argued that these drugs are effective in cancer because they have activity against many kinases. While targeting more than one kinase may have benefit in certain conditions, the role of the majority of the kinases inhibited by these promiscuous drugs remains unknown. Such inhibitors are generally poorly tolerated and their nonselective inhibition of kinases significantly increases their development risk as off-target toxicities can quickly outweigh any potential clinical benefit. We believe our approach and competency in kinase drug discovery enables us to create kinase inhibitors that have controlled and designed inhibition profiles. As more kinase inhibitors are advanced into clinical development for the treatment of cancers and non life-threatening conditions such as autoimmune and inflammatory disorders, we believe selectivity will become paramount and key to competitive differentiation. The Conventional Approach to Kinase Inhibitor Discovery Conventional kinase inhibitor discovery is largely a linear process that addresses one kinase at a time and requires significant serial investment of time and resources for each target. Traditionally, compounds are 77
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screened against the kinase of interest to identify hits, which are optimized to generate lead compounds until ultimately a candidate for clinical development is identified. Kinase selectivity is typically monitored only sporadically throughout the optimization process. This strategy has at least two significant drawbacks. First, targets are addressed one at a time, and the entire process has to be repeated for each new target of interest. Second, decisions about which targets to pursue are based on biology alone, with minimal upfront knowledge about the availability or quality of hits against the designated target within the available chemical library. Our Accelerated Approach to Kinase Drug Discovery We have adopted an approach to kinase drug discovery that we believe is significantly more productive and efficient than the conventional process. This approach entails screening an entire compound library against a full panel of kinase assays. A conventional high-throughput screen against a single target only yields hits against that one target, and only one parameter, potency, defines those hits. In contrast, a single library profiling screen reveals hits against virtually all biologically interesting kinase targets, and delivers two critical parameters to define each of the hits, potency and selectivity. Decisions about which targets to pursue can then be made based on much more complete information. Projects may be chosen, and precious resources committed, based not only on the level of biological interest in a specific kinase target, but also on knowledge about the quality of chemical hits for each target. Once medicinal chemistry optimization is initiated, we continue to screen compounds synthesized against the kinase assay panel. This approach accomplishes two objectives. First, the selectivity of each compound is established upfront, and becomes a driver for optimization along with usual parameters such as potency and pharmacokinetics. Secondly, because kinase interaction patterns can change dramatically with relatively minor changes in chemical structure, new compounds produced for an established program may represent a lead compound for a new target of interest. Using this approach, we have captured and continue to capture the entire kinase interaction for each compound in an expanding database. This database represents an extensive annotation of our collection of kinase-focused compounds and obviates the need to initiate each new project with a new screening campaign, thereby accelerating the drug discovery process. We have developed a quantitative description of kinase interaction patterns that provides a conceptual framework for analyzing the compounds within our database. By utilizing a suite of proprietary computational tools, we are able to efficiently interrogate our database and identify the most promising lead compounds, providing a significant competitive advantage for rapidly exploiting new targets. Using this approach we have, in the last five years, advanced five drug candidates from discovery into clinical development. We have accumulated a library of over 6,000 kinase-focused compounds. Each compound has been screened using our accelerated approach, and the results are readily accessible within the database. Mining our database yielded the starting points for our current programs, including quizartinib, AC480, AC430, AC710, and CEP-32496. Our Strategic Alliances and Commercial Agreements Our Collaboration with Astellas Pharma Inc. and Astellas US LLC In December 2009, we entered into an agreement with Astellas to jointly research, develop and commercialize FLT3 kinase inhibitors in oncology and non-oncology indications. Under the agreement, we granted Astellas an exclusive, worldwide license, with limited rights to sublicense, to quizartinib and certain metabolites and derivatives of those compounds. In addition, the agreement provides that we and Astellas will conduct a five-year joint research program related to the preclinical development of certain designated follow-on compounds to quizartinib. Astellas has sole ownership of all regulatory materials and approvals related to the compounds in exchange for certain payments described below and their commitment to jointly develop, and then commercialize and promote products based on the licensed technology. The parties share oversight of the research and development programs through a joint committee to which we and Astellas contribute equal representation. Under the agreement, both parties are obligated to use 78
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commercially reasonable efforts to perform the tasks and activities assigned to us under each research and development plan. We share the development costs in the United States and European Union and research costs on the follow-on compounds equally with Astellas, including, among others, costs related to manufacturing, labor, materials and services provided by third parties. Astellas is solely responsible for development costs associated with the products covered by the agreement outside the United States and European Union and 100% of worldwide commercialization costs. However, we retain an option, exercisable during certain periods, to co-promote within the United States any product licensed to Astellas under the agreement, foregoing royalties on sales in exchange for a 50% share of profits or losses. We also have operational responsibility for the manufacturing and supply of all quantities of quizartinib to Astellas for a limited period of time to ensure the successful transfer of manufacturing technology to Astellas. Astellas has the sole right and option, at its own expense, to make regulatory filings outside the United States and to determine the contents of such filings. Pursuant to the agreement, in December 2009, Astellas paid us an upfront, non-refundable fee of $40.0 million, and upon the successful achievement of clinical development and regulatory milestones, we are eligible to receive from Astellas up to an additional $350.0 million. Further, we are entitled to receive from Astellas tiered, double-digit royalty payments calculated as a percentage of aggregate net sales and additional annual sales milestone payments. Astellas royalty payment obligations are payable on a product-by-product, country-by-country basis beginning on the date of the first commercial sale of a licensed product in a country and ending on the later of 10 years after the date of such first commercial sale in that country (or the European Union) or the expiration date of the last relevant patent or regulatory exclusivity period. Our agreement with Astellas provides that, in the event we experience a change of control, for three months following the transaction, Astellas may terminate any co-promotion agreement that we have entered into with Astellas in connection with a prior exercise of our co-promotion option. Following such termination, we would continue to forgo royalties on sales of products covered by such co-promotion agreement in exchange for a 50% share of profits and losses; however, Astellas would have full control over all commercialization activities in the United States and would be entitled to field the entire sales force and include costs incurred to build and maintain and operate its sales force in the calculation of its expenses for purposes of calculating the co-promotion payments payable to us. In addition, upon a change of control, Astellas would be entitled to terminate our co-promotion option to the extent we have not yet exercised it. Astellas will also have the option to terminate our involvement in the co-development of products under the agreement, and to terminate our role in all collaborative activities under the agreement. The agreement expires, on a country-by-country, product-by-product basis, upon the expiration of all royalty or other payment obligations under the agreement. Upon expiration of the agreement, Astellas licenses become fully paid-up, perpetual, non-exclusive licenses and neither party has any further rights or obligations under the agreement. Astellas may terminate the agreement for convenience and without cause on a country-by-country, product-by-product basis upon delivery of 180 days written notice to us. Upon delivery of 30 days written notice to us, Astellas may terminate the agreement on a product-by-product basis for safety or regulatory concerns (provided we concur with basis for concern), or on a product-by-product, country-by-country basis if Astellas concludes reasonably and in good faith that continued development or commercialization will infringe upon the patent rights of a third-party or a third-party institutes or threatens suit against us or Astellas claiming that development or commercialization of a licensed product infringes or misappropriates its patent rights and Astellas concludes reasonably and in good faith that there is a substantial likelihood that such suit will be successful. Either party may terminate the agreement for the other partys uncured material breach. Also, a partys dissolution, liquidation, bankruptcy or insolvency gives the other party a right to terminate. Upon termination of the agreement by Astellas for convenience or due to safety or anticipated patent infringement violations, or termination by us in the case of Astellas material breach, bankruptcy or insolvency, the licenses and rights granted to Astellas terminate. 79
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Our Collaboration with Bristol-Myers Squibb Company October 2007 AC480 License Agreement In October 2007, we entered into a license agreement with BMS for the worldwide development and commercialization of AC480. Under the agreement, we acquired an exclusive, worldwide, non-transferable license to exploit certain patents and other intellectual property related to AC480. We also maintain limited rights to sublicense AC480, subject to a right of first offer retained by BMS. Pursuant to the agreement we assume sole responsibility, including any related costs, for the development and commercialization of AC480. We are obligated to use commercially reasonable efforts to develop at least one licensed product and to obtain all necessary regulatory filings, approvals and marketing authorizations related to such product in accordance with the agreed-upon development plan. In addition, we are required to use commercially reasonable efforts to commercialize at least one licensed product in the United States, Germany, the United Kingdom, France, Spain or Italy. Following the first commercial sale of any licensed product in any of these markets, we must keep such product reasonably available to the public in such market until the expiration or termination of the agreement. We are also solely responsible for the manufacture of any licensed products. Upon the completion of certain United States and international clinical development and regulatory milestones, we may be required to pay BMS up to a total of $62.0 million. Additionally, BMS is entitled to tiered royalty payments calculated as a percentage of net sales of licensed products. The royalty rate increases based on certain annual net sales thresholds. Our royalty payment obligations are payable on a product-by-product and countryby-country basis beginning on the date of the first commercial sale of a licensed product in a country and ending on the later of 10 years after the date of such sale in that country or the expiration date of the last to expire patent covering the licensed product in that country or the expiration of all applicable regulatory exclusivity periods granted by applicable regulatory authorities with respect to such product in that country. Absent early termination by either party, the agreement will expire upon the expiration of all of our royalty obligations to BMS, determined on a product-by-product and country-by-country basis. Following such expiration in accordance with its terms, the agreement provides that our licenses will remain in effect. BMS has a right to terminate the agreement early if we: (i) enter into bankruptcy, (ii) materially breach the agreement, (iii) fail to use commercially reasonable efforts to develop and commercialize AC480 or (iv) BMS terminates our October 2007 profiling services agreement on the basis of our uncured material breach of that agreement. Upon such early termination by BMS, all rights and licenses under the agreement revert to BMS along with all related intellectual property. Additionally, if we are commercially manufacturing products at the time of a BMS early termination, we may be obligated to continue manufacturing such products for BMS for a maximum of 12 months following the termination with a right to receive from BMS 115% of the manufacturing cost of products sold after termination. We have the right to terminate the agreement at will at any time on a product-by-product and country-by-country basis upon either three months written notice for any licensed product for which NDA approval has not been obtained or upon six months written notice for any licensed product for which NDA approval has been obtained. Upon such termination by us, all rights and licenses under the agreement revert to BMS along with all related intellectual property. Both we and BMS are entitled to assign our rights under the agreement in the event of a change in control, subject to certain conditions described in the agreement. October 2007 Profiling Services Agreement As partial consideration for the October 2007 AC480 licensing agreement, we entered into a profiling services agreement with BMS. In exchange for an upfront $6.0 million payment from BMS under the October 2007 AC480 License Agreement, we agreed to reserve a minimum amount of our monthly kinase screening capacity for the profiling of BMS compounds and use commercially reasonable efforts to accommodate requests in excess of such minimums. Under the agreement, we have the right to designate four kinases and negotiate license agreements with BMS for their compounds that demonstrate activity against those targets. Prior to the divestment of our profiling services business, we completed our obligations to provide profiling services under this agreement. The remainder of the agreement remains in effect until terminated pursuant to its 80
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terms. BMS has a right to terminate the agreement early, without cause, upon delivery of six months notice and may terminate any time following an event resulting in a change of control of us. Either party may terminate the agreement upon the uncured material breach by the other party which, in the case of a breach by us, would result in the termination of any license borne from our rights under this agreement. Our Collaboration with Cephalon, Inc. In November 2006, we entered into an exclusive collaboration agreement with Cephalon, aimed at identifying and developing clinical candidates that demonstrate activity towards the two designated target kinases of the collaboration: the B-raf kinase and a second kinase determined by a joint research committee. Under the agreement, both parties contributed certain intellectual property to the collaboration and agreed to a period of exclusivity during which neither party would engage in any research related to a collaboration target compound with any third-party. Cephalon paid us an upfront fee of $15.5 million as partial consideration for access to our profiling technology and the licenses we contributed to the collaboration. We have received a $1.0 million milestone payment under the agreement to date and we may be entitled to receive up to $46.5 million in milestone additional payments upon the achievement of development, regulatory and sales milestones along with tiered royalty payments calculated as a percentage of net sales of the collaboration compounds, including CEP-32496. Royalties are payable to us on a product-by-product, country-by-country basis beginning on the date of the first commercial sale in a country and ending on the later of 10 years after the date of such sale in that country or the expiration date of the last to expire patent covering the licensed product in that country. Our agreement with Cephalon requires us to notify Cephalon of the occurrence of a change of control that occurs prior to the completion of our collaboration with Cephalon. Following such change of control, Cephalon may elect to continue collaborating with us or our successor, assume responsibility for completing the collaboration or terminate the agreement. In the event that Cephalon elects to terminate this agreement in connection with our change of control, we may be obligated to pay Cephalon an amount of liquidated damages calculated in accordance with the terms of the agreement. The collaboration portion of the agreement ended in November 2009, at which point we had completed all our research obligations under the agreement. The agreement remains in effect on a product-by-product, country-by-country basis until all royalty obligations expire. Both parties have a right to terminate the agreement early if the other party enters bankruptcy or upon an uncured breach by the other party. Our Collaboration with Genoptix, Inc. In September, 2010, we entered into a collaboration agreement with Genoptix to develop a laboratory diagnostic test to identify patients that harbor ITD mutations in their FLT3 receptor tyrosine kinase. Under this agreement, Genoptix will contribute its expertise in developing laboratory tests and we will supply certain patient samples to the collaboration. Genoptix has the right to commercialize the approved test. We will initially pay for the development activities under the collaboration pursuant to an agreed upon budget, and are entitled to royalty payments to repay us for the development costs. We intend for this test to be approved by the FDA as a companion diagnostic test in concert with quizartinib. We believe the FDA approval of this test will satisfy the FDAs requirement that a companion diagnostic test be approved with quizartinib. We and Genoptix may assign this agreement to a third party in connection with the transfer or sale of all or substantially all of the business to which the agreement relates, whether by merger, sale of stock, sale of assets or otherwise, provided that in the event of such a transaction with a third party, intellectual property rights of such third-party will not be included in the intellectual property rights licensed under our agreement with Genoptix to the extent such intellectual property rights would not have been licensed under the agreement in the absence of such transaction. 81
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Intellectual Property We are actively building an intellectual property portfolio around our clinical drug programs and our drug discovery programs. A large part of our strategy for portfolio building is to seek patent protection in the United States and in major market countries that we consider important to the development of our business worldwide. Our success depends in part on our ability to obtain and maintain proprietary protection for our drug candidates and other discoveries, inventions, trade secrets and know-how that are critical to our business operations. Our success also depends in part on our ability to operate without infringing the proprietary rights of others, and in part, on our ability to prevent others from infringing our proprietary rights. A comprehensive discussion on risks relating to intellectual property is provided under Risk Factors under the subsection Risks Related to Our Intellectual Property. We have developed and continue to develop a patent portfolio around our lead drug candidate quizartinib. A composition of matter patent application covering the small molecule drug quizartinib (and a chemical genus to which quizartinib belongs) issued in the United States as U.S. Patent 7,820,657 and is pending in 20 foreign countries. This U.S. patent will expire in 2027 if we continue to pay the maintenance fees and annuities when due, with the possibility of additional term from patent term extensions that may be granted due to administrative delays in the FDA. We also have pending applications that cover stable crystalline forms of quizartinib, metabolites of quizartinib, formulations of quizartinib, methods of manufacturing quizartinib and various therapeutic uses of quizartinib. Collectively, these patents, if they issue, would have patent expirations ranging from 2028 to 2030 if we continue to pay the maintenance fees and annuities when due, not including any possible additional terms for patent term adjustments or patent term extensions. We do not know if any patent will issue from any of these applications and, if any issue, we do not know whether the issued patents will provide significant proprietary protection or commercial advantage against our competitors or generics. Even if they issue, our patents may be circumvented, challenged, opposed and found to be invalid or unenforceable. We have a patent portfolio exclusively licensed to us from BMS around our second drug candidate AC480. The in-licensed portfolio includes a composition of matter patent covering the small molecule drug AC480 and a chemical genus to which it belongs, a therapeutic use patent and a patent on the method of manufacture of AC480, all issued in the United States. The United States composition of matter patent covering the small molecule AC480 and its chemical genus has a patent term extending until 2023 with the possibility of additional patent term extension up to 2028. The composition of matter patent family includes issued patents in eight foreign countries and pending patent applications in six foreign countries which include the major market countries. We continue to expand the AC480 portfolio by filing patent applications on newly developed combination therapies with AC480. We have filed a provisional patent application covering new crystalline forms of AC480 and new AC480 formulation that were internally discovered and developed, that, were the application to issue, would have patent terms extending until 2031 if we continue to pay the maintenance fees and annuities when due. For our lead candidates in our preclinical pipeline, we filed a composition of matter patent application covering our JAK2 lead candidate AC430 in the United States, under the Patent Co-operation Treaty (PCT) and in Argentina and Taiwan, which are not signatories to the PCT, and we filed a U.S. provisional composition of matter patent application covering our lead CSF1R candidate AC710. As these lead candidates progress into clinical development, we intend to file additional U.S. and foreign applications based on our ongoing research programs directed to crystalline forms, formulations, therapeutic uses, combination therapies and methods of manufacture, as they are discovered or invented. In addition to patent protection, we seek to rely on trade secret protection, trademark protection and know-how to expand our proprietary position around our chemistry, technology and other discoveries and inventions that we consider important to our business. We also seek to protect our intellectual property in part by entering into confidentiality agreements with our employees, consultants, scientific advisors, clinical investigators and other contractors and also by requiring our employees, commercial contractors, and certain consultants and investigators, to enter into invention assignment agreements that grant us ownership of any discoveries or inventions made by them. Further, we seek trademark protection in the United States and internationally where available and when we deem appropriate. We have obtained registrations for the AMBIT trademark, which we use in connection with our pharmaceutical research and development services as well as our clinicalstage products. We currently have such registrations for AMBIT in the United States, Europe and Japan. 82
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We are aware of a third party patent that relates to an inactive ingredient that we use in quizartinib, as well as a third party patent related to diagnostic testing for certain FLT3 mutations. We cannot predict whether we or our partners would be able to obtain a license to either of the above, or if a license were available, whether it would be available on commercially reasonable terms. If such patents have a valid claim relating to our use of the inactive ingredient or diagnostic testing required to detect FLT3 mutations and, in either case, a license under the applicable patent is unavailable on commercially reasonable terms, or at all, our ability to commercialize quizartinib may be impaired or delayed, which could in turn significantly harm our business. Sales and Marketing We intend to build the commercial infrastructure necessary to effectively support the commercialization of quizartinib and future drug candidates, if approved. Initially we intend to focus our efforts on the co-promotion of our lead drug candidate, quizartinib, in the United States with Astellas. Astellas has responsibility for the commercialization of quizartinib outside of the United States. The commercial infrastructure of specialty oncology products typically consists of a targeted, specialty sales force that calls on a limited and focused group of physicians supported by sales management, internal sales support, an internal marketing group and distributions support. Additional capabilities important to the oncology marketplace include the management of key accounts such a managed care organizations, group-purchasing organizations, specialty pharmacies, oncology group networks, and government accounts. Under our agreement with Astellas if we exercise the copromotion option we will be responsible for providing 50% of the total sales force promotional support in the United States with Astellas providing all of the additional capabilities such as marketing, distribution and key account management. Based on the number of physicians that treat AML and the size of competitive sales forces, we believe that we can effectively target the relevant audience for quizartinib in the United States and meet our obligations under the agreement with a small, targeted sales force. To develop the appropriate commercial infrastructure, we will have to invest significant amounts of financial and management resources, some of which will be committed prior to any confirmation that quizartinib will be approved. Where appropriate, we may elect in the future to utilize strategic partners or contract sales forces to assist in the commercialization of our other drug candidates, if approved. Manufacturing We do not own or operate manufacturing facilities for the production of quizartinib or other drug candidates that we develop, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently depend on third-party contract manufacturers for all of our required raw materials, API and finished products for our preclinical research and clinical trials. We do not have any current contractual arrangements for the manufacture of commercial supplies of quizartinib or any other drug candidates that we develop. If quizartinib is approved for treatment of AML by the FDA, we will work with our partner Astellas to enter into agreements with third-party contract manufacturers for the commercial production of quizartinib. We currently employ internal resources and third-party consultants to manage our manufacturing contractors. Competition A number of multinational pharmaceutical companies, as well as large biotechnology companies, including Amgen, AstraZeneca, Bayer, BMS, Cephalon, GlaxoSmithKline, Johnson & Johnson, Lilly, Merck, Novartis, Onyx, Pfizer, Roche, sanofi-aventis and Takeda, are pursuing the development or are currently marketing pharmaceuticals that target the kinases or kinase-signaling pathways on which we are focusing. It is probable that the number of companies seeking to develop products and therapies for the treatment of unmet needs in oncology will increase. Many of our competitors, either alone or with their strategic partners, have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development 83
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of drug candidates, obtaining FDA and other regulatory approvals of drug candidates and the commercialization of those products. Accordingly, our competitors may be more successful than we may be in obtaining approval for drugs and achieving widespread market acceptance. Our competitors drugs may be more effective, or more effectively marketed and sold, than any drug we may commercialize and may render our drug candidates obsolete or non-competitive before we can recover the expenses of developing and commercializing any of our drug candidates. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. Competition for Quizartinib Sutent and Nexavar, two multi-kinase inhibitors that inhibit the FLT3 kinase, are approved for the treatment of certain solid tumors, however these drugs also inhibit other kinases with equal or greater potency and are not approved for the treatment of AML. Sutent is approved as monotherapy for renal cell carcinoma, or RCC, and for GIST and Nexavar is approved as monotherapy for advanced RCC and unresectable hepatocellular cancer, or HCC. Each of these drugs is believed to work through inhibition of kinases other than FLT3. Currently there are no approved therapies for relapsed/refractory AML beyond traditional chemotherapy. We are aware of several companies, including ARIAD, Bayer, Lilly, Novartis and Onyx, that have ongoing programs to develop both small molecules and biologics that target the FLT3 pathway. Competition for AC480 There are six FDA-approved HER family inhibitors: Amgens Vectibix (panitumumab), AstraZenecas Iressa (gefitinib), GlaxoSmithKlines Tykerb (lapatinib), Lillys Erbitux (cetuximab), Roches Herceptin (trastuzumab) and Roches Tarceva (erlotinib). We are aware of a number of companies that have ongoing programs to develop both small molecules and biologics to target individual or multiple members of HER family of kinases. We are not aware of any drugs in development which solely target the inhibition of the HER4 pathway without affecting other kinases in the HER family. Competition for Other Programs We are not aware of any commercialized products that target the JAK family of kinases, the B-raf kinase or the CSF1R kinase. There are several companies with JAK, B-raf, and CSF1R inhibitors in clinical development, including Amgen, AstraZeneca, Incyte, Lilly, Merck and Pfizer. Government Regulation and Product Approval Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those we are developing. Quizartinib and any other drug candidate that we develop must be approved by the FDA before they may be legally marketed in the United States. In addition, the FDA is currently requiring regulatory approval of a companion diagnostic for market approval of quizartinib. United States Drug Development Process In the United States, the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act, or FDCA, and implementing regulations. Drugs are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable United States requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. FDA 84
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sanctions could include refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. The process required by the FDA before a drug may be marketed in the United States generally involves the following: Completion of preclinical laboratory tests, animal studies and formulation studies according to Good Laboratory Practices or other applicable regulations; Submission to the FDA of an IND, which must become effective before human clinical trials may begin; Performance of adequate and well-controlled human clinical trials according to the FDAs current good clinical practices, or GCPs, to establish the safety and efficacy of the proposed drug for its intended use; Submission to the FDA of an NDA for a new drug; Satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the drug is produced to assess compliance with the FDAs current good manufacturing practice standards, or cGMP, to assure that the facilities, methods and controls are adequate to preserve the drugs identity, strength, quality and purity; Potential FDA audit of the nonclinical and clinical trial sites that generated the data in support of the NDA; and FDA review and approval of the NDA.
The lengthy process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations require the expenditure of substantial resources and approvals are inherently uncertain. Before testing any compounds with potential therapeutic value in humans, the drug candidate enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the drug candidate. The conduct of the preclinical tests must comply with federal regulations and requirements including good laboratory practices. The sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA places the clinical trial on a clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA may also impose clinical holds on a drug candidate at any time before or during clinical trials due to safety concerns or non-compliance. Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin, or that, once begun, issues will not arise that suspend or terminate such trial. Clinical trials involve the administration of the drug candidate to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the trial sponsors control. Clinical trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety. Each protocol must be submitted to the FDA as part of the IND. Clinical trials must be conducted in accordance with the FDAs good clinical practices requirements. Further, each clinical trial must be reviewed and approved by an independent institutional review board, or IRB, at or servicing each institution at which the clinical trial will be conducted. An IRB is charged with protecting the welfare and rights of trial participants and considers such items as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. 85
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Human clinical trials are typically conducted in three sequential phases that may overlap or be combined: Phase 1. The drug is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion. In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients. Phase 2. The drug is evaluated in a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing schedule. Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for product labeling. Generally, two adequate and well-controlled Phase 3 clinical trials are required by the FDA for approval of an NDA.
Post-approval studies, or Phase 4 clinical trials, may be conducted after initial marketing approval. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication. Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events or any finding from tests in laboratory animals that suggests a significant risk for human subjects. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA or the sponsor or its data safety monitoring board may suspend a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRBs requirements or if the drug has been associated with unexpected serious harm to patients. Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final drug. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life. United States Review and Approval Processes The results of product development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of substantial user fees; a waiver of such fees may be obtained under certain limited circumstances. In addition, under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted. The FDA reviews all NDAs submitted before it accepts them for filing and may request additional information rather than accepting an NDA for filing. Once the submission is accepted for filing, the FDA begins 86
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an in-depth review of the NDA. Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, the FDA has 10 months in which to complete its initial review of a standard NDA and respond to the applicant, and six months for a priority NDA. The FDA does not always meet its PDUFA goal dates for standard and priority NDAs. The review process and the PDUFA goal date may be extended by three months if the FDA requests or the NDA sponsor otherwise provides additional information or clarification regarding information already provided in the submission within the last three months before the PDUFA goal date. After the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the products identity, strength, quality and purity. The FDA may refer applications for novel drug or biological products or drug or biological products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. During the drug approval process, the FDA also will determine whether a risk evaluation and mitigation strategy, or REMS, is necessary to assure the safe use of the drug. If the FDA concludes a REMS is needed, the sponsor of the NDA must submit a proposed REMS; the FDA will not approve the NDA without a REMS, if required. Before approving an NDA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GMP. If the FDA determines the application, manufacturing process or manufacturing facilities are not acceptable it will outline the deficiencies in the submission and often will request additional testing or information. The NDA review and approval process is lengthy and difficult and the FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical data or other data and information. Even if such data and information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data. The FDA will issue a complete response letter if the agency decides not to approve the NDA. The complete response letter usually describes all of the specific deficiencies in the NDA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the application. If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. In addition, the FDA may require Phase 4 testing which involves clinical trials designed to further assess a drug safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized. Orphan Drug Designation Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making a drug or biological product available in the United States for this type of disease or condition will be recovered from sales of the product. Orphan product 87
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designation must be requested before submitting an NDA. After the FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process. If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug or biological product for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity. Competitors, however, may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. Orphan product exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval of the same drug or biological product as defined by the FDA or if our drug candidate is determined to be contained within the competitors product for the same indication or disease. If a drug or biological product designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan product exclusivity. Orphan drug status in the European Union has similar but not identical benefits in the European Union. We currently have Orphan Drug Designation for quizartinib for the treatment of AML in the United States and the European Union. Expedited Development and Review Programs The FDA has a Fast Track program that is intended to expedite or facilitate the process for reviewing new drugs and biological products that meet certain criteria. Specifically, new drugs and biological products are eligible for Fast Track designation if they are intended to treat a serious or lifethreatening condition and demonstrate the potential to address unmet medical needs for the condition. Fast Track designation applies to the combination of the product and the specific indication for which it is being studied. Unique to a Fast Track product, the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA. Any product, submitted to the FDA for market, including a Fast Track program, may also be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval. Any product is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct additional resources to the evaluation of an application for a new drug or biological product designated for priority review in an effort to facilitate the review. Additionally, a product may be eligible for accelerated approval. Drug or biological products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval, which means that they may be approved on the basis of adequate and well-controlled clinical studies establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical benefit, or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a drug or biological product receiving accelerated approval perform adequate and well-controlled post-marketing clinical studies. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product. Fast Track designation, priority review and accelerated approval do not change the standards for approval but may expedite the development or approval process. We have applied for Fast Track designation for our drug candidate, quizartinib, for treatment of AML. Even if we receive Fast Track designation for quizartinib, the FDA may later decide that quizartinib no longer meets 88
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the conditions for qualification. In addition, obtaining Fast Track designation may not provide us with a material commercial advantage. Companion Diagnostic Review and Approval Our drug candidate quizartinib currently relies upon the conduct of a companion diagnostic test to select patients with the FLT3-ITD mutation. Presently, the FLT3-ITD mutation test is available only as a Laboratory Developed Test, or LDT, that is commercialized by laboratories certified under the Clinical Laboratory Improvement Amendments, or CLIA. Approval of our quizartinib drug candidate will require FDA approval of a Pre Market Approval application, or PMA, for a reproducible, validated diagnostic test to be used with quizartinib. The PMA process is costly, lengthy, and uncertain, although the PMA review for a FLT3-ITD mutation test is currently planned to occur concurrently with the development and review of an NDA for quizartinib. The receipt and timing of PMA approval may have a significant effect on the receipt and timing of commercial approval for quizartinib. Human diagnostic products are subject to pervasive and ongoing regulatory obligations, including the submission of medical device reports, adherence to the Quality Systems Regulation, recordkeeping and product labeling, as enforced by the FDA and comparable state authorities. Post-Approval Requirements Any drug products for which we receive FDA approvals are subject to continuing regulation by the FDA, including, among other things, recordkeeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and distribution requirements, complying with certain electronic records and signature requirements and complying with FDA promotion and advertising requirements, which include, among others, standards for direct-to-consumer advertising, promoting drugs for uses or in patient populations that are not described in the drugs approved labeling (known as off-label use), industry-sponsored scientific and educational activities, and promotional activities involving the internet. Failure to comply with FDA requirements can have negative consequences, including adverse publicity, enforcement letters from the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties. Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such off-label uses. We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products. Manufacturers of our products are required to comply with applicable FDA manufacturing requirements contained in the FDAs cGMP regulations. cGMP regulations require among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance. Discovery of problems with a product after approval may result in restrictions on a product, manufacturer, or holder of an approved NDA, including withdrawal of the product from the market. In addition, changes to the manufacturing process generally require prior FDA approval before being implemented and other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval. The FDA also may require post-marketing testing, known as Phase 4 testing, risk minimization action plans and surveillance to monitor the effects of an approved product or place conditions on an approval that could restrict the distribution or use of the product. Other Healthcare Laws and Compliance Requirements In the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services (formerly the 89
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Health Care Financing Administration), other divisions of the United States Department of Health and Human Services (e.g., the Office of Inspector General), the United States Department of Justice and individual United States Attorney offices within the Department of Justice, and state and local governments. For example, sales, marketing and scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the Social Security Act, the False Claims Act, the privacy provisions of the Health Insurance Portability and Accountability Act, or HIPAA, and similar state laws, each as amended. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992, each as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. Under the Veterans Health Care Act, or VHCA, drug companies are required to offer certain drugs at a reduced price to a number of federal agencies including United States Department of Veterans Affairs and United States Department of Defense, the Public Health Service and certain private Public Health Service designated entities in order to participate in other federal funding programs including Medicare and Medicaid. Recent legislative changes purport to require that discounted prices be offered for certain United States Department of Defense purchases for its TRICARE program via a rebate system. Participation under the VHCA requires submission of pricing data and calculation of discounts and rebates pursuant to complex statutory formulas, as well as the entry into government procurement contracts governed by the Federal Acquisition Regulations. In order to distribute products commercially, we must comply with state laws that require the registration of manufacturers and wholesale distributors of pharmaceutical products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities, and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare entities from providing certain physician prescribing data to pharmaceutical companies for use in sales and marketing, and to prohibit certain other sales and marketing practices. All of our activities are potentially subject to federal and state consumer protection and unfair competition laws. Patent Term Restoration and Marketing Exclusivity Depending upon the timing, duration and specifics of the FDA approval of the use of our drug candidates, some of our United States patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the products approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the submission date of an NDA plus the time between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The United States Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we may intend to apply for restoration of patent term for one of our currently owned or licensed patents to add patent life beyond its current expiration date, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA. Market exclusivity provisions under the FDCA can also delay the submission or the approval of certain applications of other companies seeking to reference another companys NDA. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the 90
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drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA holder. The FDCA also provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example new indications, dosages or strengths of an existing drug. This threeyear exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and wellcontrolled clinical trials necessary to demonstrate safety and effectiveness. Pediatric exclusivity is another type of regulatory market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of other exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric trial in accordance with an FDA-issued Written Request for such a trial. Pharmaceutical Coverage, Pricing and Reimbursement Significant uncertainty exists as to the coverage and reimbursement status of any drug candidates for which we obtain regulatory approval. In the United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend in part on the availability of reimbursement from third-party payors. Third-party payors include government health administrative authorities, managed care providers, private health insurers and other organizations. The process for determining whether a payor will provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the drug product. Third-party payors may limit coverage to specific drug products on an approved list, or formulary, which might not include all of the FDA-approved drugs for a particular indication. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmaco-economic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain the FDA approvals. Our drug candidates may not be considered medically necessary or cost-effective. A payors decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. In 2003, the United States government enacted legislation providing a partial prescription drug benefit for Medicare recipients, which became effective at the beginning of 2006. Government payment for some of the costs of prescription drugs may increase demand for any products for which we receive marketing approval. However, to obtain payments under this program, we would be required to sell products to Medicare recipients through prescription drug plans operating pursuant to this legislation. These plans will likely negotiate discounted prices for our products. Federal, state and local governments in the United States continue to consider legislation to limit the growth of healthcare costs, including the cost of prescription drugs. Future legislation could limit payments for pharmaceuticals such as the drug candidates that we are developing. Different pricing and reimbursement schemes exist in other countries. In the European Community, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular drug candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines, but 91
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monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from lowpriced markets exert a commercial pressure on pricing within a country. The marketability of any drug candidates for which we receive regulatory approval for commercial sale may suffer if the government and thirdparty payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future. Employees As of October 31, 2010, we employed 77 employees, 72 of whom are full-time, 32 of whom hold Ph.D. or M.D. degrees, 61 of whom were engaged in research and development activities and 16 of whom were engaged in business development, finance, information systems, facilities, human resources and administrative support. None of our employees is subject to a collective bargaining agreement. We consider our relationship with our employees to be good. Facilities We lease approximately 54,924 square feet of space for our headquarters in San Diego, California under an agreement that expires in July 2014. We believe that our existing facilities are adequate to meet our current needs, and that suitable additional alternative spaces will be available in the future on commercially reasonable terms. Legal Proceedings We are currently not a party to any material legal proceedings. 92
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MANAGEMENT Executive Officers and Directors The following table sets forth information regarding our executive officers and directors as of October 31, 2010:
Name Age Position
Alan J. Lewis, Ph.D. Alan Fuhrman Robert Corringham, M.D. Christopher J. Morl Wendell Wierenga, Ph.D. Faheem Hasnain (3) Steven A. Elms (2) Standish M. Fleming (1)(3) Allan P. Marchington, Ph.D. (2) Joseph Regan (1) Saiid Zarrabian (1) Alexander Zukiwski, M.D. (2) (1) (2) (3) Member of the audit committee. Member of the compensation committee. Member of the nominating and governance committee.
65 54 61 51 62 52 46 63 44 43 57 52
President, Chief Executive Officer and Director Chief Financial Officer Chief Medical Officer and Senior Vice President, Clinical Development Chief Operating Officer Executive Vice President, Research and Development Chairman of the Board, Director Director Director Director Director Director Director
Executive Officers Alan J. Lewis, Ph.D. Dr. Lewis joined our board of directors in May 2009, served as our Chairman of the Board from November 2009 to April 2010, served as our Executive Chairman of the Board from April 2010 to November 2010 and has served as our President and Chief Executive Officer since July 2010. From January 2009 to June 2010, Dr. Lewis served as the president and chief executive officer of the Juvenile Diabetes Research Foundation. From February 2006 to December 2008, he served as president, chief executive officer, and a director of Novocell, Inc. (now ViaCyte), a preclinical therapeutics company focused on diabetes. From February 1994 to August 2000, he served as chief executive officer and a director of Signal Pharmaceuticals before its acquisition in 2000 by Celgene, Inc. He then served as president of the Signal research division at Celgene until 2005. From 1989 to 1994, he served as the vice president of research at Wyeth-Ayerst. Dr. Lewis currently serves as a director of Biomarin Pharmaceutical Inc. (Nasdaq: BMRN). Based on Dr. Lewis position as our President and Chief Executive Officer, his other senior management experience and his service on other boards of directors in the biotechnology and pharmaceutical industries, including his experience in strategic planning, the board believes he has the appropriate set of skills to serve as a member of our board. Dr. Lewis received a B.Sc. in physiology and biochemistry from Southampton University and a Ph.D. in pharmacology from the University of Wales and completed a postdoctoral fellowship at Yale University. Alan Fuhrman. Mr. Fuhrman has served as our Chief Financial Officer since October 2010. From November 2008 to September 2010, Mr. Fuhrman served as vice president and chief financial officer of Naviscan, Inc., a medical imaging company focused on the management of breast cancer. From September 2004 through August 2008, he served as senior vice president and chief financial officer of Sonus Pharmaceuticals (Nasdaq: SNUS), a public pharmaceutical development company that merged with Oncogenex Pharmaceuticals in August 2008. Mr. Fuhrman served as president and chief operating officer of Integrex, Inc. from April 2002 until its acquisition in July 2004. From February 1999 until March 2002, he was the chief financial officer at Capital Stream, Inc., a financial services workflow automation company. Mr. Fuhrman received B.S. degrees in 93
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both business administration and agricultural economics from Montana State University. Mr. Fuhrman received his Certified Public Accountant Certification from the State of Oregon; however, currently he is not an active CPA. Robert Corringham, M.D. Dr. Corringham has served as our Chief Medical Officer since July 2010 and as our Senior Vice President, Clinical Development since March 2008. From August 2000 to November 2007, Dr. Corringham served as vice president and therapeutic area head for clinical oncology biologics development at Centocor, a subsidiary of Johnson and Johnson focused on the development of diagnostic assays using monoclonal antibody technology. Prior to Centocor, Dr. Corringham was at SmithKline Beecham, where he was responsible for the U.S. clinical oncology group and led the clinical oncology vaccines group at SmithKline Beecham Biologics. Prior to that, he was in academic medicine and was a hematologist/oncologist and bone marrow transplanter including positions as deputy director of the University of California San Diego (UCSD) Cancer Center, adjunct professor of medicine at UCSD, associate professor of medicine at the University of Ottawa, assistant professor at the University of Toronto and was on the staff of the Princess Margaret Hospital, Toronto. He was founding director of the Northeastern Ontario Regional Cancer Centre, Sudbury Ontario. Dr Corringham received his medical degree at the University of London, England, where he also did his postgraduate medical training and was a research fellow. Christopher J. Morl. Mr. Morl has served as our Chief Operating Officer since November 2010. He served as our Chief Business Officer from January 2009 until November 2010. From August 2002 to October 2008, he served as vice president of business development at Agensys Inc., a privately owned biotechnology company that became a wholly owned subsidiary of Astellas US in December 2007. From January 2001 to December 2001, he served as director of integration at GlaxoSmithKline for China/Hong Kong after serving as the General Manager at SmithKline Beecham (Tianjiin). Prior to that he served for 20 years in positions of increasing responsibility in research, sales, marketing, and business development with SmithKline Beecham. Mr. Morl earned a B.S. in applied biology with honors in pharmacology from the University of London (UK) and an M.B.A. from Cranfield School of Management (UK). Wendell Wierenga, Ph.D. Dr. Wierenga has served as our Executive Vice President, Research and Development since December 2006 and was a member of our board of directors from 2005 to 2008. In addition to his current position at Ambit, Dr. Wierenga has served as a member of the board of directors of XenoPort, Inc. (Nasdaq: XNPT) since October 2000 and Onyx Pharmaceuticals, Inc. (Nasdaq: ONXX) since December 1996 and is a member of the scientific advisory boards of two private pharmaceutical companies, Concert Pharmaceuticals, Inc. and Ferring Pharmaceuticals, Inc. From September 2003 to December 2007, Dr. Wierenga served as executive vice president of research and development at Neurocrine Biosciences, Inc., a pharmaceutical company focused on developing therapeutics for diseases and disorders of the central nervous and immune systems. From 2000 to 2003, Dr. Wierenga served as chief executive officer of Syrrx, Inc. (acquired by Takeda Pharmaceutical Company Limited in 2005). From 1990 to 2000, Dr. Wierenga served as senior vice president of worldwide pharmaceutical sciences, technologies and development at Parke-Davis/Warner Lambert (now Pfizer, Inc.). Prior to joining Parke-Davis, Dr. Wierenga spent 16 years at Upjohn Pharmaceuticals. Dr. Wierenga earned his B.A. from Hope College, in Holland, Michigan and his Ph.D. in chemistry from Stanford University. Non-Employee Directors Faheem Hasnain. Mr. Hasnain has served as one of our directors since October 2010, and as the Chairman of the Board since November 2010. From December 2008 until its acquisition by Abbott Laboratories in April 2010, he was the president and chief executive officer and a director of Facet Biotech Corporation (Nasdaq: FACT), a biology-driven antibody company with a focus in oncology and multiple sclerosis. Mr. Hasnain was president, chief executive officer and a director of PDL BioPharma, Inc. (Nasdaq: PDLI) from October 2008 until Facet Biotech was spun off from PDL BioPharma in December 2008. From October 2004 to September 2008, Mr. Hasnain served at Biogen Idec Inc., a biotechnology company specializing in neurological disorders, autoimmune disorders and cancer, most recently as executive vice president in charge of the oncology/rheumatology strategic business unit. Prior to Biogen Idec, Mr. Hasnain held roles with Bristol-Myers Squibb, where he was president of the oncology therapeutics network, and for 14 years at GlaxoSmithKline and its 94
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predecessor organizations. Mr. Hasnain has served on the board of directors of Somaxon Pharmaceuticals (Nasdaq: SOMX) since September 2010. Based on Mr. Hasnains management experience and his pharmaceutical industry experience and in-depth understanding of commercialization and corporate development, the board believes Mr. Hasnain has the appropriate set of skills to serve as a member of our board. Mr. Hasnain received a B.H.K. and B.Ed. from the University of Windsor Ontario in Canada. Steven A. Elms. Mr. Elms has served as one of our directors since 2001 and served as the Chairman of the Board from July 2005 to November 2009. He is a managing director of the Perseus-Soros Biopharmaceutical Fund, or PSBF, and managing partner of Aisling Capital LLC, both venture capital firms. He joined PSBF in 2000 from the Life Sciences Investment Banking Group of Chase H&Q (formerly Hambrecht and Quist) where he was a principal. Prior to Hambrecht and Quist, Mr. Elms traded mortgage-backed securities at Donaldson, Lufkin & Jenrette. His previous healthcare sector experience includes over two years as a pharmaceutical sales representative for Marion Laboratories and two years as a consultant for the Wilkerson Group. Mr. Elms has served on the board of directors of MAP Pharmaceuticals, Inc. (Nasdaq: MAPP) since June 2004 and a number of private companies. Based on Mr. Elms extensive financial services background and experience in the pharmaceutical and healthcare industries, including his service on many biotechnology company boards of directors, the board believes Mr. Elms has the appropriate set of skills to serve as a member of our board. He holds a B.A. in human biology from Stanford University and an M.B.A. from the Kellogg Graduate School of Management at Northwestern University. Standish M. Fleming. Mr. Fleming has served as one of our directors since June 2001. He is a managing member at Forward Ventures, a venture capital firm which he co-founded in 1993. Before establishing Forward Ventures, he served as the chairman, president and chief executive officer of GeneSys Therapeutics, Inc. (merged with Somatix and subsequently acquired by Cell GeneSys, Inc.). In his capacity as a founding managing member of Forward Ventures, Mr. Fleming has served on the board of directors and as the initial president and chief executive officer of numerous pharmaceutical and biotechnology companies. Mr. Fleming served on the board of directors of Acorda Therapeutics, Inc. (Nasdaq: ACOR) from December 2004 to September 2006. Based on Mr. Flemings management experience and his service on other boards of directors in the biotechnology and pharmaceutical industries, including his experience in finance, investor relations and operations, the board believes Mr. Fleming has the appropriate set of skills to serve as a member of our board. Mr. Fleming earned his B.A. from Amherst College and his M.B.A. from the UCLA Graduate School of Management. Allan P. Marchington, Ph.D. Dr. Marchington has served as one of our directors since October 2007. He is a partner at Apposite Capital LLP, a venture capital firm, a position he has held since April 2006. From July 2003 to August 2005, he served as an entrepreneur in residence at Abingworth Management, a venture capital firm. From July 2000 to July 2003, he served as senior vice president, at Millennium Pharmaceuticals, Inc. and served as chairman of Millennium Pharmaceuticals Ltd., the European subsidiary of Millennium Pharmaceuticals, Inc. Prior to Millennium, he was principal founder and CEO of Cambridge Combinatorial Chemistry, a biotech company which he founded in 1997 and successfully sold to Millennium Pharmaceuticals, Inc. in 2000. Before setting up Cambridge Combinatorial Chemistry, Dr. Marchington worked for seven years in a range of therapeutic areas at Pfizer, Inc. Based on Dr. Marchingtons senior positions in the biotechnology and pharmaceutical industries, including management experience as a chief executive officer and his service on other boards of directors in the biotechnology and pharmaceutical industries, and his experience in research and development, the board believes Dr. Marchingtons has the appropriate set of skills to serve as a member of our board. He earned his Ph.D. and B.Sc. in chemistry from the University of Liverpool, UK. Joseph Regan. Mr. Regan has served as one of our directors since August 2009. He is vice president of investments at GrowthWorks Capital, Inc., a venture capital firm, a position he has held since 2003. He has served a wide range of roles within portfolio companies including gestational chief executive officer. Additionally he currently serves as president of an early stage seed fund and serves on the board of directors of numerous private companies. Based on Mr. Regans expertise in strategic growth and his service on the boards of directors in the biotechnology and pharmaceutical industries, the board believes that Mr. Regan has the appropriate set of skills to serve as a member of our board. He earned an Honours B.Sc. from the University of Guelph (Distinction) and an M.B.A. from McMaster University. 95
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Saiid Zarrabian. Mr. Zarrabian has served as one of our directors since May 2009. He is currently president, chief executive officer and member of the board of directors of Cyntellect, Inc., an instrumentation company whose products support key applications to advance life science research, biopharmaceutical production, stem cell research and drug discovery, a position he has held since March 2010. He is also currently a member of the board of eMolecules, Inc., a data content and ecommerce provider of online search and acquisition of screening and building blocks for the biotechnology and pharmaceutical industry. He also serves as principal of Zarrabian Consulting, a company that provides executive consulting services to pharmaceutical and biotechnology companies, which he founded in 2002. He recently served as a member of the board of Penwest Pharmaceuticals Co. (Nasdaq: PPCO), which was acquired by Endo Pharmaceuticals in September 2010. From May 2001 to January 2002, Mr. Zarrabian served as president and chief operating officer of Senomyx, Inc., a biotechnology firm involved with discovery of novel flavor ingredients. Before this, Mr. Zarrabian served as chief operating officer of Pharmacopeia, Inc. (later acquired by Ligand Pharmaceuticals Incorporated), a publicly-held biotechnology firm engaged in internal drug discovery, combinatorial chemistry, and high-throughput screening products and services, and as president and chief operating officer of Molecular Simulations, Inc. (acquired by Pharmacopeia, Inc.). Based on Mr. Zarrabians extensive operational, strategic and business expertise within the biotechnology and pharmaceutical industries, including various chief executive officer, president and chief operating officer roles, as well as his roles as a board member of a number of companies, the board believes Mr. Zarrabian has the appropriate set of skills to serve as a member of our board. Alexander Zukiwski, M.D. Dr. Zukiwski has served as one of our directors since August 2008. He is executive vice president, clinical research and chief medical officer of MedImmune, Inc., the biologics unit of AstraZeneca PLC (NYSE: AZN), a position he has held since June 2008. He joined MedImmune in November 2007 as senior vice president, clinical research. From May 2002 to November 2007, he held several roles of increasing responsibility in support of Ortho Biotech Products, L.P. and Johnson & Johnson Pharmaceutical Research & Development, L.L.C., pharmacuetical research organizations, including medical affairs and clinical development functions. From November 1996 to May 2002, he served in clinical oncology positions at Hoffmann-LaRoche, GlaxoWellcome and Rhone-Poulenc Rorer. Based on his medical background, including his significant clinical development, management and oncology expertise, the board believes Dr. Zukiwski has the appropriate skills to serve as a member of our board. Dr. Zukiwski holds a B.S. degree in pharmacy from the University of Alberta and received his medical degree from the University of Calgary. He conducted his post-graduate training in Internal Medicine at St. Thomas Hospital Medical Center in Akron, Ohio, and Medical Oncology at the University of Texas MD Anderson Cancer Center. Scientific and Clinical Advisors We seek advice from a number of leading physicians and scientists on scientific, technical and medical matters. These advisors are leading physicians and scientists in the areas of hematology, oncology and clinical development. Our scientific and clinical advisors are consulted to assess, among other things: our research and development programs; our publication strategies; new technologies relevant to our research and development programs; and specific scientific and technical issues relevant to our business. 96
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All of our scientific advisors are employed by or have consulting arrangements with other entities and devote only a small portion of their time to us. Our scientific and clinical advisors and their primary affiliations are listed below:
Name Primary Affiliation
David Armistead, Ph.D. Alan K. Burnett, M.D. Webster Cavenee, Ph.D. Jorge Cortes, M.D. Brian Druker, M.D. Elihu H. Estey, M.D. Richard Gralla, M.D. Tony Hunter, Ph.D. Nancy Kemeny, M.D. Mark Levis, M.D., Ph.D. Vincent A. Miller, M.D. Edith Perez, M.D. Leonard Post, Ph.D. Edward Roberts, Ph.D., B.Sc. Anthony W. Tolcher, M.D., FRCPC Nicholas Vogelzang, M.D. Board Composition
Oxford Bioscience Partners University of Wales College of Medicine, Department of Hematology Ludwig Institute for Cancer Research MD Anderson Cancer Center, Department of Leukemia Oregon Health & Science University University of Washington School of Medicine, Division of Hematology Monter Cancer Center The Salk Institute for Biological Studies Memorial Sloan-Kettering Cancer Center Johns Hopkins University Memorial Sloan-Kettering Cancer Center Mayo Clinic LEAD Therapeutics, Inc. Scripps Research Institute South Texas Accelerated Research Therapeutics, LLC Nevada Cancer Institute, University of Nevada
Our board of directors currently consists of eight members, seven whom have been determined to be independent within the meaning of SEC rules and regulations and the Nasdaq Marketplace Rules. Effective upon the closing of this offering, we will divide our board of directors into three classes, as follows: Class I, which will consist of Class II, which will consist of Class III, which will consist of , and whose term will expire at our annual meeting of stockholders to be held in 2011; , and whose term will expire at our annual meeting of stockholders to be held in 2012; and , and whose term will expire at our annual meeting of stockholders to be held in 2013.
At each annual meeting of stockholders to be held after the initial classification, the successors to directors whose terms then expire will serve until the third annual meeting following their election and until their successors are duly elected and qualified. The authorized number of directors may be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed between the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of the board of directors may have the effect of delaying or preventing changes in our control or management. Our directors may be removed for cause by the affirmative vote of the holders of at least 66 2/3% of our voting stock. 97
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Board Leadership Structure Our board of directors has an independent chairman, Faheem Hasnain, who has authority, among other things, to call and preside over board meetings, including meetings of the independent directors, to set meeting agendas and to determine materials to be distributed to the board of directors. Accordingly, the chairman has substantial ability to shape the work of the board of directors. We believe that separation of the positions of chairman and chief executive officer reinforces the independence of the board in its oversight of our business and affairs. In addition, we believe that having an independent board chairman creates an environment that is more conducive to objective evaluation and oversight of managements performance, increasing management accountability and improving the ability of the board of directors to monitor whether managements actions are in the best interests of the company and its stockholders. As a result, we believe that having an independent board chairman can enhance the effectiveness of the board of directors as a whole. Role of the Board in Risk Oversight Our audit committee is primarily responsible for overseeing our risk management processes on behalf of the full board of directors. Going forward, we expect that the audit committee will receive reports from management at least quarterly regarding our assessment of risks. In addition, the audit committee reports regularly to the full board of directors, which also considers our risk profile. The audit committee and the full board of directors focus on the most significant risks we face and our general risk management strategies. While the board oversees our risk management, company management is responsible for day-to-day risk management processes. Our board of directors expects company management to consider risk and risk management in each business decision, to proactively develop and monitor risk management strategies and processes for day-to-day activities and to effectively implement risk management strategies adopted by the audit committee and the board of directors. We believe this division of responsibilities is the most effective approach for addressing the risks we face and that our board leadership structure, which also emphasizes the independence of the board in its oversight of our business and affairs, supports this approach. Board Committees and Independence Rule 5605 of the Nasdaq Marketplace Rules requires a majority of a listed companys board of directors to be comprised of independent directors within one year of listing. In addition, Nasdaq Marketplace Rules require that, subject to specified exceptions, each member of a listed companys audit, compensation and nominating and governance committees be independent and that audit committee members also satisfy independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended. Under Rule 5605(a)(2), a director will only qualify as an independent director if, in the opinion of our board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries. In November 2010, our board of directors undertook a review of the composition of our board of directors and its committees and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our board of directors has determined that none of our directors other than Dr. Lewis has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of our directors other than Dr. Lewis is independent as that term is defined under Rule 5605(a)(2) of the Nasdaq Marketplace Rules. Our board of directors also determined that Mr. Fleming, Mr. Regan and Mr. Zarrabian, who comprise our audit committee, Dr. Marchington, Dr. Zukiwski, and Mr. Elms, who comprise our compensation committee, and Mr. Hasnain and Mr. Fleming, who comprise our nominating and governance committee, satisfy the independence standards for such committees established by the SEC. Each of the members 98
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of our compensation committee of the board is an outside director for purposes of Section 162(m) of the Internal Revenue Code, and a nonemployee director for purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended. In making such determination, the board of directors considered the relationships that each such non-employee director has with our company and all other facts and circumstances the board of directors deemed relevant in determining independence, including the beneficial ownership of our capital stock by each non-employee director. Currently, our board of directors has determined that all current members satisfy the independence requirements for service on the audit committee. Board Committees Our board of directors has established an audit committee, a compensation committee and a nominating and governance committee. The composition of each committee set forth below will be effective upon the closing of this offering. Each committee will operate under a charter approved by our board. Following this offering, copies of each committees charter will be posted on the Corporate Governance section of our website, www.ambitbio.com. Audit Committee Our audit committee consists of Mr. Fleming, Mr. Regan and Mr. Zarrabian, each of whom is a non-employee director of our board of directors. Mr. Fleming serves as the chair of our audit committee. The functions of this committee include, among other things: evaluating the performance, independence and qualifications of our independent auditors and determining whether to retain our existing independent auditors or engage new independent auditors; reviewing and approving the engagement of our independent auditors to perform audit services and any permissible non-audit services; reviewing our annual and quarterly financial statements and reports and discussing the statements and reports with our independent auditors and management; reviewing with our independent auditors and management significant issues that arise regarding accounting principles and financial statement presentation, and matters concerning the scope, adequacy and effectiveness of our financial controls; reviewing with management and our auditors any earnings announcements and other public announcements regarding material developments; establishing procedures for the receipt, retention and treatment of complaints received by us regarding financial controls, accounting or auditing matters and other matters; preparing the report that the SEC requires in our annual proxy statement; reviewing and providing oversight with respect to any related party transactions and monitoring compliance with our code of ethics; reviewing our investment policy on a periodic basis; and reviewing and evaluating, at least annually, the performance of the audit committee, including compliance of the audit committee with its charter.
Our board of directors has determined that each member of the audit committee meets the financial literacy requirements under Nasdaq Marketplace Rules and that Mr. Fleming qualifies as an audit committee financial expert within the meaning of SEC rules and regulations. In making its determination that Mr. Fleming qualifies as an audit committee financial expert, our board has considered the formal education and nature and scope of Mr. Flemings previous experience, coupled with past and present service on various audit committees. Both our independent registered public accounting firm and management periodically meet privately with our audit committee. 99
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Compensation Committee Our compensation committee consists of Dr. Marchington, Dr. Zukiwski and Mr. Elms. Dr. Marchington serves as the chair of our compensation committee. The functions of this committee include, among other things: reviewing and recommending to our board of directors the compensation and other terms of employment of our executive officers; reviewing and recommending to our board of directors performance goals and objectives relevant to the compensation of our executive officers and assessing their performance against these goals and objectives; evaluating and approving the equity incentive plans, compensation plans and similar programs advisable for us, as well as modification or termination of existing plans and programs; evaluating and recommending to our board of directors the type and amount of compensation to be paid or awarded to board members; administering our equity incentive plans; establishing policies with respect to equity compensation arrangements; reviewing the competitiveness of our executive compensation programs and evaluating the effectiveness of our compensation policy and strategy in achieving expected benefits to us; reviewing and recommending to our board of directors the terms of any employment agreements, severance arrangements, change in control protections and any other compensatory arrangements for our executive officers; reviewing with management our disclosures under the caption Compensation Discussion and Analysis and recommending to the full board its inclusion in our periodic reports to be filed with the SEC; preparing the report that the SEC requires in our annual proxy statement; reviewing the adequacy of our compensation committee charter on a periodic basis; and reviewing and evaluating, at least annually, the performance of the compensation committee.
Nominating and Corporate Governance Committee Our nominating and corporate governance committee consists of Mr. Hasnain and Mr. Fleming. Mr. Hasnain serves as the chair of our nominating and corporate governance committee. The functions of this committee include, among other things: identifying, reviewing and evaluating candidates to serve on our board of directors; determining the minimum qualifications for service on our board of directors; evaluating director performance on the board and applicable committees of the board; interviewing, evaluating, nominating and recommending individuals for membership on our board of directors; considering nominations by stockholders of candidates for election to our board; considering and assessing the independence of members of our board of directors; developing, as appropriate, a set of corporate governance principles, and reviewing and recommending to our board of directors any changes to such principles; periodically reviewing our policy statements to determine their adherence to our code of business conduct and ethics and considering any request by our directors or executive officers for a waiver from such code; 100
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reviewing the adequacy of its charter on an annual basis; and evaluating, at least annually, the performance of the nominating and corporate governance committee.
Compensation Committee Interlocks and Insider Participation No member of our compensation committee has ever been an executive officer or employee of ours. None of our officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other entity that has one or more officers serving as a member of our board of directors or compensation committee. Prior to establishing the compensation committee, our full board of directors made decisions relating to compensation of our officers. Code of Business Conduct and Ethics We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or person performing similar functions. Following this offering, a current copy of the code will be posted on the Corporate Governance section of our website, www.ambitbio.com. 101
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EXECUTIVE AND DIRECTOR COMPENSATION Compensation Discussion and Analysis Overview This Compensation Discussion and Analysis explains our compensation philosophy, policies and practices with respect to our named executive officers. Our board of directors has delegated responsibility for creating and reviewing the compensation of our executive officers to the compensation committee of our board of directors, which is composed entirely of independent directors. The role of the compensation committee is to oversee our compensation and benefit plans and policies, to administer our equity incentive plans and to annually review and make recommendations to our board of directors regarding all compensation decisions relating to all executive officers. Compensation Philosophy We believe in providing a competitive total compensation package to our executive management team through a combination of base salary, annual performance-based bonuses pursuant to our Incentive Compensation Plan, discretionary bonuses, grants under our equity incentive compensation plan, severance and change of control benefits and broad-based benefits programs. Our executive compensation programs are designed to achieve the following objectives: attract, motivate and retain executives of outstanding ability and potential; reward the achievement of key performance measures; and ensure that executive compensation is meaningfully related to the creation of stockholder value.
Our compensation committee believes that our executive compensation programs should include short- and long-term components, including cash and equity-based compensation, and should reward consistent performance that meets or exceeds expectations. The compensation committee evaluates both performance and compensation to make sure that the compensation provided to executives remains competitive relative to compensation paid by companies of similar size and stage of development operating in the medical services and life sciences industries, taking into account our relative performance and our own strategic objectives. Setting Executive Compensation Role of our Compensation Committee The compensation committee reviews and recommends to the board on an annual basis the compensation to be paid to our chief executive officer and other executive officers. As part of this process, we have historically conducted a review of the aggregate level of our executive compensation, as well as the mix of elements used to compensate our executive officers. As a private company, we have based this review primarily on the experience of the members on our board of directors that are affiliated with venture investment firms, many of whom sit on the boards of directors of numerous portfolio companies in the life sciences and healthcare fields. Our compensation committee historically has taken into account input from other independent members of our board of directors and, to a lesser extent, publicly available data relating to the compensation practices and policies of other companies within and outside our industry, such as the Radford Global Life Sciences Survey, the Thelander Pre-IPO Compensation Survey and the Biotech Employee Development Coalition Survey. Although our compensation committee has used this survey data as a tool in determining executive compensation, they typically have applied their subjective discretion to make compensation decisions and have not benchmarked our executive compensation against any particular group of companies or used a formula to set our executives, compensation in relation to this survey data. 102
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Role of our Independent Compensation Consultant In February 2010, our compensation committee retained Barney & Barney LLC to act as its independent compensation consultant to assist the committee in developing our overall executive compensation program. The compensation committee directed Barney & Barney to provide its analysis of whether our existing compensation strategy and practices were consistent with our compensation objectives and to assist the compensation committee in modifying our compensation program for executive officers in order to better achieve our objectives. As part of its duties, Barney & Barney provided the compensation committee with the following services: reviewed and provided recommendations on composition of peer groups; provided compensation data for similarly situated executive officers at our peer group companies; and updated the compensation committee on emerging trends and best practices in the area of executive compensation.
Barney & Barney does not provide any other services to us. Barney & Barney provided no executive compensation services to us in 2009. We pay the cost for Barney & Barneys services. Role of Chief Executive Officer in Compensation Decisions The chief executive officer evaluates the performance of other executive officers and employees on an annual basis and makes recommendations to the compensation committee with respect to annual salary adjustments, bonuses and annual stock option grants. The compensation committee exercises its own independent discretion in determining salary adjustments and discretionary cash and equity-based awards for all executive officers. In 2001, our board of directors appointed Scott Salka, our then Chief Executive Officer, as the sole member of our stock option committee, and granted to the committee the authority to grant stock options within specified ranges to our non-executive employees. In March 2010, Mr. Salka resigned as President and Chief Executive Officer, as a member of our board of directors and as the sole member of our stock option committee. In August 2010, in connection with his appointment as our President and Chief Executive Officer, our board of directors appointed Alan Lewis as the sole member of our stock option committee with the authority to grant stock options within specified ranges to our non-executive employees. The stock option committee has never granted options or other equity compensation to our executive officers. Elements of Executive Compensation The compensation program for our executive officers consists principally of three components: base salary; annual performance-based and discretionary bonuses; and long-term compensation in the form of stock options.
Compensation Benchmarking As described above, prior to our engagement of Barney & Barney as an independent compensation consultant in February 2010, our compensation committee used publicly available data relating to the compensation practices and policies of other companies within and outside our industry such as the Radford Global Life Sciences Survey, the Thelander Pre-IPO Compensation Survey and the Biotech Employee Development Coalition Survey as tools in determining executive compensation, but typically applied their subjective discretion to make compensation decisions and did not formally benchmark our executive compensation against any particular group of companies or use a formula to set our executives compensation in relation to this survey data. 103
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In connection with its engagement of Barney & Barney in February 2010, our compensation committee directed Barney & Barney to collect and analyze compensation data from a peer group selected by the compensation committee. This data was drawn by Barney & Barney from the Radford Pre-IPO Compensation Survey of pre-IPO companies with more than $80 million of outside investment dollars, the Radford Global Life Sciences Compensation Survey of all companies and companies with between 50 and 149 employees and from a peer group selected by the compensation committee. Peer Group In February 2010, Barney & Barney provided the compensation committee with a recommended list of peer companies for the compensation committees consideration. This recommended list contained companies than are engaged in the development of kinases that Barney & Barney and the compensation committee determined compete for talent with us and are in the same geographical area, have a similar number of employees and have similar market capitalizations to us. This list of peer group companies approved by the compensation committee consisted of Acadia Pharmaceuticals, Ardea Biosciences, Ariad Pharmaceuticals, Arqule, Biocryst Pharmaceuticals, Cell Therapeutics, Cyclacel Pharmaceuticals, Cytokinetics, Cytori Therapeutics, Dyax, Dynavax Technologies, Immunogen, Infinity Pharmaceuticals, Ligand Pharmaceuticals, Maxygen, Pharmacyclics, Rigel Pharmaceuticals, Sangamo Biosciences, Senomyx, Supergen, Vical and Xoma. Compensation Positioning and Compensation Allocations The Compensation Committee has determined to provide for target total cash and equity compensation levels at or around the 50 th percentile of the compensation paid to similarly situated officers employed by the companies covered by the survey data and in our peer group, with compensation above this level possible for exceptional performance. In trying to achieve this 50 th percentile positioning for target levels of compensation, the Compensation Committee generally sets the various compensation elements as follows: base salaries at the 50 th percentile; target cash bonus compensation at a level such that, when combined with base salary, the target cash compensation is at the 50 and
th
percentile;
target equity compensation at a level such that, when combined with target cash compensation, target total cash and equity compensation is at the 50 th percentile.
Our Compensation Committee believes targeting total cash and equity compensation at the 50 th percentile for the companies covered by the survey data and in our peer group is necessary in order to achieve the primary objectives, described above, of our executive compensation program. Base Salary Base salaries for our executives are initially established through arms-length negotiation at the time the executive is hired, taking into account such executives qualifications, experience, prior salary, the scope of his or her responsibilities, and competitive market compensation paid by other companies for similar positions within the industry. Base salaries are reviewed annually, typically in connection with our annual performance review process, and adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience. In making decisions regarding salary increases, we may also draw upon the experience of members of our board of directors with other companies. The compensation committee has not previously applied specific formulas to determine increases, although it has generally awarded increases as a percentage of an executive officers then-current base salary. The compensation committee expects to revisit executive base salaries in the fourth quarter of 2010 based on the benchmarking data provided by Barney & Barney. This strategy is consistent with our intent of offering base salaries that are cost-effective while remaining competitive. No changes to base salary were made with respect to any of our executive officers in 2009 or prior to June 2010. In June 2010, our board of directors approved increases to the base salaries of each of our named executive officers. The annual base salary for Dr. Corringham was increased from $310,000 to $322,000, the annual base salary for Mr. Morl was increased from $282,500 to $290,000, the annual base salary for Dr. Wierenga was 104
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increased from $325,500 to $330,000 and the annual base salary for Ms. Kelly was increased from $259,200 to $263,700, each based on the benchmarking data provided by Barney & Barney. We hired Dr. Lewis to serve as our President and Chief Executive Officer in July 2010. Dr. Lewis base salary for 2010 was set at $375,000. This salary was determined as part of the negotiation of Dr. Lewis employment agreement in July 2010, which was conducted on our behalf by members of our compensation committee and approved by our board of directors. In approving the salary, the board considered benchmarking data provided by Barney & Barney, Dr. Lewis requested salary and the salaries of other members of our management team. Dr. Lewis salary was most similar to that of Mr. Salka, reflective of the fact that Dr. Lewis succeeded Mr. Salka as our President and Chief Executive Officer. Dr. Lewis salary is significantly higher than those of Mr. Morl and Dr. Wierenga, reflective of the more significant responsibilities attached to his position and title. We hired Mr. Fuhrman to serve as our Chief Financial Officer in October 2010. Mr. Fuhrmans base salary for 2010 was set at $275,000. This salary was determined as part of the negotiation of Mr. Fuhrmans employment agreement in September 2010, which was conducted on our behalf by Dr. Lewis and members of our compensation committee and approved by our board of directors. In approving the salary, the board considered Mr. Fuhrmans requested salary, benchmarking data provided by Barney & Barney and the salaries of other members of our management team. In November 2010, Mr. Morl was promoted from Chief Business Officer to Chief Operating Officer. In connection with his promotion, the salary for Mr. Morl was increased from $290,000 to $300,000. In approving the salary increase, the board considered benchmarking data provided by Barney & Barney and the salaries of other members of our management team. Incentive Compensation Plan In addition to base salary, we provide the opportunity for each of our employees to earn annual cash bonuses pursuant to our Incentive Compensation Plan. We provide this opportunity to encourage the achievement of corporate and individual goals and to reward those employees who significantly impact our corporate results. Our Incentive Compensation Plan is administered by the compensation committee. The maximum annual bonus awards available to employees under the Incentive Compensation Plan range from 5% of base salary for certain of our employees to 40% of base salary in the case of our President and Chief Executive Officer. The maximum annual bonuses as a percentage of base salary for each of our current executive officers is as follows: Alan J. Lewis 40% Alan Fuhrman 30% Robert Corringham 30% Christopher J. Morl 30% Wendell Wierenga 32.5%
Prior to Mr. Salkas, Ms. Killmers and Ms. Kellys resignations as our employees in March 2010, April 2010 and September 2010, respectively, the maximum annual bonuses they were entitled to receive as a percentage of base salary were 40%, 25% and 25%, respectively. Annual corporate goals are established by the board of directors taking into consideration the recommendations of the compensation committee and annual individual goals are agreed upon between each employee and the head of such employees department. In the case of our President and Chief Executive Officer, no individual goals are established and his bonus under the Incentive Compensation Plan is based entirely on our achievement of corporate goals. In the case of our other named executive officers as well as all of our other vice presidents, the payment of bonuses is weighted 75% towards the achievement of corporate goals and 25% towards the achievement of individual goals if individual goals are specified for the year. In the case of our other employees, the payment of bonuses is weighted 50% towards the achievement of corporate goals and 50% towards the achievement of individual goals. 105
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The formula for calculating annual bonus payments to our Chief Executive Officer under the Incentive Compensation Plan is as follows: Base Salary x 40% x percentage of corporate goals achieved. The formula for calculating annual bonus payments to our named executive officers other than our President and Chief Executive Officer under the Incentive Compensation Plan is as follows: Bonus = X + Y, where X = (Base Salary x Bonus Target % x percentage of corporate goals achieved x 75%) Y = (Base Salary x Bonus Target % x percentage of individual goals achieved x 25%). In calculating the achievement of corporate and individual goals, the compensation committee reviews our performance and the employees performance against predetermined goal weightings assigned to each corporate goal by the compensation committee and assigned to each individual goal by the head of the employees department. The achievement percentage of individual goals and corporate goals can range in value between 0% and 100%. In order to receive the maximum bonus available under the Incentive Compensation Plan, an employee would be required to achieve 100% of such employees individual goals and we would be required to achieve 100% of our corporate goals. For years through and including 2009, no bonus could be paid to any employee under the Incentive bonus Plan unless at least 70% of our corporate goals and 70% of such employees individual goals have been achieved for such year. In November 2010 the board determined to remove such minimum percentage requirement for years commencing with 2010 in order to better align our incentive compensation structure with public companies of similar size in our industry. The following is a general description of the corporate goals established by the compensation committee for each of 2009 and 2010 and their relative weightings: 2009 2010 achieve specified drug development and drug discovery milestones with respect to our quizartinib, AC430, AC480 and CSF1R programs 65% identify specified types of strategic transactions and achieve specific milestones with respect to the negotiation of such transactions 20% achieve specified year-end cash balances and operating expense milestones 10% achieve specified cash receipts and gross margin or gross profit milestones with respect to our screening business 5% achieve specified drug development and drug discovery milestones with respect to our quizartinib, AC430, AC480 and CSF1R programs 60% identify specified types of strategic transactions and achieve specific milestones with respect to the negotiation of such transactions 20% achieve specified cash receipts and gross profit margin milestones with respect to our screening business 15% internally develop specified new technology 5%
Many factors impact our ability to achieve our annual corporate goals established under our Incentive Compensation Plan. Because the achievement of the corporate goals is dependent upon many factors, the ultimate likelihood that such goals will be met cannot be predicted with any certainty. However, the compensation committee generally feels that, although certainly possible, achieving all of our corporate goals will be difficult in any particular year. 106
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Notwithstanding the terms of our Incentive Compensation Plan, no individual goals were established for any of our named executive officers for 2009 or 2010. As a result, bonuses payable to each of our named executive officers for each of 2009 and 2010 were based entirely on the achievement of corporate goals and not on the achievement of any individual goals. Following the end of 2009, the compensation committee determined that we had failed to achieve at least 70% of our corporate goals for such year and as a result, none of our employees were entitled to the payment of a bonus under the Incentive Compensation Plan for 2009. Discretionary Bonuses In addition to the payment of base salaries and performance-based bonuses under our Incentive Compensation Plan, we believe that discretionary bonuses can play an important role in providing appropriate incentives to our executives to achieve our strategic objectives. As part of our annual performance reviews, the compensation committee reviews and analyzes each executive officers overall performance against such executives base salary and, if applicable, the amount such executive has earned for such year under our Incentive Compensation Plan. We do not, however, set specific performance goals for discretionary bonuses and final discretionary bonus amounts, if any, are determined at the sole discretion of our board of directors, with recommendation from the compensation committee. Following the end of 2009, our compensation committee reviewed the annual performance of each of our executives as well as our overall performance and concluded that the failure to meet 70% of our goals for 2009 was due to factors and circumstances outside of our executives control unexpected delays in Phase 1 clinical trial of quizartinib and the fact that the IND-enabling studies for AC430, while not completed in 2009, were completed shortly thereafter, in January 2010. As a result, in January 2010, our board of directors with the recommendation of the compensation committee approved the payment of a discretionary bonus to all of our full-time employees in the amount they would have been entitled to receive for 2009 if they had achieved 70% of our corporate goals under the Incentive Compensation Plan with respect to all such employees other than Scott Salka and 50% of our corporate goals under the Incentive Compensation Plan with respect to Scott Salka. For 2009, all discretionary bonuses to our named executive officers were paid in cash. The 2009 discretionary bonuses paid to our named executive officers were provided in order to continue to motivate them to achieve our financial and business objectives and were paid in part based on achievements made by them and by us during 2009 that were not included in our corporate goals under the Incentive Compensation Plan. Our compensation committee will review the annual performance of our executives for 2010 in the fourth quarter of 2010 or the first quarter of 2011 against their base salary and, if applicable, the amount such executive has earned for 2010 under the Incentive Compensation Plan. The compensation committee may recommend the award of discretionary bonuses to our executive officers at that time. Long-term Incentive Program We believe that by providing our executives the opportunity to increase their ownership of our stock, the best interests of stockholders and executives will be more aligned and we will encourage long-term performance. The stock awards enable our executive officers to participate in the appreciation of the value of our stock, while personally participating in the risks of business setbacks. We have not adopted stock ownership guidelines and, with the exception of a small number of shares acquired by our executive officers early in our corporate history, our equity benefit plans have provided our executive officers the only means to acquire equity or equity-linked interests in Ambit. The compensation committee expects to revisit our long-term incentive program in the fourth quarter of 2010 based on the benchmarking data provided by Barney & Barney. Prior to this offering, we have granted equity awards primarily through our 2001 plan, which was adopted by our board of directors and stockholders to permit the grant of stock options, stock bonuses and restricted stock to our officers, directors, employees and consultants. The material terms of our 2001 plan are further described under Employee Benefit Plans below. 107
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In 2009, certain named executive officers were awarded stock options under our 2001 plan in the amounts indicated in the section below entitled Grants of Plan-Based Awards. The awards were benchmarked to Radford survey data, were reviewed for consistency internally among the management team and were determined by members of our Board to be consistent with other companies in which the members have experience. In June 2010, as part of the long-term equity incentive program described above, and pursuant to a recommendation from the compensation committee of the board, our board of directors awarded Dr. Corringham, Mr. Morl, D. Wierenga and Ms. Kelly stock options under our 2001 plan in the aggregate amounts of 130,000, 90,000, 47,500 and 100,000 shares, respectively, each determined after considering the benchmarking data provided by Barney & Barney. Dr. Lewis was awarded an option in August 2010 to purchase 1,577,380 shares of our common stock under our 2001 plan in connection with the commencement of his employment. The number of shares was determined as part of the negotiation of his overall employment package and was approved by our board of directors. In approving the number of shares, the board considered benchmarking data provided by Barney & Barney, the number of shares requested by Dr. Lewis and the equity ownership of other members of our management team. The number of shares awarded to Dr. Lewis is significantly higher than those awarded to Mr. Fuhrman, Dr. Corringham, Mr. Morl and Dr. Wierenga, reflective of the more significant responsibilities attached to his position and title. In addition, in August 2010, Dr. Lewis was awarded an option to purchase 7,500 shares of our common stock under our 2001 plan in consideration for Dr. Lewis service as of Executive Chairman. Mr. Fuhrman was awarded an option to purchase 300,000 shares of our common stock under our 2001 plan in connection with the commencement of his employment in October 2010. The number of shares was determined as part of the negotiation of his overall employment package and was approved by our board of directors. In approving the number of shares, the board considered benchmarking data provided by Barney & Barney, the number of shares requested by Mr. Fuhrman and the equity ownership of other members of our management team. In November 2010, in connection with Mr. Morls promotion to Chief Operating Officer, Mr. Morl was awarded an additional option to purchase 70,000 shares of our common stock under our 2001 Plan. The number of shares was approved by the board. In approving the number of shares, the board considered benchmarking data provided by Barney & Barney and the equity ownership of other members of our management team. In the absence of a public trading market for our common stock, our board of directors has determined the fair market value of our common stock in good faith based upon consideration of a number of relevant factors including the status of our development efforts, financial status and market conditions and based upon valuations obtained from an independent valuation firm. All equity awards to our employees and directors were granted at no less than the fair market value of our common stock on the date of each award. All option grants typically vest over four years, with one quarter of the shares subject to the stock option vesting on the one year anniversary of the vesting commencement date and the remaining shares vesting in equal months installments thereafter over three years. All options have a 10-year term. Additional information regarding accelerated vesting upon or following a change in control is discussed below under Termination-Based Compensation. We do not have any program, plan or obligation that requires us to grant equity compensation on specified dates and, because we have not been a public company, we have not made equity grants in connection with the release or withholding of material non-public information. Authority to make equity grants to executive officers rests with our board of directors, which takes into account recommendation of our compensation committee, although our board of directors and compensation committee consider the recommendations of our chief executive officer for officers other than himself. In connection with this offering, our board of directors has adopted new equity benefit plans described under Employee Benefit Plans below. The 2010 plan will replace our existing 2001 plan immediately following this offering and, as described below, will afford our compensation committee much greater flexibility in making a wide variety of equity awards. For example, the 2010 plan will authorize us to grant stock appreciation rights or restricted stock awards if the compensation committee deems it advisable to do so. Participation in our 2010 108
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purchase plan that we have adopted and will become effective immediately upon signing of the underwriting agreement for this offering will also be available to all executive officers thereafter on the same basis as our other employees. Employment Offer Letters We entered into employment offer letters with Dr. Lewis, Mr. Fuhrman, Dr. Corringham, Mr. Morl and Dr. Wierenga in July 2010, September 2010, January 2008, January 2009 and December 2006, respectively. The offer letters provide for at-will employment, base salary, incentive bonuses, standard employee benefit plan participation and recommendations for initial stock option grants. The offers of employment were each subject to execution of standard proprietary information and invention agreements and proof of identity and work eligibility in the United States. Dr. Lewis, Mr. Fuhrman, Dr. Corringham, Mr. Morl and Dr. Wierenga are each entitled to severance and change in control benefits pursuant to their offer letters, the terms of which are described below under Termination-Based Compensation. We believe that these severance and change in control benefits help us from a retention standpoint and they are particularly necessary in an industry, such as ours, where there has been market consolidation. We believe that they help these executive officers maintain continued focus and dedication to their assigned duties to maximize stockholder value if there is a change of control. We believe that these severance and change in control benefits are an essential element of our overall executive compensation package. Perquisites From time to time our board of directors has provided certain of our named executive officers with perquisites that we believe are reasonable. We do not view perquisites as a significant element of our comprehensive compensation structure, but do believe they can be useful in attractive, motivating and retaining the executive talent for which we compete. We believe that these additional benefits may assist our executive officers in performing their duties and provide time efficiencies for our executive officers in appropriate circumstances, and we may consider providing additional perquisites in the future. In the future, we may provide additional perquisites to our executive officers as an element of their overall compensations structure. We do not expect these perquisites to be a significant element of our compensation structure. All future practices regarding perquisites will be approved and subject to periodic review by our compensation committee. Other Compensation In addition, consistent with our compensation philosophy, we intend to continue to maintain the current benefits for our executive officers, which are also available to our other employees; however, our compensation committee, in its discretion, may in the future revise, amend or add to the benefits of any executive officer if it deems it advisable. Deductibility of Compensation under Section 162(m) Section 162(m) of the Internal Revenue Code of 1986 limits our deduction for federal income tax purposes to not more than $1 million of compensation paid to certain executive officers in a calendar year. Compensation above $1 million may be deducted if it is performance-based compensation. The compensation committee has not yet established a policy for determining which forms of incentive compensation awarded to our executive officers will be designed to qualify as performance-based compensation. To maintain flexibility in compensating our executive officers in a manner designed to promote our objectives, the compensation governance committee has not adopted a policy that requires all compensation to be deductible. However, the compensation committee intends to evaluate the effects of the compensation limits of Section 162(m) on any compensation it proposes to grant, and the compensation committee intends to provide future compensation in a manner consistent with our best interests and those of our stockholders. 109
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Risk Analysis of Our Compensation Plans Our compensation committee has reviewed our compensation policies as generally applicable to our employees and believes that our policies do not encourage excessive and unnecessary risk-taking, and that the level of risk that they do encourage is not reasonably likely to have a material adverse effect on us. The design of our compensation policies and programs encourage our employees to remain focused on both our short-and longterm goals. For example, while our cash bonus plans measure performance on an annual basis, our equity awards typically vest over a number of years, which we believe encourages our employees to focus on sustained stock price appreciation, thus limiting the potential value of excessive risk-taking. Summary Compensation Table for the Year Ended December 31, 2009 The following table provides information regarding the compensation earned during the year ended December 31, 2009 by our principal executive officer, principal financial officer and certain of our other executive officers, who we collectively refer to as our named executive officers elsewhere in this prospectus. Because Dr. Lewis, Mr. Fuhrman and Dr. Corringham were not executive officers during 2009 they are not included in the following table.
Salary ($) Bonus ($) Option awards ($)(1) All other compensation ($)(2) Total ($)
Name and principal position
Year
M. Scott Salka Former President and Chief Executive Officer (3) Laura Killmer Former Vice President, Finance (4) Christopher J. Morl Chief Operating Officer (5) Wendell Wierenga, Ph.D. Executive Vice President, Research and Development Kerry Ann Kelly Former Vice President and General Counsel (6) (1)
2009 2009 2009 2009 2009
$405,290 $189,063 $265,478 $325,500 $259,200
$81,058 $33,688 $55,099 $74,051 $45,360
$ $
3,359 5,425 $33,074
$489,707 $257,786 $415,946 $399,993 $308,509
$29,610 $62,295 $ $
$ $
442 3,949
Amounts listed represent the aggregate fair value amount computed as of the grant date of each option and award during 2009 in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note 10, Stock-Based Compensation, of the Notes to our Financial Statements. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Our named executive officers will only realize compensation to the extent the trading price of our common stock is greater than the exercise price of such stock options. Consists of Company-paid life and long-term disability insurance premiums. Mr. Morls other compensation includes amounts paid for relocation assistance. Mr. Salka resigned as our President and Chief Executive Officer effective in March 2010. Ms. Killmer was promoted from Director of Finance to Vice President, Finance in February 2009 and served as our principal financial and accounting officer from November 2008 to April 2010, during which time we operated without a Chief Financial Officer. Ms. Killmer resigned as Vice President, Finance effective April 2010. Mr. Morl served as our principal financial and accounting officer from April 2010 to October 2010, during which time we operated without a Chief Financial Officer. Ms. Kelly resigned as our Vice President and General Counsel effective in September 2010. 110
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(5) (6)
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Termination-Based Compensation Regardless of the manner in which a named executive officers employment terminates, the named executive officer is entitled to receive amounts earned during his term of employment, including salary and unused vacation pay. In addition, each of our named executive officers that are currently employed by us is entitled to severance and change in control benefits described below. We entered into a employment offer letter with Mr. Salka, our former President and Chief Executive Officer, in January 2001. In April 2010, in connection with the termination of Mr. Salkas employment, we entered into a separation agreement with Mr. Salka entitling him to severance benefits. The terms of Mr. Salkas separation agreement supersede the terms of his employment offer letters. The separation agreement provides that, in exchange for Mr. Salkas full release of claims against us, Mr. Salka was entitled to: (i) severance payments at a rate equal to his base salary then in effect for a period of one-year following his termination date, (ii) receive COBRA health insurance premiums for a period of one-year following his termination date, (iii) continued exercisability of his vested stock option shares for a period of one-year following his termination date, (iv) forgiveness of both principal and accrued interest pursuant to loans by us to Mr. Salka made in April 2001 and September 2001, with one-third of such forgiveness becoming effective as of the date of the separation agreement, one-third as of January 1, 2011 and one-third as of January 1, 2012, and (v) transition payments of $135,000 each to be paid within 10 days of his termination date, within 10 days of January 1, 2011 and within 10 days of January 1, 2012. In July 2010, we entered into an employment agreement with Dr. Lewis, our President and Chief Executive Officer, which provides if we terminate Dr. Lewis without cause, he will be entitled to: (i) severance payments at a rate equal to his base salary then in effect for a period of one-year following his termination date, (ii) receive COBRA health insurance premiums for a period of up to one-year following his termination date, and (iii) continued exercisability of his vested stock option shares for a period of one-year following his termination date. In addition, if Dr. Lewis is terminated without cause within 12 months following a change in control, 100% of the shares subject to options and other equity awards granted to Dr. Lewis will fully vest as of the date of Dr. Lewis execution of a release in connection with such termination. Cause is defined as a breach of any material term of any material contract between us and Dr. Lewis, repeated violation of any of our material policies, conviction of any felony or any crime involving fraud or dishonesty that has a material adverse effect on us, participation (whether by affirmative act or omission) in a fraud, act of dishonesty or other act of misconduct against us or our affiliates, conduct which, based upon a good faith and reasonable factual investigation by our board of directors, demonstrates gross unfitness to serve, and a violation of any statutory or fiduciary duty, or duty of loyalty, owed to us. In September 2010, we entered into an employment offer letter with Mr. Fuhrman, our Chief Financial Officer, which provides if we terminate Mr. Fuhrman without cause or if his employment with us or its successor is terminated by him or by us following a change of control transaction because he was not offered a position in the greater San Diego, California metropolitan area involving status, duties, salary and benefits substantially equivalent to those enjoyed by Mr. Fuhrman in his then-existing position with us, he will be entitled to: (i) severance payments at a rate equal to his base salary then in effect for a period of one-year following his termination date, (ii) continued employee benefits for a period of one-year following his termination date, and (iii) acceleration of one year of vesting of any option or restricted stock then held by Mr. Fuhrman. In addition, if his employment with us or our successor is terminated by him or by us following a change of control transaction because he was not offered a position in the greater San Diego, California metropolitan area involving status, duties, salary and benefits substantially equivalent to those enjoyed by Mr. Fuhrman in his then-existing position with us, 100% of the shares subject to options and other equity awards then-held by to Mr. Fuhrman will fully vest. Cause is defined as the occurrence of any of the following: (i) his conviction of any felony or any crime involving fraud or dishonesty that has a material adverse effect on us, (ii) his participation (whether by affirmative act or omission) in a fraud, act of dishonesty or other act of misconduct against us and/or a parent or subsidiary of us, (iii) conduct by him which, based upon a good faith and reasonable factual investigation by us demonstrates gross unfitness to serve, (iv) violation by him of any statutory or fiduciary duty, or duty of loyalty, owed to us and/or a parent or subsidiary of us, (v) breach by him of any material term of any material contract 111
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between him and us and/or a parent or subsidiary of us, and (vi) his repeated violation of any material company policy. Mr. Fuhrman must execute a general release of all claims against us in order to receive any severance benefits. In January 2008, we entered into an employment offer letter with Dr. Corringham, our Chief Medical Officer and Senior Vice President, Clinical Development, which provides that if we terminate Dr. Corringham without cause he will be entitled to continued salary payments and then-existing employee benefits for a period of two weeks for every full year of his employment with the company. Cause is defined as the occurrence of any of the following: (i) conviction of any felony or any crime involving fraud or dishonesty that has a material adverse effect on the Company; (ii) participation (whether by affirmative act or omission) in a fraud, act of dishonesty or other act of misconduct against the Company and/or a parent or subsidiary; (iii) conduct which, based upon a good faith and reasonable factual investigation by the Company demonstrates his gross unfitness to serve; (iv) violation of any statutory or fiduciary duty, or duty of loyalty, owed to the Company and/or a parent or subsidiary; (v) breach of any material term of any material contract between him and the Company and/or a parent or subsidiary; and (vi) repeated violation of any material Company policy. Dr. Corringham must execute a general release of all claims against us in order to receive any severance benefits. In January 2009, we entered into an employment offer letter with Mr. Morl, our Chief Operating Officer, which provides that if we terminate Mr. Morl without cause or Mr. Morl resigns under circumstances that constitute a constructive termination, in either case within 13 months after a change of control, he will be entitled to: (i) severance payments at a rate equal to his base salary then in effect for a period of six months following his termination date and (ii) 100% of his stock options will vest on the date of such termination and any reacquisition or repurchase rights held by us with respect to common stock acquired pursuant to any early exercise of his options shall lapse in full. Cause is defined as the occurrence of any of the following: (i) conviction of any felony or any crime involving fraud or dishonesty that has a material adverse effect on the Company; (ii) participation (whether by affirmative act or omission) in a fraud, act of dishonesty or other act of misconduct against the Company and/or its affiliates; (iii) conduct which, based upon a good faith and reasonable factual investigation by the board of directors, demonstrates gross unfitness to serve; (iv) violation of any statutory or fiduciary duty, or duty of loyalty, owed to the Company and/or its affiliates; (v) breach of any material term of any material contract between him and the Company and/or its affiliates; and (vi) repeated violation of any material Company policy. An occurrence of cause as set forth in the preceding sentence shall be based upon a good faith determination by the board of directors. Constructive termination is defined as his voluntary resignation following (i) a change in his position with the Company which materially reduces his level of responsibility, (ii) a reduction in his level of base salary or (iii) a relocation of his place of employment by more than 50 miles from its current location in San Diego, provided and only if such change, reduction or relocation is effected by the Company without Mr. Morls consent. In December 2006, we entered into an employment offer letter with Dr. Wierenga, our Executive Vice President, Research and Development, which provides that if we terminate Dr. Wierenga without cause, he will be entitled to: (i) severance payments at a rate equal to his base salary then in effect for a period of one-year following his termination date, (ii) continuation of his employee benefits for a period of up to one-year following his termination date, and (iii) continued vesting of his stock option shares for a period of one-year following his termination date. In addition, Dr. Wierengas employment agreement provides that if we terminate Dr. Wierenga without cause or Dr. Wierenga resigns for good reason in connection with a change of control, 100% of his stock options will vest on the date of such termination, exclusive of any stock options granted to Dr. Wierenga in connection with his service as a member of our board of directors prior to the commencement of his employment with us. Cause is defined as (a) commission of an intentional act which materially injures the Company; (b) intentional refusal or failure to follow lawful and reasonable directors of the board of directors or an individual to whom he reports (as appropriate); (c) willful and habitual neglect of his duties; or (d) conviction of a felony involving moral turpitude which is reasonably likely to inflict or has inflicted material injury on the Company. Resignation for good reason is defined as not being offered employment with us or our successor in the greater San Diego, California metropolitan area involving status, duties, salary and benefits substantially equivalent to those enjoyed by Dr. Wierenga in his then existing position with us or our successor. Dr. Wierenga must execute a general release of all claims against us in order to receive any severance benefits. 112
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In April 2010, our board of directors approved severance benefits for Ms. Killmer which included a one-time cash severance payment of $40,000 and continued exercisability of any options to purchase our common stock held by Ms. Killmer and vested as of the date of her termination until April 4, 2011. In September 2010, our board of directors approved severance benefits for Ms. Kelly in the form of salary continuation for three months following the termination of Ms. Kellys employment and continued exercisability of any options to purchase our common stock held by Ms. Kelly and vested as of the date of her termination for the period of nine months following the termination of her employment. We have routinely granted and will continue to grant our named executive officers stock options under our equity incentive plans. For a description of the change in control provisions in such equity incentive plans applicable to these stock options, see Employee Benefit Plans2001 Equity Incentive Plan and 2010 Equity Incentive Plan below. The following table sets forth potential payments payable to our named executive officers upon a termination of employment without cause or resignation for good reason or termination of employment without cause or resignation for good reason following a change in control. The table below reflects amounts payable to our executive officers assuming their employment was terminated on December 31, 2009 and, if applicable, a change in control also occurred on such date. Because Dr. Lewis, Mr. Fuhrman and Dr. Corringham were not executive officers during 2009 they are not included in the following table.
Upon Termination without Cause or Resignation for Good Reason No Change in Control Continuation Cash of Medical Severance Benefits Total Upon Termination without Cause or Resignation for Good Reason Change in Control (1) Continuation Value of Cash of Medical Accelerated Severance Benefits Vesting(2)
Name
Total
M. Scott Salka (3) Laura Killmer (4) Christopher J. Morl Wendell Wierenga Kerry Ann Kelly (5) (1) (2)
$405,290 $ $ $325,500 $
$ $ $ $ $
6,948
$405,290 $ $ $332,448 $
$405,290 $ $141,250 $325,500 $
$ $ $ $ $
6,948
$ $
$405,290 $ $ $ $
Amounts in these columns assume that termination occurs within 90 days immediately preceding or during the 18 months immediately following a change in control. The value of accelerated vesting is equal to an assumed initial offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus), multiplied by the number of shares subject to accelerated vesting, less the stock option exercise price, if applicable. Mr. Salkas employment with the Company terminated effective as of March 31, 2010, and, as of the date of this filing, Mr. Salka is not eligible for payments upon a change in control. Ms. Killmers employment with the Company terminated effective as of April 5, 2010, and, as of the date of this filing, Ms. Killmer is not eligible for payments upon a change in control. Ms. Kellys employment with the Company terminated effective as of September 17, 2010, and, as of the date of this filing, Ms. Kelly is not eligible for payments upon a change in control.
(3) (4) (5)
Grants of Plan-Based Awards for the Year Ended December 31, 2009 All stock options granted to our named executive officers are incentive stock options, to the extent permissible under the Code. The exercise price per share of each stock option granted to our named executive officers was equal to the fair market value of our common stock as determined in good faith by our board of directors taking into consideration independently-prepared valuation reports on the date of the grant. All stock options were granted under our 2001 plan. 113
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The following table sets forth certain information regarding grants of plan-based awards to our named executive officers for 2009. Dr. Lewis, Dr. Corringham and Mr. Fuhrman were not executive officers during 2009 and are not included in the following table.
Estimated Future Payments Under Non-Equity Incentive Plan Awards(1) All option awards: number of shares of stock or units (#)
Name
Grant date
Threshold ($)
Maximum ($)
Exercise or base price of option awards ($/share)(2)
Grant date fair value of option awards ($)(3)
M. Scott Salka Laura Killmer (4) Christopher J. Morl (5) Wendell Wierenga Kerry Ann Kelly (1) (2) (3)
11/03/2009 02/04/2009
$ 113,481 $ 33,086 $ 55,750 $ 74,051 $ 45,360
$ 162,116 $ 47,266 $ 79,643 $ 105,788 $ 64,800
45,000 221,613
$ $
0.59 0.91
$29,610 $62,295
Represents the threshold, target and maximum amounts payable for 2009 performance under our Incentive Compensation Plan. Represents the per share fair market value of our common stock, as determined in good faith by our board of directors on the grant date. Amounts listed represent the aggregate fair value amount computed as of the grant date of each option and award during 2009 in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note 10, Stock-Based Compensation, of the Notes to our Financial Statements. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Our named executive officers will only realize compensation to the extent the trading price of our common stock is greater than the exercise price of such stock options. Initially 25% of the total number of shares were scheduled to vest on the one-year anniversary of the applicable grant date with the remainder vesting over the following 36 months. Ms. Killmer resigned effective April 5, 2010 and all of her vested options as of such date remain exercisable by Ms. Killmer through April 5, 2011. 25% of the total number of shares vest on the one-year anniversary of the applicable grant date with the remainder vesting over the following 36 months. 114
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Outstanding Equity Awards at December 31, 2009 The following table sets forth certain information regarding outstanding equity awards granted to our named executive officers that remained outstanding as of December 31, 2009. Because Dr. Lewis, Mr. Fuhrman and Dr. Corringham were not executive officers during 2009 they are not included in the following table.
Number of securities underlying unexercised options (#) exercisable Number of securities underlying unexercised options (#) unexercisable
Name
Option exercise price ($)
Option expiration date
M. Scott Salka (4)
25,580 148,840 60,169 79,661 64,894 38,338 260,417 12,500 0 0 39,108 187,981 8,894 27,274 29,545 41,667 7,547
0 0 0 0 0 1,667 239,583 17,500 45,000 182,505 0 73,125 0 52,272 0 8,333 6,942
$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $
0.50 0.50 0.50 0.50 0.65 0.65 0.91 0.91 0.59 0.91 0.91 0.83 0.83 0.91 0.91 0.65 0.91
10/03/2014 (2) 10/03/2014 (2) 03/09/2015 (1) 03/09/2015 (1) 01/30/2016 (3) 02/08/2016 (1) 11/05/2018(1) 08/05/2018 (1) 11/02/2019(1) 02/03/2019 (1) 02/03/2019 (3) 12/31/2016 (1) 12/31/2016 (1) 11/05/2018(1) 11/05/2018(1) 08/15/2016 (1) 11/05/2018(1)
Laura Killmer (5) Christopher J. Morl Wendell Wierenga
Kerry Ann Kelly (6) (1) (2) (3) (4)
25% of the total number of shares subject to each option vest on the 1-year anniversary of the applicable grant date with the remainder vesting over the following 36 months. 1/48 of the total number of shares subject each option vest over 48 months from the applicable grant date. 100% of the shares subject to each option were vested as of the applicable grant date. Effective as of March 31, 2010 vesting of all options held by Mr. Salka ceased in connection with his resignation as our President and Chief Executive Officer and as a member of our board of directors. Pursuant to the terms of his separation agreement, any vested options as of such date shall remain exercisable by Mr. Salka through June 30, 2011. Ms. Killmer resigned effective April 5, 2010 and all of her vested options as of such date remain exercisable by Ms. Killmer through April 5, 2011. Ms. Kelly resigned effective September 17, 2010 and all of her vested options as of such date remain exercisable by Ms. Kelly through June 17, 2011.
(5) (6)
Option Exercises and Stock Vested Our named executive officers did not exercise any stock option awards during the year ended December 31, 2009. Pension Benefits None of our named executive officers participate in or have account balances in qualified or non-qualified defined benefit plans sponsored by us. 115
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Nonqualified Deferred Compensation None of our named executive officers participate in or have account balances in nonqualified defined contribution plans or other nonqualified deferred compensation plans maintained by us. Stock Options and Other Compensation Plans 2001 Equity Incentive Plan Our board of directors adopted our 2001 equity incentive plan (the 2001 plan) in January 2001. The 2001 plan will terminate in January 2011, unless our board of directors terminates it earlier. The principal purpose of the 2001 plan is to attract, retain and motivate selected employees, consultants and directors through the granting of the following: ISOs, which may be granted solely to our employees, including officers; and NSOs, stock bonus awards, and restricted stock awards, which may be granted to our directors, consultants or employees, including officers.
The principal features of the 2001 plan are summarized below. This summary is qualified in its entirety by reference to the text of the 2001 plan, which is filed as an exhibit to the registration statement of which this prospectus is a part. Share Reserve. As of October 31, 2010, an aggregate of 452,470 shares of our common stock remained available for future issuance under our 2001 plan and options granted pursuant to our 2001 plan to purchase an aggregate of 5,839,779 were outstanding. Shares of our common stock subject to options and other stock awards that have expired or otherwise terminate under the 2001 plan without having been exercised in full will become available for grant under the plan. Shares of our common stock issued under the 2001 plan may include previously unissued shares or reacquired shares bought on the market or otherwise. Administration. The 2001 plan is administered by our board of directors, which may in turn delegate authority to administer the plan to a committee of one or more members of the board or, if we become a publicly traded company, two or more outside directors within the meaning of Section 162(m) of the Internal Revenue Code and/or two or more non-employee directors for the purposes of Rule 16b-3 under the Exchange Act. Subject to the terms of the 2001 plan, our board of directors or its authorized committee determines recipients, the numbers and types of stock awards to be granted and the terms and conditions of the stock awards, including the period of their exercisability and vesting. Subject to the limitations set forth below, our board of directors or its authorized committee will also determine the exercise price of options granted under the 2001 plan. Stock Options. Stock options will be granted pursuant to stock option agreements. Generally, the exercise price for an ISO cannot be less than 100% of the fair market value of the common stock subject to the option on the date of grant, and the exercise price for an NSO cannot be less than 85% of the fair market value of the common stock subject to the option on the date of grant except, in each case, for substitution of another option. Options granted under the 2001 plan will vest at the rate specified in the option agreement. A stock option agreement may provide for early exercise, prior to vesting, rights of repurchase, and rights of first refusal. Unvested shares of our common stock issued in connection with an early exercise may be repurchased by us. In general, the term of stock options granted under the 2001 plan may not exceed 10 years. Unless the terms of an optionholders stock option agreement provide for earlier or later termination, if an optionholders service relationship with us, or any affiliate of ours, ceases due to disability or death, the optionholder, or his or her beneficiary, may exercise any vested options up for to 12 months, or 18 months in the event of death, after the date the service relationship ends, unless the terms of the stock option agreement provide for earlier termination. If an optionholders service relationship with us, or any affiliate of ours, ceases without cause for any reason other than disability or death, the optionholder may exercise any vested options for up to three months after the date the service relationship ends, unless the terms of the stock option agreement provide for a longer or shorter period to exercise the option. If an optionholders service relationship with us, or any affiliate of ours, ceases with cause, the option will terminate at the time the optionholders relationship with us ceases. In no event may an option be exercised after its expiration date. 116
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Acceptable forms of consideration for the purchase of our common stock under the 2001 plan include (i) cash and (ii) at the discretion of our board of directors at the time of grant, common stock previously owned by the optionholder, deferred payment arrangements, or other legal consideration approved by our board of directors. Generally, an optionholder may not transfer a stock option other than by will or the laws of descent and distribution or a domestic relations order. An optionholder may, however, designate a beneficiary who may exercise the option following the optionholders death; and NSOs granted after this offering may provide for transferability in the award agreement. Limitations. The aggregate fair market value, determined at the time of grant, of shares of our common stock with respect to ISOs that are exercisable for the first time by an optionholder during any calendar year under all of our stock plans may not exceed $100,000. The options or portions of options that exceed this limit are treated as NSOs. No ISO may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any affiliate unless the following conditions are satisfied: the option exercise price must be at least 110% of the fair market value of the stock subject to the option on the date of grant; and the term of any ISO award must not exceed five years from the date of grant.
Restricted Stock Awards. Restricted stock awards will be granted pursuant to restricted stock purchase agreements. The purchase price of restricted stock awards shall not be less than 85% of the common stocks fair market value on the date the award is made or at the time the purchase is consummated. The purchase price for a restricted stock award may be payable in (i) cash, (ii) at the discretion of our board of directors, according to a deferred payment or other similar arrangement, or (iii) any other form of legal consideration approved by our board of directors. Shares of our common stock acquired under a restricted stock award may, but need not, be subject to a share repurchase option in our favor in accordance with a vesting schedule to be determined by our board of directors. Rights to acquire shares of our common stock under a restricted stock award are not transferable other than by will or the laws of descent and distribution or pursuant to an award agreement for awards granted subsequent to this offering. Stock Bonus Awards. Stock bonus awards will be granted pursuant to stock bonus award agreements. A stock bonus award may be granted in consideration for the recipients past services performed for us or an affiliate of ours. Shares of our common stock acquired under a stock bonus award may, but need not, be subject to forfeiture to us in accordance with a vesting schedule to be determined by our board of directors. Rights to acquire shares of our common stock under a stock bonus award are not transferable other than by will or the laws of descent and distribution or pursuant to an award agreement for awards granted subsequent to this offering. Changes to Capital Structure. In the event that there is a specified type of change in our capital structure not involving the receipt of consideration by us, such as a stock split or stock dividend, the number of shares reserved under the 2001 plan and the number of shares and exercise price or strike price, if applicable, of all outstanding stock awards must be appropriately adjusted by the board of directors. Corporate Transactions. Unless otherwise provided in the stock award agreement, in the event of certain corporate transactions, any or all outstanding stock awards under the 2001 plan may be assumed, continued or substituted for by any surviving entity. If the surviving entity elects not to assume, continue or substitute for such awards, the vesting provisions of such stock awards generally will be accelerated in full and such stock awards will be terminated if and to the extent not exercised at or prior to the effective time of the corporate transaction and our repurchase rights will generally lapse. In the event of our dissolution or liquidation, all outstanding stock awards under the 2001 plan will terminate immediately prior to such event. Plan Amendments. Our board of directors has the authority to amend, suspend or terminate the 2001 plan. However, no amendment or termination of the plan may adversely affect any rights under awards already granted to a participant unless agreed to by the affected participant. We will obtain stockholder approval of any amendment to the 2001 plan as required by applicable law. 117
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2010 Equity Incentive Plan We expect our board of directors to adopt the 2010 equity incentive plan, or the 2010 plan, in the fourth quarter of 2010, and we expect our stockholders will approve the 2010 plan prior to the closing of this offering. The 2010 plan will become effective immediately upon the signing of the underwriting agreement related to this offering. The 2010 plan will terminate in 2020, unless sooner terminated by our board of directors. The principal purpose of the 2010 plan is to attract, retain and motivate selected employees, consultants and directors through the granting of stock-based compensation awards and cash-based performance bonus awards. The 2010 plan is also designed to permit us to make cash-based awards and equity-based awards intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code. The 2010 plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance-based stock awards, and other forms of equity compensation, or collectively, stock awards. In addition, the 2010 plan provides for the grant of performance cash awards. Incentive stock options may be granted only to employees, subject to certain limitation described below. All other awards may be granted to employees, including officers, non-employee directors and consultants. The principal features of the 2010 plan are summarized below. This summary is qualified in its entirety by reference to the text of the 2010 plan, which is filed as an exhibit to the registration statement of which this prospectus is a part. Share Reserve. Following this offering, the aggregate number of shares of our common stock that may be issued initially pursuant to stock awards under the 2010 plan is shares. In addition, the number of shares of our common stock reserved for issuance will automatically increase (i) on January 1 of each calendar year, from January 1, 2011 through January 1, 2020, by the least of (a) % of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year, (b) shares, or (c) a number determined by our board of directors that is less than (a) or (b) and (ii) from time to time by shares that are issuable pursuant to options granted under our 2001 plan that were outstanding as of the effective date of our 2010 plan that are forfeited or expire after the effective date of our 2010 plan. The maximum number of shares that may be issued pursuant to the exercise of incentive stock options under the 2010 plan is equal to shares. Shares issued under the 2010 plan may be previously unissued shares or reacquired shares bought on the open market. As of the date hereof, no shares of our common stock have been issued under the 2010 plan. No person may be granted stock awards covering more than shares of our common stock under our 2010 plan during any calendar year pursuant to stock options or stock appreciation rights. In addition, no person may be granted a performance stock award covering more than shares or a performance cash award covering more than $ in any calendar year. Such limitations are designed to help assure that any deductions to which we would otherwise be entitled with respect to such stock awards will not be subject to the $1,000,000 limitation on the income tax deductibility of compensation paid per covered executive officer imposed by Section 162(m) of the Code. If a stock award granted under the 2010 plan expires or otherwise terminates without being exercised in full, or is settled in cash, the shares of our common stock not acquired pursuant to the stock award again become available for subsequent issuance under the 2010 plan. In addition, the following types of shares under the 2010 plan may become available for the grant of new stock awards under the 2010 plan: (a) shares that are forfeited to or repurchased by us prior to becoming fully vested; (b) shares withheld to satisfy income or employment withholding taxes; (c) shares used to pay the exercise price of an option in a net exercise arrangement; and (d) shares tendered to us to pay the exercise price of an option. Administration. Our board of directors has delegated its authority to administer the 2010 plan to our compensation committee. The compensation committee is required to consist of two or more outside directors within the meaning of Section 162(m) of the Internal Revenue Code and/or two or more non-employee directors for the purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as amended. Subject to the terms of the 2010 plan, our board of directors or an authorized committee, referred to as the plan administrator, 118
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determines recipients, dates of grant, the numbers and types of stock awards to be granted and the terms and conditions of the stock awards, including the period of their exercisability and vesting. Subject to the limitations set forth below, the plan administrator will also determine the exercise price of options granted, the consideration (if any) to be paid for restricted stock awards and the strike price of stock appreciation rights. The plan administrator has the authority to reprice any outstanding stock award (by reducing the exercise price of any outstanding option, canceling an option in exchange for cash or another equity award or any other action that may be deemed a repricing under generally accepted accounting provisions), under the 2010 plan without the approval of our stockholders. Stock Options . Incentive and nonstatutory stock options are granted pursuant to incentive and nonstatutory stock option agreements adopted by the plan administrator. The plan administrator determines the exercise price for a stock option, within the terms and conditions of the 2010 plan, provided that the exercise price of a stock option cannot be less than 100% of the fair market value of our common stock on the date of grant. Options granted under the 2010 plan vest at the rate specified by the plan administrator. The plan administrator determines the term of stock options granted under the 2010 plan, up to a maximum of 10 years, except in the case of certain incentive stock options, as described below. Unless the terms of an optionholders stock option agreement provide otherwise, if an optionholders relationship with us, or any of our affiliates, ceases for any reason other than for cause, disability or death, the optionholder may exercise any vested options for a period of three months following the cessation of service. If an optionholders service relationship with us is terminated for cause, then the option terminates immediately. If an optionholders service relationship with us or any of our affiliates ceases due to disability or death, or an optionholder dies within the period (if any) specified in the award agreement following cessation of service, the optionholder or a beneficiary may exercise any vested options for a period of 12 months in the event of disability and 18 months in the event of death. The option term may be extended in the event that exercise of the option following termination of service is prohibited by applicable securities laws. In no event, however, may an option be exercised beyond the expiration of its term. Acceptable consideration for the purchase of common stock issued upon the exercise of a stock option will be determined by the plan administrator and may include (a) cash, check, bank draft or money order, (b) a broker-assisted cashless exercise, (c) the tender of common stock previously owned by the optionholder, (d) a net exercise of the option and (e) other legal consideration approved by the plan administrator. Unless the plan administrator provides otherwise, options generally are not transferable except by will, the laws of descent and distribution, or pursuant to a domestic relations order. An optionholder may, however, designate a beneficiary who may exercise the option following the optionholders death. Limitations on Incentive Stock Options . Incentive stock options may be granted only to our employees. The aggregate fair market value, determined at the time of grant, of shares of our common stock with respect to incentive stock options that are exercisable for the first time by an optionholder during any calendar year under all of our stock plans may not exceed $100,000. No incentive stock option may be granted to any person who, at the time of the grant, owns or is deemed to own stock comprising more than 10% of our total combined voting power or that of any of our affiliates unless (a) the option exercise price is at least 110% of the fair market value of the stock subject to the option on the date of grant, and (b) the term of the incentive stock option does not exceed five years from the date of grant. Restricted Stock Awards. Restricted stock awards are granted pursuant to restricted stock award agreements adopted by the plan administrator. Restricted stock awards may be granted in consideration for (a) cash, check, bank draft or money order, (b) past or future services rendered to us or our affiliates, or (c) any other form of legal consideration. Shares of common stock acquired under a restricted stock award may, but need not, be subject to a share repurchase option in our favor in accordance with a vesting schedule to be determined by the plan administrator. Rights to acquire shares under a restricted stock award may be transferred only upon such terms and conditions as set by the plan administrator. Except as otherwise provided in the applicable award agreement, restricted stock awards that have not vested will be forfeited upon the participants cessation of continuous service for any reason. 119
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Restricted Stock Unit Awards. Restricted stock unit awards are granted pursuant to restricted stock unit award agreements adopted by the plan administrator. Restricted stock unit awards may be granted in consideration for any form of legal consideration. A restricted stock unit award may be settled by cash, delivery of stock, a combination of cash and stock as deemed appropriate by the plan administrator, or in any other form of consideration set forth in the restricted stock unit award agreement. Additionally, dividend equivalents may be credited in respect of shares covered by a restricted stock unit award. Except as otherwise provided in the applicable award agreement, restricted stock units that have not vested will be forfeited upon the participants cessation of continuous service for any reason. Stock Appreciation Rights . Stock appreciation rights are granted pursuant to stock appreciation rights agreements adopted by the plan administrator. The plan administrator determines the strike price for a stock appreciation right which generally cannot be less than 100% of the fair market value of our common stock on the date of grant. Upon the exercise of a stock appreciation right, we will pay the participant an amount equal to the product of (a) the excess of the per share fair market value of our common stock on the date of exercise over the strike price, multiplied by (b) the number of shares of common stock with respect to which the stock appreciation right is exercised. A stock appreciation right granted under the 2010 plan vests at the rate specified in the stock appreciation right agreement as determined by the plan administrator. The plan administrator determines the term of stock appreciation rights granted under the 2010 plan, up to a maximum of 10 years. If a participants service relationship with us, or any of our affiliates, ceases, then the participant, or the participants beneficiary, may exercise any vested stock appreciation right for three months (or such longer or shorter period specified in the stock appreciation right agreement) after the date such service relationship ends. In no event, however, may a stock appreciation right be exercised beyond the expiration of its term. Performance Awards. The 2010 plan permits the grant of performance stock awards and performance cash awards that may qualify as performance-based compensation that is not subject to the $1,000,000 limitation on the income tax deductibility of compensation paid per covered executive officer imposed by Section 162(m) of the Code. To assure that the compensation attributable to performance-based awards will so qualify, our committee can structure such awards so that stock will be issued or paid pursuant to such award only upon the achievement of certain pre-established performance goals during a designated performance period. The maximum benefit number of shares that may be granted to a participant in any calendar year attributable to performance stock awards may not exceed shares of common stock and the maximum value that may be granted to a participant in any calendar year attributable to performance cash awards may not exceed $ . Other Stock Awards. The plan administrator may grant other awards based in whole or in part by reference to our common stock. The plan administrator will set the number of shares under the award and all other terms and conditions of such awards. Changes to Capital Structure. In the event that there is a specified type of change in our capital structure, such as a stock split, appropriate adjustments will be made to (a) the class and maximum number of shares reserved under the 2010 plan, (b) the maximum number of shares by which the share reserve may increase automatically each year, (c) the class and maximum number of shares subject to options, stock appreciation rights and performance stock awards and performance cash awards that can be granted in a calendar year, (d) the class and maximum number of shares that may be issued upon exercise of incentive stock options and (e) the number of shares and exercise price or strike price, if applicable, of all outstanding stock awards. Corporate Transactions. In the event of certain significant corporate transactions, our board of directors has the discretion to:
arrange for the assumption, continuation, or substitution of a stock award by a surviving or acquiring entity or parent company; arrange for the assignment of any reacquisition or repurchase rights held by us to the surviving or acquiring entity; accelerate the vesting of a stock award and provide for its termination prior to the effective time of the corporate transaction; 120
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arrange for the lapse of any reacquisition or repurchase rights held by us with respect to the stock award; provide for the surrender of a stock award in exchange for a payment equal to the excess of (a) the value of the property that the optionholder would have received upon the exercise of the stock award over (b) the exercise price otherwise payable in connection with the stock award; or cancel or arrange for the cancellation of the stock award, to the exact non-vested or exercised prior to the effective time of the corporate transaction.
Changes in Control. Our board of directors has the discretion to provide that a stock award under our 2010 plan will immediately vest as to all or any portion of the shares subject to the stock award (a) immediately upon the occurrence of certain specified change in control transactions, whether or not such stock award is assumed, continued or substituted by a surviving or acquiring entity in the transaction or (b) in the event a participants service with us or a successor entity is terminated actually or constructively within a designated period following the occurrence of certain specified change in control transactions. Stock awards held by participants under our 2010 plan will not vest automatically on such an accelerated basis unless specifically provided in the participants applicable award agreement. A change in control is the occurrence of one or more of the following events: a transaction in which one person or a group acquires stock that, combined with stock previously owned, controls more than 50% of our value or voting power; a merger, consolidation or similar transaction involving us (directly or indirectly) in which our stockholders immediately before the transaction do not own at least 50% of the outstanding securities following such transaction; our complete liquidation or dissolution; a sale, lease, license or other disposition of substantially all of our assets; or a majority of the board of directors is replaced by persons whose appointment or election is not endorsed by a majority of the board.
Dissolution or Liquidation. In the event of our dissolution or liquidation, except as otherwise provided in the award agreement, all outstanding stock awards under the 2010 plan will terminate immediately prior to the completion of such dissolution or liquidation and shares of common stock subject to our repurchase rights or to a forfeiture condition may be repurchased or reacquired by us. The board may, however, in its sole discretion, cause some or all such stock awards to become fully vested, exercisable and/or no longer subject to repurchase or forfeiture before the dissolution or liquidation is completed, but contingent upon its completion. Plan Suspension, Termination. Our board of directors has the authority to suspend or terminate the 2010 plan at any time provided that such action does not impair the existing rights of any participant. Additionally, no additional incentive stock options may be granted under the plan after day before 10 th anniversary of the earlier of (i) date plan is adopted by the board or (ii) the date the plan is approved by the stockholders. Securities laws and federal income taxes. The 2010 plan is designed to comply with various securities and federal tax laws as follows: Securities laws. The 2010 plan is intended to conform to all provisions of the Securities Act and Exchange Act and any and all regulations and rules promulgated by the SEC thereunder, including, without limitation, Rule 16b-3. The 2010 plan will be administered, and options will be granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations Section 409A of the Internal Revenue Code. Certain awards under the 2010 plan may be considered nonqualified deferred compensation for purposes of Section 409A of the Internal Revenue Code, which imposes certain additional requirements regarding the payment of deferred compensation. Generally, if at any 121
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time during a taxable year a nonqualified deferred compensation plan fails to meet the requirements of Section 409A, or is not operated in accordance with those requirements, all amounts deferred under the 2010 plan and all other equity incentive plans for the taxable year and all preceding taxable years, by any participant with respect to whom the failure relates, are includible in gross income for the taxable year to the extent not subject to a substantial risk of forfeiture and not previously included in gross income. If a deferred amount is required to be included in income under Section 409A, the amount also is subject to interest and an additional income tax. The interest imposed is equal to the interest at the underpayment rate plus one percentage point, imposed on the underpayments that would have occurred had the compensation been includible in income for the taxable year when first deferred, or if later, when not subject to a substantial risk of forfeiture. The additional federal income tax is equal to 20% of the compensation required to be included in gross income. In addition, certain states, including California, have laws similar to Section 409A, which impose additional state penalty taxes on such compensation. Section 162(m) of the Internal Revenue Code. In general, under Section 162(m) of the Internal Revenue Code, income tax deductions of publicly held corporations may be limited to the extent total compensation (including, but not limited to, base salary, annual bonus, and income attributable to stock option exercises and other non-qualified benefits) for certain executive officers exceeds $1,000,000 (less the amount of any excess parachute payments as defined in Section 280G of the Internal Revenue Code) in any taxable year of the corporation. However, under Section 162(m), the deduction limit does not apply to certain performance-based compensation established by an independent compensation committee that is adequately disclosed to, and approved by, stockholders. In particular, stock options and SARs will satisfy the performance-based compensation exception if the awards are made by a qualifying compensation committee, the 2010 plan sets the maximum number of shares that can be granted to any person within a specified period and the compensation is based solely on an increase in the stock price after the grant date. Specifically, the option exercise price must be equal to or greater than the fair market value of the stock subject to the award on the grant date. We have attempted to structure the 2010 plan in such a manner that the compensation attributable to stock options, SARs and other performance-based awards which meet the other requirements of Section 162(m) will not be subject to the $1,000,000 limitation. We have not, however, requested a ruling from the IRS or an opinion of counsel regarding this issue. We intend to file with the SEC a registration statement on Form S-8 covering the shares of our common stock issuable under the 2010 plan. 2010 Non-Employee Directors Stock Award Plan We expect our board of directors to adopt the Non-Employee Directors Stock Award Plan, or directors plan, in the fourth quarter of 2010 and we expect our stockholders will approve the directors plan prior to the closing of this offering. The directors plan will become effective immediately upon the execution and delivery of the underwriting agreement for this offering. The directors plan will terminate at the discretion of our board of directors. The purpose of the directors plan is to retain the services of new non-employee directors and provide incentives for such persons to exert maximum efforts towards our success by giving them an opportunity to benefit from increases in value of our Common Stock. The directors plan provides for the automatic grant of nonstatutory stock options to purchase shares of our common stock to our non-employee directors. The directors plan also provides for the discretionary grant of restricted stock units. Share Reserve. An aggregate of shares of our common stock are reserved for issuance under the directors plan. This amount will be increased annually on January 1, from 2011 until 2020, by the sum of shares and the aggregate number of shares of our common stock subject to awards granted under the directors plan during the immediately preceding fiscal year. However, our board of directors will have the authority to designate a lesser number of shares by which the share reserve will be increased. Shares of our common stock subject to stock awards that have expired or otherwise terminated under the directors plan without having been exercised in full shall again become available for grant under the directors plan. Shares of our common stock issued under the directors plan may be previously unissued shares or reacquired shares bought on the market or otherwise. If the exercise of any stock option granted under the directors plan is satisfied by tendering shares of our common stock held by the participant, then the number of 122
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shares tendered shall again become available for the grant of awards under the directors plan. In addition, any shares reacquired to satisfy income or employment withholding taxes shall again become available for the grant of awards under the directors plan. Administration. Our board of directors has delegated its authority to administer the directors plan to our compensation committee. The compensation committee must consist of two or more non-employee directors pursuant to the Rule 16b-3 of the Exchange Act. Stock Options. Stock options will be granted pursuant to stock option agreements. The exercise price of the options granted under the directors plan will be equal to 100% of the fair market value of our common stock on the date of grant. Initial grants vest in equal monthly installments over three years after the date of grant and annual grants vest in equal monthly installments over 12 months after the date of grant. In general, the term of stock options granted under the directors plan may not exceed seven years. Unless the terms of an optionholders stock option agreement provide otherwise, if an optionholders service relationship with us, or any affiliate of ours, ceases due to death or disability, the optionholder or his or her beneficiary may then exercise any vested options for a period of 12 months in the event of disability, or 18 months in the event of death. If an optionholders service with us or any affiliate ceases for any other reason, the optionholder may exercise the vested options for up to six months following cessation of service. Acceptable consideration for the purchase of our common stock issued under the directors plan may include cash, a net exercise, common stock previously owned by the optionholder or a program developed under Regulation T as promulgated by the Federal Reserve Board. Generally, an optionholder may not transfer a stock option other than by will or the laws of descent and distribution. However, an optionholder may transfer an option under certain circumstances with our written consent if a Form S-8 registration statement is available for the exercise of the option and the subsequent resale of the shares. In addition, an optionholder may designate a beneficiary who may exercise the option following the optionholders death. Non-discretionary Grants Initial Grant. Any person who becomes a non-employee director for the first time after the closing of this offering will automatically receive an initial grant of an option to purchase shares of our common stock upon his or her election or appointment, subject to adjustment by our board of directors from time to time. These options will vest in equal monthly installments over four years. These initial grants may also be issued in the form of restricted stock awards if so determined by our board of directors. Annual Grant. In addition, any person who is a non-employee director on the date of each annual meeting of our stockholders automatically will be granted, on the annual meeting date, beginning with our 2010 annual meeting, an option to purchase shares of our common stock, or the annual grant, subject to adjustment by our board of directors from time to time. These options will vest in equal monthly installments over 12 months. These annual grants may also be issued in the form of restricted stock unit awards if so determined by our board of directors.
Discretionary Grants In addition to the non-discretionary grants noted above, our board of directors may grant stock awards to one or more non-employee directors in such numbers and subject to such other provisions as it shall determine. These awards may be in the form of stock options or restricted stock awards and shall vest pursuant to vesting schedules to be determined by our board of directors in its sole discretion. Changes to Capital Structure. In the event there is a specified type of change in our capital structure not involving the receipt of consideration by us, such as a stock split or stock dividend, the number of shares 123
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reserved under the directors plan, the maximum number of shares by which the share reserve may increase automatically each year, the number of shares subject to the initial and annual grants and the number of shares and exercise price of all outstanding stock options will be appropriately adjusted. Change in Control Transactions. In the event of a change in control transaction, the vesting of options held by non-employee directors whose service is terminated may be accelerated in full according to the provisions of the award agreement. A change in control is the occurrence of one or more of the following events: a transaction in which one person or a group acquires stock that, combined with stock previously owned, controls more than 50% of our value or voting power; a merger, consolidation or similar transaction involving us (directly or indirectly) in which the our stockholders immediately before the transaction do not own at least 50% of the outstanding securities following such transaction; our complete liquidation or dissolution; a sale, lease, license or other disposition of substantially all of our assets; or a majority of the board of directors is replaced by persons whose appointment or election is not endorsed by a majority of the board of directors.
Plan Amendments. Our board of directors will have the authority to amend or terminate the directors plan. However, no amendment or termination of the directors plan will adversely affect any rights under awards already granted to a participant unless agreed to by the affected participant. We will obtain stockholder approval of any amendment to the directors plan that is required by applicable law. 2010 Employee Stock Purchase Plan We expect our board of directors to adopt our 2010 employee stock purchase plan, or the 2010 purchase plan, in the fourth quarter of 2010, and we expect our stockholders will approve the 2010 purchase plan prior to the closing of this offering. The 2010 purchase plan will become effective immediately upon the signing of the underwriting agreement related to this offering. The purpose of the 2010 purchase plan is to retain the services of new employees and secure the services of new and existing employees while providing incentives for such individuals to exert maximum efforts toward our success and that of our affiliates. Share Reserve. Following this offering, the 2010 purchase plan authorizes the issuance of shares of our common stock pursuant to purchase rights granted to our employees or to employees of any of our designated affiliates. The number of shares of our common stock reserved for issuance will automatically increase on January 1 of each calendar year, from January 1, 2011 through January 1, 2020, by the least of (a) percent of the total number of shares of our common stock outstanding on December 31st of the preceding calendar year, (b) shares, or (c) a number determined by our board of directors that is less than (a) or (b). The 2010 purchase plan is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Internal Revenue Code. As of the date hereof, no shares of our common stock have been purchased under the 2010 purchase plan. Administration. Our board of directors has delegated its authority to administer the 2010 purchase plan to our compensation committee. The 2010 purchase plan is implemented through a series of offerings of purchase rights to eligible employees. Under the 2010 purchase plan, we may specify offerings with a duration of not more than 27 months, and may specify shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of our common stock will be purchased for employees participating in the offering. An offering may be terminated under certain circumstances. Payroll Deductions. Generally, all regular employees, including executive officers, employed by us or by any of our designated affiliates, may participate in the 2010 purchase plan and may contribute, normally through payroll deductions, up to 15% of their earnings for the purchase of our common stock under the 2010 purchase plan. Unless otherwise determined by our board of directors, common stock will be purchased for accounts of 124
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employees participating in the 2010 purchase plan at a price per share equal to the lower of (a) 85% of the fair market value of a share of our common stock on the first date of an offering or (b) 85% of the fair market value of a share of our common stock on the date of purchase. Limitations. Employees may have to satisfy one or more of the following service requirements before participating in the 2010 purchase plan, as determined by our board of directors: (a) customarily employed for more than 20 hours per week, (b) customarily employed for more than five months per calendar year or (c) continuous employment with us or one of our affiliates for a period of time not to exceed two years. No employee may purchase shares under the 2010 purchase plan at a rate in excess of $25,000 worth of our common stock based on the fair market value per share of our common stock at the beginning of an offering for each year such a purchase right is outstanding. Finally, no employee will be eligible for the grant of any purchase rights under the 2010 purchase plan if immediately after such rights are granted, such employee has voting power over 5% or more of our outstanding capital stock measured by vote or value pursuant to Internal Revenue Code Section 424(d). Changes to Capital Structure. In the event that there occurs a change in our capital structure through such actions as a stock split, merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or similar transaction, the board of directors will make appropriate adjustments to (a) the number of shares reserved under the 2010 purchase plan, (b) the maximum number of shares by which the share reserve may increase automatically each year and (c) the number of shares and purchase price of all outstanding purchase rights. Corporate Transactions. In the event of certain significant corporate transactions, including a sale of all our assets, the sale or disposition of 90% of our outstanding securities, or the consummation of a merger or consolidation where we do not survive the transaction, any then-outstanding rights to purchase our stock under the 2010 purchase plan will be assumed, continued or substituted for by any surviving or acquiring entity (or its parent company). If the surviving or acquiring entity (or its parent company) elects not to assume, continue or substitute for such purchase rights, then the participants accumulated payroll contributions will be used to purchase shares of our common stock within 10 business days prior to such corporate transaction, and such purchase rights will terminate immediately. Plan Amendments, Termination. Our board has the authority to amend or terminate our 2010 purchase plan. If our board determines that the amendment or terminating of an offering is in our best interests and the best interests of our stockholders, then our board may terminate any offering on any purchase date, establish a new purchase date with respect to any offering then in progress, amend our 2010 purchase plan and the ongoing offering to refuse or eliminate detrimental account treatment or terminate any offering and refuse any money contributed back to the participants. We will obtain stockholder approval of any amendment to our 2010 purchase plan as required by applicable law. 401(k) Plan We maintain a defined contribution employee retirement plan for our employees. The plan is intended to qualify as a tax-qualified plan under Section 401(k) of the Internal Revenue Code so that contributions to the 401(k) plan, and income earned on such contributions, are not taxable to participants until withdrawn or distributed from the 401(k) plan. The 401(k) plan provides that each participant may contribute up to 100% of his or her pre-tax compensation, up to a statutory limit, which is $16,500 for 2010. Participants who are at least 50 years old can also make catch-up contributions, which in 2010 may be up to an additional $ 5,500 above the statutory limit. Under the 401(k) plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the plans trustee. The 401(k) plan also permits us to make discretionary contributions and matching contributions, subject to established limits and a vesting schedule. To date, we have not made any discretionary or matching contributions to the plan on behalf of participating employees. 125
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Non-Employee Director Compensation The following table sets forth in summary form information concerning the compensation that we paid or awarded during the year ended December 31, 2009 to each of our non-employee directors (Mr. Hasnain was not a member of the board in 2009 and is not included in the table):
Fees Earned or Paid in Cash ($) Option Awards ($)(1)(2)
Name
Total ($)
Steven A. Elms Standish M. Fleming Antonio Grillo-Lopez, M.D. (4) Alan J. Lewis, Ph.D. (5) Nicholas Lydon, Ph.D.(6) Allan P. Marchington, Ph.D. Donna Parr (7) Joseph Regan (8) Saiid Zarrabian (9) Alexander Zukiwski, M.D. (1)
$ $ $
26,375 27,000 51,870(3) 76,718
$31,170 $31,170
$ 26,375 $ 58,170 $ 51,870 $107,888
Amounts listed represent the aggregate fair value amount computed as of the grant date of each option and award during 2009 in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note 10, Stock-Based Compensation, of the Notes to our Financial Statements. As required by SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Our directors will only realize compensation to the extent the trading price of our common stock is greater than the exercise price of such stock options. The aggregate number of shares subject to Dr. Lewis and Mr. Zarrabians outstanding option awards as of December 31, 2009 was 100,000 shares and 100,000 shares, respectively. The shares subject to each of these outstanding awards vest in a series of 36 successive equal monthly installments for so long as respective director continues to serve on our board of directors provided that, in the event of a change of control of us during the period of such directors service he would be entitled to full acceleration of all unvested stock options then held by him. The full grant date fair value of these option awards was $31,170 for each of Dr. Lewis and Mr. Zarrabian. Includes fees earned for services as a member of our scientific advisory board during 2009. Dr. Grillo-Lopez resigned from our board in May 2009. Dr. Lewis was elected to our board in May 2009. Dr. Lydon resigned from our board in May 2009. Ms. Parr resigned from our board in May 2009. Mr. Regan was elected to our board in August 2009. Mr. Zarrabian was elected to our board in May 2009.
(2)
(3) (4) (5) (6) (7) (8) (9)
We have reimbursed and will continue to reimburse our non-employee directors for their travel, lodging and other reasonable expenses incurred in attending meetings of our board of directors and committees of the board of directors. Director Compensation Plans and Agreements with Directors In June 2009, we entered into a letter agreement with Saiid Zarrabian, one of our directors. Pursuant to the letter agreement, Mr. Zarrabian receives a fee of $17,500 per year as compensation for his services as a member of our board of directors and $2,500 for each regularly scheduled meeting of the board that he attends in person, $500 for each regularly scheduled meeting of the board that he attends by telephone, and $3,000 per day for 126
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attendance in person or by telephone at any special meeting of the board, for time spent serving on committees of the board or for time spent performing other services as a member of the board. The letter agreement provided for the grant to Mr. Zarrabian of an option to purchase up to 100,000 shares of our common stock. The shares subject to the option vest in a series of 36 successive equal monthly installments for so long as Mr. Zarrabian continues to serve on the board provided that, in the event of a change of control of us during the period of Mr. Zarrabians service he would be entitled to full acceleration of all unvested stock options then held by him. In June 2009, we entered into substantially the same form of agreement with Dr. Lewis as our agreement with Mr. Zarrabian described in the immediately preceding paragraph. Such agreement was superseded by the employment agreement we entered into with Dr. Lewis in July 2010, when he became our President and Chief Executive Officer. In October, 2010, we entered into a letter agreement with Mr. Hasnain, one of our directors. Pursuant to the letter agreement, Mr. Hasnain receives a fee of $20,000 per year as compensation for his services as a member of our board of directors and $2,500 for each regularly scheduled meeting of the board with a scheduled duration of less than a full day that he attends in person, $500 or each meeting of the board that he attends by telephone, and $3,000 for each meeting of the board with a scheduled duration of a full day session (or longer) that he attends in person. The letter agreement provided for the grant to Mr. Hasnain of an option to purchase up to 150,000 shares of our common stock. One-fourth (1/4 th) of the shares subject to the option vest on the first anniversary of the date of grant and 1/48 th of the shares subject to the option vest in equal monthly installments on the monthly anniversary of the date of grant of each month for the 36 months thereafter for so long as Mr. Hasnain continues to serve on the board provided that, in the event of a change of control of us during the period of Mr. Hasnains service he would be entitled to full acceleration of all unvested stock options then held by him. In , 2010, our board of directors adopted a compensation program for our non-employee directors, or the Non-Employee Director Compensation Policy. The Non-Employee Director Compensation Policy will be effective for all of our non-employee directors on the effective date of this offering. Pursuant to the Non-Employee Director Compensation Policy, each member of our board of directors who is not our employee will receive the following cash compensation for board services, as applicable: per year for service as a board member; per year for service as a member of the audit committee, the compensation committee and the nominating and corporate governance committee; for each in-person board meeting and for each telephonic board meeting; and
for each in-person or telephonic audit committee meeting.
In addition, our non-employee directors will receive initial and annual, automatic, non-discretionary grants of nonqualified stock options under the terms and provisions of our directors plan, which will become effective as of the effective date of this offering. Each non-employee director joining our board after the closing of this offering will automatically be granted a non-statutory stock option to purchase shares of common stock with an exercise price equal to the then fair market value of our common stock under our directors plan. Each director assuming the role of a chairperson of any of the compensation, nominating and corporate governance or audit committees shall be granted an additional non-statutory option to purchase shares of common stock with an exercise price equal to the then fair market of our common stock under our directors plan. Each of these initial grants will vest over a three year period; 33 2/3% of the stock will vest upon the first anniversary of the date of grant and the remainder will vest in a series of 24 successive equal monthly installments thereafter. On the date of each annual meeting of our stockholders beginning in 2008, each non-employee director will automatically be granted a non-statutory stock option to purchase shares of common stock on that date with an exercise price equal to the then fair market value of our common stock under our directors plan. The annual grants will vest in equal monthly installments over 12 months following the date of grant. All stock options granted will have a maximum term of 10 years and will vest in full upon the closing of a change in control transaction. 127
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For a more detailed description of our directors plan and 2001 plan, see Employee Benefit Plans above. Limitation of Liability and Indemnification Our amended and restated certificate of incorporation, which will become effective upon the closing of this offering, limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except for liability for any: breach of their duty of loyalty to the corporation or its stockholders; act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or transaction from which the directors derived an improper personal benefit.
Our amended and restated certificate of incorporation does not eliminate a directors duty of care and, in appropriate circumstances, equitable remedies, such as injunctive or other forms of non-monetary relief, remain available under Delaware law. These limitations also do not affect a directors responsibilities under any other laws, such as the federal securities laws or other state or federal laws. Our amended and restated bylaws, which will become effective upon the closing of this offering, provide that we will indemnify our directors and executive officers, and may indemnify other officers, employees and other agents, to the fullest extent permitted by law. Our amended and restated bylaws also provide that we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding and also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in connection with their services to us, regardless of whether our amended and restated bylaws permit such indemnification. We have obtained a directors and officers liability insurance policy. We have entered, and intend to continue to enter, into separate indemnification agreements with our directors and executive officers, in addition to the indemnification provided for in our amended and restated bylaws. These agreements, among other things, require us to indemnify our directors and executive officers for certain expenses, including attorneys fees, judgments, fines and settlement amounts incurred by a director or executive officer in any action or proceeding arising out of their services as one of our directors or executive officers, or any of our subsidiaries or any other company or enterprise to which the person provides services at our request. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our stockholders. A stockholders investment may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification. 128
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RELATED PARTY TRANSACTIONS The following is a description of transactions since January 1, 2007 to which we have been a party, in which the amount involved exceeded or will exceed $120,000, and in which any of our directors, executive officers or, beneficial owners of more than 5% of our capital stock, or an affiliate or immediate family member thereof, had or will have a direct or indirect material interest, other than compensation, termination and change-in-control arrangements, which are described under Executive Compensation. Policies and Procedures for Transactions with Related Persons We are in the process of adopting a written Related-Person Transactions Policy that sets forth our policies and procedures regarding the identification, review, consideration, approval and oversight of related-person transactions. For purposes of our policy only, a related-person transaction is a past, present or future transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we and any related person are participants, the amount involved exceeds $120,000 and a related person has a direct or indirect material interest. Transactions involving compensation for services provided to us as an employee, director, consultant or similar capacity by a related person are not covered by this policy. A related person, as determined since the beginning of our last fiscal year, is any executive officer, director or nominee to become director, a holder of more than 5% of our common stock, including any immediate family members of such persons or any entity in which such a person has a 10% or greater equity interest. Any related-person transaction may only be consummated if our audit committee has approved or ratified the transaction in accordance with the policy guidelines set forth below. The policy imposes an affirmative duty upon each director and executive officer to identify, and we will request that significant stockholders identify, any transaction involving them, their affiliates or immediate family members that may be considered a related party transaction before such person engages in the transaction. Under the policy, where a transaction has been identified as a related-person transaction, management must present information regarding the proposed related-person transaction to our audit committee (or, where review by our audit committee would be inappropriate, to another independent body of our board of directors) for review. The presentation must include a description of, among other things, the material facts, the direct and indirect interests of the related persons, the benefits of the transaction to us and whether any alternative transactions are available. In considering related-person transactions, our audit committee takes into account the relevant available facts and circumstances including, but not limited to: the risks, costs and benefits to us; the impact on a directors independence in the event the related person is a director, immediate family member of a director or an entity with which a director is affiliated; the terms of the transaction; the availability of other sources for comparable services or products; and the terms available to or from, as the case may be, unrelated third parties or to or from our employees generally.
In the event a director has an interest in the proposed transaction, the director must recuse himself or herself from the deliberations and approval process. Our policy requires that, in reviewing a related-person transaction, our audit committee must consider, in light of known circumstances, and determine in the good faith exercise of its discretion whether the transaction is inor is not inconsistent withthe best interests of us and our stockholders. We did not previously have a formal policy concerning transactions with related persons. Convertible Preferred Stock Financings In October 2007, we entered into a Series D Preferred Stock Purchase Agreement pursuant to which we issued and sold to investors an aggregate of 9,120,560 shares of Series D redeemable convertible preferred stock 129
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at a purchase price of $5.06 per share, for aggregate consideration of $46,150,034. In 2009, 148,222 of these shares were converted into common stock. Upon closing of this offering, the remainder of these shares will convert into 8,972,338 shares of common stock. The participants in this preferred stock financing included the following holders of more than 5% of our capital stock or entities affiliated with them. The following table presents the number of shares issued to these related parties in this financing:
Series D Redeemable Convertible Preferred Stock
Participants (1)
5% or Greater Stockholders Apposite Healthcare Fund LP OrbiMed Private Investments III, LP and its affiliates (2) (3) Forward Ventures IV, L.P. and its affiliates Gimv nv and its affiliates (4) MedImmune Ventures, Inc. Perseus-Soros Biopharmaceutical Fund, L.P. Roche Finance Ltd (1) (2) (3) (4) Additional detail regarding these stockholders and their equity holdings is provided in Principal Stockholders. Represents shares held by OrbiMed Private Investments III, LP and OrbiMed Associates III, LP. Represents shares held by Forward Ventures IV, L.P. and Forward Ventures IV B, L.P. Represents shares held by Gimv nv and Adviesbeheer Gimv Life Sciences 2004 nv. Some of our directors are associated with our principal stockholders as indicated in the table below:
Director Principal Stockholder
1,976,285 1,185,771 790,514 592,886 1,383,400 1,185,771 691,700
Allan P. Marchington, Ph.D. Standish M. Fleming Alexander Zukiwski, M.D. Steven A. Elms
Apposite Healthcare Fund LP Forward Ventures IV, L.P. and its affiliates MedImmune Ventures, Inc. Perseus-Soros Biopharmaceutical Fund, L.P.
In connection with the Series D redeemable convertible preferred stock financing, we entered into amended and restated investor rights, voting, and right of first refusal and co-sale agreements containing voting rights, information rights, rights of first refusal and registration rights, among other things, with certain holders of our convertible preferred stock and certain holders of our common stock. These stockholder agreements will terminate upon the closing of this offering, except for the registration rights granted under our Amended and Restated Investor Rights Agreement, as more fully described below in Description of Capital StockRegistration Rights. In October 2007, our subsidiary, Ambit Biosciences (Canada) Corporation, or Ambit Canada, entered into a Subscription Agreement pursuant to which it issued and sold to Canadian Medical Discoveries Fund Inc., or CMDF, 612,649 Class D Shares of Ambit Canada at a purchase price of $5.06 per share, for aggregate consideration of $3,100,004. In connection with the Subscription Agreement, Ambit Canada also entered into an Amendment to Co-Development, Distribution and License Agreement with us whereby we extended the term of an existing license agreement with Ambit Canada in exchange for 612,649 of Ambit Canadas Class D Shares. In connection with the issuance by Ambit Canada of its Class D shares, Ambit, Ambit Canada and CMDF entered into an Amended and Restated Shareholders Agreement containing voting rights, information rights and rights of first refusal, among other things, with CMDF. Ambit, Ambit Canada and CMDF also entered into an Amended and Restated Put Agreement whereby CMDF has the right to require Ambit to purchase from the investor at any time of the investors Class C and Class D shares in Ambit Canada for cash or for shares Ambits Series C-2 and Series D redeemable convertible preferred stock. We expect that the Amended and Restated 130
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Shareholders Agreement and the Amended and Restated Put Agreement will terminate immediately prior to the closing of this offering when we expect that GrowthWorks Canadian Fund Ltd., the successor to CMDF, will exercise the put right and become a holder of Ambits Series C-2 and Series D redeemable convertible preferred stock. Donna Parr, who served as one of our directors from October 2007 until May 2009, is affiliated with CMDF. CMDF merged with and into GrowthWorks Canadian Fund Ltd. in May 2009. Joseph Regan, one of our current directors, is affiliated with GrowthWorks Canadian Fund Ltd. Convertible Note and Warrant Issuances Bridge Financings 2010 Bridge Financing. In September 2010, we issued secured subordinated convertible promissory notes in an aggregate amount of $13.3 million to investors including, among others, Apposite Healthcare Fund LP, OrbiMed Private Investments III, LP, Forward Ventures IV, L.P, Gimv nv, MedImmune Ventures, Inc., Perseus-Soros Biopharmaceutical Fund, L.P., Roche Finance Ltd, and their affiliates, each with a maturity date of January 31, 2012. The notes are secured by a second priority security interest in our assets, excluding intellectual property and assets held for sale. In connection therewith, we also issued warrants to purchase shares of our common stock to the 2010 bridge financing investors. In connection with the 2010 bridge financing, Ambit Canada also issued a secured promissory note in September 2010 on substantially the same terms as the notes issued by Ambit in the aggregate amount of $1.7 million to GrowthWorks Canadian Fund Ltd., with a maturity date of January 31, 2012. In connection therewith, we also issued warrants to purchase a number of shares of our common stock and redeemable convertible preferred stock to GrowthWorks Canadian Fund Ltd. The promissory notes issued by us in the 2010 bridge financing will automatically convert into shares of common stock upon the closing of this offering, at a price per share equal to 85% of the price paid for shares in this offering. Upon conversion of such promissory notes issued by us, the promissory note issued by Ambit Canada will be and the warrant issued by us to GrowthWorks will be automatically exercised for shares of common stock at a price per share equal to 85% of the price paid for shares in this offering. Upon the closing of this offering, the remaining warrants issued by us in connection with the 2010 bridge financing will be exercisable for an aggregate of 592,842 shares of common stock. For a description of the warrants issued by us in connection with the 2009 bridge financing, see Description of Capital StockWarrants. 2009 Bridge Financing. In June 2009, July 2009, September 2009 and November 2009, we issued secured subordinated convertible promissory notes in an aggregate amount of $17,849,064 to investors including, among others, Apposite Healthcare Fund LP, OrbiMed Private Investments III, LP, Forward Ventures IV, L.P, Gimv nv, MedImmune Ventures, Inc., Perseus-Soros Biopharmaceutical Fund, L.P., Roche Finance Ltd, and their affiliates, each with a maturity date of June 5, 2011. In connection therewith, we also issued warrants to purchase shares of our common stock to the 2009 bridge financing investors. In connection with the 2009 bridge financing, Ambit Canada also issued secured promissory notes in July 2009, September 2009 and November 2009 on substantially the same terms as the notes issued by Ambit in the aggregate amount of $2,138,743 to GrowthWorks Canadian Fund Ltd., each with a maturity date of July 8, 2011. In connection therewith, we also issued warrants to purchase a number of shares of our common stock and redeemable convertible preferred stock to GrowthWorks Canadian Fund Ltd. The promissory notes issued by us in the 2009 bridge financing converted into 6,749,207 shares of Series D redeemable convertible preferred stock on June 30, 2010. Upon conversion of such promissory notes issued by us, the promissory notes issued by Ambit Canada were cancelled and the Series D redeemable convertible preferred stock warrants issued by us to GrowthWorks were automatically exercised. Upon the closing of this offering, the shares of Series D redeemable convertible preferred stock issued in connection with the conversion of the promissory notes issued by us and the exercise of the warrants issued by us to GrowthWorks will convert into 6,749,207 shares of common stock, and the remaining warrants issued by us in connection with the 2009 131
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bridge financing will be exercisable for an aggregate of 1,946,748 shares of common stock. For a description of the warrants issued by us in connection with the 2009 bridge financing, see Description of Capital StockWarrants. The participants in the 2009 bridge financing and 2010 bridge financing included the following holders of more than 5% of our capital stock or entities affiliated with them. The following table presents the loan amount provided by each such party in these bridge financings:
2009 Bridge Financing Loan Amount 2010 Bridge Financing Loan Amount
Participants (1)
5% or Greater Stockholders Apposite Healthcare Fund LP OrbiMed Private Investments III, LP and its affiliates (2) (3) Forward Ventures IV, L.P. and its affiliates Gimv nv and its affiliates (4) MedImmune Ventures, Inc. Perseus-Soros Biopharmaceutical Fund, L.P. Roche Finance Ltd GrowthWorks Canadian Fund Ltd. (5) (1) (2) (3) (4) (5) Additional detail regarding these stockholders and their equity holdings is provided in Principal Stockholders. Represents notes held by OrbiMed Private Investments III, LP and OrbiMed Associates III, LP. Represents notes held by Forward Ventures IV, L.P. and Forward Ventures IV B, L.P. Represents notes held by Gimv nv and Adviesbeheer Gimv Life Sciences 2004 nv. Represents amount loaned to Ambit Canada in parallel debt financing.
$ 3,006,333 $ 1,812,075 $ 1,350,000 $ 1,315,296 $ 2,105,872 $ 3,740,195 $ 2,500,000 $ 2,138,743
$ 1,885,535 $ 1,133,148 $ 1,834,880 $ 1,074,059 $ 1,320,192 $ 2,802,613 $ 1,698,154 $ 1,745,810
Some of our directors are associated with participants in the 2009 bridge financing and 2010 bridge financing as indicated in the table below:
Director Principal Stockholder
Allan P. Marchington, Ph.D. Standish M. Fleming Alexander Zukiwski, M.D. Steven A. Elms Joseph Regan Separation Agreements
Apposite Healthcare Fund LP Forward Ventures IV, L.P. and its affiliates MedImmune Ventures, Inc. Perseus-Soros Biopharmaceutical Fund, L.P. GrowthWorks Canadian Fund Ltd.
In April 2010, in connection with the termination of the employment of Scott Salka, our former Chief Executive Officer, we entered into a separation agreement with Mr. Salka entitling him to severance benefits. The terms of Mr. Salkas separation agreement supersede the terms of his employment offer letters. The separation agreement provides that, in exchange for Mr. Salkas full release of claims against us, Mr. Salka was entitled to: (i) severance payments at a rate equal to his base salary then in effect for a period of one-year following his termination date, (ii) receive COBRA health insurance premiums for a period of one-year following his termination date, (iii) continued exercisability of his vested stock option shares for a period of one-year following his termination date, (iv) forgiveness of both principal and accrued interest pursuant to loans by us to Mr. Salka made in April 2001 and September 2001, with one-third of such forgiveness becoming effective as of the date of the separation agreement, one-third as of January 1, 2011 and one-third as of January 1, 2012, and (v) transition payments of $135,000 each to be paid within 10 days of his termination date, within 10 days of January 1, 2011 and within 10 days of January 1, 2012. 132
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In April 2010, in connection with the termination of employment of Ms. Killmer, our former Vice President, Financing, we entered into a separation agreement with Ms. Killmer. The separate agreement provides that, in exchange for Ms. Killmers full release of claims against us, Ms. Killmer was entitled to a one-time cash severance payment of $40,000 and continued exercisability of any options to purchase our common stock held by Ms. Killmer and vested as of the date of her termination until April 4, 2011. Employee Loan In May 2001, we made a loan of $79,000 to Mr. Salka, who was our President and Chief Executive Officer at the time, bearing interest at an annual rate of 9.0% pursuant to a full recourse promissory note with a maturity date of December 31, 2009. In September 2001, we made a loan of $250,000 to Mr. Salka, bearing interest at an annual rate of 4.82% pursuant to a full recourse promissory note with a maturity date of September 4, 2010. In October 2009, we amended both promissory notes such that they bear interest at an annual rate of 0.75% per annum and extended the maturity date of both promissory notes to December 31, 2010. In November 2009, we paid a bonus of $81,058 to Mr. Salka, which the compensation committee elected to apply towards his promissory notes. In connection with the separation agreement we entered into with Mr. Salka effective March 31, 2010, we agreed to forgive one-third of the outstanding balance of both promissory notes in connection with the effective date of such separation agreement, one-third of the outstanding balance of both promissory notes on January 1, 2011 and the remaining one-third of the outstanding balance of both promissory notes on January 1, 2012 provided in each case that Mr. Salka continues to comply with all of his obligations set forth in the separation agreement. Non-Employee Director Agreements In 2009 we entered into letter agreements with two of our directors, Dr. Lewis and Mr. Zarrabian, and in 2010 we entered into a letter agreement with one of our directors, Mr. Hasnain, each as more fully described in Executive and Director CompensationNon-Employee Director Compensation. The 2009 letter agreement with Dr. Lewis was superseded by the employment agreement we entered into with him in July 2010, when he became our President and Chief Executive Officer. Employment Agreements We have entered into employment arrangements with our executive officers, as more fully described in Executive and Director Compensation Employment Offer Letters and Termination-Based Compensation. Stock Options Granted to Executive Officers and Directors We have granted stock options to our executive officers and directors, as more fully described in the section entitled Executive and Director Compensation. Indemnification Agreements We have entered into indemnification agreements with each of our directors and executive officers, as described in Executive and Director CompensationLimitation of Liability and Indemnification. 133
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PRINCIPAL STOCKHOLDERS The following table sets forth information regarding beneficial ownership of our capital stock outstanding as of October 31, 2010 by: Each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common stock; Each of our directors; Each of our named executive officers; and All of our directors and executive officers as a group.
The number of shares and percentage of shares beneficially owned before the offering shown in the table is based upon 25,713,269 shares of common stock outstanding as of October 31, 2010, which gives effect to the conversion of all outstanding shares of our convertible preferred stock into shares of common stock. The number of shares and percentage of shares beneficially owned after the offering also gives effect to (1) the issuance of shares of our common stock upon the closing of this offering as a result of the automatic conversion of the secured convertible notes (including interest thereon) that we issued in September 2010, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and assuming the conversion occurs on , 2011 (for purposes of calculating the accrued interest on the notes to be converted into shares of common stock), (2) the issuance of shares of our common stock upon the closing of this offering as a result of the automatic exercise of a warrant that we issued in September 2010 in connection with the issuance by Ambit Canada of a note in September 2010 which will be cancelled concurrently with such automatic exercise of the warrant, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and assuming the exercise occurs on , 2011 (for purposes of calculating the accrued interest on the note and the associated number of exercise shares), (3) the exercise of the put right held by GrowthWorks Canadian Fund Ltd., and (4) the issuance by us of shares of common stock in this offering. The percentage ownership information assumes no exercise of the underwriters over-allotment option. Each individual or entity shown in the table has furnished information with respect to beneficial ownership. We have determined beneficial ownership in accordance with the SECs rules. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. In addition, the rules include shares of common stock issuable pursuant to the exercise of stock options, warrants or other rights that are either immediately exercisable or exercisable on December 30, 2010, which is 60 days after October 31, 2010. These shares are deemed to be outstanding and beneficially owned by the person holding those options or warrants for the purpose of computing the percentage ownership of that person, but they are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws. 134
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Except as otherwise noted below, the address for each person or entity listed in the table is c/o Ambit Biosciences Corporation, 4215 Sorrento Valley Blvd., San Diego, California 92121.
Number of Shares Beneficially Owned Before Offering Number of Shares Beneficially Owned After Offering Percentage of shares beneficially owned
Name and address of beneficial owner
Before Offering
After Offering
5% or greater stockholders: Apposite Healthcare Fund LP (1) Queensgate House, South Church Street PO Box 1234 George Town, Grand Cayman, Cayman Islands OrbiMed Private Investments III, LP and its affiliates (2) 767 Third Avenue, 30th Floor New York, NY 10017
(3) Forward Ventures IV, L.P. and its affiliates 9255 Towne Centre Drive, Suite 300 San Diego, CA 92121
3,476,719
13.3%
2,090,011
8.0%
3,076,921
11.9%
GrowthWorks Canadian Fund Ltd. (4) 20 Queen Street West, Suite 3504 PO Box 35 Toronto, ON M5H 3R3 Gimv nv and its affiliates (5) Karel Oomsstraat 37 2018 Antwerp, Belgium MedImmune Ventures, Inc.(6) One MedImmune Way Gaithersburg, MD 20878 Perseus-Soros Biopharmaceutical Fund, L.P. (7) 888 Seventh Avenue, 29th Floor New York, NY 10016 Roche Finance Ltd (8) Grenzacherstrasse 122 4070 Basel, Switzerland Directors and named executive officers: Alan J. Lewis, Ph.D. (9) Alan Fuhrman Robert Corringham (10) Christopher J. Morl (11) Wendell Wierenga, Ph.D.(12) M. Scott Salka (13) Kerry Ann Kelly (14) Laura Killmer (15) Steven A. Elms Standish M. Fleming (16) Faheem Hasnain Allan P. Marchington, Ph.D.(17) Joseph Regan Saiid Zarrabian (18) Alexander Zukiwski, M.D. All executive officers and directors as a group (12 persons) (19) 135
3,077,631
10.9%
1,893,380
7.3%
2,434,395
9.4%
5,039,188
19.2%
3,107,508
11.9%
55,070 68,750 126,559 356,217 810,816 60,263 27,500 3,076,921 3,476,719 52,778 7,213,014
* * * 1.4% 3.1% * * 11.9% 13.3% * 26.8%
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* (1)
Represents beneficial ownership of less than one percent. Includes (a) 3,058,909 shares of common stock issuable upon conversion of convertible preferred stock held by Apposite Healthcare Fund, LP, or Apposite and (b) 417,810 shares of common stock issuable upon the exercise of the common stock warrants held by Apposite. In addition, the number of shares beneficially owned after the offering includes shares of common stock issuable upon conversion of a convertible note held by Apposite, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and conversion of the note on , 2011. Apposite Healthcare (GP) Limited, the general partner of Apposite, has appointed Apposite Capital LLP as the manager of Apposite. Allan P. Marchington, one of our directors, is a designated member of Apposite Capital LLP and, together with F. David Porter and Stephen Adkin, the other designated members of Apposite Capital LLP, shares voting and investment control over the shares held by Apposite; however, each disclaims beneficial ownership, except to the extent of their pecuniary interests therein. Includes (a) 1,820,966 shares of common stock held by OrbiMed Private Investments III, LP, or OPI III, issuable upon conversion of convertible preferred stock, (b) 17,343 shares of common stock held by OrbiMed Associates III, LP., or Associates III, issuable upon conversion of convertible preferred stock, (c) 249,328 shares of common stock held by OPI III, issuable upon the exercise of the common stock warrants held by OPI III and (d) 2,374 shares of common stock held by Associates III, issuable upon the exercise of the common stock warrants held by Associates III. In addition, the number of shares beneficially owned after the offering includes shares of common stock issuable upon conversion of convertible notes held by OPI III and Associates III, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and conversion of the notes on , 2011. OrbiMed Capital GP III, LLC, or GP III, is the general partner of OPI III, and OrbiMed Advisors LLC, or Advisors, is the managing member of GP III. Advisors is also the general partner of Associates III. Samuel D. Isaly is the managing member of and owner of a controlling interest in Advisors and may be deemed to have voting and investment power over shares held by OPI III and Associates III. Mr. Isaly disclaims beneficial ownership over such shares, except to the extent of his pecuniary interest therein. Includes (a) 2,679,226 shares of common stock held by Forward Ventures IV, L.P., or Forward IV, issuable upon conversion of convertible preferred stock, (b) 227,132 shares of common stock held by Forward Ventures IV B, L.P., or Forward IV B, issuable upon conversion of convertible preferred stock, (c) 70,374 shares of common stock held by Forward Ventures IV-C, L.P., or Forward IV-C, issuable upon conversion of convertible preferred stock, (d) 86,694 shares of common stock held by Forward IV, issuable upon the exercise of the common stock warrants held by Forward IV, (e) 7,348 shares of common stock held by Forward IV B, issuable upon the exercise of the common stock warrants held by Forward IV B, and (f) 6,147 shares of common stock held by Forward IV-C, issuable upon the exercise of the common stock warrant held by Forward IV-C. In addition, the number of shares beneficially owned after the offering includes shares of common stock issuable upon conversion of convertible notes held by Forward IV and Forward IV B, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and conversion of the notes on , 2011. Mr. Fleming, one of our directors, and Dr. Ivor Royston, the managing members of Forward IV Associates, LLC the general partner of Forward IV, Forward IV B and Forward IV-C, and Dr. Stuart Collinson, the key member of Forward IV Associates, LLC, share voting and investment control over the shares held by Forward IV, Forward IV B and Forward IV-C, but disclaim beneficial ownership, except to the extent of their pecuniary interests therein. Includes (a) 681,123 shares of common stock held by GrowthWorks Canadian Fund Ltd., or GrowthWorks, issuable upon conversion of convertible preferred stock, (b) 2,151,110 shares of common stock issuable pursuant to the conversion of the same number of shares of series convertible preferred stock that GrowthWorks has the right to receive pursuant to an Amended and Restated Put Agreement between GrowthWorks, us and our Canadian subsidiary, Ambit Biosciences (Canada) Corporation, and (c) 245,398 shares of common stock issuable upon the exercise of the common stock warrants held by GrowthWorks. In 136
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(3)
(4)
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addition, the number of shares beneficially owned after the offering includes shares of common stock issuable upon the automatic exercise of a warrant held by GrowthWorks, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and exercise of the warrant on , 2011. Voting and investment decisions with respect to the shares held by GrowthWorks are made by its manager GrowthWorks WV Management Ltd. The following are the officers of GrowthWorks WV Management Ltd. who have the authority to authorize such voting and investment decisions on behalf of GrowthWorks: David Levi, president and chief executive officer, Alex Irwin, chief operating officer, and Tim Lee, senior vice president investments. Each member of the group disclaims beneficial ownership of such shares except to the extent of its pecuniary interest therein, if any. (5) Includes (a) 1,481,081 shares of common stock issuable upon conversion of convertible preferred stock held by Gimv nv, (b) 261,368 shares of common stock issuable upon conversion of convertible preferred stock held by Adviesbeheer Gimv Life Sciences 2004 nv, or Ad Gimv 2004, (c) 128,292 shares of common stock held by Gimv nv, issuable upon the exercise of the common stock warrants held by Gimv nv and (d) 22,639 shares of common stock held by Ad Gimv 2004, issuable upon the exercise of the common stock warrants held by Ad Gimv 2004. In addition, the number of shares beneficially owned after the offering includes shares of common stock issuable upon conversion of convertible notes held by Gimv nv and Ad Gimv 2004, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and conversion of the notes on , 2011. Gimv nv is a company listed on NYSE Euronext Brussels. Ad Gimv 2004 is a subsidiary of Gimv nv. Investment and voting control over the shares are exercised by the board of directors of Gimv nv which is comprised of the following 12 members: Herman Daems, Koe Dejonckheere, Leo Victor, Dirk Boogmans, Greet De Leenheer, Christl Jaris, Jan Kerremans, Sophie Manigart, Martine Reynaers, Eric Spiessens, Emile van der Burg and Bart Van Hooland. Each of these individuals disclaims any beneficial ownership of the shares owned by Gimv nv and Ad Gimv 2004 except to the extent of his or her pecuniary interest in such entity. Includes (a) 2,141,752 shares of common stock issuable upon conversion of convertible preferred stock held by MedImmune Ventures, Inc. and (b) 292,643 shares of common stock issuable upon the exercise of the common stock warrants held by MedImmune Ventures, Inc. In addition, the number of shares beneficially owned after the offering includes shares of common stock issuable upon conversion of a convertible note held by MedImmune Ventures, Inc. assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and conversion of the note on , 2011. MedImmune Ventures, Inc. exercises voting and investment power over the shares held by it. MedImmune Ventures, Inc. is indirectly wholly-owned by AstraZeneca PLC. The shares of AstraZeneca PLC are listed on the New York Stock Exchange as American Depository Shares. Includes (a) 4,546,688 shares of common stock issuable upon conversion of convertible preferred stock held by Perseus-Soros BioPharmaceutical Fund, LP, or PSBF and (b) 492,500 shares of common stock issuable upon the exercise of the common stock warrants held by PSBF. In addition, the number of shares beneficially owned after the offering includes shares of common stock issuable upon conversion of a convertible note held by PSBF, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and conversion of the note on , 2011. Perseus-Soros Partners, LLC, or PSPGP, is the general partner of PSBF. Perseus BioTech Fund Partners, LLC, or PBFP Partners, is the managing member of PSPGP. SFM Participation, L.P., or SFM Participation, is the managing member of PSPGP. SFM AH LLC, or SFMAH, is the general partner of SFM Participation. Perseuspur, L.L.C., or Perseuspur, is the managing member of PBFP Partners. Mr. Frank H. Pearl is the managing member of Perseuspur. Soros Fund Management LLC, or SFM LLC, is the manager of SFMAH. Mr. George Soros is the Chairman of SFM LLC. Mr. Robert Soros is Deputy Chairman of SFM LLC. Mr. Jonathan Allan Soros is President and Deputy Chairman of SFM LLC. Each of PSBF, PSPGP, SFMAH, SFM Participation, PBFP Partners, Perseuspur, Mr. Pearl, SFM LLC, Mr. George Soros, Mr. Robert Soros and Mr. Jonathan Allan Soros may be deemed to beneficially own the shares held by PSBF. Each of Messrs. Pearl, George Soros, Robert Soros and Jonathan Allan Soros disclaims any beneficial ownership of the shares owned by PBSF except to the extent of his pecuniary interest in such entity. 137
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(8)
Includes (a) 2,754,921 shares of common stock issuable upon conversion of convertible preferred stock held by Roche Finance Ltd and (b) 352,587 shares of common stock issuable upon the exercise of the common stock warrant held by Roche Finance Ltd. In addition, the number of shares beneficially owned after the offering includes shares of common stock issuable upon conversion of a convertible note held by Roche Finance Ltd, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and conversion of the note on , 2011. Roche Finance Ltd exercises voting and investment control over the shares held by it. Roche Finance Ltd is wholly-owned by Roche Holding Ltd. Roche Holding Ltds American Depository Receipt is cross-listed on OTCQX International Premier under the symbol RHHBY. Roche Holding Ltds non-voting equity securities and its voting shares are both listed on SIX Swiss Exchange. Includes 55,070 shares that Dr. Lewis has the right to acquire from us within 60 days of October 31, 2010 pursuant to the exercise of stock options.
(9)
(10) Includes 68,750 shares that Dr. Corringham has the right to acquire from us within 60 days of October 31, 2010 pursuant to the exercise of stock options. (11) Includes 126,559 shares of common stock that Mr. Morl has the right to acquire from us within 60 days of October 31, 2010 pursuant to the exercise of stock options. (12) Includes (a) 7,750 shares of common stock held by Dr. Wierenga and (b) 348,467 shares common stock that Dr. Wierenga has the right to acquire from us within 60 days of October 31, 2010 pursuant to the exercise of stock options. (13) Includes 100,000 shares held by Mr. Salka, and 710,816 shares that Mr. Salka has the right to acquire from us within 60 days of October 31, 2010 pursuant to the exercise of stock options. (14) Includes 60,263 shares of common stock that Ms. Kelly has the right to acquire from us within 60 days of October 31, 2010 pursuant to the exercise of stock options. (15) Includes 27,500 shares common stock that Ms. Killmer has the right to acquire from us within 60 days of October 31, 2010 pursuant to the exercise of stock options. (16) Includes the shares of capital stock held by Forward Ventures entities referred to in footnote (3) above. Mr. Fleming, a member of our board, is a managing member of Forward IV Associates, LLC, the general partner of such Forward Ventures entities. Voting and investment control over such shares is shared between Mr. Fleming, Dr. Ivor Royston, a managing member of Forward IV Associates, LLC and Dr. Stuart Collinson, a key member of Forward IV Associates, LLC. Each of Mr. Fleming and Drs. Royston and Collinson disclaims any beneficial ownership of the shares held by these entities except to the extent of his pecuniary interest in these entities. (17) Includes the shares of capital stock held by Apposite referred to in footnote (1) above. Dr. Marchington, a member of our board, has been designated by Apposite Capital LLP, the manager of Apposite, together with F. David Porter and Stephen Adkin, the other designated members of Apposite Capital LLP, to exercise shared voting and investment control over the shares held by Apposite. Each of Dr. Marchington, Mr. Porter and Mr. Adkin disclaims any beneficial ownership of the shares held by Apposite except to the extent of his pecuniary interest therein. (18) Includes 52,778 shares of common stock that Mr. Zarrabian has the right to acquire from us within 60 days of October 31, 2010 pursuant to the exercise of stock options. (19) Includes the shares of capital stock referred to in footnotes (9), (10), (11), (12), (16), (17) and (18). 138
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DESCRIPTION OF CAPITAL STOCK Upon the closing of this offering and the filing of our amended and restated certificate of incorporation, our authorized capital stock will consist of 200,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. As of October 31, 2010, we had outstanding 3,256,196 shares of our common stock. This amount excludes (i) our outstanding shares of convertible preferred stock (including 1,538,461 shares of our Series C-2 redeemable convertible preferred stock and 612,649 shares of Series D redeemable convertible preferred stock issuable upon exercise of a put right held by GrowthWorks Canadian Fund Ltd.) which will convert into 24,608,183 shares of common stock upon completion of this offering, (ii) the secured convertible promissory notes issued by us in September 30, 2010, or the 2010 U.S. notes, which will convert into shares of common stock upon completion of this offering, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and a conversion date of , 2011 (for purposes of calculating the accrued interest on the 2010 U.S. notes to be converted into shares of common stock) and (iii) the warrant issued in connection with the secured promissory note issued by Ambit Canada on September 30, 2010, or the 2010 Canada note, which will be automatically exercised for shares of common stock upon completion of this offering, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and an exercise date of , 2011 (for purposes of calculating the accrued interest on the 2010 Canada note and the associated number of exercise shares). Based on the number of shares of common stock outstanding as of October 31, 2010, and assuming (1) the conversion of all outstanding shares of our convertible preferred stock (including 1,538,461 shares of our Series C-2 redeemable convertible preferred stock and 612,649 shares of Series D redeemable convertible preferred stock issuable upon exercise of a put right held by GrowthWorks Canadian Fund Ltd.), (2) the conversion of all outstanding principal and interest on the 2010 U.S. notes, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and a conversion date of , 2011 (for purposes of calculating the accrued interest on the notes to be converted into shares of common stock), (3) the exercise of the warrant issued in connection with the 2010 Canada Note, which will be automatically exercised for shares of common stock upon completion of this offering, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and an exercise date of , 2011 (for purposes of calculating the accrued interest on the 2010 Canada note and the associated number of exercise shares) and (4) the issuance by us of shares of common stock in this offering, there will be shares of common stock outstanding upon completion of this offering. As of October 31, 2010, there were 5,839,779 shares of common stock subject to outstanding options under our 2001 plan, 2,539,590 shares of common stock subject to outstanding warrants and 649,573 shares of convertible preferred stock subject to outstanding warrants. As of October 31, 2010, we had approximately 112 stockholders of record. The following description of our capital stock and provisions of our amended and restated certificate of incorporation and amended and restated bylaws are summaries and are qualified by reference to the amended and restated certificate of incorporation and the amended and restated bylaws that will be in effect upon the closing of this offering. Copies of these documents have been filed with the SEC as exhibits to our registration statement, of which this prospectus forms a part. Common Stock Voting Rights. Each holder of common stock is entitled to one vote for each share of common stock on all matters submitted to a vote of the stockholders, including the election of directors. Our amended and restated certificate of incorporation and amended and restated bylaws do not provide for cumulative voting rights. Because of this, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they should so choose. 139
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Dividends. Subject to preferences that may be applicable to any then outstanding convertible preferred stock, the holders of common stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of legally available funds. Liquidation. In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities, subject to the satisfaction of any liquidation preference granted to the holders of any outstanding shares of convertible preferred stock. Rights and Preferences. Holders of common stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of convertible preferred stock that we may designate and issue in the future. Fully Paid and Nonassessable. All of our outstanding shares of common stock are, and the shares of common stock to be issued in this offering will be, duly authorized, validly issued, fully paid and nonassessable. Convertible Preferred Stock On October 31, 2010, there were 24,608,183 shares of convertible preferred stock outstanding (assuming the exercise of the GrowthWorks put right), held of record by 27 stockholders. Upon the closing of this offering, all outstanding shares of convertible preferred stock will have been converted into 24,608,183 shares of our common stock. Upon the closing of this offering, our board of directors will have the authority, without further action by the stockholders, to issue up to 10,000,000 shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the rights, preferences, privileges and restrictions of the shares of each wholly unissued series, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preference and sinking fund terms, and to increase or decrease the number of shares of any such series (but not below the number of shares of such series then outstanding). Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could have the effect of restricting dividends on our common stock, diluting the voting power of our common stock, impairing the liquidation rights of our common stock or otherwise adversely affect the rights of holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change of control and may adversely affect the market price of the common stock. Upon the closing of this offering, no shares of preferred stock will be outstanding, and we have no current plans to issue any shares of preferred stock. Warrants As of October 31, 2010, there were outstanding warrants to purchase the following shares of our capital stock:
# of Shares of Common Stock After this Offering Weighted-Average Exercise Price After this Offering
Description
Common Stock Series B Preferred Stock Series C Preferred Stock Series D Preferred Stock Series D Preferred Stock, New Preferred Stock or Common Stock
2,539,590 603 362,017 286,953
$ $ $ $
1.06 8.65 4.30 5.06
In November 2002, April 2003 and December 2003, in connection with borrowing under an equipment line of credit with Oxford Finance Corporation, we issued warrants to purchase an aggregate of 2,324 shares of our Series B convertible preferred stock, with an initial exercise price of $8.65 per share of which warrants for the purchase of 603 shares remain outstanding. Upon the closing of this offering, these warrants will be exercisable for 603 shares of common stock at an exercise price of $8.65 per share. These warrants terminate eight years after the date issued. 140
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In October 2005, in connection with a venture loan with Horizon Technology Funding Company II LLC and Horizon Technology Funding Company III, LLC, we issued warrants to purchase an aggregate of 232,558 shares of our Series C redeemable convertible preferred stock, with an initial exercise price of $4.30 per share. Upon the closing of this offering, these warrants will be exercisable for 232,558 shares of common stock at an exercise price of $4.30 per share. These warrants terminate in October 2015. In October 2005, December 2005, July 2006, October 2006, December 2006, March 2007 and June 2007, in connection with borrowing under an equipment line of credit with Oxford Finance Corporation, we issued warrants to purchase an aggregate of 26,219 shares of our Series C redeemable convertible preferred stock, with an initial exercise price of $4.30 per share. Upon the closing of this offering, these warrants will be exercisable for 26,219 shares of common stock at an exercise price of $4.30 per share. These warrants terminate eight years after the date issued. In July 2006, October 2006, December 2006, March 2007 and June 2007, in connection with borrowing under an equipment line of credit with Webster Bank, National Association, we issued warrants to purchase an aggregate of 10,217 shares of our Series C redeemable convertible preferred stock, with an initial exercise price of $4.30 per share. Upon the closing of this offering, these warrants will be exercisable for 10,217 shares of common stock at an exercise price of $4.30 per share. These warrants terminate eight years after the date issued. In September 2007, in connection with a venture loan with Horizon Technology Funding Company V LLC, we issued a warrant to purchase an aggregate of 93,023 shares of our Series C redeemable convertible preferred stock, with an initial exercise price of $4.30 per share. Upon the closing of this offering, this warrant will be exercisable for 93,023 shares of common stock at an exercise price of $4.30 per share. This warrant terminates in September 2017. In August 2008, in connection with borrowing under an equipment line of credit with Oxford Finance Corporation, we issued a warrant to purchase an aggregate of 2,369 shares of our Series D redeemable convertible preferred stock, with an initial exercise price of $5.06 per share. Upon the closing of this offering, this warrant will be exercisable for 2,369 shares of common stock at an exercise price of $5.06 per share. This warrant terminates in August, 2016. On multiple dates in 2009, in connection with our 2009 bridge financing, we issued warrants to purchase shares of our common stock, with an initial exercise price of $0.91 per share. These warrants are exercisable for an aggregate of 1,946,748 shares of our common stock. These warrants terminate 10 years after the date issued. In July, September and November 2009, in connection with Ambit Canadas bridge financing, we issued warrants to purchase preferred stock to GrowthWorks with an exercise price of $5.06 per share. These warrants were automatically exercised for shares of our Series D redeemable convertible preferred stock in connection with the conversion of the convertible promissory notes issued by us in the 2009 bridge financing. In March 2010, in connection with a venture loan with Compass Horizon Funding Company LLC and Oxford Finance Corporation, we issued a warrant to each of Horizon and Oxford to purchase up to 142,292 shares of our Series D redeemable convertible preferred stock or, at the option of the holders of the warrants, the series of preferred issued in our next preferred stock financing that meets certain criteria set forth in the warrants. The exercise price of these warrants is $5.06 per share if exercised for Series D redeemable convertible preferred stock or the purchase price of the preferred stock sold in the next qualified financing, if exercised for such shares. In September 2010, in connection with our 2010 bridge financing, we issued warrants to purchase shares of our common stock, with an initial exercise price of $1.54 per share. These warrants are exercisable for an aggregate of 592,842 shares of our common stock. These warrants terminate 10 years after the date issued. In September 2010, in connection with Ambit Canadas bridge financing, we issued warrants to purchase preferred stock or common stock to GrowthWorks. These warrants will be automatically exercised for shares of common stock, assuming an initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and exercise of the warrant on , 2011 (for purposes of calculating the accrued interest on the related note and the associated number of exercise shares), in 141
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connection with the conversion of the convertible promissory notes issued by us in the 2010 bridge financing, which shall occur upon the closing of this offering. Each of our warrants contains provisions for the adjustment of the exercise price and the aggregate number of shares issuable upon the exercise of the warrant in the event of stock dividends, stock splits, reorganizations, reclassifications and consolidations. Each of our warrants also contains a net exercise provision under which the holder may, in lieu of payment of the exercise price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of the underlying stock at the time of exercise of the warrant after deduction of the aggregate exercise price. Registration Rights Common and Convertible Preferred Stock According to the terms of our Investor Rights Agreement, certain investors are entitled to demand, piggyback and Form S-3 registration rights. The stockholders who are a party to the Investor Rights Agreement will hold an aggregate of shares, or %, of our common stock upon the closing of this offering and the conversion of all existing series of our convertible preferred stock into shares of our common stock that are subject to the registration rights under that Investor Rights Agreement assuming an initial public offering price of $ per share (the midpoint of the range set forth on the cover page of this prospectus) and a conversion date of 2011 (for purposes of calculating the accrued interest on the notes to be converted into shares of common stock and the number of shares to be issued upon the automatic exercise of a warrant to purchase common stock). Such stockholders have waived their registration rights with respect to this offering. Demand Registration Rights. At any time beginning on October 30, 2010 the holders of at least 35% of the shares having demand registration rights have the right to make up to two demands that we file a registration statement to register all or a portion of their shares so long as the aggregate number of securities requested to be sold under such registration statement is at least $5,000,000, subject to specified exceptions. Form S-3 Registration Rights. If we are eligible to file a registration statement on Form S-3, one or more holders of registration rights have the right to demand that we file a registration statement on Form S-3 so long as the aggregate value of the securities to be sold under the registration statement on Form S-3 is at least $1,000,000, subject to specified exceptions. Piggyback Registration Rights . If we register any securities for public sale, holders of registration rights are entitled to written notice of the registration and will have the right to include their shares in the registration statement. The underwriters of any offering will have the right to limit the number of shares having registration rights to be included in the registration statement, but not below 30% of the total number of shares included in the registration statement, unless such offering is our initial public offering and such registration does not include shares of any other selling stockholders, in which case any and all shares held by selling stockholders may be excluded from the offering. Expenses of Registration. Generally, we are required to bear all registration and selling expenses incurred in connection with the demand, piggyback and Form S-3 registrations described above, other than underwriting discounts and commissions. Expiration of Registration Rights . The demand, piggyback and Form S-3 registration rights discussed above will terminate five years following the closing of this offering. In addition, the registration rights discussed above will terminate with respect to any stockholder or warrant holder entitled to these registration rights on the date when such stockholder or warrant holder is able to sell all of their registrable common stock in a single 90-day period under Rule 144 of the Securities Act. Delaware Anti-Takeover Law and Provisions of Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws Our amended and restated certificate of incorporation and our amended and restated bylaws, which will become effective upon the closing of this offering, contain certain provisions that could have the effect of 142
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delaying, deterring or preventing another party from acquiring control of us. These provisions and certain provisions of Delaware General Corporation Law, or DGCL, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate more favorable terms with an unfriendly or unsolicited acquirer outweigh the disadvantages of potentially discouraging a proposal to acquire us. Delaware Anti-Takeover Law We are subject to Section 203 of the DGCL. Section 203 generally prohibits a public 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: prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (a) shares owned by persons who are directors and also officers and (b) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3 % of the outstanding voting stock which is not owned by the interested stockholder.
Section 203 defines a business combination to include: any merger or consolidation involving the corporation and the interested stockholder; any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation; subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; subject to exceptions, any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; and the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.
In general, Section 203 defines an interested stockholder as an entity or person who, together with the persons affiliates and associates, beneficially owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding voting stock of the corporation. Amended and Restated Certificate of Incorporation and Bylaws Among other things, our amended and restated certificate of incorporation and amended and restated bylaws: permit our board of directors to issue up to 10,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate (including the right to approve an acquisition or other change of control); 143
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provide that the authorized number of directors may be changed only by resolution of the board of directors; provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; divide our board of directors into three classes; require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent; provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide advance notice in writing, and also specify requirements as to the form and content of a stockholders notice; do not provide for cumulative voting rights (therefore allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election); and provide that special meetings of our stockholders may be called only by the chairman of the board, our chief executive officer or by the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors.
2/3 %
The amendment of any of these provisions would require approval by the holders of at least 66
of our then outstanding common stock.
The provisions of the DGCL and the provisions of our amended and restated certificate of incorporation and amended and restated bylaws, as amended upon the closing of this offering, could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they might also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions might also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders might otherwise deem to be in their best interests. Listing on the Nasdaq Global Market We expect to apply for listing on the Nasdaq Global Market under the symbol AMBT. Transfer Agent and Registrar The transfer agent and registrar for our common stock is . The transfer agent and registrars address is 144 .
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SHARES ELIGIBLE FOR FUTURE SALE Immediately prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of common stock in the public market could adversely affect prevailing market prices. Furthermore, since only a limited number of shares will be available for sale shortly after this offering because of contractual and legal restrictions on resale described below, sales of substantial amounts of common stock in the public market after the restrictions lapse could adversely affect the prevailing market price for our common stock as well as our ability to raise equity capital in the future. Based on the number of shares of common stock outstanding as of October 31, 2010, upon the closing of this offering, shares of common stock will be outstanding, assuming no exercise of the underwriters over-allotment option and no exercise of options or stock warrants. All of the shares sold in this offering will be freely tradable unless held by an affiliate of ours. Except as set forth below, the remaining shares of common stock outstanding after this offering will be restricted as a result of securities laws or lock-up agreements. These remaining shares will generally become available for sale in the public market as follows: no restricted shares will be eligible for immediate sale upon the closing of this offering; up to restricted shares will be eligible for sale under Rule 144 or Rule 701 upon expiration of lock-up agreements at least 180 days after the date of this offering assuming an initial public offering price of $ per share (the midpoint of the range set forth on the cover page of this prospectus) and a conversion date of , 2011 (for purposes of calculating the accrued interest on the notes to be converted into shares of common stock and the number of shares to be issued upon the automatic exercise of a warrant to purchase common stock); and the remainder of the restricted shares will be eligible for sale from time to time thereafter upon expiration of their respective one-year holding periods under Rule 144, but could be sold earlier if the holders exercise any available registration rights.
Rule 144 In general, under Rule 144 as currently in effect, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, any person who is not deemed to have been an affiliate of ours for purposes of the Securities Act at any time during 90 days preceding a sale and who has beneficially owned their shares for at least six months, including the holding period of any prior owner other than one of our affiliates, may sell shares without restriction, subject to compliance with the public information requirements of Rule 144. In addition, under Rule 144, any person who is not an affiliate of ours and has held their shares for at least one year, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell an unlimited number of shares immediately upon the closing of this offering without complying with any of the requirements of Rule 144. In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates who beneficially owns shares that were purchased from us, or any affiliate, at least six months previously, are entitled to sell upon expiration of the lock-up agreements described below, within any three-month period beginning 90 days after the date of this prospectus, 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 the average weekly trading volume of our common stock on the Nasdaq Global Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
Sales of restricted shares under Rule 144 held by our affiliates or persons selling shares on behalf of our affiliates are also subject to requirements regarding the manner of sale, notice and the availability of current public information about us. Rule 144 also provides that affiliates relying on Rule 144 to sell shares of our 145
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common stock that are not restricted shares must nonetheless comply with the same restrictions applicable to restricted shares, other than the holding period requirement. Notwithstanding the availability of Rule 144, the holders of substantially all of our restricted shares have entered into lock-up agreements as described below and their restricted shares will become eligible for sale at the expiration of the restrictions set forth in those agreements. Rule 701 Under Rule 701, shares of our common stock acquired upon the exercise of currently outstanding options or pursuant to other rights granted under our stock plans may be resold, by: persons other than affiliates, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, subject only to the manner-of-sale provisions of Rule 144; and our affiliates, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, subject to the manner-of-sale and volume limitations, current public information and filing requirements of Rule 144, in each case, without compliance with the six-month holding period requirement of Rule 144.
As of October 31, 2010, options to purchase a total of 5,839,779 shares of common stock were outstanding, of which 2,444,557 were vested. Of the total number of shares of our common stock issuable under these options, all are subject to contractual lock-up agreements with us or the underwriters described below under Underwriting and will become eligible for sale at the expiration of those agreements. Lock-up Agreements Our directors and executive officers, and substantially all of our other stockholders and optionholders have entered into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which each of these persons or entities, with limited exceptions, for a period of 180 days after the date of this prospectus, may not, without the prior written consent of J.P. Morgan Securities LLC and Credit Suisse Securities (USA) LLC, (1) offer, pledge, announce the intention to sell, 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, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock (including, without limitation, common stock which may be deemed to be beneficially owned by such directors, executive officers, stockholders and optionholders in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant), (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of any shares of our common stock or such other securities, whether any such transaction described in clause (1) above or this clause (2) is to be settled by delivery of common stock or such other securities, in cash or otherwise or (3) make any demand for or exercise any right with respect to the registration of any shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock. Notwithstanding the foregoing, if (1) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to our company occurs; or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. Each of the lock-up agreements contains certain exceptions, including the disposition of shares of common stock purchased in open market transactions after the consummation of this offering and the adoption or modification of a Rule 10b5-1 sales plan; provided that no filing shall be required under the Exchange Act or voluntarily made in connection with such disposition or the adoption or modification of such plan during the 180-day lock-up period. 146
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Registration Rights Upon the closing of this offering, the holders of shares of our common stock and warrants to purchase up to shares of our common stock will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to the lock-up arrangement described above and assuming an initial public offering price of $ per share (the midpoint of the range set forth on the cover page of this prospectus) and a conversion date of , 2011 (for purposes of calculating the accrued interest on the notes to be converted into shares of common stock and the number of shares to be issued upon the automatic exercise of a warrant to purchase common stock). Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates, immediately upon the effectiveness of the registration statement of which this prospectus is a part. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock. See Description of Capital StockRegistration Rights. Equity Incentive Plans We intend to file one or more registration statements on Form S-8 under the Securities Act after the closing of this offering to register the shares of our common stock that are issuable pursuant to our 2001 plan, 2010 plan, directors plan and 2010 purchase plan. The registration statement is expected to be filed and become effective as soon as practicable after the closing of this offering. Accordingly, shares registered under the registration statement will be available for sale in the open market following its effective date, subject to vesting of such shares, Rule 144 volume limitations and the lock-up agreements described above, if applicable. 147
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS The following is a general discussion of the material United States federal income tax consequences of the ownership and disposition of our common stock to a non-U.S. holder that acquires our common stock pursuant to this offering. For the purpose of this discussion, a non-U.S. holder is any beneficial owner of our common stock that, for United States federal income tax purposes, is not a partnership or U.S. person. For purposes of this discussion, the term U.S. person means: an individual who is a citizen or resident of the U.S.; a corporation or other entity taxable as a corporation created or organized under the laws of the U.S. or any political subdivision thereof; an estate whose income is subject to United States federal income tax regardless of its source; or a trust (x) whose administration is subject to the primary supervision of a United States court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (y) which has in effect a valid election to be treated a U.S. person.
If a partnership (or an entity or arrangement treated as a partnership for United States federal income tax purposes) holds our common stock, the tax treatment of a partner will generally depend on the status of the partner and upon the activities of the partnership. Accordingly, we urge partnerships that hold our common stock and partners in such partnerships to consult their tax advisors. This discussion assumes that a non-U.S. holder will hold our common stock issued pursuant to this offering as a capital asset (generally, property held for investment). This discussion does not address all aspects of United States federal income taxation that may be relevant in light of a non-U.S. holders special tax status or special tax situations. Certain former citizens or residents of the United States, life insurance companies, tax-exempt organizations, dealers in securities or currency, banks or other financial institutions, and investors that hold common stock as part of a hedge, straddle, conversion transaction, synthetic security or other integrated investment are among those categories of potential investors that are subject to special rules not covered in this discussion. This discussion does not address any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction. Furthermore, the following discussion is based on current provisions of the Internal Revenue Code of 1986, or the Code, and Treasury Regulations and administrative and judicial interpretations thereof, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect. We urge each non-U.S. holder to consult a tax advisor regarding the United States federal, state, local and non-U.S. income and other tax consequences of acquiring, holding and disposing of shares of our common stock. Dividends We have not paid any dividends on our common stock and we do not plan to pay any dividends in the foreseeable future. However, if we do pay dividends on our common stock, those payments will constitute dividends for United States tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under United States federal income tax principles. To the extent those dividends exceed our current and accumulated earnings and profits, the dividends will constitute a return of capital and will first reduce a holders adjusted tax basis in the common stock, but not below zero, and then will be treated as gain from the sale of the common stock. Dividends paid (out of earnings and profits) to a non-U.S. holder of common stock generally will be subject to United States withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable tax treaty, unless the dividends are effectively connected with the conduct of a trade or business of the non-U.S. holder within the United States (and, if required by an applicable tax treaty, are attributable to a permanent establishment maintained by the non-U.S. holder in the United States). To receive a 148
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reduced rate of withholding under a tax treaty, a non-U.S. holder must provide us with an IRS Form W-8BEN or other appropriate version of Form W-8 certifying qualification for the reduced rate. Dividends received by a non-U.S. holder that are effectively connected with a United States trade or business conducted by the non-U.S. holder (and, if required by an applicable tax treaty, are attributable to a permanent establishment maintained by the non-U.S. holder in the United States) generally are not subject to the withholding tax discussed above, provided certain certifications are met. Such effectively connected dividends, net of certain deductions and credits, are taxed at the graduated United States federal income tax rates applicable to United States persons. To claim an exemption from withholding because the income is effectively connected within a United States trade or business of the non-U.S. holder, the non-U.S. holder must, in general, provide a properly executed IRS Form W-8ECI or such successor form as the IRS designated prior to the payment of dividends. In addition to the graduated tax described above, dividends that are effectively connected with a United States trade or business of a corporate non-U.S. holder may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable tax treaty. A non-U.S. holder of common stock may obtain a refund or credit of any excess amounts withheld if an appropriate claim for refund is timely filed with the IRS. Gain on Disposition of Common Stock Subject to the discussion below under Backup Withholding and Information Reporting and Recent Legislation, a non-U.S. holder generally will not be subject to United States federal income tax or withholding tax on any gain realized upon the sale or other disposition of our common stock unless: the gain is effectively connected with a United States trade or business of the non-U.S. holder, and, if an applicable tax treaty so requires, is attributable to a United States permanent establishment maintained by such non-U.S. holder; the non-U.S. holder is an individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met; or our common stock constitutes a U. S. real property interest by reason of our status as a U.S. real property holding corporation for United States federal income tax purposes at any time within the shorter of the five-year period preceding the disposition or the holders holding period for our common stock. We believe that we are not currently, and that we will not become, a U.S. real property holding corporation for United States federal income tax purposes.
Gain described in the first bullet point above will be subject to United States federal income tax on a net basis at the graduated United States federal income tax rates, applicable to United States persons and, in the case of corporate holders, the branch profits tax may also apply. Gain described in the second bullet point above (which may be offset by certain United States source capital losses) will be subject to a flat 30% United States federal income tax or such lower rate as may be specified by an applicable tax treaty. If we were to become a U.S. real property holding corporation at any time during the applicable period described in the third bullet point above, any gain recognized on a disposition of our common stock by a non-U.S. holder would be subject to United States federal income tax at the graduated United States federal income tax rates applicable to United States persons if the non-U.S. holder owned (directly, indirectly or constructively) more than 5% of our common stock during the applicable period or our common stock were not regularly traded on an established securities market (within the meaning of Section 897(c)(3) of the Code). We believe that our stock will be treated as so traded. Backup Withholding and Information Reporting Generally, we must report annually to the IRS the amount of dividends paid to a non-U.S. holder, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder. 149
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Pursuant to tax treaties or other agreements, the IRS may make its reports available to tax authorities in the recipients country of residence. Payments of dividends or of proceeds on the disposition of our common stock made to a non-U.S. holder may be subject to backup withholding (currently at a rate of 28% but scheduled to rise to 31% after December 31, 2010) unless the non-U.S. holder establishes an exemption, for example, by properly certifying its non-U.S. status on a Form W-8BEN or another appropriate version of Form W-8. Notwithstanding the foregoing, backup withholding may apply if the payor has actual knowledge, or reason to know, that the beneficial owner is a United States person. Backup withholding is not an additional tax. Rather, the United States income 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 timely furnished to the IRS. Recent Legislation Recent legislation generally imposes withholding at a rate of 30% on payments to certain foreign entities (including financial intermediaries), after December 31, 2012, of dividends on and the gross proceeds of dispositions of United States common stock, unless various United States information reporting and due diligence requirements (generally relating to ownership by United States persons of interests in or accounts with those entities) have been satisfied. Non-U.S. holders should consult their tax advisors regarding the possible implications of this legislation on their investment in our common stock. The preceding discussion of material U.S. federal tax considerations is for general information only. It is not tax advice. Prospective investors should consult their own tax advisors regarding the particular U.S. federal, state, local and non-U.S. tax consequences of purchasing, holding and disposing of our common stock, including the consequences of any proposed changes in applicable laws. 150
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UNDERWRITING We are offering the shares of common stock described in this prospectus through a number of underwriters. J.P. Morgan Securities LLC and Credit Suisse Securities (USA) LLC are acting as joint book-running managers of the offering and as representatives of the underwriters. We have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:
Name Number of Shares
J.P. Morgan Securities LLC Credit Suisse Securities (USA) LLC Leerink Swann LLC Wedbush Securities Inc. Total The underwriters are committed to purchase all the common shares offered by us if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated. The underwriters propose to offer the common shares directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per share. Any such dealers may resell shares to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. After the initial public offering of the shares, the offering price and other selling terms may be changed by the underwriters. Sales of shares made outside of the United States may be made by affiliates of the underwriters. The representatives have advised us that the underwriters do not intend to confirm discretionary sales in excess of 5% of the common shares offered in this offering. The underwriters have an option to buy up to additional shares of common stock from us to cover sales of shares by the underwriters which exceed the number of shares specified in the table above. The underwriters have 30 days from the date of this prospectus to exercise this overallotment option. If any shares are purchased with this over-allotment option, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered. The underwriting fee is equal to the public offering price per share of common stock less the amount paid by the underwriters to us per share of common stock. The underwriting fee is $ per share. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters option to purchase additional shares.
Without over-allotment exercise With full over-allotment exercise
Per Share Total
$ $
$ $
We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $ . A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations. 151
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We have agreed that we will not (i) offer, pledge, announce the intention to sell, 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, or otherwise transfer or dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of any shares of our common stock or such other securities (regardless of whether any of these transactions are to be settled by the delivery of shares of common stock, or such other securities, in cash or otherwise), in each case without the prior written consent of J.P. Morgan Securities LLC and Credit Suisse Securities (USA) LLC for a period of 180 days after the date of this prospectus. Notwithstanding the foregoing, if (1) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to our company occurs; or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. Our directors and executive officers, and substantially all of our other shareholders and option holders have entered into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which we and each of these persons or entities, with limited exceptions, for a period of 180 days after the date of this prospectus, may not, without the prior written consent of J.P. Morgan Securities LLC and Credit Suisse Securities (USA) LLC, (1) offer, pledge, announce the intention to sell, 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, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock (including, without limitation, common stock which may be deemed to be beneficially owned by such directors, executive officers, managers and members in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant), (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of any shares of our common stock or such other securities, whether any such transaction described in clause (1) above or this clause (2) is to be settled by delivery of common stock or such other securities, in cash or otherwise or (3) make any demand for or exercise any right with respect to the registration of any shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock. Notwithstanding the foregoing, if (1) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to our company occurs; or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event. Each of the lock-up agreements contain certain exceptions, including the disposition of shares of common stock purchased in open market transactions after the consummation of this offering and the adoption or modification of a Rule 10b5-1 sales plan; provided that no filing shall be required under the Exchange Act or voluntarily made in connection with such disposition or the adoption or modification of such plan during the 180-day lock-up period. We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act. We expect to apply to have our common stock approved for listing on The Nasdaq Global Market under the symbol AMBT. In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of common stock in the open market for the purpose of preventing or retarding a decline in the market price of the common stock while this offering is in progress. These stabilizing transactions may include making short sales of the common stock, which involves the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering, and purchasing shares of common stock on the open market to cover positions created by short sales. Short sales may be 152
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covered shorts, which are short positions in an amount not greater than the underwriters over-allotment option referred to above, or may be naked shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their over-allotment option, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the over-allotment option. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position. The underwriters have advised us that, pursuant to Regulation M of the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the common stock, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase common stock in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them. These activities may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock, and, as a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on The Nasdaq Global Market, in the over-the-counter market or otherwise. Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors including: the information set forth in this prospectus and otherwise available to the representatives; our prospects and the history and prospects for the industry in which we compete; an assessment of our management; our prospects for future earnings; the general condition of the securities markets at the time of this offering; the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and other factors deemed relevant by the underwriters and us.
Neither we nor the underwriters can assure investors that an active trading market will develop for shares of our common stock, or that the shares will trade in the public market at or above the initial public offering price. Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful. This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets 153
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Act 2000 (Financial Promotion) Order 2005 (the Order) or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling with Article 49(2)(a) to (d) of the Order (all such persons together being referred to as relevant persons). The securities are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents. In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, each, a Relevant Member State, from and including the date on which the European Union Prospectus Directive, the EU Prospectus Directive, is implemented in that Relevant Member State, the Relevant Implementation Date, an offer of securities described in this prospectus may not be made to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the EU Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of shares to the public in that Relevant Member State at any time: to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated accounts; to fewer than 100 natural or legal persons (other than qualified investors as defined in the EU Prospectus Directive) subject to obtaining the prior consent of the book-running managers for any such offer; or in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an offer of securities to the public in relation to any securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that Member State by any measure implementing the EU Prospectus Directive in that Member State and the expression EU Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State. Certain of the underwriters and their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and may hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans, now and in the future. 154
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LEGAL MATTERS The validity of the shares of common stock being offered by this prospectus will be passed upon for us by Cooley LLP, San Diego, California. Davis Polk & Wardwell LLP, Menlo Park, California, is counsel for the underwriters in connection with this offering. EXPERTS Ernst & Young LLP, independent registered public accounting firm, has audited our consolidated financial statements at December 31, 2008 and 2009, and for each of the three years in the period ended December 31, 2009, as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLPs report, given on their authority as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We have filed with the SEC a registration statement on Form S-1 under the Securities Act of 1933, as amended, with respect to the shares of common stock being offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information in the registration statement and its exhibits. For further information with respect to us and the common stock offered by this prospectus, you should refer to the registration statement and the exhibits filed as part of that document. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference. You can read our SEC filings, including the registration statement, over the Internet at the SECs website at http://www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. You may also request a copy of these filings, at no cost, by writing or telephoning us at: 4215 Sorrento Valley Blvd., San Diego, California 92121 or (858) 334-2100. Upon the closing of this offering, we will be subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, as amended, and we will file periodic reports, proxy statements and other information with the SEC. These reports, proxy statements and other information will be available for inspection and copying at the public reference room and website of the SEC referred to above. We also maintain a website at http://www.ambitbio.com, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not part of this prospectus. 155
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AMBIT BIOSCIENCES CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2008 and 2009 and June 30, 2010 (unaudited) Consolidated Statements of Operations for the years ended December 31, 2007, 2008 and 2009 and the six months ended June 30, 2009 and 2010 (unaudited) Consolidated Statements of Convertible Preferred Stock, Stockholders Deficit and Comprehensive Loss for the years ended December 31, 2007, 2008 and 2009 and the six months ended June 30, 2010 (unaudited) Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2008 and 2009 and the six months ended June 30, 2009 and 2010 (unaudited) Notes to Consolidated Financial Statements F-1 F2 F3 F4 F5 F 7 F 8
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Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of Ambit Biosciences Corporation We have audited the accompanying consolidated balance sheets of Ambit Biosciences Corporation as of December 31, 2008 and 2009, and the related consolidated statements of operations, statements of convertible preferred stock, stockholders deficit and comprehensive loss and statements of cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ambit Biosciences Corporation at December 31, 2008 and 2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP San Diego, California November 4, 2010 F-2
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AMBIT BIOSCIENCES CORPORATION Consolidated Balance Sheets

December 31, Pro Forma Stockholders Deficit at June 30, June 30, 2009 2010 2010 (unaudited) (in thousands, except share data)
2008
Assets Current assets: Cash and cash equivalents Short-term investments Restricted cash Accounts receivable, net Prepaid expenses and other current assets Assets held-for-sale Total current assets Property and equipment, net Deposits and other assets Total assets Liabilities, convertible preferred stock and stockholders deficit Current liabilities: Accounts payable and accrued expenses Accrued payroll and related expenses Liabilities held-for-sale Current portion of notes payable, net of debt discount Current portion of deferred revenues Total current liabilities Notes payable, net of current portion Other long-term liabilities Deferred revenues, net of current portion Redeemable non-controlling interest Redeemable convertible preferred stock warrant liabilities Commitments and contingencies Convertible preferred stock, $0.001 par value: Authorized shares, actual and pro forma20,703,376 at December 31, 2008 and 28,703,376 at December 31, 2009 and June 30, 2010 (unaudited): Redeemable convertible preferred stock: Authorized shares, actual and pro forma26,565,180; issued and outstanding shares15,835,261 at December 31, 2008, 14,112,072 at December 31, 2009, 20,861,279 at June 30, 2010 (unaudited) and no shares issued and outstanding pro forma (unaudited); liquidation preference$75,023 at December 31, 2008, $67,501 at December 31, 2009 and $101,652 at June 30, 2010 (unaudited) Convertible preferred stock: Authorized shares, actual and pro forma2,138,196; issued and outstanding shares2,129,272 at December 31, 2008, 1,595,794 at December 31, 2009 and June 30, 2010 (unaudited) and no shares issued and outstanding pro forma (unaudited); liquidation preference$18,233 at December 31, 2008, $13,752 at December 31, 2009 and June 30, 2010 (unaudited) Stockholders deficit: Common stock, $0.001 par value; 26,850,000 shares authorized at December 31, 2008 and 38,200,000 shares authorized as of December 31, 2009 and June 30, 2010 (unaudited); 965,539 shares issued and outstanding at December 31, 2008; 3,228,238 shares issued and outstanding at December 31, 2009 and 3,255,405 shares issued and outstanding as of June 30, 2010 (unaudited); 27,863,588 shares issued and outstanding pro forma (unaudited) Additional paid-in capital Note receivable from stockholder Accumulated other comprehensive (loss) income Accumulated deficit Total stockholders deficit Total liabilities, convertible preferred stock and stockholders deficit $ 14,114 1,250 50 737 2,276 3,347 21,774 3,873 522 $ 26,169 $ 40,798 895 1,491 2,324 45,508 2,786 468 $ 48,762 $ 31,287 3,069 1,395 1,923 37,674 2,497 620 $ 40,791
3,659 2,136 12,555 4,647 3,017 26,014 3,673 582 5,799 411
5,687 1,936 2,648 2,163 6,362 18,796 23,705 596 33,412 11,189 1,069
3,907 2,031 922 1,257 6,362 14,479 9,901 723 30,257 11,419 2,441
75,696
67,081
95,893
18,283
13,752
13,752
1 12,618 (79) (551) (116,278) (104,289) $ 26,169
3 19,663 (79) 138 (140,563) (120,838) $ 48,762
3 20,434 168 (158,679) (138,074) $ 40,791 $
28 143,914 168 (158,679) (14,569)
See accompanying notes. F-3
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AMBIT BIOSCIENCES CORPORATION Consolidated Statements of Operations

Years Ended December 31, 2008 Six Months Ended June 30, 2009 2010 (unaudited) (in thousands, except share and per share data) 2009
2007
Revenues: Collaboration arrangements Kinase profiling services (held-for-sale) Total revenues Operating expenses: Research and development General and administrative In-process research and development Cost of kinase profiling services revenue (held-for-sale) Total operating expenses Loss from operations Other income (expense): Interest expense Other income (expense) Change in fair value of redeemable convertible preferred stock warrant liabilities Total other income (expense) Loss before income taxes Provision for (benefit from) income taxes Consolidated net loss Net loss attributable to redeemable non-controlling interest Net loss attributable to Ambit Biosciences Corporation Accretion to redemption value of redeemable convertible preferred stock Change in fair value of redeemable non-controlling interest Net loss attributable to common stockholders Net loss per share attributable to common stockholders, basic and diluted Weighted-average shares outstanding, basic and dilute Pro forma net loss per share, basic and diluted (unaudited) Weighted-average pro forma shares outstanding, basic and diluted (unaudited)
3,621 10,692 14,313 19,386 6,466 25,000 2,993 53,845 (39,532) (1,874) 946 278 (650) (40,182) 196 (40,378) 411 (39,967) (3,867) (180)
3,621 24,480 28,101 26,884 6,581 4,194 37,659 (9,558) (1,736) 1,202 258 (276) (9,834) (9,834) 86 (9,748) (61) 1,737
3,466 14,647 18,113 29,280 5,788 3,777 38,845 (20,732) (4,899) (364) (658) (5,921) (26,653) (191) (26,462) 2,177 (24,285) (61) (7,567)
1,810 6,917 8,727 13,512 2,991 1,821 18,324 (9,597) (701) (77) (132) (910) (10,507) (10,507) 698 (9,809) (31) (1,753)
9,993 3,860 13,853 18,494 4,501 882 23,877 (10,024) (9,185) (1) (90) (9,276) (19,300) (19,300) 1,184 (18,116) (31) (1,414)
$ (44,014) $ (47.30) 930,465
$ (8,072) $ (8.38) 963,390
$ $ $
(31,913) (15.47) 2,063,489 (1.37) 18,828,136
$ (11,593) $ (11.97) 968,123
$ $ $
(19,561) (6.03) 3,242,898 (0.91) 21,139,162
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AMBIT BIOSCIENCES CORPORATION Consolidated Statements of Convertible Preferred Stock, Stockholders Deficit and Comprehensive Loss
Redeemable Convertible Preferred Stock Shares Amount Convertible Preferred Stock Shares Amount Note Accumulated Additional Receivable Other Common Stock Paid-In from Comprehensive Shares Amount Capital Stockholder Income (Loss) (in thousands, except share and per share data) 906,878 $ 49,304 1 $ 27 $ (79) $ 215 Total Stockholders Deficit
Accumulated Deficit
Balance at December 31, 2006 Exercise of stock options Issuance of preferred Series D redeemable convertible preferred stock at $5.06 per share for cash less transaction costs of $340,792 Adjust accretion to redemption value of Series C redeemable convertible preferred stock to reflect reduction in redemption from 200% to 100% in connection with the Series D financing Accretion to redemption value of redeemable convertible preferred stock Change in fair value of redeemable non-controlling interest Net loss attributable to redeemable non-controlling interest Stock-based compensation Components of comprehensive loss: Unrealized gain (loss) on shortterm investments Foreign currency translation Consolidated net loss Comprehensive loss
6,714,701 $ 40,590
2,129,272 $ 18,283
(66,563) $
(66,426) 27
9,120,560
45,810
(14,632)
14,632
14,632
3,867
(3,867)
(3,867)
(180)
(180)
84
411
411 84
75,635
2,129,272
18,283
956,182 9,357
10,696 6
(79)
184 662 1,061
(40,378) (106,530)
184 662 (40,378) (39,532) (94,851) 6
Balance at December 31, 2007 15,835,261 Exercise of stock options Accretion to redemption value of redeemable convertible preferred stock Change in fair value of redeemable non-controlling interest Net loss attributable to redeemable non-controlling interest Stock-based compensation Components of comprehensive loss: Unrealized gain (loss) on shortterm investments Foreign currency translation Consolidated net loss Comprehensive loss Balance at December 31, 2008
61
(61)
(61)
1,737
1,737
240
86
86 240
965,539 $
1 $
12,618 $
(79) $
(186) (1,426) (551) $
(9,834) (116,278) $
(186) (1,426) (9,834) (11,446) (104,289)
15,835,261 $ 75,696
2,129,272 $ 18,283
F-5
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AMBIT BIOSCIENCES CORPORATION Consolidated Statements of Convertible Preferred Stock, Stockholders Deficit and Comprehensive Loss (Continued)
Redeemable Convertible Preferred Stock Shares Amount Convertible Preferred Stock Shares Amount Note Accumulated Additional Receivable Other Common Stock Paid-In from Comprehensive Shares Amount Capital Stockholder Income (Loss) (in thousands, except share and per share data) 965,539 $ 6,032 1 $ 12,618 4 $ (79) $ Total Stockholders Deficit
Accumulated Deficit
Balance at December 31, 2008 15,835,261 $ 75,696 2,129,272 $ 18,283 Exercise of stock options Conversion of convertible preferred stock to common upon bridge financing (1,723,189) (8,676) (533,478) (4,531) Accretion to redemption value of redeemable convertible preferred stock 61 Change in fair value of redeemable non-controlling interest Net loss attributable to redeemable non-controlling interest Issuance of common stock warrants in connection with bridge loan Stock-based compensation Components of comprehensive loss: Unrealized gain (loss) on short-term investments Foreign currency translation Consolidated net loss Comprehensive loss 67,081 1,595,794 13,752 Balance at December 31, 2009 14,112,072 Exercise of stock options (unaudited) Issuance of redeemable convertible preferred stock and cashless exercise of warrants upon conversion of bridge loan (unaudited) 6,749,207 Accretion to redemption value of redeemable convertible preferred stock (unaudited) Change in fair value of redeemable non-controlling interest (unaudited) Net loss attributable to redeemable non-controlling interest (unaudited) Scheduled forgiveness of note receivable (unaudited) Stock-based compensation (unaudited) Components of comprehensive loss: Foreign currency translation (unaudited) Consolidated net loss (unaudited) Comprehensive loss (unaudited) Balance at June 30, 2010 (unaudited) 20,861,279
(551) $
(116,278) $
(104,289) 4
2,256,667
13,205
13,207
(61)
(61)
(7,567)
(7,567)
2,177
2,177
1,225 239
1,225 239
3,228,238 27,167
19,663 22
(79)
(3) 692 138
(26,462) (140,563)
(3) 692 (26,462) (25,773) (120,838) 22
28,781
1,990
1,990
31
(31)
(31)
(1,414)
(1,414)
204
79
1,184
1,184 79 204
$ 95,893
1,595,794
$ 13,752
3,255,405 $
3 $
20,434 $
30 168 $
(19,300) (158,679) $
30 (19,300) (19,270) (138,074)
See accompanying notes F-6
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AMBIT BIOSCIENCES CORPORATION Consolidated Statements of Cash Flows

Years Ended December 31, 2007 2008 2009 (in thousands) Operating activities Consolidated net loss Adjustments to reconcile consolidated net loss to net cash (used in) provided by operating activities: Depreciation and amortization Change in fair value of redeemable convertible preferred stock warrant liabilities In-process research and development expense Amortization of bond premium and investment income from short-term investments Noncash interest expense Stock-based compensation Deferred rent Loss on disposal of property and equipment Deferred revenues Changes in operating assets and liabilities: Accounts receivable Prepaid expenses and other current assets Assets/liabilities held-for-sale Deposits and other assets Notes receivable from related party Accounts payable and accrued expenses Accrued payroll and related expenses Net cash (used in) provided by operating activities Investing activities Restricted cash Maturities of short-term investments Purchase of short-term investments Proceeds from disposals of property and equipment Purchase of property and equipment, net Net cash (used in) provided by investing activities Financing activities Proceeds from exercise of stock options Deferred public offering costs Net proceeds from issuance of redeemable convertible preferred stock Investment in subsidiary by minority stockholder Proceeds from notes payable Payments on notes payable Net cash provided by (used in) financing activities Effect of exchange rate changes on cash Net change in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period Supplemental schedule of noncash investing and financing activities Issuance of warrants in connection with notes payable Conversion of bridge notes and accrued interest for shares of Series D redeemable convertible preferred stock Supplemental disclosures of cash flow information Interest paid Taxes paid $(40,378) 1,612 (278) 25,000 (167) 279 84 (10) 23 (3,621) 123 (735) (773) 81 2,230 515 (16,015) 8,750 (31,466) 86 (1,531) (24,161) 27 45,810 3,100 5,174 (5,413) 48,698 662 9,184 15,166 $ 24,350 $ $ 349 $ (9,834) 1,831 (258) (770) 346 240 462 (3,621) (531) (666) (18,963) 449 (883) 1,104 (31,094) (50) 38,750 (8,374) (2,484) 27,842 6 599 (6,163) (5,558) (1,426) (10,236) 24,350 $ 14,114 $ $ 8 $(26,462) 1,971 658 (3) 3,514 239 14 36,757 (158) 981 (9,504) (7) 61 2,633 (203) 10,491 50 1,250 (264) 1,036 4 19,419 (4,877) 14,546 611 26,684 14,114 $ 40,798 $ 1,286 $ $ $ 703 $(10,507) 992 132 (3) 387 104 77 (1,810) 122 836 (4,647) (22) 157 (484) (14,666) 1,250 (54) 1,196 3 6,021 (3,247) 2,777 245 (10,448) 14,114 $ 3,666 $ $ $ $ 356 423 $(19,300) 645 90 7,865 204 (8) (3,155) (2,174) 163 (1,377) 183 218 (900) 230 (17,316) (304) (304) 22 (464) 11,784 (3,152) 8,190 (81) (9,511) 40,798 $ 31,287 $ 1,282 $ 28,781 $ $ 491 Six Months Ended June 30, 2009 2010 (unaudited)
$ 1,595 $ 196
$ 1,374 $
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Summary of Significant Accounting Policies
Organization and Business Ambit Biosciences Corporation, Ambit or the Company, formerly Aventa Biosciences Corporation, was incorporated in Delaware on May 17, 2000, and commenced operations in May 2000. The Company is a biotechnology company engaged in discovering, developing and commercializing targeted small molecule therapeutics for the treatment of cancer. The Company also historically provided kinase profiling services for the biotechnology and pharmaceutical industry; however, in October 2010, the Company sold this portion of the business. The profiling business is classified as held-for-sale in the accompanying consolidated financial statements. Liquidity The Company has incurred losses since inception and, as of June 30, 2010, had an accumulated deficit of $158.7 million. The Company anticipates that it will continue to incur net losses for the foreseeable future as it incurs expenses for the development and commercialization of quizartinib, works to discover and develop additional products candidates through its research and development programs, and expands its corporate infrastructure. As a result, the Company will seek to fund its operations through public or private equity or debt financings or other sources, such as strategic partnership agreements. The Companys failure to raise capital as and when needed would have a negative impact on its financial condition and its ability to pursue its business strategies. Principles of Consolidation The consolidated financial statements include the accounts of the Company, its wholly owned subsidiary Ambit Europe Limited (Ambit Europe) and its controlled subsidiary, Ambit Biosciences (Canada) Corporation, (Ambit Canada). All intercompany transactions and balances are eliminated in consolidation. Ambit Europe was incorporated in England in June 2008. As of December 31, 2009, there have been no significant transactions related to Ambit Europe. Ambit Canada was formed in Canada in December 2004. Unaudited Interim Financial Data The accompanying balance sheet as of June 30, 2010, statements of operations and cash flow for the six months ended June 30, 2009 and 2010 and the statements of convertible preferred stock, stockholders deficit and comprehensive loss for the six months ended June 30, 2010 are unaudited. The unaudited financial statements have been prepared on a basis consistent with the audited financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) considered necessary to state fairly the Companys financial position as of June 30, 2010 and its results of operations and cash flows for the six months ended June 30, 2009 and 2010. The financial data and other information disclosed in these notes to the consolidated financial statements related to the six months ended June 30, 2009 and 2010 are unaudited. The results for the six months ended June 30, 2010 are not necessarily indicative of the results to be expected for the year ending December 31, 2010 or for any other interim period. Unaudited Pro Forma Stockholders Deficit In November 2010, the Companys Board of Directors authorized the filing of a registration statement with the Securities and Exchange Commission, or SEC, to sell shares of its common stock to the public in an initial public offering, or the IPO. The Company plans to file its initial Form S-1 registration statement with the SEC on F-8
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 1. Organization and Summary of Significant Accounting Policies (Continued)
November 5, 2010. Unaudited pro forma stockholders deficit assumes: (i) the conversion of all convertible preferred stock into 22,457,073 shares of common stock assuming a conversion ratio of one share of common stock to one share of convertible preferred stock, (ii) the exercise and conversion of all redeemable convertible preferred stock puts into 2,151,110 shares of common stock, and (iii) the conversion of all outstanding convertible preferred stock warrants into warrants to purchase 649,573 shares to common stock resulting in the redeemable convertible preferred stock warrant liability being reclassified to additional paid-in capital. Foreign Currency Translation and Transactions The accompanying consolidated financial statements are presented in U.S. dollars. The financial statements of the Companys Canadian subsidiary are measured using the local currency as the functional currency. The translation of the Canadian subsidiarys assets and liabilities, excluding certain financing related accounts, to U.S. dollars is made at the exchange rate in effect at the balance sheet date; while the financing related accounts are translated at the rate in effect at the date of the underlying transaction. Equity accounts, including retained earnings, are translated at historical rates. The translation of statement of operations data is made at the average rate in effect for the period. The translation of operating cash flow data is made at the average rate in effect for the period, and investing and financing cash flow data is translated at the rate in effect at the date of the underlying transaction. Translation gains and losses are recognized within accumulated other comprehensive (loss) income in the accompanying consolidated balance sheets. Transactions expected to be settled in a currency other than the functional currency are remeasured to current exchange rates each period until such transaction is settled. The resulting gain or loss is included in other income (expense) in the accompanying consolidated statements of operations. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The most significant estimates in the Companys consolidated financial statements relate to revenue recognition, fair value of warrant and put liabilities, stock option accounting, clinical trial accruals and allowance for doubtful accounts. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents consist of cash and highly liquid investments, which include money market funds and debt securities, with maturities from purchase date of three months or less and are recorded at cost, which approximates market value. Short-Term Investments As of December 31, 2008, short-term investments mainly consisted of debt securities with maturities from purchase date of greater than three months and are classified as available-for-sale in the accompanying consolidated financial statements as the sale of such investments may have been required prior to maturity to implement management strategies. The cost of securities sold is based on the specific identification method. These investments were carried at fair market value, with unrealized gains and losses reported in accumulated other comprehensive (loss) income. As of June 30, 2009, these short-term investments matured and the Company F-9
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no longer holds any short-term investments. Due to maturity of the investments, no realized gains or losses were recorded in the accompanying consolidated statements of operations during the six-month periods ended June 30, 2009 and 2010 or the year ended December 31, 2009. Concentration of Credit Risk and Significant Customers Financial instruments, which potentially subject the Company to significant concentration of credit risk, consist primarily of cash, short-term securities and accounts receivable. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. Customers representing greater than 10% of total revenues are as follows:
2007 Years Ended December 31, 2008 2009 Six Months Ended June 30, 2009 2010 (unaudited)
Bristol-Myers Squibb Company Cephalon, Inc. Roche entities Astellas * Represents less than 10% of the revenues for the respective period.
30% 52% 14% *
72% 16% * *
56% 22% * *
56% 25% * *
17% * * 65%
Customers whose balance represents greater than 10% of accounts receivable are as follows:
December 31, 2008 2009 June 30, 2010 (unaudited)
Astellas AstraZeneca UK Ltd Bristol-Myers Squibb Company Roche entities * Represents less than 10% of the gross accounts receivable for the respective period. Accounts Receivable and Allowance for Doubtful Accounts
* * 34% *
25% 18% * 12%
89% * * *
Accounts receivable, primarily related to revenues from kinase profiling services (held-for-sale) and payments due under collaboration arrangements, are presented net of allowance for doubtful accounts. The Company determines its allowance for doubtful accounts based on an analysis of the collectability of accounts receivable, historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in customer payment history, if any. Historically, bad debt write-offs have been immaterial. The expense related to the allowance for doubtful accounts is recorded within general and administrative expense in the accompanying consolidated statements of operations. Property and Equipment Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets (generally three to five years). Leasehold improvements are stated at cost and F-10
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depreciated on a straight-line basis over the lesser of the remaining term of the related lease or the estimated useful life of the asset. Impairment of Long-Lived Assets Long-lived assets consist of property and equipment. The Company will record impairment losses on long-lived assets used in operations when events and circumstances indicate that assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. While the Companys current and historical operating losses and negative cash flows are indicators of impairment, management believes that future cash flows to be received support the carrying value of its long-lived assets and, accordingly, has not recognized any impairment losses through June 30, 2010 (unaudited). Deferred Public Offering Costs Deferred public offering costs totaling $0.5 million as of June 30, 2010 are included in deposits and other assets. These costs primarily represent legal, accounting and other direct costs related to the Companys efforts to raise capital through an IPO. There were no IPO costs incurred prior to 2010. Future costs related to the Companys IPO activities will be deferred until the completion of the IPO, at which time they will be reclassified to additional paid-in capital as a reduction of the IPO proceeds. If the Company terminates its plan for an IPO, any deferred costs will be expensed immediately. Fair Value of Financial Instruments The carrying amounts of cash equivalents, accounts receivable, accounts payable, and accrued liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments. Based on the borrowing rates currently available to the Company for loans with similar terms, the Company believes the fair value of long-term debt approximates its carrying value. The carrying amount of the redeemable convertible preferred stock warrant liabilities and redeemable non-controlling interest represent their fair values. Redeemable Convertible Preferred Stock Warrant Liabilities The Company has issued freestanding warrants to purchase shares of its redeemable convertible preferred stock. The redeemable convertible preferred stock warrants are exercisable for shares of Series C and Series D redeemable convertible preferred stock and are classified as liabilities in the accompanying consolidated balance sheets, as the terms for redemption of the underlying security are outside the Companys control. The redeemable convertible preferred stock warrants are recorded at fair value using either the Black-Scholes option pricing model or a binomial model, depending on the characteristics of the warrants. The fair value of these warrants is re-measured at each financial reporting period with any changes in fair value being recognized as change in fair value of redeemable convertible preferred stock warrant and put liabilities, a component of other income (expense), in the accompanying consolidated statements of operations. The warrant liabilities will continue to be re-measured to fair value until the earlier of: (i) exercise; (ii) expiration of the related warrant, at which time the associated liability will be reclassified into stockholders deficit; or (iii) upon consent by the holders to convert the redeemable convertible preferred stock underlying the security into common stock upon an initial public offering. F-11
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Deferred Rent Rent expense, including the value of tenant improvement allowances received, is recorded on a straight-line basis over the term of the lease. The difference between rent expense and amounts paid under the lease agreements is recorded in other long-term liabilities in the accompanying consolidated balance sheets. Revenue Recognition The Companys revenues generally consists of: (i) payments from collaboration arrangements and (ii) kinase profiling services fees. Revenues are recognized when all four of the following criteria are met: (a) persuasive evidence that an arrangement exists; (b) delivery of the products and/or services has occurred; (c) the selling price is fixed or determinable; and (d) collectability is reasonably assured. Additional information on each type of revenue is outlined below. Collaboration Arrangements The Company has entered into various collaboration arrangements, including those with Astellas, Bristol-Myers Squibb Company, or BMS, and Cephalon, Inc., which contain multiple elements. A variety of factors are considered in determining the appropriate method of revenue recognition under these arrangements, such as whether the various elements can be considered separate units of accounting, whether there is objective and reliable evidence of fair value for these elements and whether there is a separate earnings process associated with a particular element of an agreement. Where there are multiple deliverables that do not have stand-alone value to the collaborator, the non-contingent consideration from these deliverables are combined into separate unit(s) of accounting based on their relative fair values. Applicable revenue recognition criteria are considered separately for each unit of accounting. Non-contingent revenues from the combined unit of accounting is deferred and recognized over the period that the Company remains obligated to perform services or deliver product. The specific methodology for the recognition of the revenues (e.g. straight-line or according to specific performance criteria) is determined on a case-by-case basis according to the facts and circumstances applicable to a given contract. Specifically, the revenue recognition methodology for the various elements in the Companys multiple element arrangements is as follows: Upfront licensing fees. The Company recognizes revenues from nonrefundable, upfront license fees for which the separation criteria were not met due to continuing involvement in the performance of research and development services on a straight-line basis over the contracted or estimated period of performance, which is typically the research or development term. Milestones. Milestone payments are derived from the achievement of predetermined events under collaboration arrangements and are assessed on an individual basis. Revenues are not recognized for milestones that are subject to contingencies until the revenues are earned, as evidenced by acknowledgment from the collaborator, provided that: (i) the milestone event is substantive and its achievability was not reasonably assured at the inception of the agreement, (ii) the milestone represents the culmination, or progress towards the culmination, of an earnings process, and (iii) the milestone payment is non-refundable. Milestones that are received after all substantive deliverables have occurred are considered to be bonus payments and are recognized upon receipt of the cash, assuming all of the other revenue recognition criteria are met. F-12
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 1. Organization and Summary of Significant Accounting Policies (Continued) Collaborative research payments. Collaborative research payments are primarily based on: (i) time worked using a contractual cost per full-time equivalent employee working on the project and (ii) direct costs associated with the project. The Company recognizes revenues related to these payments as the services are performed and costs are incurred over the related funding periods for each agreement, assuming all other revenue recognition criteria have been met. Payments received in excess of revenues recognized is recorded as deferred revenues until: (i) sufficient time billable to the project has been incurred or (ii) related project costs have been expended. Collaboration arrangements also include potential payments for product royalty, commercial product supply, and sharing of operating profits. To date, the Company has not received payments or recorded revenues from any of these sources. Kinase Profiling Services (held-for-sale) Kinase profiling services (held-for-sale) were provided on a fee-for-fee service basis and were billed when the profiling results data was provided to the customers. The Company recognized revenues when the profiling results data were delivered to the customer, assuming all other revenue recognition criteria had been met. Amounts received in advance of services performed were recorded as deferred revenues until earned. Research and Development Expenses Research and development costs are expensed as incurred. Patent Costs Costs related to filing and pursuing patent applications are recorded as general and administrative expense as incurred since recoverability of such expenditures is uncertain. Accumulated Other Comprehensive (Loss) Income Accumulated other comprehensive (loss) income is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Accumulated other comprehensive loss includes unrealized gains and losses on available-for-sale securities and foreign currency translation adjustments. Stock-Based Compensation All share-based payments to employees, including grants of employee stock options, are recognized in the financial statements based on their grant date fair values, net of estimated forfeitures. Cost is recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. Expense for awards that vest based on service conditions, is recorded on the straight-line method. Expense for stock options grants subject to performance-based milestone vesting is recorded over the remaining service period when management determines that achievement of the milestone is probable. Management evaluates when the achievement of milestones is probable based on the relative satisfaction of the performance conditions as of the reporting date. Equity instruments issued to non-employees are recorded at fair value and are periodically revalued as the options vest and are recognized as expense over the related service period. For purposes of determining the grant date fair value of stock options the Company uses the Black-Scholes option pricing model. F-13
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The Black-Scholes option pricing model incorporates various and highly sensitive assumptions including expected volatility, expected term and interest rates. Income Taxes The Company uses the asset and liability method of accounting for income taxes . Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax reporting basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The Company provides a valuation allowance against net deferred tax assets unless, based upon the available evidence, it is more likely-than-not that the deferred tax assets will be realized. A tax benefit from an uncertain tax position is recognized only if it is more likely-than-not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. Net Loss Attributable to Common Stockholders per Share Basic net loss attributable to common stockholders per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss attributable to common stockholders per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method. Dilutive common stock equivalents are comprised of convertible preferred stock, redeemable convertible preferred stock puts, warrants for the purchase of convertible preferred and common stock, convertible notes payable and options outstanding under the Companys stock option plan. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Companys net loss position. F-14
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 1. Organization and Summary of Significant Accounting Policies (Continued) The following table presents the computation of pro forma basic and diluted net loss attributable to common stockholders per share:
Six Months Year Ended Ended December 31, June 30, 2009 2010 (unaudited, in thousands, except share and per share data)
Pro forma net loss attributable to common stockholders per share: Numerator Net loss attributable to common stockholders Add: Change in fair value of redeemable convertible preferred stock warrant liabilities Net loss attributable to redeemable non-controlling interest Accretion of redeemable convertible preferred stock Change in fair value of redeemable non-controlling interest Denominator Weighted average shares outstanding, basic and diluted Add: Pro forma adjustments to reflect assumed weighted-average effect of conversion of redeemable convertible preferred stock Pro forma adjustments to reflect assumed weighted-average effect of conversion of convertible preferred issued upon conversion of debt Pro forma adjustments to reflect assumed weighted-average effect of conversion of convertible preferred stock Pro forma adjustments to reflect assumed weighted-average effect of conversion of convertible preferred stock put liabilities Pro forma basic and diluted net loss attributable to common stockholders
(31,913) 658 (2,177) 61 7,567 (25,804) 2,063,489 13,276,443 1,337,094 2,151,110 18,828,136
(19,561) 90 (1,184) 31 1,414 (19,210) 3,242,898 14,112,072 37,288 1,595,794 2,151,110 21,139,162
(1.37)
(0.91)
Potentially dilutive securities not included in the calculation of diluted net loss attributable to common stockholders per share because to do so would be anti-dilutive are as follows (in common equivalent shares):
2007 As of December 31, 2008 As of June 30, 2009 2009 (unaudited) 2010
Convertible preferred stock outstanding Redeemable non-controlling interest Warrants for convertible preferred stock Warrants for common stock Common stock options Convertible notes payable
17,964,533 2,151,110 370,941 2,278,628 22,765,212 F-15
17,964,533 2,151,110 366,710 3,129,052 23,611,405
15,707,866 2,151,110 365,449 1,946,748 3,476,138 6,591,626 30,238,937
17,964,533 2,151,110 366,710 622,164 3,638,513 1,911,536 26,654,566
22,457,073 2,151,110 649,573 1,946,748 3,487,051 30,691,555
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Segments The Company reports segment data based on the management approach. The management approach designates the internal reporting that is used by management for making operating and investment decisions and evaluating performance as the source of its reportable segments. The only measures the Company reviews at a segment level are revenues and cost of kinase profiling service revenues. The kinase profiling services segment was sold in October 2010. Revenues from each segment had been regularly reviewed, as well as the direct cost of kinase profiling services revenues. As the Company is in clinical trials with its first drug candidates, and revenues received from the drug development segment is associated with collaboration arrangements, there are no costs of sales associated with this segment. There are no intersegment revenues. All operating expenses and other income (expense) are managed at a consolidated level, without regard to segment. Certain segment information is as follows:
Years Ended December 31, 2008 Six Months Ended June 30, 2009 2010 (unaudited)
2007
2009
(in thousands)
Revenues: Drug development Kinase profiling services (held-for-sale) Total revenues Gross profitkinase profiling services (held-for-sale) Gross margin %kinase profiling services (held-for-sale) Total assets by segment are as follows:
$ 3,621 10,692 $14,313 $ 7,699 72.0%
$ 3,621 24,480 $28,101 $20,286 82.9%
$ 3,466 14,647 $18,113 $10,870 74.2%
$1,810 6,917 $8,727 $5,096 73.7%
$ 9,993 3,860 $13,853 $ 2,978 77.2%
Years Ended December 31, 2008 2009 (in thousands)
Six Months Ended June 30, 2010 (unaudited)
Drug development Kinase profiling services (held-for-sale)
$22,822 3,347 $26,169 F-16
$46,438 2,324 $48,762
$ $
38,868 1,923 40,791
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For all periods presented, essentially all long-lived assets are maintained in the United States. Revenue information by geographic area is as follows:
2007 Years Ended December 31, 2008 2009 (in thousands) Six Months Ended June 30, 2009 2010 (unaudited)
North America Europe, Middle East and Africa Asia, Pacific
$14,205 76 32 $14,313
$27,404 653 44 $28,101
$16,271 842 1,000 $18,113
$ 8,106 412 209 $ 8,727
4,379 274 9,200 13,853
Recently Issued Accounting Standards In February 2010, new accounting guidance was issued which requires evaluation of subsequent events through the date the financial statements are issued for SEC filers, amends the definition of an SEC filer, and changes required disclosures. The new accounting guidance was effective on February 24, 2010 and did not have a material financial impact on the Companys financial statements. In January 2010, new accounting guidance was issued which amended the existing fair value measurements and disclosures guidance to require additional disclosures regarding fair value measurements. Specifically, the new guidance requires entities to disclose the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for these transfers, the reasons for any transfer in or out of Level 3, and information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuance and settlements on a gross basis. In addition, the new guidance also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. The new guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for additional disclosures related to Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010. The Company does not expect adoption of the new guidance to have a material impact on its financial statements or results of operations. In October 2009, new accounting guidance was issued to require companies to allocate revenues in multiple-element arrangements based on an elements estimated selling price if vendor-specific or other third-party evidence of value is not available. The new accounting guidance is effective for the Company beginning January 1, 2011. Earlier application is permitted. The Company is currently evaluating both the timing and the impact of the pending adoption of the new accounting guidance on its financial statements. 2. Ambit Canada
Ambit Biosciences (Canada) Corporation, Ambit Canada, was incorporated on December 29, 2004. Concurrent with incorporation, Ambit Canada and a Canadian investor entered into a $5.0 million Debenture Purchase Agreement, the Debenture Agreement, whereby the proceeds would be used to implement the Approved Business Plan (as defined in the agreement). The Debenture Agreement bore interest at a rate of eight percent and matured the earlier of: (i) the date of demand for payment by the holder made after June 30, 2005 and (ii) the completion of a Qualified Equity Financing (as defined in the agreement). On February 23, 2005, the Company and the Canadian investor entered into a private placement agreement whereby the Company contributed certain intellectual property rights in exchange for a 50.0% ownership in Ambit Canada with the outstanding principal debenture, of $5.0 million, to the Canadian investor, converting into four F-17
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. Ambit Canada (Continued)
Class A voting shares and 11,628,107 Class C non-voting preferred shares representing a 50.0% ownership in the capital of Ambit Canada. The Canadian investor also received a put option (the Series C-2 put option) whereby it can require the Company to exchange its Class C shares in Ambit Canada, at the Companys discretion, for either: (i) cash or (ii) 1,538,461 shares of the Companys Series C-2 redeemable convertible preferred stock (or common stock in the case of a Qualifying Public Offering). In October 2007 both the Company and a Canadian investor received 612,649 shares of Ambit Canadas Class D non-voting shares, or Class D shares, for consideration of $3.1 million. A Canadian investor purchased such shares with cash and the Company contributed certain intellectual property rights. Subsequent to the private placement, each entitys ownership interest remained unchanged. The Canadian investor also received a put option (the Series D put option) whereby it can require the Company to exchange its Class D shares in Ambit Canada, at the Companys discretion, for either: (i) cash or (ii) 612,649 shares in the Companys Series D redeemable convertible preferred stock. If the Series C-2 and Series D put options are not exercised on or prior to the closing of a Qualifying Public Offering, Qualifying Financing or Sale Event, the put price will be adjusted downward to equal: (i) 80.0% of the Fair Market Value of the appropriate equity instrument in the case of a cash payment or (ii) 80.0% of the number of shares or other property in the case of payment in shares of the Company. In July 2009, Ambit Canada and the Company entered into a Note and Warrant Purchase Agreement (the Canadian Agreement), pursuant to which a Canadian investor agreed to loan Ambit Canada up to $2.1 million. During the second half of 2009, Ambit Canada drew down the entire $2.1 million available under the Canadian Agreement and issued secured notes under such agreement. In connection with the Canadian Agreement, Ambit Canada issued 13.58 shares of its Class E voting shares at $0.001 per share, with both a third party and the Company each receiving 6.79 shares as part of the transaction. On June 30, 2010, in accordance with the original terms of the agreement, the note and accrued interest were cancelled and the Canadian investor received 681,123 shares of the Companys Series D redeemable convertible preferred stock. The Company has determined that, for all periods presented, Ambit Canada is a variable interest entity and that the Company is the primary beneficiary of Ambit Canada based on the following factors: The Company has the power to direct the activities of Ambit Canada which would most significantly impact Ambit Canadas economic performance, as the Company provides business services to Ambit Canada, in addition, Ambit Canadas business manager reports to a member of the Companys executive team. The Companys obligation to absorb losses and receive benefits from Ambit Canada could potentially be significant and are disproportional to voting rights given the Canadian investors put options in the Company.
The Company determined that the Canadian investors investment in Ambit Canada should be classified as a redeemable non-controlling interest as the Class A, Class C, Class D and Class E shares of Ambit Canada were not in-substance common stock. In-substance common stock is an investment in an entity that has risk and reward characteristics that are substantially similar to that entitys common stock. Due to the liability characteristics associated with the Canadian investors shares of Ambit Canada, the Company concluded that the Canadian investors shares were not substantially similar to common stock. The liability characteristics include the Canadian investors put rights, which provide it with the ability to exchange their Class C and Class D shares in Ambit Canada for Series C-2 and Series D redeemable convertible preferred stock, respectively, of the Company. Upon exercise of the put(s) by the Canadian investor, the Company also has the ability to pay the Canadian investor cash rather than issuing stock (Series C2 and/or Series D redeemable convertible preferred stock) in the Company. F-18
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. Ambit Canada (Continued)
The redeemable non-controlling interest was initially valued using the fair value of the Series C and Series D redeemable convertible preferred stock. At each reporting period, the Company adjusts the carrying value of the redeemable non-controlling interest by the net loss attributable to the redeemable non-controlling interest. Any difference between the fair value and the adjusted carrying value of the redeemable non-controlling interest is recorded as an adjustment to additional paid-in capital and presented as a component of net loss attributable to common stockholders in the accompanying consolidated statements of operations. The redeemable non-controlling interest will continue to be measured at fair value until the earlier of: (i) exercise of the underlying put rights or (ii) the time at which the Canadian investor no longer holds Class C and Class D shares in Ambit Canada, at which time the redeemable non-controlling interest will be reclassified to additional paid-in capital. During the years ended December 31, 2007, 2008 and 2009, the Company recognized changes in the fair value of the redeemable non-controlling interest of approximately $0.2 million, $1.7 million and $7.6 million, respectively. During the six month periods ended June 30, 2009 and 2010, changes in the fair value of the redeemable non-controlling interest of approximately $1.8 million and $1.4 million, respectively, were recognized. The liabilities recognized as a result of consolidating Ambit Canada do not represent additional claims on the Companys general assets; rather, they represent claims against the specific assets of Ambit Canada. Conversely, assets recognized as a result of consolidating Ambit Canada do not represent additional assets that could be used to satisfy claims against the Companys general assets. The assets of Ambit Canada represent the only significant assets of the Company not located in the United States. The carrying amount and classification of Ambit Canadas assets that are included in the consolidated balance sheets are as follows:
December 31, 2008 2009 (in thousands) June 30, 2010 (unaudited)
Cash and cash equivalents Prepaid expenses and other current assets Property and equipment, net Total assets of Ambit Canada
$4,833 1,008 1 $5,842
$5,486 $5,486
2,826 2,826
The carrying amount and classification of the Ambit Canadas liabilities that are included in the consolidated balance sheets are as follows:
Accounts payable and accrued liabilities Accrued payroll and related expenses Notes payable Total liabilities of Ambit Canada F-19
$132 14 $146
$1,069 39 2,493 $3,601
284 34 318
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. Ambit Canada (Continued) Consolidation of Ambit Canadas results of operations included the following:
Years Ended December 31, 2007 2008 2009 (in thousands) Six Months Ended June 30, 2009 2010 (unaudited)
Research and development expense Interest expense Other income (expense) Net loss of Ambit Canada Consolidation of Ambit Canadas cashflows included the following:
$(971) 149 $(822)
$(338) 165 $(173)
$(3,539) (426) (389) $(4,354)
$(1,304) (93) $(1,397)
$(1,859) (508) (1) $(2,368)
Years Ended December 31, 2007 2008 2009 (in thousands)
Six Months Ended June 30, 2009 2010 (unaudited)
Cash provided by (used in) operating activities Cash provided by financing activities Effect of exchange rate on cash Increase (decrease) in cash and cash equivalents of Ambit Canada 3. Balance Sheet Details
$(1,432) 3,100 662 $ 2,330
60 (1,426)
$(2,029) 2,071 611 $ 653
$(4,798) 245 $(4,553)
$(2,579) (81) $(2,660)
$(1,366)
Short-Term Investments As of December 31, 2009 and June 30, 2010, the Company did not hold any short-term investments. As of December 31, 2008, the Companys short-term investments were held in corporate debt securities with an amortized cost of $1,247,000 and an estimated fair value of $1,250,000. As of December 31, 2008, a gross unrealized gain of $3,000 was recorded in accumulated other comprehensive (loss) income in the accompanying consolidated balance sheets. Accounts Receivable
Trade accounts receivable Allowance for doubtful accounts
$746 (9) $737 F-20
$904 (9) $895
$ $
3,076 (7) 3,069
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. Balance Sheet Details (Continued)
Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets Canadian Scientific Research and Experimental Development program receivable
$1,274 1,002 $2,276
$1,491 $1,491
$ $
1,395 1,395
Property and Equipment, net

Scientific equipment Computer hardware and software Furniture and fixtures Leasehold improvements Accumulated depreciation
$ 6,513 1,259 453 1,120 9,345 (5,472) $ 3,873
$ 6,558 1,430 465 1,140 9,593 (6,807) $ 2,786
6,588 1,671 471 1,166 9,896 (7,399)
2,497
Depreciation expense for the years ended December 31, 2007, 2008 and 2009, was $1.6 million, $1.8 million and $2.0 million, respectively. Depreciation expense for the six months ended June 30, 2009 and 2010 was approximately $1.0 million and $0.6 million, respectively. Accounts Payable and Accrued Expenses
Accounts payable Accrued expenses Accrued clinical costs Other
$2,293 1,235 131 $3,659
$5,035 118 308 226 $5,687
2,094 285 1,313 215 3,907
4.
Fair Value Measurements
Effective January 1, 2008, the Company adopted the authoritative guidance for fair value measurements, and the fair value option for financial assets and liabilities. The Company did not record an adjustment to retained earnings as a result of the adoption of the guidance for fair value measurements and the adoption did not F-21
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Fair Value Measurements (Continued)
have a material effect on the Companys results of operations. The guidance for the fair value option for financial assets and liabilities provides companies with the irrevocable option to measure many financial assets and liabilities at fair value with changes in fair value recognized in earnings. The Company has not elected to measure any financial assets or liabilities at fair value that were not recognized in earnings or that were not previously required to be measured at fair value. Financial assets that are measured or disclosed at fair value on a recurring basis include: Cashface value approximates fair value Short-term investments Redeemable convertible preferred stock warrant liabilities Redeemable non-controlling interest
Effective January 1, 2009, the Company adopted the authoritative guidance for fair value measurements and the fair value option for nonfinancial assets and liabilities. At June 30, 2010, none of the Companys non-financial assets and liabilities are recorded at fair value on a non-recurring basis. As a basis for categorizing inputs, the guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used to measure fair value from market based assumptions to entity specific assumptions: Level 1: Level 2: Level 3: Observable inputs such as quoted prices in active markets; Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Cash and cash equivalents and short-term investments are measured at fair value on a recurring basis. As of December 31, 2008, these assets were classified within the Level 1 designation as noted above. As of December 31, 2009 and June 30, 2010, the Company no longer holds short-term investments and cash is classified within the Level 1 designation as noted above. The redeemable convertible preferred stock warrant liabilities and the redeemable non-controlling interest are measured at fair value on a recurring basis and are classified within the Level 3 designation as noted above. The fair value of the redeemable convertible preferred stock warrant liabilities are determined using either the Black-Scholes option pricing model or a binomial model, depending on the characteristics of the warrants, and the fair value of the redeemable non-controlling interest was determined based on the fair value of the underlying redeemable convertible preferred stock. The following weighted-average assumptions were used in determining the fair value of the outstanding redeemable convertible preferred stock warrant liabilities:
Years Ended December 31, 2008 2009 Six Months Ended June 30, 2010 (unaudited)
Risk-free interest rate Expected dividend yield Expected volatility Expected term (years) F-22
1.9% 0.0% 60.7% 7.1
2.8% 0.0% 61.0% 6.1
2.6% 0.0% 62.2% 7.5
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. Fair Value Measurements (Continued)
The following stock prices per share were used in determining the fair value of the outstanding redeemable convertible preferred stock warrant liabilities and redeemable non-controlling interest:
December 31, 2008 2009 June 30, 2010 (unaudited)
Series C redeemable convertible preferred stock Series D redeemable convertible preferred stock
$2.34 3.59
$4.80 6.21
4.83 6.51
The following table provides reconciliation for all liabilities measured at fair value using significant unobservable inputs, Level 3, for the period from adoption through June 30, 2010:
Redeemable Convertible Preferred Stock Warrant Liabilities (in thousands) Redeemable NonControlling Interest
Balance at December 31, 2007 Transfers in to Level 3 upon adoption of SFAS 157: Redeemable convertible preferred stock warrant liabilities Redeemable non-controlling interest Issuance of redeemable convertible preferred stock warrants Change in fair value Net loss attributable to redeemable non-controlling interest Balance at December 31, 2008 Change in fair value Net loss attributable to redeemable non-controlling interest Balance at December 31, 2009 Issuance of redeemable convertible preferred stock warrants (unaudited) Change in fair value (unaudited) Net loss attributable to redeemable non-controlling interest (unaudited) Balance at June 30, 2010 (unaudited) 5. Notes Receivable from Related Party
661 8 (258) 411 658 1,069 1,282 90
7,622 (1,737) (86) 5,799 7,567 (2,177) 11,189 1,414 (1,184)
2,441
$ 11,419
In 2001, the Company loaned $250,000 to a former officer in connection with an employment agreement. The note receivable bore interest at approximately 5.0% per annum until October 2009 when the note was amended and the interest rate was reduced to 0.75% per annum. The Company had full recourse against the assets of the individual for satisfaction of the note which was originally due on December 31, 2010. In 2002, $50,000 of this note was forgiven. In December 2009, the Board approved a bonus of $113,000 to the officer $61,000 of which was used to settle a portion of the outstanding note with the balance used to pay the associated tax liability. As of December 31, 2009, the remaining outstanding principal and associated interest receivable balance was approximately $139,000 and $94,000, respectively. The interest receivable from the related party is included in deposits and other assets in the accompanying consolidated balance sheets. In 2001, the Company loaned $79,000 to the same former officer in connection with the exercise of stock options. The note receivable bore interest at approximately 9.0% per annum until October 2009 when the interest rate was reduced to 0.75% per annum. The note was secured by the underlying common stock; however, the F-23
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. Notes Receivable from Related Party (Continued)
Company had full recourse against the assets of the individual for any shortfall. The principal portion of the note was recorded as a reduction of stockholders equity. As of December 31, 2009, the remaining outstanding principal balance was $79,000 and the associated interest receivable was approximately $84,000. The interest receivable from the related party is included in deposits and other assets in the accompanying consolidated balance sheets. The original maturity of the note was December 31, 2010. Included in other income (expense), in the accompanying consolidated statements of operations is interest income of approximately $24,000, $25,000, and $24,000 related to these related-party notes for the years ended December 31, 2007, 2008 and 2009, respectively, and approximately $13,000 and $5,000 during the six months ended June 30, 2009 and 2010, respectively. In April 2010, the Company agreed to forgive the principal and interest outstanding on both of the 2001 note agreements in conjunction with a separation agreement with the officer. The forgiveness of the loans shall become effective in one-third increments on the following dates: April 22, 2010, January 1, 2011, and January 1, 2012. In April 2010, as the officer had no future performance obligations, the Company recorded severance expense of approximately $400,000, the full amount of principal and interest to be forgiven, within general and administrative expense in the accompanying consolidated statements of operations. 6. Redeemable Convertible Preferred Stock Warrant Liabilities
The redeemable convertible preferred stock warrants have an initial term of eight to ten years. The Companys outstanding redeemable convertible preferred stock warrant liabilities consisted of the following:
Number of Shares Outstanding Underlying Warrant Fair Value at December 31, 2008 2009 Fair Value at June 30, 2010 (unaudited)
Issue Date
Series
Exercise Price
(in thousands except share and per share data)
2005 2006 2007 2008 2010 (unaudited)
Series C Series C Series C Series D Series D
$ 4.30 4.30 4.30 5.06 5.06
248,560 14,972 98,485 2,369 284,584 648,970
$266 14 126 5 $411
$ 704 39 316 10 $1,069
685 37 310 10 1,399 2,441
The following weighted-average assumptions were used in determining the fair value of the outstanding redeemable convertible preferred stock warrant liabilities:
Years Ended December 31, 2008 2009 Six Months Ended June 30, 2010 (unaudited)
Risk free interest rate Expected dividend yield Expected volatility Expected term (years)
1.9% 0.0% 60.7% 7.1
2.8% 0.0% 61.0% 6.1
2.6% 0.0% 62.2% 7.5
During the years ended December 31, 2007, 2008 and 2009, the Company recognized income of approximately $0.3 million, income of approximately $0.3 million, and expense of approximately $0.7 million, respectively, related to changes in the fair value of these redeemable convertible preferred stock warrants. During the six month periods ended June 30, 2009 and 2010, expense of approximately $0.1 million, was recognized each period related to changes in the fair value of these redeemable convertible preferred stock warrants. F-24
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7.
Debt, Commitments and Contingencies The following is a reconciliation of the carrying amount of the Companys various debt instruments:
Debt Summary
Equipment notes payable Working capital notes Bridge loan notes Accretion of repayment premium Total notes payable Discount on notes payable Total notes payable, net of debt discount Current portion of notes payable Current portion of debt discount Current portion of notes payable, net of debt discount Notes payable, net of current portion Equipment Notes Payable
$ 3,117 5,523 8,640 (320) 8,320 (4,823) 176 (4,647) $ 3,673
$ 1,281 2,544 19,988 3,052 26,865 (997) 25,868 (2,578) 415 (2,163) $23,705
673 12,000 12,673 (1,515) 11,158 (1,547) 290 (1,257)
9,901
The Company has outstanding promissory notes under two master security agreements with lenders to finance equipment purchases. The promissory notes expire on various dates through 2012 and bear interest at rates between 8.39% and 11.35%. The debt obligations are repayable in monthly installments and are secured by the financed equipment. There are no funds available for future borrowings. In conjunction with entering into these master security agreements, the Company issued warrants to purchase 2,324 shares of Series B convertible preferred stock, 36,436 shares of Series C redeemable convertible preferred stock and 2,369 shares of Series D redeemable convertible preferred stock. Working Capital Notes In October 2005 and September 2007, the Company entered into an aggregate of $14.0 million in loan and security agreements with a capital lender for the purpose of additional working capital. Interest on the promissory notes accrues at rates between approximately 12.1% and 13.1%. Payments were made on accrued interest only on a monthly basis for the first 12 months. Thereafter, the notes were being amortized on a schedule of 30 equal monthly payments including principal and interest through June 2011. In conjunction with these working capital loan agreements, the Company granted the lender warrants for the purchase of 325,581 shares of Series C redeemable convertible preferred stock. In March 2010, the working capital notes were repaid as part of a new financing, or the Venture Loans, in which the Company received $12.0 million in gross proceeds. The Venture Loans were designated for general working capital and to repay $2.2 million of working capital notes. The Venture Loans are to be repaid over 42 months, with the first 12 months being interest only. The annual interest rate, excluding the final payment, is fixed at 12.25%. The final payment includes additional interest of 3.0% of the initial loan amount, or $360,000 which is being accreted over the life of the note using the effective interest method and is included in interest expense. The Venture Loans are secured by a first priority security interest in all assets, excluding intellectual property for which the Company has provided a negative pledge. In addition, the Company issued the lenders F-25
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. Debt, Commitments and Contingencies (Continued)
warrants to initially purchase an aggregate of 284,584 shares of Series D redeemable convertible preferred stock. The warrants contain certain antidilution provisions which provide that the per share exercise price shall equal, at the option of the lenders, either $5.06 or the price per share of the next preferred stock financing which includes venture capital investors in an aggregate cash amount not less than $5.0 million. The number of shares for which the warrants are exercisable shall be determined by dividing $1.4 million by the exercise price, as adjusted, of the warrants. The warrant contains a net issuance provision such that the lenders may exchange the warrants for shares without the payment of any additional cash consideration. Bridge Loans History and pre-conversion terms: In June 2009, the Company entered into a Note and Warrant Purchase Agreement, the Agreement, pursuant to which certain investors agreed to loan the Company up to $17.9 million, the Bridge Financing. During 2009, the Company drew down the entire $17.9 million available under the Bridge Financing. Outstanding balances under the Bridge Financing accrued interest at a rate of 8.0% per annum compounded annually. The Company issued to its Bridge Financing investors Secured Subordinated Convertible Promissory Notes, the Convertible Promissory Notes, under which all outstanding principal and interest amounts were due on June 5, 2011. In the event that the Convertible Promissory Notes did not convert prior to maturity, the Company would have been obligated to satisfy the notes outstanding by making a payment equal to: (i) all unpaid principal and unpaid interest, and (ii) an additional amount equal to the original principal sum of the notes. On June 30, 2010, the principal and accrued interest under the Bridge Financing converted into 6,068,084 shares of Series D redeemable convertible preferred stock. In July 2009, Ambit Canada and the Company entered into a Note and Warrant Purchase Agreement, the Canadian Agreement, pursuant to which GrowthWorks agreed to loan Ambit Canada up to $2.1 million, the Canadian Bridge Financing. During 2009, Ambit Canada drew down the entire $2.1 million available under the Canadian Bridge Financing. Outstanding balances under the Canadian Bridge Financing accrued interest at a rate of 8.0% per annum compounded annually. Ambit Canada issued Secured Notes, Non-Convertible Promissory Notes, to GrowthWorks, under which all outstanding principal and interest amounts were due on July 8, 2011. In the event that the Convertible Promissory Notes, above, converted for any reason, these Non-Convertible Promissory Notes would automatically be used as consideration for the exercise of certain redeemable convertible preferred stock warrants issued pursuant to the Canadian Agreement. In the event that the Convertible Promissory Notes did not convert prior to maturity, Ambit Canada would have been obligated to satisfy the Non-Convertible Promissory Notes outstanding by making a payment equal to: (i) all unpaid principal and unpaid interest, and (ii) an additional amount equal to the original principal sum of the notes. On June 30, 2010, the principal and accrued interest under the Canadian Bridge Financing converted into 681,123 shares of Series D redeemable convertible preferred stock. In addition, in connection with both the Bridge Financing and Canadian Bridge Financing, the Company issued warrants for the purchase an aggregate of 1,946,748 shares of the Companys common stock. In all cases, the non-contingent repayment amount, due at maturity, was in excess of the fair value of the embedded beneficial conversion feature at the commitment date. The Bridge Financing and Canadian Bridge Financings were being accreted to the non-contingent repayment amount using the effective interest method over the expected term of the related debt. This accretion resulted in an increase in the carrying value of the related debt and a charge to interest expense in the amount of $3.0 million and $4.3 million for the year ended December 31, 2009 and the six months ended June 30, 2010, respectively. F-26
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Conversion of Bridge Financing and Canadian Bridge Financing: On June 30, 2010, principal and accrued interest outstanding on both the Bridge Financing and the Canadian Bridge Financing converted into a total of 6,749,207 shares, respectively, of the Companys Series D redeemable convertible preferred stock based on the formulas provided in the respective agreements. The conversion was the result of a determination by a Special Committee of independent board members that a Partnership Transaction, as defined in the Bridge Financing and Canadian Bridge Financing agreements, occurred when the Company exceeded $45.0 million in cash payments and cost savings through an agreement with Astellas Pharma Inc. and Astellas US LLC. As of June 30, 2010, no principal, accrued interest, or Canadian Bridge Financing Warrants related to the Bridge Financing and Canadian Bridge Financing remained outstanding. However, the 1,946,748 common warrants remain outstanding as of June 30, 2010 (unaudited). The Company calculated a gross non-cash beneficial conversion charge of $9.3 million. The net charge at the time of conversion was reduced by $7.3 million which represents the amount of accretion recorded prior to conversion. As a result, the net beneficial conversion recorded at the time of conversion was $2.0 million. This charge is included in interest expense in the accompanying consolidated statements of operations. Facility Lease The Company leases its office facility under a noncancelable operating lease that expires in July 2014, with an option to extend for an additional five (5) years. In addition to the minimum lease payments, the Company is required to pay a pro-rata share of certain building expenses. In accordance with the lease, the Company paid a $0.1 million security deposit which is included in deposits and other assets. The lease includes annual escalations in base rent and a tenant improvement allowance of approximately $0.4 million. Effective July 2009, the Company subleased a portion of its office facilities. This sublease agreement initially had a termination date of July 31, 2010, and provided for an option to extend for two (2) additional six (6) months periods. The initial base rent was $30,000 per month with a security deposit of $60,000. In August 2010, the subtenant exercised its right to increase its rentable square feet and agreed to extend the term of the sublease through January 31, 2011 at a new base rent amount is $36,892 per month. Sublease income was approximately $0.2 million for both the year ended December 31, 2009, and the six-month period ended June 30, 2010 (unaudited). Rent expense was $1.4 million, $1.5 million and $1.7 million for the years ended December 31, 2007, 2008 and 2009, respectively, and was $0.9 million and $0.8 million for the six months ended June 30, 2009 and 2010, respectively. F-27
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Commitments Payment schedules for commitments and contractual obligations at June 30, 2010, are as follows:
Debt Operating Leases (unaudited, in thousands) Total
Period ending December 31, 2010 2011 2012 2013 2014 Total minimum payments Less interest Less current portion of notes payable Long-term notes payable, net of current portion
$ 1,084 4,497 5,694 5,029 16,304 3,631 1,547 $11,126
890 1,778 1,823 1,878 1,114
$ 1,974 6,275 7,517 6,907 1,114 $23,787
$ 7,483
Interest expense totaled $1.9 million, $1.7 million and $4.9 million for the years ended December 31, 2007, 2008 and 2009, respectively, and $0.7 million and $9.2 million for the six months ended June 30, 2009 and 2010, respectively. Interest expense includes noncash interest attributable to: (i) beneficial conversion charges, (ii) the accretion to 2x principal repayment, and (iii) the accretion of debt discount. Litigation From time to time, the Company may be involved in various lawsuits, legal proceedings or claims that arise in the ordinary course of business. Management does not believe any legal proceedings or claims pending at June 30, 2010, will have, individually or in the aggregate, a material adverse effect on its business, liquidity, financial position or results of operations. Litigation, however, is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Companys business. 8. Convertible Preferred Stock and Stockholders Deficit The authorized, issued and outstanding shares of convertible preferred stock by series are as follows as of December 31, 2008:
Shares Authorized Shares Outstanding Liquidation Preference (in thousands)
Redeemable convertible preferred stock: Series C Series C-2 Series D Convertible preferred stock: Series A Series B
7,076,718 1,538,462 17,950,000 26,565,180 162,519 1,975,677 2,138,196 F-28
6,714,701 9,120,560 15,835,261 162,519 1,966,753 2,129,272
28,873 46,150 75,023 1,220 17,013 18,233
$ $ $
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. Convertible Preferred Stock and Stockholders Deficit (Continued) The authorized, issued and outstanding shares of convertible preferred stock by series are as follows as of December 31, 2009:
Shares Authorized Shares Outstanding Liquidation Preference (in thousands)
7,076,718 1,538,462 17,950,000 26,565,180 162,519 1,975,677 2,138,196
5,139,734 8,972,338 14,112,072 46,666 1,549,128 1,595,794
22,101 45,400 67,501 351 13,401 13,752
$ $ $
The authorized, issued and outstanding shares of convertible preferred stock by series are as follows as of June 30, 2010 :
Shares Authorized Shares Outstanding (unaudited) Liquidation Preference (in thousands)
7,076,718 1,538,462 17,950,000 26,565,180 162,519 1,975,677 2,138,196
5,139,734 15,721,545 20,861,279 46,666 1,549,128 1,595,794
22,101 79,551 101,652 351 13,401 13,752
$ $ $
Redeemable Convertible Preferred Stock The shares of Series C, Series C-2 and Series D, redeemable convertible preferred stock, are convertible at the option of the holder into shares of common stock at a ratio of 1:1, subject to adjustments for anti-dilution. The holder of each share of Series C, Series C-2 and Series D redeemable convertible preferred stock is entitled to one vote for each share of common stock into which it would convert. Each holder of Series C, Series C-2 and Series D redeemable convertible preferred stock are entitled to non-cumulative dividends at an annual rate of 8.0% of the original issue price when and if declared by the Board of Directors and in preference to the Series A and Series B convertible preferred stock. Additionally, in the event dividends were approved, holders of Series D redeemable convertible preferred stock have preference to the holders of the Series C and Series C-2 redeemable convertible preferred stock. F-29
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. Convertible Preferred Stock and Stockholders Deficit (Continued)
The Series D redeemable convertible preferred stock is mandatorily redeemable if, after five years from October 30, 2007, the holders of at least 67.0% of the Series D shares elect to cause the Company to redeem the stock. The redemption shall occur over 12 equal quarterly installments at an initial price of $5.06 per share, subject to adjustment, plus any declared but unpaid dividends with the first redemption occurring within 60 days of written notice of the consent. In the event of a sale of shares of common stock (as defined) for an effective price less than the then effective Series D preferred conversion price then the existing Series D preferred conversion price shall be reduced. The Series C redeemable convertible preferred stock and Series C-2 redeemable convertible preferred stock become subject to redemption if: (i) all of the outstanding shares of Series D redeemable convertible preferred stock had been redeemed and (ii) the holders of at least 67.0% the Series C redeemable convertible preferred stock and the Series C-2 redeemable convertible preferred stock shares elect to cause the Company to redeem the stock. The redemption shall occur over 12 equal quarterly installments, with the first redemption occurring within 60 days of written notice of the consent. The redemption price of the Series C redeemable convertible preferred stock is $4.30 per share plus declared and unpaid dividends and the redemption price of the Series C-2 redeemable convertible preferred stock is $3.25 per share plus declared and unpaid dividends. In 2004 and 2005, the Company issued 6,714,701 shares of Series C redeemable convertible preferred stock at prices ranging from $4.30 to $5.59 per share. The Company was originally obligated to redeem the outstanding shares of Series C redeemable convertible preferred stock at $8.60 per share. The difference between the carrying value and the redemption value of the Series C redeemable convertible preferred stock was being accreted over a five-year period. In October 2007, the redemption price of the Series C redeemable convertible preferred stock was changed from $8.60 to $4.30 under the terms of the Series D Preferred Stock Purchase Agreement. At that time the carrying value of the Series C redeemable convertible preferred stock equaled the redemption value and accretion ceased being recorded, except for the amortization of the transaction costs which are being accreted over a five-year period. The combined aggregate amount of redemption requirements for all issues of capital stock that are redeemable assuming exercise of redemption rights at the earliest possible date, is as follows: As of December 31, 2009:
Series C Series D (in thousands) Total
Years ending December 31, 2012 2013 2014 Thereafter Total redemption requirements F-30
22,101
$ 3,784 15,133 15,133 11,350 $45,400
$ 3,784 15,133 15,133 33,451 $67,501
$22,101
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 8. Convertible Preferred Stock and Stockholders Deficit (Continued) As of June 30, 2010:
Series C Series D Total (in thousands, unaudited)
Years ending December 31, 2012 2013 2014 2015 Thereafter Total redemption requirements Convertible Preferred Stock
1,842 20,259
$ 6,629 26,517 26,517 19,888 $79,551
6,629 26,517 26,517 21,730 20,259
$22,101
$101,652
The shares of Series A and B convertible preferred stock are convertible at the option of the holder into shares of common stock at a ratio of 1:1. The holder of each share of Series A and Series B convertible preferred stock is entitled to one vote for each share of common stock into which it would convert. Holders of the Series A and Series B convertible preferred shares are entitled to non-cumulative dividends at an annual rate of 8.0% of the original issue price when and if declared by the Board of Directors. Dividends Through June 30, 2010, the Board of Directors of the Company has not declared any dividends. Liquidation In the event of liquidation, the Series D redeemable convertible preferred stockholders receive an original liquidation preference equal to $5.06 per share plus declared but unpaid dividends. The liquidation preference of the Series D redeemable convertible preferred stock shall have preference over the Series A convertible preferred stock, Series B convertible preferred stock, Series C redeemable convertible preferred stock, Series C-2 redeemable convertible preferred stock and common stock. In the event of liquidation, the Series C redeemable convertible preferred stockholders receive a liquidation preference equal to $4.30 per share plus declared but unpaid dividends and the Series C-2 redeemable convertible preferred stockholders receive a liquidation preference equal to $3.25 per share plus declared but unpaid dividends. The liquidation preference of the Series C redeemable convertible preferred stock and the Series C-2 redeemable convertible preferred stock shall have preference over the Series A convertible preferred stock, Series B convertible preferred stock and common stock. In the event of liquidation, the Series A and B convertible preferred stockholders receive a liquidation preference equal to $7.50 and $8.65 per share, respectively, plus declared but unpaid dividends. The liquidation preference has priority over all distributions to common stockholders. After payment of the liquidation preferences, the convertible preferred stockholders are entitled to participate on a pro rata basis with common stockholders in the liquidation of the remaining assets. F-31
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Warrants Issued in Conjunction with Debt Following is a summary of all warrants outstanding and the related original fair value that was recorded as debt discount. The redeemable convertible preferred stock warrants are re-measured at each financial reporting period.
Issue Date Series Financing Type Expiration Date Exercise Price Warrants Issued Debt Discount (in thousands)
December 2003 October 2005 October 2005 December 2005 July 2006 October 2006 December 2006 March 2007 June 2007 September 2007 August 2008 June 2009 July 2009 July 2009 September 2009 September 2009 November 2009 November 2009 July 2009 September 2009 November 2009 March 2010 (1) (unaudited)
Series B Series C Series C Series C Series C Series C Series C Series C Series C Series C Series D Common Common Common Common Common Common Common Common Common Common Series D
Working capital Working capital Equipment Equipment Equipment Equipment Equipment Equipment Equipment Working capital Equipment Convertible promissory note Convertible promissory note Convertible promissory note Convertible promissory note Convertible promissory note Convertible promissory note Convertible promissory note Non-convertible promissory note Non-convertible promissory note Non-convertible promissory note Working capital
December 2010 October 2015 October 2013 December 2013 July 2014 October 2014 December 2014 March 2015 June 2015 September 2017 August 2016 June 2019 June 2019 July 2019 June 2019 July 2019 June 2019 July 2019 July 2019 July 2019 July 2019 March 2020
$ 8.65 4.30 4.30 4.30 4.30 4.30 4.30 4.30 4.30 4.30 5.06 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 0.91 5.06
603 232,558 8,795 7,207 10,930 2,336 1,706 3,052 2,410 93,023 2,369 622,164 237,398 36,601 585,152 25,749 252,270 11,020 88,197 61,738 26,459 284,584 2,596,321
4 786 28 23 35 8 6 10 8 331 8 356 135 21 406 18 171 7 50 43 18 1,282 3,754
(1)
The exercise price and number of warrants issued are based on the current value of the underlying security. The exercise price is the lowest of: (i) $5.06 or (ii) the effective price per share at which shares of the Companys convertible preferred stock are sold in a Qualified Financing (as defined).
The grant date fair value of the warrants issued was determined using either the Black-Scholes option pricing model or a binomial model, depending on the characteristics of the warrants, with the following assumptions: risk-free interest rate of 3.6% 5.1%; dividend yield of 0%; expected volatility of 60.7% 72.7%; and expected lives based on the contractual term of the related warrant. The debt discount related to the equipment loans, working capital loans and non-convertible and convertible promissory notes is based on the estimated grant date fair value of the warrants issued and is amortized over the term of the related debt instrument based on the effective interest method. All of the above warrants are outstanding and exercisable as of June 30, 2010 (unaudited). F-32
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Common Shares Reserved for Issuance The following table summarizes common shares reserved for future issuance on exercise or conversion of the following:
December 31, 2009 June 30, 2010 (unaudited)
Convertible preferred stock outstanding Redeemable non-controlling interest Warrants for convertible preferred stock Warrants for common stock Convertible bridge note Common stock options outstanding Common stock options available for grant Total common shares reserved for future issuance
15,707,866 2,151,110 365,449 1,946,748 6,591,626 3,476,138 1,144,071 31,383,008
22,457,073 2,151,110 649,573 1,946,748 3,487,051 1,105,989 31,797,544
The table above does not reflect the 592,842 warrants or potential other share issuances related to the contingent conversion provisions of the Companys September 30, 2010 debt financing. 9. Stock Options
2001 Equity Incentive Plan In January 2001, the Company adopted the 2001 equity incentive plan, the 2001 Plan, under which, as amended, 4.9 million shares of common stock have been reserved for issuance as of June 30, 2010. The 2001 Plan provides for the grant of incentive and non-statutory stock options, stock bonuses and rights to purchase restricted common stock by employees, directors and consultants of the Company with up to a ten-year contractual term and various vesting periods as determined by the Companys compensation committee or board of directors. The 2001 Plan provides that incentive stock options will be granted only to employees at no less than fair value of the Companys common stock (no less than 85.0% of the fair value for non-statutory stock options), as determined by the board of directors at the date of grant. As of December 31, 2009 and June 30, 2010, approximately 1.1 million shares remained available for future grant in each period. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model, which uses the weighted-average assumptions noted in the following table. Risk-free interest rate is determined based on the United States Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. Expected dividend yield is based on the Companys expectation of not paying dividends in the foreseeable future. Due to the Companys limited historical data, the estimated volatility incorporates a combination of the historical volatility of comparable companies whose share prices are publicly available. A forfeiture rate is applied based upon historical pre-vesting cancellations. The expected term of options is calculated using the simplified method as prescribed under the relevant accounting literature based on the lack of relevant historical data due to the Companys limited historical experience. F-33
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9. Stock Options (Continued)
Years Ended December 31, 2008 Six Months Ended June 30, 2009 2010
2007
2009
Risk free interest rate Expected dividend yield Expected volatility Forfeiture rate Expected term (years) The following tables summarize stock option activity under the Plan:
4.5% 0.0% 63.2% 14.8% 6.1
3.0% 0.0% 59.5% 13.7% 6.2
2.3% 0.0% 61.0% 12.2% 6.1
2.2% 0.0% 61.0% 12.2% 6.1
2.6% 0.0% 61.7% 12.2% 6.1
Number of Options (in thousands)
Weighted-Average Exercise Price
Options outstanding, December 31, 2008 Granted Exercise Expired Forfeitures Options outstanding, December 31, 2009 Granted Exercise Expired Forfeitures Options outstanding, June 30, 2010 (unaudited) The following table summarizes information about stock options:
3,129 673 (6) (247) (73) 3,476 508 (27) (211) (259) 3,487
0.73 0.73 0.68 0.67 0.84 0.73 1.54 0.82 0.51 0.87
0.85
2007
Years Ended December 31, 2008
Six Months Ended June 30, 2009 2009 2010 (unaudited) (in thousands, except per share data and contractual terms)
Weighted-average grant date fair value per share of options granted Weighted-average remaining contractual term (years) of options outstanding Aggregate intrinsic value of options outstanding Intrinsic value of options exercised Cash received upon exercise of stock options
$0.52 7.18 $ 635 $ 14 $ 27
$0.32 7.46 $ 78 $ 1 $ 6
$ 0.36 7.45 $2,809 $ 2 $ 4
$0.31 7.81 $ 429 $ $ 3
$ 0.97 7.43 $2,398 $ $ 22
The following table summarizes information about the Companys stock option plan as of June 30, 2010:
Weighted-Average Remaining Weighted-Average Contractual Term Exercise Price (years) (unaudited, in thousands except per share data and contractual terms) Aggregate Intrinsic Value
Number of Options
Options vested and expected to vest Options exercisable
3,206 2,324 F-34
$ $
0.83 0.72
7.28 6.61
$ 2,262 $ 1,910
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9. Stock Options (Continued)
Due to the Companys full valuation allowance and net operating loss carryforwards, it did not realize tax benefit from option exercise or recognized a tax benefit in the accompanying consolidated statement of operations, during any period presented. The Company recorded share-based compensation for options granted to non-employees of approximately $4,000 and $15,000 for the years ended December 31, 2007 and 2008. No non-employee share-based compensation expense was recorded for the year ended December 31, 2009 and the six month periods ended June 30, 2009 and 2010. Total stock-based compensation, including that to non-employees, was allocated as follows:
2007 Years Ended December 31, 2008 2009 (in thousands) Six Months Ended June 30, 2009 2010 (unaudited)
Research and development General and administrative Total
$ 59 25 $ 84
$ 128 112 $ 240
$ 125 114 $ 239
$ $
59 45 104
$ $
85 119 204
As of December 31, 2009 and June 30, 2010, total gross unrecognized stock-based compensation costs related to non-vested stock options was approximately $0.4 million and $0.8 million, respectively, and the weighted-average period over which it is expected to be recognized is 2.28 years and 2.61 years, respectively. On June 29, 2010, the Companys Board of Directors, awarded 140,000 options of the Companys common stock, or the Performance Awards, to certain members of management, these options vest based on satisfaction of both a performance condition and a service condition. The Performance Awards are tied to the Company achieving two primary milestones as well as standard service conditions. If only one of the milestones is achieved management will vest in 30.0% of the shares subject to the Performance Awards, assuming the service condition is also met. If both of the milestones are achieved management will vest in 100.0% of the shares subject to the Performance Awards, assuming the service condition is met. As of the date of issuance and at June 30, 2010, management determined that it was probable that the Company would achieve both milestones and therefore that management would vest in 100.0% of the options subject to the Performance Awards. The weighted-average grant date fair value of the Performance Awards was $0.90 per share using the Black-Scholes option pricing model based on the following assumptions: risk-free interest rate of 2.6%, dividend yield of 0.0%, expected volatility of 61.2% and an expected term of 6.1 years. Share-based compensation expense associated with the Performance Awards is being recorded over the estimated requisite service period. Stock-Based Compensation For purposes of estimating the fair value of its common stock for stock option grants, the Company re-assessed the estimated fair value of its common stock during each quarterly period in 2009 and 2010. The reassessment included both the determination of the appropriate valuation model and related inputs. For grants made between January 1, 2009 and February 4, 2009 the Company concluded that the reassessed fair value of its common stock was lower than the exercise price of options granted. For option grants made February 5, 2009 through June 30, 2010, the Company concluded that the reassessed fair value of its common stock was higher than the exercise price of options granted. These fair value reassessments were used to determine stock-based compensation expense recorded in the financial statements. F-35
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9. Stock Options (Continued) The following table summarizes stock option grants from January 1, 2007 through June 30, 2010:
Shares Subject to Options Granted Exercise price per Share Estimated Fair Value of Common Stock per Share at Date of Grant Intrinsic Value per Share at Date of Grant
Grant Date
Calendar 2007 Calendar 2008 February 4, 2009 March 31, 2009 April 30, 2009 May 21, 2009 May 29, 2009 November 3, 2009 November 30, 2009 June 29, 2010 (unaudited) 10. Collaboration Arrangements
529,450 1,123,273 291,613 30,000 30,000 200,000 20,000 45,000 56,500 507,500
0.83 0.91 0.91 0.59 0.59 0.59 0.59 0.59 0.59 1.54
0.83 0.91 0.63 0.61 0.61 0.61 0.61 0.96 0.95 1.62
0.02 0.02 0.02 0.02 0.37 0.36 0.08
Astellas Pharma Inc. In December 2009, the Company entered into an agreement with Astellas Pharma Inc. and Astellas US LLC, or collectively Astellas, to jointly, research, develop and commercialize FLT3 kinase inhibitors in oncology and non-oncology indications. Under the agreement, the Company granted Astellas an exclusive worldwide license, with limited rights to sublicense, to quizartinib and certain metabolites and derivatives of those compounds. In addition, the agreement provides that the Company and Astellas will conduct a joint five-year research program related to preclinical development of certain designated follow-on compounds to quizartinib. Astellas has sole ownership of all regulatory materials and approvals related to the compounds in exchange for certain payments described below and their commitment to jointly develop, and then commercialize and promote products based on the licensed technology. The Company shares development costs in the United States and the European Union and research costs for follow-on compounds equally with Astellas, including, among others, costs related to manufacturing, labor, materials and services provided by third parties. Astellas is solely responsible for development costs associated with the products covered by the agreement outside the United States and the European Union and 100% of the worldwide commercialization costs. However, the Company retains an option, exercisable during certain periods, to co-promote within the United States any product licensed to Astellas under the agreement, foregoing royalties on sales in exchange for a 50% share of profits and losses. The Company has operational responsibility for the manufacture and supply of all quantities of quizartinib to Astellas for a limited period of time to ensure the successful transfer of manufacturing technology to Astellas. Astellas has the sole right and option, at its own expense, to make regulatory filings and to determine the contents of such filings. In December 2009, as partial consideration for the license rights granted to Astellas, Astellas paid the Company an upfront, non-refundable fee of $40.0 million and upon the successful achievement of clinical development and regulatory milestones, the Company is eligible to receive from Astellas up to an additional $350 million. Further, the Company may become entitled to receive from Astellas tiered double-digit royalty payments calculated as a percentage of aggregate net sales and annual sales milestone payments. Astellas royalty payment obligations are payable on a product-by-product, country-by-country basis beginning on the date of the first commercial sale of a licensed product in that country and ending the later of 10 years after the date of such first commercial sale in that country (or the European Union) or the expiration date of the last relevant patent or regulatory exclusivity period. F-36
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 10. Collaboration Arrangements (Continued)
The agreement expires on a country-by-country, product-by-product basis upon the expiration of all royalty or other payment obligations under the agreements. Upon expiration of the agreement, Astellas licenses become fully paid-up, perpetual, non-exclusive licenses and neither party has further rights or obligations under the agreement. Astellas may terminate the agreement for convenience and without cause on a country-by-country, product-by-product basis upon delivery of 180 days written notice to the Company. Upon delivery of 30 days written notice to the Company, Astellas may terminate the agreement on a product-by-product basis for safety or regulatory concerns (provided we concur with the basis of concern), or a country-by-country, product-by-product basis if Astellas concludes reasonably and in good faith that continued development or commercialization will infringe upon the patent rights of a third-party or a third-party institutes or threatens suit against the Company or Astellas, claiming that development or commercialization of a licensed product infringes or misappropriates its patent rights and Astellas concludes reasonably and in good faith that there is substantial likelihood that such suit will be successful. Either party may terminate the agreement for the other partys uncured material breach. Also, a partys dissolution, liquidation, bankruptcy or insolvency gives the other party a right to terminate. Upon termination of the agreement by Astellas for convenience or due to safety or anticipated patent infringement violations, or termination by the Company in the case of Astellas material breach bankruptcy or insolvency, the licenses and rights granted to Astellas terminate. It was determined that there is one unit of accounting under the Astellas contract. As a result, the $40.0 million non-refundable license fee is being recognized on a straight-line basis over 6.25 years, which is the Companys estimate of the maximum period over which it will be jointly developing the lead product, quizartinib. The Company recorded revenues from collaboration arrangements under this agreement of $0.5 million and $9.0 million in the year ended December 31, 2009 and in the six months ended June 30, 2010 (unaudited), respectively. Deferred revenues under this agreement was $39.8 million and $36.6 million as of December 31, 2009 and June 30, 2010 (unaudited), respectively. The agreement with Astellas automatically terminates upon the expiry of all royalty, co-promotion and other payment obligations required by the agreement. Additionally, Astellas has the right to terminate the agreement for convenience on a country-by-country basis (provided that if such termination is with respect to any country in the European Union, it shall be with respect to all of the European Union) at any time in its sole discretion by giving 180 days advance written notice to the Company. Bristol-Myers Squibb Company October 2007 AC480 License Agreement In October 2007, the Company and Bristol-Myers Squibb Company, or BMS, entered into a license agreement with BMS for the worldwide development and commercialization of AC480. Under the agreement, the Company acquired an exclusive, worldwide, non-transferable license to exploit certain patents and other intellectual property related to AC480. The Company also maintains limited rights to sublicense AC480, subject to a right of first offer retained by BMS. Pursuant to the agreement the Company assumes sole responsibility, including related costs, for the development and commercialization AC480. The Company is obligated to use commercially reasonable efforts to develop at least one licensed product and to obtain all necessary regulatory filings, approvals and marketing authorizations related to such product in accordance with the agreed-upon development plan. In addition, the Company is required to use commercially reasonable efforts to commercialize at least one licensed product in the United States, Germany, the United Kingdom, France, Spain or Italy. Following the first commercial sale of any licensed product in any of these markets the Company must keep such product reasonably available to the public in such market until the expiration or termination of the agreement. The Company is solely responsible for the manufacture of any licensed product. F-37
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Upon the completion of certain United States and international clinical development and regulatory milestones, the Company may be required to pay BMS up to $62.0 million. Additionally, BMS is entitled to tiered royalty payments calculated as a percentage of net sales of licensed products. The royalty rate increases based on certain annual net sales thresholds. The Companys royalty payment obligations are payable on a product-by-product and country-by-country basis beginning on the date of first commercial sale of a licensed product in a country and ending on the later of 10 years after the date of such sale in that country or the expiration date of the last to expire patent covering the licensed product in that country or the expiration of all applicable regulatory exclusivity periods granted by applicable regulatory authorities with respect to such product in that country. Absent early termination by either party, the agreement will expire upon the expiration of all the Companys royalty obligations to BMS, determined on a product-by-product and country-by-country basis. Following such expiration in accordance with its terms, the agreement provides that the Companys licenses will remain in effect. BMS has the right to terminate the agreement early if the Company: (i) enters into bankruptcy, (ii) materially breaches the agreement, (iii) fails to use commercially reasonable efforts to develop and commercialize AC480, or (iv) BMS terminates the October 2007 AC480 profiling services agreement on the basis of an uncured material breach of that agreement. Upon such early termination by BMS, all rights and licenses under the agreement revert to BMS along with all related intellectual property. Additionally, if the Company is commercially manufacturing such products at the time of a BMS early termination, the Company may be obligated to continue manufacturing such products for BMS for a maximum of 12 months following termination with the right to receive from BMS 115.0% of the manufacturing costs of products sold after termination. The Company has the right to terminate the agreement at will at any time on a product-by-product, country-bycountry basis upon either three months written notice for any licensed product for which NDA approval has not been obtained or upon six months written notice for any licensed product for which NDA approval has been obtained. Upon such termination by the Company, all right and licenses under the agreement will revert to BMS along with all related intellectual property. Both the Company and BMS are entitled to assign their rights under the agreement in the event of a change in control, subject to certain conditions described in the agreement. October 2007 Profiling Services Agreement As partial consideration for the October 2007 AC480 licensing agreement, the Company entered into a profiling services agreement with BMS. In exchange for an upfront $6.0 million payment from BMS and rights conferred under the October 2007 AC480 License Agreement, the Company agreed to reserve a minimum amount of monthly kinase screening capacity for the profiling of BMS compounds and use commercially reasonable efforts to accommodate requests in excess of such minimums. Under the agreement, the Company has the right to designate up to four target assays and negotiate license agreements with BMS for its compounds that demonstrate activity against those targets. Prior to the divestment of the Companys kinase profiling services business, the Company completed its obligations to provide profiling services under the agreement. The remainder of the agreement remains in effect until terminated pursuant to its terms. BMS has a right to terminate the agreement early, without cause, upon delivery of six months notice and may terminate any time following an event resulting in a change of control of the Company. Either party may terminate the agreement upon the uncured material breach by the other party which, in the case of a breach by the Company, would result in the termination of any license borne from the Companys rights under this agreement. The Company recorded the receipt of the worldwide product rights to AC480, a panHER kinase inhibitor (targeted cancer compound) based on its fair value. The fair value of the AC480 compound was determined F-38
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utilizing the market approach, assuming that the fair value of the AC480 compound rights can be determined by review of available valuations of identified comparable compounds to approximate the value of the AC480 compound. The market approach makes use of publicly available information on assets that are deemed to be similar to the AC480 compound. In selecting comparable compounds, the Company targeted kinase inhibitors currently approved in the marketplace or under clinical development as comparable compounds to AC480. After selecting comparable compounds, a review of license agreements involving the comparable compounds was conducted. For purposes of the application of this method, only upfront cash payments and committed cash R&D support were used to determine the implied value of the comparables. Milestone, royalty, or profit splits were excluded from the fair value calculation due to the early nature of these compounds and the uncertainty regarding the timing and achievability of any milestone, royalty, or profit split terms. Under the methodology described above, the Company identified four comparable Phase 1 cancer licensing deals with R&D support payments and estimated a fair value of $25.0 million for the AC480 compound. Because the acquired AC480 compound is in the early stage of the development cycle, technological feasibility has not been established, and there are no alternative future uses, the in-process research and development project was recorded as expense immediately upon receipt from BMS. Kinase profiling services (held-for-sale) revenues recognized under these agreements of $3.0 million, $17.1 million and $9.7 million for the years ended December 31, 2007, 2008 and 2009, respectively, and $4.6 million and $1.2 million for the six months ended June 30, 2009 and 2010 (unaudited), respectively. Deferred revenues, included in liabilities held-for-sale in the accompanying consolidated balance sheets, was $11.3 million, $2.2 million and $0.4 million, as of December 31, 2008, December 31, 2009 and June 30, 2010 (unaudited), respectively. Cephalon, Inc. In November 2006, the Company entered in a exclusive collaboration agreement with Cephalon, aimed at identifying and developing clinical candidates that demonstrate activity towards the two designated target kinases of the collaboration. Under the agreement, both parties contributed certain intellectual property to the collaboration and agreed to a period of exclusivity during which neither party would engage in any research related to a collaboration target compound with a third-party. Cephalon paid the Company an upfront fee of $15.5 million as partial consideration for access to the Companys profiling technology and the licenses the Company contributed to the collaboration. The Company received a $1.0 million milestone payment under the agreement to date and may be entitled to receive up to $46.5 million in additional milestone payments upon the achievement of certain development, regulatory and sales milestones along with tiered royalty payments calculated as a percentage of sales of the collaboration compounds. Royalties are payable to the Company on a product-by-product, country-by-country basis, beginning on the date of first commercial sale in a country and ending on the later of 10 years after the date of such sale in that country or the expiration date of the last to expire patent covering the licensed product in that country. The collaborative portion of the agreement ended in November 2009, at which point the Company had completed all its research obligations under the agreement. The agreement remains in effect on a product-by-product, country-by-country basis until all royalty obligations have expired. Both parties have a right to terminate the agreement early if the other party enters bankruptcy or upon an uncured breach by the other party. F-39
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Kinase profiling services (held-for-sale) revenues recognized related to Cephalon was $3.8 million, $0.9 million and $1.0 million during the years ended December 31, 2007, 2008 and 2009, respectively, and $0.4 million during the six months ended June 30, 2009 (unaudited). There were no revenues from kinase profiling services (held-for-sale) under these two agreements during the six months ended June 30, 2010 (unaudited). In addition, revenues from collaboration arrangements recognized under these two agreements was $3.6 million, $3.6 million, and $3.0 million during the years ended December 31, 2007, 2008 and 2009, respectively, and $1.8 million during the six months ended June 30, 2009 (unaudited). There were no revenues from collaboration arrangements recognized under these two agreements during the six months ended June 30, 2010 (unaudited). Deferred revenues, included in liabilities held-for-sale in the accompanying consolidated balance sheets, was $1.2 million, $0.2 million and $0.2 million as of December 31, 2008, December 31, 2009 and June 30, 2010 (unaudited), respectively. 11. Income Taxes Loss before income taxes is as follows:
2007 Years Ended December 31, 2008 2009 (in thousands)
United States operations Foreign operations
$(39,360) (822) $(40,182)
$(9,661) (173) $(9,834)
$(22,299) (4,354) $(26,653)
The provision for (benefit) from taxes consists of the following:

Years Ended December 31, 2008 (in thousands)
2007
2009
Current: Federal State and local Non-U.S. Total current Total deferred Total provision A reconciliation between the Companys effective tax rate and the federal statutory tax rate is as follows:
$147 49 196 $196
$ $
$(191) (191) $(191)
2007
Years Ended December 31, 2008
2009
Income tax benefit at federal statutory rate Income tax benefit at state statutory rate Research and development credits Change in valuation allowance Other, net
(35.0)% (5.6) (2.7) 43.6 0.2 0.5% F-40
(35.0)% (5.6) (10.4) 49.2 1.8 %
(35.0)% (4.8) (10.0) 41.7 7.4 (0.7)%
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. Income Taxes (Continued)
Significant components of the Companys deferred tax assets at December 31 are shown below. A valuation allowance has been established as realization of such deferred tax assets has not met the more likely-than-not threshold requirement. If the Companys judgment changes and it is determined that the Company will be able to realize these deferred tax assets, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets at December 31, 2009 will be accounted for as a reduction to income tax expense.
December 31, 2008 (in thousands) 2009
Deferred tax assets: Net operating loss carryovers Research and development credits Intangible Assets Deferred revenues and other Total deferred tax assets Deferred tax liabilities: Other comprehensive income Total deferred tax liabilities Net deferred tax asset Valuation allowance Net deferred tax assets
$ 24,865 4,222 9,338 6,814 45,239 (205) (205) 45,034 (45,034) $
$ 37,757 6,999 8,659 2,851 56,266 (158) (158) 56,108 (56,108) $
At December 31, 2008 and 2009, the Company had federal net operating loss carryforwards of approximately $59.9 million and $91.9 million, respectively. At December 31, 2008 and 2009, the Company had state net operating loss carryforwards of $57.8 million and $63.0 million, respectively. The federal and state tax loss carryforwards will begin to expire in 2022 and 2012, respectively, unless previously utilized. At December 31, 2008 and 2009, the Company also had federal research and development tax credit carryforwards of approximately $2.4 million and $3.6 million, respectively, which will begin expiring in 2025 unless previously utilized. At December 31, 2008 and 2009, the Company also had state tax credit carryforwards of approximately $4.3 million and $5.5 million, respectively, which carry forward indefinitely. Pursuant to IRC Section 382 and 383, use of the Companys net operating loss and research and development income tax credit carryforwards may be limited in the event of a future cumulative change in ownership of more than 50.0% within a three-year period. The Company completed an analysis under Internal Revenue Service Code (IRC) Sections 382 and 383 and determined that the Companys net operating losses and research and development credits may be limited due to changes in ownership through December 31, 2009. Further valuation work is necessary to confirm whether or not an ownership change actually occurred during 2004 or 2005, but because a change may have occurred the Company has reduced its 2009 federal and state net operating loss carryforwards by approximately $5.6 million each and the federal research and development tax credit carryforwards by $2.0 million. In July 2006, the Financial Accounting Standards Board issued a new accounting standard which clarifies the accounting for uncertainty in income taxes recognized in an entitys financial statements and prescribes a recognition threshold and measurement attributes to financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under this guidance, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a F-41
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 11. Income Taxes (Continued)
50.0% likelihood of being sustained upon audit. Additionally, this standard provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted the new accounting guidance related to accounting for uncertainty in income taxes on January 1, 2007. The following table summarizes the Companys liability for uncertain tax positions during the years ended December 31, 2007, 2008, and 2009 (in thousands): Gross unrecognized tax benefits at January 1, 2007 Increase in current year position Gross unrecognized tax benefits at December 31, 2007 Increase in current year position Gross unrecognized tax benefits at December 31, 2008 Increase in current year position Gross unrecognized tax benefits at December 31, 2009 $ 606 338 944 330 1,274 503 $1,777
The Company had approximately $1.8 million of gross unrecognized tax benefits as of December 31, 2009 that were recorded as a reduction to deferred tax assets, which caused a corresponding reduction in the Companys valuation allowance of $1.8 million. The Company does not anticipate that the amount of unrecognized tax benefits as of December 31, 2009 will significantly increase or decrease within the next twelve months. The Companys policy is to recognize interest and/or penalties related to income tax matters in income tax expense. During the years ended December 31, 2007, 2008 and 2009, the Company did not recognize any interest or penalties. The Company is subject to taxation in the United States, Canada and various state and provincial jurisdictions. The Company currently has no years under examination by the Internal Revenue Service or any state jurisdiction. The Companys tax years for 2000 and forward are subject to examination by the federal and California tax authorities due to the carryforward of unutilized net operating losses and research and development credits. 12. 401(k) Retirement Plan
The Company has adopted a 401(k) plan. All employees are eligible to participate, provided they meet the requirements of the plan. The Plan allows for discretionary matching, however, as of June 30, 2010 (unaudited), the Company has not matched employee contributions to the plan. 13. Plan to Divest Kinase Profiling Services Business
In February 2010, the Company decided to divest its kinase profiling services business within the next twelve months, due to a desire to focus resources on drug discovery and development. As a result of this decision, the related assets and liabilities have been reclassified as held-for-sale. This component of the business is not currently classified as a discontinued operation, and is not expected to be presented as a discontinued operation in the future as the Company anticipates significant ongoing cash flow associated with kinase profiling services subsequent to the sale. The ongoing future cash flow is based on the assumption that the Company will purchase kinase profiling services, currently performed internally, from the acquiring entity. The assets associated with this business have been reviewed for impairment based on the probability of a sale transaction. No impairment was determined necessary. The carrying amount of assets and liabilities are stated at the lower of their amortized cost or fair value less selling costs. F-42
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 13. Plan to Divest Kinase Profiling Services Business (Continued) The carrying amounts of the assets classified as held-for-sale are as follows:
Inventory, net Property and equipment, net Total assets held-for-sale The carrying amounts of the liabilities classified as held-for-sale are as follows:
$1,868 1,479 $3,347
$1,465 859 $2,324
$ $
1,116 807 1,923
December 31, 2008 2009 (in thousands)
June 30, 2010 (unaudited)
Deferred revenues Total liabilities held-for-sale 14. Subsequent Events (unaudited)
$12,555 $12,555
$2,648 $2,648
$ $
922 922
Debt Financing On September 30, 2010, the Company issued, on a consolidated basis, $15.0 million in secured subordinated convertible promissory notes. The notes accrue interest at 12.0% per annum and all principal and accrued interest thereon is due and payable on January 31, 2012. The notes automatically convert: (i) into shares of the Companys preferred stock upon a qualified financing, which is defined as a preferred stock financing primarily for capital-raising purposes led by one or more institutional investors, at a 15% discount to the amount paid per share in such financing; (ii) into shares of Series D redeemable convertible preferred stock at a price of $5.06 immediately prior to the closing of a sale of the Company; or (iii) into shares of the Companys common stock immediately prior to the closing of a firmly underwritten initial public offering of the Companys common stock, or IPO, at a 15% discount to the IPO price. The notes are secured by a second lien in the Companys assets, excluding intellectual property and assets held-for-sale. In connection with the issuance of the notes, the Company issued 592,842 common stock warrants. The warrants have a term of ten years, an exercise price of $1.54, and contain a net issuance provision such that the lender may exchange the warrant for shares without the payment of any additional cash consideration. Sale of Kinase Profiling Services Business On October 21, 2010, the Company sold all of the assets relating to its kinase profiling service business to DiscoveRx Corporation, or DiscoveRx, pursuant to an asset purchase agreement. In consideration for the sale of such assets, DiscoveRx paid the Company $7.3 million at the closing of the transaction and may be required to pay the Company up to an additional $4.9 million upon the achievement of certain sales and operational milestones. In the event of certain changes of control of DiscoveRx prior to December 31, 2012, up to $4.5 million of any unpaid milestones under the asset purchase agreement could become immediately due and payable to the Company. Under the terms of the asset purchase agreement, the Company is obligated to purchase from DiscoveRx a minimum of $0.6 million of screening services during each calendar quarter through December 31, 2012. F-43
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 14. Subsequent Events (unaudited) (Continued)
The following unaudited pro forma consolidated statements of operations reflect the results of operations of the Company for the year ended December 31, 2009 and for the six months ended June 30, 2010 as if the sale of the kinase profiling services business had occurred at the beginning of each period presented. The pro forma results are not necessarily indicative of what actually would have occurred had the sale been in effect for each of the periods. The pro forma impact on the reported results primarily reflect the adjustments to remove all of the Companys historical kinase profiling services revenue, all historical cost of kinase profiling services revenue and all historical kinase profiling services related sales and marketing expenses during the year ended December 31, 2009 and the six months ended June 30, 2010.
Year Ended December 31, 2009 Kinase Profiling Services Business Sale (in thousands) Six Months Ended June 30, 2010 Kinase Profiling Services Business Sale (in thousands)
Pro Forma
Pro Forma
Total revenues Total operating expenses Loss from operations Other income (expense) Loss before income taxes Provision for (benefit from) income taxes Consolidated net loss Net loss attributable to redeemable non-controlling interest Net loss attributable to Ambit Biosciences Corporation Accretion to redemption value of redeemable convertible preferred stock Change in to fair value of redeemable non-controlling interest Net loss attributable to common stockholders Net loss per share attributable to common stockholders, basic and diluted Weighted-average shares outstanding, basic and diluted (a) (b)
18,113 38,845 (20,732) (5,921) (26,653) (191) (26,462) 2,177 (24,285)
(14,647)(a) (4,441)(b) (10,206) (10,206) (10,206) (10,206)
3,466 34,404 (30,938) (5,921) (36,859) (191) (36,668) 2,177 (34,491)
13,853 23,877 (10,024) (9,276) (19,300) (19,300) 1,184 (18,116)
(3,860)(a) (1,164)(b) (2,696) (2,696) (2,696) (2,696)
9,993 22,713 (12,720) (9,276) (21,996) (21,996) 1,184 (20,812)
(61)
(61)
(31)
(31)
(7,567) $ (31,913) $
(10,206) $
(7,567) (42,119) $
(1,414) (19,561) $
(2,696) $
(1,414) (22,257)
(20.41) 2,063,489
(6.86) 3,242,898
Pro forma adjustment to remove all kinase profiling services revenue. Pro forma adjustment to remove all cost of kinase profiling services and sales and marketing expenses related to the business. Cost of kinase profiling services revenue for the twelve months ended December 31, 2009 and the six months ended June 30, 2010 was $3.7 million and $0.9 million, respectively. Sales and marketing expenses for the twelve months ended December 31, 2009 and the six months ended June 30, 2010 were $0.7 million and $0.3 million, respectively. F-44
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AMBIT BIOSCIENCES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 14. Subsequent Events (unaudited) (Continued)
The following unaudited pro forma condensed balance sheet as of June 30, 2010 reflects the sale of the kinase profiling services business as if it had occurred on June 30, 2010. The pro forma adjustments to the historical balance sheet include the sale of all assets and liabilities held-for-sale, the receipt of $7.3 million of cash and the deferral of $5.5 million of gains on the sale as a result of future minimum cash obligations for non-cancellable screening services purchase commitments.
June 30, 2010 (unaudited) Kinase Profiling Services Business Sale (in thousands)
Pro Forma
Assets Current assets: Cash and cash equivalents Other current assets Assets held-for-sale Total current assets Property and equipment, net Other assets Total assets Liabilities, convertible preferred stock and stockholders deficit Current liabilities: Current liabilities Liabilities held-for-sale Total current liabilities Long-term liabilities Convertible preferred stock Stockholders deficit Total liabilities, convertible preferred stock and stockholders deficit (a) (b) (c) (d)
$ 31,287 4,464 1,923 37,674 2,497 620 $ 40,791
7,348 (a) (1,923)(b) 5,425
$ 38,635 4,464 43,099 2,497 620 $ 46,216
5,425
$ 13,557 922 14,479 54,741 109,645 (138,074) $ 40,791
2,500 (c) (922)(b) 1,578 3,000 (c) 847 (d)
$ 16,057 16,057 57,741 109,645 (137,227) $ 46,216
5,425
Pro forma adjustment to reflect the cash received. Pro forma adjustment to reflect the sale of net assets of the business. Pro forma adjustment to reflect both current and long-term commitments for minimum screening services to be purchased by Ambit based on the due date of such cash commitments. Pro forma adjustment to reflect the gain on sale of the business calculated as follows (in millions): $ 7.3 (1.0) (5.5) $ 0.8 F-45
Cash Net assets sold Deferred gain Gain
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PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other expenses of issuance and distribution.
The following table sets forth all costs and expenses, other than underwriting discounts and commissions, paid or payable by us in connection with the sale of the common stock being registered. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee and the listing fee for The Nasdaq Global Market.
Amount Paid or to be Paid
SEC registration fee FINRA filing fee The Nasdaq Global Market listing fee Blue sky qualification fees and expenses Printing and engraving expenses Legal fees and expenses Accounting fees and expenses Transfer agent and registrar fees and expenses Miscellaneous expenses Total * to be provided by amendment Item 14. Indemnification of directors and officers.
6,150 9,125 125,000 * * * * * * *
We are incorporated under the laws of the State of Delaware. Section 145 of the Delaware General Corporation Law provides that a Delaware corporation may indemnify any persons who are, or are threatened to be made, parties 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 such corporation), by reason of the fact that such person was an officer, director, employee or agent of such corporation, or is or was serving at the request of such person as an officer, director, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporations best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A Delaware corporation may indemnify any persons who are, or are threatened to be made, a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporations best interests except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses which such officer or director has actually and reasonably incurred. Our amended and restated certificate of incorporation and amended and restated bylaws, each of which will become effective upon the closing of this offering, provide for the indemnification of our directors and officers to the fullest extent permitted under the Delaware General Corporation Law. II-1
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Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, except for liability for any: transaction from which the director derives an improper personal benefit; act or omission not in good faith or that involves intentional misconduct or a knowing violation of law; unlawful payment of dividends or redemption of shares; or breach of a directors duty of loyalty to the corporation or its stockholders.
Our amended and restated certificate of incorporation and amended and restated bylaws include such a provision. Expenses incurred by any officer or director in defending any such action, suit or proceeding in advance of its final disposition shall be paid by us upon delivery to us of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified by us. Section 174 of the Delaware General Corporation Law provides, among other things, that a director who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption may be held liable for such actions. A director who was either absent when the unlawful actions were approved, or dissented at the time, may avoid liability by causing his or her dissent to such actions to be entered in the books containing minutes of the meetings of the board of directors at the time such action occurred or immediately after such absent director receives notice of the unlawful acts. As permitted by the Delaware General Corporation Law, we have entered into indemnity agreements with each of our directors and executive officers, that require us to indemnify such persons against any and all expenses (including attorneys fees), witness fees, damages, judgments, fines, settlements and other amounts incurred (including expenses of a derivative action) in connection with any action, suit or proceeding, whether actual or threatened, to which any such person may be made a party by reason of the fact that such person is or was a director, an officer or an employee of Ambit or any of its affiliated enterprises, provided that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to our best interests and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder. At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or preceding that may result in a claim for indemnification. We have an insurance policy covering our officers and directors with respect to certain liabilities, including liabilities arising under the Securities Act or otherwise. We have entered into an underwriting agreement which provides that the underwriters are obligated, under some circumstances, to indemnify our directors, officers and controlling persons against specified liabilities, including liabilities under the Securities Act. Reference is made to the following documents filed as exhibits to this registration statement regarding relevant indemnification provisions described above and elsewhere herein:
Exhibit Document Number
Form of Underwriting Agreement. Form of Amended and Restated Certificate of Incorporation to be effective upon the closing of this offering. Form of Amended and Restated Bylaws to be effective upon the closing of this offering. Form of Indemnity Agreement. Fourth Amended and Restated Investors Rights Agreement dated October 30, 2007 among the Registrant and certain of its stockholders, as amended. II-2
1.1 3.1 3.2
10.17
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Item 15.
Recent sales of unregistered securities.
The following list sets forth information regarding all securities sold by us since January 2007. (1) In March 2007 and June 2007, in connection with draw downs on an equipment line with Oxford Finance Corporation, we issued warrants to purchase an aggregate of 2,731 shares of our Series C preferred stock, with an initial exercise price of $4.30 per share. Upon the closing of this offering, these warrants will be exercisable for 2,731 shares of common stock at an exercise price of $4.30 per share. In August 2008, in connection with a draw down on an equipment line with Oxford Finance Corporation, we issued a warrant to purchase an aggregate of 2,369 shares of our Series D preferred stock, with an initial exercise price of $5.06 per share. Upon the closing of this offering, this warrant will be exercisable for 2,369 shares of common stock at an exercise price of $5.06 per share. In March 2007 and June 2007, in connection with draw downs on an equipment line with Webster Bank, National Association, we issued warrants to purchase an aggregate of 2,731 shares of our Series C preferred stock, with an initial exercise price of $4.30 per share. Upon the closing of this offering, these warrants will be exercisable for 2,731 shares of common stock at an exercise price of $4.30 per share. In September 2007, in connection with a venture loan with Horizon Technology Funding Company V LLC, we issued a warrant to purchase an aggregate of 93,023 shares of our Series C preferred stock, with an initial exercise price of $4.30 per share. Upon the closing of this offering, this warrant will be exercisable for 93,023 shares of common stock at an exercise price of $4.30 per share. In October 2007, we entered into a Series D Preferred Stock Purchase Agreement, amended on November 6, 2007, pursuant to which we issued and sold to investors an aggregate of 9,120,560 shares of Series D Preferred Stock, at a Purchase Price of $5.06 per share, for aggregate consideration of $46,150,034. 148,222 of these shares were converted into common stock in 2009. Upon the closing of this offering, the remainder of these shares will convert into 8,972,338 shares of common stock. In June 2009, July 2009, September 2009 and November 2009, we issued secured subordinated convertible promissory notes in an aggregate amount of $17,849,064 each with a maturity date of June 5, 2011. The promissory notes issued in the 2009 bridge financing converted into 6,068,084 shares of Series D Preferred Stock which will convert into 6,068,084 shares of our common stock upon completion of the offering. In connection with the 2009 Bridge Financing, Ambit Canada also issued promissory notes in July 2009, September 2009 and November 2009 on substantially the same terms as the notes issued by Ambit, in the aggregate amount of $2,138,743 to GrowthWorks Canadian Fund Ltd., each with a maturity date of July 8, 2011. These notes were cancelled in connection with the conversion of the convertible promissory notes set forth in (6) above. On multiple dates in 2009, in connection with our bridge financing and Ambit Canadas bridge financing, we issued warrants to purchase shares of our common stock, with an initial exercise price of $0.91 per share. As of June 30, 2010 (unaudited), these warrants were exercisable for an aggregate of 1,946,748 shares of our common stock. These warrants terminate 10 years after the date issued. In July, September and November 2009, in connection with Ambit Canadas bridge financing, we issued warrants to purchase preferred stock to GrowthWorks with an exercise price of $5.06 per share. These warrants were automatically exercised for shares of our Series D Preferred Stock when the promissory notes set forth in (7) above were cancelled in connection with the conversion of the convertible promissory notes issued by Ambit in the 2009 Bridge Financing. These warrants were exercised for 681,123 shares of our Series D Preferred Stock in connection with the cancellation of the promissory notes set forth in (7) above. II-3
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
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(10) In March 2010, in connection with a venture loan with Compass Horizon Funding Company LLC and Oxford Finance Corporation, we issued a warrant to each of Horizon and Oxford to purchase an aggregate of 284,584 shares of our Series D preferred stock or, at the option of the holders of the warrants, the series of preferred issued in our next preferred stock financing that meets certain criteria set forth in the warrants. The exercise price of these warrants is $5.06 per share if exercised for Series D preferred stock or the purchase price of the preferred stock sold in the next qualified financing, if exercised for such shares. These warrants terminate ten years after the date issued. (11) In September 2010, we issued secured subordinated convertible promissory notes in an aggregate amount of $13,253,367 each with a maturity date of January 31, 2012. These promissory notes will automatically convert into shares of common stock upon the closing of this offering, at a price per share equal to 85% of the price paid for shares in this offering. (12) In September 2010, Ambit Canada also issued a promissory note on substantially the same terms as the notes issued by Ambit, in the principal amount of $1,745,810 to GrowthWorks, with a maturity date of January 31, 2012. This note will be cancelled in connection with the conversion of the convertible promissory notes set forth in (11) above. (13) In September 2010, in connection with our bridge financing and Ambit Canadas bridge financing, we issued warrants to purchase shares of our common stock, with an initial exercise price of $1.54 per share. As of June 30, 2010, these warrants were exercisable for an aggregate of 592,842 shares of our common stock. These warrants terminate 10 years after the date issued. (14) In September 2010, in connection with Ambit Canadas issuance of the note in (12) above, we issued a warrant to purchase preferred stock or common stock to GrowthWorks. This warrant will be automatically exercised for shares of common stock at a price per share equal to 85% of the price paid for shares in this offering upon the conversion of the convertible promissory notes set forth in (11) above in connection with the closing of this offering. (15) From January 1, 2007 to October 31, 2010, we granted stock options under our 2001 plan to purchase 4,789,668 shares of common stock (net of expirations and cancellations) to our employees, directors and consultants, having exercise prices ranging from $0.59 to $1.54 per share. Of these, options to purchase 30,513 shares of common stock have been exercised through October 31, 2010 for aggregate consideration of $25,326, each at an exercise price of $0.83 per share. The offers, sales and issuances of the securities described in paragraphs (1), (2), (3), (4), (5), (6), (7), (8), (9), (10), (11), (12), (13) and (14) were deemed to be exempt from registration under the Securities Act in reliance on Rule 506 of Regulation D in that the issuance of securities to the accredited investors did not involve a public offering. The recipients of securities in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions was an accredited investor under Rule 501 of Regulation D. The offers, sales and issuances of the securities described in paragraph (15) were deemed to be exempt from registration under the Securities Act in reliance on Rule 701 in that the transactions were under compensatory benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of such securities were our employees, directors or bona fide consultants and received the securities under our 2001 plan. Appropriate legends were affixed to the securities issued in these transactions. Each of the recipients of securities in these transactions had adequate access, through employment, business or other relationships, to information about us. II-4
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Item 16. (a) Exhibits.

Exhibit Number
Exhibits and financial statement schedules.
Description of Document
1.1 2.1 * 2.2 * 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11
Form of Underwriting Agreement. Asset Purchase Agreement dated October 21, 2010 between the Registrant and DiscoveRx Corporation Amendment Letter Agreement dated October 21, 2010 between the Registrant and DiscoveRx Corporation Amended and Restated Certificate of Incorporation, as currently in effect. Certificate of Amendment to Amended and Restated Certificate of Incorporation, as currently in effect. Second Certificate of Amendment to Amended and Restated Certificate of Incorporation, as currently in effect. Third Certificate of Amendment to Amended and Restated Certificate of Incorporation, as currently in effect. Fourth Certificate of Amendment to Amended and Restated Certificate of Incorporation, as currently in effect. Fifth Certificate of Amendment to Amended and Restated Certificate of Incorporation, as currently in effect. Sixth Certificate of Amendment to Amended and Restated Certificate of Incorporation, as currently in effect. Form of Amended and Restated Certificate of Incorporation to be effective upon completion of this offering. Bylaws, as currently in effect. Amendment to the Bylaws, as currently in effect. Form of Amended and Restated Bylaws to be effective upon completion of this offering. Form of Common Stock Certificate. Form of Warrant to Purchase Common Stock issued by Registrant to 2009 bridge financing investors. Warrant issued by Registrant to GrowthWorks Canadian Fund Ltd. on July 8, 2009. Form of Warrant to Purchase Common Stock issued by Registrant to 2010 bridge financing investors. Warrant issued by Registrant to GrowthWorks Canadian Fund Ltd. on September 30, 2010. Warrant issued by Registrant on October 5, 2005 to Oxford Finance Corporation. Warrant issued by Registrant on December 22, 2005 to Oxford Finance Corporation. Form of Warrant issued by Registrant to Oxford Finance Corporation pursuant to 2006 Master Security Agreement. Form of Warrant issued by Registrant to Webster Bank, National Association pursuant to 2006 Master Security Agreement. Warrant issued by Registrant on October 6, 2005 to Horizon Technology Funding Company II, LLC. Warrant issued by Registrant on October 6, 2005 to Horizon Technology Funding Company III, LLC. II-5
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4.12 4.13 4.14 5.1 10.1 + 10.2 + 10.3 + 10.4 + 10.5 + 10.6 + 10.7 + 10.8 + 10.9 + 10.10 + 10.11 + 10.12 + 10.13 + 10.14 + 10.15 + 10.16 + 10.17 10.18 10.19 10.20 10.21 10.22 10.23
Warrant issued by Registrant on September 24, 2007 to Horizon Technology Funding Company V, LLC. Warrant issued by Registrant on March 31, 2010 to Compass Horizon Funding Company LLC. Warrant issued by Registrant on March 31, 2010 to Oxford Finance Corporation. Opinion of Cooley LLP. Form of Indemnity Agreement. Amended and Restated 2001 Equity Incentive Plan and Forms of Stock Option Agreement thereunder. 2010 Equity Incentive Plan and Form of Stock Option Agreement thereunder. 2010 Non-Employee Directors Stock Award Plan and Form of Stock Option Agreement thereunder. 2010 Employee Stock Purchase Plan and Form of Offering Document thereunder. Employment Agreement dated July 23, 2010 between the Registrant and Alan J. Lewis, Ph.D. Offer Letter dated December 13, 2006 between the Registrant and Wendell Wierenga, Ph.D. Offer Letter dated January 21, 2009 between the Registrant and Christopher J. Morl. Offer Letter dated September 13, 2010 between the Registrant and Alan Fuhrman. Offer Letter dated January 22, 2008 between the Registrant and Robert Corringham, M.D. Letter Agreement dated June 17, 2009 between the Registrant and Saiid Zarrabian. Separation Agreement effective March 31, 2010 between the Registrant and M. Scott Salka. Separation Agreement dated April 21, 2010 between the Registrant and Laura Killmer. 2008 Incentive Compensation Plan. Form of Employee Proprietary Information and Inventions Agreement. Non-employee Director Compensation Policy. Fourth Amended and Restated Investors Rights Agreement dated October 30, 2007 among the Registrant and certain of its stockholders, as amended. Master Security Agreement dated November 15, 2002 between the Registrant and Oxford Finance Corporation. Master Security Agreement dated June 21, 2006 between the Registrant, Oxford Finance Corporation and Webster Bank, National Association. Security Agreement dated March 31, 2010 between the Registrant and Oxford Finance Corporation. Venture Loan and Security Agreement dated March 31, 2010 among the Registrant, Compass Horizon Funding Company LLC and Oxford Finance Corporation. Standard Industrial/Commercial Multi-Tenant Lease dated July 22, 2004 between the Registrant and LMC Sorrento Investment Company, LLC. Addendum to Lease dated July 22, 2004 between the Registrant and LMC Sorrento Investment Company, LLC. II-6
10.24 10.25 10.26 10.27 * 10.28 * 10.29 * 10.30 * 10.31 * 21.1 23.1 23.2 24.1
First Amendment to Lease dated February 24, 2005 between the Registrant and LMC Sorrento Investment Company, LLC. Second Amendment to Lease dated November 1, 2005 between the Registrant and LMC Sorrento Investment Company, LLC. Third Amendment to Standard Industrial/Commercial Multi-Tenant Lease Net dated June 19, 2008 between the Registrant and BMR Sorrento Valley, LLC. Collaboration Agreement dated November 3, 2006 between the Registrant and Cephalon, Inc. License Agreement dated October 2, 2007 between the Registrant and Bristol-Myers Squibb Company. License and Profiling Services Agreement dated October 2, 2007 between the Registrant and Bristol-Myers Squibb Company. Exclusive License and Collaborative Research, Co-Development and Commercialization Agreement dated December 18, 2009 by and among the Registrant and Astellas Pharma Inc. and Astellas US LLC. Collaboration Agreement dated September 14, 2010 between the Registrant and Genoptix, Inc. Subsidiaries of the Registrant. Consent of Ernst & Young LLP, independent registered public accounting firm. Consent of Cooley LLP. Reference is made to Exhibit 5.1. Power of Attorney. Reference is made to the signature page hereto.
To be filed by amendment. + Indicates management contract or compensatory plan. * Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. (b) Financial statement schedule. IIValuation and qualifying accounts No financial statement schedules are provided because the information called for is not required or is shown either in the financial statements or notes. II-7
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Item 17.
Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-8
(2)
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SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California, on this 4th day of November, 2010. AMBIT BIOSCIENCES CORPORATION By: /S/ ALAN J. LEWIS, PH .D. Alan J. Lewis, Ph.D. President and Chief Executive Officer KNOW ALL BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Alan J. Lewis and Alan Fuhrman, and each of them, as his true and lawful attorneys-in-fact and agents, each with the full power of substitution, for him and in his name, place or stead, in any and all capacities, to sign any and all amendments to this registration statement (including post-effective amendments), and to sign any registration statement for the same offering covered by this registration statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with 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 and about the premises, 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 their or his substitute or substitutes, 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 indicated.
Signature Title Date
/S/
ALAN J. LEWIS, PH .D Alan J. Lewis, Ph.D. /S/ ALAN FUHRMAN Alan Fuhrman FAHEEM HASNAIN Faheem Hasnain
President, Chief Executive Officer and Director (Principal Executive Officer) Chief Financial Officer (Principal Financial and Accounting Officer ) Director
November 4, 2010
November 4, 2010
/S/
November 4, 2010
/S/ STEVEN A. E LMS Steven A. Elms /S/ STANDISH M. FLEMING Standish M. Fleming /S/ ALLAN P. MARCHINGTON, PH .D. Allan P. Marchington, Ph.D. /S/ JOSEPH R EGAN Joseph Regan
Director
November 4, 2010
Director
November 4, 2010
Director
November 4, 2010
Director
November 4, 2010
/S/ SAIID ZARRABIAN Saiid Zarrabian /S/ ALEXANDER ZUKIWSKI, M.D. Alexander Zukiwski, M.D. II-9
Director
November 4, 2010
Director
November 4, 2010
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EXHIBIT INDEX Item 16. (a) Exhibits.

Exhibit Number Description of Document
Exhibits and financial statement schedules.
1.1 2.1 * 2.2 * 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11
Form of Underwriting Agreement. Asset Purchase Agreement dated October 21, 2010 between the Registrant and DiscoveRx Corporation Amendment Letter Agreement dated October 21, 2010 between the Registrant and DiscoveRx Corporation Amended and Restated Certificate of Incorporation, as currently in effect. Certificate of Amendment to Amended and Restated Certificate of Incorporation, as currently in effect. Second Certificate of Amendment to Amended and Restated Certificate of Incorporation, as currently in effect. Third Certificate of Amendment to Amended and Restated Certificate of Incorporation, as currently in effect. Fourth Certificate of Amendment to Amended and Restated Certificate of Incorporation, as currently in effect. Fifth Certificate of Amendment to Amended and Restated Certificate of Incorporation, as currently in effect. Sixth Certificate of Amendment to Amended and Restated Certificate of Incorporation, as currently in effect. Form of Amended and Restated Certificate of Incorporation to be effective upon completion of this offering. Bylaws, as currently in effect. Amendment to the Bylaws, as currently in effect. Form of Amended and Restated Bylaws to be effective upon completion of this offering. Form of Common Stock Certificate. Form of Warrant to Purchase Common Stock issued by Registrant to 2009 bridge financing investors. Warrant issued by Registrant to GrowthWorks Canadian Fund Ltd. on July 8, 2009. Form of Warrant to Purchase Common Stock issued by Registrant to 2010 bridge financing investors. Warrant issued by Registrant to GrowthWorks Canadian Fund Ltd. on September 30, 2010. Warrant issued by Registrant on October 5, 2005 to Oxford Finance Corporation. Warrant issued by Registrant on December 22, 2005 to Oxford Finance Corporation. Form of Warrant issued by Registrant to Oxford Finance Corporation pursuant to 2006 Master Security Agreement. Form of Warrant issued by Registrant to Webster Bank, National Association pursuant to 2006 Master Security Agreement. Warrant issued by Registrant on October 6, 2005 to Horizon Technology Funding Company II, LLC. Warrant issued by Registrant on October 6, 2005 to Horizon Technology Funding Company III, LLC.
4.12 4.13 4.14 5.1 10.1 + 10.2 + 10.3 + 10.4 + 10.5 + 10.6 + 10.7 + 10.8 + 10.9 + 10.10 + 10.11 + 10.12 + 10.13 + 10.14 + 10.15 + 10.16 + 10.17 10.18 10.19 10.20 10.21 10.22 10.23 10.24
Warrant issued by Registrant on September 24, 2007 to Horizon Technology Funding Company V, LLC. Warrant issued by Registrant on March 31, 2010 to Compass Horizon Funding Company LLC. Warrant issued by Registrant on March 31, 2010 to Oxford Finance Corporation. Opinion of Cooley LLP. Form of Indemnity Agreement. Amended and Restated 2001 Equity Incentive Plan and Forms of Stock Option Agreement thereunder. 2010 Equity Incentive Plan and Form of Stock Option Agreement thereunder. 2010 Non-Employee Directors Stock Award Plan and Form of Stock Option Agreement thereunder. 2010 Employee Stock Purchase Plan and Form of Offering Document thereunder. Employment Agreement dated July 23, 2010 between the Registrant and Alan J. Lewis, Ph.D. Offer Letter dated December 13, 2006 between the Registrant and Wendell Wierenga, Ph.D. Offer Letter dated January 21, 2009 between the Registrant and Christopher J. Morl. Offer Letter dated September 13, 2010 between the Registrant and Alan Fuhrman. Offer Letter dated January 22, 2008 between the Registrant and Robert Corringham, M.D. Letter Agreement dated June 17, 2009 between the Registrant and Saiid Zarrabian. Separation Agreement effective March 31, 2010 between the Registrant and M. Scott Salka. Separation Agreement dated April 21, 2010 between the Registrant and Laura Killmer. 2008 Incentive Compensation Plan. Form of Employee Proprietary Information and Inventions Agreement. Non-employee Director Compensation Policy. Fourth Amended and Restated Investors Rights Agreement dated October 30, 2007 among the Registrant and certain of its stockholders, as amended. Master Security Agreement dated November 15, 2002 between the Registrant and Oxford Finance Corporation. Master Security Agreement dated June 21, 2006 between the Registrant, Oxford Finance Corporation and Webster Bank, National Association. Security Agreement dated March 31, 2010 between the Registrant and Oxford Finance Corporation. Venture Loan and Security Agreement dated March 31, 2010 among the Registrant, Compass Horizon Funding Company LLC and Oxford Finance Corporation. Standard Industrial/Commercial Multi-Tenant Lease dated July 22, 2004 between the Registrant and LMC Sorrento Investment Company, LLC. Addendum to Lease dated July 22, 2004 between the Registrant and LMC Sorrento Investment Company, LLC. First Amendment to Lease dated February 24, 2005 between the Registrant and LMC Sorrento Investment Company, LLC.
10.25 10.26 10.27 * 10.28 * 10.29 * 10.30 * 10.31 * 21.1 23.1 23.2 24.1
Second Amendment to Lease dated November 1, 2005 between the Registrant and LMC Sorrento Investment Company, LLC. Third Amendment to Standard Industrial/Commercial Multi-Tenant Lease Net dated June 19, 2008 between the Registrant and BMR Sorrento Valley, LLC. Collaboration Agreement dated November 3, 2006 between the Registrant and Cephalon, Inc. License Agreement dated October 2, 2007 between the Registrant and Bristol-Myers Squibb Company. License and Profiling Services Agreement dated October 2, 2007 between the Registrant and Bristol-Myers Squibb Company. Exclusive License and Collaborative Research, Co-Development and Commercialization Agreement dated December 18, 2009 by and among the Registrant and Astellas Pharma Inc. and Astellas US LLC. Collaboration Agreement dated September 14, 2010 between the Registrant and Genoptix, Inc. Subsidiaries of the Registrant. Consent of Ernst & Young LLP, independent registered public accounting firm. Consent of Cooley LLP. Reference is made to Exhibit 5.1. Power of Attorney. Reference is made to the signature page hereto.
To be filed by amendment. + Indicates management contract or compensatory plan. * Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
EXHIBIT 2.1 ***Text Omitted and Filed Separately with the Securities and Exchange Commission. Confidential Treatment Requested Under 17 C.F.R. Sections 200.80(b)(4) and Rule 406 of the Securities Act of 1933, as amended. Execution Copy
ASSET PURCHASE AGREEMENT ACQUISITION OF CERTAIN ASSETS OF AMBIT BIOSCIENCES CORPORATION BY DISCOVERX CORPORATION DATED AS OF October 21, 2010
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SECTION 1 1.1 1.2 1.3 1.4 1.5 SECTION 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 SECTION 3 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 3.13 3.14 3.15 3.16 3.17 3.18 3.19 3.20 3.21
PURCHASE AND SALE OF ASSETS Sale of Assets Assumed Liabilities Retained Liabilities Purchase Price Closing COVENANTS AND OTHER AGREEMENTS Consents and Authorizations Employees; Employee Benefit Plans Tax Matters Cooperation Taxes on Assets Retention of Tax Records Minimum Screening Purchase Requirement Patents of the Seller Transition Services Non-Competition Seller License Agreement REPRESENTATIONS AND WARRANTIES OF THE SELLER Organization Financial Information No Conflict of Transaction with Obligations and Laws Consents and Approvals Authority Title to Purchased Assets Material Contracts Tangible Assets Intellectual Property Employees; Employee Plans Real Property Taxes Litigation Licenses and Permits Environment, Health and Safety Compliance with Laws Affiliate Transactions Brokers Fees Inventories Receivables Regulatory Matters i
1 1 3 3 5 6 7 7 7 8 8 9 9 10 10 10 11 12 12 12 12 13 13 13 14 16 16 19 20 20 21 21 21 22 22 22 22 23 23
3.22 3.23 3.24 3.25 3.26 3.27 SECTION 4 4.1 4.2 4.3 4.4 SECTION 5 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 SECTION 6 6.1 6.2 SECTION 7 7.1 7.2 7.3 7.4 SECTION 8 8.1 8.2 8.3 8.4 8.5 8.6 SECTION 9 9.1 9.2
Deductions to Purchase Price Customers; Distributors Sale of Products Performance of Services Bulk Sales Laws No Omissions REPRESENTATIONS AND WARRANTIES OF THE BUYER Organization of Buyer Authorization of Transaction Brokers Fees Sole Representations and Warranties CONDITIONS TO OBLIGATIONS OF THE BUYER Representations; Warranties; Covenants Absence of Litigation Assignments of Patents; Assignment of Trademarks Assignment of Other Intellectual Property Assignment and Assumption of Assumed Contracts Due Diligence Investigation Opinion of the Sellers Counsel Officers Certificate Bill of Sale; Other Closing Deliverables Indebtedness Retired Employment of Designated Employees CONDITIONS TO OBLIGATIONS OF THE SELLER Representations; Warranties; Covenants Assignment and Assumption of Assumed Contracts POST-CLOSING COVENANTS AND AGREEMENTS Access Further Assurances Confidentiality Tax Allocation INDEMNIFICATION Survival of Representations and Warranties Indemnification by the Seller Indemnification by the Buyer Claims for Indemnification Limitations on Indemnification Payment of Indemnification GENERAL Fees and Expenses Notices ii
23 23 23 23 24 24 24 24 24 24 24 24 24 24 25 25 25 25 25 25 25 25 26 26 26 26 26 26 26 27 27 28 28 28 29 29 30 31 32 32 32
9.3 9.4 9.5 9.6 9.7 9.8 9.9 9.10 9.11 9.12
Publicity Confidentiality Entire Agreement Severability Assignment; Binding Effect Amendment Counterparts Effect of Table of Contents and Headings Governing Law; Jurisdiction Binding Arbitration iii
34 35 35 35 35 35 35 35 35 36
LIST OF EXHIBITS AND SCHEDULES

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EXHIBIT A EXHIBIT B EXHIBIT C EXHIBIT D EXHIBIT E EXHIBIT F EXHIBIT G EXHIBIT H EXHIBIT I Schedule 1.1(a) Schedule 1.1(b) Schedule 1.1(d)(ii)(A) Schedule 1.1(d)(ii)(B) Schedule 1.1(e) Schedule 1.2 Schedule 1.4(b) Schedule 3.1 Schedule 3.2(a) Schedule 3.7 Schedule 3.8 Schedule 3.9(a) Schedule 3.9(b) Schedule 3.9(c) Schedule 3.10(b) Schedule 3.11 Schedule 3.13 Schedule 3.14(a) Schedule 3.14(b) Schedule 3.21 Schedule 3.22
Sublease Agreement Assignment of Patents Assignment of Trademarks Assignment of Other Intellectual Property Assignment and Assumption of Assumed Contracts Bill of Sale Consent to Assignment Officers Certificate Legal Opinion of Counsel to the Seller Tangible Assets Inventory Software Programs Laboratory Notebooks Assumed Contracts Assumed Liabilities Performance Criteria Sellers Subsidiaries Financial Statements Material Contracts Replacement Price of Shared Equipment KinomeScan Intellectual Property KinomeScan Intellectual Property Exceptions KinomeScan Intellectual Property Docket Designated Employees Real Property Litigation Licenses and Permits Assigned Seller Licenses and Permits Deductions to Purchase Price Customer and Revenue iv
A-1 B-1 C-1 D-1 E-1 F-1 G-1 H-1 J-1 H-1 H-8 H-10 H-11 H-13 H-15 H-17 H-18 H-19 H-25 H-27 H-28 H-31 H-32 H-33 H-34 H-35 H-36 H-37 H-38 H-39
INDEX OF DEFINED TERMS

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Additional Seller Sales Affiliate Transactions Affiliates Agreement Arbitration Assignment and Assumption of Assumed Contracts Assignment of Other Intellectual Property Assignment of Patents Agreement Assignment of Trademarks Agreement Assumed Contracts Assumed Liabilities Bill of Sale Business Business Records Buyer Buyer Indemnified Parties Cash Change of Control Charter Documents Closing Closing Date Code Contingent Payments Damages Deductions to Purchase Price Designated Employees Effective Date Employee Plans Encumbrances Financial Statements First Contingent Payment Indemnified Party
9 23 3 1 35 26 26 26 26 2 3 27 1 3 1 30 3 6 12 6 1 5 6 30 5 7 1 20 1 12 5 30 v
Indemnifying Party Inventories KinomeScan Intellectual Property KinomeScan Services Licenses and Permits Material Contracts Minimum Screening Purchase Requirements NDA Non-Compete Statute Officers Certificate Order Person PTO Purchase Price Purchased Assets Receivables Related to the Business Retained Liabilities Second Contingent Payment Seller Seller Indemnified Parties Seller License Agreement Software Programs Tangible Assets Tax Tax Allocation Tax Return Taxes Transaction Documents Transactions Transition Services WARN
30 2 2 1 3 13 9 34 11 27 12 3 18 5 1 2 1 4 6 1 30 11 20 2 4 29 4 4 27 5 10 7
ASSET PURCHASE AGREEMENT This Asset Purchase Agreement (this Agreement) is entered into as of this the 21st day of October 2010 (the Effective Date), by and among DiscoveRx Corporation, a Delaware corporation (the Buyer), and Ambit Biosciences Corporation, a Delaware corporation and its Affiliates (the Seller). RECITALS A. Seller is engaged in the business of discovery and development of small-molecule kinase inhibitors for the treatment of cancer. B. Seller is also engaged in a fee-for-service business that offers a service of screening small molecule compounds in a binding assay employing a panel of 442 kinase assays, which together with any subsequent modifications and any cell-based assays, and panels or materials developed therefrom, in all cases that use or are derived from KinomeScan Intellectual Property, are KinomeScan Services. C. Seller wishes to sell, and Buyer wishes to purchase all of Sellers assets, necessary or reasonably useful to perform the KinomeScan Services as of the Closing Date, including the KinomeScan Intellectual Property that covers the KinomeScan Services or from the use of which such KinomeScan Services were developed (the Business) on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: SECTION 1 PURCHASE AND SALE OF ASSETS 1.1 Sale of Assets . At the Closing, subject to the provisions of this Agreement and the Transaction Documents, the Seller hereby agrees to sell, convey, assign, transfer and deliver to the Buyer all of Sellers right, title and interest in and to the Purchased Assets, free and clear of any and all liens, security interests, hypothecations, assessments, mortgages, pledges, agreements, leases, easements, encroachments, claims, charges, options, restrictions or encumbrances of any nature whatsoever (collectively Encumbrances). As used in this Agreement, the Purchased Assets shall mean all of the properties, interests, tangible and intangible assets and rights of any kind of the Seller (wherever located and whether or not required to be reflected on a balance sheet prepared in accordance with generally accepted accounting principles) directly used in or resulting from the Business ( Related to the Business), as follows (but in each case only to the extent such item is Related to the Business and not used in Sellers drug discovery or development activities): (a) all items of equipment, tools and furniture, Related to the Business (the Tangible Assets) listed in Schedule 1.1(a);
(b) all inventories, laboratory supplies, assays, reagents and research materials Related to the Business, in each case updated as of Closing Date (the Inventories) and listed in Schedule 1.1(b); (c) all rights and interests under or pursuant to all warranties, indemnities, representations and guarantees express, implied or otherwise, of or made by suppliers or others required as part of the transfer of the Purchased Assets or the Assumed Liabilities or otherwise Related to the Business; (d) all of the following intellectual property of the Seller Related to the Business (collectively, the KinomeScan Intellectual Property): (i) all rights and interest in and to all intellectual property and intellectual property rights of the Seller, including the right to use the name KinomeScan and variations thereof, any and all U.S. and foreign patents and patent applications including those having claims directed to kinase screening and/or materials that are owned or otherwise controlled by Seller or any of its Affiliates, trademarks, copyrights, as listed in Schedule 3.9, and know how necessary or reasonably useful Related to the Business; (ii) all rights and interests in and to (A) methods, processes, techniques, software programs as listed in Schedule 1.1(d)(ii)(A), trade secrets, designs, and know-how; (B) lab notebooks or as appropriate copies of portions thereof (together with certification executed by the Seller that such copies are true and correct replicas of the original notebooks), written or electronically captured reference compound data, and written or electronically captured reports Related to the Business (including technical information, technical support and design and engineering specifications evidencing expertise) listed in Schedule 1.1(d)(ii)(B) to be delivered by Seller to Buyer within ninety (90) days of the Closing Date, (in each above cases in Sections 1.1(d)(ii)(A) and 1.1(d)(ii)(B) which are owned by or in the possession or control of Seller and if (x) enforceable as a trade secret; or (y) the copying of which would be enjoined or restrained by a court as constituting unfair competition); (iii) all future income and proceeds from any of the intellectual property listed in items (i) and (ii) above; and (iv) all rights of Seller to damages and profits by reason of the infringement of any of the KinomeScan Intellectual Property; (e) all rights and interests of Seller to and in all pending and/or executory contracts, agreements, leases and arrangements Related to the Business to or by which the Seller, any of the Purchased Assets or the Business is bound or affected identified in Schedule 1.1(e) (the Assumed Contracts); (f) all purchase orders Related to the Business as of the Effective Date; 2
(g) all governmental licenses, permits, filings, authorizations, approvals or indicia of authority Related to the Business or necessary for the conduct of the Business (collectively, the Licenses and Permits) listed in Schedule 3.14(a); (h) all books, records, files and papers Related to the Business, the Purchased Assets or the Assumed Liabilities, including panels, reports, databases, drawings, engineering information, computer programs and software programs, manuals and data, sales and advertising materials, sales and purchases correspondence, trade association files, research and development records, lists of present and former customers and suppliers (including current contact information for such customers and suppliers), personnel, employment and other records, and all copies and recordings of the foregoing (the Business Records); (i) all goodwill Related to the Business including, but not limited to, the present telephone numbers, internet addresses and other communications numbers and addresses of the Business other than the physical address of the Seller; (j) All advertising and promotional materials Related to Business; (k) All rights of contribution, rights of refunds, rights of reimbursement and other rights of recovery possessed by the Seller Related to the Business (regardless of whether such rights are currently exercisable); and (l) All proceeds of any or all of the foregoing. 1.2 Assumed Liabilities . The Buyer shall assume, pay, perform or discharge when due solely those liabilities and obligations from and after the Effective Date (including any such liabilities or obligations related to the Assumed Contracts) and the obligations related to the property and work-in -progress of any customer to the Business which is in Sellers custody and control on the Closing Date and which will be transferred to the Buyer in connection with this Agreement, all of which are set forth in Schedule 1.2 (the Assumed Liabilities). 1.3 Retained Liabilities. With the exception of the Assumed Liabilities, the Buyer shall have no liability or obligation for any debt, liability or obligation of the Seller or any of the Sellers Affiliates (meaning, for the purposes of this Agreement, any other person or entity ( Person) that, directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, another Person (Affiliates), or any claim by a third party against any of the foregoing, whether known or unknown, contingent or absolute, or otherwise, and the Seller expressly retains responsibility for all such liabilities (collectively, the Retained Liabilities). Without limiting the foregoing sentence, the Seller shall remain liable and continue to be responsible for, and the Buyer shall have no responsibility with respect to, any of the following Retained Liabilities: (a) all liabilities and obligations with respect to any indebtedness of the Seller, including, without limitation, any and all indebtedness to banks or other institutional lenders and any and all accounts payable or accrued liabilities incurred or outstanding as of the Closing Date, including, without limitation, all liabilities and obligations whatsoever with respect to the 3
Assumed Contracts, including all liabilities under any Assumed Contract, if the Seller shall not have obtained, prior to the Closing Date, any consent required to be obtained from any Person with respect to the assignment or delegation to the Buyer of any rights or obligations under such Assumed Contract (other than work to be performed thereunder by the Buyer after the Closing Date and any Assumed Liabilities), and all liabilities and obligations whatsoever with respect to any owned or leased real property; (b) all liabilities and obligations for Taxes of any kind, including, without limitation, income, excise, gross receipts, personal property, real property, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, severance, stamp, occupation, windfall profits, social security, unemployment or other Taxes and any interest or fines associated therewith, and any and all penalties, charges or other assessments relating thereto, imposed by the United States or any other agency or instrumentality of the United States, including the Internal Revenue Service, any state, county, local or foreign government, or any agency or instrumentality thereof (individually, a Tax, collectively, Taxes, and each return filed with respect thereto, a Tax Return), including, but not limited to, Taxes related to, or arising from, the transactions contemplated by this Agreement or any of the Transaction Documents, or liabilities or obligations with respect to the administration or termination of any Employee Plan of the Seller; (c) all liabilities and obligations for personal injury, sexual harassment, sexual or other physical abuse, death, property damage, breach of contract or consequential, punitive or other damages of any kind based upon events occurring on or prior to the Closing Date; (d) all liabilities and obligations with respect to employees or former employees or contractors or former contractors of the Seller (or the dependents, beneficiaries, heirs or assignees of any such persons), whether for accident, disability, or workers compensation insurance or benefits, employment discrimination or wrongful termination of employment, back pay, payments in respect of accrued vacation, sick or other paid time off, relocation expenses, travel expenses, sickness or other health problems or conditions (whether or not covered by the Sellers insurance policies), including, without limitation, any severance obligations or other costs of terminating employees or contractors wherever located resulting from any termination or cessation (or deemed termination or cessation) of employment or engagement occurring on or prior to the Closing Date (including, but not limited to, any such termination or cessation occurring in connection with the transactions contemplated by this Agreement or any of the Transaction Documents), from whatever source such obligations or costs arose or may arise, including, without limitation, contractual obligations, notices to employees, employment manuals, course of dealings, past practices, obligations relating to Section 280G or 4999 of the Internal Revenue Code of 1986, as amended (the Code) and all regulations promulgated thereunder as in effect from time to time; (e) any fact, event, circumstance, omission or condition, whether known or unknown, arising or existing on or prior to the Closing Date pertaining to any operations or activities of the Seller, the Business or the Purchased Assets, including, without limitation, service, maintenance, delivery, or deficient or defective product claims; 4
(f) any claim, suit, action, proceeding or investigation pending, threatened, made, filed or otherwise initiated and outstanding as of the Closing Date in connection with the Seller with respect to the Business, the Business or the Purchased Assets, arising from, or in connection with, any act or omission on or prior to the Closing Date, including, without limitation, the claims, suits, actions, proceedings or investigations disclosed by the Seller in Schedule 3.13; (g) all liabilities of the Seller arising from or relating to any action taken by the Seller, or any failure on the part of the Seller to take any action, at any time after the Closing Date; (h) all liabilities that are inconsistent with or constitute an inaccuracy in, or that arise or exist by virtue of any breach of, (x) any representation or warranty made by the Seller in any of the Transaction Documents, or (u) any covenant or obligation of the Seller contained in any of the Transaction Documents; (i) all other liabilities of the Seller that are not referred to specifically in Schedule 1.2; and (j) all liabilities arising out of or relating to the execution, delivery or performance of any of the Transaction Documents, and all costs and expenses incurred by the Seller in connection with the transactions contemplated by this Agreement and the Transaction Documents, including, without limitation, all liabilities and obligations with respect thereto. 1.4 Purchase Price. In consideration for the transactions contemplated by this Agreement (the Transactions) and the Transaction Documents and, subject to the terms and conditions hereof and thereof, the Buyer shall pay to the Seller: (a) Seven Million Six Hundred Thousand Dollars ($7,600,000) less (i) the replacement price of the shared equipment as listed in Schedule 3.8 and less (ii) an amount equal to the future anticipated cost to the Buyer of providing KinomeScan Services to third parties who pre-paid Seller for said services prior to the Effective Date (the Deductions to Purchase Price) as listed in Schedule 3.21, which amounts shall be paid at the Closing, by wire transfer of immediately available funds (the Purchase Price); (b) [***] when the Business first achieves [***] by wire transfer of immediately available funds paid within [***] of the achievement of [***]. In the event that [***] after the Closing Date all of [***], Buyer would pay to Seller [***], by wire transfer of immediately available funds paid within [***] of the end of such [***] period; (c) [***] shall be paid in the event [***] ***Confidential Treatment Requested 5
(the First Contingent Payment); and (d) [***] shall be paid in the event [***] (the Second Contingent Payment, together with the First Contingent Payment, the Contingent Payments). (e) For purposes of determining whether the Contingent Payments are due under Sections 1.4(b) and 1.4(c) above, [***]. In no event shall the aggregate amount of the Contingent Payments exceed Four Million Five Hundred Thousand ($4,500,000). (f) [***]. (g) In the event of a Change in Control of the Buyer prior to December 31, 2012, the Contingent Payments, to the extent not previously paid to the Seller, would be immediately due and payable. For purposes of this Section 1.4, a Change of Control means [***]. 1.5 Closing. Subject to the terms and conditions set forth herein, the closing of the transactions contemplated by this Agreement and Transaction Documents (the Closing) shall be by exchange of executed documents by facsimile with originals to follow by mail or ***Confidential Treatment Requested 6
FedEx with 2 business days of the Execution Date; or such other date and time as may be fixed by mutual agreement of the parties (the Closing Date). SECTION 2 COVENANTS AND OTHER AGREEMENTS 2.1 Consents and Authorizations . The Seller shall use its best reasonable efforts to: (a) obtain (i) any consent, authorization, waiver or approval of, or exemption by, any governmental authority, required to be obtained or made in connection with the transactions contemplated by this Agreement and the Transaction Documents and (ii) any consent, authorization, waiver or approval of, or exemption by, any other Person, required to be obtained or made in connection with the transactions contemplated by this Agreement and the Transaction Documents; and (b) bring about the satisfaction of the conditions precedent to Closing set forth in this Agreement. 2.2 Employees; Employee Benefit Plans . (a) The Buyer may, but shall have no obligation to, offer employment, to be effective as of the Closing Date, to those Persons listed on Schedule 3.10(b) (collectively, the Designated Employees). The parties acknowledge and agree that it is not the intention of the parties that any contracts of employment of any employee of the Seller shall be assumed by the Buyer as a result of the transactions contemplated by this Agreement and the Transaction Documents. The Seller shall use reasonable efforts to: (i) encourage the Designated Employees to whom an offer of employment is extended by Buyer to continue their employment with the Seller until the Closing and thereupon accept employment with the Buyer; and (ii) assist the Buyer in the Buyers efforts to employ each of the Designated Employees to whom an offer of employment is extended by Buyer. The Seller shall (a) release those Designated Employees who accept employment with the Buyer from their obligations under any non-competition, or confidentiality agreements in favor of the Seller, except with respect to such confidential information of the Seller that is not Related to the Business; and (b) transfer to Buyer the rights to enforce any obligations of Designated Employees with respect to confidential information of the Seller that are Related to the Business. Nothing contained herein or in any Transaction Document shall require (or be deemed to require) the Buyer to continue the employment of any Designated Employee hired or engaged by the Buyer or the salary or benefits paid or provided to any such Designated Employee for any specific period of time after the Closing Date. (b) Seller agrees that Buyer shall not incur any liability under The Worker Adjustment and Retraining Notification Act ( WARN) as a result of Buyers decision not to offer employment to any of the Designated Employees and Seller agrees to take whatever action may be necessary or appropriate for Buyer not to incur any liabilities under WARN in 7
connection with the transactions contemplated by this Agreement and the Transaction Documents. (c) The Seller shall remain liable for all obligations that have accrued or arisen prior to or on the Closing Date that are associated with the Designated Employees, and for all obligations whatsoever that are associated with the Sellers employees and contractors who are not hired or engaged by the Buyer, including, without limitation, any severance payments, sick leave obligations, accrued vacation, paid time off, medical, dental and optical claims and disability and life and accident claims or obligations under any Employee Plan. The Buyer will not be responsible for, be a successor employer with respect to, nor merge into the Buyers plans, any Employee Plans of the Seller. (d) No Designated Employee or other employee of either Seller shall be deemed to be a third party beneficiary of this Agreement. 2.3 Tax Matters Cooperation. The Seller and the Buyer shall cooperate fully and shall make available or cause to be made available to each other in a timely fashion such Tax data and other information as may be reasonably required for the preparation by the Seller and the Buyer of any Tax Returns, elections, consents or certificates required to be prepared and filed by any of them in connection with the transactions contemplated by this Agreement and the Transaction Documents. Each party shall cooperate with the other party in connection with any Tax investigation or other proceeding. In consultation with the Buyer, the Seller shall prepare all Tax Returns to be filed by the Seller, consistent with past practice. The Seller shall deliver copies of relevant sections of such Tax Returns Related to the Business to the Buyer at least ten (10) business days prior to the time they are due to be filed in order to provide the Buyer with an opportunity to confirm that the Seller has complied with the requirements of this Section 2.3. 2.4 Taxes on Assets. (a) The Seller shall be responsible for filing all Tax Returns related to the Business prior to the Closing and any activities related to the Business prior to the Closing Date that are not assumed and shall pay: (i) all Taxes (whether assessed or unassessed) with respect to the Business or the ownership of the Purchased Assets on or prior to the Closing Date; and (ii) all California or other state sales or use Taxes payable upon, or in connection with, the conveyance and transfer of the Purchased Assets to the Buyer. (b) The Buyer shall be responsible for filing all Tax Returns and shall pay all Taxes (whether assessed or unassessed) with respect to the Business or the ownership of the Purchased Assets attributable to periods (or portions thereof) beginning after the Closing Date, other than those described in Section 2.4(a), from and after the Closing Date. (c) The Parties hereby agree to waive compliance with the provisions of any legal requirements with respect to bulk transfers, or acts of similar nature, as such legal requirements may be applicable to the Purchased Assets. Seller agrees to pay and discharge, 8
promptly and diligently, when due, or to contest or litigate, all claims of creditors which could be asserted against Buyer or the Purchased Assets by reason of such noncompliance, and to indemnify and hold harmless Buyer in respect of such claims in accordance with the provisions of Article 8. (d) For purposes of this Section 2.4, any period beginning before and ending after the Closing Date shall be treated as two partial periods, one ending on the Closing Date and the other beginning after the Closing Date. 2.5 Retention of Tax Records . The parties shall comply with the Tax reporting and record keeping requirements with respect to the transactions contemplated by this Agreement and the Transaction Documents that are required by the Code, and preserve all information, Tax Returns and Business Records relating to any liability for Taxes with respect to any taxable period until the later of the expiration of all applicable statutes of limitation and extensions thereof, or the conclusion of all litigation and other disputes with respect to Taxes for any such period. 2.6 Minimum Screening Purchase Requirement . The Seller shall purchase from the Buyer through December 31, 2012, a minimum level of screening services on the following terms (the Minimum Screening Purchase Requirements ): (a) For a period commencing on the Effective Date of the Agreement and ending on December 31, 2012, in each calendar quarter, the Buyer would make available to the Seller the following minimum screening capacities: [***]. (b) Following the end of each calendar quarter the Buyer would notify the Seller of the number of [***] performed during the quarter together with details of any re-work and provide the Seller with an invoice based on a price of $ [***]. (c) The Seller shall place all orders to be completed during a calendar quarter no later than two weeks before the end of the quarter. (d) [***]. (e) The Seller shall pay to the Buyer within thirty (30) days of receipt of Buyers quarterly invoice pursuant to Section 2.6(b) the greater of (i) [***] or (ii) Six Hundred and Twenty Five Thousand Dollars ($625,000). [***]. ***Confidential Treatment Requested 9
(f) The Buyer shall at its own expense perform any re-work noted on any invoice in the following calendar quarter. (g) [***]. (h) The Seller may request in writing, and the Buyer may at its sole discretion perform other KinomeScan Services in addition to those related the Minimum Screening Purchase Requirements. Upon receipt of such written request from the Seller, the Buyer and the Seller shall negotiate in good faith to agree on the terms, including the price, of such additional KinomeScan Services ( Additional Seller Sales). 2.7 Patents of the Seller . After the Closing Date, the Buyer will, at its sole expense direct and control the prosecution of all such rights as listed in Schedule 3.9 and the Seller shall reasonably cooperate and provide assistance during the one hundred twenty (120) days after the Closing with such prosecution. In the event that the Buyer determined it would cease prosecution of any particular patent right or particular claims related to any transferred patent right on a country-by-country and patent-by-patent basis, Buyer shall provide Seller with forty five (45) days written notice and the Seller shall be permitted at its sole cost and expense to continue with the prosecution and the Buyer would assign such patent rights or, to the extent practicable, particular claims to the Seller at no cost to the Seller. 2.8 Transition Services. In partial consideration for the Purchase Price, during the 90-day period after the Closing, the Seller will use commercially reasonable efforts to provide all transition services necessary to permit the Buyers continuous use of the Purchased Assets and continuous operation of the Business from and after the Closing. Such efforts by the Seller shall include, but not be limited to: (a) providing notifications (with Buyers prior approval) to the Sellers customers, employees, business partners and suppliers for the Business regarding the sale of the Business and the Purchased Assets to the Buyer, (b) promptly transferring to the Buyer any incoming calls and e-mail support requests relating to the Business or the Purchased Assets, (c) providing billing and collection information and, to the extent necessary to avoid delays in the Businesss customary billing and collection practices, providing billing and collection services to the Buyer, (d) transferring hard and soft copies of the Business Records and delivering the Tangible Assets, (e) use of the Sellers facility located at 4215 Sorrento Valley Boulevard, San Diego, California 92121 and/or 4125 Sorrento Valley Boulevard San Diego, California 92121 pursuant to a sublease entered into between the Parties, (f) designating appropriate employees who will coordinate the transition services described in this Section 2.8 and who will be available to meet with the Buyer upon the Buyers reasonable request, (g) for a period of twelve (12) months after the Closing Date, include on Sellers website a link that redirects inquiries for KinomeScan Services to the electronic address provided by the Buyer, and (h) such other services as are reasonably required to facilitate the smooth transition of the Purchased Assets to the Buyer (the Transition Services). ***Confidential Treatment Requested 10
2.9 Non-Competition. (a) In consideration of the payment of the Purchase Price paid to the Seller under this Agreement and subject to the Seller License Agreement as described in Section 2.10, the Seller covenants and agrees that after the Closing Date, the Seller shall not, and the Seller shall cause its Affiliates not to, either individually or as a partner, joint venturer, consultant, shareholder, member or representative of another Person or otherwise, directly or indirectly, participate in, engage in, or have a financial or management interest in, promote, or assist any other Person in any business operation or any enterprise if such business operation or enterprise engages, or intends to engage, in a business that provides kinase screening or other contract services that require KinomeScan Intellectual Property to third parties. Without limiting the right of the Buyer to pursue all other legal and equitable rights available to it for violation of this Section 2.9 by the Seller and its Affiliates, it is agreed that other remedies cannot fully compensate the Buyer for such a violation and that the Buyer shall be entitled to injunctive relief to prevent any violation or continuing violation thereof (without the need to post any bond or other security). It is the intent and understanding of each party hereto that if, in any proceeding pursuant to Section 9.12 to enforce this Section 2.9, any term, restriction, covenant or promise in this Section 2.9 is found by the arbitrator to be unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such arbitrator. The Seller shall provide indemnification to the Buyer for any breach thereof consistent with the Buyers rights under Section 8 to indemnification for breaches of covenants. The term Affiliates as it applies to this Section 2.9(a) shall mean solely those Persons with a subsidiary or parent relationship with Seller. (b) The parties intend that this Section 2.9 be valid, binding and enforceable in accordance with its terms and the terms of Sections 16600-16601 of the California Business & Professions Code (together with any successor or replacement thereto (the Non-Compete Statute)). The parties agree that the Transactions are deemed to satisfy each and every one of the requirements of Section 16601(b) of the NonCompete Statute such that Section 16600 of the Non-Compete Statute does not apply to the Transactions. If, at the time of enforcement of this Section 2.9, the arbitrator appointed pursuant to Section 9.12 shall hold that the duration, scope or geographic area restrictions stated herein are unreasonable under the circumstances then existing, the parties agree that the maximum duration, scope or geographic area reasonable under such circumstances shall be substituted for the stated duration, scope or geographic area and that the arbitrator shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and geographic area permitted by law. Solely for the purposes of this Section 2.9 and Section 9.7, the Seller agrees and shall forever be estopped from denying that (i) the restrictions contained in this Section 2.9 are reasonable and in accordance with the Non-Compete Statute and (ii) the Transactions are deemed to constitute a sale of all or substantially all of the operating assets of a division of Seller together with the goodwill of that division. 2.10 License to Seller. (a) Effective as of the Closing Date, and subject to termination only for breach of Section 2.10(b), Buyer grants to Seller a nonexclusive, worldwide, sublicensable royalty-free license, including right to sublicense as set forth herein, under all rights in the KinomeScan Intellectual Property as it exists as of the Closing Date. [***]. ***Confidential Treatment Requested 11
(b) Seller hereby covenants that: [***]. SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE SELLER As an inducement to the Buyer to enter into this Agreement and each of the Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby, the Seller hereby makes the following representations and warranties to and for the benefit of the Buyer: 3.1 Organization. The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Seller has all requisite corporate power and authority to own, operate and lease the Purchased Assets and to carry on the Business as now being conducted and as presently contemplated to be conducted. In connection with the operation of the Business, the Seller is duly qualified or has been duly licensed, and is authorized to do business as a foreign corporation in the state of California and is in good standing in each state in the United States and in each other jurisdiction where qualification is required, due to: (a) the ownership or lease of real or personal property for use in the operation of the Business; (b) the nature of the business conducted by the Seller Related to the Business; or (c) otherwise Related to the Business. Other than as listed in Schedule 3.1, the Seller does not have any subsidiaries, and does not own, beneficially or otherwise, any shares or other securities of, or any director or indirect interest of any nature in, any other entity. No entity listed on Schedule 3.1 holds or has a title to any of the Purchased Assets. The Seller is not in violation, breach or default of any provision of its charter documents. 3.2 Financial Information. The balance sheets for the years ended December 31, 2008 and 2009 and for the quarters ended March 31, 2010 and June 30, 2010, and the related statements of operations for the periods that formed part of the Sellers audited annual financial statements and unaudited quarterly financial statements for the periods then ended are set forth in Schedule 3.2(a) (collectively, the Financial Statements). The Financial Statements are accurate and complete in all material respects, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods covered (except that the quarterly financial ***Confidential Treatment Requested 12
statements do not have notes) and present fairly the financial position of the Business and the Seller as of the respective dates thereof and the results of operations and cash flows of the Business and the Seller for the periods covered thereby. 3.3 No Conflict of Transaction with Obligations and Laws . Neither the execution, delivery and performance of this Agreement or any of the Transaction Documents, nor the performance of the transactions contemplated hereby or thereby, will: (a) constitute a breach or violation of the charter documents of the Seller; (b) conflict with or constitute (with or without the passage of time or the giving of notice) a breach of, or default under, any Assumed Contract, or any other material agreement to which the Seller is a party or by which the Seller or any of the Purchased Assets are bound, or terminate any material right pertaining to the Purchased Assets; (c) result in a violation of any order, judgment, injunction, edict, decree, ruling, pronouncement, determination, decision, opinion, verdict, sentence, subpoena, writ or award that is issued, made, entered, rendered or otherwise put into effect by or under the authority of any court, administrative agency or other governmental authority or any arbitrator or arbitration panel applicable to the Seller, the Business or any of the Purchased Assets (Order), or any law or regulation applicable to the Seller, the Business or any of the Purchased Assets; or (d) result in the creation or imposition of any Encumbrances upon any of the Purchased Assets. 3.4 Consents and Approvals . No consent, waiver, authorization or approval of any foreign, domestic, Federal, territorial, state or local governmental authority, quasi-governmental authority, instrumentality, court, government or self-regulatory organization, commission, tribunal or organization or any regulatory body, or of any other Person, and no declaration to or filing with any governmental authority, is required in connection with the execution and delivery of this Agreement or any of the Transaction Documents by the Seller, or the performance by the Seller of its obligations hereunder or thereunder. 3.5 Authority. The Seller has all necessary corporate power and authority to execute and deliver this Agreement and the Transaction Documents to which it is a party and to perform its obligations hereunder and thereunder. This Agreement constitutes a valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms, and each of the Transaction Documents to which the Seller is a party, when executed and delivered by the Seller, will constitute valid and binding obligations of the Seller, enforceable against the Seller in accordance with their respective terms, except, in each such case, as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws relating to or limiting creditors rights generally and by equitable principles. 3.6 Title to Purchased Assets. The Seller has title to the Purchased Assets as follows: (a) the Seller has good, marketable and valid title to the Purchased Assets, free and clear of any and all Encumbrances; 13
(b) upon the Closing, the Buyer will receive good and marketable title to each of the Purchased Assets, free and clear of any and all Encumbrances; (c) no Person, other than the Seller, has any right to use or possession of the Purchased Assets; (d) the Purchased Assets are in good condition and repair, are adequate for the uses to which they are being put and are not in need of maintenance or repair other than in the ordinary course of business; and (e) the Purchased Assets will collectively constitute, as of the Closing Date, all of the properties, rights, interests and other tangible and intangible assets necessary to enable the Seller to conduct the Business in the manner in which the Business is currently being conducted. For clarity, disclosure under Section 3.9, shall be deemed disclosure under this Section 3.6. 3.7 Material Contracts. (a) Schedule 1.1(e) constitutes a true, complete and correct list of all active Assumed Contracts, (collectively, the Material Contracts) that: (i) involve, or would reasonably be expected to involve over the term of such Assumed Contract, (A) initial license and maintenance purchase arrangements generating more than $ [***] in payments to or by the Business, (B) follow-on maintenance or other service arrangements generating more than $ [***] in payments to or by the Business, (C) service arrangements generating more than $ [***] in payments to or by the Business, (D) supply agreements that provide for the payment to or by the Business of more than $ [***], (E) contracts other than the foregoing that provide for the payment to or by the Business of more than $ [***], or (F) open orders for KinomeScan Services. (ii) have a term that expires after the date that is twelve (12) months from the Effective Date; (iii) cannot be amended before the date that is twelve (12) months after the Effective Date; ***Confidential Treatment Requested 14
(iv) were not entered into by the Seller in the ordinary course of business consistent with past practice; (v) impose future obligations of greater than $ [***] in the aggregate on the Business for which no future payment will be due to the Business in consideration therefor; (vi) if terminated, would reasonably be anticipated to cause a material interruption or disruption of the operation of the Business; (vii) prohibit their assignment or require the consent of any Person as a condition to their assignment; (viii) each contract pursuant to which any Intellectual Property is or has been licensed, sold, assigned, or otherwise conveyed or provided to the Seller (other than (i) agreements between the Seller and its employees in the Sellers standard form thereof and (ii) nonexclusive licenses to third-party software that is not incorporated into, or used in the development, manufacturing, testing, distribution, maintenance, or support of, any Seller product and that is not otherwise material to the Business); (ix) customer contracts Related to the Business; or (x) each contract pursuant to which any Person has been granted any license under, or otherwise has received or acquired any right (whether or not currently exercisable) or interest in, any KinomeScan Intellectual Property. (b) Except for the Material Contracts, there are no contracts, agreements, leases, permits, commitments, arrangements or other instruments to which the Seller is a party and which is necessary to conduct the Business as it is presently conducted, that otherwise affects the Business in any way or that would reasonably be expected to materially affect the Buyers operation of the Business after the Closing. The Seller is not in breach of any Material Contract and there are no grounds for modification, termination, rescission, avoidance or repudiation of any Material Contract by any party thereto. (c) The Seller has delivered to the Buyer accurate and complete copies of all Material Contracts. Each of the Material Contracts is valid and binding on the parties thereto and in full force and effect. The Seller is not in breach or default in any material respect under any Material Contract, nor, to the Sellers knowledge, is any other party to such Material Contract in breach or default thereunder, and no event has occurred which, with due notice or lapse of time or both, would constitute such a breach or default. (d) With regard to hereto, (i) no Person has materially violated or breached, or declared or committed any default under, any Material Contracts; (ii) no event has occurred, and no circumstance or condition exists, that would (with or without notice or lapse of time) (A) result in a violation or breach of any of the provisions of any Material Contracts, (B) give any Person the right to declare a default or exercise any remedy under any Material Contracts, (C) give any Person the right to accelerate the maturity or performance of any Material ***Confidential Treatment Requested 15
Contracts, or (D) give any Person the right to cancel, terminate or modify any Material Contracts; (iii) the Seller has not received any notice or other communication (in writing or otherwise) regarding any actual, alleged, possible or potential violation or breach of, or default under, any Material Contracts; and (iv) the Seller has not waived any right under any Material Contracts. (e) The performance of the Material Contracts prior to the Closing Date has not resulted in any material violation of or failure to comply with any legal requirement. (f) All arrangements entered into by the Seller with customers of the Business have been on terms and conditions with a view to preserving or enhancing the value of the Business and the Purchased Assets. (g) No Person is renegotiating, or has the right to renegotiate, any amount paid or payable to the Seller under any Material Contracts or any other term or provision of any Material Contracts. (h) The Material Contracts identified in Schedule 3.7 collectively constitute all of the contracts necessary to enable the Buyer to conduct the Business in the manner in which such Business is currently being conducted. (i) The Seller does not and would not with the passage of time have any outstanding obligations under the Assumed Contracts, except for those with respect to providing the KinomeScan Services and confidentiality. 3.8 Tangible Assets. All equipment, and tools which are tangible assets owned by the Seller necessary for the conduct of the Business as presently conducted, are included in Schedule 1.1(a), which schedule sets forth the original costs and book value of each of said assets. The Seller does not lease any tangible assets Related to the Business. Each asset identified or required to be identified in Schedule 1.1(a) is in good condition and repair (ordinary wear and tear expected); (ii) complies in all material respects with, and is being operated and otherwise used in compliance with, all applicable legal requirements; and (iii) is adequate for the uses to which it is being put. The assets identified on Schedule 1.1(a) are adequate for the conduct of the Business of the Seller in the manner in which such Business is currently being conducted. Subject to the terms of the Transaction Documents, these assets are sold as-is. 3.9 Intellectual Property. (a) Schedule 3.9(a) sets forth an accurate and complete list, as of the Effective Date of each item, identifying, where applicable, the jurisdiction, the applicable registration or serial number, the date granted or applied for, the expiration date, the nature of ownership and the status of, each of the following items of KinomeScan Intellectual Property: (i) all registered and unregistered trademarks, trade names, service marks, domain names, brand names and slogans Related to the Business and all applications for registration thereof; 16
(ii) all patents and patent applications (including all reissues, divisions, continuations, continuations-in-part, extensions of any patent or patent application, and all foreign counterparts thereof), and all registered industrial designs and applications for registration of industrial designs Related to the Business (collectively KinomeScan Patents); (b) Except as set forth in Schedule 3.9(b) and subject to the further provisions of this Section 3.9, as of the Effective Date: (i) the Seller owns, solely, free and clear of all Encumbrances, all of the intellectual property identified in Schedule 3.9(a); (ii) as of the Effective Date, no other Person has any rights in such KinomeScan Intellectual Property identified in Schedule 3.9(a); (iii) all documents and instruments necessary to establish, perfect, and maintain the rights of the Seller in the KinomeScan Intellectual Property listed in Schedule 3.9(a) have been validly executed, delivered, and filed in a timely manner with the appropriate governmental body. (iv) The Seller does not receive any royalty from any Person with respect to any of the KinomeScan Intellectual Property; (v) Except as set forth in Schedule 3.9(a), there are no restrictions on the transfer of any item of KinomeScan Intellectual Property or any contract or other interest therein held by the Seller in respect of such KinomeScan Intellectual Property, including any option or other rights that impose any restrictions on the transfer of any KinomeScan Intellectual Property by the Seller; (vi) except as set forth in Schedule 3.9(b), the Seller has not given or received any notice of any pending conflict with, misappropriation of, or infringement of the rights of others with respect to, any of the KinomeScan Intellectual Property or with respect to any license of the KinomeScan Intellectual Property; (vii) to the knowledge of the Seller, no Person is infringing on or misappropriating any of the KinomeScan Intellectual Property; (viii) to the knowledge of the Seller, pursuant to this Agreement, the Seller has transferred to the Buyer all intellectual property, know-how, methods, processes, techniques, data, reagents, materials, and software Related to the Business and necessary for operation of the Business, and (ix) to the knowledge of the Seller, none of the KinomeScan Intellectual Property nor services provided by the Seller, except as set forth on Schedule 3.9(b) conflict with or infringe upon any intellectual property of any third party. To the knowledge of Seller, neither the Seller, nor any employee, contractor or agent of the Seller, has misappropriated the trade secrets, know-how or copyrighted software of any third party. 17
(c) Except as set forth in Schedule 3.9(c), as of the Closing Date, all necessary application, prosecution, registration, issuance, maintenance and renewal fees in connection with the KinomeScan Intellectual Property listed in Schedule 3.9 have been paid and all necessary documents and certificates in connection with the KinomeScan Intellectual Property listed in Schedule 3.9 have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such KinomeScan Intellectual Property listed in Schedule 3.9(a). Except as set forth in Schedule 3.9(c), to the best knowledge of the Seller after consultation with its patent counsel, as of the Effective Date, there are no actions that must be taken by the Buyer within one hundred twenty (120) days of the Effective Date, including the payment of any registration, maintenance or renewal fees or the filing of any responses to the U.S. Patent and Trademark Office (the PTO) office actions, documents, applications or certificates for the purposes of obtaining, maintaining, perfecting, preserving or renewing any KinomeScan Intellectual Property listed on Schedule 3.9 but with the exception of the execution of powers of attorney and assignments evidencing the transfer of KinomeScan Intellectual Property listed in Schedule 3.9 which are to be executed by the Buyer. In each case in which the Seller has acquired any KinomeScan Intellectual Property from any person, the Seller has obtained an enforceable assignment, sufficient to irrevocably transfer all such KinomeScan Intellectual Property (including the right to seek past and future damages with respect thereto) to the Buyer. In accordance with applicable laws and regulations, the Seller has recorded each such assignment of KinomeScan Patents with the United States PTO. (d) Except as set forth on Schedule 3.9(b), to the knowledge of the Seller, there are no facts or circumstances that would render any of the KinomeScan Intellectual Property listed on Schedule 3.9 invalid or unenforceable. The Seller has not misrepresented, or failed to disclose, and has no knowledge of any misrepresentation or failure to disclose, any fact or circumstances in any application for any item of KinomeScan Intellectual Property listed on Schedule 3.9 that would constitute fraud or a misrepresentation with respect to such application or that would otherwise affect the validity or enforceability of any item of KinomeScan Intellectual Property listed on Schedule 3.9. (e) There was no breach of the duty of candor to the PTO during the application and prosecution of each KinomeScan Patents, including, but not limited to, material misrepresentations, misleading statements or omissions relating to the application or prosecution of each Patent, including, but not limited to, inventorship, prior public use, citation of prior art or date of invention. (f) Except as set forth on Schedule 3.9(b), no funding, facilities, or personnel of any governmental body or any public or private university, college, or other educational or research institution were used, directly or indirectly, to develop or create, in whole or in part, any KinomeScan Intellectual Property. (g) To the knowledge of the Seller, no item of KinomeScan Intellectual Property was developed by copying, modifying, reverse engineering, decompiling, disassembling, or creating derivatives of, any technology belonging to a third party in a manner that constitutes misappropriation of trade secrets or breach of any contract with such third party. 18
(h) The Seller has taken reasonable security measures to protect the secrecy, confidentiality and value of the trade secrets and any confidential information related to the KinomeScan Intellectual Property (including requiring all employees and consultants to execute and deliver binding agreements relating to non-disclosure of confidential information and assignments of inventions, a copy of the form of which has been delivered to the Buyer). To the Sellers knowledge no material confidential item of KinomeScan Intellectual Property included in the Purchased Assets has been disclosed to any Person who is not an employee, officer, representative or agent or contractor of the Seller, unless the disclosure was made pursuant to an obligation of confidentiality by said Person. (i) All KinomeScan Intellectual Property (i) was developed solely by Persons who are or were employees or contractors of the Seller, each of whom entered into a form of assignment of intellectual property and confidential information agreement with the Seller, (ii) does not include any KinomeScan Patents licensed from any third party, (iii) does not include any KinomeScan Intellectual Property that is subject to an open source license, and (iv) does not restrict the right of the Seller to charge a fee in connection with the sale and distribution of such KinomeScan Intellectual Property, whether as part of the Purchased Assets or otherwise. To the knowledge of the Seller, no employee or contractor of the Seller has executed any agreement to assign any KinomeScan Intellectual Property to any Person other than the Seller. The Seller has provided to the Buyer a complete and accurate copy of each standard form of (a) employee agreement containing any assignment or license of KinomeScan Intellectual Property; (b) consulting or independent contractor agreement containing any intellectual property assignment or license of KinomeScan Intellectual Property; and (c) confidentiality or nondisclosure agreement. (j) No current or former shareholder, officer, director, or employee of the Seller has any claim, right (whether or not currently exercisable), or interest to or in any KinomeScan Intellectual Property. To the knowledge of the Seller, no employee of the Seller is (a) bound by or otherwise subject to any contract with any third party restricting him from performing his duties for the Seller or (b) in breach of any contract with any former employer or other Person concerning KinomeScan Intellectual Property or confidentiality due to his activities as an employee of the Seller. (k) None of the KinomeScan Intellectual Property is subject to any export restriction by the government of the United States. (l) Schedule 1.1(d)(ii)(A) accurately identifies and describes all material software programs owned by the Seller that are Related to the Business and required for operation of the Business (the Software Programs). None of the Software Programs are subject to provisions of any license or similar contract which requires or would require the Buyer to distribute, license or sub-license, or disclose such Software Programs. 3.10 Employees; Employee Plans . (a) There are no written contracts for the employment of any of the Designated Employees between such Designated Employees and Seller. There are no written agreements or arrangements that would restrict the ability of the Seller to terminate the 19
employment or engagement of any of the Designated Employees at any time, at will. To the knowledge of the corporate officers of the Seller, none of the Designated Employees has any plan or intention to terminate employment with the Seller or not to accept an offer of employment from the Buyer if such an offer is made. (b) Schedule 3.10(b) sets forth an accurate and complete: (i) list of each current employee of the Seller employed on a full-time, part-time or consulting basis in connection with the operation of the Business; (ii) summary description, for each such Person, of the date of hire, job title, the current rate of compensation payable to such Person, bonuses paid to such Person in the year ending on the same date as the Effective Date, whether such Person is employed or engaged on a full-time, part-time or consulting basis, whether such Person is exempt or non-exempt, (the Employee Plans). (c) The Seller is not a party to or bound by any collective bargaining agreement or any other agreement with any labor organization applicable to any of the Designated Employees, and there is no actual or, to the Sellers knowledge, threatened, activity or proceeding of any labor organization (or representative thereof) to organize any unorganized Designated Employees. The Seller has not experienced any material work stoppage, and no labor dispute, grievance, slowdown, lockout, strike, work stoppage or other collective labor action is in effect, pending or, to the knowledge of the Seller, threatened against or affecting the Business. (d) With respect to each of the Designated Employees, the Seller is in compliance with all applicable Federal, state, local, municipal, or other applicable Governmental Body respecting employment, employment practices, terms and conditions of employment and wages and hours and is not engaged in any unfair labor practice. None of the Designated Employees has a pending claim which has been asserted in writing or threatened against the Seller for: (i) overtime pay; (ii) wages, salaries or profit sharing; (iii) any violation of any contract or applicable law relating to wages or hours of work; (iv) discrimination against employees on any basis; (v) unlawful or wrongful employment or termination practices; or (vi) any violation of occupational safety or health standards. To the knowledge of Seller, all Designated Employees who are not United States citizens hold all requisite visas and have satisfied all applicable law respecting their immigration status. 3.11 Real Property. The Purchased Assets do not include any rights or interests in any real property, and, except as disclosed on Schedule 3.11, the Seller does not own, lease or sublease any real property that is necessary for the continued operation of the Business by the Buyer following the Closing. 3.12 Taxes. As of the Closing Date, all Taxes due and payable in connection with the Business or the Purchased Assets have been paid in full and all withholding requirements have been complied with. As of the Closing Date, all material Tax Returns or reports that are required to have been filed in connection with the Business or the Purchased Assets have been filed, and such returns are complete and correct in all material respects. As of the Closing Date any deficiencies proposed as a result of any governmental audits have been paid or settled, and there are no present disputes as to Taxes payable in connection with the Business or the Purchased Assets. As of the Closing Date, there are no unexpired waivers of any statute of 20
limitations with respect to any Taxes relating to the Business or the Purchased Assets and the Seller is not a party to any action or proceedings by any governmental authority for the collection or assessment of Taxes relating to the Business or the Purchased Assets. 3.13 Litigation. As of the Closing Date, there is no suit, action, proceeding, investigation, claim or order pending, or threatened in writing except as set forth in Schedule 3.13 , against the Seller Related to the Business (or, to the knowledge of the Seller, pending or threatened in writing against any of the Designated Employees), before any court, or before any governmental department, commission, board, agency, or instrumentality, the outcome of which is reasonably likely to have a material adverse effect on the Business or the Purchased Assets. As of the Closing Date, in connection with or relating to the Purchased Assets or the Business, the Seller: (i) is not subject to any Order of any court or governmental agency; (ii) has not received any opinion or memorandum or legal advice from legal counsel to the effect that it is exposed, from a legal standpoint, to any liability which may be material to the Business or the Purchased Assets; and (iii) is not engaged in any legal action to recover monies due it or for damages sustained by it. As of the Closing Date, Schedule 3.13 sets forth a complete and correct list and description of all material claims, suits, actions, proceedings and investigations made, filed or otherwise initiated in connection with the Business and the Purchased Assets and the resolution thereof. 3.14 Licenses and Permits. The Seller holds all permits and approvals of governmental authorities and agencies necessary for the current conduct, ownership, use, occupancy or operation of the Business, all of which are identified in Schedule 3.14(b) and complete and correct copies of which have previously been furnished to the Buyer. The Seller is in compliance with such permits, all of which are in full force and effect, and has not received any notices (written or oral) to the contrary. The Seller is in material compliance with all of the terms and requirements of each governmental authorization identified or required to be identified in Schedule 3.14(b); no condition or circumstance exists, that would (with or without notice or lapse of time) (A) constitute or result directly in a violation of or a failure to comply with any material term or requirement of any governmental authorization identified or required to be identified in Schedule 3.14(b), or (B) result directly or indirectly in the revocation, withdrawal, suspension, cancellation, termination or modification of any governmental authorization identified or required to be identified in Schedule 3.14(b); the Seller has never received any notice or other communication (in writing or otherwise) from any governmental body or any other Person regarding (A) any actual, alleged, possible or potential violation of or failure to comply with any material term or requirement of any governmental authorization, or (B) any actual, proposed, possible or potential revocation, withdrawal, suspension, cancellation, termination or modification of any governmental authorization that has interfered with the conduct of the Business. The governmental authorizations identified in Schedule 3.14(b) constitute all of the governmental authorizations necessary (i) to enable the Seller to conduct its business in the manner in which such business is currently being conducted, and (ii) to permit the Seller to own the Business and use the Purchased Assets in the manner in which they are currently owned and used. 3.15 Environment, Health and Safety . The Sellers operations and conduct of the Business are and have been in material compliance with applicable Federal, state, and municipal statutes, rules or regulations as in effect at the Closing relating to the protection of the 21
environment or occupational health and safety, including, without limitation, any statute or regulation pertaining to: (a) the presence, manufacture, processing, use, treatment, storage, disposal, transportation, handling or generation of materials of environmental concern; (b) air, water and noise pollution; (c) groundwater and soil contamination; and (d) the release or threatened release of materials of environmental concern to the environment. 3.16 Compliance with Laws. Except as set forth in Schedule 3.9(b) The Business has not been conducted and is not being conducted, and the Seller is not nor has been, in violation of, nor received any notice of any alleged violation of, or any citation for noncompliance with, any applicable material Federal, state or local statute, law, rule, regulation, ordinance, permit, order, decree of, or other lawful obligation imposed by, any court or governmental authority or instrumentality. To the knowledge of Seller, no event has occurred, and no condition or circumstance exists, that would (with or without notice or lapse of time) constitute or result directly or indirectly in a violation by the Seller of, or a failure on the part of the Seller to comply with, any legal requirement Related to the Business. The Seller has delivered to the Buyer an accurate and complete copy of each report, study, survey or other document to which the Seller has access that addresses or otherwise relates to the compliance of the Seller with, or the applicability to the Seller of, any legal requirement Related to the Business. To the best of the knowledge of the Seller no governmental body has proposed or is considering any legal requirement that, if adopted or otherwise put into effect, (i) may have an adverse effect on the business, condition, assets, liabilities, operations, financial performance, net income or prospects of the Seller or on the ability of the Seller to comply with or perform any covenant or obligation under any of the Transaction Documents, or (ii) may have the effect of preventing, delaying, making illegal or otherwise interfering with any of the Transactions. The Seller has made all required registrations and filings with all applicable governmental authorities relating to the Business, as currently conducted and as proposed to be conducted, and the Purchased Assets. All such registrations, filings and submissions were in compliance in all material respects with all legal and other requirements when filed, no deficiencies have been asserted by any such applicable governmental entities with respect to such registrations, filings or submissions, and no facts or circumstances exist which would indicate that a deficiency may be asserted by any such authority with respect to any such registration, filing or submission as Related to the Business as currently conducted. 3.17 Intercompany Transactions. As of the Closing Date there are no assets Related to the Business held by the Seller Affiliates and no inter-company contracts or agreements Related to the Business. 3.18 Brokers Fees. No broker, finder or agent has worked for or on behalf of the Seller with respect to the transactions contemplated by this Agreement and the Transaction Documents. 3.19 Inventories. Schedule 1.1(b) sets forth a true and correct breakdown of all Inventories Related to the Business, updated as of the Closing Date. The Inventories consist of items of a quality and quantity usable in the ordinary course of business consistent with past practice. All items included in the Inventories are owned by the Seller free and clear of all Encumbrances. No items included in the Inventories are held by the Seller on consignment from others. All of the Sellers existing Inventories: (a) is of such quality and quantity as to be usable 22
by the Seller in the ordinary course of business; (b) has been priced at the lower of cost or market value using the last-in, first-out method; and (c) is free of any defect or deficiency. The Inventories levels maintained by the Seller are adequate for the conduct of the Sellers operations in the ordinary course of business. 3.20 Regulatory Matters. As of the Closing Date, no regulatory applications or governmental registrations are required for the operation of the Business as currently conducted. 3.21 Deductions to Purchase Price . Schedule 3.21 sets forth a correct and complete list of all of the Deductions to Purchase Price. All of the Deductions to Purchase Price represent cost of providing KinomeScan Services to third parties, who paid for such services prior to the Effective Date. None of the Deductions to Purchase Price has been paid to a Person with whom the Seller does not deal at arms length. 3.22 Customers. Schedule 3.22 identifies and provides a breakdown of the revenues received from, each customer in the year 2008 or 2009, and in the first nine months of 2010. The Seller has not received any notice or other communication (in writing or otherwise), and the Seller has not received any other information, indicating that any customer or other Person identified or required to be identified in Schedule 3.22 may cease dealing with the Seller or may otherwise reduce the volume of business transacted by such Person with the Seller below historical levels. The Seller has taken reasonable security measures to protect the secrecy, confidentiality and value of the customer data. 3.23 Performance of Services . All services that have been performed on behalf of the Seller were performed properly and in conformity with the terms and requirements of all applicable warranties and contracts. The Buyer will not incur or otherwise become subject to any liability arising directly or indirectly from any services performed by the Seller. There is no legal claim pending or being threatened against the Seller relating to any services performed by the Seller, and, to the knowledge of the Seller, there is no basis for the assertion of any such claim. 3.24 No Debarment. None of Seller nor its directors, officers, employees, agents, representatives or consultants are under investigation by the U.S. Food and Drug Administration or other regulatory authorities for debarment action or presently debarred pursuant to the Generic Drug Enforcement Act of 1992 (21 U.S.C. 301 et seq), as amended, or any analogous laws. 3.25 No Omissions. No representation or warranty of the Seller in this Agreement, nor any schedule or exhibit hereto furnished by the Seller pursuant to this Agreement contains any untrue statement of a material fact or omits to state a material fact required to make the statements herein, in light of the circumstances under which they were made, not materially misleading. No investigation of the Seller, the Business or any of the Purchased Assets undertaken by the Buyer and/or its representatives, nor any information furnished by the Seller to the Buyer other than the Seller disclosure schedules, shall absolve the Seller from any liability for any such untrue statement or omission. 23
SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE BUYER The Buyer hereby represents and warrants to the Seller that the statements contained in this Section 4 are true and correct as of the date hereof. 4.1 Organization of Buyer . The Buyer is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, with full corporate power to execute and deliver this Agreement and the Transaction Documents to which it is a party, and to carry out the transactions contemplated hereby and thereby. 4.2 Authorization of Transaction . All necessary action, corporate or otherwise, has been taken by the Buyer to authorize the execution, delivery and performance of this Agreement and the Transaction Documents, and the consummation of each of the transactions contemplated hereby and thereby, and each of the same is the valid and binding obligation of the buyer, enforceable against the Buyer, in accordance with its terms, except as such obligations and enforceability are limited by bankruptcy, insolvency and other similar laws of general application affecting the enforcement of creditors rights and by equitable principles. 4.3 Brokers Fees. Except for fees payable to [***], with such fees payable solely by the Buyer, no broker, finder or agent has worked for or on behalf of the Buyer with respect to the transactions contemplated by this Agreement and the Transaction Documents. 4.4 Sole Representations and Warranties. The representations and warranties set forth in this Section 4 are the sole and exclusive representations and warranties made by the Buyer in connection with this Agreement and each of the Transaction Documents to which the Buyer is a party. SECTION 5 CONDITIONS TO OBLIGATIONS OF THE BUYER The obligation of the Buyer to execute and deliver this Agreement and each of the Transaction Documents to which the Buyer is a party, and to consummate the transactions contemplated hereby and thereby, is subject to the satisfaction (or waiver by the Buyer) of the following conditions: 5.1 Representations; Warranties; Covenants. The representations and warranties of the Seller contained in this Agreement and each of the Transaction Documents to which it is a party shall be true and correct as though made on and as of the Closing; and the Seller shall, on or before the Closing, have performed all of its obligations hereunder and thereunder which by the terms hereof or thereof are to be performed on or before the Closing. 5.2 Absence of Litigation . There shall not be any suit, action or other proceeding by any private party or governmental agency or authority pending before any court or governmental agency, or threatened in writing to be filed or initiated, challenging or seeking to ***Confidential Treatment Requested 24
prohibit the consummation of any of the transactions contemplated by this Agreement or any of the Transaction Documents or seeking an amount in payment (or indemnification) of damages from or other relief against the Buyer or any of its directors or officers, in connection with the consummation of any of the transactions contemplated by this Agreement or any of the Transaction Documents. 5.3 Assignments of Patents; Assignment of Trademarks . The Seller shall have executed and delivered to Buyer (a) the Assignment of Patents Agreement in the form of attached Exhibit B (the Assignment of Patents Agreement ) and (b) the Assignment of Trademarks Agreement in the form of attached Exhibit C (the Assignment of Trademarks Agreement ), each in a form adequate for filing with the PTO. 5.4 Assignment of Other Intellectual Property . The Seller shall have executed and delivered to the Buyer the Assignment of Other Intellectual Property in the form of attached Exhibit D (the Assignment of Other Intellectual Property ). 5.5 Assignment and Assumption of Assumed Contracts . The Seller shall have executed and delivered to the Buyer the Assignment and Assumption of Assumed Contracts in the form of attached Exhibit E (the Assignment and Assumption of Assumed Contracts ). 5.6 Due Diligence Investigation. The Buyer shall have conducted and completed its investigation of the Seller, the Business and the Purchased Assets, and the Buyer, in its sole discretion, shall have been satisfied in all respects with the results of such investigation and, in its sole discretion, shall have determined to proceed with the transactions contemplated by this Agreement and the Transaction Documents. 5.7 Opinion of the Sellers Counsel . The Buyer shall have received from a counsel to the Seller, a legal opinion, in a form of attached Exhibit I. 5.8 Officers Certificate . The Seller shall have executed and delivered an Officers Certificate to the Buyer in the form of attached Exhibit H (the Officers Certificate). 5.9 Bill of Sale; Other Closing Deliverables . The Seller shall have executed and delivered a Bill of Sale to the Buyer in the form of attached Exhibit F (the Bill of Sale ) and all such other agreements, documents and instruments to transfer to Buyer, good title to all of the Purchased Assets, to evidence such transfer on public records or as may be reasonably required by Buyer, to complete the transactions contemplated by this Agreement, the Assignment of Patents Agreement, the Assignment of Trademarks Agreement, the Assignment of Other Intellectual Property, the Assignment and Assumption of Assumed Contracts, the Officers Certificate, the Bill of Sale and the Seller License Agreement (collectively, the Transaction Documents). 5.10 Indebtedness Retired. The Seller shall have paid in full all indebtedness then due and payable related to the Purchased Assets and shall provide evidence satisfactory to the Buyer that the Purchased Assets are free and clear of all Encumbrances. 25
5.11 Sublease Agreement. The Seller shall have executed and delivered to the Buyer a Sublease Agreement in the form of attached Exhibit A (the Sublease Agreement). SECTION 6 CONDITIONS TO OBLIGATIONS OF THE SELLER The obligation of the Seller to execute and deliver this Agreement and each of the Transaction Documents to which it is a party, and to consummate the transactions contemplated hereby and thereby, is subject to the satisfaction (or waiver) of the following conditions: 6.1 Representations; Warranties; Covenants. Each of the representations and warranties of the Buyer contained in this Agreement and each of the Transaction Documents shall be true and correct as though made on and as of the Closing; and the Buyer shall, on or before the Closing, have performed all of its obligations hereunder and thereunder which by the terms hereof or thereof are to be performed on or before the Closing. 6.2 Assignment and Assumption of Assumed Contracts . The Buyer shall have executed and delivered to the Seller the Assignment and Assumption of Assumed Contracts. 6.3 Notice. The Buyer shall notify Seller of any material misstatements or omissions of Seller, as relates to the representation and warranties made by the Seller under this Agreement, known by Buyer prior to the Closing. 6.4 Sublease Agreement . The Buyer shall have executed and delivered to the Seller a Sublease Agreement in the form of attached Exhibit A (the Sublease Agreement). SECTION 7 POST-CLOSING COVENANTS AND AGREEMENTS 7.1 Access. The Buyer shall afford to the Seller and its accountants and attorneys reasonable access upon reasonable notice to the Business Records and shall permit the Seller to make copies therefrom for the purpose of preparing such Tax Returns of the Seller as may be required after the Closing and for other proper purposes approved by the Buyer. This shall, without limitation, include access to those Business Records necessary for calculating Net Sales to confirm Buyers determination of whether any milestones under Sections 1.4(b) and 1.4(c) (as may be adjusted pursuant to Section 1.4(d)) have been achieved. 7.2 Further Assurances . The Seller shall, from time to time after the Closing, at the Buyers request and without further consideration, execute and deliver such other instruments of conveyance, assignment and transfer and take such other actions as the Buyer may reasonably require pursuant to this Agreement. The Seller hereby irrevocably appoints the Buyer as its attorney-in-fact to execute and deliver such instruments necessary or convenient to convey, transfer to and invest in the Buyer, and to put the Buyer in possession of, all the Purchased Assets. Furthermore, in the event that after the Closing the Seller identifies any assets Related to 26
the Business or necessary for the operation of the Business, including without limitation, any assets related to the KinomeScan Intellectual Property and any other intellectual property Related to the Business, which assets were under Sellers custody or control as of the Effective Date and were not transferred to Buyer under this Agreement, Buyer shall immediately transfer such identified assets to the Buyer without any additional consideration and shall execute and deliver any instruments of conveyance, assignment and transfer related to the transfer of such assets. The Seller shall use its reasonable business efforts to obtain consents to Material Contracts that prohibit their assignment or require the consent of any Person as a condition to their assignment in the form of attached Exhibit G (the Consent to Assignment ). 7.3 Confidentiality. (a) After the Closing, the Seller shall maintain, and shall cause (i) each of the Sellers employees who do not become employees of the Buyer at the Closing and (ii) each of Sellers Affiliates, to maintain the confidentiality of all confidential information, documents and materials relating to the Business (including all customer confidential information), the Purchased Assets or the transactions contemplated by this Agreement and the Transaction Documents, except to the extent disclosure of any such information is required by law or judicial, regulatory or governmental administration process, or expressly authorized in writing by the Buyer. In the event that the Seller reasonably believes after consultation with counsel that it is required by law or judicial or governmental administration process to disclose any confidential information described in this Section 7.3, the Seller will: (i) provide the Buyer with prompt notice before such disclosure in order that the Buyer may attempt to obtain a protective order or other assurance that confidential treatment will be accorded to confidential information; and (ii) cooperate with the Buyer in attempting to obtain such order or assurance. The provisions of this Section 7.3 shall not apply to any information, documents or materials which are in the public domain or shall come into the public domain, other than by reason of default by the Seller or its Affiliates of their confidentiality obligations under this Agreement. From and after the Closing, all customer confidential information of the Purchased Assets shall be deemed Buyers confidential information for purposes of this Section 7.3. (b) Without limiting the right of the Buyer to pursue all other legal and equitable rights available to it for violation of this Section 7.3 by the Seller and its Affiliates, it is agreed that other remedies cannot fully compensate the Buyer for such a violation and that the Buyer shall be entitled to injunctive relief to prevent any violation or continuing violation by the Seller thereof (without the need to post any bond or other security). It is the intent and understanding of each party hereto that if, in any proceeding pursuant to Section 9.12 to enforce this Section 7.3, any term, restriction, covenant or promise in this Section 7.3 is found by the arbitrator to be unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such arbitrator. 7.4 Tax Allocation. The Buyer and the Seller shall use their commercially reasonable efforts to agree upon an allocation of the Purchase Price among the Purchased Assets on IRS Form 8594 within 120 days following the Closing (the Tax Allocation). If an agreement as to the Tax Allocation is reached, the Buyer and the Seller shall report the Federal, state and local income and other Tax consequences of the transactions contemplated by this Agreement and the Transaction Documents in a manner consistent with such allocation and shall 27
not take any position inconsistent therewith upon examination of any Tax Return, in any refund claim, in any litigation, or otherwise. 7.5 Sublease Agreement . The Parties shall perform their obligations in accordance with the Sublease Agreement. SECTION 8 INDEMNIFICATION 8.1 Survival of Representations and Warranties . The representations and warranties of the Seller and the Buyer set forth in this Agreement and any exhibits or schedules attached hereto or delivered hereunder shall survive the date of Closing and consummation of the transactions contemplated hereby and will continue until the last day of the twenty-fourth (24 th) calendar month following the Closing Date, at which time they shall expire. Notwithstanding the foregoing, the representations and warranties of the Seller contained in Section 3.12 [Taxes] shall survive until the expiration of the applicable statue of limitations, the representation and warranties of the Seller contained in Section 3.9 [KinomeScan Intellectual Property] shall survive until the last day of the sixtieth (60) calendar month following the Closing Date, and the representations and warranties of the Seller contained in Sections 3.3 [No Conflict of Transaction with Obligations and Laws], 3.5 [Authority], and 3.6 [Title to Purchased Assets] shall survive without limitation. If an indemnification claim is properly asserted in writing pursuant to this Section 8 prior to the expiration as provided herein of the representation or warranty that is the basis for such claim, then such representation or warranty shall survive until, but only for the purpose of, the resolution of such claim. Notwithstanding anything to the contrary contained in Section 8.1, if the Seller had knowledge, on or prior to the Closing Date, of any circumstance that constitutes or that has given rise or would be expected to give rise, directly or indirectly, to any breach of any representation or warranty set forth in Section 3, then such representation or warranty shall not expire, but rather shall remain in full force and effect for an unlimited period of time (regardless of whether any claim notice relating to such representation or warranty is ever given). For purposes of this Agreement, each statement or other item of information set forth in the Disclosure Schedule or in any update to the Schedule to this Agreement shall be deemed to be representation and warranty made by the Seller in this Agreement. 8.2 Indemnification by the Seller . Subject to the terms and conditions of this Section 8, from and after the Closing, the Seller shall indemnify the Buyer, together with its officers, directors, employees (collectively, the Buyer Indemnified Parties) in respect of, and hold the Buyer Indemnified Parties harmless against, any and all claims, liabilities, losses, monetary damages, fines, fees, penalties, costs and expenses (including without limitation, attorneys fees and expenses) (collectively, Damages) incurred or suffered by any Buyer Indemnified Party resulting from: (a) any breach of any of the representations, warranties, covenants or agreements, including without limitation those contained in Section 2.10 and 7.3, made by the Seller in or pursuant to this Agreement and the Transaction Documents, and any exhibits hereto or thereto (without giving effect to any qualification as to materiality contained or incorporated in such representation or warranty); 28
(b) the conduct of the Business of the Seller prior to the Closing; (c) any liability of the Seller related to items disclosed on Schedule 3.9 (b), or (d) the failure of Seller to comply with any legal requirements with respect to bulk transfers, or acts of similar nature, except that this clause shall not affect the obligation of Buyer to pay and discharge the Assumed Liabilities, or (e) any liability of the Seller not expressly assumed by the Buyer pursuant to this Agreement, including without limitation, any liability, payment or obligation in respect of (1) any Taxes owing by the Seller, (ii) any of the Retained Liabilities, or (iii) Sellers contractual obligations of any kind to Bristol-Byers Squibb Company or Cephalon after the Closing Date other than with respect to KinomeScan Services provided by the Buyer. (e) The representations, warranties, covenants and the obligations of the Seller, and the rights and remedies that may be exercised by the Buyer Indemnified Parties, shall not be limited or otherwise affected by, or as a result of, any information furnished to, or any investigation made by or knowledge of, any of the Buyer Indemnified Parties or any of their agents, attorneys, accountants or advisors. 8.3 Indemnification by the Buyer . Subject to the terms and conditions of this Section 8, from and after the Closing, the Buyer shall indemnify the Seller, together with its officers, directors, employees (collectively, the Seller Indemnified Parties), in respect of, and hold the Seller Indemnified Parties harmless against, any and all Damages incurred or suffered by any Seller Indemnified Party resulting from: (a) any breach of any of the representations or warranties made by the Buyer pursuant to this Agreement; (b) the conduct of the Business by Buyer after the Closing Date, except with respect to any claim related to KinomeScan Intellectual Property as transferred to Buyer on the Closing Date; or (c) the failure to pay, perform or discharge when due any of the Assumed Liabilities. 8.4 Claims for Indemnification. (a) Claims. A person entitled to indemnification under this Section 8 (an Indemnified Party) shall give prompt written notification of any claim for Damages that may be subject to Section 8.2 or Section 8.3, as appropriate, to the person from whom indemnification is sought (the Indemnifying Party); provided, however, that the failure to give such notice shall not relieve, waive or diminish the Indemnifying Partys obligations unless, and then only to the extent, such failure has resulted in the loss of material substantive rights with respect to the Indemnifying Partys ability to defend such claim. An Indemnified Party wishing to assert a claim for indemnification which is not a third-party claim shall deliver to the Indemnifying Party a written notice which contains (i) a description and the amount of any Damages incurred by the 29
Indemnified Party, (ii) a demand for payment in the amount of such Damages if then known and determinable, and (iii) reasonable evidence to show that the claimed Damages are subject to the indemnification provision of Section 8. The Indemnifying Party shall have a reasonable period of time, not to exceed thirty (30) days, to investigate the claim for Damages and the Indemnified Party shall cooperate fully with the Indemnifying Party in such investigation. (b) Third-Party Claims. An Indemnified Party shall give prompt written notice to the Indemnifying Party of the threat or commencement of any action, suit or proceeding relating to a third-party claim for which indemnification may be sought; provided, however, that the failure to give such notice shall not relieve, waive or diminish the Indemnifying Partys obligations unless, and then only to the extent, such failure has resulted in the loss of material substantive rights with respect to the Indemnifying Partys ability to defend such claim. Within thirty (30) days after delivery of such notification (or, if earlier, at least ten (10) days prior to the date that an answer to the applicable claim is due to be filed), the Indemnifying Party may, upon written notice thereof to the Indemnified Party, assume control of the defense of such action, suit, proceeding or claim with counsel reasonably satisfactory to the Indemnified Party. If the Indemnifying Party does not assume control of such defense, the Indemnified Party shall control such defense (in which event the fees and expenses of counsel to the Indemnified Party in connection therewith shall be considered Damages for purposes of this Agreement). The Party not controlling such defense may participate therein at its own expense; provided that if the Indemnifying Party assumes control of such defense and the Indemnified Party reasonably concludes, based on advice from counsel, that the Indemnifying Party and the Indemnified Party have conflicting interests with respect to such action, suit, proceeding or claim, the fees and expenses of counsel to the Indemnified Party solely in connection therewith shall be considered Damages for purposes of this Agreement; provided, however, that in no event shall the Indemnifying Party be responsible for the fees and expenses of more than one counsel for all Indemnified Parties. The party controlling such defense shall keep the other party advised of the status of such action, suit, proceeding or claim and the defense thereof and shall consider recommendations made by the other party with respect thereto. The Indemnified Party shall not agree to any settlement of such action, suit, proceeding or claim without the prior written consent of the Indemnifying Party. The Indemnifying Party shall not agree to any settlement of such action, suit, proceeding or claim that does not include a complete release of the Indemnified Party from all liability with respect thereto or that imposes any liability or obligation on the Indemnified Party or impairs or interferes with any asset, right or entitlement of the Indemnified Party, in each case, without the prior written consent of the Indemnified Party. In any event, the party who is required to consent to settlement shall not unreasonably withhold same. 8.5 Limitations on Indemnification . Notwithstanding anything to the contrary contained in this Agreement: (a) neither the Buyer, on the one hand, nor the Seller, on the other hand, shall be liable with respect to claims for indemnification under this Section 8 unless and until the aggregate amount of all Damages with respect to such claims exceeds [***]; provided, however, that once such minimum threshold has been met, subject to the limitation on maximum aggregate liability set forth in Section 8.5(c), an indemnifying party or parties shall be liable for such Damages from the first dollar of Damages; ***Confidential Treatment Requested 30
(b) claims for indemnification by the Buyer against the Seller shall be paid in compliance with the terms of this Agreement; (c) the aggregate liability of the Seller on the one hand, or the Buyer on the other, for all Damages under this Section 8 shall not exceed an amount, in the aggregate, equal to the sum of the Purchase Price plus the amount of Contingent Payments actually paid pursuant to this Agreement; (d) except in the case of third-party claims (where Damages shall include special, indirect, incidental, consequential or punitive damages to the extent they are due and payable by a party who is entitled to indemnification hereunder), Damages shall not include any special, indirect, incidental, consequential or punitive damages. (e) The limitation on the indemnification obligations of the Seller that is set forth in Sections 8.5(a) and 8.5(c) shall not apply to any breach arising directly or indirectly from any circumstance of which the Seller had knowledge on or prior to the Closing Date. 8.6 Payment of Indemnification . (a) Claims for indemnification under this Section 8.4(a) shall be paid by Indemnifying Party within thirty (30) days of notice thereof. (b) Claims for indemnification under this Section 8.4(b) shall be paid by the Indemnifying Party within thirty (30) days of the notice thereof. (c) Expedited Arbitration. (i) In addition to any rights of setoff or other rights that an Indemnified Party may have at common law or otherwise, at any time after the first anniversary of the Closing Date, the Indemnified Party shall send written notice of a claim pursuant to Section 8.4. Subject to the determination of the arbitrator pursuant to Section 8.6(c)(ii), the Indemnified Party shall have the right to withhold and deduct any sum that is subject to indemnification claims, including any claims pursuant to Section 7.2 of this Agreement, from any amount otherwise payable by the Buyer to the Seller under this Agreement. The withholding and deduction of any such sum shall operate for all purposes as a complete discharge (to the extent of such sum) of the obligation to pay the amount from which such sum was withheld and deducted. (ii) An Indemnified Party may submit a Claim for indemnification as permitted under Section 8.6(c)(i) of this Agreement as follows: (A) The Indemnified Party invoking Expedited Arbitration under this Section 8.6(c)(ii) shall so notify the Indemnifying Party in writing. The notice shall contain a list of all Claims the Indemnified Party proposes to submit to Expedited Arbitration. Within twenty (20) days after receipt of any such notice, the Indemnifying Party receiving the notice shall promptly notify the Indemnified Party of any disputed issues that the 31
Indemnifying Party intends to include in the Expedited Arbitration. The disputed issues listed in the notice and in such reply will be the only issues submitted to Expedited Arbitration. (B) If the Parties are not able to agree on an arbitrator within five (5) business days after notice of Expedited Arbitration has been received by Indemnifying Party, then either or both Parties may immediately request AAA to select an arbitrator; provided that in any event the arbitrator shall have not less than fifteen (15) years of biotechnology or life sciences services experience, unless otherwise agreed to by the Parties. (C) Within fifteen (15) days after the designation of the arbitrator, the Parties shall each simultaneously submit to the arbitrator and one another in writing a proposal that contains that Partys final best offer as to all matters that are the subject of the Claim. If a Party fails to submit a proposal within such timeframe, then the proposal of the submitting Party shall prevail. Each Party shall have five (5) business days from receipt of the other Partys submission to submit a written response to such summary and at a hearing to take place over a period not to exceed three (3) business days, and in any event which will commence no later than ten (10) days after submission of the written responses. Each Party shall have a reasonable period of time to be determined by the arbitrator (which period of time shall be sufficient for the arbitrator to fully understand the proposals and the relative merits thereof) to argue for its proposal before the arbitrator. To the extent permitted by the AAAs Commercial Arbitration Rules the arbitrator shall have the right to meet with the Parties, either alone or together, as necessary to make a determination. (D) The arbitrator shall, within ten (10) days after the later of (i) submission of the responses or (ii) the completion of the hearing, or such longer period as the Parties may agree, select the single proposal of a Party that, in the determination of the arbitrator, as a whole is the most consistent with the requirements of this Agreement and is the most fair and reasonable to the Parties in light of the totality of the circumstances and the terms of the matters in dispute. At any time prior to the determination, either Party may accept the other Partys position on any unresolved issue. The Parties shall inform the arbitrator of such accepted position and in such event such position will be deemed part of the final agreement and no longer subject to arbitration. For clarity, the arbitrator can only select a proposal from one Party in its entirety, and cannot blend the proposals or modify any proposal. SECTION 9 GENERAL 9.1 Fees and Expenses. Each of the parties will bear its own expenses in connection with the negotiation and the consummation of the transactions contemplated by this Agreement and the Transaction Documents, including but not limited to attorneys, accountants and brokers fees and expenses. 9.2 Notices. All notices and other communications in connection with or under this Agreement shall be in writing and shall be sent by facsimile transmission, or mailed postage prepaid by first-class certified or registered mail, or sent by a nationally recognized express courier service with tracking capability, or hand-delivered, addressed as follows: 32
If to the Seller, to: Ambit Biosciences Corporation. 4215 Sorrento Valley Boulevard San Diego, CA 92121 Telephone: (858) 334-2100 Fax: (858) 334-2199 Attn: Chief Executive Officer with a copy to: Latham & Watkins LLP 12636 High Bluff Drive, Suite 400 San Diego, California 92130 Telephone: 858.523.5483 Fax: 858.523.5450 Attn: Faye H. Russell If to Buyer, to: DiscoveRx Corporation 42501 Albrae Street Fremont, CA 94538 Telephone: (510) 979-1415 Fax: (510) 979-1650 Attn: with a copy to: Cooley LLP 3175 Hanover Street Palo Alto, CA 94304 Telephone: 650-843-5000 Fax: 650-949-7400 Attn: Glen Sato Each party may change the persons or addresses to which any notices or other communications to it should be addressed by notifying the other parties as provided above. Any notice or other communication, if addressed and sent, mailed or delivered as provided above, shall be deemed given or received five days after the date of mailing as indicated on the certified or registered mail receipt, or on the next business day if mailed by express courier service with next business day deliver, or on the date of delivery or transmission if hand-delivered or sent by facsimile transmission during business hours (and otherwise, on the next business day) in the recipients time zone. 33
9.3 Publicity and Publications. (a) Neither the Seller nor the Buyer shall issue any press release or other announcement with respect to the transactions contemplated by this Agreement and the Transaction Documents without the consent of the other party, except that the Buyer may announce the Closing of such transactions in a press release approved by the Seller, which approval will not be unreasonably withheld. (b) Except as otherwise provided in this Section 9.3, neither party shall make any public disclosures of the terms of this Agreement nor any Transaction Documents beyond those otherwise described in the press release contemplated in Section 9.3(a) or otherwise previously publicly disclosed without the prior written approval of the other party, such approval not to be unreasonably withheld. Notwithstanding the foregoing, each party shall be permitted to make public disclosure of the terms of the Agreement, the Transaction Documents or of information relating to the Agreement to the extent such disclosure is required by law (including securities laws or regulations) or by the Securities and Exchange Commission and/or any other governmental or regulatory agencies, (including disclosures in connection with securities filings made in connection with a partys public offering of its securities or in satisfaction of related disclosure requirements), provided that such party shall use reasonable efforts to obtain confidential treatment of confidential financial and technical information to the extent such treatment is possible under the applicable law. Each party agrees that it shall reasonably cooperate in a timely manner with the other party with respect to all such disclosures to the Securities and Exchange Commission and any other governmental or regulatory agencies, including requests for confidential treatment of confidential information of either party included in any such disclosure. Such cooperation shall include at a minimum that the party required to make a disclosure provides a draft of any filing to the other party in due time before the filing. (c) Buyer and Seller each acknowledge the other partys interest in publishing and presenting the results of its research in order to obtain recognition within the scientific community and to advance the state of scientific knowledge. However, any publication or presentation of Confidential Information as defined in the NDA of the other party shall be solely by written agreement of the parties. Each party also recognizes the mutual interest in obtaining valid patent protection and in protecting business interests and trade secret information. Consequently, except for disclosures permitted under this Section 9.3 either party, its employees or consultants wishing to make a publication or presentation containing confidential information of the other party shall deliver to the other party a copy of the proposed written publication or an outline of an oral disclosure at least forty-five (45) days prior to submission for publication or presentation. The reviewing party shall have the right (a) to propose modifications to the publication or presentation for patent reasons, trade secret reasons or business reasons and/or (b) to request a reasonable delay in publication or presentation in order to protect patentable information. If the reviewing party requests a delay, the publishing party shall delay submission or presentation for a period of sixty (60) days to enable patent applications protecting each partys rights in such confidential information. Upon expiration of such sixty (60) days, the publishing party shall be free to proceed with the publication or presentation provided the publishing party has obtained written confirmation from the reviewing party that such patent applications have been filed. If the reviewing party requests modifications to the publication or presentation, the publishing party shall edit such publication or presentation to prevent disclosure 34
of trade secret or proprietary business information of the reviewing party prior to submission of the publication or presentation. 9.4 Confidentiality. The exchange of information between the parties contemplated by this Agreement and the Transaction Documents and shall be governed by the provisions of the confidentiality agreement, by and between Buyer and the Seller, dated [***] (the NDA), except as revised by this Agreement. 9.5 Entire Agreement. This Agreement (including all exhibits or schedules appended to this Agreement and all documents delivered pursuant to this Agreement, all of which are hereby incorporated herein by reference), together with the NDA and the Transaction Documents, constitutes the entire agreement between the parties, and all promises, representations, understandings, warranties and agreements with reference to the subject matter hereof and thereof and inducements to the making of this Agreement relied upon by any party hereto, have been expressed herein or in the documents incorporated herein by reference. 9.6 Severability. The provisions of this Agreement shall be deemed severable, and if any part of any provision is held illegal, void or invalid under applicable law, such provision may be changed to the extent reasonably necessary to make the provision, as so changed, legal valid and binding. If any provision of this Agreement is held illegal, void or invalid in its entirety, the remaining provisions of this Agreement shall not in any way be affected or impaired but shall remain binding in accordance with their terms. 9.7 Assignment; Binding Effect . This Agreement may not be assigned otherwise than by operation of law by any party without the prior written consent of the others; provided, however, that (i) Buyer may assign this Agreement and all of its rights and obligations hereunder, without prior consent of the other party, to any entity that acquires all or any part of the Business without the prior consent of Seller and (ii) either party may assign this Agreement and all of its rights and obligations hereunder, without prior consent of the other party, in a bone fide transaction to any entity that acquires all or substantially all of the interest in that party with respect to the subject matter of this Agreement, whether by merger, acquisition or sale. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Any assignment other than in accordance with this Section 9.7 shall be void. 9.8 Amendment. This Agreement may be amended only by a written agreement executed by each of the parties. 9.9 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 9.10 Effect of Table of Contents and Headings . Any table of contents, title of an article or section heading herein contained is for convenience of reference only and shall not affect the meaning of construction of any of the provisions hereof. 9.11 Governing Law; Jurisdiction. This ***Confidential Treatment Requested 35
Agreement shall be governed by, and construed in accordance with, the laws of the State of California, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 9.12 Binding Arbitration . Except as provided in Section 8.6(c)(ii), each of the Buyer and the Seller agrees to submit any dispute arising in connection with the enforceability of this Section 9.12, this Agreement, the Transaction Documents, or the transactions contemplated hereby or thereby to formal binding arbitration in accordance with this Section 9.12. The arbitration shall be held before a single arbitrator mutually agreed to by the Buyer and the Seller or otherwise in accordance with the commercial rules of the American Arbitration Association (the Arbitration). The place of the Arbitration shall be San Francisco, California. 36
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in multiple counterparts as of the date set forth above by their duly authorized representatives. BUYER: DISCOVERX CORPORATION By: /s/ Pyare Khanna Name: Pyare Khanna Title: CEO SELLER: AMBIT BIOSCIENCES CORPORATION By: /s/ Christopher Morl Name: Christopher Morl Title: CBO [SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]
Exhibit 2.2 ***Text Omitted and Filed Separately with the Securities and Exchange Commission. Confidential Treatment Requested Under 17 C.F.R. Sections 200.80(b)(4) and Rule 406 of the Securities Act of 1933, as amended. October 21, 2010 Pyare Khanna, CEO DiscoveRx Corporation 42501 Albrae Street Fremont, CA 94538 Re: Asset Purchase Agreement Dear Pyare, This letter shall serve as an amendment to the Asset Purchase Agreement (Agreement) entered into by and between DiscoveRx and Ambit for the sale of Ambits KinomeScan business, as we previous discussed. Below are the amendments referenced to the sections of the Agreement. Section 3.9(b) A letter from EMD to Ambit dated September 27, 2010 has been listed in Schedule 3.9(b) of the Agreement. Ambit is currently negotiating a fully assignable annual license with EMD, that Ambit will upon execution of that license assign to DiscoveRx. Ambit shall pay to EMD the annual license of [***] fee for 2010 and DiscoveRx shall be responsible for all subsequent annual license fees. are disclosed as an exception to the representations and warranties regarding services provided by Ambit, but not KinomeScan Intellectual Property, contained in Section 3.9(b)(ix). Attached hereto and previously disclosed to DiscoveRx are [***]. These are disclosed as an exception to the representations and warranties regarding services provided by Ambit, but not KinomeScan Intellectual Property, contained in Section 3.9(b)(ix). Section 3.21 Ambit expects to receive [***] for services contracted for prior to but to be provided after the Effective Date of the Agreement. Within five (5) days after receipt of the funds from [***], Ambit shall wire transfer this amount to DiscoveRx. Ambit also, expects to receive [***] ***Confidential Treatment Requested
[***] for services contracted for prior to but to be provided after the Effective Date of the Agreement. Within five (5) days after receipt of both the funds from [***] and the fully executed assignment of the underlying [***] agreement from Ambit to DiscoveRx, Ambit shall wire transfer the sum of the received funds to DiscoveRx. Please sign below acknowledging and agreeing to this amendment to the Agreement. Regards, /s/ Christopher J. Morl Christopher J. Morl, Chief Business Officer I, Pyare Khanna, hereby acknowledge and agree that this letter is a binding amendment to the Asset Purchase Agreement. I represent that I am authorized to sign this letter amendment on behalf of DiscoveRx Corporation.
/s/ Pyare Khanna Signature
Date:
10/21/10
***Confidential Treatment Requested
List of Compounds
Compound ID
[***] [***]
Compound ID
[***] ***Confidential Treatment Requested
[***] ***Confidential Treatment Requested
Exhibit 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AMBIT BIOSCIENCES CORPORATION M. Scott Salka hereby certifies that: ONE: The name of this corporation is Ambit Biosciences Corporation, the original name of this corporation is Aventa Biosciences Corporation and the date on which the Certificate of Incorporation of this corporation was originally filed with the Secretary of State of the State of Delaware was May 17, 2000. TWO: He is the duly elected and acting Chief Executive Officer of this corporation. THREE: The Certificate of Incorporation of this corporation is hereby amended and restated to read as follows: I. The name of this corporation is Ambit Biosciences Corporation (the Company). II. The address of the registered office of the Company in the State of Delaware is Corporation Service Company 2711 Centerville Road, Suite 400 City of Wilmington County of New Castle The name of the Companys registered agent at said address is Corporation Service Company. III. The purpose of the Company is to engage in any lawful act or activity for which a corporation may be organized under the Delaware General Corporation Law (DGCL). IV. A. This Company is authorized to issue two classes of stock to be designated, respectively, Common Stock and Preferred Stock. The total number of shares which the Company is authorized to issue is forty-seven million fifty-three thousand three hundred seventy-six (47,053,376) shares, twenty-six million six hundred thousand (26,600,000) shares of which shall be Common Stock (the Common Stock), each having a par value of one-tenth of one cent ($0.001) and twenty million four hundred fifty-three thousand three hundred seventy-six 1
(20,453,376) shares of which shall be Preferred Stock (the Preferred Stock), each having a par value of one-tenth of one cent ($0.001). B. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares of Common Stock then outstanding) by the affirmative vote of the holders of sixty-seven percent (67%) of the stock of the Company (voting together on an as-ifconverted basis). C . The Preferred Stock may be issued from time to time in one or more series. Subject to any limitations thereon expressly set forth in Part E of this Article IV, the Board of Directors is hereby expressly authorized to provide for the issue of all of any of the remaining unissued and undesignated shares of the Preferred Stock in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or limited, or no voting powers, and such designation, preferences, and relative participating, optional, or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such shares and as may be permitted by the DGCL. Subject to any limitations thereon expressly set forth in Part E of this Article IV, the Board of Directors is also expressly authorized to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. D. One hundred sixty-two thousand five hundred nineteen (162,519) of the authorized shares of Preferred Stock are hereby designated Series A Preferred Stock (the Series A Preferred), one million nine hundred seventy-five thousand six hundred seventy-seven (1,975,677) of the authorized shares of Preferred Stock are hereby designated Series B Preferred Stock (the Series B Preferred), seven million seventy-six thousand seven hundred eighteen (7,076,718) of the authorized shares of Preferred Stock are hereby designated Series C Preferred Stock (the Series C Preferred), one million five hundred thirty-eight thousand four hundred sixty-two (1,538,462) of the authorized shares of Preferred Stock are hereby designated Series C-2 Preferred Stock (the Series C-2 Preferred) and nine million seven hundred thousand (9,700,000) of the authorized shares of Preferred Stock are hereby designated Series D Preferred Stock (the Series D Preferred and, together with the Series A Preferred, Series B Preferred, Series C Preferred and Series C-2 Preferred, the Series Preferred). E. The rights, preferences, privileges, restrictions and other matters relating to the Series Preferred are as follows: 1. DIVIDEND RIGHTS.
(a) Holders of Series D Preferred, in preference to holders of any other stock of the Company, shall be entitled to receive, when and as declared by the board of directors of the Company (the Board of Directors ), but only out of funds that are legally available therefor, cash dividends at the rate of eight percent (8%) of the applicable Original Issue Price (as defined below) per annum on each outstanding share of Series D Preferred. Such dividends 2
shall be payable only when, as and if declared by the Board of Directors and shall be non-cumulative. The Original Issue Price of the Series D Preferred shall be five dollars and six cents ($5.06), subject to adjustment for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the filing date of this Certificate of Incorporation (the Filing Date). (b) Following payment of any dividends payable pursuant to Section 1(a) above, holders of Series C Preferred and Series C-2 Preferred, in preference to holders of Common Stock, Series A Preferred and Series B Preferred, shall be entitled to receive, when and as declared by the Board of Directors, but only out of funds that are legally available therefor, cash dividends at the rate of eight percent (8%) of the applicable Original Issue Price (as defined below) per annum on each outstanding share of Series C Preferred and Series C-2 Preferred. Such dividends shall be payable only when, as and if declared by the Board of Directors and shall be non-cumulative. The Original Issue Price of (i) the Series C Preferred shall be four dollars and thirty cents ($4.30) and (ii) the Series C-2 Preferred shall be three dollars and twenty-five cents ($3.25), in each case subject to adjustment for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the Filing Date. (c) Following payment of any dividends payable pursuant to Sections 1(a) and 1(b) above, holders of Series A Preferred and Series B Preferred, in preference to holders of Common Stock, shall be entitled to receive, when and as declared by the Board of Directors, but only out of funds that are legally available therefor, cash dividends at the rate of eight percent (8%) of the applicable Original Issue Price (as defined below) per annum on each outstanding share of Series A Preferred and Series B Preferred. Such dividends shall be payable only when, as and if declared by the Board of Directors and shall be non-cumulative. The Original Issue Price of (i) the Series A Preferred shall be seven dollars and fifty cents ($7.50) and (ii) the Series B Preferred shall be eight dollars and sixty-five cents ($8.65), in each case subject to adjustment for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the Filing Date. (d) So long as any shares of Series Preferred shall be outstanding, no dividend, whether in cash or property, shall be paid or declared, nor shall any other distribution be made, on any other stock of the Company (the Junior Stock), nor shall any shares of any Junior Stock be purchased, redeemed, or otherwise acquired for value by the Company (except for acquisitions of Common Stock by the Company pursuant to agreements which permit the Company to repurchase such shares upon termination of services to the Company or in exercise of the Companys right of first refusal upon a proposed transfer) until all dividends (set forth in Sections 1(a), 1(b) and 1(c) above) on the Series Preferred shall have been paid or declared and set apart. In the event dividends are paid on any share of Common Stock, an additional dividend shall be paid with respect to all outstanding shares of Series Preferred in an amount equal per share (on an as-if-converted to Common Stock basis) to the amount paid or set aside for each share of Common Stock. The provisions of this Section 1(d) shall not, however, apply to (i) a dividend payable solely in Common Stock, (ii) the acquisition of shares of any Junior Stock in exchange for shares of any other Junior Stock or (iii) any repurchase of any outstanding securities of the Company that is unanimously approved by the Board of Directors (including, for the avoidance of doubt, the Preferred Representatives (as defined below)). The holders of Series Preferred expressly waive their rights, if any, as described in California Code 3
Sections 502, 503 and 506 as they relate to repurchases of shares upon termination of employment or service as a consultant or director. 2. V OTING RIGHTS.
(a) Except as otherwise provided herein or as required by law, the Series Preferred shall vote together with the Common Stock at any annual or special meeting of the stockholders and not as a separate class, and may act by written consent in the same manner as the Common Stock in either case upon the following basis: each holder of Series Preferred shall be entitled to the number of votes equal to the number of shares of Common Stock into which such shares of Series Preferred could be converted (pursuant to Section 4 hereof) immediately after the close of business on the record date fixed for such meeting or the effective date of such written consent and shall have voting rights and powers equal to the voting rights and powers of the Common Stock and shall be entitled to notice of any stockholders meeting in accordance with the bylaws of the Company. (b) For so long as any shares of Series D Preferred remain outstanding, in addition to any other vote or consent required herein or by law, the vote or written consent of the holders of at least sixty-seven percent (67%) of the outstanding Series D Preferred, voting as a separate class, shall be necessary for effecting or validating the following actions: (i) Any amendment, alteration or repeal of any provision of the Certificate of Incorporation of the Company that materially and adversely changes the rights, preferences or privileges of the Series D Preferred (provided that in no event shall the filing of one or more Certificates of Designation of Preferences designating rights, preferences and privileges of one or more new series of Preferred Stock which do not rank senior to or on parity with the Series D Preferred in right of redemption, liquidation preference, voting or dividends, or the issuance of shares of any such new series, be deemed to cause any such material adverse change); (ii) Any authorization, designation, whether by reclassification or otherwise, of any new class or series of stock or issuance, ranking senior to or on a parity with the Series D Preferred in right of redemption, liquidation preference, voting or dividends; (iii) Any increase or decrease in the authorized number of members of the Board of Directors; (iv) Any amendment, alteration or repeal of any provision of the Certificate of Incorporation or Bylaws of the Company other than in connection with the authorization, designation or issuance of any new class or series of stock which do not rank senior to or on parity with the Series D Preferred in right of redemption, liquidation preference, voting or dividends; (v) Any redemption, repurchase, declaration or payment of dividends or other distributions with respect to Common Stock or any other Junior Stock, Series A Preferred, Series B Preferred, Series C Preferred or Series C-2 Preferred (except for acquisitions of Common Stock by the Company pursuant to agreements which permit the Company to repurchase such shares upon termination of services to the Company or in exercise 4
of the Companys right of first refusal upon a proposed transfer or except as otherwise unanimously approved by the Board of Directors (including, for the avoidance of doubt, the Preferred Representatives (as defined below)); (vi) Any reclassification, or other recapitalization of the Company, or any voluntary dissolution, liquidation or winding up of the Company; (vii) Any agreement by the Company or its stockholders to effect an Acquisition or Asset Transfer (each as defined in Section 3 below); (viii) Engaging primarily in any business other than biotechnology related discovery, research, development and/or commercialization and related services and/or businesses; (ix) Any agreement by the Company to make any loan or to guarantee any obligation in excess of $250,000 in connection with any single transaction or any series of related transactions; or (x) Any action that results in the Company incurring additional indebtedness for money borrowed, including pursuant to any capital or equipment lease or bank line of credit, in excess of $1,000,000. (c) In addition to any other vote or consent required herein or by law, so long as any shares of Series A Preferred, Series B Preferred, Series C Preferred or Series C-2 Preferred (together, the Junior Preferred) remain outstanding, the Company shall not, either directly or by amendment, merger, consolidation or otherwise, without first obtaining the vote or written consent of the holders of at least sixty-seven percent (67%) of the outstanding Junior Preferred, voting together as a single class, amend, alter, waive or repeal the rights, preferences, restrictions or privileges of the Junior Preferred, where the effect of such amendment, alteration, waiver, repeal or other action on the holders of the Junior Preferred is materially adverse to the rights, preferences, restrictions or privileges of the Junior Preferred in a manner that is different from and disproportionate to the effect of such amendment, alteration, waiver, repeal or other action on the holders of the Series D Preferred; provided, however, that an Acquisition or Asset Transfer (each as defined below) shall not be deemed to be materially adverse to the rights, preferences, restrictions or privileges of the Junior Preferred. (d) The authorized number of directors constituting the full Board of Directors shall be set at eight (8). The holders of the Series B Preferred, voting together as a single class, shall be entitled to elect two (2) members of the Board of Directors (the Series B Representatives) at each meeting or pursuant to each consent of the Companys stockholders for the election of directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors. The holders of the Series C Preferred, voting together as a single class, shall be entitled to elect one (1) member of the Board of Directors (the Series C Representative ) at each meeting or pursuant to each consent of the Companys stockholders for the election of directors, and to remove from office such director and to fill any vacancy caused by the resignation, death or removal of such director. The holders of the Series D Preferred, voting together as a single class, shall be entitled to elect two (2) 5
members of the Board of Directors (the Series D Representatives and, together with the Series B Representatives and the Series C Representative, the Preferred Representatives) at each meeting or pursuant to each consent of the Companys stockholders for the election of directors, and to remove from office such director and to fill any vacancy caused by the resignation, death or removal of such director. The holders of the Series Preferred and Common Stock, voting together as a single class on an as-if-converted to Common Stock basis, shall be entitled to elect the remaining members of the Board of Directors at each meeting or pursuant to each consent of the Companys stockholders for the election of directors, and to remove from office such directors and to fill any vacancy caused by the resignation, death or removal of such directors. No person entitled to vote at an election for directors may cumulate votes to which such person is entitled, unless, at the time of such election, the Company is subject to Section 2115 of the California General Corporation Law ( CGCL). During such time or times that the Company is subject to Section 2115(b) of the CGCL, every stockholder entitled to vote at an election for directors may cumulate such stockholders votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholders shares are otherwise entitled, or distribute the stockholders votes on the same principle among as many candidates as such stockholder desires. No stockholder, however, shall be entitled to so cumulate such stockholders votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting and (ii) the stockholder has given notice at the meeting, prior to the voting, of such stockholders intention to cumulate such stockholders votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected. (e) Removal. (i) During such time or times that the Company is subject to Section 2115(b) of the CGCL and subject to Section 2(d), the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of at least sixty-seven percent (67%) of the outstanding shares entitled to vote on such removal; provided, however, that, unless the entire Board of Directors is removed, no individual director may be removed when the votes cast against such directors removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such directors most recent election were then being elected. (ii) At any time or times that the Company is not subject to Section 2115(b) of the CGCL and subject to Section 2(d) and to any limitations imposed by law, Section (d)(i) above shall not apply and the Board of Directors or any director may be removed from office at any time (a) with cause by the affirmative vote of the holders of sixty-seven percent (67%) of all then-outstanding shares of capital stock of the Company entitled to vote generally at an election of directors or (b) without cause by the affirmative vote of the holders of sixty-seven percent (67%) of the voting power of all then-outstanding shares of voting stock of the Company, entitled to vote for such director at an election of directors. 6
3.
LIQUIDATION RIGHTS.
(a) Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of Series A Preferred, Series B Preferred, Series C Preferred, Series C-2 Preferred or Junior Stock, the holders of Series D Preferred shall be entitled to be paid out of the assets of the Company legally available for distribution, or the consideration received in such transaction, an amount equal to the Original Issue Price of, plus all declared and unpaid dividends on, the Series D Preferred (with respect to such Original Issue Price, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the Filing Date), for each share of Series D Preferred held by them. If, upon any such liquidation, dissolution, or winding up, the assets of the Company (or the consideration received in such transaction) shall be insufficient to make payment in full to all holders of Series D Preferred of the liquidation preference set forth in this Section 3(a), then such assets (or consideration) shall be distributed among the holders of Series D Preferred at the time outstanding ratably in proportion to the full amounts to which they would otherwise be entitled pursuant to this Section 3(a). (b) After the payment of the full liquidation preference of the Series D Preferred set forth in Section 3(a) above, before any distribution or payment shall be made to the holders of Series A Preferred, Series B Preferred or Junior Stock, the holders of Series C Preferred and Series C-2 Preferred shall be entitled to be paid out of the assets of the Company legally available for distribution, or the consideration received in such transaction, an amount equal to (i) the Original Issue Price of, plus all declared and unpaid dividends on, the Series C Preferred and (ii) the Original Issue Price of, plus all declared and unpaid dividends on, the Series C-2 Preferred (in each case, with respect to such Original Issue Prices, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the Filing Date), for each share of Series C Preferred and/or Series C-2 Preferred held by them. If, upon any such liquidation, dissolution, or winding up, the assets of the Company (or the consideration received in such transaction) shall be insufficient to make payment in full to all holders of Series C Preferred and Series C-2 Preferred of the liquidation preference set forth in this Section 3(b), then such assets (or consideration) shall be distributed among the holders of Series C Preferred and Series C-2 Preferred at the time outstanding ratably in proportion to the full amounts to which they would otherwise be entitled pursuant to this Section 3(b). (c) After the payment of the full liquidation preference of the Series D Preferred, the Series C Preferred and the Series C-2 Preferred set forth in Sections 3(a) and 3(b) above, before any distribution or payment shall be made to the holders of Series A Preferred or Junior Stock, the holders of Series B Preferred shall be entitled to be paid out of the assets of the Company legally available for distribution, or the consideration received in such transaction, an amount equal to the Original Issue Price of, plus all declared and unpaid dividends on, the Series B Preferred (with respect to such Original Issue Price, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the Filing Date), for each share of Series B Preferred held by them. If, upon any such liquidation, dissolution, or winding up, the assets of the Company (or the consideration received in such transaction) shall be insufficient to make payment in full to all holders of Series B Preferred of the liquidation preference set forth in this Section 3(c), then such assets (or consideration) shall 7
be distributed among the holders of Series B Preferred at the time outstanding ratably in proportion to the full amounts to which they would otherwise be entitled pursuant to this Section 3(c). (d) After the payment of the full liquidation preference of the Series D Preferred, the Series C Preferred, the Series C-2 Preferred and the Series B Preferred set forth in Sections 3(a), 3(b) and 3(c) above, before any distribution or payment shall be made to the holders of Junior Stock, the holders of Series A Preferred shall be entitled to be paid out of the assets of the Company legally available for distribution, or the consideration received in such transaction, an amount equal to the Original Issue Price of, plus all declared and unpaid dividends on, the Series A Preferred (with respect to such Original Issue Price, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares after the Filing Date), for each share of Series A Preferred held by them. If, upon any such liquidation, dissolution, or winding up, the assets of the Company (or the consideration received in such transaction) shall be insufficient to make payment in full to all holders of Series A Preferred of the liquidation preference set forth in this Section 3(d), then such assets (or consideration) shall be distributed among the holders of Series A Preferred at the time outstanding ratably in proportion to the full amounts to which they would otherwise be entitled pursuant to this Section 3(d). (e) After the payment of the full liquidation preferences of the Series Preferred as set forth in Sections 3(a), 3(b), 3(c) and 3(d) above, the remaining assets of the Company legally available for distribution (or the consideration received in such transaction), if any, shall be distributed ratably to the holders of the Common Stock and Series Preferred on an as-if-converted to Common Stock basis. (f) The following events shall be considered a liquidation under this Section: (i) (A) any consolidation or merger of the Company with or into any other corporation or other entity or person approved by the Board of Directors in which the stockholders of the Company immediately prior to such consolidation or merger own less than 50% of the voting power of the surviving entity immediately after such consolidation or merger or (B) any transaction or series of transactions to which the Company is a party in which in excess of 50% of the Companys voting power is transferred (an Acquisition), provided that an Acquisition shall not include (x) any consolidation or merger effected exclusively to change the domicile of the Company or (y) any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by the Company or any successor or indebtedness of the Company is cancelled or converted or a combination thereof; or (ii) a sale, lease, exclusive license or other disposition of all or substantially all of the assets of the Company approved by the Board of Directors (an Asset Transfer ). (iii) In any of such events, if the consideration received by Company is other than cash, its value will be deemed its fair market value as determined in good faith by the Board of Directors. Any securities shall be valued as follows: 8
(A) Securities not subject to investment letter or other similar restrictions on free marketability covered by (B) below: (1) If traded on a securities exchange including, but not limited to, the Nasdaq Stock Market, the value shall be deemed to be the average of the closing prices of the securities on such quotation system over the thirty (30) day period ending three (3) days prior to the closing; (2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the closing; and (3) If there is no active public market, the value shall be the fair market value thereof, as determined by the Board of Directors in good faith. (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholders status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as determined by the Board of Directors in good faith. 4. C ONVERSION RIGHTS.
The holders of Series Preferred shall have the following rights with respect to the conversion of the Series Preferred into shares of Common Stock (the Conversion Rights): (a) Optional Conversion. Subject to and in compliance with the provisions of this Section 4, any shares of Series Preferred may, at the option of the holder, be converted at any time into fully-paid and nonassessable shares of Common Stock. The number of shares of Common Stock to which a holder of Series Preferred shall be entitled upon conversion shall be the product obtained by multiplying the applicable Series Preferred Conversion Rate then in effect (determined as provided in Section 4(b)) by the number of shares of Series Preferred, as applicable, being converted. (b) Series Preferred Conversion Rate. (i) Series A Preferred Conversion Rate. The conversion rate in effect at any time for conversion of the Series A Preferred (the Series A Preferred Conversion Rate ) shall be the quotient obtained by dividing the Original Issue Price of the Series A Preferred by the Series A Preferred Conversion Price, calculated as provided in Section 4(c)(i). (ii) Series B Preferred Conversion Rate. The conversion rate in effect at any time for conversion of the Series B Preferred (the Series B Preferred Conversion Rate ) shall be the quotient obtained by dividing the Original Issue Price of the Series B Preferred by the Series B Preferred Conversion Price, calculated as provided in Section 4(c)(ii). 9
(iii) Series C Preferred Conversion Rate. The conversion rate in effect at any time for conversion of the Series C Preferred (the Series C Preferred Conversion Rate ) shall be the quotient obtained by dividing the Original Issue Price of the Series C Preferred by the Series C Preferred Conversion Price, calculated as provided in Section 4(c)(iii). (iv) Series C-2 Preferred Conversion Rate. The conversion rate in effect at any time for conversion of the Series C-2 Preferred (the Series C-2 Preferred Conversion Rate ) shall be the quotient obtained by dividing the Original Issue Price of the Series C-2 Preferred by the Series C-2 Preferred Conversion Price, calculated as provided in Section 4(c)(iv). (v) Series D Preferred Conversion Rate. The conversion rate in effect at any time for conversion of the Series D Preferred (the Series D Preferred Conversion Rate ) shall be the quotient obtained by dividing the Original Issue Price of the Series D Preferred by the Series D Preferred Conversion Price, calculated as provided in Section 4(c)(v). (vi) References to Conversion Rate. The Series A Preferred Conversion Rate, the Series B Preferred Conversion Rate, the Series C Conversion Rate, the Series C-2 Conversion Rate and the Series D Conversion Rate are each referred to herein as a Series Preferred Conversion Rate. (c) Series Preferred Conversion Price. (i) Series A Preferred Conversion Price. The conversion price for the Series A Preferred shall initially be the Original Issue Price of the Series A Preferred (the Series A Preferred Conversion Price ). Such initial Series A Preferred Conversion Price shall be adjusted from time to time in accordance with this Section 4. All references to the Series A Preferred Conversion Price herein shall mean the Series A Preferred Conversion Price as so adjusted. (ii) Series B Preferred Conversion Price. The conversion price for the Series B Preferred shall initially be the Original Issue Price of the Series B Preferred (the Series B Preferred Conversion Price ). Such initial Series B Preferred Conversion Price shall be adjusted from time to time in accordance with this Section 4. All references to the Series B Preferred Conversion Price herein shall mean the Series B Preferred Conversion Price as so adjusted. (iii) Series C Preferred Conversion Price. The conversion price for the Series C Preferred shall initially be the Original Issue Price of the Series C Preferred (the Series C Preferred Conversion Price ). Such initial Series C Preferred Conversion Price shall be adjusted from time to time in accordance with this Section 4. All references to the Series C Preferred Conversion Price herein shall mean the Series C Preferred Conversion Price as so adjusted. (iv) Series C-2 Preferred Conversion Price. The conversion price for the Series C-2 Preferred shall initially be the Original Issue Price of the Series C-2 10
Preferred (the Series C-2 Preferred Conversion Price ). Such initial Series C-2 Preferred Conversion Price shall be adjusted from time to time in accordance with this Section 4. All references to the Series C-2 Preferred Conversion Price herein shall mean the Series C-2 Preferred Conversion Price as so adjusted. (v) Series D Preferred Conversion Price. The conversion price for the Series D Preferred shall initially be the Original Issue Price of the Series D Preferred (the Series D Preferred Conversion Price ). Such initial Series D Preferred Conversion Price shall be adjusted from time to time in accordance with this Section 4. All references to the Series D Preferred Conversion Price herein shall mean the Series D Preferred Conversion Price as so adjusted. (vi) References to Conversion Price. The Series A Preferred Conversion Price, the Series B Preferred Conversion Price, the Series C Preferred Conversion Price, the Series C-2 Preferred Conversion Price and the Series D Preferred Conversion Price are each referred to herein as a Series Preferred Conversion Price . (d) Mechanics of Conversion. (i) Each holder of Series Preferred who desires to convert the same into shares of Common Stock pursuant to this Section 4 shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or any transfer agent for the Series Preferred, and shall give written notice to the Company at such office that such holder elects to convert the same. Such notice shall state the number of shares of Series Preferred being converted. Thereupon, the Company shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled and shall promptly pay (i) in cash or, to the extent sufficient funds are not then legally available therefor, in Common Stock (at the Common Stocks fair market value determined by the Board of Directors as of the date of such conversion), any declared and unpaid dividends on the shares of Series Preferred being converted and (ii) in cash (at the Common Stocks fair market value determined by the Board of Directors in good faith as of the date of conversion) the value of any fractional share of Common Stock otherwise issuable to any holder of Series Preferred. Such conversion shall be deemed to have been made at the close of business on the date of such surrender of the certificates representing the shares of Series Preferred to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date. (ii) If the conversion is in connection with an underwritten offering of securities pursuant to the Securities Act of 1933, as amended (the Act), the conversion may, at the option of any holder tendering shares of Series Preferred for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion of the Series Preferred shall not be deemed to have converted such Series Preferred until immediately prior to the closing of such sale of securities. 11
(e) Adjustment for Stock Splits and Combinations. If at any time or from time to time after the Filing Date the Company effects a subdivision of the outstanding Common Stock without a corresponding subdivision of the Preferred Stock, the applicable Series Preferred Conversion Price in effect immediately before that subdivision shall be proportionately decreased. Conversely, if at any time or from time to time after the Filing Date the Company combines the outstanding shares of Common Stock into a smaller number of shares without a corresponding combination of the Preferred Stock, the applicable Series Preferred Conversion Price in effect immediately before the combination shall be proportionately increased. Any adjustment under this Section 4(e) shall become effective at the close of business on the date the subdivision or combination becomes effective. (f) Adjustment for Common Stock Dividends and Distributions. If at any time or from time to time after the Filing Date the Company pays a dividend or other distribution in additional shares of Common Stock, the applicable Series Preferred Conversion Price that is then in effect shall be decreased as of the time of such issuance, as provided below: (i) The applicable Series Preferred Conversion Price shall be adjusted by multiplying the applicable Series Preferred Conversion Price then in effect by a fraction: (A) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance, and (B) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance plus the number of shares of Common Stock issuable in payment of such dividend or distribution; (ii) If the Company fixes a record date to determine which holders of Common Stock are entitled to receive such dividend or other distribution, the applicable Series Preferred Conversion Price shall be fixed as of the close of business on such record date and the number of shares of Common Stock shall be calculated immediately prior to the close of business on such record date; and (iii) If such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the applicable Series Preferred Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the applicable Series Preferred Conversion Price shall be adjusted pursuant to this Section 4(f) to reflect the actual payment of such dividend or distribution. (g) Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Filing Date, the Common Stock issuable upon the conversion of the Series Preferred is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than an Acquisition or Asset Transfer as defined in Section 3 or a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 4), in any such event each holder of Series Preferred shall then have the right to convert such stock into the kind and amount of stock and other securities and property 12
receivable upon such recapitalization, reclassification or other change equivalent to the maximum number of shares of Common Stock into which such shares of Series Preferred could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. (h) Reorganizations, Mergers or Consolidations. If at any time or from time to time after the Filing Date, there is a capital reorganization of the Common Stock or the merger or consolidation of the Company with or into another corporation or another entity or person (other than an Acquisition or Asset Transfer as defined in Section 3 or a recapitalization, subdivision, combination, reclassification, exchange or substitution of shares provided for elsewhere in this Section 4), as a part of such capital reorganization, provision shall be made so that the holders of Series Preferred shall thereafter be entitled to receive upon conversion of the Series Preferred the number of shares of stock or other securities or property of the Company to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger or consolidation subject to adjustment in respect of such stock or securities by the terms thereof. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of Series Preferred after the capital reorganization, merger or consolidation to the end that the provisions of this Section 4 (including adjustment of the applicable Series Preferred Conversion Price then in effect and the number of shares issuable upon conversion of the Series Preferred) shall be applicable after that event and be as nearly equivalent as practicable. (i) Sale of Shares Below Series D Preferred Conversion Price. (i) If at any time or from time to time after the Filing Date, the Company issues or sells, or is deemed by the express provisions of this Section 4(i) to have issued or sold, Additional Shares of Common Stock (as defined in Section 4(i)(iv) below), other than as a dividend or other distribution on any class of stock as provided in Section 4(f) above, and other than a subdivision or combination of shares of Common Stock as provided in Section 4(e) above, for an Effective Price (as defined in Section 4(i)(iv) below) less than the then effective Series D Preferred Conversion Price, then the then existing Series D Preferred Conversion Price shall be reduced, as of the opening of business on the date of such issue or sale, to a price determined by multiplying the Series D Preferred Conversion Price in effect immediately prior to such issuance or sale by a fraction (1) the numerator of which shall be (A) the number of shares of Common Stock deemed outstanding (as defined below) immediately prior to such issue or sale, plus (B) the number of shares of Common Stock which the Aggregate Consideration received (as defined in Section 4(i)(ii) below) by the Company for the total number of Additional Shares of Common Stock so issued would purchase at such Series D Preferred Conversion Price, and (2) the denominator of which shall be the number of shares of Common Stock deemed outstanding (as defined below) immediately prior to such issue or sale plus the total number of Additional Shares of Common Stock so issued. For the purposes of the preceding sentence, the number of shares of Common Stock deemed to be outstanding as of a given date shall be the sum of (A) the number of shares of Common Stock actually outstanding on the day immediately preceding the given date, (B) the number of shares of Common Stock into which the then outstanding shares of Preferred Stock could be converted if fully converted 13
on the day immediately preceding the given date and (C) the number of shares of Common Stock which could be obtained through the exercise or conversion of all other rights, options, warrants and convertible securities outstanding on the day immediately proceeding the given date. No adjustment shall be made to the Series D Preferred Conversion Price in an amount less than one cent per share. Any adjustment otherwise required by this Section 4(i) that is not required to be made due to the preceding sentence shall be included in any subsequent adjustment to the Series D Preferred Conversion Price. (ii) For the purpose of making any adjustment required under this Section 4(i), the aggregate consideration received by the Company for any issue or sale of securities (the Aggregate Consideration) shall be defined as: (A) to the extent it consists of cash, be computed at the net amount of cash received by the Company after deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Company in connection with such issue or sale but without deduction of any expenses payable by the Company, (B) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board of Directors, and (C) if Additional Shares of Common Stock, Convertible Securities (as defined in Section 4(i)(iii) below) or rights or options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board of Directors to be allocable to such Additional Shares of Common Stock, Convertible Securities or rights or options. (iii) For the purpose of the adjustment required under this Section 4(i), if the Company issues or sells (x) stock or other securities convertible into Additional Shares of Common Stock (such convertible stock or securities being herein referred to as Convertible Securities) or (y) rights or options for the purchase of Additional Shares of Common Stock or Convertible Securities and if the Effective Price of such Additional Shares of Common Stock is less than the Series D Preferred Conversion Price, in each case the Company shall be deemed to have issued at the time of the issuance of such rights or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, received by the Company for the issuance of such rights or options or Convertible Securities plus, (1) in the case of such rights or options, the minimum amounts of consideration, if any, payable to the Company upon the exercise of such rights or options, plus, (2) in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company upon the conversion thereof (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities); provided that if the minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, the Company shall be deemed to have received the minimum amounts of consideration without reference to such clauses; provided further (3) that if the minimum amount of consideration payable to the Company upon the exercise or conversion of rights, options or Convertible Securities is reduced over time or on the occurrence or nonoccurrence of specified events other than by reason of antidilution adjustments, the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; provided further, that if the minimum amount of 14
consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities is subsequently increased, the Effective Price shall be again recalculated using the increased minimum amount of consideration payable to the Company upon the exercise or conversion of such rights, options or Convertible Securities (provided, however, no such adjustment of the Series D Preferred Conversion Price shall affect the Common Stock previously issued upon conversion of such series of Preferred Stock). No further adjustment of the Series D Preferred Conversion Price, as adjusted upon the issuance of such rights, options or Convertible Securities, shall be made as a result of the actual issuance of Additional Shares of Common Stock or the exercise of any such rights or options or the conversion of any such Convertible Securities. If any such rights or options or the conversion privilege represented by any such Convertible Securities shall expire without having been exercised, the Series D Preferred Conversion Price as adjusted upon the issuance of such rights, options or Convertible Securities shall be readjusted to the Series D Preferred Conversion Price which would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights or options or rights of conversion of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise, plus the consideration, if any, actually received by the Company for the granting of all such rights or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted, plus the consideration, if any, actually received by the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion of such Convertible Securities, provided that such readjustment shall not apply to prior conversions of Series Preferred. Notwithstanding anything herein to the contrary, Additional Shares of Common Stock issuable upon conversion of Convertible Securities and exercise of rights or options for the purchase of Additional Shares of Common Stock or Convertible Securities, including but not limited to convertible promissory notes and warrants, shall not be deemed to have been issued or sold by the Company under this Section 4(i), until such date the Effective Price of such Additional Shares of Common Stock underlying such Convertible Securities or rights or options for the purchase of Additional Shares of Common Stock or Convertible Securities is ascertainable. (iv) For the purpose of making any adjustment to the Series D Preferred Conversion Price required under this Section 4(i), Additional Shares of Common Stock shall mean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this Section 4(i) (including shares of Common Stock subsequently reacquired or retired by the Company), other than (1) shares of Common Stock issued upon conversion of then outstanding shares of Preferred Stock; (2) (x) before the occurrence of the Subsequent Closing (as defined in the Series D Preferred Stock Purchase Agreement by and among the Company and certain purchasers of the Series D Preferred dated on or about the Filing Date (the Series D Purchase Agreement )), up to one million one hundred nineteen thousand five hundred (1,119,500) shares of Common Stock and/or options, warrants or other Common Stock purchase rights, and (y) after the occurrence of the Subsequent Closing, up to one million two hundred eighty-five thousand three hundred (1,285,300) shares of Common Stock and/or options, warrants or other Common Stock purchase rights (in each case as adjusted for stock splits, dividends, recapitalizations and the like after the Filing Date) and the Common Stock issued pursuant to such options, warrants or other rights to employees, officers or directors of, or 15
consultants or advisors to, the Company or any subsidiary pursuant to stock purchase or stock option plans or other arrangements approved by the Board of Directors; (3) shares of Common Stock and/or Preferred Stock issued pursuant to the exercise of options, warrants or convertible securities outstanding as of the Filing Date; (4) shares of Common Stock and/or Preferred Stock issued pursuant to any commercial transaction, licensing arrangement, equipment loan or leasing arrangement, real property leasing arrangement or debt financing transaction, in each case which has been unanimously approved by the Board of Directors (including, for the avoidance of doubt, the Preferred Representatives); (5) up to an aggregate of one million five hundred thirty-eight thousand four hundred sixty-two (1,538,462) shares of Series C-2 Preferred issued pursuant to that Amended and Restated Put Agreement among the Company, Canadian Medical Discoveries Fund Inc. and Ambit Biosciences (Canada) Corporation dated on or about the Filing Date (the Put Agreement ); (6) up to an aggregate of six hundred twelve thousand six hundred forty-nine (612,649) shares of Series D Preferred issued pursuant to the Put Agreement; and (7) Convertible Securities issued pursuant to the Series D Purchase Agreement. References to Common Stock in the subsections of this clause (iv) above shall mean all shares of Common Stock issued by the Company or deemed to be issued pursuant to this Section 4(i). The Effective Price of Additional Shares of Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold by the Company under this Section 4(i), into the Aggregate Consideration received, or deemed to have been received by the Company for such issue under this Section 4(i), for such Additional Shares of Common Stock. (j) Certificate of Adjustment . In each case of an adjustment or readjustment of the applicable Series Preferred Conversion Price for the number of shares of Common Stock or other securities issuable upon conversion of the Series Preferred, if the Series Preferred is then convertible pursuant to this Section 4, the Company, at its expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of Series Preferred at the holders address as shown in the Companys books. The certificate shall set forth such adjustment or readjustment, summarizing the facts upon which such adjustment or readjustment is based, including a statement of (i) the consideration received or deemed to be received by the Company for any Additional Shares of Common Stock issued or sold or deemed to have been issued or sold, (ii) the applicable Series Preferred Conversion Price at the time in effect, (iii) the number of Additional Shares of Common Stock and (iv) the number of shares of Common Stock and the type and amount, if any, of other property which at the time would be received upon conversion of the Series Preferred. (k) Notices of Record Date . Upon (i) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or (ii) any merger or consolidation with or into any other corporation, or sale, lease or conveyance of all or substantially all of the Companys assets, or any voluntary or involuntary dissolution, liquidation or winding up of the Company, or (iii) any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Company shall mail to each holder of Series Preferred at least fifteen (15) days prior to the record date specified therein (or such shorter period approved by the holders of at least sixty-seven percent (67%) of 16
the outstanding Series D Preferred) a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend, distribution or right and a description of such dividend, distribution or right, (B) the date on which any such merger or consolidation or sale, lease or conveyance of all or substantially all of the Companys assets, dissolution, liquidation or winding up is expected to become effective, and (C) the date, if any, that is to be fixed as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such merger or consolidation or sale, lease or conveyance of all or substantially all of the Companys assets, dissolution, liquidation or winding up. (l) Automatic Conversion. (i) Each share of Series Preferred shall automatically be converted into shares of Common Stock, based on the theneffective applicable Series Preferred Conversion Price, (A) immediately upon the closing of a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Company in which (y) if such closing occurs on or prior to the second anniversary of the Filing Date, (i) the per share price is at least $10.12 (as adjusted for stock splits, dividends, recapitalizations and the like after the Filing Date), and (ii) the net cash proceeds to the Company (after deducting underwriting discounts, commissions and fees) are at least $50,000,000, or (z) if such closing occurs after the second anniversary of the Filing Date, (i) the per share price is at least $15.18 (as adjusted for stock splits, dividends, recapitalizations and the like after the Filing Date), and (ii) the net cash proceeds to the Company (after deducting underwriting discounts, commissions and fees) are at least $50,000,000 (a Qualifying Public Offering) or (B) the date upon which the Company consummates an Acquisition or Asset Transfer in which (y) if such Acquisition or Asset Transfer is completed on or prior to the second anniversary of the Filing Date, the Effective Per Share Sale Price (as defined below) in such Acquisition or Asset Transfer is not less than $10.12 (as adjusted for stock splits, dividends, recapitalizations and the like after the Filing Date) or (z) if such Acquisition or Asset Transfer is completed after the second anniversary of the Filing Date, the Effective Per Share Sale Price in such Acquisition or Asset Transfer is not less than $15.18 (as adjusted for stock splits, dividends, recapitalizations and the like after the Filing Date). Upon such automatic conversion, any declared and unpaid dividends shall be paid in accordance with the provisions of Section 4(d). For purposes of this Section, the Effective Per Share Sale Price with respect to any Acquisition or Asset Transfer shall be the quotient of (1) the value of the aggregate consideration received or to be received by the Company in respect of such Acquisition or Asset Transfer (determined in good faith by the Board of Directors, with any securities and other non-cash consideration valued in accordance with Section 3(f)(iii) above and the value of any future or contingent payments determined on an expected net present value basis), divided by (2) the number of shares of Common Stock deemed to be outstanding (determined in accordance with Section 4(i)(i) above) on the date of closing of the Acquisition or Asset Transfer. (ii) Upon the occurrence of any of the events specified in Section 4(l)(i) above, the outstanding shares of applicable Series Preferred shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent; 17
provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of Series Preferred are either delivered to the Company or its transfer agent as provided below, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement reasonably satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Series Preferred, the holders of Series Preferred shall surrender the certificates representing such shares at the office of the Company or any transfer agent for the Series Preferred. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Series Preferred surrendered were convertible on the date on which such automatic conversion occurred, and any declared and unpaid dividends shall be paid in accordance with the provisions of Section 4(d). (m) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Series Preferred. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series Preferred by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of any fractional share, the Company shall, in lieu of issuing any fractional share, pay cash equal to the product of such fraction multiplied by the Common Stocks fair market value (as determined by the Board of Directors in good faith) on the date of conversion. (n) Reservation of Stock Issuable Upon Conversion . The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series Preferred, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series Preferred. If at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series Preferred, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (o) Notices. Any notice required by the provisions of this Section 4 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 electronic mail 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 recognized overnight courier, specifying next day delivery, with verification of receipt. All notices shall be addressed to each holder of record at the address of such holder appearing on the books of the Company. (p) Payment of Taxes . The Company will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of shares of Common Stock upon conversion of shares of Series Preferred, excluding any tax or other charge imposed in connection with any transfer involved in the issue 18
and delivery of shares of Common Stock in a name other than that in which the shares of Series Preferred so converted were registered. (q) No Impairment. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of Series Preferred against impairment. 5. REDEMPTION . (a) The Company shall be obligated to redeem the Series Preferred as follows: (i) At any time after the fifth anniversary after the Filing Date, the holders of at least sixty-seven percent (67%) of the then outstanding shares of Series D Preferred may require the Company, to the extent it may lawfully do so, to redeem all of the outstanding Series D Preferred in twelve equal quarterly installments (each a Series D Redemption Date); provided that the Company shall receive at least 60 days prior to the first Series D Redemption Date written notice of such consent of the Series D Preferred. The Company shall effect such redemptions on the applicable Series D Redemption Date by paying in cash in exchange for the shares of Series D Preferred to be redeemed a sum equal to (i) the Original Issue Price of the Series D Preferred (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like after the Filing Date), plus (ii) any declared and unpaid dividends with respect to such shares. The total amount to be paid for Series D Preferred pursuant to this Section 5(a)(i) is hereinafter referred to as the Series D Redemption Price. The number of shares of Series D Preferred that the Company shall be required to redeem on any one Series D Redemption Date shall be equal to the amount determined by dividing (A) the aggregate number of shares of Series D Preferred outstanding immediately prior to the Series D Redemption Date by (B) the number of remaining Series D Redemption Dates (including the Series D Redemption Date to which such calculation applies). Shares subject to redemption pursuant to this Section 5(a)(i) shall be redeemed from each holder of Series D Preferred on a pro rata basis based on the number of shares of Series D Preferred held by such holder in proportion to the aggregate number of shares of outstanding Series D Preferred. ( i i) At any time after the complete redemption of all of the outstanding shares of Series D Preferred in accordance with Section 5(a)(i) hereof, the holders of at least sixty-seven percent (67%) of the then outstanding shares of Series C Preferred and Series C-2 Preferred, voting together as a single class, may require the Company, to the extent it may lawfully do so, to redeem all of the outstanding Series C Preferred and Series C-2 Preferred in twelve equal quarterly installments (each a Series C/C-2 Redemption Date and, together with the Series D Redemption Date, the Redemption Date); provided that the Company shall receive at least 60 days prior to the first Series C/C-2 Redemption Date written notice of such consent of the Series C Preferred and Series C-2 Preferred. The Company shall effect such redemptions on the applicable Series C/C-2 Redemption Date by paying in cash in exchange for 19
the shares of Series C Preferred and Series C-2 Preferred to be redeemed a sum equal to (i) the Original Issue Price of the Series C Preferred and Series C-2 Preferred, respectively (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like after the Filing Date), plus (ii) any declared and unpaid dividends with respect to such shares. The total amount to be paid for Series C Preferred and Series C-2 Preferred is hereinafter referred to as the Series C/C-2 Redemption Price (and, together with the Series D Redemption Price, the Redemption Price). The number of shares of Series C Preferred and Series C-2 Preferred that the Company shall be required to redeem on any one Series C/C-2 Redemption Date shall be equal to the amount determined by dividing (A) the aggregate number of shares of Series C Preferred and Series C-2 Preferred, respectively, outstanding immediately prior to the Series C/C-2 Redemption Date by (B) the number of remaining Series C/C-2 Redemption Dates (including the Series C/C-2 Redemption Date to which such calculation applies). Shares subject to redemption pursuant to this Section 5(a)(ii) shall be redeemed from each holder of Series C Preferred and Series C-2 Preferred on a pro rata basis based on the number of shares of Series C Preferred and/or Series C-2 Preferred held by such holder in proportion to the aggregate number of shares of outstanding Series C Preferred and/or Series C-2 Preferred, as applicable. (iii) At least 30 days but no more than 60 days prior to the first applicable Redemption Date, the Company shall send a notice (a Redemption Notice) to all holders of shares to be redeemed upon such Redemption Date setting forth (A) the Redemption Price for the shares to be redeemed; and (B) the place at which such holders may obtain payment of the applicable Redemption Price upon surrender of their share certificates. If the Company does not have sufficient funds legally available to redeem all shares to be redeemed at the applicable Redemption Date, then it shall redeem such shares pro rata (based on the portion of the aggregate applicable Redemption Price payable to them) to the extent possible and shall redeem the remaining shares to be redeemed as soon as sufficient funds are legally available. (b) On or prior to any Redemption Date, the Company shall deposit the applicable Redemption Price of all shares to be redeemed with a bank or trust company having aggregate capital and surplus in excess of $100,000,000, as a trust fund, with irrevocable instructions and authority to the bank or trust company to pay, on and after such Redemption Date, the Redemption Price of the shares to their respective holders upon the surrender of their share certificates. Any moneys deposited by the Company pursuant to this Section 5(b) for the redemption of shares thereafter converted into shares of Common Stock pursuant to Section 4 hereof no later than the fifth day preceding the applicable Redemption Date shall be returned to the Company forthwith upon such conversion. The balance of any funds deposited by the Company pursuant to this Section 5(b) remaining unclaimed at the expiration of one year following such Redemption Date shall be returned to the Company promptly upon its written request. (c) On or after any Redemption Date, each holder of shares to be redeemed upon such Redemption Date shall surrender such holders certificates representing such shares to the Company in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event less than all the shares represented by such certificates are redeemed, a new certificate shall be issued representing the unredeemed shares. From and 20
after such Redemption Date, unless there shall have been a default in payment of the Redemption Price or the Company is unable to pay the Redemption Price due to not having sufficient legally available funds, all rights and preferences of the holder provided herein (except the right to receive the applicable Redemption Price without interest upon surrender of certificates for such shares) shall cease and terminate with respect to such shares; provided that in the event that such shares are not redeemed due to a default in payment by the Company or because the Company does not have sufficient legally available funds, such shares shall remain outstanding and shall be entitled to all of the rights and preferences provided herein. (d) In the event of a call for redemption of any shares of Series C Preferred and Series C-2 Preferred or Series D Preferred, the Conversion Rights (as defined in Section 4) for such shares of Series C Preferred and Series C-2 Preferred or Series D Preferred shall terminate as to the shares designated for redemption at the close of business on the fifth day preceding the applicable Redemption Date, unless default is made in payment of the applicable Redemption Price. 6. No Reissuance of Preferred Stock. No share or shares of Series Preferred acquired by the Company by reason of redemption, purchase, conversion or otherwise shall be reissued. V. A. The liability of the directors of the Company for monetary damages shall be eliminated to the fullest extent under applicable law. B. The Company is authorized to provide indemnification of agents (as defined in Section 317 of the CGCL) for breach of duty to the Company and its shareholders through bylaw provisions or through agreements with the agents, or through shareholder resolutions, or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the CGCL, subject, at any time or times that the Company is subject to Section 2115(b) of the CGCL, to the limits on such excess indemnification set forth in Section 204 of the CGCL. C . Any repeal or modification of this Article V shall only be prospective and shall not affect the rights under this Article V in effect at the time of the alleged occurrence of any action or omission to act giving rise to liability. VI. For the management of the business and for the conduct of the affairs of the Company, and in further definition, limitation and regulation of the powers of the Company, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that: A. The management of the business and the conduct of the affairs of the Company shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed by the Board of Directors in the manner provided in the Bylaws, subject to any restrictions which may be set forth in this Amended and Restated Certificate of Incorporation. 21
B. Subject to any indemnification provisions in the Bylaws and the provisions of this Certificate of Incorporation, the Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the Company. The stockholders shall also have the power to adopt, amend or repeal the Bylaws of the Company; provided however, that, in addition to any vote of the holders of any class or series of stock of the Company required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least a majority of the voting power of all of the thenoutstanding shares of the capital stock of the Company entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws of the Company. C . The directors of the Company need not be elected by written ballot unless the Bylaws so provide. **** FOUR: This Amended and Restated Certificate of Incorporation has been duly approved by the Board of Directors of the Company. FIVE: This Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 228, 242 and 245 of the DGCL by the Board of Directors and the stockholders of the Company. 22
IN WITNESS WHEREOF, Ambit Biosciences Corporation has caused this Amended and Restated Certificate of Incorporation to be signed by its Chief Executive Officer this 25 th day of October, 2007. AMBIT BIOSCIENCES CORPORATION Signature: /s/ M. Scott Salka
Print Name: M. Scott Salka Title: Chief Executive Officer 23
Exhibit 3.2 CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AMBIT BIOSCIENCES CORPORATION AMBIT BIOSCIENCES CORPORATION, a corporation organized and existing under the General Corporation Law of the State of Delaware (the Company), does hereby certify as follows: ONE: The name of the Company is Ambit Biosciences Corporation, the original name of the Company is Aventa Biosciences Corporation and the date on which the Certificate of Incorporation of the Company was originally filed with the Secretary of State of the State of Delaware was May 17, 2000. TWO: M. Scott Salka is the duly elected and acting Chief Executive Officer of the Company. THREE: The Board of Directors of the Company, acting in accordance with the provisions of Section 141 and 242 of the General Corporation Law of the State of Delaware, adopted resolutions amending its Certificate of Incorporation as follows: Article IV, Section A. shall be amended and restated to read in its entirety as follows: A. This Company is authorized to issue two classes of stock to be designated, respectively, Common Stock and Preferred Stock. The total number of shares which the Company is authorized to issue is forty-seven million five hundred fifty-three thousand three hundred seventy-six (47,553,376) shares, twenty-six million eight hundred fifty thousand (26,850,000) shares of which shall be Common Stock (the Common Stock), each having a par value of one-tenth of one cent ($0.001) and twenty million seven hundred three thousand three hundred seventy-six (20,703,376) shares of which shall be Preferred Stock (the Preferred Stock), each having a par value of one-tenth of one cent ($0.001). Article IV, Section D. shall be amended and restated to read in its entirety as follows: D. One hundred sixty-two thousand five hundred nineteen (162,519) of the authorized shares of Preferred Stock are hereby designated Series A Preferred Stock (the Series A Preferred), one million nine hundred seventy-five thousand six hundred seventyseven (1,975,677) of the authorized shares of Preferred Stock are hereby designated Series B Preferred Stock (the Series B Preferred), seven million seventy-six thousand seven hundred eighteen (7,076,718) of the authorized shares of Preferred Stock are hereby designated Series C Preferred Stock (the Series C Preferred ), one million five hundred thirty-eight thousand four hundred sixty-two (1,538,462) of the authorized shares
of Preferred Stock are hereby designated Series C-2 Preferred Stock (the Series C-2 Preferred) and nine million nine hundred fifty thousand (9,950,000) of the authorized shares of Preferred Stock are hereby designated Series D Preferred Stock (the Series D Preferred and, together with the Series A Preferred, Series B Preferred, Series C Preferred and Series C-2 Preferred, the Series Preferred). FOUR: The foregoing amendments were submitted to the stockholders of the Company for their approval and were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Ambit Biosciences Corporation has caused this Certificate of Amendment to be signed by its Chief Executive Officer this 6th day of November, 2007. AMBIT BIOSCIENCES CORPORATION Signature: /s/ M. Scott Salka
Print Name: M. Scott Salka Title: Chief Executive Officer
Exhibit 3.3 SECOND CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AMBIT BIOSCIENCES CORPORATION AMBIT BIOSCIENCES CORPORATION, a corporation organized and existing under the General Corporation Law of the State of Delaware (the Company), does hereby certify as follows: ONE: The name of the Company is Ambit Biosciences Corporation, the original name of the Company is Aventa Biosciences Corporation and the date on which the Certificate of Incorporation of the Company was originally filed with the Secretary of State of the State of Delaware was May 17, 2000. TWO: M. Scott Salka is the duly elected and acting Chief Executive Officer of the Company. THREE: The Board of Directors of the Company, acting in accordance with the provisions of Section 141 and 242 of the General Corporation Law of the State of Delaware, adopted resolutions amending its Certificate of Incorporation as follows: Article IV, Section A. shall be amended and restated to read in its entirety as follows: A. This Company is authorized to issue two classes of stock to be designated, respectively, Common Stock and Preferred Stock. The total number of shares which the Company is authorized to issue is forty-eight million six hundred three thousand three hundred seventy-six (48,603,376) shares, twenty-seven million nine hundred thousand (27,900,000) shares of which shall be Common Stock (the Common Stock), each having a par value of one-tenth of one cent ($0.001) and twenty million seven hundred three thousand three hundred seventy-six (20,703,376) shares of which shall be Preferred Stock (the Preferred Stock), each having a par value of one-tenth of one cent ($0.001). Article IV, Section E.4(i)(iv), clause (2)(y) shall be amended and restated to read in its entirety as follows: (y) after the occurrence of the Subsequent Closing, two million three hundred three thousand one hundred thirty-four (2,303,134) shares of Common Stock and/or options, warrants or other Common Stock purchase rights (in each case as adjusted for stock splits, dividends, recapitalizations and the like after the Filing Date) and the Common Stock issued pursuant to such options, warrants or other rights to employees, officers or directors of, or consultants or advisors to, the Company or any subsidiary pursuant to stock purchase or stock option plans or other arrangements approved by the Board of Directors, provided that such number of shares shall be increased to reflect any shares of Common Stock (i) subject to stock options, warrants or other Common Stock purchase rights
issued pursuant to such plans or other agreements approved by the Board of Directors and outstanding as of the date hereof (the Outstanding Plan Rights) but not issued as a result of the termination of such Outstanding Plan Rights or (ii) issued pursuant to such plans, agreements or arrangements and thereafter reacquired by the Company; FOUR: The foregoing amendments were submitted to the stockholders of the Company for their approval and were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Ambit Biosciences Corporation has caused this Second Certificate of Amendment to be signed by its Chief Executive Officer this 12th day of March, 2009. AMBIT BIOSCIENCES CORPORATION Signature: /s/ M. Scott Salka
Print Name: M. Scott Salka Title: Chief Executive Officer
Exhibit 3.4 THIRD CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AMBIT BIOSCIENCES CORPORATION AMBIT BIOSCIENCES CORPORATION, a corporation organized and existing under the General Corporation Law of the State of Delaware (the Company), does hereby certify as follows: ONE: The name of the Company is Ambit Biosciences Corporation, the original name of the Company is Aventa Biosciences Corporation and the date on which the Certificate of Incorporation of the Company was originally filed with the Secretary of State of the State of Delaware was May 17, 2000. TWO: M. Scott Salka is the duly elected and acting Chief Executive Officer of the Company. THREE: The Board of Directors of the Company, acting in accordance with the provisions of Section 141 and 242 of the General Corporation Law of the State of Delaware, adopted resolutions amending its Certificate of Incorporation as follows: 1. Article IV, Section A. shall be amended and restated to read in its entirety as follows: A. This Company is authorized to issue two classes of stock to be designated, respectively, Common Stock and Preferred Stock. The total number of shares which the Company is authorized to issue is sixty-six million nine hundred three thousand three hundred seventy-six (66,903,376) shares, thirty-eight million two hundred thousand (38,200,000) shares of which shall be Common Stock (the Common Stock), each having a par value of one-tenth of one cent ($0.001) and twenty-eight million seven hundred three thousand three hundred seventy-six (28,703,376) shares of which shall be Preferred Stock (the Preferred Stock), each having a par value of one-tenth of one cent ($0.001). 2 Article IV, Section D. shall be amended and restated to read in its entirety as follows: D. One hundred sixty-two thousand five hundred nineteen (162,519) of the authorized shares of Preferred Stock are hereby designated Series A Preferred Stock (the Series A Preferred), one million nine hundred seventy-five thousand six hundred seventy-seven (1,975,677) of the authorized shares of Preferred Stock are hereby designated Series B Preferred Stock (the Series B Preferred), seven million seventy-six thousand seven hundred eighteen (7,076,718) of the authorized shares of Preferred Stock are hereby designated Series C Preferred Stock (the Series C Preferred ), one million five hundred thirty-eight thousand four hundred sixty-two (1,538,462) of the authorized shares of Preferred Stock are hereby designated Series C-2 Preferred Stock (the 1
Series C-2 Preferred) and seventeen million nine hundred fifty thousand (17,950,000) of the authorized shares of Preferred Stock are hereby designated Series D Preferred Stock (the Series D Preferred and, together with the Series A Preferred, Series B Preferred, Series C Preferred and Series C-2 Preferred, the Series Preferred). 3. Article IV, Section E.4(i)(iv) shall be amended to (i) delete the word and at the end of subsection (6) thereunder, (ii) delete the period at the end of subsection (7) thereunder and add in its place a semicolon and (iii) add new subsections (8) and (9) thereunder to read in full as follows: (8) Convertible Securities to be issued pursuant to the Note and Warrant Purchase Agreement to be entered into by and among the Company and the parties listed as Purchasers thereunder on or about June 4, 2009 (the Note Purchase Agreement ) and shares of Common Stock and/or Preferred Stock issued upon conversion of such Convertible Securities; and (9) Convertible Securities to be issued pursuant to the Note and Warrant Purchase Agreement entered into by and among the Company, Ambit Biosciences (Canada) Corporation and GrowthWorks Canadian Fund LTD. in June 2009 and shares of Common Stock and/or Preferred Stock issued upon conversion of such Convertible Securities. 4. Article IV, Section E.4 shall be amended to (i) rename subsections (m), (n), (o), (p) and (q) as subsections (n), (o), (p), (q) and (r), respectively, and add new subsection (m) to read in full as follows: (m) Special Mandatory Conversions. For purposes of this Section 4(m), the following definitions shall apply: Advance Closing, Advance Closing Loan Amount, Advance Closing Participation Rate, Initial Closing, Notes, Professional Investor, Second Closing, Second Closing Initial Notice, Second Closing Minimum Amount, Third Closing, Third Closing Initial Notice and Third Closing Minimum Amount shall have the meanings set forth in the Note Purchase Agreement. An Affiliate of any Eligible Holder or Purchaser shall mean (i) any partner or retired partner of such Eligible Holder or Purchaser which is a partnership; (ii) any member or former member of such Eligible Holder or Purchaser which is a limited liability company; (iii) any family member or trust for the benefit of an individual Eligible Holder or Purchaser or (iv) any affiliated venture capital fund of such Eligible Holder or Purchaser; provided however, that for purposes of this Section 4(m), Kevin Kinsella shall not be considered an Affiliate of Avalon Ventures and Avalon Ventures shall not be considered an Affiliate of Kevin Kinsella. 2
An Eligible Holder shall mean any holder of Series Preferred as the date of the mailing of the Notice. The Initial Closing Amount shall mean $8,930,628.27. A Non-participating Holder shall be an Eligible Holder that, together with the Affiliates of such Eligible Holder, does not purchase at least fifty percent (50%) of such Eligible Holders Pay to Play Pro Rata Share at the Advance Closing or Initial Closing (or combination thereof). A Non-participating Professional Investor shall be an Eligible Holder that does not purchase Notes with an aggregate principal amount equal to at least such Eligible Holders Advance Closing Loan Amount, if any, at the Advance Closing pursuant to Section 2.3 of the Note Purchase Agreement. The Notice shall mean the written notice delivered to an Eligible Holder by the Company as described in Section 4(m)(ii)(B) below. An Eligible Holders Pay to Play Pro Rata Share shall mean an amount equal to (1) the Initial Closing Amount multiplied by (2) a fraction, the numerator of which is the number of outstanding shares of Series Preferred held by the Eligible Holder and the Affiliates of such Eligible Holder (on an as-converted to Common Stock basis) and the denominator of which is the total number of outstanding shares of Series Preferred (on an as-converted to Common Stock basis) as of the date of delivery of the Notice. A Purchaser shall mean any holder of Series Preferred on the date of the mailing of the Second Closing Initial Notice or Third Closing Initial Notice that purchased Notes in the Advance Closing and/or the Initial Closing. All shares of Preferred Stock held by the Non-participating Professional Investors and its Affiliates shall automatically and without further action on the part of such Non-participating Professional Investors be converted, effective as of the opening of business on the first day following the date of the Advance Closing, into shares of Common Stock at the applicable Series Preferred Conversion Rate in effect at the time of such automatic conversion, and all rights of such holder as a holder of Series Preferred with respect to the shares so automatically converted shall terminate immediately upon such automatic conversion. Following the Advance Closing: the Company shall deliver a written notice (the Notice) to each Eligible Holder that (i) states the Companys intention to issue Notes in the Initial Closing; (ii) indicates the principal material terms upon which the Company proposes to issue the Notes (including the date of the Initial Closing); (iii) specifies such Eligible Holders Pay to Play Pro Rata Share; and (iv) offers 3
such Eligible Holder together with its Affiliates the right to purchase Notes at the Initial Closing subject to the limitations set for the below: an Eligible Holder, other than a Professional Investor, shall have the right to purchase, together with its Affiliates, up to a principal amount of Notes in the Initial Closing equal to 153% (but not more than 153%) of its Pay to Play Pro Rata Share; a Professional Investor that has an Advance Closing Participation Rate of less than 50% may purchase, together with its Affiliates, up to a principal amount of Notes in the Initial Closing that, together with the principal amount of Notes such Professional Investor and its Affiliates purchased in the Advance Closing, is equal to 50% (but no more than 50%) of such Professional Investors Pay to Play Pro Rata Share; a Professional Investor that has an Advance Closing Participation Rate equal to 50% or more but less than 100% may purchase, together with its Affiliates, up to the principal amount of Notes in the Initial Closing that, together with the principal amount of Notes such Professional Investor and its Affiliates purchased in the Advance Closing, is equal to 100% (but no more than 100%) of such Professional Investors Pay to Play Pro Rata Share; and a Professional Investor that has an Advance Closing Participation Rate of 100% or more may purchase, together with its Affiliates, up to the principal amount of Notes in the Initial Closing that, together with the principal amount of Notes such Professional Investor and its Affiliates purchased in the Advance Closing, is equal to 153% (but not more than 153%) of such Professional Investors Pay to Play Pro Rata Share. Subject to the limitations set forth above, each Eligible Holder shall, within 25 days from the date the Notice is delivered, provide written notice to the Company of the amount of Notes such Eligible Holder together with its Affiliates shall purchase at the Initial Closing. Each Eligible Holder that (i) did not previously purchase at least fifty percent (50%) of such Eligible Holders Pay to Play Pro Rata Share at the Advance Closing and (ii) does not notify the Company pursuant to such written notice that it shall purchase a principal amount of Notes in the Initial Closing that, together with the principal amount of Notes such Eligible Holder and its Affiliates purchased in the Advance Closing, equal to at least 50% of such Eligible Holders Pay to Play Pro Rata Share, shall be deemed to be a Non-participating Holder. All shares of Preferred Stock held by the Non-participating Holders and their Affiliates shall automatically and without further action on the part of such Non-participating Holders be converted, effective as of the opening 4
of business on the first day following the date of the Initial Closing, into shares of Common Stock at the applicable Series Preferred Conversion Rate in effect at the time of such automatic conversion, and all rights of such holder as a holder of Series Preferred with respect to the shares so automatically converted shall terminate immediately upon such automatic conversion. In the event that a Second Closing Initial Notice or a Third Closing Initial Notice is delivered by the Company in accordance with the terms of the Note Purchase Agreement not less than 15 calendar days prior to the proposed date of the Second Closing or the Third Closing, as applicable, and thereafter any Purchaser together with the Affiliates of such Purchaser does not purchase at the Second Closing or the Third Closing, as applicable, Notes with a principal amount equal to such Purchasers Second Closing Minimum Amount or Third Closing Minimum Amount, as applicable, then notwithstanding any other provision of this Certificate of Incorporation, all of the shares of Series Preferred held by such Purchaser and its Affiliates and any transferee of any shares of Series Preferred held by such holder as of the date of the Second Closing Initial Notice or Third Closing Initial Notice, as applicable, shall automatically and without further action on the part of such holder be converted, effective as of the opening of business on the first day following the date of the Second Closing or Third Closing, as applicable, into shares of Common Stock at the applicable Series Preferred Conversion Rate in effect at the time of such automatic conversion, and all rights of such holder as a holder of Series Preferred with respect to the shares so automatically converted shall terminate immediately upon such automatic conversion. Upon the occurrence of any of the events specified in Sections 4(m)(iii), 4(m)(iv) and 4(m)(v) above, the applicable outstanding shares of Series Preferred shall be converted automatically and without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of Series Preferred are either delivered to the Company or its transfer agent as provided below, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement reasonably satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Series Preferred, the holders of Series Preferred shall surrender the certificates representing such shares at the office of the Company or any transfer agent for the Series Preferred. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Series Preferred surrendered were convertible on the date on which such automatic conversion occurred, and any declared and unpaid dividends shall be paid in accordance with the provisions of Section 4(d). 5
FOUR: The foregoing amendments were submitted to the stockholders of the Company for their approval and were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 6
IN WITNESS WHEREOF, Ambit Biosciences Corporation has caused this Third Certificate of Amendment to be signed by its Chief Executive Officer this 4th day of June, 2009. AMBIT BIOSCIENCES CORPORATION Signature: /s/ M. Scott Salka
Print Name: M. Scott Salka Title: Chief Executive Officer [SIGNATURE PAGE TO T HIRD CERTIFICATE OF A MENDMENT TO A MENDED AND R ESTATED CERTIFICATE OF INCORPORATION]
Exhibit 3.5 FOURTH CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AMBIT BIOSCIENCES CORPORATION AMBIT BIOSCIENCES CORPORATION, a corporation organized and existing under the General Corporation Law of the State of Delaware (the Company), does hereby certify as follows: ONE: The name of the Company is Ambit Biosciences Corporation, the original name of the Company is Aventa Biosciences Corporation and the date on which the Certificate of Incorporation of the Company was originally filed with the Secretary of State of the State of Delaware was May 17, 2000. TWO: M. Scott Salka is the duly elected and acting Chief Executive Officer of the Company. THREE: The Board of Directors of the Company, acting in accordance with the provisions of Section 141 and 242 of the General Corporation Law of the State of Delaware, adopted resolutions amending its Certificate of Incorporation as follows: 1. Article IV, Section E.3., clause (f)(ii) shall be amended and restated in its entirety to read as follows: (ii) a sale, lease, exclusive license or other disposition of all or substantially all of the assets of the Company approved by the Board of Directors (an Asset Transfer ); provided that, no license granted by the Company or other transaction contemplated under a development, collaboration or similar agreement entered into by the Company on or about December 18, 2009 providing for the license, exclusive or otherwise, of the Companys AC220 compound shall be deemed an Asset Transfer hereunder. FOUR: The foregoing amendment was submitted to the stockholders of the Company for their approval and were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 1
IN WITNESS WHEREOF, Ambit Biosciences Corporation has caused this Fourth Certificate of Amendment to be signed by its Chief Executive Officer this 15 day of December, 2009. AMBIT BIOSCIENCES CORPORATION Signature: /s/ M. Scott Salka Print Name: M. Scott Salka Title: Chief Executive Officer [SIGNATURE PAGE TO FOURTH CERTIFICATE OF A MENDMENT TO AMENDED AND R ESTATED CERTIFICATE OF INCORPORATION]
Exhibit 3.6 FIFTH CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AMBIT BIOSCIENCES CORPORATION AMBIT BIOSCIENCES CORPORATION, a corporation organized and existing under the General Corporation Law of the State of Delaware (the Company), does hereby certify as follows: ONE: The name of the Company is Ambit Biosciences Corporation, the original name of the Company is Aventa Biosciences Corporation and the date on which the Certificate of Incorporation of the Company was originally filed with the Secretary of State of the State of Delaware was May 17, 2000. TWO: Alan J. Lewis, Ph.D. is the duly elected and acting Chief Executive Officer of the Company. THREE: The Board of Directors of the Company, acting in accordance with the provisions of Section 141 and 242 of the General Corporation Law of the State of Delaware, adopted resolutions amending its Certificate of Incorporation as follows: Article IV, Section A. shall be amended and restated to read in its entirety as follows: A. This Company is authorized to issue two classes of stock to be designated, respectively, Common Stock and Preferred Stock. The total number of shares which the Company is authorized to issue is 68,603,376 shares, 39,900,000 shares of which shall be Common Stock (the Common Stock), each having a par value of one-tenth of one cent ($0.001) and 28,703,376 shares of which shall be Preferred Stock (the Preferred Stock), each having a par value of one-tenth of one cent ($0.001). Article IV, Section E.4(i)(iv), clause (2)(y) shall be amended and restated to read in its entirety as follows: (y) after the occurrence of the Subsequent Closing, 4,003,134 shares of Common Stock and/or options, warrants or other Common Stock purchase rights (in each case as adjusted for stock splits, dividends, recapitalizations and the like after the Filing Date) and the Common Stock issued pursuant to such options, warrants or other rights to employees, officers or directors of, or consultants or advisors to, the Company or any subsidiary pursuant to stock purchase or stock option plans or other arrangements approved by the Board of Directors, provided that such number of shares shall be increased to reflect any shares of Common Stock (i) subject to stock options, warrants or other Common Stock purchase rights issued pursuant to such plans or other agreements approved by the Board of Directors and outstanding as of the date hereof (the Outstanding Plan Rights) but not issued as a result of the termination of such Outstanding Plan Rights or (ii)
issued pursuant to such plans, agreements or arrangements and thereafter reacquired by the Company; FOUR: The foregoing amendments were submitted to the stockholders of the Company for their approval and were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Ambit Biosciences Corporation has caused this Second Certificate of Amendment to be signed by its Chief Executive Officer this 18 day of August, 2010. AMBIT BIOSCIENCES CORPORATION Signature: /s/ Alan J. Lewis, Ph.D. Print Name: Alan J. Lewis, Ph.D. Title: Chief Executive Officer
Exhibit 3.7 SIXTH CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AMBIT BIOSCIENCES CORPORATION AMBIT BIOSCIENCES CORPORATION, a corporation organized and existing under the General Corporation Law of the State of Delaware (the Company), does hereby certify as follows: ONE: The name of the Company is Ambit Biosciences Corporation. The original name of the Company was Aventa Biosciences Corporation and the date on which the Certificate of Incorporation of the Company was originally filed with the Secretary of State of the State of Delaware was May 17, 2000. TWO: Alan J. Lewis, Ph.D. is the duly elected and acting Chief Executive Officer of the Company. THREE: The Board of Directors of the Company, acting in accordance with the provisions of Section 141 and 242 of the General Corporation Law of the State of Delaware, adopted resolutions amending its Certificate of Incorporation as follows: 1. Article IV, Section A. shall be amended and restated to read in its entirety as follows: A. This Company is authorized to issue two classes of stock to be designated, respectively, Common Stock and Preferred Stock. The total number of shares which the Company is authorized to issue is 76,553,376 shares, 44,800,000 shares of which shall be Common Stock (the Common Stock), each having a par value of one-tenth of one cent ($0.001) and 31,753,376 shares of which shall be Preferred Stock (the Preferred Stock), each having a par value of one-tenth of one cent ($0.001). 2. Article IV, Section D. shall be amended and restated to read in its entirety as follows: D. 162,519 of the authorized shares of Preferred Stock are hereby designated Series A Preferred Stock (the Series A Preferred), 1,975,677 of the authorized shares of Preferred Stock are hereby designated Series B Preferred Stock (the Series B Preferred), 7,076,718, of the authorized shares of Preferred Stock are hereby designated Series C Preferred Stock (the Series C Preferred), 1,538,462 of the authorized shares of Preferred Stock are hereby designated Series C-2 Preferred Stock (the Series C-2 Preferred) and 21,000,000 of the authorized shares of Preferred Stock are hereby designated Series D Preferred Stock (the Series D Preferred and, together with the Series A Preferred, Series B Preferred, Series C Preferred and Series C-2 Preferred, the Series Preferred). 1
3. Article IV, Section E.4(i)(iv) shall be amended to (i) delete the word and at the end of subsection (8) thereunder, (ii) delete the period at the end of subsection (9) thereunder and (iii) add new subsections (10) and (11) thereunder to read in full as follows: (10) Convertible Securities to be issued pursuant to the Note and Warrant Purchase Agreement to be entered into by and among the Company and the parties listed as Purchasers thereunder on or about September 30, 2010 (as the same may be amended from time to time, the 2010 Note and Warrant Purchase Agreement ) and shares of Common Stock and/or Preferred Stock issued upon conversion of such Convertible Securities; and (11) Convertible Securities to be issued pursuant to the Note and Warrant Purchase Agreement entered into by and among the Company, Ambit Biosciences (Canada) Corporation and GrowthWorks Canadian Fund Ltd. on or about September 30, 2010 (as the same may be amended from time to time, the 2010 Canadian Note and Warrant Purchase Agreement ) and shares of Common Stock and/or Preferred Stock issued upon conversion of such Convertible Securities. 4. Article IV, Section E.4(m) shall be amended and restated to read in its entirety as follows: (m) Special Mandatory Conversion. For purposes of this Section 4(m), the following definitions shall apply: Notes shall mean the secured subordinated convertible promissory notes issued pursuant to the 2010 Note and Warrant Purchase Agreement and the secured subordinated promissory notes issued pursuant to the 2010 Canadian Note and Warrant Purchase Agreement. Closing shall mean the Closing under the 2010 Note and Warrant Purchase Agreement. Canadian Closing shall mean the Closing under the 2010 Canadian Note and Warrant Purchase Agreement. An Affiliate of any Eligible Holder or Purchaser shall mean (i) any partner or retired partner of such Eligible Holder or Purchaser which is a partnership; (ii) any member or former member of such Eligible Holder or Purchaser which is a limited liability company; (iii) any family member or trust for the benefit of an individual Eligible Holder or Purchaser or (iv) any affiliated venture capital fund of such Eligible Holder or Purchaser. An Eligible Holder shall mean any holder of at least 250,000 shares of Series Preferred as of the date of the Closing. Affiliates of 2
Eligible Holders shall be Eligible Holders regardless of the number of shares of Series Preferred held by Affiliate. The Closing Amount shall mean $15,000,000.00. A Non-participating Holder shall be an Eligible Holder that, together with the Affiliates of such Eligible Holder, does not purchase an aggregate principal amount of Notes equal to at least such Eligible Holders Pay to Play Pro Rata Share at the Closing and/or the Canadian Closing. An Other Holder shall be any holder of Series Preferred that is not an Eligible Holder. An Eligible Holders Pay to Play Pro Rata Share shall mean an amount, rounded down to the nearest cent, equal to (1) the Closing Amount multiplied by (2) a fraction, the numerator of which is the number of outstanding shares of Series Preferred held by the Eligible Holder (on an as-converted to Common Stock basis) plus the number of shares of Series Preferred such Eligible Holder is entitled to receive upon the exercise of the Put Right set forth in the Put Agreement (as defined in Article IV, Section E.4(i)(iv)) (on an as-converted to Common Stock basis) as of the date of the Closing and the denominator of which is the sum of (x) the total number of outstanding shares of Series Preferred (on an as-converted to Common Stock basis) held by all Eligible Holders as of the date of the Closing plus (y) the number of total number of shares of Series Preferred issuable upon the exercise of the Put Right set forth in the Put Agreement (on an as-converted to Common Stock basis) as of the date of the Closing plus (z) the number of outstanding shares of Series Preferred (on an as-converted to Common Stock basis) held by Other Holders that purchase Notes at the Closing as of the date of the Closing. All shares of Preferred Stock held by the Non-participating Holders and their Affiliates shall automatically and without further action on the part of such Non-participating Holders be converted, effective as of the opening of business on the first day following the date of the later to occur of the Closing or the Canadian Closing, into shares of Common Stock at the applicable Series Preferred Conversion Rate in effect at the time of such automatic conversion, and all rights of such holder as a holder of Series Preferred with respect to the shares so automatically converted shall terminate immediately upon such automatic conversion. Upon the occurrence of any of the events specified in Section 4(m)(ii) above, the applicable outstanding shares of Series Preferred shall be converted automatically and without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company or its transfer agent; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of Series 3
Preferred are either delivered to the Company or its transfer agent as provided below, or the holder notifies the Company or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement reasonably satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Series Preferred, the holders of Series Preferred shall surrender the certificates representing such shares at the office of the Company or any transfer agent for the Series Preferred. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Series Preferred surrendered were convertible on the date on which such automatic conversion occurred, and any declared and unpaid dividends shall be paid in accordance with the provisions of Section 4(d). FOUR: The foregoing amendments were submitted to the stockholders of the Company for their approval and were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 4
IN WITNESS WHEREOF, Ambit Biosciences Corporation has caused this Sixth Certificate of Amendment to be signed by its Chief Executive Officer this 29th day of September, 2010. AMBIT BIOSCIENCES CORPORATION Signature: /s/ Alan J. Lewis, Ph.D. Print Name: Alan J. Lewis, Ph.D. Title: Chief Executive Officer 5
Exhibit 3.8 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AMBIT BIOSCIENCES CORPORATION Ambit Biosciences Corporation, a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: FIRST: The name of this corporation is Ambit Biosciences Corporation, and the original name of this corporation is Aventa Biosciences Corporation. S ECOND: The date of filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware was May 17, 2000. THIRD: The Certificate of Incorporation of said corporation shall be amended and restated to read in full as follows: I. The name of this corporation is Ambit Biosciences Corporation. II. The address of the registered office of the corporation in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, and the name of the registered agent of the corporation in the State of Delaware at such address is The Corporation Service Company. III. The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the Delaware General Corporation Law (DGCL). IV. A. This corporation is authorized to issue two classes of stock to be designated, respectively, Common Stock and Preferred Stock. The total number of shares which the corporation is authorized to issue is 210,000,000 shares. 200,000,000 shares shall be Common Stock, each having a par value of $0.001. 10,000,000 shares shall be Preferred Stock, each having a par value of $0.001. B. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of the corporation (the Board of Directors) is hereby expressly authorized to provide for the issue of any or all of the unissued and undesignated shares of the Preferred Stock in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or limited, or no voting powers, and such designation, preferences, and relative, participating, optional, or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the resolution or resolutions 1.
adopted by the Board of Directors providing for the issuance of such shares and as may be permitted by the DGCL. The Board of Directors is also expressly authorized to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of the stock of the corporation entitled to vote thereon, without a separate vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the terms of any certificate of designation filed with respect to any series of Preferred Stock. C . Each outstanding share of Common Stock shall entitle the holder thereof to one vote on each matter properly submitted to the stockholders of the corporation for their vote; provided, however, that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Amended and Restated Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series of Preferred Stock are entitled, either separately or together as a class with the holders of one or more other series of Preferred Stock, to vote thereon by law or pursuant to this Amended and Restated Certificate of Incorporation (including any certificate of designation filed with respect to any series of Preferred Stock). V. For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation and regulation of the powers of the corporation, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that: A. The management of the business and the conduct of the affairs of the corporation shall be vested in its Board of Directors. The number of directors that shall constitute the Board of Directors shall be fixed exclusively by resolutions adopted by at least a majority of the authorized number of directors constituting the Board of Directors. B. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. The Board of Directors is authorized to assign members of the Board of Directors already in office to such classes at the time the classification becomes effective. At the first annual meeting of stockholders following the initial classification of the Board of Directors, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following such initial classification, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following such initial classification, the term of office of 2.
the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting. Notwithstanding the foregoing provisions of this section, each director shall serve until his or her successor is duly elected and qualified or until his or her death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. C . Subject to the rights of any series of Preferred Stock that may be designated from time to time to elect additional directors under specified circumstances, neither the Board of Directors nor any individual director may be removed without cause. Subject to any limitation imposed by law, any individual director or directors may be removed with cause by the affirmative vote of the holders of at least 66-2/3% of the voting power of all then outstanding shares of capital stock of the corporation entitled to vote generally at an election of directors, voting together as a single class. D. Subject to the rights of the holders of any series of Preferred Stock that may be designated from time to time, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders, except as otherwise provided by law, be filled only by the affirmative vote of at least a majority of the directors then in office, even though less than a quorum of the Board of Directors, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such directors successor shall have been elected and qualified. E. Subject to the rights of the holders of any series of Preferred Stock that may be designated from time to time, the Board of Directors is expressly empowered to adopt, amend or repeal the Amended and Restated Bylaws of the corporation. Any adoption, amendment or repeal of the Amended and Restated Bylaws of the corporation by the Board of Directors shall require the approval of at least a majority of the authorized number of directors. The stockholders shall also have power to adopt, amend or repeal the Amended and Restated Bylaws of the corporation, subject to any restrictions that may be set forth in this Amended and Restated Certificate of Incorporation (including any certificate of designation that may be filed from time to time); provided, however, that, in addition to any vote of the holders of any class or series of stock of the corporation required by law or by this Amended and Restated Certificate of Incorporation, such action by stockholders shall require the affirmative vote of the holders of at least 66-2/3% of the voting power of all of the then outstanding shares of the capital stock of the corporation entitled to vote generally at an election of directors, voting together as a single class. F. The directors of the corporation need not be elected by written ballot unless the Amended and Restated Bylaws of the corporation so provide. 3.
G. No action shall be taken by the stockholders of the corporation except at an annual or special meeting of stockholders called in accordance with the Amended and Restated Bylaws of the corporation. No action shall be taken by the stockholders of the corporation by written consent or electronic transmission. H. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the corporation shall be given in the manner provided in the Amended and Restated Bylaws of the corporation. VI. A. The liability of a director of the corporation for monetary damages shall be eliminated to the fullest extent under applicable law. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated to the fullest extent permitted by the DGCL, as so amended. B. Any repeal or modification of this Article VI shall be prospective and shall not affect the rights under this Article VI in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification. VII. A. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, except as provided in Section B of this Article VII, and all rights conferred upon the stockholders herein are granted subject to this reservation. B. Notwithstanding any other provisions of this Amended and Restated Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the corporation required by law or by this Amended and Restated Certificate of Incorporation or any certificate of designation filed with respect to a series of Preferred Stock, the affirmative vote of the holders of at least 66-2/3% of the voting power of all of the then outstanding shares of capital stock of the corporation entitled to vote generally at an election of directors, voting together as a single class, shall be required to alter, amend or repeal Articles V, VI or VII of this Amended and Restated Certificate of Incorporation. **** FOURTH: This Amended and Restated Certificate of Incorporation has been duly adopted and approved by the Board of Directors. FIFTH: This Amended and Restated Certificate of Incorporation has been duly adopted and approved by written consent of the stockholders in accordance with sections 228, 245 and 242 of the DGCL and written notice of such action has been given as provided in section 228. 4.
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been subscribed this undersigned who affirms that the statements made herein are true and correct. By:
day of
, 2010 by the
Alan Lewis Chief Executive Officer [SIGNATURE PAGE TO A MENDED AND R ESTATED CERTIFICATE OF INCORPORATION]
Exhibit 3.9 BYLAWS OF AMBIT BIOSCIENCES CORPORATION (A DELAWARE CORPORATION)
BYLAWS OF AMBIT BIOSCIENCES CORPORATION (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 as may be fixed by the Board of Directors, and may also have offices at such other places, 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 principal 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. Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant to the corporations notice of meeting of stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by any stockholder of the corporation who was a stockholder of record at the time of giving of notice provided for in the following paragraph, 1.
who is entitled to vote at the meeting and who complied with the notice procedures set forth in Section 5. (b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of Section 5(a) of these Bylaws, (i) the stockholder must have given timely notice thereof in writing to the Secretary of the corporation, (ii) such other business must be a proper matter for stockholder action under the General Corporation Law of Delaware, (iii) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the corporation with a Solicitation Notice (as defined in this Section 5(b)), such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the corporations voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the corporations voting shares reasonably believed by such stockholder or beneficial owner to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice, and (iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this section, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section 5. To be timely, a stockholders notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90 th) day nor earlier than the close of business on the one hundred twentieth (120 th) day prior to the first anniversary of the preceding years annual meeting; provided, however, that in the event that the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding years annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth (120 th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10 th) day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholders notice as described above. Such stockholders notice shall set forth: (A) as to each person whom the stockholder proposed to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the 1934 Act) and Rule 14a-11 thereunder (including such persons written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporations books, and of such beneficial owner, (ii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner, and (iii) 2.
whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of the proposal, at least the percentage of the corporations voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the corporations voting shares to elect such nominee or nominees (an affirmative statement of such intent, a Solicitation Notice). (c) Notwithstanding anything in the second sentence of Section 5(b) of these Bylaws to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least one hundred (100) days prior to the first anniversary of the preceding years annual meeting, a stockholders notice required by this Section 5 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth (10 th) day following the day on which such public announcement is first made by the corporation. (d) Only such persons who are nominated in accordance with the procedures set forth in this Section 5 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 5. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded. (e) Notwithstanding the foregoing provisions of this Section 5, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation proxy statement pursuant to Rule 14a-8 under the 1934 Act. (f) For purposes of this Section 5, public announcement shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act. Section 6. Special Meetings. (a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, 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 of Directors for adoption), and shall be held at such place, on such date, and at such time as the Board of Directors shall fix. 3.
At any time or times that the corporation is subject to Section 2115(b) of the California General Corporation Law (CGCL), stockholders holding five percent (5%) or more of the outstanding shares shall have the right to call a special meeting of stockholders as set forth in Section 18(c) herein. (b) If a special meeting is properly called by any person or persons other than the Board of Directors, the request shall be in writing, specifying 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 of Directors, the Chief Executive Officer, or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. If the notice is not given within sixty (60) days after the receipt of the request, the person or persons properly requesting the meeting may set the time and place of the meeting and give the notice. Nothing contained in this paragraph (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. 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 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. 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 no 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 or by applicable stock exchange or Nasdaq rules, or by the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of a majority of shares present in person or represented by proxy duly authorized at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Except as otherwise provided by statute, the Certificate of Incorporation or these 4.
Bylaws, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy duly authorized at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person or represented by proxy duly authorized, shall constitute a quorum entitled to take action with respect to that vote on that matter. Except where otherwise provided by statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of the outstanding shares of such class or classes or series present in person or represented by proxy duly authorized at the meeting shall be the act of such class or classes or series. 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 casting votes. 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 stockholders. 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 proxy granted in accordance with Delaware law. 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. Section 11. Joint Owners of Stock. 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 Delaware General Corporation Law, 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 subsection (c) shall be a majority or even-split in interest. 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 5.
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) Unless otherwise provided in the Certificate of Incorporation, 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 stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be 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 corporations 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 stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of stockholders to take action were delivered to the corporation as provided in Section 228(c) of the Delaware General Corporation Law. If the action which is consented to is such as would have required the filing of a certificate under any section of the Delaware General Corporation Law 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 consent has been given in accordance with Section 228 of the Delaware General Corporation Law. 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, 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. 6.
(b) The Board of Directors of the corporation shall be entitled to make such rules or 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 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 authorized number of directors of the corporation shall be fixed by the Board of Directors from time to time. 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. 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. Term of Directors. (a) Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, directors shall be elected at each annual meeting of stockholders for a term of one year. Each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (b) No person entitled to vote at an election for directors may cumulate votes to which such person is entitled, unless, at the time of such election, the corporation is subject to Section 2115(b) of the CGCL. During such time or times that the corporation is subject to Section 2115(b) of the CGCL, every stockholder entitled to vote at an election for directors may cumulate such stockholders votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholders shares are otherwise entitled, or distribute the stockholders votes on the same principle among as many candidates as such stockholder thinks fit. 7.
Section 18. Vacancies. (a) Unless otherwise provided in the Certificate of Incorporation, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such directors successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director. (b) If at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Delaware Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in offices as aforesaid, which election shall be governed by Section 211 of the Delaware General Corporation Law. (c) At any time or times that the corporation is subject to 2115(b) of the CGCL, if, after the filling of any vacancy, the directors then in office who have been elected by stockholders shall constitute less than a majority of the directors then in office, then (i) any holder or holders of an aggregate of five percent (5%) or more of the total number of shares at the time outstanding having the right to vote for those directors may call a special meeting of stockholders; or (ii) the Superior Court of the proper county shall, upon application of such stockholder or stockholders, summarily order a special meeting of the stockholders, to be held to elect the entire board, all in accordance with Section 305(c) of the CGCL, the term of office of any director shall terminate upon that election of a successor. Section 19. 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 unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified. 8.
Section 20. Removal. (a) Subject to any limitations imposed by applicable law, the Board of Directors or any director may be removed from office at any time (i) with cause by the affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of voting stock of the corporation entitled to vote at an election of directors or (ii) without cause by the affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of voting stock of the corporation, entitled to vote at an election of directors. (b) During such time or times that the corporation is subject to Section 2115(b) of the CGCL, the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such directors removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such directors most recent election were then being elected. Section 21. Meetings (a) Annual Meetings. The annual meeting of the Board of Directors shall be held immediately before or 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. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors. No formal notice shall be required for a regular meeting of 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 within or without the State of Delaware whenever called by the Chairman of the Board, the President or any two 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. Notice of the time and place of all meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, 9.
telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting, or sent in writing to each director by first class mail, postage prepaid, at least three (3) days 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. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting. Section 22. Quorum and Voting. (a) Unless the Certificate of Incorporation requires a greater number and except with respect to indemnification questions arising under Section 43 hereof, for which a quorum shall be one-third of the exact number of directors fixed from time to time, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; 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 the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws. Section 23. 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 24. 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 25. Committees. 10.
(a) Executive Committee. The Board of Directors may 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 provided in the resolution of the Board of Directors shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the Delaware General Corporation Law to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any bylaw of the corporation. (b) Other Committees. The Board of Directors may, 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 any such committee have the powers denied to the Executive Committee in these Bylaws. (c) Term. Each member of a committee of the Board of Directors shall serve a term on the committee coexistent with such members term on the Board of Directors. The Board of Directors, subject to any requirements of any outstanding series of Preferred Stock, the provisions of subsections (a) or (b) of this Bylaw 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 25 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 11.
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. Section 26. 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, (if a director) or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, any Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. ARTICLE V OFFICERS Section 27. Officers Designated. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the Controller, all of whom shall be elected at the annual organizational meeting of the Board of Directors. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers 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 28. 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 28. (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. Unless some other officer has been elected Chief Executive Officer of the corporation, the President shall be the chief executive officer of the 12.
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 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 Presidents. The Vice Presidents 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 Presidents 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 of 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. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in 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, 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 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 the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller 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 29. 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 30. Resignations. Any officer 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 13.
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. Section 31. Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent 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 32. 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. 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 33. 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 Chief Executive Officer, the President, or any Vice President. ARTICLE VII SHARES OF STOCK Section 34. 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 of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or 14.
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. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical. Section 35. 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 agree to indemnify the corporation 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 36. 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 Delaware General Corporation Law. Section 37. 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, subject to applicable law, 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 15.
record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. 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 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 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. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, 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 applicable 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 the corporations 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 other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, 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 38. 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. 16.
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION Section 39. Execution of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), 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, or where permissible facsimile 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 40. Declaration of Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation and applicable law, 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 and applicable law. Section 41. 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. ARTICLE X FISCAL YEAR 17.
Section 42. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. ARTICLE XI INDEMNIFICATION Section 43. Indemnification of Directors and Executive Officers, Other Officers, Employees and Other Agents. (a) Directors and Executive Officers. The corporation shall indemnify its directors and executive officers (for the purposes of this Article XI, executive officers shall have the meaning defined in Rule 3b-7 promulgated under the 1934 Act) to the fullest extent not prohibited by the Delaware General Corporation Law; provided, however, that the corporation may modify 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 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 Delaware General Corporation Law or (iv) such indemnification is required to be made under subsection (d). (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) Expenses. The corporation shall advance to 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, by reason of the fact that he is or was a director or executive officer, of the corporation, or is or was serving at the request of the corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the 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 to an executive officer of the corporation (except by reason of the fact that such executive officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) 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 18.
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 (d) 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 expense of prosecuting his claim. In connection with any claim for indemnification, 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 to indemnify the claimant for the amount claimed. In connection with any claim by an executive officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence 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, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of 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. (e) Non-Exclusivity of Rights. The rights conferred on 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. (f) Survival of Rights. The rights conferred on 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. (g) 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. 19.
(h) 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. (i) 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. (j) 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 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) References to a director, executive officer, officer, employee, or agent of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. References to other enterprises shall include employee benefit plans; references 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 20.
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 44. 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. (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 overnight delivery service, 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) 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 in the absence of fraud, be prima facie evidence of the facts therein contained. (d) Time Notices Deemed Given. All notices given by mail or by overnight delivery service, 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. (e) Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. (f) Failure to Receive Notice. The period or limitation of time within which any stockholder may exercise any option or right, 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. (g) 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 21.
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. (h) 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 shall 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 45. Amendments. Subject to paragraph (h) of Section 43 of the 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 46. Right of First Refusal. No stockholder shall sell, assign, pledge, or in any manner transfer any of the common stock of the corporation (the Common Stock), 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 desires to sell or otherwise transfer any of his shares of Common 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 of Common Stock to be transferred, the proposed consideration, and all other terms and conditions of the proposed transfer. 22.
(b) For thirty (30) days following receipt of such notice, the corporation shall have the option to purchase all (but not less than all) of the shares of Common Stock specified in the notice at the price and upon the terms set forth in such notice; provided, however, that, with the consent of the stockholder, the corporation shall have the option to purchase a lesser portion of the shares of Common Stock specified in said notice at the price and upon the terms set forth therein. In the event of a gift, property settlement or other transfer in which the proposed transferee is not paying the full price for the shares of Common Stock, and that is not otherwise exempted from the provisions of this Section 46, the price shall be deemed to be the fair market value of the Common Stock at such time as determined in good faith by the Board of Directors. In the event the corporation elects to purchase all of the shares of Common Stock or, with consent of the stockholder, a lesser portion of the shares of Common Stock, it shall give written notice to the transferring stockholder of its election and settlement for said shares of Common Stock shall be made as provided below in paragraph (d). (c) The corporation may assign its rights hereunder. (d) In the event the corporation and/or its assignee(s) elect to acquire any of the shares of Common Stock of the transferring stockholder as specified in said transferring stockholders notice, the Secretary of the corporation shall so notify the transferring stockholder and settlement thereof shall be made in cash within thirty (30) days after the Secretary of the corporation receives said transferring stockholders notice; provided that if the terms of payment set forth in said transferring stockholders notice were other than cash against delivery, the corporation and/or its assignee(s) shall pay for said shares of Common Stock on the same terms and conditions set forth in said transferring stockholders notice. (e) In the event the corporation and/or its assignees(s) do not elect to acquire all of the shares of Common Stock specified in the transferring stockholders notice, said transferring stockholder may, within the sixty-day period following the expiration of the option rights granted to the corporation and/or its assignees(s) herein, transfer the shares of Common Stock specified in said transferring stockholders notice which were not acquired by the corporation and/or its assignees(s) as specified in said transferring stockholders notice. All shares of Common Stock so sold by said transferring stockholder shall continue to be subject to the provisions of this bylaw in the same manner as before said transfer. (f) Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this bylaw: (1) A stockholders transfer of any or all shares of Common Stock held either during such stockholders lifetime or on death by will or intestacy to such stockholders immediate family or to any custodian or trustee for the account of such stockholder or such stockholders immediate family or to any limited partnership of which the stockholder, members of such stockholders immediate family or any trust for the account of such stockholder or such stockholders immediate family will be the general of limited partner(s) of such partnership. Immediate family as used herein shall mean spouse, lineal descendant, father, mother, brother, or sister of the stockholder making such transfer. (2) A stockholders bona fide pledge or mortgage of any shares of Common Stock with a commercial lending institution, provided that any subsequent transfer of 23.
said shares of Common Stock by said institution shall be conducted in the manner set forth in this bylaw. (3) A stockholders transfer of any or all of such stockholders shares of Common Stock to the corporation or to any other stockholder of the corporation. (4) A stockholders transfer of any or all of such stockholders shares of Common Stock to a person who, at the time of such transfer, is an officer or director of the corporation. (5) A corporate stockholders transfer of any or all of its shares of Common Stock pursuant to and in accordance with the terms of any merger, consolidation, reclassification of shares of Common Stock 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. (6) A corporate stockholders transfer of any or all of its shares of Common Stock 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 or former partners. In any such case, the transferee, assignee, or other recipient shall receive and hold such stock subject to the provisions of this bylaw, and there shall be no further transfer of such stock except in accord with this bylaw. (g) The provisions of this bylaw may be waived with respect to any transfer either by the corporation, upon duly authorized action of its Board of Directors (including the Series B Directors as defined in the Certificate of Incorporation), 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 transferred by the transferring stockholder). This bylaw may be amended or repealed either by a duly authorized action of the 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. (h) 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. (i) The foregoing right of first refusal shall terminate on either of the following dates, whichever shall first occur: (1) On May 22, 2010; 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. 24.
(j) The certificates representing shares of Common Stock 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 AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION. 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, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. ARTICLE XVI MISCELLANEOUS Section 47. Annual Report. (a) Subject to the provisions of paragraph (b) of this Bylaw, the Board of Directors shall cause an annual report to be sent to each stockholder of the corporation not later than one hundred twenty (120) days after the close of the corporations fiscal year. Such report shall include a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accounts or, if there is no such report, the certificate of an authorized officer of the corporation that such statements were prepared without audit from the books and records of the corporation. When there are more than 100 stockholders of record of the corporations shares, as determined by Section 605 of the CGCL, additional information as required by Section 1501(b) of the CGCL shall also be contained in such report, provided that if the corporation has a class of securities registered under Section 12 of the 1934 Act, that Act shall take precedence. Such report shall be sent to stockholders at least fifteen (15) days prior to the next annual meeting of stockholders after the end of the fiscal year to which it relates. (b) If and so long as there are fewer than 100 holders of record of the corporations shares, the requirement of sending of an annual report to the stockholders of the corporation is hereby expressly waived. 25.
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ARTICLE I Section 1. Section 2. ARTICLE II Section 3. ARTICLE III Section 4. Section 5. Section 6. Section 7. Section 8. Section 9. Section 10. Section 11. Section 12. Section 13. Section 14. ARTICLE IV Section 15. Section 16. Section 17. Section 18. Section 19. Section 20. Section 21. (a) (b) (c) (d) (e)
OFFICES Registered Office Other Offices CORPORATE SEAL Corporate Seal STOCKHOLDERS MEETINGS Place of Meetings Annual Meeting Special Meetings Notice of Meetings Quorum Adjournment and Notice of Adjourned Meetings Voting Rights Joint Owners of Stock List of Stockholders Action Without Meeting Organization DIRECTORS Number and Term of Office Powers Term of Directors Vacancies Resignation Removal Meetings Annual Meetings Regular Meetings Special Meetings Telephone Meetings Notice of Meetings i.
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(f) Section 22. Section 23. Section 24. Section 25. (a) (b) (c) (d) Section 26. ARTICLE V Section 27. Section 28. (a) (b) (c) (d) (e) (f) Section 29. Section 30. Section 31. ARTICLE VI Section 32. Section 33. ARTICLE VII Section 34. Section 35. Section 36.
Waiver of Notice Quorum and Voting Action Without Meeting Fees and Compensation Committees Executive Committee Other Committees Term Meetings Organization OFFICERS Officers Designated Tenure and Duties of Officers General Duties of Chairman of the Board of Directors Duties of President Duties of Vice Presidents Duties of Secretary Duties of Chief Financial Officer Delegation of Authority Resignations Removal EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION Execution of Corporate Instruments Voting of Securities Owned by the Corporation SHARES OF STOCK Form and Execution of Certificates Lost Certificates Transfers ii.
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Section 37. Section 38. ARTICLE VIII Section 39. ARTICLE IX Section 40. Section 41. ARTICLE X Section 42. ARTICLE XI Section 43. (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) ARTICLE XII Section 44. (a) (b) (c) (d) (e) (f) (g)
Fixing Record Dates Registered Stockholders OTHER SECURITIES OF THE CORPORATION Execution of Other Securities DIVIDENDS Declaration of Dividends Dividend Reserve FISCAL YEAR Fiscal Year INDEMNIFICATION Indemnification of Directors, Officers, Employees and Other Agents Directors and Officers Employees and Other Agents Expenses Enforcement Non-Exclusivity of Rights Survival of Rights Insurance Amendments Saving Clause Certain Definitions NOTICES Notices Notice to Stockholders Notice to Directors Affidavit of Mailing Time Notices Deemed Given Methods of Notice Failure to Receive Notice Notice to Person with Whom Communication Is Unlawful iii.
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(h) ARTICLE XIII Section 45. ARTICLE XIV Section 46. ARTICLE XV Section 47. ARTICLE XVI Section 48.
Notice to Person with Undeliverable Address AMENDMENTS Amendments RIGHT OF FIRST REFUSAL Right of First Refusal LOANS TO OFFICERS Loans to Officers MISCELLANEOUS Annual Report iv.
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Exhibit 3.10 AMENDMENT TO THE BYLAWS OF AMBIT BIOSCIENCES CORPORATION Approved by the Board of Directors on June 6, 2001 Article XIV, Section 46 of the Bylaws of Ambit Biosciences Corporation is hereby amended and restated, in its entirety, by the following: ARTICLE XIV RIGHT OF FIRST REFUSAL Section 46. Right of First Refusal. No stockholder shall sell, assign, pledge, or in any manner transfer any of the common stock of the corporation (the Common Stock), 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 desires to sell or otherwise transfer any of his shares of Common 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 of Common Stock to be transferred, the proposed consideration, and all other terms and conditions of the proposed transfer. (b) For thirty (30) days following receipt of such notice, the corporation shall have the option to purchase all (but not less than all) of the shares of Common Stock specified in the notice at the price and upon the terms set forth in such notice; provided, however, that, with the consent of the stockholder, the corporation shall have the option to purchase a lesser portion of the shares of Common Stock specified in said notice at the price and upon the terms set forth therein. In the event of a gift, property settlement or other transfer in which the proposed transferee is not paying the full price for the shares of Common Stock, and that is not otherwise exempted from the provisions of this Section 46, the price shall be deemed to be the fair market value of the Common Stock at such time as determined in good faith by the Board of Directors. In the event the corporation elects to purchase all of the shares of Common Stock or, with consent of the stockholder, a lesser portion of the shares of Common Stock, it shall give written notice to the transferring stockholder of its election and settlement for said shares of Common Stock shall be made as provided below in paragraph (d). (c) The corporation may assign its rights hereunder. (d) In the event the corporation and/or its assignee(s) elect to acquire any of the shares of Common Stock of the transferring stockholder as specified in said transferring stockholders notice, the Secretary of the corporation shall so notify the transferring stockholder and settlement thereof shall be made in cash within thirty (30) days after the Secretary of the corporation receives said transferring stockholders notice; provided that if the terms of payment set forth in said transferring stockholders notice were other than cash against delivery, the corporation and/or its assignee(s) shall pay for said shares of Common Stock on the same terms and conditions set forth in said transferring stockholders notice.
(e) In the event the corporation and/or its assignees(s) do not elect to acquire all of the shares of Common Stock specified in the transferring stockholders notice, said transferring stockholder may, within the sixty-day period following the expiration of the option rights granted to the corporation and/or its assignees(s) herein, transfer the shares of Common Stock specified in said transferring stockholders notice which were not acquired by the corporation and/or its assignees(s) as specified in said transferring stockholders notice. All shares of Common Stock so sold by said transferring stockholder shall continue to be subject to the provisions of this bylaw in the same manner as before said transfer. (f) Anything to the contrary contained herein notwithstanding, the following transactions shall be exempt from the provisions of this bylaw: (1) A stockholders transfer of any or all shares of Common Stock held either during such stockholders lifetime or on death by will or intestacy to such stockholders immediate family or to any custodian or trustee for the account of such stockholder or such stockholders immediate family or to any limited partnership of which the stockholder, members of such stockholders immediate family or any trust for the account of such stockholder or such stockholders immediate family will be the general of limited partner(s) of such partnership. Immediate family as used herein shall mean spouse, lineal descendant, father, mother, brother, or sister of the stockholder making such transfer. (2) A stockholders bona fide pledge or mortgage of any shares of Common Stock with a commercial lending institution, provided that any subsequent transfer of said shares of Common Stock by said institution shall be conducted in the manner set forth in this bylaw. (3) A stockholders transfer of any or all of such stockholders shares of Common Stock to the corporation or to any other stockholder of the corporation. (4) A stockholders transfer of any or all of such stockholders shares of Common Stock to a person who, at the time of such transfer, is an officer or director of the corporation. (5) A corporate stockholders transfer of any or all of its shares of Common Stock pursuant to and in accordance with the terms of any merger, consolidation, reclassification of shares of Common Stock 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. (6) A corporate stockholders transfer of any or all of its shares of Common Stock 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 or former partners. In any such case, the transferee, assignee, or other recipient shall receive and hold such stock subject to the provisions of this bylaw, and there shall be no further transfer of such stock except in accord with this bylaw.
(g) The provisions of this bylaw may be waived with respect to any transfer either by the corporation, upon duly authorized action of its Board of Directors (including the Series B Directors as defined in the Certificate of Incorporation), 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 transferred by the transferring stockholder). This bylaw may be amended or repealed either by a duly authorized action of the 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. (h) 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. (i) The foregoing right of first refusal shall terminate on either of the following dates, whichever shall first occur: (1) On May 22, 2010; 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. (j) The certificates representing shares of Common Stock 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 AND/OR ITS ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION.
Exhibit 3.11 AMENDED AND RESTATED BYLAWS OF AMBIT BIOSCIENCES CORPORATION (A DELAWARE CORPORATION)
AMENDED AND RESTATED BYLAWS OF AMBIT BIOSCIENCES CORPORATION (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 as may be fixed by the Board of Directors, and may also have offices at such other places, 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 Board of Directors may adopt a 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 may be held at such place, either within or without the State of Delaware, as may be determined from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the Delaware General Corporation Law (the DGCL). Section 5. Annual Meetings. (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. Nominations of persons for election to the Board of Directors of the corporation and the proposal 1.
of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant to the corporations notice of meeting of stockholders (with respect to business other than nominations); (ii) brought specifically by or at the direction of the Board of Directors; or (iii) by any stockholder of the corporation who was a stockholder of record at the time of giving the stockholders notice provided for in Section 5(b) below, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 5. For the avoidance of doubt, clause (iii) above shall be the exclusive means for a stockholder to make nominations and submit other business (other than matters properly included in the corporations notice of meeting of stockholders and proxy statement under Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the 1934 Act )) before an annual meeting of stockholders. (b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 5(a) of these Amended and Restated Bylaws, (i) the stockholder must have given timely notice thereof in writing to the Secretary of the corporation (the Secretary), (ii) such other business must be a proper matter for stockholder action under Delaware law and (iii) the stockholder of record and the beneficial owner, if any, on whose behalf any such proposal or nomination is made, must have acted in accordance with the representations set forth in the Solicitation Statement required by these Amended and Restated Bylaws. To be timely, a stockholders notice shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the 90 th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding years annual meeting; provided, however, that in the event that the date of the annual meeting is advanced more than 30 days prior to or delayed by more than 30 days after the anniversary of the preceding years annual meeting, notice by the stockholder to be timely must be received by the Secretary not later than the close of business on the later of the 90 th day prior to such annual meeting or the 10 th day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholders notice as described above. Such stockholders notice shall set forth: (A) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act and Rule 14a-4(d) thereunder (including such persons written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder and of such beneficial owner, if any, as they each appear on the corporations books, (ii) the class, series and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner, (iii) any other information relating to the stockholder and the beneficial owner, if any, that would be required to 2.
be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or the election of directors in a contested election pursuant to Regulation 14A under the 1934 Act and (iv) a statement whether or not either such stockholder or beneficial owner, if any, will deliver a proxy statement and form of proxy to holders of, in the case of the proposal, at least the percentage of the corporations voting power of all of the shares of capital stock required under applicable law to carry the proposal or, in the case of a nomination or nominations, at least the percentage of voting power of all of the shares of capital stock of the corporation reasonably believed by the stockholder or beneficial owner, as the case may be, to be sufficient to elect the nominee or nominees proposed to be nominated by the stockholder (such statement, a Solicitation Statement ). (c) Notwithstanding anything in the third sentence of Section 5(b) to the contrary, in the event that the number of directors in an Expiring Class is increased and there is no public announcement of the appointment of a director to such class, or, if no appointment was made, of the vacancy in such class, made by the corporation at least 10 days before the last day a stockholder may deliver a notice of nomination in accordance with the third sentence of Section 5(b), a stockholders notice required by this Section 5 and which complies with the requirements in Section 5(b), other than the timing requirements in the third sentence of Section 5(b), shall also be considered timely, but only with respect to nominees for any new positions in such Expiring Class created by such increase, if it shall be received by the Secretary at the principal executive offices of the corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the corporation. For purposes of this section, an Expiring Class shall mean a class of directors whose term shall expire at the next annual meeting of stockholders. (d) A person shall not be eligible for election or re-election as a director unless the person is nominated either in accordance with clause (ii) of Section 5(a), or in accordance with clause (iii) of Section 5(a). Except as otherwise required by law, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Amended and Restated Bylaws and, if any proposed nomination or business is not in compliance with these Amended and Restated Bylaws, or the stockholder or beneficial owner, if any, does not act in accordance with the representations in the Solicitation Statement, to declare that such proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded, notwithstanding that proxies in respect of such nominations or such business may have been solicited or received. (e) Notwithstanding the foregoing provisions of this Section 5, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders meeting, a stockholder must also comply with all applicable requirements of the 1934 Act and the rules and regulations thereunder. Nothing in these Amended and Restated Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporations proxy statement pursuant to Rule 14a-8 under the 1934 Act; provided, however, that any references in these Amended and Restated Bylaws to the 1934 Act or the rules and regulations thereunder are not intended to and shall not limit the 3.
requirements applicable to proposals and/or nominations to be considered pursuant to Section 5(a)(iii) of these Amended and Restated Bylaws. (f) For purposes of Sections 5 and 6, public announcement shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act . Section 6. Special Meetings. (a) Special meetings of the stockholders of the corporation may be called, for any purpose as is a proper matter for stockholder action under Delaware law, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, 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 of Directors for adoption). (b) The Board of Directors shall determine the time and place, if any, of such special meeting. Upon determination of the time and place, if any, of the meeting, the Secretary shall cause a notice of meeting to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Amended and Restated Bylaws. No business may be transacted at such special meeting otherwise than specified in the notice of meeting. (c) Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the corporation who is a stockholder of record at the time of giving notice provided for in this paragraph, who shall be entitled to vote at the meeting and who delivers written notice to the Secretary of the corporation setting forth the information required by Section 5(b). In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder of record may nominate a person or persons (as the case may be), for election to such position(s) as specified in the corporations notice of meeting, if written notice setting forth the information required by Section 5(b) of these Amended and Restated Bylaws shall be received by the Secretary at the principal executive offices of the corporation not later than the close of business on the later of the 90 th day prior to such meeting or the 10 th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall an adjournment or a postponement of a special meeting for which notice has been given, or the public announcement thereof has been made, commence a new time period for the giving of a stockholders notice as described above. (d) Notwithstanding the foregoing provisions of this Section 6, a stockholder must also comply with all applicable requirements of the 1934 Act and the rules and regulations thereunder with respect to matters set forth in this Section 6. Nothing in these Amended and Restated Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporations proxy statement pursuant to Rule 14a-8 under the 1934 Act; provided, however, that any references in these Amended and Restated Bylaws to the 1934 Act 4.
or the rules and regulations thereunder are not intended to and shall not limit the requirements applicable to nominations for the election to the Board of Directors to be considered pursuant to Section 6(c) of these Amended and Restated Bylaws. Section 7. Notice Of Meetings. Except as otherwise provided by law, notice, given in writing or by electronic transmission, of each meeting of stockholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, if any, date and hour, in the case of special meetings, the purpose or purposes of the meeting, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at any such meeting. If mailed, notice is deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholders address as it appears on the records of the corporation. If sent via electronic transmission, notice is deemed given as of the sending time recorded at the time of transmission. Notice of the time, place, if any, and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, or by electronic transmission by such person, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person, by remote communication, if applicable, 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 Amended and Restated Certificate of Incorporation, or by these Amended and Restated Bylaws, the presence, in person, by remote communication, if applicable, 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. 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 no 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 statute or by applicable stock exchange rules, or by the Amended and Restated Certificate of Incorporation or these Amended and Restated Bylaws, in all matters other than the election of directors, the affirmative vote of a majority of shares present in person, by remote communication, if applicable, or represented by proxy at the meeting and entitled to vote generally on the subject matter shall be the act of the stockholders. Except as otherwise provided by statute, the Amended and Restated Certificate of Incorporation or these Amended and Restated Bylaws, directors shall be elected by a plurality of the votes of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting and entitled to vote generally on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Amended and Restated Certificate of Incorporation or these Amended and Restated Bylaws, a majority of the outstanding shares of such class or classes or series, present in person, by remote communication, if applicable, or represented by proxy duly authorized, shall constitute a quorum 5.
entitled to take action with respect to that vote on that matter. Except where otherwise provided by statute or by the Amended and Restated Certificate of Incorporation or these Amended and Restated Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of outstanding shares of such class or classes or series present in person, by remote communication, if applicable, or represented by proxy at the meeting shall be the act of such class or classes or series. 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 present in person, by remote communication, if applicable, or represented by proxy at the meeting. When a meeting is adjourned to another time or place, if any, notice need not be given of the adjourned meeting if the time and place, if any, 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 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 Amended and Restated Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote shall have the right to do so either in person, by remote communication, if applicable, or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three years from its date of creation unless the proxy provides for a longer period. Section 11. Joint Owners Of Stock. If shares or other securities having voting power stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two 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 votes, his act binds all; (b) if more than one votes, and the vote is not evenly split on a particular matter, the act of the majority so voting binds all; (c) if more than one 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 DGCL, 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 subsection (b) or (c) shall be a majority or even-split in interest. Section 12. List Of Stockholders. The Secretary shall prepare and make, at least 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 6.
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, (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the principal place of business of the corporation. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. The list shall be open to examination of any stockholder during the time of the meeting as provided by law. Section 13. Action Without Meeting. No action shall be taken by the stockholders except at an annual or special meeting of stockholders called in accordance with these Amended and Restated Bylaws, and no action shall be taken by the stockholders by written consent or by electronic transmission. 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, 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 or her 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 or 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 balloting on matters which are to be voted on by ballot. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. 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 authorized number of directors of the corporation shall be fixed in accordance with the Amended and Restated Certificate of Incorporation. Directors need not be stockholders unless so required by the Amended and 7.
Restated Certificate of Incorporation. If for any reason, 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 Amended and Restated Bylaws. 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 Amended and Restated Certificate of Incorporation. Section 17. Classes of Directors. Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. The Board of Directors is authorized to assign members of the Board of Directors already in office to such classes at the time the classification becomes effective. At the first annual meeting of stockholders following the initial classification of the Board of Directors, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following such initial classification, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following such initial classification, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting. Notwithstanding the foregoing provisions of this section, each director shall serve until his successor is duly elected and qualified or until his earlier death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 18. Vacancies. Unless otherwise provided in the Amended and Restated Certificate of Incorporation, and subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director, and not by the stockholders, provided, however, that whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Amended and Restated Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such directors successor shall have been elected and qualified. 8.
A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director. Section 19. Resignation. Any director may resign at any time by delivering his or her notice in writing or by electronic transmission 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 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 20. Removal. (a) Subject to the rights of any series of Preferred Stock to elect additional directors under specified circumstances, neither the Board of Directors nor any individual director may be removed without cause. (b) Subject to any limitation imposed by law, any individual director or directors may be removed with cause by the affirmative vote of the holders of at least 66- 2/3 % of the voting power of all then outstanding shares of capital stock of the corporation entitled to vote generally at an election of directors, voting together as a single class. Section 21. Meetings. (a) Regular Meetings. Unless otherwise restricted by the Amended and Restated Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors, either orally or in writing, by telephone, including a voice-messaging system or other system designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means. No further notice shall be required for regular meetings of the Board of Directors. (b) Special Meetings. Unless otherwise restricted by the Amended and Restated Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the Chief Executive Officer or a majority of the directors then in office. (c) Meetings by Electronic Communications Equipment. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other 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. 9.
(d) Notice of Special Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least 24 hours before the date and time of the meeting. If notice is sent by U.S. mail, it shall be sent by first class mail, charges prepaid, at least three days before the date of the meeting. Notice of any meeting may be waived in writing, or by electronic transmission, 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. (e) 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 it had been transacted 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 who did not receive notice shall sign a written waiver of notice or shall waive notice by electronic transmission. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting. Section 22. Quorum And Voting. (a) Unless the Amended and Restated Certificate of Incorporation requires a greater number, and except with respect to questions related to indemnification arising under Section 43 for which a quorum shall be one-third of the exact number of directors fixed from time to time, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Amended and Restated Certificate of Incorporation; 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 the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Amended and Restated Certificate of Incorporation or these Amended and Restated Bylaws. Section 23. Action Without Meeting. Unless otherwise restricted by the Amended and Restated Certificate of Incorporation or these Amended and Restated 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 or by electronic transmission, and such writing or writings or transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. 10.
Section 24. 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 25. Committees. (a) Executive Committee. The Board of Directors may appoint an Executive Committee to consist of one or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any Bylaw of the corporation. (b) Other Committees. The Board of Directors may, 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 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 any such committee have the powers denied to the Executive Committee in these Amended and Restated Bylaws. (c) Term. The Board of Directors, subject to any requirements of any outstanding series of Preferred Stock and the provisions of subsections (a) or (b) of this Section 25, 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 25 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 11.
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 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 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 or by electronic transmission 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. Unless otherwise provided by the Board of Directors in the resolutions authorizing the creation of the committee, 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. Section 26. 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 Chief Executive Officer (if a director), or, if a Chief Executive Officer is absent, the President (if a director), or if the President is absent, the most senior Vice President (if a director), or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, any Assistant Secretary or other officer or director directed to do so by the President, shall act as secretary of the meeting. ARTICLE V OFFICERS Section 27. Officers Designated. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer and the Treasurer. The Board of Directors may also appoint one or more Assistant Secretaries and 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 28. 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. 12.
(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 the 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 or Chief Executive Officer, unless otherwise determined by the Board of Directors, then the Chairman of the Board of Directors shall also serve as the President of the corporation and shall have the powers and duties prescribed in paragraph (c) of this section. (c) Duties of Chief Executive Officer. The Chief Executive Officer 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. Unless some other officer has been appointed Chief Executive Officer of the corporation, 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. To the extent that a Chief Executive Officer has been appointed and no President has been appointed, all references in these Amended and Restated Bylaws to the President shall be deemed references to the Chief Executive Officer. The Chief Executive Officer shall perform other duties commonly incident to the 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 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 or the Chief Executive Officer has been appointed and is present. Unless another officer has been appointed Chief Executive Officer of the corporation, 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 shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time. (e) Duties of Vice Presidents. The Vice Presidents 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 Presidents 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 Chief Executive Officer, or, if the Chief Executive Officer has not been appointed or is absent, the President shall designate from time to time. (f) Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of 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 Amended and Restated 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 provided for in these Amended and Restated Bylaws and other duties commonly incident to the 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 13.
Secretary or other officer 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 the 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. (g) Duties of Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in 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, 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 shall perform other duties commonly incident to the 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. To the extent that a Chief Financial Officer has been appointed and no Treasurer has been appointed, all references in these Amended and Restated Bylaws to the Treasurer shall be deemed references to the Chief Financial Officer. The President may direct the Treasurer, if any, or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to the 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. (h) Duties of Treasurer. Unless another officer has been appointed Chief Financial Officer of the corporation, the Treasurer shall be the chief financial officer of the corporation and shall keep or cause to be kept the books of account of the corporation in 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, and, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Treasurer shall perform other duties commonly incident to the 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 29. 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 30. Resignations. Any officer may resign at any time by giving notice in writing or by electronic transmission 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. Section 31. Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, 14.
or by the unanimous written consent of the directors in office at the time, or by any committee or by the Chief Executive Officer or by other 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 32. 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 Amended and Restated Bylaws, and such execution or signature shall be binding upon the corporation. 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 33. 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 Chief Executive Officer, the President, or any Vice President. ARTICLE VII SHARES OF STOCK Section 34. Form And Execution Of Certificates. The shares of the corporation shall be represented by certificates, or shall be uncertificated. Certificates for the shares of stock of the corporation, if any, shall be in such form as is consistent with the Amended and Restated Certificate of Incorporation and applicable law. Every holder of stock represented by certificate 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, the Chief Executive Officer, or the President or any Vice President and by the Chief Financial Officer, Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed 15.
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 35. 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 the owners legal representative, to agree to indemnify the corporation 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 36. 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, in the case of stock represented by certificate, 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 DGCL. Section 37. 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 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, subject to applicable law, not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. 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 receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, 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 60 days prior to such action. 16.
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 38. 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. ARTICLE VIII OTHER SECURITIES OF THE CORPORATION Section 39. Execution Of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman of the Board of Directors, the Chief Executive Officer, 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, or where permissible facsimile 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 40. Declaration Of Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the Amended and Restated Certificate of Incorporation and applicable law, 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 Amended and Restated Certificate of Incorporation and applicable law. 17.
Section 41. 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. ARTICLE X FISCAL YEAR Section 42. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. ARTICLE XI INDEMNIFICATION Section 43. Indemnification Of Directors, Officers, Employees And Other Agents. (a) Directors and Officers. The corporation shall indemnify its directors and officers to the fullest extent not prohibited by the DGCL or any other applicable law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and officers; and, provided, further, that the corporation shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person 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 DGCL or any other applicable law or (iv) such indemnification is required to be made under subsection (d). (b) Employees and Other Agents. The corporation shall have power to indemnify its employees and other agents as set forth in the DGCL or any other applicable law. The Board of Directors shall have the power to delegate the determination of whether indemnification shall be given to any such employee or other persons as the Board of Directors shall determine. (c) Expenses. The corporation shall advance to 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, by reason of the fact that he is or was a director or officer, of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding provided, however, that if the DGCL requires, an advancement of expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in 18.
which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the corporation of an undertaking (hereinafter an undertaking), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a final adjudication) that such indemnitee is not entitled to be indemnified for such expenses under this section or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this section, no advance shall be made by the corporation to an officer of the corporation (except by reason of the fact that such officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by a majority vote of directors who were not parties to the proceeding, even if not a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or such directors so direct, 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. (d) Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and 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 officer. Any right to indemnification or advances granted by this section to a director or 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 90 days of request therefor. To the extent permitted by law, the claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim. In connection with any claim for indemnification, 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 DGCL or any other applicable law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence 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, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of 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 the officer or director has met the applicable standard of conduct set forth in the DGCL or any other applicable 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 19.
claimant has not met the applicable standard of conduct. In any suit brought by a director or officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or officer is not entitled to be indemnified, or to such advancement of expenses, under this section or otherwise shall be on the corporation. (e) Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such persons 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 DGCL, or by any other applicable law. (f) Survival of Rights. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. (g) Insurance. To the fullest extent permitted by the DGCL or any other applicable 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 section. (h) Amendments. Any repeal or modification of this section 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. (i) 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 officer to the full extent not prohibited by any applicable portion of this section that shall not have been invalidated, or by any other applicable law. If this section shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the corporation shall indemnify each director and officer to the full extent under any other applicable law. (j) Certain Definitions. For the purposes of this Bylaw, the following definitions shall apply: (i) 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 completed action, suit or proceeding, whether civil, criminal, administrative or investigative. (ii) The term expenses shall be broadly construed and shall include, without limitation, court costs, attorneys fees, witness fees, fines, amounts paid in settlement or 20.
judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding. (iii) 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 section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (iv) References 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, respectively, a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. (v) References to other enterprises shall include employee benefit plans; references 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 such person 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 section. ARTICLE XII NOTICES Section 44. Notices. (a) Notice To Stockholders. Written notice to stockholders of stockholder meetings shall be given as provided in Section 7 herein. Without limiting the manner by which notice may otherwise be given effectively to stockholders under any agreement or contract with such stockholder, and except as otherwise required by law, written notice to stockholders for purposes other than stockholder meetings may be sent by U.S. mail or nationally recognized overnight courier, or by facsimile, telegraph or telex or by electronic mail or other electronic means. (b) Notice To Directors. Any notice required to be given to any director may be given by the method stated in subsection (a), as otherwise provided in these Amended and Restated Bylaws, or by overnight delivery service, facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such director 21.
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) 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, or other agent, 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 in the absence of fraud, be prima facie evidence of the facts therein contained. (d) Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all recipients of notice, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. (e) Notice To Person With Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of law or of the Amended and Restated Certificate of Incorporation or Amended and Restated 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 DGCL, 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. (f) Notice to Stockholders Sharing an Address. Except as otherwise prohibited under the DGCL, any notice given under the provisions of the DGCL, the Amended and Restated Certificate of Incorporation or the Amended and Restated Bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Such consent shall have been deemed to have been given if such stockholder fails to object in writing to the corporation within 60 days of having been given notice by the corporation of its intention to send the single notice. Any consent shall be revocable by the stockholder by written notice to the corporation. ARTICLE XIII AMENDMENTS Section 45. Subject to the limitations set forth in Section 43(h) of these Amended and Restated Bylaws or the provisions of the Amended and Restated Certificate of Incorporation, the Board of Directors is expressly empowered to adopt, amend or repeal the Amended and Restated Bylaws of the corporation. Any adoption, amendment or repeal of the Amended and Restated Bylaws of the corporation by the Board of Directors shall require the approval of a majority of the authorized number of Directors. The stockholders also shall have power to adopt, amend or repeal the Amended and Restated Bylaws of the corporation; provided, however, that, in addition 22.
to any vote of the holders of any class or series of stock of the corporation required by law or by the Amended and Restated Certificate of Incorporation, such action by stockholders shall require the affirmative vote of the holders of at least 66-2/3% of the voting power of all of the then-outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class. ARTICLE XIV LOANS TO OFFICERS OR EMPLOYEES Section 46. Loans To Officers Or Employees. Except as otherwise prohibited by applicable law, 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, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Amended and Restated Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 23.
TABLE OF CONTENTS
PAGE
ARTICLE I Section 1. Section 2. ARTICLE II Section 3. ARTICLE III Section 4. Section 5. Section 6. Section 7. Section 8. Section 9. Section 10. Section 11. Section 12. Section 13. Section 14. ARTICLE IV Section 15. Section 16. Section 17. Section 18. Section 19. Section 20. Section 21. Section 22. Section 23. Section 24. Section 25. Section 26.
OFFICES Registered Office Other Offices CORPORATE SEAL Corporate Seal STOCKHOLDERS MEETINGS Place Of Meetings Annual Meetings Special Meetings Notice Of Meetings Quorum Adjournment And Notice Of Adjourned Meetings Voting Rights Joint Owners Of Stock List Of Stockholders Action Without Meeting Organization DIRECTORS Number And Term Of Office Powers Classes of Directors Vacancies Resignation Removal Meetings Quorum And Voting Action Without Meeting Fees And Compensation Committees Organization i.
1 1 1 1 1 1 1 1 4 5 5 6 6 6 6 7 7 7 7 8 8 8 9 9 9 10 10 11 11 12

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ARTICLE V Section 27. Section 28. Section 29. Section 30. Section 31. ARTICLE VI Section 32. Section 33. ARTICLE VII Section 34. Section 35. Section 36. Section 37. Section 38. ARTICLE VIII Section 39. ARTICLE IX Section 40. Section 41. ARTICLE X Section 42. ARTICLE XI Section 43. ARTICLE XII Section 44. ARTICLE XIII Section 45. ARTICLE XIV
OFFICERS Officers Designated Tenure And Duties Of Officers Delegation Of Authority Resignations Removal EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION Execution Of Corporate Instruments Voting Of Securities Owned By The Corporation SHARES OF STOCK Form And Execution Of Certificates Lost Certificates Transfers Fixing Record Dates Registered Stockholders OTHER SECURITIES OF THE CORPORATION Execution Of Other Securities DIVIDENDS Declaration Of Dividends Dividend Reserve FISCAL YEAR Fiscal Year INDEMNIFICATION Indemnification of Directors, Officers, Employees and Other Agents NOTICES Notices AMENDMENTS
12 12 12 14 14 14 15 15 15 15 15 16 16 16 17 17 17 17 17 18 18 18 18 18 21 21 22 22
LOANS TO OFFICERS ii.
23

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Section 46.
Loans To Officers iii.
23
Exhibit 4.2 THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THIS WARRANT AND THE SECURITIES ISSUABLE HEREUNDER IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN NOTE AND WARRANT PURCHASE AGREEMENT BY AND BETWEEN THE PURCHASER AND THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY. AMBIT BIOSCIENCES CORPORATION WARRANT TO PURCHASE COMMON STOCK No. CSWVoid After , 2019 , 2009
THIS CERTIFIES THAT, for value received, , with its principal office at , or assigns (the Holder), is entitled to subscribe for and purchase at the Exercise Price (defined below) from AMBIT BIOSCIENCES CORPORATION, a Delaware corporation (the Company), that number of Exercise Shares (as defined below) as set forth herein, during the Exercise Period (as defined below). This Warrant is being issued pursuant to the terms of the Note and Warrant Purchase Agreement dated as of June 4, 2009 by and among the Company and the Purchasers listed on Exhibit A thereto (the Purchase Agreement ). Capitalized terms used and not otherwise defined herein shall have the meanings given them in the Purchase Agreement. 1. DEFINITIONS . As used herein, the following terms shall have the following respective meanings: (a) Exercise Period shall mean the period commencing on or after the earliest of (i) the conversion or repayment of the Holders Note(s) as provided for in Section 3 or Section 5 of the Note(s), (ii) the Third Closing Date or (iii) March 15, 2010, and ending on the ten-year anniversary of the date hereof; provided, however, that in the event the Company shall conduct the Second Closing or the Third Closing and the Holder of this Warrant shall be a Non-Participating Second Closing Purchaser or a Non-Participating Third Closing Purchaser in connection with such Closing, then concurrently with such Closing this Warrant shall terminate in its entirety and shall be of no further force and effect. 1.
(b) Exercise Price shall mean $0.91 per share, subject to adjustment pursuant to Section 5 below. (c) Exercise Shares shall mean that number of fully paid and non-assessable shares of Common Stock of the Company (the Common Stock) calculated by dividing the Warrant Amount by $2.89, subject to adjustment pursuant to Section 5 below. (d) Warrant Amount shall mean the dollar amount determined in accordance with the following formula, provided that in no event shall the Warrant Amount exceed an amount equal to 33% of the principal amount of all Notes purchased by the Holder pursuant to the Purchase Agreement (the Principal Amount ): Warrant Amount where: A B = = = [(B - 0.35) x 0.3667] x A the Principal Amount the quotient equal to (x) the aggregate principal amount of Notes purchased in the Advance Closing and the Initial Closing by the Holder and its Affiliates divided by (y) the dollar amount of such Holders Pro Rata Share of $8,930,628.27.
2. EXERCISE OF WARRANT. The rights represented by this Warrant may be exercised in whole or in part at any time during the Exercise Period, by delivery of the following to the Company at its address set forth above (or at such other address as it may designate by notice in writing to the Holder): (a) An executed Notice of Exercise in the form attached hereto; (b) payment of the Exercise Price either (i) in cash or by check, or (ii) by cancellation of indebtedness; and (c) this Warrant. Upon the exercise of the rights represented by this Warrant, a certificate or certificates for the Exercise Shares so purchased, registered in the name of the Holder or persons affiliated with the Holder, if the Holder so designates, shall be issued and delivered to the Holder within a reasonable time after the rights represented by this Warrant shall have been so exercised. The person in whose name any certificate or certificates for Exercise Shares are to be issued upon exercise of this Warrant shall be deemed to have become the holder of record of such shares on the date on which this Warrant was surrendered and payment of the Exercise Price was made, irrespective of the date of delivery of such certificate or certificates, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. 2.1 Net Exercise. Notwithstanding any provisions herein to the contrary, if the fair market value of one share of the Companys Common Stock is greater than the Exercise 2.
Price (at the date of calculation as set forth below), in lieu of exercising this Warrant by payment of 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 Notice of Exercise in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X = Y (A-B) A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common 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 Companys Common Stock (at the date of such calculation) B= Exercise Price (as adjusted to the date of such calculation)
For purposes of the above calculation, the fair market value of one share of Common Stock shall be determined by the Companys Board of Directors in good faith; provided, however, that in the event that this Warrant is exercised pursuant to this Section 2.1 in connection with the Companys initial public offering of its Common Stock, the fair market value per share shall be the per share offering price to the public of the Companys initial public offering. 3. COVENANTS OF THE COMPANY . 3.1 Covenants as to Exercise Shares. The Company covenants and agrees that all Exercise Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants and agrees that the Company will at all times during the Exercise Period, have authorized and reserved, free from preemptive rights, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. If at any time during the Exercise Period the number of authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. 3.2 No Impairment. Except and to the extent as waived or consented to by the Holder, the Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all 3.
such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment. 3.3 Notices of Record Date. In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, the Company shall mail to the Holder, at least ten (10) days prior to the date specified herein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution. 4. REPRESENTATIONS OF HOLDER. 4.1 Acquisition of Warrant for Personal Account. The Holder represents and warrants that it is acquiring the Warrant and the Exercise Shares solely for its account for investment and not with a view to or for sale or distribution of said Warrant or Exercise Shares or any part thereof. The Holder also represents that the entire legal and beneficial interests of the Warrant and Exercise Shares the Holder is acquiring is being acquired for, and will be held for, its account only. 4.2 Securities Are Not Registered. (a) The Holder understands that the Warrant and the Exercise Shares have not been registered under the Securities Act of 1933, as amended (the Act ) on the basis that no distribution or public offering of the stock of the Company is to be effected. The Holder realizes that the basis for the exemption may not be present if, notwithstanding its representations, the Holder has a present intention of acquiring the securities for a fixed or determinable period in the future, selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the securities. The Holder has no such present intention. (b) The Holder recognizes that the Warrant and the Exercise Shares must be held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is available. The Holder recognizes that the Company has no obligation to register the Warrant or the Exercise Shares of the Company, or to comply with any exemption from such registration. (c) The Holder is aware that neither the Warrant nor the Exercise Shares may be sold pursuant to Rule 144 adopted under the Act unless certain conditions are met, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale following the required holding period under Rule 144 and the number of shares being sold during any three month period not exceeding specified limitations. Holder is aware that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company presently has no plans to satisfy these conditions in the foreseeable future. 5. A DJUSTMENT OF EXERCISE PRICE. In the event of changes in the outstanding Common Stock of the Company by reason of stock dividends, split-ups, recapitalizations, reclassifications, combinations or exchanges of shares, separations, reorganizations, liquidations, 4.
or the like, the number and class of shares available under the Warrant in the aggregate and the Exercise Price shall be correspondingly adjusted to give the Holder of the Warrant, on exercise for the same aggregate Exercise Price, the total number, class, and kind of shares as the Holder would have owned had the Warrant been exercised prior to the event and had the Holder continued to hold such shares until after the event requiring adjustment. The form of this Warrant need not be changed because of any adjustment in the number of Exercise Shares subject to this Warrant. 6. FRACTIONAL SHARES. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Exercise Shares (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then current fair market value of an Exercise Share by such fraction. 7. NO STOCKHOLDER RIGHTS. This Warrant in and of itself shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. 8. MODIFICATION; WAIVER. Any provision of this Warrant may be amended or waived by the written consent of the Company and the Holder or by the Company and the Requisite Holders; provided that, the written consent of the Holder shall be required to amend or waive Sections 1(b), 1(c) and 1(d). Notwithstanding the foregoing, this Warrant may not be amended and the observance of any term may not be waived with respect to any Holder without the written consent of such Holder unless such amendment or waiver applies to all similarly situated Holders in the same manner. 9. TRANSFER OF WARRANT. Subject to applicable laws and the restrictions on transfer set forth in the Purchase Agreement this Warrant and all rights hereunder are transferable, by the Holder in person or by duly authorized attorney, upon delivery of this Warrant and the form of assignment attached hereto to any transferee designated by Holder. The transferee shall sign an investment letter in form and substance satisfactory to the Company and shall agree to assume the obligations of the Holder described in this Warrant. 10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone. 11. NOTICES, ETC. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given if delivered in accordance with the Purchase Agreement. 5.
12. A CCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein. 13. GOVERNING LAW. This Warrant and all rights, obligations and liabilities hereunder shall be governed by the laws of the State of California. [SIGNATURE PAGE FOLLOWS] 6.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of AMBIT BIOSCIENCES CORPORATION
, 2009.
M. SCOTT SALKA Chief Executive Officer Address: 4215 Sorrento Valley Blvd. San Diego, CA 92121 Acknowledged and Accepted: By: Name: Title: 7.
NOTICE OF EXERCISE TO: A MBIT BIOSCIENCES CORPORATION (1) The undersigned hereby elects to purchase shares of the Common Stock of Ambit Biosciences Corporation (the Company) pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. The undersigned hereby elects to purchase shares of the Common Stock of Ambit Biosciences Corporation (the Company) pursuant to the terms of the net exercise provisions set forth in Section 2.1 of the attached Warrant, and shall tender payment of all applicable transfer taxes, if any. (2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:
(Name)
(Address) (3) The undersigned represents that (i) the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares; (ii) the undersigned is aware of the Companys business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision regarding its investment in the Company; (iii) the undersigned is experienced in making investments of this type and has such knowledge and background in financial and business matters that the undersigned is capable of evaluating the merits and risks of this investment and protecting the undersigneds own interests; (iv) the undersigned understands that the shares of Common Stock issuable upon exercise of this Warrant have not been registered under the Securities Act of 1933, as amended (the Securities Act), by reason of a specific exemption from the registration provisions of the Securities Act, which exemption depends upon, among other things, the bona fide nature of the investment intent as expressed herein, and, because such securities have not been registered under the Securities Act, they must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available; (v) the undersigned is aware that the aforesaid shares of Common Stock may not be sold pursuant to Rule 144 adopted under the Securities Act unless certain conditions are met and until the undersigned has held the shares for the number of years prescribed by Rule 144, that among the conditions for use of the Rule is the availability of current information to the public about the Company and the Company has not made such information available and has no present plans to do so; and (vi) the undersigned agrees not to make any disposition of all or any part of the aforesaid shares of Common Stock unless and until there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with said registration
statement, or the undersigned has provided the Company with an opinion of counsel satisfactory to the Company, stating that such registration is not required.
(Date)
(Signature)
(Print name)
ASSIGNMENT FORM (To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.) FOR V ALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to Name: (Please Print) Address: (Please Print) Dated: Holders Signature: Holders Address: NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. , 20
Exhibit 4.3 THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. AMBIT BIOSCIENCES CORPORATION WARRANT TO PURCHASE COMMON STOCK No. CSW-25 Void After July 8, 2019 THIS CERTIFIES THAT, for value received, GrowthWorks Canadian Fund Ltd., with its principal office at 20 Queen Street West, Suite 3540, P.O. Box 35, Toronto, ON, M5H 3R3, or assigns (the Holder), is entitled to subscribe for and purchase at the Exercise Price (defined below) from AMBIT BIOSCIENCES CORPORATION, a Delaware corporation (the Company), that number of Exercise Shares (as defined below) as set forth herein, during the Exercise Period (as defined below). This Warrant is being issued pursuant to the terms of the Note and Warrant Purchase Agreement dated as of July 8, 2009 between Ambit Biosciences (Canada) Corporation ( Ambit Canada ), the Holder and the Company (the Purchase Agreement ). Reference is made to the Purchase Agreement for the terms and conditions upon which the Warrant is issued and held and may be exercised. To the extent of any inconsistency between the terms of the Purchase Agreement and the terms of this Warrant, the terms of the Purchase Agreement will prevail. Capitalized terms used and not otherwise defined herein shall have the meanings given them in the Purchase Agreement. 1. DEFINITIONS . As used herein, the following terms shall have the following respective meanings: (a) Exercise Period shall mean the period commencing on or after the earliest of (i) repayment of the Holders Note(s) as provided for in Section 1 of the Note(s), (ii) exercise of all of the Holders Additional Warrants, (iii) the date of the Third Closing or (iv) March 15, 2010, and ending on the ten-year anniversary of the date hereof; provided, however, that in the event Ambit Canada shall conduct the Second Closing or the Third Closing and the Holder of this Warrant shall be a Non-Participating Second Closing Purchaser or a Non-Participating Third Closing Purchaser in connection with such Closing, then concurrently with such Closing this Warrant shall terminate in its entirety and shall be of no further force and effect. 1. July 8, 2009
(b) Exercise Price shall mean $0.91 per share, subject to adjustment pursuant to Section 5 below. (c) Exercise Shares shall mean that number of fully paid and non-assessable shares of Common Stock of the Company (the Common Stock) calculated by dividing the Warrant Amount by $2.89, subject to adjustment pursuant to Section 5 below. (d) Warrant Amount shall mean the dollar amount determined in accordance with the following formula, provided that in no event shall the Warrant Amount exceed an amount equal to 33% of the principal amount of all Notes purchased by the Holder pursuant to the Purchase Agreement (the Principal Amount ): Warrant Amount = 0.238355 x A where: A = the Principal Amount 2. EXERCISE OF WARRANT. The rights represented by this Warrant may be exercised in whole or in part at any time during the Exercise Period, by delivery of the following to the Company at its address set forth above (or at such other address as it may designate by notice in writing to the Holder): (a) An executed Notice of Exercise in the form attached hereto; (b) payment of the Exercise Price either (i) in cash or by check, or (ii) by cancellation of indebtedness; and (c) this Warrant. Upon the exercise of the rights represented by this Warrant, a certificate or certificates for the Exercise Shares so purchased, registered in the name of the Holder or persons affiliated with the Holder, if the Holder so designates, shall be issued and delivered to the Holder within a reasonable time after the rights represented by this Warrant shall have been so exercised. The person in whose name any certificate or certificates for Exercise. Shares are to be issued upon exercise of this Warrant shall be deemed to have become the holder of record of such shares on the date on which this Warrant was surrendered and payment of the Exercise Price was made, irrespective of the date of delivery of such certificate or certificates, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. 2.1 Net Exercise. Notwithstanding any provisions herein to the contrary, if the fair market value of one share of the Companys Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant by payment of 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 Notice of Exercise in which event the 2.
Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X = Y (A-B) A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common 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 Companys Common Stock (at the date of such calculation) B = Exercise Price (as adjusted to the date of such calculation) For purposes of the above calculation, the fair market value of one share of Common Stock shall be determined by the Companys Board of Directors in good faith; provided, however, that in the event that this Warrant is exercised pursuant to this Section 2.1 in connection with the Companys initial public offering of its Common Stock, the fair market value per share shall be the per share offering price to the public of the Companys initial public offering. 3. COVENANTS OF THE COMPANY . 3.1 Covenants as to Exercise Shares. The Company covenants and agrees that all Exercise Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants and agrees that the Company will at all times during the Exercise Period, have authorized and reserved, free from preemptive rights, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. If at any time during the Exercise Period the number of authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. 3.2 No Impairment. Except and to the extent as waived or consented to by the Holder, the Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment. 3.
3.3 Notices of Record Date. In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, the Company shall mail to the Holder, at least ten (10) days prior to the date specified herein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution. 4. REPRESENTATIONS OF HOLDER. 4.1 Acquisition of Warrant for Personal Account. The Holder represents and warrants that it is acquiring the Warrant and the Exercise Shares solely for its account for investment and not with a view to or for sale or distribution of said Warrant or Exercise Shares or any part thereof. The Holder also represents that the entire legal and beneficial interests of the Warrant and Exercise Shares the Holder is acquiring is being acquired for, and will be held for, its account only. 4.2 Securities Are Not Registered. (a) The Holder understands that the Warrant and the Exercise Shares have not been registered under the Securities Act of 1933, as amended (the Act ) on the basis that no distribution or public offering of the stock of the Company is to be effected. The Holder realizes that the basis for the exemption may not be present if, notwithstanding its representations, the Holder has a present intention of acquiring the securities for a fixed or determinable period in the future, selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the securities. The Holder has no such present intention. (b) The Holder recognizes that the Warrant and the Exercise Shares must be held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is available. The Holder recognizes that the Company has no obligation to register the Warrant or the Exercise Shares of the Company, or to comply with any exemption from such registration. (c) The Holder is aware that neither the Warrant nor the Exercise Shares may be sold pursuant to Rule 144 adopted under the Act unless certain conditions are met, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale following the required holding period under Rule 144 and the number of shares being sold during any three month period not exceeding specified limitations. Holder is aware that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company presently has no plans to satisfy these conditions in the foreseeable future. 5. A DJUSTMENT OF EXERCISE PRICE. In the event of changes in the outstanding Common Stock of the Company by reason of stock dividends, split-ups, recapitalizations, reclassifications, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the number and class of shares available under the Warrant in the aggregate and the Exercise Price shall be correspondingly adjusted to give the Holder of the Warrant, on exercise 4.
for the same aggregate Exercise Price, the total number, class, and kind of shares as the Holder would have owned had the Warrant been exercised prior to the event and had the Holder continued to hold such shares until after the event requiring adjustment. The form of this Warrant need not be changed because of any adjustment in the number of Exercise Shares subject to this Warrant. 6. FRACTIONAL SHARES. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Exercise Shares (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then current fair market value of an Exercise Share by such fraction. 7. NO STOCKHOLDER RIGHTS. This Warrant in and of itself shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. 8. MODIFICATION; WAIVER. Any provision of this Warrant may be amended or waived by the written consent of the Company and the Holder or by the Company and the Requisite Holders; provided that, the written consent of the Holder shall be required to amend or waive Sections 1(b), 1(c) and 1(d). Notwithstanding the foregoing, this Warrant may not be amended and the observance of any term may not be waived with respect to the Holder without the written consent of the Holder unless such amendment or waiver applies to all similarly situated holders of Warrants in the same manner. 9. TRANSFER OF WARRANT. Subject to applicable laws and the restrictions on transfer set forth in the Purchase Agreement this Warrant and all rights hereunder are transferable, by the Holder in person or by duly authorized attorney, upon delivery of this Warrant and the form of assignment attached hereto to any transferee designated by Holder. The transferee shall sign an investment letter in form and substance satisfactory to the Company and shall agree to assume the obligations of the Holder described in this Warrant. 10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone. 11. NOTICES, ETC. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given if delivered in accordance with the Purchase Agreement. 12. A CCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein. 5.
13. GOVERNING LAW. This Warrant and all rights, obligations and liabilities hereunder shall be governed by the laws of the State of California. [Signature page follows.] 6.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of July
8 , 2009.
AMBIT BIOSCIENCES CORPORATION /s/ M. Scott Salka M. SCOTT SALKA Chief Executive Officer Address: 4215 Sorrento Valley Blvd. San Diego, CA 92121 Acknowledge and Accepted: G ROWTHWORKS CANADIAN FUND LTD. /s/ Joseph Regan J OSEPH REGAN 7.
NOTICE OF EXERCISE TO: A MBIT BIOSCIENCES CORPORATION (1) The undersigned hereby elects to purchase shares of the Common Stock of Ambit Biosciences Corporation (the. Company) pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. The undersigned hereby elects to purchase shares of the Common Stock of Ambit Biosciences Corporation (the Company) pursuant to the terms of the net exercise provisions set forth in Section 2.1 of the attached Warrant, and shall tender payment of all applicable transfer taxes, if any. (2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:
(Name)
(Date)
(Signature)
(Print name)
Exhibit 4.4 THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THIS WARRANT AND THE SECURITIES ISSUABLE HEREUNDER IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN NOTE AND WARRANT PURCHASE AGREEMENT BY AND BETWEEN THE PURCHASER AND THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY. AMBIT BIOSCIENCES CORPORATION WARRANT TO PURCHASE COMMON STOCK No. CSWVoid After September 29, 2020 THIS CERTIFIES THAT, for value received, , with its principal office at , or assigns (the Holder), is entitled to subscribe for and purchase at the Exercise Price (defined below) from AMBIT BIOSCIENCES CORPORATION, a Delaware corporation (the Company), that number of Exercise Shares (as defined below) as set forth herein, during the Exercise Period (as defined below). This Warrant is being issued pursuant to the terms of the Note and Warrant Purchase Agreement dated as of September 30, 2010 by and among the Company and the Purchasers listed on Exhibit A thereto (the Purchase Agreement ). Capitalized terms used and not otherwise defined herein shall have the meanings given them in the Purchase Agreement. 1. DEFINITIONS . As used herein, the following terms shall have the following respective meanings: (a) Exercise Period shall mean the period commencing on the date hereof and ending on the ten-year anniversary of the date hereof. (b) Exercise Price shall mean $1.54 per share, subject to adjustment pursuant to Section 5 below. (c) Exercise Shares shall mean that number of fully paid and non-assessable shares of Common Stock of the Company (the Common Stock) which equals the quotient of (A) the product of (i) 20% multiplied by (ii) the principal amount of the Holders Note, divided by (B) $5.06. 1. September 30, 2010
2. EXERCISE OF WARRANT. The rights represented by this Warrant may be exercised in whole or in part at any time during the Exercise Period, by delivery of the following to the Company at its address set forth above (or at such other address as it may designate by notice in writing to the Holder): (a) An executed Notice of Exercise in the form attached hereto; (b) payment of the Exercise Price either (i) in cash or by check, or (ii) by cancellation of indebtedness; and (c) this Warrant. Upon the exercise of the rights represented by this Warrant, a certificate or certificates for the Exercise Shares so purchased, registered in the name of the Holder or persons affiliated with the Holder, if the Holder so designates, shall be issued and delivered to the Holder within a reasonable time after the rights represented by this Warrant shall have been so exercised. The person in whose name any certificate or certificates for Exercise Shares are to be issued upon exercise of this Warrant shall be deemed to have become the holder of record of such shares on the date on which this Warrant was surrendered and payment of the Exercise Price was made, irrespective of the date of delivery of such certificate or certificates, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. 2.1 Net Exercise. Notwithstanding any provisions herein to the contrary, if the fair market value of one share of the Companys Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant by payment of 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 Notice of Exercise in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X = Y (A-B) A Where X = Y= A= B= the number of shares of Common Stock to be issued to the Holder the number of shares of Common 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) the fair market value of one share of the Companys Common Stock (at the date of such calculation) Exercise Price (as adjusted to the date of such calculation)
For purposes of the above calculation, the fair market value of one share of Common Stock shall be determined by the Companys Board of Directors in good faith; provided, however, that in the event that this Warrant is exercised pursuant to this Section 2.1 in connection with the Companys initial public offering of its Common Stock, the fair market 2.
value per share shall be the per share offering price to the public of the Companys initial public offering. 3. COVENANTS OF THE COMPANY . 3.1 Covenants as to Exercise Shares. The Company covenants and agrees that all Exercise Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants and agrees that the Company will at all times during the Exercise Period, have authorized and reserved, free from preemptive rights, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. If at any time during the Exercise Period the number of authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. 3.2 No Impairment. Except and to the extent as waived or consented to by the Holder, the Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment. 3.3 Notices of Record Date. In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, the Company shall mail to the Holder, at least ten (10) days prior to the date specified herein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution. 4. REPRESENTATIONS OF HOLDER. 4.1 Acquisition of Warrant for Personal Account. By accepting this Warrant, the Holder represents and warrants that it is acquiring the Warrant and the Exercise Shares solely for its account for investment and not with a view to or for sale or distribution of said Warrant or Exercise Shares or any part thereof. The Holder also represents that the entire legal and beneficial interests of the Warrant and Exercise Shares the Holder is acquiring is being acquired for, and will be held for, its account only. 4.2 Securities Are Not Registered. (a) The Holder understands that the Warrant and the Exercise Shares have not been registered under the Securities Act of 1933, as amended (the Act ) on the basis that no distribution or public offering of the stock of the Company is to be effected. The Holder realizes that the basis for the exemption may not be present if, notwithstanding its representations, the Holder has a present intention of acquiring the securities for a fixed or determinable period in the future, selling (in connection with a distribution or otherwise), 3.
granting any participation in, or otherwise distributing the securities. The Holder has no such present intention. (b) The Holder recognizes that the Warrant and the Exercise Shares must be held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is available. The Holder recognizes that the Company has no obligation to register the Warrant or the Exercise Shares of the Company, or to comply with any exemption from such registration. (c) The Holder is aware that neither the Warrant nor the Exercise Shares may be sold pursuant to Rule 144 adopted under the Act unless certain conditions are met, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale following the required holding period under Rule 144 and the number of shares being sold during any three month period not exceeding specified limitations. Holder is aware that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company presently has no plans to satisfy these conditions in the foreseeable future. 5. A DJUSTMENT OF EXERCISE PRICE. In the event of changes in the outstanding Common Stock of the Company by reason of stock dividends, split-ups, recapitalizations, reclassifications, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the number and class of shares available under the Warrant in the aggregate and the Exercise Price shall be correspondingly adjusted to give the Holder of the Warrant, on exercise for the same aggregate Exercise Price, the total number, class, and kind of shares as the Holder would have owned had the Warrant been exercised prior to the event and had the Holder continued to hold such shares until after the event requiring adjustment. The form of this Warrant need not be changed because of any adjustment in the number of Exercise Shares subject to this Warrant. 6. FRACTIONAL SHARES. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. If the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then current fair market value of an Exercise Share by such fraction. 7. NO STOCKHOLDER RIGHTS. This Warrant in and of itself shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. 8. MODIFICATION; WAIVER. Any provision of this Warrant may be amended or waived by the written consent of the Company and the Holder or by the Company and the Requisite Holders; provided that, the written consent of the Holder shall be required to amend or waive Sections 1(b) or 1(c). Notwithstanding the foregoing, this Warrant may not be amended and the observance of any term may not be waived with respect to any Holder without the written consent of such Holder unless such amendment or waiver applies to all similarly situated Holders in the same manner. 9. TRANSFER OF WARRANT. Subject to applicable laws and the restrictions on transfer set forth in the Purchase Agreement this Warrant and all rights hereunder are transferable, by the Holder in person or by duly authorized attorney, upon delivery of this Warrant and the form of assignment attached hereto to any transferee designated by Holder. The 4.
transferee shall sign an investment letter in form and substance satisfactory to the Company and shall agree to assume the obligations of the Holder described in this Warrant. 10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone. 11. NOTICES, ETC. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given if delivered in accordance with the Purchase Agreement. 12. A CCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein. 13. GOVERNING LAW. This Warrant and all rights, obligations and liabilities hereunder shall be governed by the laws of the State of California. [SIGNATURE PAGE FOLLOWS] 5.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of September 30, 2010. AMBIT BIOSCIENCES CORPORATION ALAN LEWIS, PH.D. Chief Executive Officer Address: 4215 Sorrento Valley Blvd. San Diego, CA 92121 6.
NOTICE OF EXERCISE TO: A MBIT BIOSCIENCES CORPORATION (1) The undersigned hereby elects to purchase shares of the Common Stock of Ambit Biosciences Corporation (the Company) pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. The undersigned hereby elects to purchase shares of the Common Stock of Ambit Biosciences Corporation (the Company) pursuant to the terms of the net exercise provisions set forth in Section 2.1 of the attached Warrant, and shall tender payment of all applicable transfer taxes, if any. (2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:
(Name)
(Date)
(Signature)
(Print name)
Exhibit 4.5 THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THIS WARRANT AND THE SECURITIES ISSUABLE HEREUNDER IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN NOTE AND WARRANT PURCHASE AGREEMENT BY AND AMONG THE HOLDER, AMBIT BIOSCIENCES (CANADA) CORPORATION AND THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY. AMBIT BIOSCIENCES CORPORATION WARRANT TO PURCHASE COMMON STOCK No. CSW-31 Void After September 29, 2020 THIS CERTIFIES THAT, for value received, GrowthWorks Canadian Fund Ltd., or assigns (the Holder), is entitled to subscribe for and purchase at the Exercise Price (defined below) from AMBIT BIOSCIENCES CORPORATION, a Delaware corporation (the Company), that number of Exercise Shares (as defined below) as set forth herein, during the Exercise Period (as defined below). This Warrant is being issued pursuant to the terms of the Note and Warrant Purchase Agreement dated as of September 30, 2010 by and among the Company, the Holder and Ambit Biosciences (Canada) Corporation (the Purchase Agreement ). Capitalized terms used and not otherwise defined herein shall have the meanings given them in the Purchase Agreement. 1. DEFINITIONS . As used herein, the following terms shall have the following respective meanings: (a) Exercise Period shall mean the period commencing on the date hereof and ending on the ten-year anniversary of the date hereof. (b) Exercise Price shall mean $1.54 per share, subject to adjustment pursuant to Section 5 below. (c) Exercise Shares shall mean that number of fully paid and non-assessable shares of Common Stock of the Company (the Common Stock) which equals the quotient of (A) the product of (i) 20% multiplied by (ii) the principal amount of the Holders Note, divided by (B) $5.06. 1. September 30, 2010
2. EXERCISE OF WARRANT. The rights represented by this Warrant may be exercised in whole or in part at any time during the Exercise Period, by delivery of the following to the Company at its address set forth above (or at such other address as it may designate by notice in writing to the Holder): (a) An executed Notice of Exercise in the form attached hereto; (b) payment of the Exercise Price either (i) in cash or by check, or (ii) by cancellation of indebtedness; and (c) this Warrant. Upon the exercise of the rights represented by this Warrant, a certificate or certificates for the Exercise Shares so purchased, registered in the name of the Holder or persons affiliated with the Holder, if the Holder so designates, shall be issued and delivered to the Holder within a reasonable time after the rights represented by this Warrant shall have been so exercised. The person in whose name any certificate or certificates for Exercise Shares are to be issued upon exercise of this Warrant shall be deemed to have become the holder of record of such shares on the date on which this Warrant was surrendered and payment of the Exercise Price was made, irrespective of the date of delivery of such certificate or certificates, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. 2.1 Net Exercise. Notwithstanding any provisions herein to the contrary, if the fair market value of one share of the Companys Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant by payment of 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 Notice of Exercise in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X = Y (A-B) A Where X = Y= A= B= the number of shares of Common Stock to be issued to the Holder the number of shares of Common 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) the fair market value of one share of the Companys Common Stock (at the date of such calculation) Exercise Price (as adjusted to the date of such calculation)
For purposes of the above calculation, the fair market value of one share of Common Stock shall be determined by the Companys Board of Directors in good faith; provided, however, that in the event that this Warrant is exercised pursuant to this Section 2.1 in connection with the Companys initial public offering of its Common Stock, the fair market 2.
value per share shall be the per share offering price to the public of the Companys initial public offering. 3. COVENANTS OF THE COMPANY . 3.1 Covenants as to Exercise Shares. The Company covenants and agrees that all Exercise Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants and agrees that the Company will at all times during the Exercise Period, have authorized and reserved, free from preemptive rights, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. If at any time during the Exercise Period the number of authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. 3.2 No Impairment. Except and to the extent as waived or consented to by the Holder, the Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment. 3.3 Notices of Record Date. In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters) or other distribution, the Company shall mail to the Holder, at least ten (10) days prior to the date specified herein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution. 4. REPRESENTATIONS OF HOLDER. 4.1 Acquisition of Warrant for Personal Account. By accepting this Warrant, the Holder represents and warrants that it is acquiring the Warrant and the Exercise Shares solely for its account for investment and not with a view to or for sale or distribution of said Warrant or Exercise Shares or any part thereof. The Holder also represents that the entire legal and beneficial interests of the Warrant and Exercise Shares the Holder is acquiring is being acquired for, and will be held for, its account only. 4.2 Securities Are Not Registered. (a) The Holder understands that the Warrant and the Exercise Shares have not been registered under the Securities Act of 1933, as amended (the Act ) on the basis that no distribution or public offering of the stock of the Company is to be effected. The Holder realizes that the basis for the exemption may not be present if, notwithstanding its representations, the Holder has a present intention of acquiring the securities for a fixed or determinable period in the future, selling (in connection with a distribution or otherwise), 3.
granting any participation in, or otherwise distributing the securities. The Holder has no such present intention. (b) The Holder recognizes that the Warrant and the Exercise Shares must be held indefinitely unless they are subsequently registered under the Act or an exemption from such registration is available. The Holder recognizes that the Company has no obligation to register the Warrant or the Exercise Shares of the Company, or to comply with any exemption from such registration. (c) The Holder is aware that neither the Warrant nor the Exercise Shares may be sold pursuant to Rule 144 adopted under the Act unless certain conditions are met, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale following the required holding period under Rule 144 and the number of shares being sold during any three month period not exceeding specified limitations. Holder is aware that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company presently has no plans to satisfy these conditions in the foreseeable future. 5. A DJUSTMENT OF EXERCISE PRICE. In the event of changes in the outstanding Common Stock of the Company by reason of stock dividends, split-ups, recapitalizations, reclassifications, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the number and class of shares available under the Warrant in the aggregate and the Exercise Price shall be correspondingly adjusted to give the Holder of the Warrant, on exercise for the same aggregate Exercise Price, the total number, class, and kind of shares as the Holder would have owned had the Warrant been exercised prior to the event and had the Holder continued to hold such shares until after the event requiring adjustment. The form of this Warrant need not be changed because of any adjustment in the number of Exercise Shares subject to this Warrant. 6. FRACTIONAL SHARES. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. If the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then current fair market value of an Exercise Share by such fraction. 7. NO STOCKHOLDER RIGHTS. This Warrant in and of itself shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. 8. MODIFICATION; WAIVER. Any provision of this Warrant may be amended or waived by the written consent of the Company and the Holder or by the Company and the Requisite Holders; provided that, the written consent of the Holder shall be required to amend or waive Sections 1(b) or 1(c). Notwithstanding the foregoing, this Warrant may not be amended and the observance of any term may not be waived with respect to any Holder without the written consent of such Holder unless such amendment or waiver applies to all similarly situated Holders in the same manner. 9. TRANSFER OF WARRANT. Subject to applicable laws and the restrictions on transfer set forth in the Purchase Agreement this Warrant and all rights hereunder are transferable, by the Holder in person or by duly authorized attorney, upon delivery of this Warrant and the form of assignment attached hereto to any transferee designated by Holder. The 4.
transferee shall sign an investment letter in form and substance satisfactory to the Company and shall agree to assume the obligations of the Holder described in this Warrant. 10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new Warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone. 11. NOTICES, ETC. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given if delivered in accordance with the Purchase Agreement. 12. A CCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein. 13. GOVERNING LAW. This Warrant and all rights, obligations and liabilities hereunder shall be governed by the laws of the State of California. [SIGNATURE PAGE FOLLOWS] 5.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized officer as of September 30, 2010. AMBIT BIOSCIENCES CORPORATION /s/ Alan Lewis ALAN LEWIS, PH.D. Chief Executive Officer Address: 6. 4215 Sorrento Valley Blvd. San Diego, CA 92121
NOTICE OF EXERCISE TO: A MBIT BIOSCIENCES CORPORATION (1) The undersigned hereby elects to purchase shares of the Common Stock of Ambit Biosciences Corporation (the Company) pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. The undersigned hereby elects to purchase shares of the Common Stock of Ambit Biosciences Corporation (the Company) pursuant to the terms of the net exercise provisions set forth in Section 2.1 of the attached Warrant, and shall tender payment of all applicable transfer taxes, if any. (2) Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below: (Name)
(Date)
(Signature)
(Print name)
Exhibit 4.6 PREFERRED STOCK WARRANT NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION. WARRANT TO PURCHASE SHARES OF SERIES C PREFERRED STOCK Dated: October 5, 2005 THIS CERTIFIES THAT, for value received, Oxford Finance Corporation, (Holder) is entitled to subscribe for and purchase that number of shares as set forth in paragraph 1 below of the fully paid and non-assessable Series C Preferred Stock (the Shares or the Preferred Stock) of Ambit Biosciences Corporation, a Delaware corporation (the Company), at the Warrant Price (as hereinafter defined), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, the term Series C Preferred Stock shall mean the Companys presently authorized Series C Preferred Stock, and any stock into which such Series C Preferred Stock may hereafter be exchanged. 1. Warrant Price. The Warrant Price shall be Four Dollars and Thirty Cents ($4.30). The number of Shares for which this Warrant is exercisable shall be Eight Thousand, Seven Hundred Ninety-Five (8,795). 2. Conditions to Exercise. The purchase right represented by this Warrant may be exercised at any time, or from time to time, in whole or in part during the term commencing on the date hereof and ending on the earlier of: (a) (b) 5:00 P.M. Eastern Standard time on the eighth annual anniversary of this Warrant Agreement; or the earlier termination of this Warrant pursuant to Section 3(e).
In the event that, although the Company shall have given notice of a transaction pursuant to subparagraph [3(e)] hereof, the transaction does not close within 90 days of the day specified by the Company, unless otherwise elected by the Holder any exercise of the Warrant subsequent to the giving of such notice shall be rescinded and the Warrant shall again be exercisable until terminated in accordance with this Paragraph 2. 3. Method of Exercise; Payment; Issuance of Shares; Issuance of New Warrant. (a) Cash Exercise. Subject to Section 2 hereof, the purchase right represented by this Warrant may be exercised by the Holder hereof, in whole or in part, by the surrender of this Warrant (with a duly executed Notice of Exercise in the form attached hereto) at the principal office of the Company (as set forth in Section 18 below) and by payment to the Company, by check, of an amount equal to the then applicable Warrant Price per share multiplied by the number of shares then being purchased. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be in the name of, and delivered to, the Holder hereof, or as such Holder may direct (subject to the terms of transfer contained herein and upon payment by such Holder hereof of any applicable transfer taxes). Such delivery shall be made within 10 business days after exercise of the Warrant and at the Companys expense and, unless this Warrant has been fully exercised or expired, a new Warrant having terms and conditions substantially identical to this Warrant and representing the portion of the Shares, if any, with respect to which this Warrant shall not have been exercised, shall also be issued to the Holder hereof within 10 business days after exercise of the Warrant. Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section 3(a), Holder may elect to receive shares equal to the value of this Warrant (or of any portion thereof remaining unexercised) Page 1 of 9
(b)
PREFERRED STOCK WARRANT by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to Holder the number of shares of the Companys Series C Preferred Stock computed using the following formula: X = Y (A-B) A Where X = the number of shares of Series C Preferred Stock to be issued to Holder. Y = the number of shares of Series C Preferred Stock purchasable under this Warrant (at the date of such calculation). A = the Fair Market Value of one share of the Companys Series C Preferred Stock (at the date of such calculation). B = Warrant Exercise Price (as adjusted to the date of such calculation). (c) Fair Market Value. For purposes of this Section 3, Fair Market Value of one share of the Companys Series C Preferred Stock shall mean: (i) If the Common Stock is traded on NASDAQ or Over-The-Counter or on an exchange, the per share Fair Market Value for the Series C Preferred Stock will be the average of the closing bid and asked prices of the Common Stock quoted in the Over-TheCounter Market Summary or the closing price quoted on any exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the ten (10) trading days prior to the date of determination of Fair Market Value multiplied by the number of shares of Common Stock into which each share of Series C Preferred Stock is then convertible; or In the event of an exercise in connection with a merger, acquisition or other consolidation in which the Company is not the surviving entity, the per share Fair Market Value for the Series C Preferred Stock shall be the value to be received per share of Series C Preferred Stock by all Holders of the Series C Preferred Stock in such transaction as determined by the Board of Directors; or In any other instance, the per share Fair Market Value for the Series C Preferred Stock shall be as determined in good faith by the Companys Board of Directors unless Holder elects to have such fair market value determined by an appraiser, which election must be made by Holder within ten (10) business days of the date the Company notifies Holder of the fair market value as determined by its Board of Directors. In the event of such an appraisal, the cost thereof shall be borne by the Holder unless such appraisal results in a fair market value in excess of 115% of that determined by the Companys Board of Directors, in which event the Company shall bear the cost of such appraisal.
(ii)
(iii)
In the event of 3(c)(ii) or 3(c)(iii), above, the Companys Board of Directors shall prepare a certificate, to be signed by an authorized Officer of the Company, setting forth in reasonable detail the basis for and method of determination of the per share Fair Market Value of the Series C Preferred Stock. The Board will also certify to the Holder that, as of the date of the certificate, the per share Fair Market Value set forth in the certificate is applicable to all holders of the Companys Series C Preferred Stock. Such certification must be made to Holder at least ten (10) business days prior to the proposed effective date of the merger, consolidation, sale, or other triggering event as defined in 3(c)(ii) and 3(c)(iii). Page 2 of 9
PREFERRED STOCK WARRANT
(d) (e)
Automatic Exercise. To the extent this Warrant is not previously exercised, it shall be automatically exercised in accordance with Sections 3(b) and 3(c) hereof (even if not surrendered) immediately before its expiration. Treatment of Warrant Upon Acquisition of Company . (i) Upon the written request of the Company, Holder agrees that, in the event of an Acquisition (as defined below) in which the sole consideration is cash, either (a) Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition or (b) if Holder elects not to exercise the Warrant, this Warrant will expire upon the consummation of such Acquisition. The Company shall provide the Holder with written notice of its request relating to the foregoing (together with such reasonable information as the Holder may request in connection with such contemplated Acquisition giving rise to such notice), which is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition. Upon written request of the Company, Holder agrees that, in the event of a stock for stock Acquisition of the Company by a publicly traded acquirer if, on the record date for the Acquisition, the fair market value of the Shares (or other securities issuable upon exercise of this Warrant) is equal to or greater than three (3) times the Warrant Price, Company may require the Warrant to be deemed automatically exercised and the Holder shall participate in the Acquisition as a holder of the Shares (or other securities issuable upon exercise of the Warrant) on the same terms as other holders of the same class of securities of the Company. Upon the closing of any Acquisition other than those particularly described in subsections (i) or (ii) above, the successor entity shall assume the obligations of the Warrant, and the Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price and/or number of Shares shall be adjusted accordingly. For the purpose of this Warrant, Acquisition means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Companys securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction, other than in connection with an initial public offering or any transaction or series of transactions principally for bona fide equity financing purposes whereby the company issues (or agrees to issue) equity securities in exchange for cash or cancellation of indebtedness.
(ii)
(iii)
(iv)
4. Representations and Warranties of Holder and Restrictions on Transfer Imposed by the Securities Act of 1933. (a) Representations and Warranties by Holder. The Holder represents and warrants to the Company with respect to this purchase as follows: (i) The Holder has substantial experience in evaluating and investing in private placement transactions of securities of companies similar to the Company so that the Holder is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its interests. The Holder is acquiring the Warrant and the Shares of Series C Preferred Stock issuable upon exercise of the Warrant and Common Stock issuable upon conversion thereof Page 3 of 9
(ii)
PREFERRED STOCK WARRANT (collectively the Securities) for investment for its own account and not with a view to, or for resale in connection with, any distribution thereof. The Holder understands that the Securities have not been registered under the Securities Act of 1933, as amended (the Act) by reason of a specific exemption from the registration provisions of the Act, which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. In this connection, the Holder understands that, in the view of the Securities and Exchange Commission (the SEC), the statutory basis for such exemption may be unavailable if this representation was predicated solely upon a present intention to hold the Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities or for a period of one year or any other fixed period in the future. (iii) The Holder acknowledges that the Securities must be held indefinitely unless subsequently registered under the Act or an exemption from such registration is available. The Holder is aware of the provisions of Rule 144 promulgated under the Act (Rule 144) which permits limited resale of securities purchased in a private placement subject to the satisfaction of certain conditions, including, in case the securities have been held for more than one but less than two years, the existence of a public market for the shares, the availability of certain public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being through a brokers transaction or in a transaction directly with a market maker (as provided by Rule 144(f)) and the number of shares or other securities being sold during any three-month period not exceeding specified limitations. The Holder further understands that at the time the Holder wishes to sell the Securities there may be no public market upon which such a sale may be effected, and that even if such a public market exists, the Company may not be satisfying the current public information requirements of Rule 144, and that in such event, the Holder may be precluded from selling the Securities under Rule 144 unless a) a one-year minimum holding period has been satisfied and b) the Holder was not at the time of the sale nor at any time during the three-month period prior to such sale an affiliate of the Company. The Holder has had an opportunity to discuss the Companys business, management and financial affairs with its management and an opportunity to review the Companys facilities. The Holder understands that such discussions, as well as the written information issued by the Company, were intended to describe the aspects of the Companys business and prospects which it believes to be material but were not necessarily a thorough or exhaustive description. The Holder is an accredited investor, as such term is defined in Rule 501(a) promulgated under the Act.
(iv)
(v)
(vi) (b)
Legends. Each certificate representing the Securities shall be endorsed with the following legend: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A NO ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE COMMISSION, OR (IF REASONABLY REQUIRED BY THE COMPANY) AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION. The Company need not enter into its stock register a transfer of Securities unless the conditions specified in the foregoing legend are satisfied. The Company may also instruct its transfer agent Page 4 of 9
PREFERRED STOCK WARRANT not to register the transfer of any of the Shares unless the conditions specified in the foregoing legend are satisfied. (c) Removal of Legend and Transfer Restrictions . The legend relating to the Act endorsed on a certificate pursuant to paragraph 4(b) of this Warrant and the stop transfer instructions with respect to the Securities represented by such certificate shall be removed and the Company shall issue a certificate without such legend to the Holder of the Securities if (i) the Securities are registered under the Act and a prospectus meeting the requirements of Section 10 of the Act is received by the Purchaser or (ii) the Holder provides to the Company an opinion of counsel for the Holder reasonably satisfactory to the Company, or a no-action letter or interpretive opinion of the staff of the SEC reasonably satisfactory to the Company, to the effect that public sale, transfer or assignment of the Securities may be made without registration and without compliance with any restriction such as Rule 144.
5. Condition of Transfer or Exercise of Warrant . It shall be a condition to any transfer or exercise of this Warrant that at the time of such transfer or exercise, the Holder shall provide the Company with a representation in writing that the Holder or transferee is acquiring this Warrant and the shares of Series C Preferred Stock to be issued upon exercise, for investment purposes only and not with a view to any sale or distribution, or will provide the Company with a statement of pertinent facts covering any proposed distribution and a written agreement that such Holder or transferee agrees to be bound by the provisions of this Warrant. As a further condition to any transfer of this Warrant or any or all of the shares of Series C Preferred Stock issuable upon exercise of this Warrant, other than a transfer registered under the Act, the Company must have received a legal opinion, in form and substance satisfactory to the Company and its counsel, reciting the pertinent circumstances surrounding the proposed transfer and stating that such transfer is exempt from the registration and prospectus delivery requirements of the Act. Each certificate evidencing the shares issued upon exercise of the Warrant or upon any transfer of the shares (other than a transfer registered under the Act or any subsequent transfer of shares so registered) shall, at the Companys option, contain a legend in form and substance satisfactory to the Company and its counsel, restricting the transfer of the shares to sales or other dispositions exempt from the requirements of the Act. As further condition to each transfer, the Holder shall surrender this Warrant to the Company and the transferee shall receive and accept a Warrant, of like tenor and date, executed by the Company. 6. Stock Fully Paid; Reservation of Shares . All Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and non-assessable, and free from all taxes, liens, and charges with respect to the issue thereof. 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 issuance upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Series C Preferred Stock to provide for the exercise of the rights represented by this Warrant. 7. (a) Adjustment for Certain Events. In the event of changes in the outstanding Series C Preferred Stock by reason of stock dividends, split-ups, recapitalizations, reclassifications, mergers, consolidations, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the number and class of shares available under the Warrant in the aggregate and the Warrant Price shall be correspondingly adjusted, as appropriate, by the Board of Directors of the Company. The adjustment shall be such as will give the Holder of this Warrant upon exercise for the same aggregate Warrant Price the total number, class and kind of shares as it would have owned had the Warrant been exercised prior to the event and had it continued to hold such shares until after the event requiring adjustment. Notwithstanding the foregoing, the Holder agrees that no further adjustment to the Warrant Price or the Shares issuable hereunder shall be made in connection with the 1 for 10 reverse split effected pursuant to the Amended and Restated Certificate of Incorporation filed on or about the date of issuance of this Warrant. (b) Other Anti-dilution Protections . Additional anti-dilution rights applicable to the Series C Preferred Stock purchasable hereunder upon exercise of the Warrant are as set forth in the Certificate of Incorporation as may be amended from time to time. Such anti-dilution rights may be restated, amended, modified or waived in any manner from time to time, as permitted by the Certificate of Incorporation, except that which may be adverse to the Holder hereof and different from other holders of Series C Preferred Stock without the Holders written consent. The Page 5 of 9
PREFERRED STOCK WARRANT Company shall promptly provide the Holder with any restatement, amendment, modification or waiver of the Certification of Incorporation. Notwithstanding the foregoing, any inadvertent failure of the Company to promptly provide Holder with any restatement, amendment, modification or waiver to the Certificate of Incorporation shall not constitute a default under the Master Security Agreement between Company and Holder dated November 15, 2002. 8. Notice of Adjustments . Whenever any Warrant Price shall be adjusted pursuant to Section 7 (a) hereof or on request of the Holder, the Company shall prepare a certificate signed by its president or chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and number of shares issuable upon exercise of the Warrant after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (by certified or registered mail, return receipt required, postage prepaid) within thirty (30) days of such adjustment to the Holder of this Warrant as set forth in Section 19 hereof. 9. Market Stand-Off Agreement . Holder hereby agrees that for a period of up to 180 days following the effective date of the first registration statement of the Company covering common stock (or other securities) to be sold on its behalf of the Company in an underwritten public offering, it will not, to the extent requested by the Company and any underwriter, sell or otherwise transfer or dispose of (other than to designees or transferees who agree to be similarly bound) any of the Shares at any time during such period except common stock included in such registration; provided, however, that all officers and directors of the Company who hold securities of the Company or all other persons who own at least one percent (1%) of the Companys outstanding voting equity securities enter into similar agreements. 10. Transferability of Warrant. This Warrant is transferable on the books of the Company at its principal office by the registered Holder hereof upon surrender of this Warrant properly endorsed, subject to compliance with Section 5 and applicable federal and state securities laws. The Company shall issue and deliver to the transferee a new Warrant representing the Warrant so transferred. Upon any partial transfer, the Company will issue and deliver to Holder a new Warrant with respect to the Warrant not so transferred. Holder shall not have any right to transfer any portion of this Warrant to any direct competitor of the Company. 11. [Paragraph intentionally omitted] 12. No Fractional Shares. No fractional share of Series C Preferred Stock will be issued in connection with any exercise hereunder, but in lieu of such fractional share the Company shall make a cash payment therefor upon the basis of the Warrant Price then in effect. 13. Charges, Taxes and Expenses. Issuance of certificates for shares of Series C Preferred Stock upon the exercise of this Warrant shall be made without charge to the Holder for any United States or state of the United States documentary stamp tax or other incidental expense with respect to the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder. 14. No Shareholder Rights Until Exercise . This Warrant does not entitle the Holder hereof to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. 15. Registry of Warrant. The Company shall maintain a registry showing the name and address of the registered Holder of this Warrant. This Warrant may be surrendered for exchange or exercise, in accordance with its terms, at such office or agency of the Company, and the Company and Holder shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry. 16. Loss, Theft, Destruction or Mutilation of Warrant . Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft, or destruction, of indemnity reasonably satisfactory to it, and, if mutilated, upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant, having terms and conditions substantially identical to this Warrant, in lieu hereof. 17. Miscellaneous. Page 6 of 9
(a) (b) (c) (d) (e)
Issue Date. The provisions of this Warrant shall be construed and shall be given effect in all respect as if it had been issued and delivered by the Company on the date hereof. Successors. This Warrant shall be binding upon any successors or assigns of the Company. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. Headings. The headings used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant. Saturdays, Sundays, Holidays. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday in the Commonwealth of Virginia., then such action may be taken or such right may be exercised on the next succeeding day not a legal holiday.
18. No Impairment. The Company shall not by any action including, without limitation, amending its Sections or articles of incorporation or bylaws, any reorganization, transfer of assets, consolidation, merger, share exchange dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants or impair the ability of the Holder(s) to realize upon the intended economic value hereof, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate to protect the rights of the Holder(s) hereof against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Series C Preferred Stock issuable upon the exercise of the Warrants above the amount payable therefor upon such exercise, (b) take all such action as may be necessary or appropriate in order that the Company may validly issue fully paid and non-assessable shares of Series C Preferred Stock upon the exercise of the Warrants, (c) obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under the Warrants and (d) not reclassify or convert common stock and (f) not take or permit to be taken any action which would have the effect of shortening the period provided herein for exercise of the Warrants. 19. Addresses. Any notice required or permitted hereunder shall be in writing and shall be mailed by overnight courier, registered or certified mail, return receipt required, and postage pre-paid, or otherwise delivered by hand or by messenger, addressed as set forth below, or at such other address as the Company or the Holder hereof shall have furnished to the other party. If to the Company: Ambit Biosciences Corporation 4215 Sorrento Valley Blvd. San Diego, CA 92121 Attn: Chief Financial Officer Oxford Finance Corporation 133 N. Fairfax Street Alexandria, VA 22314 Attn: Chief Financial Officer [SIGNATURE APPEARS ON PAGE 8] Page 7 of 9
If to the Holder:
IN WITNESS WHEREOF, Ambit Biosciences Corporation has caused this Warrant to be executed by its officers thereunto duly authorized. Dated as of October 5, 2005. AMBIT BIOSCIENCES CORPORATION a Delaware corporation By: /s/ M. Scott Salka
Name: M. SALKA Title: CEO Page 8 of 9
NOTICE OF EXERCISE TO: Ambit Biosciences Corporation 4215 Sorrento Valley Blvd San Diego, CA 92121 Attn: Chief Financial Officer 1. The undersigned Warrantholder (Holder) elects to acquire shares of the Series C Preferred Stock (the Preferred Stock) of Ambit Biosciences Corporation, (the Company), pursuant to the terms of the Stock Purchase Warrant dated July , 2005 (the Warrant). 2. The Holder exercises its rights under the Warrant as set forth below: ( ( ) The Holder elects to purchase herewith a check in the amount of $ shares of Series C Preferred Stock as provided in Section 3(a), (c) and tenders as payment of the purchase price.
) The Holder elects to convert the purchase rights into shares of Series C Preferred Stock as provided in Section 3(b) of the Warrant.
3. The Holder surrenders the Warrant with this Notice of Exercise. 4. The Holder represents that it is acquiring the aforesaid shares of Series C Preferred Stock for investment and not with a view to, or for resale in connection with, distribution and that the Holder has no present intention of distributing or reselling the shares. Holder acknowledges and agrees to be bound by the provisions of the Warrant, including, without limitation, the Market Stand-off Agreement contained therein. 5. Please issue a certificate representing the shares of the Series C Preferred Stock in the name of the Holder or in such other name as is specified below: Name: Address: Taxpayer ID.: Oxford Finance Corporation By: Name: Title: Page 9 of 9
Exhibit 4.7 PREFERRED STOCK WARRANT PREFERRED STOCK WARRANT NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION. WARRANT TO PURCHASE SHARES OF SERIES C PREFERRED STOCK Dated: December 22, 2005 THIS CERTIFIES THAT, for value received, Oxford Finance Corporation, (Holder) is entitled to subscribe for and purchase that number of shares as set forth in paragraph 1 below of the fully paid and non-assessable Series C Preferred Stock (the Shares or the Preferred Stock) of Ambit Biosciences Corporation, a Delaware corporation (the Company), at the Warrant Price (as hereinafter defined), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, the term Series C Preferred Stock shall mean the Companys presently authorized Series C Preferred Stock, and any stock into which such Series C Preferred Stock may hereafter be exchanged. 1. Warrant Price. The Warrant Price shall be Four Dollars and Thirty Cents ($4.30). The number of Shares for which this Warrant is exercisable shall be Seven Thousand, Two Hundred Seven (7,207). 2. Conditions to Exercise. The purchase right represented by this Warrant may be exercised at any time, or from time to time, in whole or in part during the term commencing on the date hereof and ending on the earlier of: (a) (b) 5:00 P.M. Eastern Standard time on the eighth annual anniversary of this Warrant Agreement; or the earlier termination of this Warrant pursuant to Section 3(e).
(b)
(ii)
(iii)
(d) (e)
(ii)
(iii)
(iv)
(ii)
(iv)
(v)
(vi) (b)
5. Condition of Transfer or Exercise of Warrant . It shall be a condition to any transfer or exercise of this Warrant that at the time of such transfer or exercise, the Holder shall provide the Company with a representation in writing that the Holder or transferee is acquiring this Warrant and the shares of Series C Preferred Stock to be issued upon exercise, for investment purposes only and not with a view to any sale or distribution, or will provide the Company with a statement of pertinent facts covering any proposed distribution and a written agreement that such Holder or transferee agrees to be bound by the provisions of this Warrant. As a further condition to any transfer of this Warrant or any or all of the shares of Series C Preferred Stock issuable upon exercise of this Warrant, other than a transfer registered under the Act, the Company must have received a legal opinion, in form and substance satisfactory to the Company and its counsel, reciting the pertinent circumstances surrounding the proposed transfer and stating that such transfer is exempt from the registration and prospectus delivery requirements of the Act. Each certificate evidencing the shares issued upon exercise of the Warrant or upon any transfer of the shares (other than a transfer registered under the Act or any subsequent transfer of shares so registered) shall, at the Companys option, contain a legend in form and substance satisfactory to the Company and its counsel, restricting the transfer of the shares to sales or other dispositions exempt from the requirements of the Act, As further condition to each transfer, the Holder shall surrender this Warrant to the Company and the transferee shall receive and accept a Warrant, of like tenor and date, executed by the Company. 6. Stock Fully Paid; Reservation of Shares . All Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and non-assessable, and free from all taxes, liens, and charges with respect to the issue thereof. 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 issuance upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Series C Preferred Stock to provide for the exercise of the rights represented by this Warrant. 7. (a) Adjustment for Certain Events. In the event of changes in the outstanding Series C Preferred Stock by reason of stock dividends, split-ups, recapitalizations, reclassifications, mergers, consolidations, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the number and class of shares available under the Warrant in the aggregate and the Warrant Price shall be correspondingly adjusted, as appropriate, by the Board of Directors of the Company. The adjustment shall be such as will give the Holder of this Warrant upon exercise for the same aggregate Warrant Price the total number, class and kind of shares as it would have owned had the Warrant been exercised prior to the event and had it continued to hold such shares until after the event requiring adjustment. Notwithstanding the foregoing, the Holder agrees that no further adjustment to the Warrant Price or the Shares issuable hereunder shall be made in connection with the 1 for 10 reverse split effected pursuant to the Amended and Restated Certificate of Incorporation filed on or about the date of issuance of this Warrant. (b) Other Anti-dilution Protections . Additional anti-dilution rights applicable to the Series C Preferred Stock purchasable hereunder upon exercise of the Warrant are as set forth in the Certificate of Incorporation as may be amended from time to time. Such anti-dilution rights may be restated, amended, modified or waived in any manner from time to time, as permitted by the Certificate of Incorporation, except that which may be adverse to the Holder hereof and different from other holders of Series C Preferred Stock without the Holders written consent. The Page 5 of 9
PREFERRED STOCK WARRANT Company shall promptly provide the Holder with any restatement, amendment, modification or waiver of the Certification of Incorporation. Notwithstanding the foregoing, any inadvertent failure of the Company to promptly provide Holder with any restatement, amendment, modification or waiver to the Certificate of Incorporation shall not constitute a default under the Master Security Agreement between Company and Holder dated November 15, 2002. 8. Notice of Adjustments . Whenever any Warrant Price shall be adjusted pursuant to Section 7 (a) hereof or on request of the Holder, the Company shall prepare a certificate signed by its president or chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and number of shares issuable upon exercise of the Warrant after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (by certified or registered mail, return receipt required, postage prepaid) within thirty (30) days of such adjustment to the Holder of this Warrant as set forth in Section 19 hereof. 9. Market Stand-Off Agreement . Holder hereby agrees that for a period of up to 180 days following the effective date of the first registration statement of the Company covering common stock (or other securities) to be sold on its behalf of the Company in an underwritten public offering, it will not, to the extent requested by the Company and any underwriter, sell or otherwise transfer or dispose of (other than to designees or transferees who agree to be similarly bound) any of the Shares at any time during such period except common stock included in such registration; provided, however, that all officers and directors of the Company who hold securities of the Company or all other persons who own at least one percent (1%) of the Companys outstanding voting equity securities enter into similar agreements. 10. Transferability of Warrant. This Warrant is transferable on the books of the Company at its principal office by the registered Holder hereof upon surrender of this Warrant properly endorsed, subject to compliance with Section 5 and applicable federal and state securities laws. The Company shall issue and deliver to the transferee a new Warrant representing the Warrant so transferred. Upon any partial transfer, the Company will issue and deliver to Holder a new Warrant with respect to the Warrant not so transferred. Holder shall not have any right to transfer any portion of this Warrant to any direct competitor of the Company. 11. [Paragraph intentionally omitted] 12. No Fractional Shares. No fractional share of Series C Preferred Stock will be issued in connection with any exercise hereunder, but in lieu of such fractional share the Company shall make a cash payment therefor upon the basis of the Warrant Price then in effect. 13. Charges, Taxes and Expenses. Issuance of certificates for shares of Series C Preferred Stock upon the exercise of this Warrant shall be made without charge to the Holder for any United States or state of the United States documentary stamp tax or other incidental expense with respect to the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder. 14. No Shareholder Rights Until Exercise . This Warrant does not entitle the Holder hereof to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. 15. Registry of Warrant. The Company shall maintain a registry showing the name and address of the registered Holder of this Warrant. This Warrant may be surrendered for exchange or exercise, in accordance with its terms, at such office or agency of the Company, and the Company and Holder shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry. 16. Loss, Theft, Destruction or Mutilation of Warrant . Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft, or destruction, of indemnity reasonably satisfactory to it, and, if mutilated, upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant, having terms and conditions substantially identical to this Warrant, in lieu hereof. Page 6 of 9
17. Miscellaneous. (a) (b) (c) (d) (e) Issue Date. The provisions of this Warrant shall be construed and shall be given effect in all respect as if it had been issued and delivered by the Company on the date hereof. Successors. This Warrant shall be binding upon any successors or assigns of the Company. Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia. Headings. The headings used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant. Saturdays, Sundays, Holidays. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday in the Commonwealth of Virginia., then such action may be taken or such right may be exercised on the next succeeding day not a legal holiday.
18. No Impairment. The Company shall not by any action including, without limitation, amending its Sections or articles of incorporation or bylaws, any reorganization, transfer of assets, consolidation, merger, share exchange dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants or impair the ability of the Holder(s) to realize upon the intended economic value hereof, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate to protect the rights of the Holder(s) hereof against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Series C Preferred Stock issuable upon the exercise of the Warrants above the amount payable therefor upon such exercise, (b) take all such action as may be necessary or appropriate in order that the Company may validly issue fully paid and non-assessable shares of Series C Preferred Stock upon the exercise of the Warrants, (c) obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under the Warrants and (d) not reclassify or convert common stock and (f) not take or permit to be taken any action which would have the effect of shortening the period provided herein for exercise of the Warrants. 19. Addresses. Any notice required or permitted hereunder shall be in writing and shall be mailed by overnight courier, registered or certified mail, return receipt required, and postage pre-paid, or otherwise delivered by hand or by messenger, addressed as set forth below, or at such other address as the Company or the Holder hereof shall have furnished to the other party. If to the Company: Ambit Biosciences Corporation 4215 Sorrento Valley Blvd. San Diego, CA 92121 Attn: Chief Financial Officer Oxford Finance Corporation 133 N. Fairfax Street Alexandria, VA 22314 Attn: Chief Financial Officer [SIGNATURE APPEARS ON PAGE 8] Page 7 of 9
If to the Holder:
PREFERRED STOCK WARRANT IN WITNESS WHEREOF, Ambit Biosciences Corporation has caused this Warrant to be executed by its officers thereunto duly authorized. Dated as of December 22, 2005. AMBIT BIOSCIENCES CORPORATION a Delaware corporation By: /s/ M. Salka
Name: M Salka Title: CEO Page 8 of 9
NOTICE OF EXERCISE TO: Ambit Biosciences Corporation 4215 Sorrento Valley Blvd. San Diego, CA 92121 Attn: Chief Financial Officer 1. The undersigned Warrantholder (Holder) elects to acquire shares of the Series C Preferred Stock (the Preferred Stock) of Ambit Biosciences Corporation, (the Company), pursuant to the terms of the Stock Purchase Warrant dated , 2005, (the Warrant). 2. The Holder exercises its rights under the Warrant as set forth below: ( ( ) The Holder elects to purchase herewith a check in the amount of $ shares of Series C Preferred Stock as provided in Section 3(a), (c) and tenders as payment of the purchase price.
3. The Holder surrenders the Warrant with this Notice of Exercise. 4. The Holder represents that it is acquiring the aforesaid shares of Series C Preferred Stock for investment and not with a view to, or for resale in connection with, distribution and that the Holder has no present intention of distributing or reselling the shares. Holder acknowledges and agrees to be bound by the provisions of the Warrant, including, without limitation, the Market Stand-off Agreement contained therein. 5. Please issue a certificate representing the shares of the Series C Preferred Stock in the name of the Holder or in such other name as is specified below: Name: Address: Taxpayer I.D.: Oxford Finance Corporation By: Name: Title:
Exhibit 4.8 PREFERRED STOCK WARRANT NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LEITER FROM THE SECURITIES AND EXCHANGE COMMISSION. WARRANT TO PURCHASE SHARES OF SERIES PREFERRED STOCK Dated: , 20
THIS CERTIFIES THAT, for value received, Oxford Finance Corporation, (Holder) is entitled to subscribe for and purchase that number of shares as set forth in paragraph 1 below of the fully paid and non-assessable Series Preferred Stock (the Shares or the Preferred Stock) of Ambit Biosciences Corporation, a Delaware corporation (the Company), at the Warrant Price (as hereinafter defined), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, the term Series Preferred Stock shall mean the Companys presently authorized Series Preferred Stock, and any stock into which such Series Preferred Stock may hereafter be exchanged. 1. Warrant Price. The Warrant Price shall be be ( ). Dollars and Cents ($ ). The number of Shares for which this Warrant is exercisable shall
2. Conditions to Exercise. The purchase right represented by this Warrant may be exercised at any time, or from time to time, in whole or in part during the term commencing on the date hereof and ending on the earlier of: (a) (b) 5:00 P.M. Eastern Standard time on the eighth annual anniversary of this Warrant Agreement; or the earlier termination of this Warrant pursuant to Section 3(e).
(b)
PREFERRED STOCK WARRANT by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to Holder the number of shares of the Companys Series Preferred Stock computed using the following formula: X = Y (A-B) A Where X = the number of shares of Series Y = the number of shares of Series Preferred Stock to be issued to Holder. Preferred Stock (at the date of such calculation). Preferred Stock purchasable under this Warrant (at the date of such calculation).
A = the Fair Market Value of one share of the Companys Series
B = Warrant Exercise Price (as adjusted to the date of such calculation). (c) Fair Market Value. For purposes of this Section 3, Fair Market Value of one share of the Companys Series (i) Preferred Stock shall mean:
If the Common Stock is traded on NASDAQ or Over-The-Counter or on an exchange, the per share Fair Market Value for the Series Preferred Stock will be the average of the closing bid and asked prices of the Common Stock quoted in the Over-TheCounter Market Summary or the closing price quoted on any exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of The Wall Street Journal for the ten (10) trading days prior to the date of determination of Fair Market Value multiplied by the number of shares of Common Stock into which each share of Series Preferred Stock is then convertible; or In the event of an exercise in connection with a merger, acquisition or other consolidation in which the Company is not the surviving entity, the per share Fair Market Value for the Series Preferred Stock shall be the value to be received per share of Series Preferred Stock by all Holders of the Series Preferred Stock in such transaction as determined by the Board of Directors; or In any other instance, the per share Fair Market Value for the Series Preferred Stock shall be as determined in good faith by the Companys Board of Directors unless Holder elects to have such fair market value determined by an appraiser, which election must be made by Holder within ten (10) business days of the date the Company notifies Holder of the fair market value as determined by its Board of Directors. In the event of such an appraisal, the cost thereof shall be borne by the Holder unless such appraisal results in a fair market value in excess of 115% of that determined by the Companys Board of Directors, in which event the Company shall bear the cost of such appraisal.
(ii)
(iii)
In the event of 3(c)(ii) or 3(c)(iii), above, the Companys Board of Directors shall prepare a certificate, to be signed by an authorized Officer of the Company, setting forth in reasonable detail the basis for and method of determination of the per share Fair Market Value of the Series Preferred Stock. The Board will also certify to the Holder that, as of the date of the certificate, the per share Fair Market Value set forth in the certificate is applicable to all holders of the Companys Series Preferred Stock. Such certification must be made to Holder at least ten (10) business days prior to the proposed effective date of the merger, consolidation, sale, or other triggering event as defined in 3(c)(ii) and 3(c)(iii). Page 2 of 9
(d) (e)
(ii)
(iii)
(iv)
4. Representations and Warranties of Holder and Restrictions on Transfer Imposed by the Securities Act of 1933. (a) Representations and Warranties by Holder. The Holder represents and warrants to the Company with respect to this purchase as follows: (i) The Holder has substantial experience in evaluating and investing in private placement transactions of securities of companies similar to the Company so that the Holder is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its interests. The Holder is acquiring the Warrant and the Shares of Series Common Stock issuable upon conversion thereof Page 3 of 9 Preferred Stock issuable upon exercise of the Warrant and
(ii)
(iv)
(v)
(vi) (b)
5. Condition of Transfer or Exercise of Warrant . It shall be a condition to any transfer or exercise of this Warrant that at the time of such transfer or exercise, the Holder shall provide the Company with a representation in writing that the Holder or transferee is acquiring this Warrant and the shares of Series Preferred Stock to be issued upon exercise, for investment purposes only and not with a view to any sale or distribution, or will provide the Company with a statement of pertinent facts covering any proposed distribution and a written agreement that such Holder or transferee agrees to be bound by the provisions of this Warrant. As a further condition to any transfer of this Warrant or any or all of the shares of Series Preferred Stock issuable upon exercise of this Warrant, other than a transfer registered under the Act, the Company must have received a legal opinion, in form and substance satisfactory to the Company and its counsel, reciting the pertinent circumstances surrounding the proposed transfer and stating that such transfer is exempt from the registration and prospectus delivery requirements of the Act. Each certificate evidencing the shares issued upon exercise of the Warrant or upon any transfer of the shares (other than a transfer registered under the Act or any subsequent transfer of shares so registered) shall, at the Companys option, contain a legend in form and substance satisfactory to the Company and its counsel, restricting the transfer of the shares to sales or other dispositions exempt from the requirements of the Act. As further condition to each transfer, the Holder shall surrender this Warrant to the Company and the transferee shall receive and accept a Warrant, of like tenor and date, executed by the Company. 6. Stock Fully Paid; Reservation of Shares . All Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and non-assessable, and free from all taxes, liens, and charges with respect to the issue thereof. 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 issuance upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Series __ Preferred Stock to provide for the exercise of the rights represented by this Warrant. 7. (a) Adjustment for Certain Events. In the event of changes in the outstanding Series Preferred Stock by reason of stock dividends, split-ups, recapitalizations, reclassifications, mergers, consolidations, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the number and class of shares available under the Warrant in the aggregate and the Warrant Price shall be correspondingly adjusted, as appropriate, by the Board of Directors of the Company. The adjustment shall be such as will give the Holder of this Warrant upon exercise for the same aggregate Warrant Price the total number, class and kind of shares as it would have owned had the Warrant been exercised prior to the event and had it continued to hold such shares until after the event requiring adjustment. (b) Other Anti-dilution Protections . Additional anti-dilution rights applicable to the Series Preferred Stock purchasable hereunder upon exercise of the Warrant are as set forth in the Certificate of Incorporation as may be amended from time to time. Such anti-dilution rights may be restated, amended, modified or waived in any manner from time to time, as permitted by the Certificate of Incorporation, except that which may be adverse to the Holder hereof and different from other holders of Series Preferred Stock without the Holders written consent. The Company shall promptly provide the Holder with any restatement, amendment, modification or waiver of the Certification of Incorporation. Notwithstanding the foregoing, any inadvertent failure of the Company to promptly Page 5 of 9
PREFERRED STOCK WARRANT provide Holder with any restatement, amendment, modification or waiver to the Certificate of Incorporation shall not constitute a default under the Master Security Agreement between Company and Holder dated June 21, 2006. 8. Notice of Adjustments . Whenever any Warrant Price shall be adjusted pursuant to Section 7 (a) hereof or on request of the Holder, the Company shall prepare a certificate signed by its president or chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and number of shares issuable upon exercise of the Warrant after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (by certified or registered mail, return receipt required, postage prepaid) within thirty (30) days of such adjustment to the Holder of this Warrant as set forth in Section 19 hereof. 9. Market Stand-Off Agreement . Holder hereby agrees that for a period of up to 180 days following the effective date of the first registration statement of the Company covering common stock (or other securities) to be sold on its behalf of the Company in an underwritten public offering, it will not, to the extent requested by the Company and any underwriter, sell or otherwise transfer or dispose of (other than to designees or transferees who agree to be similarly bound) any of the Shares at any time during such period except common stock included in such registration; provided, however, that all officers and directors of the Company who hold securities of the Company or all other persons who own at least one percent (1%) of the Companys outstanding voting equity securities enter into similar agreements. 10. Transferability of Warrant. This Warrant is transferable on the books of the Company at its principal office by the registered Holder hereof upon surrender of this Warrant properly endorsed, subject to compliance with Section 5 and applicable federal and state securities laws. The Company shall issue and deliver to the transferee a new Warrant representing the Warrant so transferred. Upon any partial transfer, the Company will issue and deliver to Holder a new Warrant with respect to the Warrant not so transferred. Holder shall not have any right to transfer any portion of this Warrant to any direct competitor of the Company. 11. [Paragraph intentionally omitted] 12. No Fractional Shares. No fractional share of Series Preferred Stock will be issued in connection with any exercise hereunder, but in lieu of such fractional share the Company shall make a cash payment therefor upon the basis of the Warrant Price then in effect. 13. Charges, Taxes and Expenses. Issuance of certificates for shares of Series Preferred Stock upon the exercise of this Warrant shall be made without charge to the Holder for any United States or state of the United States documentary stamp tax or other incidental expense with respect to the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder. 14. No Shareholder Rights Until Exercise . This Warrant does not entitle the Holder hereof to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. 15. Registry of Warrant. The Company shall maintain a registry showing the name and address of the registered Holder of this Warrant. This Warrant may be surrendered for exchange or exercise, in accordance with its terms, at such office or agency of the Company, and the Company and Holder shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry. 16. Loss, Theft, Destruction or Mutilation of Warrant . Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft, or destruction, of indemnity reasonably satisfactory to it, and, if mutilated, upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant, having terms and conditions substantially identical to this Warrant, in lieu hereof. Page 6 of 9
18. No Impairment. The Company shall not by any action including, without limitation, amending its Sections or articles of incorporation or bylaws, any reorganization, transfer of assets, consolidation, merger, share exchange dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants or impair the ability of the Holder(s) to realize upon the intended economic value hereof, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate to protect the rights of the Holder(s) hereof against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Series Preferred Stock issuable upon the exercise of the Warrants above the amount payable therefor upon such exercise, (b) take all such action as may be necessary or appropriate in order that the Company may validly issue fully paid and non-assessable shares of Series Preferred Stock upon the exercise of the Warrants, (c) obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under the Warrants and (d) not reclassify or convert common stock and (f) not take or permit to be taken any action which would have the effect of shortening the period provided herein for exercise of the Warrants. 19. Addresses. Any notice required or permitted hereunder shall be in writing and shall be mailed by overnight courier, registered or certified mail, return receipt required, and postage pre-paid, or otherwise delivered by hand or by messenger, addressed as set forth below, or at such other address as the Company or the Holder hereof shall have furnished to the other party. If to the Company: Ambit Biosciences Corporation 4215 Sorrento Valley Blvd. San Diego, CA 92121 Attn: Chief Financial Officer Oxford Finance Corporation 133 N. Fairfax Street Alexandria, VA 22314 Attn: Chief Financial Officer [SIGNATURE APPEARS ON PAGE 8] Page 7 of 9
If to the Holder:
IN WITNESS WHEREOF, Ambit Biosciences Corporation has caused this Warrant to be executed by its officers thereunto duly authorized. Dated as of , 20 .
AMBIT BIOSCIENCES CORPORATION a Delaware corporation By: Name: Title: Page 8 of 9
NOTICE OF EXERCISE TO: Ambit Biosciences Corporation 4215 Sorrento Valley Blvd San Diego, CA 92121 Attn: Chief Financial Officer 1. The undersigned Warrantholder (Holder) elects to acquire shares of the Series Preferred Stock (the Preferred Stock) of Ambit Biosciences Corporation, (the Company), pursuant to the terms of the Stock Purchase Warrant dated , (the Warrant). 2. The Holder exercises its rights under the Warrant as set forth below: ( ( ) The Holder elects to purchase herewith a check in the amount of $ shares of Series Preferred Stock as provided in Section 3(a), (c) and tenders as payment of the purchase price. Preferred Stock as provided in Section 3(b) of the
) The Holder elects to convert the purchase rights into shares of Series Warrant.
3. The Holder surrenders the Warrant with this Notice of Exercise. 4. The Holder represents that it is acquiring the aforesaid shares of Series Preferred Stock for investment and not with a view to, or for resale in connection with, distribution and that the Holder has no present intention of distributing or reselling the shares. Holder acknowledges and agrees to be bound by the provisions of the Warrant, including, without limitation, the Market Stand-off Agreement contained therein. 5. Please issue a certificate representing the shares of the Series below: Name: Address: Taxpayer ID.: Oxford Finance Corporation By: Name: Title: Preferred Stock in the name of the Holder or in such other name as is specified
Exhibit 4.9 PREFERRED STOCK WARRANT NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR WITHOUT AN EFFECTTVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LEITER FROM THE SECURITIES AND EXCHANGE COMMISSION. WARRANT TO PURCHASE SHARES OF SERIES C PREFERRED STOCK Dated: , 20
THIS CERTIFIES THAT, for value received, Webster Bank, National Association, (Holder) is entitled to subscribe for and purchase that number of shares as set forth in paragraph 1 below of the fully paid and non-assessable Series C Preferred Stock (the Shares or the Preferred Stock) of Ambit Biosciences Corporation, a Delaware corporation (the Company), at the Warrant Price (as hereinafter defined), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, the term Series C Preferred Stock shall mean the Companys presently authorized Series C Preferred Stock, and any stock into which such Series C Preferred Stock may hereafter be exchanged. 1. Warrant Price. The Warrant Price shall be Four Dollars and Thirty Cents ($4.30). The number of Shares for which this Warrant is exercisable shall be ( ). 2. Conditions to Exercise. The purchase right represented by this Warrant may be exercised at any time, or from time to time, in whole or in part during the term commencing on the date hereof and ending on the earlier of: (a) (b) 5:00 P.M. Eastern Standard time on the eighth annual anniversary of this Warrant Agreement; or the earlier termination of this Warrant pursuant to Section 3(e).
(b)
(ii)
(iii)
(d) (e)
(ii)
(iii)
(iv)
(ii)
(iv)
(v)
(vi) (b)
5. Condition of Transfer or Exercise of Warrant . It shall be a condition to any transfer or exercise of this Warrant that at the time of such transfer or exercise, the Holder shall provide the Company with a representation in writing that the Holder or transferee is acquiring this Warrant and the shares of Series C Preferred Stock to be issued upon exercise, for investment purposes only and not with a view to any sale or distribution, or will provide the Company with a statement of pertinent facts covering any proposed distribution and a written agreement that such Holder or transferee agrees to be bound by the provisions of this Warrant. As a further condition to any transfer of this Warrant or any or all of the shares of Series C Preferred Stock issuable upon exercise of this Warrant, other than a transfer registered under the Act, the Company must have received a legal opinion, in form and substance satisfactory to the Company and its counsel, reciting the pertinent circumstances surrounding the proposed transfer and stating that such transfer is exempt from the registration and prospectus delivery requirements of the Act. Each certificate evidencing the shares issued upon exercise of the Warrant or upon any transfer of the shares (other than a transfer registered under the Act or any subsequent transfer of shares so registered) shall, at the Companys option, contain a legend in form and substance satisfactory to the Company and its counsel, restricting the transfer of the shares to sales or other dispositions exempt from the requirements of the Act. As further condition to each transfer, the Holder shall surrender this Warrant to the Company and the transferee shall receive and accept a Warrant, of like tenor and date, executed by the Company. 6. Stock Fully Paid; Reservation of Shares . All Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and non-assessable, and free from all taxes, liens, and charges with respect to the issue thereof. 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 issuance upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Series C Preferred Stock to provide for the exercise of the rights represented by this Warrant. 7. (a) Adjustment for Certain Events. In the event of changes in the outstanding Series C Preferred Stock by reason of stock dividends, split-ups, recapitalizations, reclassifications, mergers, consolidations, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the number and class of shares available under the Warrant in the aggregate and the Warrant Price shall be correspondingly adjusted, as appropriate, by the Board of Directors of the Company. The adjustment shall be such as will give the Holder of this Warrant upon exercise for the same aggregate Warrant Price the total number, class and kind of shares as it would have owned had the Warrant been exercised prior to the event and had it continued to hold such shares until after the event requiring adjustment. (b) Other Anti-dilution Protections . Additional anti-dilution rights applicable to the Series C Preferred Stock purchasable hereunder upon exercise of the Warrant are as set forth in the Certificate of Incorporation as may be amended from time to time. Such anti-dilution rights may be restated, amended, modified or waived in any manner from time to time, as permitted by the Certificate of Incorporation, except that which may be adverse to the Holder hereof and different from other holders of Series C Preferred Stock without the Holders written consent. The Company shall promptly provide the Holder with any restatement, amendment, modification or waiver of the Certification of Incorporation. Notwithstanding the foregoing, any inadvertent failure of the Company to promptly Page 5 of 9
PREFERRED STOCK WARRANT provide Holder with any restatement, amendment, modification or waiver to the Certificate of Incorporation shall not constitute a default under the Master Security Agreement between Company and Holder dated June 21, 2006. 8. Notice of Adjustments . Whenever any Warrant Price shall be adjusted pursuant to Section 7 (a) hereof or on request of the Holder, the Company shall prepare a certificate signed by its president or chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and number of shares issuable upon exercise of the Warrant after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (by certified or registered mail, return receipt required, postage prepaid) within thirty (30) days of such adjustment to the Holder of this Warrant as set forth in Section 19 hereof. 9. Market Stand-Off Agreement . Holder hereby agrees that for a period of up to 180 days following the effective date of the first registration statement of the Company covering common stock (or other securities) to be sold on its behalf of the Company in an underwritten public offering, it will not, to the extent requested by the Company and any underwriter, sell or otherwise transfer or dispose of (other than to designees or transferees who agree to be similarly bound) any of the Shares at any time during such period except common stock included in such registration; provided, however, that all officers and directors of the Company who hold securities of the Company or all other persons who own at least one percent (1%) of the Companys outstanding voting equity securities enter into similar agreements. 10. Transferability of Warrant. This Warrant is transferable on the books of the Company at its principal office by the registered Holder hereof upon surrender of this Warrant properly endorsed, subject to compliance with Section 5 and applicable federal and state securities laws. The Company shall issue and deliver to the transferee a new Warrant representing the Warrant so transferred. Upon any partial transfer, the Company will issue and deliver to Holder a new Warrant with respect to the Warrant not so transferred. Holder shall not have any right to transfer any portion of this Warrant to any direct competitor of the Company. 11. [Paragraph intentionally omitted] 12. No Fractional Shares. No fractional share of Series C Preferred Stock will be issued in connection with any exercise hereunder, but in lieu of such fractional share the Company shall make a cash payment therefor upon the basis of the Warrant Price then in effect. 13. Charges, Taxes and Expenses. Issuance of certificates for shares of Series C Preferred Stock upon the exercise of this Warrant shall be made without charge to the Holder for any United States or state of the United States documentary stamp tax or other incidental expense with respect to the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder. 14. No Shareholder Rights Until Exercise . This Warrant does not entitle the Holder hereof to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. 15. Registry of Warrant. The Company shall maintain a registry showing the name and address of the registered Holder of this Warrant. This Warrant may be surrendered for exchange or exercise, in accordance with its terms, at such office or agency of the Company, and the Company and Holder shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry. 16. Loss, Theft, Destruction or Mutilation of Warrant . Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft, or destruction, of indemnity reasonably satisfactory to it, and, if mutilated, upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant, having terms and conditions substantially identical to this Warrant, in lieu hereof. Page 6 of 9
18. No Impairment. The Company shall not by any action including, without limitation, amending its Sections or articles of incorporation or bylaws, any reorganization, transfer of assets, consolidation, merger, share exchange dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants or impair the ability of the Holder(s) to realize upon the intended economic value hereof, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate to protect the rights of the Holder(s) hereof against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any shares of Series C Preferred Stock issuable upon the exercise of the Warrants above the amount payable therefor upon such exercise, (b) take all such action as may be necessary or appropriate in order that the Company may validly issue fully paid and non-assessable shares of Series C Preferred Stock upon the exercise of the Warrants, (c) obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under the Warrants and (d) not reclassify or convert common stock and (f) not take or permit to be taken any action which would have the effect of shortening the period provided herein for exercise of the Warrants. 19. Addresses. Any notice required or permitted hereunder shall be in writing and shall be mailed by overnight courier, registered or certified mail, return receipt required, and postage pre-paid, or otherwise delivered by hand or by messenger, addressed as set forth below, or at such other address as the Company or the Holder hereof shall have furnished to the other party. If to the Company: Ambit Biosciences Corporation 4215 Sorrento Valley Blvd. San Diego, CA 92121 Attn: Chief Financial Officer Webster Bank, National Association 80 Elm Street New Haven, CT 06510 Attn: Peter Hicks [SIGNATURE APPEARS ON PAGE 8] Page 7 of 9
If to the Holder:
IN WITNESS WHEREOF, Ambit Biosciences Corporation has caused this Warrant to be executed by its officers thereunto duly authorized. Dated as of , 20 .
AMBIT BIOSCIENCES CORPORATION a Delaware corporation By: Name: Title: Page 8 of 9
NOTICE OF EXERCISE TO: Ambit Biosciences Corporation 4215 Sorrento Valley Blvd San Diego, CA 92121 Attn: Chief Financial Officer 1. The undersigned Warrantholder (Holder) elects to acquire shares of the Series C Preferred Stock (the Preferred Stock) of Ambit Biosciences Corporation, (the Company), pursuant to the terms of the Stock Purchase Warrant dated , (the Warrant). 2. The Holder exercises its rights under the Warrant as set forth below: ( ( ) The Holder elects to purchase herewith a check in the amount of $ shares of Series C Preferred Stock as provided in Section 3(a), (c) and tenders as payment of the purchase price.
3. The Holder surrenders the Warrant with this Notice of Exercise. 4. The Holder represents that it is acquiring the aforesaid shares of Series C Preferred Stock for investment and not with a view to, or for resale in connection with, distribution and that the Holder has no present intention of distributing or reselling the shares. Holder acknowledges and agrees to be bound by the provisions of the Warrant, including, without limitation, the Market Stand-off Agreement contained therein. 5. Please issue a certificate representing the shares of the Series C Preferred Stock in the name of the Holder or in such other name as is specified below: Name: Address: Taxpayer ID.: Webster Bank, National Association By: Name: Title:
Exhibit 4.10 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THIS WARRANT. AMBIT BIOSCIENCES CORPORATION WARRANT TO PURCHASE 116,279 SHARES OF SERIES C PREFERRED STOCK THIS CERTIFIES THAT, for value received, HORIZON TECHNOLOGY FUNDING COMPANY II LLC and its assignees are entitled to subscribe for and purchase 116,279 shares of Series C Preferred Stock (as adjusted pursuant to Section 4 hereof, the Shares) of AMBIT BIOSCIENCES CORPORATION, a Delaware corporation (the Company), at the price of $4.30 per share (such price and such other price as shall result, from time to time, from the adjustments specified in Section 4 hereof is herein referred to as the Warrant Price), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, (a) the term Series C Preferred shall mean the Companys presently authorized Series C Preferred Stock, and any stock into or for which such Series C Preferred Stock may hereafter be converted or exchanged, and after the automatic conversion of the Series C Preferred Stock to Common Stock shall mean the Companys Common Stock, (b) the term Date of Grant shall mean October 6, 2005, and (c) the term Other Warrants shall mean any other warrants issued by the Company in connection with the transaction with respect to which this Warrant was issued, and any warrant issued upon transfer or partial exercise of or in lieu of this Warrant. The term Warrant as used herein shall be deemed to include Other Warrants unless the context clearly requires otherwise. 1. Term. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time and from time to time, provided that if this Warrant is not fully exercised on or before the date which is the tenth (10th) anniversary of the Date of Grant, this Warrant shall expire and be of no further force or effect. 2. Method of Exercise; Payment; Issuance of New Warrant . Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part and from time to time, at the election of the holder hereof, by (a) the surrender of this Warrant (with the notice of exercise substantially in the form attached hereto as Exhibit A-1 duly completed and executed) at the principal office of the Company and by the payment to the Company, by certified or bank check, or by wire transfer to an account designated by the Company (a Wire Transfer) of an amount equal to the then applicable Warrant Price multiplied by the number of Shares then being purchased; (b) if in connection with a registered public offering of the Companys securities, the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A-2 duly completed and executed) at the principal office of the Company together with notice of arrangements
reasonably satisfactory to the Company for payment to the Company either by certified or bank check or by Wire Transfer from the proceeds of the sale of shares to be sold by the holder in such public offering of an amount equal to the then applicable Warrant Price per share multiplied by the number of Shares then being purchased; or (c) exercise of the net issuance right provided for in Section 10.2 hereof. The person or persons in whose name(s) any certificate(s) representing shares of Series Preferred shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the shares represented thereby (and such shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be delivered to the holder hereof as soon as possible and in any event within thirty (30) days after such exercise and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof as soon as possible and in any event within such thirty-day period. 3. Stock Fully Paid; Reservation of Shares . All Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance pursuant to the terms and conditions herein, be fully paid and nonassessable, and free from all preemptive rights and taxes, liens and charges with respect to the issue thereof. 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 the issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Series Preferred to provide for the exercise of the rights represented by this Warrant and a sufficient number of shares of its Common Stock to provide for the conversion of the Series Preferred into Common Stock. 4. Adjustment of Warrant Price and Number of Shares . The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) Reclassification or Merger. In case of any reclassification or change of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in case of any merger of the Company with or into another corporation (other than (x) a merger with another corporation in which the Company is the acquiring and the surviving corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant or (y) a merger into another corporation whose shares are publicly traded and which has a market capitalization of not less than $500,000,000 (a Large Cap Merger)), or in case of any sale of all or substantially all of the assets of the Company (other than to another corporation whose shares are publicly traded and which has a market capitalization of not less than $500,000,000 (a Large Cap Sale and collectively with a Large Cap Merger, a Large Cap Transaction)), the Company, or such successor or purchasing corporation, as the case may be, shall duly execute and deliver to the holder of this Warrant a new Warrant (in form and substance reasonably satisfactory to the holder of this Warrant), so that the holder of this Warrant shall have the right to receive upon exercise of this Warrant, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the shares of Series -2-
Preferred theretofore issuable upon exercise of this Warrant, (i) the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, merger or sale by a holder of the number of shares of Series Preferred then purchasable under this Warrant, or (ii) in the case of such a merger or sale in which the consideration paid consists all or in part of assets other than securities of the successor or purchasing corporation, at the option of the holder of this Warrant, the securities of the successor or purchasing corporation having a value at the time of the transaction equivalent to the value of the Series Preferred purchasable upon exercise of this Warrant at the time of the transaction. Any new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4. The provisions of this Section 4(a) shall similarly apply to successive reclassifications, changes, mergers and sales. In the event of a Large Cap Transaction, the Company shall provide to the holder of this Warrant at least twenty (20) days written notice of such Large Cap Transaction, and this Warrant shall terminate unless exercised prior to the closing date of such Large Cap Transaction. (b) Subdivision or Combination of Shares . If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its outstanding shares of Series Preferred, the Warrant Price shall be proportionately decreased and the number of Shares issuable hereunder shall be proportionately increased in the case of a subdivision and the Warrant Price shall be proportionately increased and the number of Shares issuable hereunder shall be proportionately decreased in the case of a combination. Notwithstanding the foregoing, the Company and the holder agree that no further adjustment to the Warrant Price and Shares issuable hereunder shall be made in connection with the 1 for 10 reverse stock split effected pursuant to the Amended and Restated Certificate of Incorporation filed on or about the Date of Grant. (c) Stock Dividends and Other Distributions . If the Company at any time while this Warrant is outstanding and unexpired shall (i) pay a dividend with respect to Series Preferred payable in Series Preferred, then the Warrant Price shall be adjusted, from and after the date of determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Series Preferred outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Series Preferred outstanding immediately after such dividend or distribution; or (ii) make any other distribution with respect to Series Preferred (except any distribution specifically provided for in Sections 4(a) and 4(b)), then, in each such case, provision shall be made by the Company such that the holder of this Warrant shall receive upon exercise of this Warrant a proportionate share of any such dividend or distribution as though it were the holder of the Series Preferred (or Common Stock issuable upon conversion thereof) as of the record date fixed for the determination of the shareholders of the Company entitled to receive such dividend or distribution. (d) Adjustment of Number of Shares . Upon each adjustment in the Warrant Price, the number of Shares of Series Preferred purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of Shares purchasable immediately prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter. -3-
(e) Antidilution Rights. The antidilution rights applicable to the Shares of Series C Preferred Stock purchasable hereunder upon exercise of this Warrant are set forth in the Companys Amended and Restated Certificate of Incorporation, as may be amended from time to time after the date hereof (the Charter). The antidilution rights applicable to shares of Series C Preferred may be restated, amended, modified or waived from time to time as permitted by the Charter. The Company shall use its commercially reasonable efforts to promptly provide the holder hereof with any restatement, amendment, modification or waiver of the Charter promptly after the same has been made. 5. Notice of Adjustments . Whenever the Warrant Price or the number of Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall make a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and the number of Shares purchasable hereunder after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant. In-addition, whenever the conversion price or conversion ratio of the Series Preferred shall be adjusted, the Company shall, at the request of holder of this Warrant, make a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the conversion price or ratio of the Series Preferred after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant. 6. Fractional Shares. No fractional shares of Series Preferred will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor based on the fair market value of the Series Preferred on the date of exercise as reasonably determined in good faith by the Companys Board of Directors. 7. Compliance with Act; Disposition of Warrant or Shares of Series Preferred . (a) Compliance with Act . The holder of this Warrant, by acceptance hereof, agrees that this Warrant, and the shares of Series Preferred to be issued upon exercise hereof and any Common Stock issued upon conversion thereof are being acquired for investment and that such holder will not offer, sell or otherwise dispose of this Warrant, or any shares of Series Preferred to be issued upon exercise hereof or any Common Stock issued upon conversion thereof except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the Act) or any applicable state securities laws. Upon exercise of this Warrant, unless the Shares being acquired are registered under the Act and any applicable state securities laws or an exemption from such registration is available, the holder hereof shall confirm in writing that the shares of Series Preferred so purchased (and any shares of Common Stock issued upon conversion thereof) are being acquired for investment and not with a view toward distribution or resale in violation of the Act and shall confirm such other matters related thereto as may be reasonably requested by the Company. This Warrant and all shares of Series Preferred issued upon exercise of this Warrant and all shares of Common Stock issued upon conversion thereof (unless registered under the Act and any applicable state securities laws) shall be stamped or imprinted with a legend in substantially the following form: -4-
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY. Said legend shall be removed by the Company, upon the request of a holder, at such time as the Company has determined that the restrictions on the transfer of the applicable security shall have terminated. In addition, in connection with the issuance of this Warrant, the holder specifically represents to the Company by acceptance of this Warrant as follows: (1) The holder is aware of the Companys business affairs and financial condition, and has acquired information about the Company sufficient to reach an informed and knowledgeable decision to acquire this Warrant. The holder is acquiring this Warrant for its own account for investment purposes only and not with a view to, or for the resale in connection with, any distribution thereof in violation of the Act. (2) The holder understands that this Warrant has not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the holders investment intent as expressed herein. (3) The holder further understands that this Warrant must be held indefinitely unless subsequently registered under the Act and qualified under any applicable state securities laws, or unless exemptions from registration and qualification are otherwise available. The holder is aware of the provisions of Rule 144, promulgated under the Act. (4) The holder is an accredited investor as such term is defined in Rule 501 of Regulation D promulgated under the Act. (b) Disposition of Warrant or Shares. With respect to any offer, sale or other disposition of this Warrant or any shares of Series Preferred acquired pursuant to the exercise of this Warrant prior to registration of such Warrant or shares, the holder hereof agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such holders counsel, or other evidence, if reasonably satisfactory to the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification (under the Act as then in effect or any federal or state securities law then in effect) of this Warrant or such shares of Series Preferred or Common Stock and indicating whether or not under the Act certificates for this Warrant or such shares of Series Preferred to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability in order to ensure compliance with such law. Upon receiving such written notice and reasonably satisfactory opinion or other evidence, the Company, as promptly as practicable but no later than fifteen (15) days after receipt of the written notice, shall notify such holder that such holder may sell or otherwise dispose -5-
of this Warrant or such shares of Series Preferred or Common Stock, all in accordance with the terms of the notice delivered to the Company. If a determination has been made pursuant to this Section 7(b) that the opinion of counsel for the holder or other evidence is not reasonably satisfactory to the Company, the Company shall so notify the holder promptly with details thereof after such determination has been made. Notwithstanding the foregoing, this Warrant or such shares of Series Preferred or Common Stock may, as to such federal laws, be offered, sold or otherwise disposed of in accordance with Rule 144 or 144A under the Act, provided that the Company shall have been furnished with such information as the Company may reasonably request to provide a reasonable assurance that the provisions of Rule 144 or 144A have been satisfied. Each certificate representing this Warrant or the shares of Series Preferred thus transferred (except a transfer pursuant to Rule 144 or 144A) shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless in the aforesaid opinion of counsel for the holder, such legend is not required in order to ensure compliance with such laws. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. (c) Applicability of Restrictions . Neither any restrictions of any legend described in this Warrant nor the requirements of Section 7(b) above shall apply to any transfer of, or grant of a security interest in, this Warrant (or the Series Preferred or Common Stock obtainable upon exercise thereof) or any part hereof (i) to a partner of the holder if the holder is a partnership or to a member of the holder if the holder is a limited liability company, (ii) to a partnership of which the holder is a partner or to a limited liability company of which the holder is a member, or (iii) to any affiliate of the holder if the holder is a corporation; provided, however, in any such transfer, if applicable, the transferee shall on the Companys request agree in writing to be bound by the terms of this Warrant as if an original holder hereof. 8. Rights as Shareholders; Information . No holder of this Warrant, as such, shall be entitled to vote or receive dividends or be deemed the holder of Series Preferred or any other securities of the Company which may at any time be issuable upon the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. Notwithstanding the foregoing, the Company will transmit to the holder of this Warrant such information, documents and reports as are generally distributed to the holders of any class or series of the securities of the Company concurrently with the distribution thereof to the shareholders. 9. Intentionally Omitted. 10. Additional Rights. 10.1 Acquisition Transactions. The Company shall provide the holder of this Warrant with at least twenty (20) days written notice prior to closing thereof of the terms and conditions of any of the following transactions (to the extent the Company has notice thereof): (i) the Asset Transfer (as such term is defined in the Charter), or (ii) Acquisition (as such term is defined in the Charter). -6-
10.2 Right to Convert Warrant into Stock: Net Issuance. (a) Right to Convert. In addition to and without limiting the rights of the holder under the terms of this Warrant, the holder shall have the right to convert this Warrant or any portion thereof (the Conversion Right) into shares of Series Preferred as provided in this Section 10.2 at any time or from time to time during the term of this Warrant. Upon exercise of the Conversion Right with respect to a particular number of shares subject to this Warrant (the Converted Warrant Shares), the Company shall deliver to the holder (without payment by the holder of any exercise price or any cash or other consideration) that number of shares of fully paid and nonassessable Series Preferred as is determined according to the following formula: X = B-A Y Where: X= Y= A= the number of shares of Series Preferred that shall be issued to holder the fair market value of one share of Series Preferred the aggregate Warrant Price of the specified number of Converted Warrant Shares immediately prior to the exercise of the Conversion Right (i.e., the number of Converted Warrant Shares multiplied by the Warrant Price) the aggregate fair market value of the specified number of Converted Warrant Shares ( i.e., the number of Converted Warrant Shares multiplied by the fair market value of one Converted Warrant Share)
B=
No fractional shares shall be issuable upon exercise of the Conversion Right, and, if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as hereinafter defined). For purposes of Section 10 of this Warrant, shares issued pursuant to the Conversion Right shall be treated as if they were issued upon the exercise of this Warrant. (b) Method of Exercise . The Conversion Right may be exercised by the holder by the surrender of this Warrant at the principal office of the Company together with a written statement (which may be in the form of Exhibit A-1 or Exhibit A-2 hereto) specifying that the holder thereby intends to exercise the Conversion Right and indicating the number of shares subject to this Warrant which are being surrendered (referred to in Section 10.2(a) hereof as the Converted Warrant Shares) in exercise of the Conversion Right. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the Conversion Date), and, at the election of the holder hereof, may be made contingent upon the closing of the sale of the Companys Common Stock to the public in a public offering pursuant to a Registration Statement under the Act (a Public Offering). Certificates for the shares issuable upon exercise of the Conversion Right and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the -7-
Conversion Date and shall be delivered to the holder within thirty (30) days following the Conversion Date. (c) Determination of Fair Market Value. For purposes of this Section 10.2, fair market value of a share of Series Preferred (or Common Stock if the Series Preferred has been automatically converted into Common Stock) as of a particular date (the Determination Date) shall mean: (i) If the Conversion Right is exercised in connection with and contingent upon a Public Offering, and if the Companys Registration Statement relating to such Public Offering (Registration Statement) has been declared effective by the Securities and Exchange Commission, then the initial Price to Public specified in the final prospectus with respect to such offering. (ii) If the Conversion Right is not exercised in connection with and contingent upon a Public Offering, then as follows: (A) If traded on a securities exchange, the fair market value of the Common Stock shall be deemed to be the average of the closing prices of the Common Stock on such exchange over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible; (B) If traded on the NASDAQ Stock Market or other over-the-counter system, the fair market value of the Common Stock shall be deemed to be the average of the closing bid prices of the Common Stock over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible; and (C) If there is no public market for. the Common Stock, then fair market value shall be determined by the Companys Board of Directors in good faith. In making a determination under clauses (A) or (B) above, if on the Determination Date, five trading days had not passed since the closing of the Companys initial public offering of its Common Stock (IPO) effected pursuant to a Registration Statement on Form S-1 (or its successor) filed under the Act, then the fair market value of the Common Stock shall be the average closing prices or closing bid prices, as applicable, for the shorter period beginning on and including the date of the IPO and ending on the trading day prior to the Determination Date (or if such period includes only one trading day the closing price or closing bid price, as applicable, for such trading day). If closing prices or closing bid prices are no longer reported by a securities exchange or other trading system, the closing price or closing bid price shall be that which is reported by such securities exchange or other trading system at 4:00 p.m. New York City time on the applicable trading day. -8-
10.3 Exercise Prior to Expiration. To the extent this Warrant is not previously exercised as to all of the Shares subject hereto, and if the fair market value of one share of the Series Preferred is greater than the Warrant Price then in effect, this Warrant shall be deemed automatically exercised pursuant to Section 10.2 above (even if not surrendered) immediately before its expiration. For purposes of such automatic exercise, the fair market value of one share of the Series Preferred upon such expiration shall be determined pursuant to Section 10.2(c). To the extent this Warrant or any portion thereof is deemed automatically exercised pursuant to this Section 10.3, the Company agrees to promptly notify the holder hereof, upon request of the holder hereof, of the number of Shares, if any, the holder hereof is to receive by reason of such automatic exercise. 11. Market Standoff . The holder hereof agrees that such holder shall not sell, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Common Stock (or other securities) of the Company held by such holder (other than those included in the registration or acquired following the Companys initial public offering) for a period specified by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Act; provided that (i) such agreement shall apply only to the Companys IPO; and (ii) all officers and directors of the Company and holders of at least one percent (1%) of the Companys voting securities enter into similar agreements. The holder agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter that are consistent with the holders obligations under Section 11 or that are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, the holder shall provide, within ten (10) days of such request, such information as may be required by the Company or such representative in connection with the completion of any public offering of the Companys securities pursuant to a registration statement filed under the Act. 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. The holder agrees that any transferee of this Warrant shall be bound by Section 11. The underwriters of the Companys stock are intended third party beneficiaries of Section 11 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. 12. Representations and Warranties. The Company represents and warrants to the holder of this Warrant as follows: (a) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies. -9-
(b) The Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free from preemptive rights. (c) The rights, preferences, privileges and restrictions granted to or imposed upon the Series Preferred and the holders thereof are as set forth in the Charter as may be amended from time to time, and on the Date of Grant, each share of the Series Preferred represented by this Warrant is convertible into one share of Common Stock. (d) The shares of Common Stock issuable upon conversion of the Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms of the Charter will be validly issued, fully paid and nonassessable. (e) The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Companys Charter or by-laws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene, any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person, except for the filing of notices pursuant to federal and state securities laws, which filings will be effected by the time required thereby. (f) There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company in any court or before any governmental commission, board or authority which, if adversely determined, could have a material adverse effect on the ability of the Company to perform its obligations under this Warrant. (g) The number of shares of Common Stock of the Company outstanding on the date hereof, on a fully diluted basis (assuming the conversion of all outstanding convertible securities and the exercise of all outstanding options and warrants), does not exceed 14,000,000 shares. 13. 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. 14. Notices. Any notice, request, communication 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 or registered 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 therefor on the signature page of this Warrant. 15. 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 - 10 -
Companys assets, and all of the obligations of the Company relating to the Series Preferred issuable upon the exercise or conversion of this Warrant shall survive the exercise, conversion and termination of this Warrant and all of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. 16. Lost Warrants or Stock Certificates. 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 or any stock certificate 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 or stock certificate, the Company will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 17. Descriptive Headings. The descriptive headings of the various Sections of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The language in this Warrant shall be construed as to its fair meaning without regard to which party drafted this Warrant. 18. Governing Law. 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, without giving effect to conflicts of laws principals. 19. Survival of Representations, Warranties and Agreements . All representations and warranties of the Company and the holder hereof contained herein shall survive the Date of Grant, the exercise or conversion of this Warrant (or any part hereof) or the termination or expiration of rights hereunder. All agreements of the Company and the holder hereof contained herein shall survive indefinitely until, by their respective terms, they are no longer operative. 20. Remedies. In case any one or more of the covenants and agreements contained in this Warrant shall have been breached, the holders hereof (in the case of a breach by the Company), or the Company (in the case of a breach by a holder), may proceed to protect and enforce their or its rights either by suit in equity and/or by action at law, including, but not limited to, an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or agreement contained in this Warrant. 21. No Impairment of Rights . The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 22. Severability. The invalidity or unenforceability of any provision of this Warrant in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction, or affect any other provision of this Warrant, which shall remain in full force and effect. 23. Recovery of Litigation Costs . If any legal action or other proceeding is brought for the enforcement of this Warrant, or because of an alleged dispute, breach, default, or misrepresentation - 11 -
in connection with any of the provisions of this Warrant, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled. 24. Entire Agreement; Modification . This Warrant constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and undertakings of the parties, whether oral or written, with respect to such subject matter. The Company has caused this Warrant to be duly executed and delivered as of the Date of Grant specified above. AMBIT BIOSCIENCES CORPORATION By: /s/ M. Scott Salka
Name: M SALKA Title: CEO Address: 4215 Sorrento Valley Blvd. San Diego, CA 92121 - 12 -
EXHIBIT A-1 NOTICE OF EXERCISE To: AMBIT BIOSCIENCES CORPORATION (the Company) 1. The undersigned hereby: elects to purchase shares of [Series Preferred Stock] [Common Stock] of the Company pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, or elects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to [Series Preferred Stock] [Common Stock]. Shares of
2. Please issue a certificate or certificates representing specified below:
shares in the name of the undersigned or in such other name or names as are
(Name)
(Address) 3. The undersigned represents that the aforesaid shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares, all except as in compliance with applicable securities laws.
(Date) - 13 -
(Signature)
EXHIBIT A-2 NOTICE OF EXERCISE To: AMBIT BIOSCIENCES CORPORATION (the Company) 1. Contingent upon and effective immediately prior to the closing (the Closing) of the Companys public offering contemplated by the Registration Statement on Form S , filed , 200 the undersigned hereby: elects to purchase shares of [Series Preferred Stock] [Common Stock] of the Company (or such lesser number of shares as may be sold on behalf of the undersigned at the Closing) pursuant to the terms of the attached Warrant, or elects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to Shares of [Series Preferred Stock] [Common Stock]. shares.
2. Please deliver to the custodian for the selling shareholders a stock certificate representing such
3. The undersigned has instructed the custodian for the selling shareholders to deliver to the Company $ or, if less, the net proceeds due the undersigned from the sale of shares in the aforesaid public offering. If such net proceeds are less than the purchase price for such shares, the undersigned agrees to deliver the difference to the Company prior to the Closing.
(Date)
(Signature)
Exhibit 4.11 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THIS WARRANT. AMBIT BIOSCIENCES CORPORATION WARRANT TO PURCHASE 116,279 SHARES OF SERIES C PREFERRED STOCK THIS CERTIFIES THAT, for value received, HORIZON TECHNOLOGY FUNDING COMPANY III LLC and its assignees are entitled to subscribe for and purchase 116,279 shares of Series C Preferred Stock (as adjusted pursuant to Section 4 hereof, the Shares) of AMBIT BIOSCIENCES CORPORATION, a Delaware corporation (the Company), at the price of $4.30 per share (such price and such other price as shall result, from time to time, from the adjustments specified in Section 4 hereof is herein referred to as the Warrant Price), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, (a) the term Series C Preferred shall mean the Companys presently authorized Series C Preferred Stock, and any stock into or for which such Series C Preferred Stock may hereafter be converted or exchanged, and after the automatic conversion of the Series C Preferred Stock to Common Stock shall mean the Companys Common Stock, (b) the term Date of Grant shall mean October 6, 2005, and (c) the term Other Warrants shall mean any other warrants issued by the Company in connection with the transaction with respect to which this Warrant was issued, and any warrant issued upon transfer or partial exercise of or in lieu of this Warrant. The term Warrant as used herein shall be deemed to include Other Warrants unless the context clearly requires otherwise. 1. Term. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time and from time to time, provided that if this Warrant is not fully exercised on or before the date which is the tenth (10th) anniversary of the Date of Grant, this Warrant shall expire and be of no further force or effect. 2. Method of Exercise; Payment; Issuance of New Warrant . Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part and from time to time, at the election of the holder hereof, by (a) the surrender of this Warrant (with the notice of exercise substantially in the form attached hereto as Exhibit A-1 duly completed and executed) at the principal office of the Company and by the payment to the Company, by certified or bank check, or by wire transfer to an account designated by the Company (a Wire Transfer) of an amount equal to the then applicable Warrant Price multiplied by the number of Shares then being purchased; (b) if in connection with a registered public offering of the Companys securities, the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A-2 duly completed and executed) at the principal office of the Company together with notice of arrangements
reasonably satisfactory to the Company for payment to the Company either by certified or bank check or by Wire Transfer from the proceeds of the sale of shares to be sold by the holder in such public offering of an amount equal to the then applicable Warrant Price per share multiplied by the number of Shares then being purchased; or (c) exercise of the net issuance right provided for in Section 10.2 hereof. The person or persons in whose name(s) any certificate(s) representing shares of Series Preferred shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the shares represented thereby (and such shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be delivered to the holder hereof as soon as possible and in any event within thirty (30) days after such exercise and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof as soon as possible and in any event within such thirty-day period. 3. Stock Fully Paid; Reservation of Shares . All Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance pursuant to the terms and conditions herein, be fully paid and nonassessable, and free from all preemptive rights and taxes, liens and charges with respect to the issue thereof. 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 the issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Series Preferred to provide for the exercise of the rights represented by this Warrant and a sufficient number of shares of its Common Stock to provide for the conversion of the Series Preferred into Common Stock. 4. Adjustment of Warrant Price and Number of Shares . The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) Reclassification or Merger. In case of any reclassification or change of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in case of any merger of the Company with or into another corporation (other than (x) a merger with another corporation in which the Company is the acquiring and the surviving corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant or (y) a merger into another corporation whose shares are publicly traded and which has a market capitalization of not less than $500,000,000 (a Large Cap Merger)), or in case of any sale of all or substantially all of the assets of the Company (other than to another corporation whose shares are publicly traded and which has a market capitalization of not less than $500,000,000 (a Large Cap Sale and collectively with a Large Cap Merger, a Large Cap Transaction)), the Company, or such successor or purchasing corporation, as the case may be, shall duly execute and deliver to the holder of this Warrant a new Warrant (in form and substance reasonably satisfactory to the holder of this Warrant), so that the holder of this Warrant shall have the right to receive upon exercise of this Warrant, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the shares of Series -2-
Preferred theretofore issuable upon exercise of this Warrant, (i) the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, merger or sale by a holder of the number of shares of Series Preferred then purchasable under this Warrant, or (ii) in the case of such a merger or sale in which the consideration paid consists all or in part of assets other than securities of the successor or purchasing corporation, at the option of the holder of this Warrant, the securities of the successor or purchasing corporation having a value at the time of the transaction equivalent to the value of the Series Preferred purchasable upon exercise of this Warrant at the time of the transaction. Any new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4. The provisions of this Section 4(a) shall similarly apply to successive reclassifications, changes, mergers and sales. In the event of a Large Cap Transaction, the Company shall provide to the holder of this Warrant at least twenty (20) days written notice of such Large Cap Transaction, and this Warrant shall terminate unless exercised prior to the closing date of such Large Cap Transaction. (b) Subdivision or Combination of Shares . If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its outstanding shares of Series Preferred, the Warrant Price shall be proportionately decreased and the number of Shares issuable hereunder shall be proportionately increased in the case of a subdivision and the Warrant Price shall be proportionately increased and the number of Shares issuable hereunder shall be proportionately decreased in the case of a combination. Notwithstanding the foregoing, the Company and the holder agree that no further adjustment to the Warrant Price and Shares issuable hereunder shall be made in connection with the 1 for 10 reverse stock split effected pursuant to the Amended and Restated Certificate of Incorporation filed on or about the Date of Grant. (c) Stock Dividends and Other Distributions . If the Company at any time while this Warrant is outstanding and unexpired shall (i) pay a dividend with respect to Series Preferred payable in Series Preferred, then the Warrant Price shall be adjusted, from and after the date of determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Series Preferred outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Series Preferred outstanding immediately after such dividend or distribution; or (ii) make any other distribution with respect to Series Preferred (except any distribution specifically provided for in Sections 4(a) and 4(b)), then, in each such case, provision shall be made by the Company such that the holder of this Warrant shall receive upon exercise of this Warrant a proportionate share of any such dividend or distribution as though it were the holder of the Series Preferred (or Common Stock issuable upon conversion thereof) as of the record date fixed for the determination of the shareholders of the Company entitled to receive such dividend or distribution. (d) Adjustment of Number of Shares . Upon each adjustment in the Warrant Price, the number of Shares of Series Preferred purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of Shares purchasable immediately prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter. -3-
(e) Antidilution Rights. The antidilution rights applicable to the Shares of Series C Preferred Stock purchasable hereunder upon exercise of this Warrant are set forth in the Companys Amended and Restated Certificate of Incorporation, as may be amended from time to time after the date hereof (the Charter). The antidilution rights applicable to shares of Series C Preferred may be restated, amended, modified or waived from time to time as permitted by the Charter. The Company shall use its commercially reasonable efforts to promptly provide the holder hereof with any restatement, amendment, modification or waiver of the Charter promptly after the same has been made. 5. Notice of Adjustments . Whenever the Warrant Price or the number of Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall make a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and the number of Shares purchasable hereunder after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant. In addition, whenever the conversion price or conversion ratio of the Series Preferred shall be adjusted, the Company shall, at the request of holder of this Warrant, make a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the conversion price or ratio of the Series Preferred after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant. 6. Fractional Shares. No fractional shares of Series Preferred will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor based on the fair market value of the Series Preferred on the date of exercise as reasonably determined in good faith by the Companys Board of Directors. 7. Compliance with Act; Disposition of Warrant or Shares of Series Preferred . (a) Compliance with Act . The holder of this Warrant, by acceptance hereof, agrees that this Warrant, and the shares of Series Preferred to be issued upon exercise hereof and any Common Stock issued upon conversion thereof are being acquired for investment and that such holder will not offer, sell or otherwise dispose of this Warrant, or any shares of Series Preferred to be issued upon exercise hereof or any Common Stock issued upon conversion thereof except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the Act) or any applicable state securities laws. Upon exercise of this Warrant, unless the Shares being acquired are registered under the Act and any applicable state securities laws or an exemption from such registration is available, the holder hereof shall confirm in writing that the shares of Series Preferred so purchased (and any shares of Common Stock issued upon conversion thereof) are being acquired for investment and not with a view toward distribution or resale in violation of the Act and shall confirm such other matters related thereto as may be reasonably requested by the Company. This Warrant and all shares of Series Preferred issued upon exercise of this Warrant and all shares of Common Stock issued upon conversion thereof (unless registered under the Act and any applicable state securities laws) shall be stamped or imprinted with a legend in substantially the following form: -4-
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY. Said legend shall be removed by the Company, upon the request of a holder, at such time as the Company has determined that the restrictions on the transfer of the applicable security shall have terminated. In addition, in connection with the issuance of this Warrant, the holder specifically represents to the Company by acceptance of this Warrant as follows: (1) The holder is aware of the Companys business affairs and financial condition, and has acquired information about the Company sufficient to reach an informed and knowledgeable decision to acquire this Warrant. The holder is acquiring this Warrant for its own account for investment purposes only and not with a view to, or for the resale in connection with, any distribution thereof in violation of the Act. (2) The holder understands that this Warrant has not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the holders investment intent as expressed herein. (3) The holder further understands that this Warrant must be held indefinitely unless subsequently registered under the Act and qualified under any applicable state securities laws, or unless exemptions from registration and qualification are otherwise available. The holder is aware of the provisions of Rule 144, promulgated under the Act. (4) The holder is an accredited investor as such term is defined in Rule 501 of Regulation D promulgated under the Act. (b) Disposition of Warrant or Shares. With respect to any offer, sale or other disposition of this Warrant or any shares of Series Preferred acquired pursuant to the exercise of this Warrant prior to registration of such Warrant or shares, the holder hereof agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such holders counsel, or other evidence, if reasonably satisfactory to the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification (under the Act as then in effect or any federal or state securities law then in effect) of this Warrant or such shares of Series Preferred or Common Stock and indicating whether or not under the Act certificates for this Warrant or such shares of Series Preferred to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability in order to ensure compliance with such law. Upon receiving such written notice and reasonably satisfactory opinion or other evidence, the Company, as promptly as practicable but no later than fifteen (15) days after receipt of the written notice, shall notify such holder that such holder may sell or otherwise dispose -5-
of this Warrant or such shares of Series Preferred or Common Stock, all in accordance with the terms of the notice delivered to the Company. If a determination has been made pursuant to this Section 7(b) that the opinion of counsel for the holder or other evidence is not reasonably satisfactory to the Company, the Company shall so notify the holder promptly with details thereof after such determination has been made. Notwithstanding the foregoing, this Warrant or such shares of Series Preferred or Common Stock may, as to such federal laws, be offered, sold or otherwise disposed of in accordance with Rule 144 or 144A under the Act, provided that the Company shall have been furnished with such information as the Company may reasonably request to provide a reasonable assurance that the provisions of Rule 144 or 144A have been satisfied. Each certificate representing this Warrant or the shares of Series Preferred thus transferred (except a transfer pursuant to Rule 144 or 144A) shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless in the aforesaid opinion of counsel for the holder, such legend is not required in order to ensure compliance with such laws. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. (c) Applicability of Restrictions . Neither any restrictions of any legend described in this Warrant nor the requirements of Section 7(b) above shall apply to any transfer of, or grant of a security interest in, this Warrant (or the Series Preferred or Common Stock obtainable upon exercise thereof) or any part hereof (i) to a partner of the holder if the holder is a partnership or to a member of the holder if the holder is a limited liability company, (ii) to a partnership of which the holder is a partner or to a limited liability company of which the holder is a member, or (iii) to any affiliate of the holder if the holder is a corporation; provided, however, in any such transfer, if applicable, the transferee shall on the Companys request agree in writing to be bound by the terms of this Warrant as if an original holder hereof. 8. Rights as Shareholders; Information . No holder of this Warrant, as such, shall be entitled to vote or receive dividends or be deemed the holder of Series Preferred or any other securities of the Company which may at any time be issuable upon the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. Notwithstanding the foregoing, the Company will transmit to the holder of this Warrant such information, documents and reports as are generally distributed to the holders of any class or series of the securities of the Company concurrently with the distribution thereof to the shareholders. 9. Intentionally Omitted. 10. Additional Rights. 10.1 Acquisition Transactions. The Company shall provide the holder of this Warrant with at least twenty (20) days written notice prior to closing thereof of the terms and conditions of any of the following transactions (to the extent the Company has notice thereof): (i) the Asset Transfer (as such term is defined in the Charter), or (ii) Acquisition (as such term is defined in the Charter). -6-
10.2 Right to Convert Warrant into Stock; Net Issuance. (a) Right to Convert. In addition to and without limiting the rights of the holder under the terms of this Warrant, the holder shall have the right to convert this Warrant or any portion thereof (the Conversion Right) into shares of Series Preferred as provided in this Section 10.2 at any time or from time to time during the term of this Warrant. Upon exercise of the Conversion Right with respect to a particular number of shares subject to this Warrant (the Converted Warrant Shares), the Company shall deliver to the holder (without payment by the holder of any exercise price or any cash or other consideration) that number of shares of fully paid and nonassessable Series Preferred as is determined according to the following formula: X = B-A Y Where: X= Y= A= the number of shares of Series Preferred that shall be issued to holder the fair market value of one share of Series Preferred the aggregate Warrant Price of the specified number of Converted Warrant Shares immediately prior to the exercise of the Conversion Right (i.e., the number of Converted Warrant Shares multiplied by the Warrant Price) the aggregate fair market value of the specified number of Converted Warrant Shares ( i.e., the number of Converted Warrant Shares multiplied by the fair market value of one Converted Warrant Share)
B=
No fractional shares shall be issuable upon exercise of the Conversion Right, and, if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as hereinafter defined). For purposes of Section 10 of this Warrant, shares issued pursuant to the Conversion Right shall be treated as if they were issued upon the exercise of this Warrant. (b) Method of Exercise . The Conversion Right may be exercised by the holder by the surrender of this Warrant at the principal office of the Company together with a written statement (which may be in the form of Exhibit A-1 or Exhibit A-2 hereto) specifying that the holder thereby intends to exercise the Conversion Right and indicating the number of shares subject to this Warrant which are being surrendered (referred to in Section 10.2(a) hereof as the Converted Warrant Shares) in exercise of the Conversion Right. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the Conversion Date), and, at the election of the holder hereof, may be made contingent upon the closing of the sale of the Companys Common Stock to the public in a public offering pursuant to a Registration Statement under the Act (a Public Offering). Certificates for the shares issuable upon exercise of the Conversion Right and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the -7-
Conversion Date and shall be delivered to the holder within thirty (30) days following the Conversion Date. (c) Determination of Fair Market Value. For purposes of this Section 10.2, fair market value of a share of Series Preferred (or Common Stock if the Series Preferred has been automatically converted into Common Stock) as of a particular date (the Determination Date) shall mean: (i) If the Conversion Right is exercised in connection with and contingent upon a Public Offering, and if the Companys Registration Statement relating to such Public Offering (Registration Statement) has been declared effective by the Securities and Exchange Commission, then the initial Price to Public specified in the final prospectus with respect to such offering. (ii) If the Conversion Right is not exercised in connection with and contingent upon a Public Offering, then as follows: (A) If traded on a securities exchange, the fair market value of the Common Stock shall be deemed to be the average of the closing prices of the Common Stock on such exchange over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible; (B) If traded on the NASDAQ Stock Market or other over-the-counter system, the fair market value of the Common Stock shall be deemed to be the average of the closing bid prices of the Common Stock over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible; and (C) If there is no public market for the Common Stock, then fair market value shall be determined by the Companys Board of Directors in good faith. In making a determination under clauses (A) or (B) above, if on the Determination Date, five trading days had not passed since the closing of the Companys initial public offering of its Common Stock (IPO) effected pursuant to a Registration Statement on Form S-1 (or its successor) filed under the Act, then the fair market value of the Common Stock shall be the average closing prices or closing bid prices, as applicable, for the shorter period beginning on and including the date of the IPO and ending on the trading day prior to the Determination Date (or if such period includes only one trading day the closing price or closing bid price, as applicable, for such trading day). If closing prices or closing bid prices are no longer reported by a securities exchange or other trading system, the closing price or closing bid price shall be that which is reported by such securities exchange or other trading system at 4:00 p.m. New York City time on the applicable trading day. -8-
10.3 Exercise Prior to Expiration. To the extent this Warrant is not previously exercised as to all of the Shares subject hereto, and if the fair market value of one share of the Series Preferred is greater than the Warrant Price then in effect, this Warrant shall be deemed automatically exercised pursuant to Section 10.2 above (even if not surrendered) immediately before its expiration. For purposes of such automatic exercise, the fair market value of one share of the Series Preferred upon such expiration shall be determined pursuant to Section 10.2(c). To the extent this Warrant or any portion thereof is deemed automatically exercised pursuant to this Section 10.3, the Company agrees to promptly notify the holder hereof, upon request of the holder hereof, of the number of Shares, if any, the holder hereof is to receive by reason of such automatic exercise. 11. Market Standoff . The holder hereof agrees that such holder shall not sell, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Common Stock (or other securities) of the Company held by such holder (other than those included in the registration or acquired following the Companys initial public offering) for a period specified by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Act; provided that (i) such agreement shall apply only to the Companys IPO; and (ii) all officers and directors of the Company and holders of at least one percent (1%) of the Companys voting securities enter into similar agreements. The holder agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter that are consistent with the holders obligations under Section 11 or that are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, the holder shall provide, within ten (10) days of such request, such information as may be required by the Company or such representative in connection with the completion of any public offering of the Companys securities pursuant to a registration statement filed under the Act. 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. The holder agrees that any transferee of this Warrant shall be bound by Section 11. The underwriters of the Companys stock are intended third party beneficiaries of Section 11 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. 12. Representations and Warranties. The Company represents and warrants to the holder of this Warrant as follows: (a) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies. -9-
(b) The Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free from preemptive rights. (c) The rights, preferences, privileges and restrictions granted to or imposed upon the Series Preferred and the holders thereof are as set forth in the Charter as may be amended from time to time, and on the Date of Grant, each share of the Series Preferred represented by this Warrant is convertible into one share of Common Stock. (d) The shares of Common Stock issuable upon conversion of the Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms of the Charter will be validly issued, fully paid and nonassessable. (e) The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Companys Charter or by-laws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person, except for the filing of notices pursuant to federal and state securities laws, which filings will be effected by the time required thereby. (f) There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company in any court or before any governmental commission, board or authority which, if adversely determined, could have a material adverse effect on the ability of the Company to perform its obligations under this Warrant. (g) The number of shares of Common Stock of the Company outstanding on the date hereof, on a fully diluted basis (assuming the conversion of all outstanding convertible securities and the exercise of all outstanding options and warrants), does not exceed 14,000,000 shares. 13. 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. 14. Notices. Any notice, request, communication 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 or registered 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 therefor on the signature page of this Warrant. 15. 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 -10-
Companys assets, and all of the obligations of the Company relating to the Series Preferred issuable upon the exercise or conversion of this Warrant shall survive the exercise, conversion and termination of this Warrant and all of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. 16. Lost Warrants or Stock Certificates. 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 or any stock certificate 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 or stock certificate, the Company will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 17. Descriptive Headings. The descriptive headings of the various Sections of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The language in this Warrant shall be construed as to its fair meaning without regard to which party drafted this Warrant. 18. Governing Law. 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, without giving effect to conflicts of laws principals. 19. Survival of Representations, Warranties and Agreements . All representations and warranties of the Company and the holder hereof contained herein shall survive the Date of Grant, the exercise or conversion of this Warrant (or any part hereof) or the termination or expiration of rights hereunder. All agreements of the Company and the holder hereof contained herein shall survive indefinitely until, by their respective terms, they are no longer operative. 20. Remedies. In case any one or more of the covenants and agreements contained in this Warrant shall have been breached, the holders hereof (in the case of a breach by the Company), or the Company (in the case of a breach by a holder), may proceed to protect and enforce their or its rights either by suit in equity and/or by action at law, including, but not limited to, an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or agreement contained in this Warrant. 21. No Impairment of Rights . The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 22. Severability. The invalidity or unenforceability of any provision of this Warrant in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction, or affect any other provision of this Warrant, which shall remain in full force and effect. 23. Recovery of Litigation Costs . If any legal action or other proceeding is brought for the enforcement of this Warrant, or because of an alleged dispute, breach, default, or misrepresentation -11-
in connection with any of the provisions of this Warrant, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled. 24. Entire Agreement; Modification . This Warrant constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and undertakings of the parties, whether oral or written, with respect to such subject matter. The Company has caused this Warrant to be duly executed and delivered as of the Date of Grant specified above. AMBIT BIOSCIENCES CORPORATION By: /s/ M. Scott Salka
Name: M SALKA Title: CEO Address: 4215 Sorrento Valley Blvd. San Diego, CA 92121 -12-
(Name)
(Signature)
(Date) -13-
EXHIBIT A-2 NOTICE OF EXERCISE To: AMBIT BIOSCIENCES CORPORATION (the Company) 1. Contingent upon and effective immediately prior to the closing (the Closing) of the Companys public offering contemplated by the Registration Statement on Form S , filed , 200 , the undersigned hereby: elects to purchase shares of [Series Preferred Stock] [Common Stock] of the Company (or such lesser number of shares as may be sold on behalf of the undersigned at the Closing) pursuant to the terms of the attached Warrant, or elects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to Stock] [Common Stock]. 2. Please deliver to the custodian for the selling shareholders a stock certificate representing such shares. Shares of [Series Preferred
(Signature)
(Date)
Exhibit 4.12 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THIS WARRANT. AMBIT BIOSCIENCES CORPORATION WARRANT TO PURCHASE SHARES OF SERIES PREFERRED STOCK THIS CERTIFIES THAT, for value received, HORIZON TECHNOLOGY FUNDING COMPANY V LLC and its assignees are entitled to subscribe for and purchase that number of shares of Series Preferred Stock (as adjusted pursuant to Section 4 hereof, the Shares) of AMBIT BIOSCIENCES CORPORATION, a Delaware corporation (the Company) as is determined pursuant to the next paragraph hereof at the price per share as is determined pursuant to the next paragraph hereof (such price and such other price as shall result, from time to time, from the adjustments specified in Section 4 hereof is herein referred to as the Warrant Price), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, (a) the term Series Preferred shall mean (i) if the Warrant Price is greater than or equal to $4.30, the Companys presently authorized Series C Preferred Stock, and any stock into or for which such Series C Preferred Stock may hereafter be converted or exchanged, and after the automatic conversion of the Series Preferred Stock to Common Stock shall mean the Companys Common Stock or (ii) if the Warrant Price is less than $4.30, the class of securities sold in the Qualified Financing (as defined below), (b) the term Date of Grant shall mean September 24, 2007, and (c) the term Other Warrants shall mean any other warrants issued by the Company in connection with the transaction with respect to which this Warrant was issued, and any warrant issued upon transfer or partial exercise of or in lieu of this Warrant. The term Warrant as used herein shall be deemed to include Other Warrants unless the context clearly requires otherwise. The Warrant Price shall be the lower of (i) $4.30 and (ii) the lowest effective price per share (on a common stock equivalent basis and taking into account any securities issued together with the preferred stock) at which shares of the Companys convertible preferred stock are sold in a Qualified Financing; provided, however, if a Qualified Financing has not closed prior to the earliest of (i) the exercise of this warrant, (ii) the IPO (as defined below), (iii) an Asset Transfer (as such term is defined in the Charter (as defined below)) or (iv) an Acquisition (as such term is defined in the Charter), then the Warrant Price shall be $4.30. A Qualified Financing shall mean the first equity financing following the date hereof, in a single transaction or series of related transactions, involving a sale of the convertible preferred stock of the Company to purchasers which include venture capital investors in an aggregate cash amount not less than $5,000,000. The number of shares for which this Warrant is exercisable shall be the nearest whole number determined by dividing $400,000 by the Warrant Price determined pursuant to this paragraph. -1-
1. Term. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time and from time to time, provided that if this Warrant is not fully exercised on or before the date which is the tenth (10th) anniversary of the Date of Grant, this Warrant shall expire and be of no further force or effect. 2. Method of Exercise; Payment; Issuance of New Warrant . Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part and from time to time, at the election of the holder hereof, by (a) the surrender of this Warrant (with the notice of exercise substantially in the form attached hereto as Exhibit A-1 duly completed and executed) at the principal office of the Company and by the payment to the Company, by certified or bank check, or by wire transfer to an account designated by the Company (a Wire Transfer) of an amount equal to the then applicable Warrant Price multiplied by the number of Shares then being purchased; (b) if in connection with a registered public offering of the Companys securities, the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A-2 duly completed and executed) at the principal office of the Company together with notice of arrangements reasonably satisfactory to the Company for payment to the Company either by certified or bank check or by Wire Transfer from the proceeds of the sale of shares to be sold by the holder in such public offering of an amount equal to the then applicable Warrant Price per share multiplied by the number of Shares then being purchased; or (c) exercise of the net issuance right provided for in Section 10.2 hereof. The person or persons in whose name(s) any certificate(s) representing shares of Series Preferred shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the shares represented thereby (and such shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be delivered to the holder hereof as soon as possible and in any event within thirty (30) days after such exercise and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof as soon as possible and in any event within such thirty-day period. 3. Stock Fully Paid; Reservation of Shares . All Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance pursuant to the terms and conditions herein, be fully paid and nonassessable, and free from all preemptive rights and taxes, liens and charges with respect to the issue thereof. 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 the issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Series Preferred to provide for the exercise of the rights represented by this Warrant and a sufficient number of shares of its Common Stock to provide for the conversion of the Series Preferred into Common Stock. 4. Adjustment of Warrant Price and Number of Shares . The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: -2-
(a) Reclassification or Merger. In case of any reclassification or change of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in case of any merger of the Company with or into another corporation (other than (x) a merger with another corporation in which the Company is the acquiring and the surviving corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant or (y) a merger into another corporation whose shares are publicly traded and which has a market capitalization of not less than $500,000,000 (a Large Cap Merger)), or in case of any sale of all or substantially all of the assets of the Company (other than to another corporation whose shares are publicly traded and which has a market capitalization of not less than $500,000,000 (a Large Cap Sale and collectively with a Large Cap Merger, a Large Cap Transaction)), the Company, or such successor or purchasing corporation, as the case may be, shall duly execute and deliver to the holder of this Warrant a new Warrant (in form and substance reasonably satisfactory to the holder of this Warrant), so that the holder of this Warrant shall have the right to receive upon exercise of this Warrant, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the shares of Series Preferred theretofore issuable upon exercise of this Warrant, (i) the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, merger or sale by a holder of the number of shares of Series Preferred then purchasable under this Warrant, or (ii) in the case of such a merger or sale in which the consideration paid consists all or in part of assets other than securities of the successor or purchasing corporation, at the option of the holder of this Warrant, the securities of the successor or purchasing corporation having a value at the time of the transaction equivalent to the value of the Series Preferred purchasable upon exercise of this Warrant at the time of the transaction. Any new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4. The provisions of this Section 4(a) shall similarly apply to successive reclassifications, changes, mergers and sales. In the event of a Large Cap Transaction, the Company shall provide to the holder of this Warrant at least twenty (20) days written notice of such Large Cap Transaction, and this Warrant shall terminate unless exercised prior to the closing date of such Large Cap Transaction. (b) Subdivision or Combination of Shares . If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its outstanding shares of Series Preferred, the Warrant Price shall be proportionately decreased and the number of Shares issuable hereunder shall be proportionately increased in the case of a subdivision and the Warrant Price shall be proportionately increased and the number of Shares issuable hereunder shall be proportionately decreased in the case of a combination. (c) Stock Dividends and Other Distributions . If the Company at any time while this Warrant is outstanding and unexpired shall (i) pay a dividend with respect to Series Preferred payable in Series Preferred, then the Warrant Price shall be adjusted, from and after the date of determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Series Preferred outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Series Preferred outstanding immediately after such dividend or distribution; or (ii) make any other distribution with respect to Series Preferred (except -3-
any distribution specifically provided for in Sections 4(a) and 4(b)), then, in each such case, provision shall be made by the Company such that the holder of this Warrant shall receive upon exercise of this Warrant a proportionate share of any such dividend or distribution as though it were the holder of the Series Preferred (or Common Stock issuable upon conversion thereof) as of the record date fixed for the determination of the shareholders of the Company entitled to receive such dividend or distribution. (d) Adjustment of Number of Shares . Upon each adjustment in the Warrant Price, the number of Shares of Series Preferred purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of Shares purchasable immediately prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter. (e) Antidilution Rights. The antidilution rights applicable to the Shares of Series Preferred Stock purchasable hereunder upon exercise of this Warrant are set forth in the Companys Amended and Restated Certificate of Incorporation, as may be amended from time to time after the date hereof (the Charter). The antidilution rights applicable to such shares of Series Preferred Stock may be restated, amended, modified or waived from time to time as permitted by the Charter. The Company shall use its commercially reasonable efforts to promptly provide the holder hereof with any restatement, amendment, modification or waiver of the Charter promptly after the same has been made. 5. Notice of Adjustments . Whenever the Warrant Price or the number of Shares purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall make a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and the number of Shares purchasable hereunder after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant. In addition, whenever the conversion price or conversion ratio of the Series Preferred shall be adjusted, the Company shall, at the request of holder of this Warrant, make a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the conversion price or ratio of the Series Preferred after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (without regard to Section 13 hereof, by first class mail, postage prepaid) to the holder of this Warrant. 6. Fractional Shares. No fractional shares of Series Preferred will be issued in connection with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor based on the fair market value of the Series Preferred on the date of exercise as reasonably determined in good faith by the Companys Board of Directors. 7. Compliance with Act; Disposition of Warrant or Shares of Series Preferred . -4-
(a) Compliance with Act . The holder of this Warrant, by acceptance hereof, agrees that this Warrant, and the shares of Series Preferred to be issued upon exercise hereof and any Common Stock issued upon conversion thereof are being acquired for investment and that such holder will not offer, sell or otherwise dispose of this Warrant, or any shares of Series Preferred to be issued upon exercise hereof or any Common Stock issued upon conversion thereof except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the Act) or any applicable state securities laws. Upon exercise of this Warrant, unless the Shares being acquired are registered under the Act and any applicable state securities laws or an exemption from such registration is available, the holder hereof shall confirm in writing that the shares of Series Preferred so purchased (and any shares of Common Stock issued upon conversion thereof) are being acquired for investment and not with a view toward distribution or resale in violation of the Act and shall confirm such other matters related thereto as may be reasonably requested by the Company. This Warrant and all shares of Series Preferred issued upon exercise of this Warrant and all shares of Common Stock issued upon conversion thereof (unless registered under the Act and any applicable state securities laws) shall be stamped or imprinted with a legend in substantially the following form: THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY. Said legend shall be removed by the Company, upon the request of a holder, at such time as the Company has determined that the restrictions on the transfer of the applicable security shall have terminated. In addition, in connection with the issuance of this Warrant, the holder specifically represents to the Company by acceptance of this Warrant as follows: (1) The holder is aware of the Companys business affairs and financial condition, and has acquired information about the Company sufficient to reach an informed and knowledgeable decision to acquire this Warrant. The holder is acquiring this Warrant for its own account for investment purposes only and not with a view to, or for the resale in connection with, any distribution thereof in violation of the Act. (2) The holder understands that this Warrant has not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the holders investment intent as expressed herein. (3) The holder further understands that this Warrant must be held indefinitely unless subsequently registered under the Act and qualified under any applicable state securities laws, or unless exemptions from registration and qualification are otherwise available. The holder is aware of the provisions of Rule 144, promulgated under the Act. -5-
(4) The holder is an accredited investor as such term is defined in Rule 501 of Regulation D promulgated under the Act. (b) Disposition of Warrant or Shares. With respect to any offer, sale or other disposition of this Warrant or any shares of Series Preferred acquired pursuant to the exercise of this Warrant prior to registration of such Warrant or shares, the holder hereof agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such holders counsel, or other evidence, if reasonably satisfactory to the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification (under the Act as then in effect or any federal or state securities law then in effect) of this Warrant or such shares of Series Preferred or Common Stock and indicating whether or not under the Act certificates for this Warrant or such shares of Series Preferred to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability in order to ensure compliance with such law. Upon receiving such written notice and reasonably satisfactory opinion or other evidence, the Company, as promptly as practicable but no later than fifteen (15) days after receipt of the written notice, shall notify such holder that such holder may sell or otherwise dispose of this Warrant or such shares of Series Preferred or Common Stock, all in accordance with the terms of the notice delivered to the Company. If a determination has been made pursuant to this Section 7(b) that the opinion of counsel for the holder or other evidence is not reasonably satisfactory to the Company, the Company shall so notify the holder promptly with details thereof after such determination has been made. Notwithstanding the foregoing, this Warrant or such shares of Series Preferred or Common Stock may, as to such federal laws, be offered, sold or otherwise disposed of in accordance with Rule 144 or 144A under the Act, provided that the Company shall have been furnished with such information as the Company may reasonably request to provide a reasonable assurance that the provisions of Rule 144 or 144A have been satisfied. Each certificate representing this Warrant or the shares of Series Preferred thus transferred (except a transfer pursuant to Rule 144 or 144A) shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless in the aforesaid opinion of counsel for the holder, such legend is not required in order to ensure compliance with such laws. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. (c) Applicability of Restrictions . Neither any restrictions of any legend described in this Warrant nor the requirements of Section 7(b) above shall apply to any transfer of, or grant of a security interest in, this Warrant (or the Series Preferred or Common Stock obtainable upon exercise thereof) or any part hereof (i) to a partner of the holder if the holder is a partnership or to a member of the holder if the holder is a limited liability company, (ii) to a partnership of which the holder is a partner or to a limited liability company of which the holder is a member, or (iii) to any affiliate of the holder if the holder is a corporation; provided, however, in any such transfer, if applicable, the transferee shall on the Companys request agree in writing to be bound by the terms of this Warrant as if an original holder hereof. 8. Rights as Shareholders; Information . No holder of this Warrant, as such, shall be entitled to vote or receive dividends or be deemed the holder of Series Preferred or any other securities of the Company which may at any time be issuable upon the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any -6-
matter submitted to shareholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. Notwithstanding the foregoing, the Company will transmit to the holder of this Warrant such information, documents and reports as are generally distributed to the holders of any class or series of the securities of the Company concurrently with the distribution thereof to the shareholders. 9. Intentionally Omitted. 10. Additional Rights. 10.1 Acquisition Transactions. The Company shall provide the holder of this Warrant with at least twenty (20) days written notice prior to closing thereof of the terms and conditions of any of the following transactions (to the extent the Company has notice thereof): (i) the Asset Transfer (as such term is defined in the Charter), or (ii) Acquisition (as such term is defined in the Charter). 10.2 Right to Convert Warrant into Stock: Net Issuance. (a) Right to Convert. In addition to and without limiting the rights of the holder under the terms of this Warrant, the holder shall have the right to convert this Warrant or any portion thereof (the Conversion Right) into shares of Series Preferred as provided in this Section 10.2 at any time or from time to time during the term of this Warrant. Upon exercise of the Conversion Right with respect to a particular number of shares subject to this Warrant (the Converted Warrant Shares), the Company shall deliver to the holder (without payment by the holder of any exercise price or any cash or other consideration) that number of shares of fully paid and nonassessable Series Preferred as is determined according to the following formula: X = B-A Y Where: X= Y= A= the number of shares of Series Preferred that shall be issued to holder the fair market value of one share of Series Preferred the aggregate Warrant Price of the specified number of Converted Warrant Shares immediately prior to the exercise of the Conversion Right (i.e., the number of Converted Warrant Shares multiplied by the Warrant Price) the aggregate fair market value of the specified number of Converted Warrant Shares (i.e., the number of Converted Warrant Shares multiplied by the fair market value of one Converted Warrant Share)
B=
No fractional shares shall be issuable upon exercise of the Conversion Right, and, if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the holder an amount in cash equal to the fair market value -7-
of the resulting fractional share on the Conversion Date (as hereinafter defined). For purposes of Section 10 of this Warrant, shares issued pursuant to the Conversion Right shall be treated as if they were issued upon the exercise of this Warrant. (b) Method of Exercise . The Conversion Right may be exercised by the holder by the surrender of this Warrant at the principal office of the Company together with a written statement (which may be in the form of Exhibit A-1 or Exhibit A-2 hereto) specifying that the holder thereby intends to exercise the Conversion Right and indicating the number of shares subject to this Warrant which are being surrendered (referred to in Section 10.2(a) hereof as the Converted Warrant Shares) in exercise of the Conversion Right. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the Conversion Date), and, at the election of the holder hereof, may be made contingent upon the closing of the sale of the Companys Common Stock to the public in a public offering pursuant to a Registration Statement under the Act (a Public Offering). Certificates for the shares issuable upon exercise of the Conversion Right and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Conversion Date and shall be delivered to the holder within thirty (30) days following the Conversion Date. (c) Determination of Fair Market Value. For purposes of this Section 10.2, fair market value of a share of Series Preferred (or Common Stock if the Series Preferred has been automatically converted into Common Stock) as of a particular date (the Determination Date) shall mean: (i) If the Conversion Right is exercised in connection with and contingent upon a Public Offering, and if the Companys Registration Statement relating to such Public Offering (Registration Statement) has been declared effective by the Securities and Exchange Commission, then the initial Price to Public specified in the final prospectus with respect to such offering. (ii) If the Conversion Right is not exercised in connection with and contingent upon a Public Offering, then as follows: (A) If traded on a securities exchange, the fair market value of the Common Stock shall be deemed to be the average of the closing prices of the Common Stock on such exchange over the five trading days immediately prior to .the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible; (B) If traded on the NASDAQ Stock Market or other over-the-counter system, the fair market value of the Common Stock shall be deemed to be the average of the closing bid prices of the Common Stock over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible; and -8-
(C) If there is no public market for the Common Stock, then fair market value shall be determined by the Companys Board of Directors in good faith. In making a determination under clauses (A) or (B) above, if on the Determination Date, five trading days had not passed since the closing of the Companys initial public offering of its Common Stock (IPO) effected pursuant to a Registration Statement on Form S-1 (or its successor) filed under the Act, then the fair market value of the Common Stock shall be the average closing prices or closing bid prices, as applicable, for the shorter period beginning on and including the date of the IPO and ending on the trading day prior to the Determination Date (or if such period includes only one trading day the closing price or closing bid price, as applicable, for such trading day). If closing prices or closing bid prices are no longer reported by a securities exchange or other trading system, the closing price or closing bid price shall be that which is reported by such securities exchange or other trading system at 4:00 p.m. New York City time on the applicable trading day. 10.3 Exercise Prior to Expiration. To the extent this Warrant is not previously exercised as to all of the Shares subject hereto, and if the fair market value of one share of the Series Preferred is greater than the Warrant Price then in effect, this Warrant shall be deemed automatically exercised pursuant to Section 10.2 above (even if not surrendered) immediately before its expiration. For purposes of such automatic exercise, the fair market value of one share of the Series Preferred upon such expiration shall be determined pursuant to Section 10.2(c). To the extent this Warrant or any portion thereof is deemed automatically exercised pursuant to this Section 10.3, the Company agrees to promptly notify the holder hereof, upon request of the holder hereof, of the number of Shares, if any, the holder hereof is to receive by reason of such automatic exercise. 11. Market Standoff . The holder hereof agrees that such holder shall not sell, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Common Stock (or other securities) of the Company held by such holder (other than those included in the registration or acquired following the Companys initial public offering) for a period specified by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Act; provided that (i) such agreement shall apply only to the Companys IPO; and (ii) all officers and directors of the Company and holders of at least one percent (1%) of the Companys voting securities enter into similar agreements. The holder agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter that are consistent with the holders obligations under Section 11 or that are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, the holder shall provide, within ten (10) days of such request, such information as may be required by the Company or such representative in connection with the completion of any public offering of the Companys securities pursuant to a registration statement filed under the Act. 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. The holder agrees that any transferee of this Warrant shall be bound by Section 11. The underwriters of the Companys stock are intended third party beneficiaries of Section 11 and shall -9-
have the right, power and authority to enforce the provisions hereof as though they were a party hereto. 12. Representations and Warranties. The Company represents and warrants to the holder of this Warrant as follows: (a) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies. (b) The Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free from preemptive rights. (c) The rights, preferences, privileges and restrictions granted to or imposed upon the Series Preferred and the holders thereof are as set forth in the Charter as may be amended from time to time, and on the Date of Grant, each share of the Series Preferred represented by this Warrant is convertible into one share of Common Stock. (d) The shares of Common Stock issuable upon conversion of the Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms of the Charter will be validly issued, fully paid and nonassessable. (e) The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Companys Charter or by-laws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person, except for the filing of notices pursuant to federal and state securities laws, which filings will be effected by the time required thereby. (f) There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company in any court or before any governmental commission, board or authority which, if adversely determined, could have a material adverse effect on the ability of the Company to perform its obligations under this Warrant. (g) The number of shares of Common Stock of the Company outstanding on the date hereof, on a fully diluted basis (assuming the conversion of all outstanding convertible securities and the exercise of all outstanding options and warrants), does not exceed 14,000,000 shares. -10-
13. 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. 14. Notices. Any notice, request, communication 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 or registered 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 therefor on the signature page of this Warrant. 15. 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 Companys assets, and all of the obligations of the Company relating to the Series Preferred issuable upon the exercise or conversion of this Warrant shall survive the exercise, conversion and termination of this Warrant and all of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. 16. Lost Warrants or Stock Certificates. 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 or any stock certificate 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 or stock certificate, the Company will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 17. Descriptive Headings. The descriptive headings of the various Sections of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The language in this Warrant shall be construed as to its fair meaning without regard to which party drafted this Warrant. 18. Governing Law. 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, without giving effect to conflicts of laws principals. 19. Survival of Representations, Warranties and Agreements . All representations and warranties of the Company and the holder hereof contained herein shall survive the Date of Grant, the exercise or conversion of this Warrant (or any part hereof) or the termination or expiration of rights hereunder. All agreements of the Company and the holder hereof contained herein shall survive indefinitely until, by their respective terms, they are no longer operative. 20. Remedies. In case any one or more of the covenants and agreements contained in this Warrant shall have been breached, the holders hereof (in the case of a breach by the Company), or the Company (in the case of a breach by a holder), may proceed to protect and enforce their or its rights either by suit in equity and/or by action at law, including, but not limited to, an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or agreement contained in this Warrant. -11-
21. No Impairment of Rights . The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 22. Severability. The invalidity or unenforceability of any provision of this Warrant in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction, or affect any other provision of this Warrant, which shall remain in full force and effect. 23. Recovery of Litigation Costs . If any legal action or other proceeding is brought for the enforcement of this Warrant, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Warrant, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled. 24. Entire Agreement; Modification . This Warrant constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and undertakings of the parties, whether oral or written, with respect to such subject matter. The Company has caused this Warrant to be duly executed and delivered as of the Date of Grant specified above. AMBIT BIOSCIENCES CORPORATION By: Name: Title: /s/ Donald R. Myll DONALD R. MYLL CEO
Address: 4215 Sorrento Valley Blvd. San Diego, CA 92121 -12-
(Name)
(Signature)
(Date) -13-
EXHIBIT A-2 NOTICE OF EXERCISE To: AMBIT BIOSCIENCES CORPORATION (the Company) 1. Contingent upon and effective immediately prior to the closing (the Closing) of the Companys public offering contemplated by the Registration Statement on Form S , filed , 200 , the undersigned hereby: elects to purchase shares of [Series Preferred Stock] [Common Stock] of the Company (or such lesser number of shares as may be sold on behalf of the undersigned at the Closing) pursuant to the terms of the attached Warrant, or elects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to Preferred Stock] [Common Stock]. 2. Please deliver to the custodian for the selling shareholders a stock certificate representing such shares. Shares of [Series
(Signature)
(Date) -14-
Exhibit 4.13 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THIS WARRANT. AMBIT BIOSCIENCES CORPORATION WARRANT TO PURCHASE SHARES OF SERIES PREFERRED STOCK THIS CERTIFIES THAT, for value received, COMPASS HORIZON FUNDING COMPANY LLC and its assignees are entitled to subscribe for and purchase that number of shares of Series Preferred Stock (as adjusted pursuant to Section 4 hereof, the Shares) of AMBIT BIOSCIENCES CORPORATION, a Delaware corporation (the Company) as is determined pursuant to the next paragraph hereof at the price per share as is determined pursuant to the next paragraph hereof (such price and such other price as shall result, from time to time, from the adjustments specified in Section 4 hereof is herein referred to as the Warrant Price), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, (a) the term Series Preferred shall mean (i) if the Warrant Price is equal to $5.06, the Companys presently authorized Series D Preferred Stock, and any stock into or for which such Series D Preferred Stock may hereafter be converted or exchanged, and after the automatic conversion of the Series Preferred Stock to Common Stock shall mean the Companys Common Stock or (ii) if the Warrant Price is any price other than $5.06, the class of securities sold in the Qualified Financing (as defined below) and any stock into or for which such series of preferred stock may hereafter be converted or exchanged, and after the automatic conversion of such series preferred stock to Common Stock shall mean the Companys Common Stock, and (b) the term Date of Grant shall mean March 31, 2010. The Warrant Price shall be either (i) $5.06 or (ii) the lowest effective price per share (on a common stock equivalent basis and taking into account any securities issued together with the preferred stock) at which shares of the Companys convertible preferred stock are sold in a Qualified Financing, such Warrant Price to be at the sole discretion of the holder; provided, however, if a Qualified Financing has not closed prior to the earliest of (i) the exercise of this warrant, (ii) the IPO (as defined below), (iii) an Asset Transfer (as such term is defined in the Charter (as defined below)) or (iv) an Acquisition (as such term is defined in the Charter), then the Warrant Price shall be $5.06. A Qualified Financing shall mean the first equity financing following the date hereof, in a single transaction or series of related transactions, involving a sale of the convertible preferred stock of the Company to purchasers which include venture capital investors in an aggregate cash amount not less than $5,000,000. The number of shares for which this Warrant is exercisable shall be the nearest whole number determined by dividing $720,000 by the Warrant Price determined pursuant to this paragraph.
1. Term. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time and from time to time, provided that if this Warrant is not fully exercised on or before the date which is the tenth (10th) anniversary of the Date of Grant, this Warrant shall expire and be of no further force or effect. 2. Method of Exercise; Payment; Issuance of New Warrant . Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part and from time to time, at the election of the holder hereof, by (a) the surrender of this Warrant (with the notice of exercise substantially in the form attached hereto as Exhibit A-1 duly completed and executed) at the principal office of the Company and by the payment to the Company, by certified or bank check, or by wire transfer to an account designated by the Company (a Wire Transfer) of an amount equal to the then applicable Warrant Price multiplied by the number of Shares then being purchased; (b) if in connection with a registered public offering of the Companys securities, the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A-2 duly completed and executed) at the principal office of the Company together with notice of arrangements reasonably satisfactory to the Company for payment to the Company either by certified or bank check or by Wire Transfer from the proceeds of the sale of shares to be sold by the holder in such public offering of an amount equal to the then applicable Warrant Price per share multiplied by the number of Shares then being purchased; or (c) exercise of the net issuance right provided for in Section 10.2 hereof. The person or persons in whose name(s) any certificate(s) representing shares of Series Preferred shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of and shall be treated for all purposes as the record holder(s) of, the shares represented thereby (and such shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be delivered to the holder hereof as soon as possible and in any event within thirty (30) days after such exercise and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof as soon as possible and in any event within such thirty-day period. 3. Stock Fully Paid: Reservation of Shares . All Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance pursuant to the terms and conditions herein, be fully paid and nonassessable, and free from all preemptive rights and taxes, liens and charges with respect to the issue thereof. 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 the issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Series Preferred to provide for the exercise of the rights represented by this Warrant and a sufficient number of shares of its Common Stock to provide for the conversion of the Series Preferred into Common Stock. 4. Adjustment of Warrant Price and Number of Shares . The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: -2-
(4) The holder is an accredited investor as such term is defined in Rule 501 of Regulation D promulgated under the Act. (b) Disposition of Warrant or Shares. With respect to any offer, sale or other disposition of this Warrant or any shares of Series Preferred acquired pursuant to the exercise of this Warrant prior to registration of such Warrant or shares, the holder hereof agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such holders counsel, or other evidence, if reasonably satisfactory to the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification (under the Act as then in effect or any federal or state securities law then in effect) of this Warrant or such shares of Series Preferred or Common Stock and indicating whether or not under the Act certificates for this Warrant or such shares of Series Preferred to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability in order to ensure compliance with such law. Upon receiving such written notice and reasonably satisfactory opinion or other evidence, the Company, as promptly as practicable but no later than fifteen (15) days after receipt of the written notice, shall notify such holder that such holder may sell or otherwise dispose of this Warrant or such shares of Series Preferred or Common Stock, all in accordance with the terms of the notice delivered to the Company. If a determination has been made pursuant to this Section 7(b) that the opinion of counsel for the holder or other evidence is not reasonably satisfactory to the Company, the Company shall so notify the holder promptly with details thereof after such determination has been made. Notwithstanding the foregoing, this Warrant or such shares of Series Preferred or Common Stock may, as to such federal laws, be offered, sold or otherwise disposed of in accordance with Rule 144 or 144A under the Act, provided that the Company shall have been furnished with such information as the Company may reasonably request to provide a reasonable assurance that the provisions of Rule 144 or 144A have been satisfied. Each certificate representing this Warrant or the shares of Series Preferred thus transferred (except a transfer pursuant to Rule 144 or 144A) shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless in the aforesaid opinion of counsel for the holder, such legend is not required in order to ensure compliance with such laws. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. (c) Applicability of Restrictions . Neither any restrictions of any legend described in this Warrant nor the requirements of Section 7(b) above shall apply to any transfer of, or grant of a security interest in, this Warrant (or the Series Preferred or Common Stock obtainable upon exercise thereof) or any part hereof (i) to a partner of the holder if the holder is a partnership or to a member of the holder if the holder is a limited liability company, (ii) to a partnership of which the holder is a partner or to a limited liability company of which the holder is a member, (iii) to any affiliate of the holder if the holder is a corporation, (iv) notwithstanding the foregoing, to any corporation, company, limited liability company, limited partnership, partnership, or other person managed or sponsored by Compass Horizon Funding Company LLC (Finance LLC) or its principals or in which Finance LLC has an interest, (v) to Horizon Credit I LLC or (vi) to a lender to the holder or any of the foregoing; provided, however, in any such transfer, if applicable, the transferee shall on the Companys request agree in writing to be bound by the terms of this Warrant as if an original holder hereof. -6-
8. Rights as Shareholders: Information . No holder of this Warrant, as such, shall be entitled to vote or receive dividends or be deemed the holder of Series Preferred or any other securities of the Company which may at any time be issuable upon the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. Notwithstanding the foregoing, the Company will transmit to the holder of this Warrant such information, documents and reports as are generally distributed to the holders of any class or series of the securities of the Company concurrently with the distribution thereof to the shareholders. 9. Intentionally Omitted. 10. Additional Rights. 10.1 Acquisition Transactions. The Company shall provide the holder of this Warrant with at least twenty (20) days written notice prior to closing thereof of the terms and conditions of any of the following transactions (to the extent the Company has notice thereof): (i) the Asset Transfer (as such term is defined in the Charter), or (ii) Acquisition (as such term is defined in the Charter). 10.2 Right to Convert Warrant into Stock: Net Issuance. (a) Right to Convert. In addition to and without limiting the rights of the holder under the terms of this Warrant, the holder shall have the right to convert this Warrant or any portion thereof (the Conversion Right) into shares of Series Preferred as provided in this Section 10.2 at any time or from time to time during the term of this Warrant. Upon exercise of the Conversion Right with respect to a particular number of shares subject to this Warrant (the Converted Warrant Shares), the Company shall deliver to the holder (without payment by the holder of any exercise price or any cash or other consideration) that number of shares of fully paid and nonassessable Series Preferred as is determined according to the following formula: X = BA Y X= Y= A= the number of shares of Series Preferred that shall be issued to holder the fair market value of one share of Series Preferred the aggregate Warrant Price of the specified number of Converted Warrant Shares immediately prior to the exercise of the Conversion Right (i.e., the number of Converted Warrant Shares multiplied by the Warrant Price) -7-
Where:
B=
the aggregate fair market value of the specified number of Converted Warrant Shares ( i.e., the number of Converted Warrant Shares multiplied by the fair market value of one Converted Warrant Share)
No fractional shares shall be issuable upon exercise of the Conversion Right, and, if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as hereinafter defined). For purposes of Section 10 of this Warrant, shares issued pursuant to the Conversion Right shall be treated as if they were issued upon the exercise of this Warrant. (b) Method of Exercise . The Conversion Right may be exercised by the holder by the surrender of this Warrant at the principal office of the Company together with a written statement (which may be in the form of Exhibit A-1 or Exhibit A-2 hereto) specifying that the holder thereby intends to exercise the Conversion Right and indicating the number of shares subject to this Warrant which are being surrendered (referred to in Section 10.2(a) hereof as the Converted Warrant Shares) in exercise of the Conversion Right. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the Conversion Date), and, at the election of the holder hereof, may be made contingent upon the closing of the sale of the Companys Common Stock to the public in a public offering pursuant to a Registration Statement under the Act (a Public Offering). Certificates for the shares issuable upon exercise of the Conversion Right and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Conversion Date and shall be delivered to the holder within thirty (30) days following the Conversion Date. (c) Determination of Fair Market Value. For purposes of this Section 10.2, fair market value of a share of Series Preferred (or Common Stock if the Series Preferred has been automatically converted into Common Stock) as of a particular date (the Determination Date) shall mean: (i) If the Conversion Right is exercised in connection with and contingent upon a Public Offering, and if the Companys Registration Statement relating to such Public Offering (Registration Statement) has been declared effective by the Securities and Exchange Commission, then the initial Price to Public specified in the final prospectus with respect to such offering. (ii) If the Conversion Right is not exercised in connection with and contingent upon a Public Offering, then as follows: (A) If traded on a securities exchange, the fair market value of the Common Stock shall be deemed to be the average of the closing prices of the Common Stock on such exchange over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible; -8-
(B) If traded on the NASDAQ Stock Market or other over-the-counter system, the fair market value of the Common Stock shall be deemed to be the average of the closing bid prices of the Common Stock over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible; and (C) If there is no public market for the Common Stock, then fair market value shall be determined by the Companys Board of Directors in good faith. In making a determination under clauses (A) or (B) above, if on the Determination Date, five trading days had not passed since the closing of the Companys initial public offering of its Common Stock (IPO) effected pursuant to a Registration Statement on Form S-1 (or its successor) filed under the Act, then the fair market value of the Common Stock shall be the average closing prices or closing bid prices, as applicable, for the shorter period beginning on and including the date of the IPO and ending on the trading day prior to the Determination Date (or if such period includes only one trading day the closing price or closing bid price, as applicable, for such trading day). If closing prices or closing bid prices are no longer reported by a securities exchange or other trading system, the closing price or closing bid price shall be that which is reported by such securities exchange or other trading system at 4:00 p.m. New York City time on the applicable trading day. 10.3 Exercise Prior to Expiration. To the extent this Warrant is not previously exercised as to all of the Shares subject hereto, and if the fair market value of one share of the Series Preferred is greater than the Warrant Price then in effect, this Warrant shall be deemed automatically exercised pursuant to Section 10.2 above (even if not surrendered) immediately before its expiration. For purposes of such automatic exercise, the fair market value of one share of the Series Preferred upon such expiration shall be determined pursuant to Section 10.2(c). To the extent this Warrant or any portion thereof is deemed automatically exercised pursuant to this Section 10.3, the Company agrees to promptly notify the holder hereof, upon request of the holder hereof, of the number of Shares, if any, the holder hereof is to receive by reason of such automatic exercise. 11. Market Standoff . The holder hereof agrees that such holder shall not sell, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Common Stock (or other securities) of the Company held by such holder (other than those included in the registration or acquired following the Companys initial public offering) for a period specified by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Act; provided that (i) such agreement shall apply only to the Companys IPO; and (ii) all officers and directors of the Company and holders of at least one percent (1%) of the Companys voting securities enter into similar agreements. The holder agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter that are consistent with the holders obligations under Section 11 or that are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the -9-
Company, the holder shall provide, within ten (10) days of such request, such information as may be required by the Company or such representative in connection with the completion of any public offering of the Companys securities pursuant to a registration statement filed under the Act. 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. The holder agrees that any transferee of this Warrant shall be bound by Section 11. The underwriters of the Companys stock are intended third party beneficiaries of Section 11 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. 12. Representations and Warranties. The Company represents and warrants to the holder of this Warrant as follows: (a) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies. (b) The Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free from preemptive rights. (c) The rights, preferences, privileges and restrictions granted to or imposed upon the Series Preferred and the holders thereof are as set forth in the Charter as may be amended from time to time, and on the Date of Grant, each share of the Series Preferred represented by this Warrant is convertible into one share of Common Stock. (d) The shares of Common Stock issuable upon conversion of the Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms of the Charter will be validly issued, fully paid and nonassessable. (e) The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Companys Charter or by-laws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person, except for the filing of notices pursuant to federal and state securities laws, which filings will be effected by the time required thereby. (f) There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company in any court or before any - 10 -
governmental commission, board or authority which, if adversely determined, could have a material adverse effect on the ability of the Company to perform its obligations under this Warrant. (g) The number of shares of Common Stock of the Company outstanding on the date hereof, on a fully diluted basis (assuming the conversion of all outstanding convertible securities and the exercise of all outstanding options and warrants), does not exceed 37,000,000 shares. 13. 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. 14. Notices. Any notice, request, communication 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 or registered 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 therefor on the signature page of this Warrant. 15. 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 Companys assets, and all of the obligations of the Company relating to the Series Preferred issuable upon the exercise or conversion of this Warrant shall survive the exercise, conversion and termination of this Warrant and all of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. 16. Lost Warrants or Stock Certificates. 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 or any stock certificate 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 or stock certificate, the Company will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 17. Descriptive Headings. The descriptive headings of the various Sections of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The language in this Warrant shall be construed as to its fair meaning without regard to which party drafted this Warrant. 18. Governing Law. 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, without giving effect to conflicts of laws principals. 19. Survival of Representations, Warranties and Agreements . All representations and warranties of the Company and the holder hereof contained herein shall survive the Date of Grant, the exercise or conversion of this Warrant (or any part hereof) or the termination or expiration of rights hereunder. All agreements of the Company and the holder hereof contained herein shall survive indefinitely until, by their respective terms, they are no longer operative. - 11 -
20. Remedies. In case any one or more of the covenants and agreements contained in this Warrant shall have been breached, the holders hereof (in the case of a breach by the Company), or the Company (in the case of a breach by a holder), may proceed to protect and enforce their or its rights either by suit in equity and/or by action at law, including, but not limited to, an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or agreement contained in this Warrant. 21. No Impairment of Rights . The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 22. Severability. The invalidity or unenforceability of any provision of this Warrant in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction, or affect any other provision of this Warrant, which shall remain in full force and effect. 23. Recovery of Litigation Costs . If any legal action or other proceeding is brought for the enforcement of this Warrant, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Warrant, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled. 24. Entire Agreement; Modification . This Warrant constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and undertakings of the parties, whether oral or written, with respect to such subject matter. - 12 -
The Company has caused this Warrant to be duly executed and delivered as of the Date of Grant specified above. AMBIT BIOSCIENCES CORPORATION By: Name: Title: /s/ Kerry Ann Kelly Kerry Ann Kelly VP and General Counsel
Address: 4215 Sorrento Valley Blvd. San Diego, CA 92121 - 13 -
EXHIBIT A-1 NOTICE OF EXERCISE To: AMBIT BIOSCIENCES CORPORATION (the Company) 1 The undersigned hereby: elects to purchase shares of [Series Preferred Stock] [Common Stock] of the Company at a purchase price of $ per share pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, or elects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to Preferred Stock] [Common Stock]. Shares of [Series
(Name)
(Signature
(Date) - 14 -
EXHIBIT A-2 NOTICE OF EXERCISE To: AMBIT BIOSCIENCES CORPORATION (the Company) 1. Contingent upon and effective immediately prior to the closing (the Closing) of the Companys public offering contemplated by the Registration Statement on Form S , filed , 200 , the undersigned hereby: elects to purchase shares of [Series Preferred Stock] [Common Stock] of the Company (or such lesser number of shares as may be sold on behalf of the undersigned at the Closing) at a purchase price of $ per share pursuant to the terms of the attached Warrant, or elects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to Stock] [Common Stock]. 2. Please deliver to the custodian for the selling shareholders a stock certificate representing such shares. Shares of [Series Preferred
(Signature
(Date) - 15 -
Exhibit 4.14 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THIS WARRANT. AMBIT BIOSCIENCES CORPORATION WARRANT TO PURCHASE SHARES OF SERIES PREFERRED STOCK THIS CERTIFIES THAT, for value received, OXFORD FINANCE CORPORATION and its assignees are entitled to subscribe for and purchase that number of shares of Series Preferred Stock (as adjusted pursuant to Section 4 hereof, the Shares) of AMBIT BIOSCIENCES CORPORATION, a Delaware corporation (the Company) as is determined pursuant to the next paragraph hereof at the price per share as is determined pursuant to the next paragraph hereof (such price and such other price as shall result, from time to time, from the adjustments specified in Section 4 hereof is herein referred to as the Warrant Price), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, (a) the term Series Preferred shall mean (i) if the Warrant Price is equal to $5.06, the Companys presently authorized Series D Preferred Stock, and any stock into or for which such Series D Preferred Stock may hereafter be converted or exchanged, and after the automatic conversion of the Series Preferred Stock to Common Stock shall mean the Companys Common Stock or (ii) if the Warrant Price is any price other than $5.06, the class of securities sold in the Qualified Financing (as defined below) and any stock into or for which such series of preferred stock may hereafter be converted or exchanged, and after the automatic conversion of such series preferred stock to Common Stock shall mean the Companys Common Stock, and (b) the term Date of Grant shall mean March 31, 2010. The Warrant Price shall be either (i) $5.06 or (ii) the lowest effective price per share (on a common stock equivalent basis and taking into account any securities issued together with the preferred stock) at which shares of the Companys convertible preferred stock are sold in a Qualified Financing, such Warrant Price to be at the sole discretion of the holder; provided, however, if a Qualified Financing has not closed prior to the earliest of (i) the exercise of this warrant, (ii) the IPO (as defined below), (iii) an Asset Transfer (as such term is defined in the Charter (as defined below)) or (iv) an Acquisition (as such term is defined in the Charter), then the Warrant Price shall be $5.06. A Qualified Financing shall mean the first equity financing following the date hereof, in a single transaction or series of related transactions, involving a sale of the convertible preferred stock of the Company to purchasers which include venture capital investors in an aggregate cash amount not less than $5,000,000. The number of shares for which this Warrant is exercisable shall be the nearest whole number determined by dividing $720,000 by the Warrant Price determined pursuant to this paragraph.
1. Term. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time and from time to time, provided that if this Warrant is not fully exercised on or before the date which is the tenth (10th) anniversary of the Date of Grant, this Warrant shall expire and be of no further force or effect. 2. Method of Exercise; Payment; Issuance of New Warrant . Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the holder hereof, in whole or in part and from time to time, at the election of the holder hereof, by (a) the surrender of this Warrant (with the notice of exercise substantially in the form attached hereto as Exhibit A-1 duly completed and executed) at the principal office of the Company and by the payment to the Company, by certified or bank check, or by wire transfer to an account designated by the Company (a Wire Transfer) of an amount equal to the then applicable Warrant Price multiplied by the number of Shares then being purchased; (b) if in connection with a registered public offering of the Companys securities, the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A-2 duly completed and executed) at the principal office of the Company together with notice of arrangements reasonably satisfactory to the Company for payment to the Company either by certified or bank check or by Wire Transfer from the proceeds of the sale of shares to be sold by the holder in such public offering of an amount equal to the then applicable Warrant Price per share multiplied by the number of Shares then being purchased; or (c) exercise of the net issuance right provided for in Section 10.2 hereof. The person or persons in whose name(s) any certificate(s) representing shares of Series Preferred shall be issuable upon exercise of this Warrant shall be deemed to have become the holder(s) of record of, and shall be treated for all purposes as the record holder(s) of, the shares represented thereby (and such shares shall be deemed to have been issued) immediately prior to the close of business on the date or dates upon which this Warrant is exercised. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be delivered to the holder hereof as soon as possible and in any event within thirty (30) days after such exercise and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof as soon as possible and in any event within such thirty-day period. 3. Stock Fully Paid: Reservation of Shares . All Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance pursuant to the terms and conditions herein, be fully paid and nonassessable, and free from all preemptive rights and taxes, liens and charges with respect to the issue thereof. 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 the issue upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Series Preferred to provide for the exercise of the rights represented by this Warrant and a sufficient number of shares of its Common Stock to provide for the conversion of the Series Preferred into Common Stock. 4. Adjustment of Warrant Price and Number of Shares . The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: -2-
(4) The holder is an accredited investor as such term is defined in Rule 501 of Regulation D promulgated under the Act. (b) Disposition of Warrant or Shares. With respect to any offer, sale or other disposition of this Warrant or any shares of Series Preferred acquired pursuant to the exercise of this Warrant prior to registration of such Warrant or shares, the holder hereof agrees to give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of such holders counsel, or other evidence, if reasonably satisfactory to the Company, to the effect that such offer, sale or other disposition may be effected without registration or qualification (under the Act as then in effect or any federal or state securities law then in effect) of this Warrant or such shares of Series Preferred or Common Stock and indicating whether or not under the Act certificates for this Warrant or such shares of Series Preferred to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability in order to ensure compliance with such law. Upon receiving such written notice and reasonably satisfactory opinion or other evidence, the Company, as promptly as practicable but no later than fifteen (15) days after receipt of the written notice, shall notify such holder that such holder may sell or otherwise dispose of this Warrant or such shares of Series Preferred or Common Stock, all in accordance with the terms of the notice delivered to the Company. If a determination has been made pursuant to this Section 7(b) that the opinion of counsel for the holder or other evidence is not reasonably satisfactory to the Company, the Company shall so notify the holder promptly with details thereof after such determination has been made. Notwithstanding the foregoing, this Warrant or such shares of Series Preferred or Common Stock may, as to such federal laws, be offered, sold or otherwise disposed of in accordance with Rule 144 or 144A under the Act, provided that the Company shall have been furnished with such information as the Company may reasonably request to provide a reasonable assurance that the provisions of Rule 144 or 144A have been satisfied. Each certificate representing this Warrant or the shares of Series Preferred thus transferred (except a transfer pursuant to Rule 144 or 144A) shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with such laws, unless in the aforesaid opinion of counsel for the holder, such legend is not required in order to ensure compliance with such laws. The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. (c) Applicability of Restrictions . Neither any restrictions of any legend described in this Warrant nor the requirements of Section 7(b) above shall apply to any grant of a security interest in this Warrant (or the Series Preferred or Common Stock obtainable upon exercise thereof) or any part hereof, or any transfer or assignment of this Warrant (or the Series Preferred or Common Stock obtainable upon exercise thereof) or any part hereof to any affiliate of the holder that is an accredited investor as defined in Regulation D promulgated under the Act, provided, however, in any such transfer, if applicable, the transferee shall on the Companys request agree in writing to be bound by the terms of this Warrant as if an original holder hereof. 8. Rights as Shareholders; Information . No holder of this Warrant, as such, shall be entitled to vote or receive dividends or be deemed the holder of Series Preferred or any other securities of the Company which may at any time be issuable upon the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to receive notice of meetings, or to -6-
receive dividends or subscription rights or otherwise until this Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. Notwithstanding the foregoing, the Company will transmit to the holder of this Warrant such information, documents and reports as are generally distributed to the holders of any class or series of the securities of the Company concurrently with the distribution thereof to the shareholders. 9. Intentionally Omitted. 10. Additional Rights. 10.1 Acquisition Transactions. The Company shall provide the holder of this Warrant with at least twenty (20) days written notice prior to closing thereof of the terms and conditions of any of the following transactions (to the extent the Company has notice thereof): (i) the Asset Transfer (as such term is defined in the Charter), or (ii) Acquisition (as such term is defined in the Charter). 10.2 Right to Convert Warrant into Stock: Net Issuance. (a) Right to Convert. In addition to and without limiting the rights of the holder under the terms of this Warrant, the holder shall have the right to convert this Warrant or any portion thereof (the Conversion Right) into shares of Series Preferred as provided in this Section 10.2 at any time or from time to time during the term of this Warrant. Upon exercise of the Conversion Right with respect to a particular number of shares subject to this Warrant (the Converted Warrant Shares), the Company shall deliver to the holder (without payment by the holder of any exercise price or any cash or other consideration) that number of shares of fully paid and nonassessable Series Preferred as is determined according to the following formula: X = BA Y X= Y= A= B= the number of shares of Series Preferred that shall be issued to holder the fair market value of one share of Series Preferred the aggregate Warrant Price of the specified number of Converted Warrant Shares immediately prior to the exercise of the Conversion Right (i.e., the number of Converted Warrant Shares multiplied by the Warrant Price) the aggregate fair market value of the specified number of Converted Warrant Shares ( i.e., the number of Converted Warrant Shares multiplied by the fair market value of one Converted Warrant Share)
Where:
No fractional shares shall be issuable upon exercise of the Conversion Right, and, if the number of shares to be issued determined in accordance with the foregoing formula is other than a whole number, the Company shall pay to the holder an amount in cash equal to the fair market value of the resulting fractional share on the Conversion Date (as hereinafter defined). For purposes of -7-
Section 10 of this Warrant, shares issued pursuant to the Conversion Right shall be treated as if they were issued upon the exercise of this Warrant. (b) Method of Exercise . The Conversion Right may be exercised by the holder by the surrender of this Warrant at the principal office of the Company together with a written statement (which may be in the form of Exhibit A-1 or Exhibit A-2 hereto) specifying that the holder thereby intends to exercise the Conversion Right and indicating the number of shares subject to this Warrant which are being surrendered (referred to in Section 10.2(a) hereof as the Converted Warrant Shares) in exercise of the Conversion Right. Such conversion shall be effective upon receipt by the Company of this Warrant together with the aforesaid written statement, or on such later date as is specified therein (the Conversion Date), and, at the election of the holder hereof, may be made contingent upon the closing of the sale of the Companys Common Stock to the public in a public offering pursuant to a Registration Statement under the Act (a Public Offering). Certificates for the shares issuable upon exercise of the Conversion Right and, if applicable, a new warrant evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Conversion Date and shall be delivered to the holder within thirty (30) days following the Conversion Date. (c) Determination of Fair Market Value. For purposes of this Section 10.2, fair market value of a share of Series Preferred (or Common Stock if the Series Preferred has been automatically converted into Common Stock) as of a particular date (the Determination Date) shall mean: (i) If the Conversion Right is exercised in connection with and contingent upon a Public Offering, and if the Companys Registration Statement relating to such Public Offering (Registration Statement) has been declared effective by the Securities and Exchange Commission, then the initial Price to Public specified in the final prospectus with respect to such offering. (ii) If the Conversion Right is not exercised in connection with and contingent upon a Public Offering, then as follows: (A) If traded on a securities exchange, the fair market value of the Common Stock shall be deemed to be the average of the closing prices of the Common Stock on such exchange over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible; (B) If traded on the NASDAQ Stock Market or other over-the-counter system, the fair market value of the Common Stock shall be deemed to be the average of the closing bid prices of the Common Stock over the five trading days immediately prior to the Determination Date, and the fair market value of the Series Preferred shall be deemed to be such fair market value of the Common Stock multiplied by the number of shares of Common Stock into which each share of Series Preferred is then convertible; and -8-
(C) If there is no public market for the Common Stock, then fair market value shall be determined by the Companys Board of Directors in good faith. In making a determination under clauses (A) or (B) above, if on the Determination Date, five trading days had not passed since the closing of the Companys initial public offering of its Common Stock (IPO) effected pursuant to a Registration Statement on Form S-1 (or its successor) filed under the Act, then the fair market value of the Common Stock shall be the average closing prices or closing bid prices, as applicable, for the shorter period beginning on and including the date of the IPO and ending on the trading day prior to the Determination Date (or if such period includes only one trading day the closing price or closing bid price, as applicable, for such trading day). If closing prices or closing bid prices are no longer reported by a securities exchange or other trading system, the closing price or closing bid price shall be that which is reported by such securities exchange or other trading system at 4:00 p.m. New York City time on the applicable trading day. 10.3 Exercise Prior to Expiration. To the extent this Warrant is not previously exercised as to all of the Shares subject hereto, and if the fair market value of one share of the Series Preferred is greater than the Warrant Price then in effect, this Warrant shall be deemed automatically exercised pursuant to Section 10.2 above (even if not surrendered) immediately before its expiration. For purposes of such automatic exercise, the fair market value of one share of the Series Preferred upon such expiration shall be determined pursuant to Section 10.2(c). To the extent this Warrant or any portion thereof is deemed automatically exercised pursuant to this Section 10.3, the Company agrees to promptly notify the holder hereof, upon request of the holder hereof, of the number of Shares, if any, the holder hereof is to receive by reason of such automatic exercise. 11. Market Standoff . The holder hereof agrees that such holder shall not sell, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Common Stock (or other securities) of the Company held by such holder (other than those included in the registration or acquired following the Companys initial public offering) for a period specified by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Act; provided that (i) such agreement shall apply only to the Companys IPO; and (ii) all officers and directors of the Company and holders of at least one percent (1%) of the Companys voting securities enter into similar agreements. The holder agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter that are consistent with the holders obligations under Section 11 or that are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, the holder shall provide, within ten (10) days of such request, such information as may be required by the Company or such representative in connection with the completion of any public offering of the Companys securities pursuant to a registration statement filed under the Act. 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. The holder agrees that any transferee of this Warrant shall be bound by Section 11. The underwriters of the Companys stock are intended third party beneficiaries of Section 11 and shall -9-
have the right, power and authority to enforce the provisions hereof as though they were a party hereto. 12. Representations and Warranties. The Company represents and warrants to the holder of this Warrant as follows: (a) This Warrant has been duly authorized and executed by the Company and is a valid and binding obligation of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and the rules of law or principles at equity governing specific performance, injunctive relief and other equitable remedies. (b) The Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free from preemptive rights. (c) The rights, preferences, privileges and restrictions granted to or imposed upon the Series Preferred and the holders thereof are as set forth in the Charter as may be amended from time to time, and on the Date of Grant, each share of the Series Preferred represented by this Warrant is convertible into one share of Common Stock. (d) The shares of Common Stock issuable upon conversion of the Shares have been duly authorized and reserved for issuance by the Company and, when issued in accordance with the terms of the Charter will be validly issued, fully paid and nonassessable. (e) The execution and delivery of this Warrant are not, and the issuance of the Shares upon exercise of this Warrant in accordance with the terms hereof will not be, inconsistent with the Companys Charter or by-laws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to the Company, and do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument of which the Company is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any Federal, state or local government authority or agency or other person, except for the filing of notices pursuant to federal and state securities laws, which filings will be effected by the time required thereby. (f) There are no actions, suits, audits, investigations or proceedings pending or, to the knowledge of the Company, threatened against the Company in any court or before any governmental commission, board or authority which, if adversely determined, could have a material adverse effect on the ability of the Company to perform its obligations under this Warrant. (g) The number of shares of Common Stock of the Company outstanding on the date hereof, on a fully diluted basis (assuming the conversion of all outstanding convertible securities and the exercise of all outstanding options and warrants), does not exceed 37,000,000 shares. - 10 -
13. 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. 14. Notices. Any notice, request, communication 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 or registered 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 therefor on the signature page of this Warrant. 15. 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 Companys assets, and all of the obligations of the Company relating to the Series Preferred issuable upon the exercise or conversion of this Warrant shall survive the exercise, conversion and termination of this Warrant and all of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. 16. Lost Warrants or Stock Certificates. 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 or any stock certificate 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 or stock certificate, the Company will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 17. Descriptive Headings. The descriptive headings of the various Sections of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. The language in this Warrant shall be construed as to its fair meaning without regard to which party drafted this Warrant. 18. Governing Law. 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, without giving effect to conflicts of laws principals. 19. Survival of Representations, Warranties and Agreements . All representations and warranties of the Company and the holder hereof contained herein shall survive the Date of Grant, the exercise or conversion of this Warrant (or any part hereof) or the termination or expiration of rights hereunder. All agreements of the Company and the holder hereof contained herein shall survive indefinitely until, by their respective terms, they are no longer operative. 20. Remedies. In case any one or more of the covenants and agreements contained in this Warrant shall have been breached, the holders hereof (in the case of a breach by the Company), or the Company (in the case of a breach by a holder), may proceed to protect and enforce their or its rights either by suit in equity and/or by action at law, including, but not limited to, an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or agreement contained in this Warrant. - 11 -
21. No Impairment of Rights . The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 22. Severability. The invalidity or unenforceability of any provision of this Warrant in any jurisdiction shall not affect the validity or enforceability of such provision in any other jurisdiction, or affect any other provision of this Warrant, which shall remain in full force and effect. 23. Recovery of Litigation Costs . If any legal action or other proceeding is brought for the enforcement of this Warrant, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Warrant, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled. 24. Entire Agreement; Modification . This Warrant constitutes the entire agreement between the parties pertaining to the subject matter contained in it and supersedes all prior and contemporaneous agreements, representations, and undertakings of the parties, whether oral or written, with respect to such subject matter. - 12 -
The Company has caused this Warrant to be duly executed and delivered as of the Date of Grant specified above. AMBIT BIOSCIENCES CORPORATION By: Name: Title: /s/ Kerry Ann Kelly Kerry Ann Kelly VP and General Counsel
Address: 4215 Sorrento Valley Blvd. San Diego, CA 92121 - 13 -
EXHIBIT A-1 NOTICE OF EXERCISE To: AMBIT BIOSCIENCES CORPORATION (the Company) 1. The undersigned hereby: elects to purchase shares of [Series Preferred Stock] [Common Stock] of the Company at a purchase price of $ per share pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full, or elects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to Preferred Stock] [Common Stock]. Shares of [Series
(Name)
(Signature) (Date)
EXHIBIT A-2 NOTICE OF EXERCISE To: AMBIT BIOSCIENCES CORPORATION (the Company) 1. Contingent upon and effective immediately prior to the closing (the Closing) of the Companys public offering contemplated by the Registration Statement on Form S , filed , 200 , the undersigned hereby: elects to purchase shares of [Series Preferred Stock] [Common Stock] of the Company (or such lesser number of shares as may be sold on behalf of the undersigned at the Closing) at a purchase price of $ per share pursuant to the terms of the attached Warrant, or elects to exercise its net issuance rights pursuant to Section 10.2 of the attached Warrant with respect to Stock] [Common Stock]. 2. Please deliver to the custodian for the selling shareholders a stock certificate representing such shares. Shares of [Series Preferred
(Signature) (Date) - 15 -
Exhibit 10.1 INDEMNITY AGREEMENT THIS INDEMNITY A GREEMENT (this Agreement ) dated as of C ORPORATION, a Delaware corporation (the Company), and RECITALS A. The Company desires to attract and retain the services of highly qualified individuals as directors, officers, employees and agents. B. The Companys Amended and Restated Bylaws (the Bylaws) require that the Company indemnify its directors, and empowers the Company to indemnify its officers, employees and agents, as authorized by the Delaware General Corporation Law, as amended (the DGCL), under which the Company is organized, and such Bylaws expressly provide that the indemnification provided therein is not exclusive and contemplates that the Company may enter into separate agreements with its directors, officers and other persons to set forth specific indemnification provisions. C. Indemnitee does not regard the protection currently provided by applicable law, the Companys governing documents and available insurance as adequate under the present circumstances, and the Company has determined that Indemnitee and other directors, officers, employees and agents of the Company may not be willing to serve or continue to serve in such capacities without additional protection. D. The Company desires and has requested Indemnitee to serve or continue to serve as a director, officer, employee or agent of the Company, as the case may be, and has proffered this Agreement to Indemnitee as an additional inducement to serve in such capacity. E. Indemnitee is willing to serve, or to continue to serve, as a director, officer, employee or agent of the Company, as the case may be, if Indemnitee is furnished the indemnity provided for herein by the Company. AGREEMENT NOW THEREFORE , in consideration of the mutual covenants and agreements set forth herein, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Definitions. (a) Agent. For purposes of this Agreement, the term agent of the Company means any person who: (i) is or was a director , officer, employee or other fiduciary of the Company or a subsidiary of the Company; or (ii) is or was serving at the request or for the convenience of, or representing the interests of, the Company or a subsidiary of the Company, as a director, officer, employee or other fiduciary of a foreign or domestic corporation, partnership, joint venture, trust or other enterprise. 1. , is made by and between AMBIT BIOSCIENCES (Indemnitee).
(b) Expenses. For purposes of this Agreement, the term expenses shall be broadly construed and shall include, without limitation, all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys, witness, or other professional fees and related disbursements, and other out-of-pocket costs of whatever nature), actually and reasonably incurred by Indemnitee in connection with the investigation, defense or appeal of a proceeding or establishing or enforcing a right to indemnification under this Agreement, the DGCL or otherwise, and amounts paid in settlement by or on behalf of Indemnitee, but shall not include any judgments, fines or penalties actually levied against Indemnitee for such individuals violations of law. The term expenses shall also include reasonable compensation for time spent by Indemnitee for which he is not compensated by the Company or any subsidiary or third party (i) for any period during which Indemnitee is not an agent, in the employment of, or providing services for compensation to, the Company or any subsidiary; and (ii) if the rate of compensation and estimated time involved is approved by the directors of the Company who are not parties to any action with respect to which expenses are incurred, for Indemnitee while an agent of, employed by, or providing services for compensation to, the Company or any subsidiary. (c) Proceedings. For purposes of this Agreement, the term proceeding shall be broadly construed and shall include, without limitation, any threatened, pending, or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative or investigative nature, and whether formal or informal in any case, in which Indemnitee was, is or will be involved as a party or otherwise by reason of: (i) the fact that Indemnitee is or was a director or officer of the Company; (ii) any action taken by Indemnitee or any action on Indemnitees part while acting as director, officer, employee or agent of the Company; or (iii) the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, and in any such case described above, whether or not serving in any such capacity at the time any liability or expense is incurred for which indemnification, reimbursement, or advancement of expenses may be provided under this Agreement. (d) Subsidiary. For purposes of this Agreement, the term subsidiary means any corporation or limited liability company of which more than 50% of the outstanding voting securities or equity interests are owned, directly or indirectly, by the Company and one or more of its subsidiaries, and any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary. (e) Independent Counsel. For purposes of this Agreement, the term independent counsel means a law firm, or a partner (or, if applicable, member) of such a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to the proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term independent counsel shall not include any person who, under the applicable standards of professional conduct then 2.
prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitees rights under this Agreement. 2. Agreement to Serve. Indemnitee will serve, or continue to serve, as a director, officer, employee or agent of the Company or any subsidiary, as the case may be, faithfully and to the best of his or her ability, at the will of such corporation (or under separate agreement, if such agreement exists), in the capacity Indemnitee currently serves as an agent of such corporation, so long as Indemnitee is duly appointed or elected and qualified in accordance with the applicable provisions of the bylaws or other applicable charter documents of such corporation, or until such time as Indemnitee tenders his or her resignation in writing; provided, however, that nothing contained in this Agreement is intended as an employment agreement between Indemnitee and the Company or any of its subsidiaries or to create any right to continued employment of Indemnitee with the Company or any of its subsidiaries in any capacity. The Company acknowledges that it has entered into this Agreement and assumes the obligations imposed on it hereby, in addition to and separate from its obligations to Indemnitee under the Bylaws, to induce Indemnitee to serve, or continue to serve, as a director, officer, employee or agent of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director, officer, employee or agent of the Company. 3. Indemnification. (a) Indemnification in Third Party Proceedings . Subject to Section 10 below, the Company shall indemnify Indemnitee to the fullest extent permitted by the DGCL, as the same may be amended from time to time (but, only to the extent that such amendment permits Indemnitee to broader indemnification rights than the DGCL permitted prior to adoption of such amendment), if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any proceeding, for any and all expenses, actually and reasonably incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of such proceeding. (b) Indemnification in Derivative Actions and Direct Actions by the Company . Subject to Section 10 below, the Company shall indemnify Indemnitee to the fullest extent permitted by the DGCL, as the same may be amended from time to time (but, only to the extent that such amendment permits Indemnitee to broader indemnification rights than the DGCL permitted prior to adoption of such amendment), if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any proceeding by or in the right of the Company to procure a judgment in its favor, against any and all expenses actually and reasonably incurred by Indemnitee in connection with the investigation, defense, settlement, or appeal of such proceedings. (c) Indemnification of Related Parties. If (i) Indemnitee is or was affiliated with one or more venture capital funds that has invested in the Company (an Appointing Stockholder), (ii) the Appointing Stockholder is, or is threatened to be made, a party to or a participant in any proceeding, and (iii) the Appointing Stockholders involvement in the proceeding is related to Indemnitees service to the Company as a director of the Company or 3.
any direct or indirect subsidiaries of the Company, then, to the extent resulting from any claim based on the Indemnitees service to the Company as a director or other fiduciary of the Company, the Appointing Stockholder will be entitled to indemnification hereunder for reasonable expenses to the same extent as Indemnitee. (d) Fund Indemnitors. The Company hereby acknowledges that the Indemnitee has or may have in the future certain rights to indemnification, advancement of expenses and/or insurance provided by entities and/or organizations other than the Company (collectively, the Fund Indemnitors). In the event that the Indemnitee is, or is threatened to be made, a party to or a participant in any proceeding to the extent resulting from any claim based on the Indemnitees service to the Company as a director or other fiduciary of the Company, then the Company shall (i) be an indemnitor of first resort ( i.e., its obligations to Indemnitee are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary), (ii) be required to advance reasonable expenses incurred by Indemnitee, and (iii) be liable for the full amount of all expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement and any provision of the Bylaws or the Companys Amended and Restated Certificate of Incorporation (the Certificate of Incorporation ) (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Fund Indemnitors. The Company irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. No advancement or payment by the Fund Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Fund Indemnitors shall have a right of contribution or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Fund Indemnitors are third party beneficiaries of the terms of this Section. 4. Indemnification of Expenses of Successful Party . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any proceeding or in defense of any claim, issue or matter therein, including the dismissal of any action without prejudice, the Company shall indemnify Indemnitee against all expenses actually and reasonably incurred in connection with the investigation, defense or appeal of such proceeding. 5. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any expenses actually and reasonably incurred by Indemnitee in the investigation, defense, settlement or appeal of a proceeding, but is precluded by applicable law or the specific terms of this Agreement to indemnification for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. 6. Advancement of Expenses . To the extent not prohibited by law, the Company shall advance the expenses incurred by Indemnitee in connection with any proceeding, and such advancement shall be made within twenty (20) days after the receipt by the Company of a statement or statements requesting such advances (which shall include invoices received by 4.
Indemnitee in connection with such expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law shall not be included with the invoice) and upon request of the Company, an undertaking to repay the advancement of expenses if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company. Advances shall be unsecured, interest free and without regard to Indemnitees ability to repay the expenses. Advances shall include any and all expenses actually and reasonably incurred by Indemnitee pursuing an action to enforce Indemnitees right to indemnification under this Agreement, or otherwise and this right of advancement, including expenses incurred preparing and forwarding statements to the Company to support the advances claimed. Indemnitee acknowledges that the execution and delivery of this Agreement shall constitute an undertaking providing that Indemnitee shall, to the fullest extent required by law, repay the advance if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company. The right to advances under this Section shall continue until final disposition of any proceeding, including any appeal therein. This Section 6 shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 10(b). 7. Notice and Other Indemnification Procedures. (a) Notification of Proceeding . Indemnitee will notify the Company in writing promptly upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any proceeding or matter which may be subject to indemnification or advancement of expenses covered hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise. (b) Request for Indemnification and Indemnification Payments . Indemnitee shall notify the Company promptly in writing upon receiving notice of any demand, judgment or other requirement for payment that Indemnitee reasonably believes to be subject to indemnification under the terms of this Agreement, and shall request payment thereof by the Company. Indemnification payments requested by Indemnitee under Section 3 hereof shall be made by the Company no later than sixty (60) days after receipt of the written request of Indemnitee. Claims for advancement of expenses shall be made under the provisions of Section 6 herein. (c) Application for Enforcement . In the event the Company fails to make timely payments as set forth in Sections 6 or 7(b) above, Indemnitee shall have the right to apply to any court of competent jurisdiction for the purpose of enforcing Indemnitees right to indemnification or advancement of expenses pursuant to this Agreement. In such an enforcement hearing or proceeding, the burden of proof shall be on the Company to prove that indemnification or advancement of expenses to Indemnitee is not required under this Agreement or permitted by applicable law. Any determination by the Company (including its Board of Directors, stockholders or independent counsel) that Indemnitee is not entitled to indemnification hereunder, shall not be a defense by the Company to the action nor create any presumption that Indemnitee is not entitled to indemnification or advancement of expenses hereunder. 5.
(d) Indemnification of Certain Expenses . The Company shall indemnify Indemnitee against all expenses incurred in connection with any hearing or proceeding under this Section 7 unless the Company prevails in such hearing or proceeding on the merits in all material respects. 8. Assumption of Defense . In the event the Company shall be requested by Indemnitee to pay the expenses of any proceeding, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, or to participate to the extent permissible in such proceeding, with counsel reasonably acceptable to Indemnitee. Upon assumption of the defense by the Company and the retention of such counsel by the Company, the Company shall not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that Indemnitee shall have the right to employ separate counsel in such proceeding at Indemnitees sole cost and expense. Notwithstanding the foregoing, if Indemnitees counsel delivers a written notice to the Company stating that such counsel has reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or the Company shall not, in fact, have employed counsel or otherwise actively pursued the defense of such proceeding within a reasonable time, then in any such event the fees and expenses of Indemnitees counsel to defend such proceeding shall be subject to the indemnification and advancement of expenses provisions of this Agreement. 9. Insurance. To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Company or of any subsidiary ( D&O Insurance), Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has D&O Insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. 10. Exceptions. (a) Certain Matters. Any provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee on account of any proceeding with respect to (i) remuneration paid to Indemnitee if it is determined by final judgment or other final adjudication that such remuneration was in violation of law (and, in this respect, both the Company and Indemnitee 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, as indicated in Section 10(d) below); (ii) a final judgment rendered against Indemnitee for an accounting, disgorgement or repayment of profits made from the purchase or sale by Indemnitee of securities of the Company against Indemnitee or in connection with a settlement by or on behalf of Indemnitee to the extent it is acknowledged by Indemnitee and the Company that such 6.
amount paid in settlement resulted from Indemnitees conduct from which Indemnitee received monetary personal profit, pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, or other provisions of any federal, state or local statute or rules and regulations thereunder; (iii) a final judgment or other final adjudication that Indemnitees conduct was in bad faith, knowingly fraudulent or deliberately dishonest or constituted willful misconduct (but only to the extent of such specific determination); or (iv) on account of conduct that is established by a final judgment as constituting a breach of Indemnitees duty of loyalty to the Company or resulting in any personal profit or advantage to which Indemnitee is not legally entitled. For purposes of the foregoing sentence, a final judgment or other adjudication may be reached in either the underlying proceeding or action in connection with which indemnification is sought or a separate proceeding or action to establish rights and liabilities under this Agreement. (b) Claims Initiated by Indemnitee . Any provision herein to the contrary notwithstanding, the Company shall not be obligated to indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought by Indemnitee against the Company or its directors, officers, employees or other agents and not by way of defense, except (i) with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or under any other agreement, provision in the Bylaws or Certificate of Incorporation or applicable law, or (ii) with respect to any other proceeding initiated by Indemnitee that is either approved by the Board of Directors or Indemnitees participation is required by applicable law. However, indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors determines it to be appropriate. (c) Unauthorized Settlements . Any provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee under this Agreement for any amounts paid in settlement of a proceeding effected without the Companys written consent. Neither the Company nor Indemnitee shall unreasonably withhold consent to any proposed settlement; provided, however, that the Company may in any event decline to consent to (or to otherwise admit or agree to any liability for indemnification hereunder in respect of) any proposed settlement if the Company is also a party in such proceeding and determines in good faith that such settlement is not in the best interests of the Company and its stockholders. (d) Securities Act Liabilities . Any provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee or otherwise act in violation of any undertaking appearing in and required by the rules and regulations promulgated under the Securities Act of 1933, as amended (the Act ), or in any registration statement filed with the SEC under the Act. Indemnitee acknowledges that paragraph (h) of Item 512 of Regulation S-K currently generally requires the Company to undertake in connection with any registration statement filed under the Act to submit the issue of the enforceability of Indemnitees rights under this Agreement in connection with any liability under the Act on public policy grounds to a court of appropriate jurisdiction and to be governed by any final adjudication of such issue. Indemnitee specifically agrees that any such undertaking shall supersede the provisions of this Agreement and to be bound by any such undertaking. 7.
11. Nonexclusivity and Survival of Rights . The provisions for indemnification and advancement of expenses set forth in this Agreement shall not be deemed exclusive of any other rights which Indemnitee may at any time be entitled under any provision of applicable law, the Certificate of Incorporation, Bylaws or other agreements, both as to action in Indemnitees official capacity and Indemnitees action as an agent of the Company, in any court in which a proceeding is brought, and Indemnitees rights hereunder shall continue after Indemnitee has ceased acting as an agent of the Company and shall inure to the benefit of the heirs, executors, administrators and assigns of Indemnitee. The obligations and duties of the Company to Indemnitee under this Agreement shall be binding on the Company and its successors and assigns until terminated in accordance with its terms. The Company 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 Company, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her corporate status prior to such amendment, alteration or repeal. To the extent that a change in the DGCL, whether by statute or judicial decision, permits greater indemnification or advancement of expenses than would be afforded currently under the Certificate of Incorporation, Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, by Indemnitee shall not prevent the concurrent assertion or employment of any other right or remedy by Indemnitee. 12. Term. This Agreement shall continue until and terminate upon the later of: (a) five (5) years after the date that Indemnitee shall have ceased to serve as a director or and/or officer, employee or agent of the Company; or (b) one (1) year after the final termination of any proceeding, including any appeal then pending, in respect to which Indemnitee was granted rights of indemnification or advancement of expenses hereunder. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against an Indemnitee or an Indemnitees estate, spouse, heirs, executors or personal or legal representatives after the expiration of five (5) years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such five-year period; provided, however, that if any shorter period of limitations is otherwise applicable to such cause of action, such shorter period shall govern. 13. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who, at the request and expense of the Company, shall execute all papers required and shall do everything that may be reasonably necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. 8.
14. Interpretation of Agreement . It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification to Indemnitee to the fullest extent now or hereafter permitted by law. 15. Severability. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (a) the validity, legality and enforceability of the remaining provisions of the Agreement (including without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to Section 14 hereof. 16. Amendment and Waiver. No supplement, modification, amendment, or cancellation of this Agreement shall be binding unless executed in writing by the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 17. Notice. Except as otherwise provided herein, any notice or demand which, by the provisions hereof, is required or which may be given to or served upon the parties hereto shall be in writing and, if by telegram, telecopy or telex, shall be deemed to have been validly served, given or delivered when sent, if by overnight delivery, courier or personal delivery, shall be deemed to have been validly served, given or delivered upon actual delivery and, if mailed, shall be deemed to have been validly served, given or delivered three (3) business days after deposit in the United States mail, as registered or certified mail, with proper postage prepaid and addressed to the party or parties to be notified at the addresses set forth on the signature page of this Agreement (or such other address(es) as a party may designate for itself by like notice). If to the Company, notices and demands shall be delivered to the attention of the Secretary of the Company. 18. Governing Law. This Agreement shall be governed exclusively by and construed according to the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware. 19. 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. 20. 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. 9.
21. Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings and negotiations, written and oral, between the parties with respect to the subject matter of this Agreement, including but not limited to any Indemnity Agreement previously entered into between the Company and the Indemnitee; provided, however, that this Agreement is a supplement to and in furtherance of the Certificate of Incorporation, Bylaws, the DGCL and any other applicable law, and shall not be deemed a substitute therefor, and does not diminish or abrogate any rights of Indemnitee thereunder. 10.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement effective as of the date first above written. COMPANY By: Name: Title: INDEMNITEE
Signature of Indemnitee
Print or Type Name of Indemnitee
Exhibit 10.2 AMBIT BIOSCIENCES CORPORATION 2001 EQUITY INCENTIVE PLAN Adopted January 24, 2001 Approved By Stockholders February 21, 2001 As Amended by the Board of Directors on June 6, 2001 Amendment approved by the Stockholders As Amended by the Board of Directors on October 31, 2001 Amendment approved by the Stockholders As Amended by the Board of Directors on August 12, 2004 Amendment approved by the Stockholders As Amended by the Board of Directors on March 10, 2005 Amendment approved by the Stockholders As Amended by the Board of Directors on January 31, 2006 Amendment approved by the Stockholders As Amended by the Board of Directors on October 24, 2007 Amendment approved by the Stockholders As Amended by the Board of Directors on November 5 and 6, 2008 Amendment approved by the Stockholders As Amended by the Board of Directors on August 19, 2010 Amendment approved by the Stockholders Termination Date: January 23, 2011 1. PURPOSES . (a) Eligible Stock Award Recipients. The persons eligible to receive Stock Awards are the Employees, Directors and Consultants of the Company and its Affiliates. (b) Available Stock Awards. The purpose of the Plan is to provide a means by which eligible recipients of Stock Awards may be given an opportunity to benefit from increases in value of the Common Stock through the granting of the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to acquire restricted stock. (c) General Purpose. The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive Stock Awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. 1
2. DEFINITIONS . (a) Affiliate means any parent corporation or subsidiary corporation of the Company, 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, with respect to a Participant, the occurrence of any of the following: (i) such Participants conviction of any felony or any crime involving fraud or dishonesty that has a material adverse effect on the Company; (ii) such Participants participation (whether by affirmative act or omission) in a fraud, act of dishonesty or other act of misconduct against the Company and/or its Affiliates; (iii) conduct by such Participant which, based upon a good faith and reasonable factual investigation by the Company (or, if such Participant is an Officer, by the Board), demonstrates such Participants gross unfitness to serve; (iv) such Participants violation of any statutory or fiduciary duty, or duty of loyalty, owed to the Company and/or its Affiliates; (v) such Participants breach of any material term of any material contract between such Participant and the Company and/or its Affiliates; and (vi) such Participants repeated violation of any material Company policy. An occurrence of cause as set forth in the preceding sentence shall be based upon a good faith determination by the Company (or, if such Participant is an Officer, by the Board). Notwithstanding the foregoing, such Participants Disability shall not constitute Cause as set forth herein. The determination that a termination is for Cause shall be by the Committee in its sole and exclusive judgment and discretion. (d) Code means the Internal Revenue Code of 1986, as amended. (e) Committee means a committee of one or more members of the Board appointed by the Board in accordance with subsection 3(c). (f) Common Stock means the common stock of the Company. (g) Company means Ambit Biosciences Corporation, a Delaware corporation. (h) Consultant means any person, including an advisor, (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) who is a member of the Board of Directors of an Affiliate. However, the term Consultant shall not include Directors who are not compensated by the Company for their services as Directors, nor shall the payment of a directors fee by the Company for services as a Director cause a Director to be deemed a Consultant for the purposes of this Plan. (i) Continuous Service means that the Participants service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. Neither a change in the capacity in which such Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director, nor a change in the entity for which the Participant renders such service, shall be deemed to interrupt or terminate such Participants 2
Continuous Service provided that there is no interruption or termination of the Participants Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate or a Director will not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that partys sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave. (j) 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. (k) Director means a member of the Board of Directors of the Company. (l) Disability means (i) before the Listing Date, the inability of a person, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of that persons position with the Company or an Affiliate of the Company because of the sickness or injury of the person and (ii) after the Listing Date, the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code. (m) Employee means any person employed by the Company or an Affiliate. Service as a Director or payment of a directors fee by the Company or an Affiliate shall not be sufficient to constitute employment by the Company or an Affiliate. (n) Exchange Act means the Securities Exchange Act of 1934, as amended. (o) Fair Market Value means, as of any date, the value of the Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable. (ii) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board. (iii) Prior to the Listing Date, the value of the Common Stock shall be determined in a manner consistent with Section 260.140.50 of Title 10 of the California Code of Regulations. 3
(p) 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. (q) 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. (r) Non-Employee Director means a Director who either (i) is not a current Employee or Officer of the Company or its parent or a subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or a 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 (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. (s) Nonstatutory Stock Option means an Option not intended to qualify as an Incentive Stock Option. (t) Officer means (i) before the Listing Date, any person designated by the Company as an officer and (ii) on and after the Listing Date, 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. (u) Option means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan. (v) Option Agreement means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (w) Optionholder means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option. (x) Outside Director means a Director who either (i) is not a current employee of the Company or an affiliated corporation (within the meaning of 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 4
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. (y) Participant means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award. (z) Plan means this Ambit Biosciences Corporation 2001 Equity Incentive Plan. (aa) Rule 16b-3 means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time. (bb) Securities Act means the Securities Act of 1933, as amended. (cc) Stock Award means any right granted under the Plan, including an Option, a stock bonus and a right to acquire restricted stock. (dd) 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. (ee) Ten Percent Stockholder means a person who 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. 3. A DMINISTRATION. (a) Administration by Board. The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). (b) Powers of Board. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (i) 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; what type or combination of types of Stock Award shall be granted; 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 Common Stock pursuant to a Stock Award; and the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person. (ii) 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. (iii) To amend the Plan or a Stock Award as provided in Section 12. 5
(iv) 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) Delegation to Committee. (i) General. The Board may delegate administration of the Plan to a Committee or Committees of one (1) or more members of the Board, and the term Committee shall apply to any person or persons to whom such authority has been delegated. 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 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 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. (ii) Committee Composition when Common Stock is Publicly Traded. At such time as the Common Stock is publicly traded, in the discretion of the Board, a Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such authority, the Board or the Committee may (1) delegate to a committee of one or more members of the Board who are not Outside Directors the authority to grant Stock Awards to eligible persons who are either (a) 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 (b) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or) (2) delegate to a committee of one or more members of the Board who are not Non-Employee Directors the authority to grant Stock Awards to eligible persons who are not then subject to Section 16 of the Exchange Act. (d) Effect of Boards Decision. All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons. 4. SHARES SUBJECT TO THE PLAN. (a) Share Reserve. Subject to the provisions of Section 11 relating to adjustments upon changes in Common Stock, the Common Stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate 6,556,247 shares of Common Stock. (b) Reversion of Shares to the Share Reserve. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the shares of Common Stock not acquired under such Stock Award shall revert to and again become available for issuance under the Plan. 6
(c) Source of Shares. The shares of Common Stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. (d) Share Reserve Limitation. Prior to the Listing Date and to the extent then required by Section 260.140.45 of Title 10 of the California Code of Regulations, the total number of shares of Common Stock issuable upon exercise of all outstanding Options and the total number of shares of Common Stock provided for under any stock bonus or similar plan of the Company shall not exceed the applicable percentage as calculated in accordance with the conditions and exclusions of Section 260.140.45 of Title 10 of the California Code of Regulations, based on the shares of Common Stock of the Company that are outstanding at the time the calculation is made. 5. ELIGIBILITY . (a) Eligibility for Specific Stock Awards. Incentive Stock Options may be granted only to Employees. Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants. (b) Ten Percent Stockholders. (i) A Ten Percent Stockholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant. (ii) Prior to the Listing Date, a Ten Percent Stockholder shall not be granted a Nonstatutory Stock Option unless the exercise price of such Option is at least (i) one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant or (ii) such lower percentage of the Fair Market Value of the Common Stock at the date of grant as is permitted by Section 260.140.41 of Title 10 of the California Code of Regulations at the time of the grant of the Option. (iii) Prior to the Listing Date, a Ten Percent Stockholder shall not be granted a restricted stock award unless the purchase price of the restricted stock is at least (i) one hundred percent (100%) of the Fair Market Value of the Common Stock at the date of grant or (ii) such lower percentage of the Fair Market Value of the Common Stock at the date of grant as is permitted by Section 260.140.41 of Title 10 of the California Code of Regulations at the time of the grant of the Option. (c) Section 162(m) Limitation. Subject to the provisions of Section 11 relating to adjustments upon changes in the shares of Common Stock, no Employee shall be eligible to be granted Options covering more than One Million Two Hundred Thousand (1,200,000) shares of Common Stock during any calendar year. This subsection 5(c) shall not apply prior to the Listing Date and, following the Listing Date, this subsection 5(c) shall not apply until (i) the earliest of: (1) the first material modification of the Plan (including any increase in the number of shares of Common Stock reserved for issuance under the Plan in accordance with Section 4); 7
(2) the issuance of all of the shares of Common Stock reserved for issuance under the Plan; (3) the expiration of the Plan; or (4) 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. (d) Consultants. (i) Prior to the Listing Date, a Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, either the offer or the sale of the Companys securities to such Consultant is not exempt under Rule 701 of the Securities Act (Rule 701) because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by Rule 701, unless the Company determines that such grant need not comply with the requirements of Rule 701 and will satisfy another exemption under the Securities Act as well as comply with the securities laws of all other relevant jurisdictions. (ii) From and after the Listing Date, a Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act (Form S-8) is not available to register either the offer or the sale of the Companys securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both (i) that such grant (A) shall be registered in another manner under the Securities Act ( e.g., on a Form S-3 Registration Statement) or (B) does not require registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (ii) that such grant complies with the securities laws of all other relevant jurisdictions. (iii) Rule 701 and Form S-8 generally are available to consultants and advisors only if (i) they are natural persons; (ii) they provide bona fide services to the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuers parent; and (iii) the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the issuers securities. 6. OPTION PROVISIONS . Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type of Option. 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: 8
(a) Term. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, no Option granted prior to the Listing Date shall be exercisable after the expiration of ten (10) years from the date it was granted, and no Incentive Stock Option granted on or after the Listing Date shall be exercisable after the expiration of ten (10) years from the date it was granted. (b) Exercise Price of an Incentive Stock Option. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Incentive 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) Exercise Price of a Nonstatutory Stock Option. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each Nonstatutory Stock Option granted prior to the Listing Date shall be not less than eighty-five percent (85%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. The exercise price of each Nonstatutory Stock Option granted on or after the Listing Date shall be not less than eighty-five percent (85%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, 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. (d) Consideration. The purchase price of Common 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 at the time of the grant of the Option (or subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the Company of other Common Stock, (2) according to a deferred payment or other similar arrangement with the Optionholder or (3) in any other form of legal consideration that may be acceptable to the Board. Unless otherwise specifically provided in the Option, the purchase price of Common Stock acquired pursuant to an Option that is paid by delivery to the Company of other Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock of the Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). At any time that the Company is incorporated in Delaware, payment of the Common Stocks par value, as defined in the Delaware General Corporation Law, shall not be made by deferred payment. In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the market rate of interest necessary to avoid a charge to earnings for financial accounting purposes. 9
(e) Transferability of an Incentive Stock Option. 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 Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder 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 Optionholder, shall thereafter be entitled to exercise the Option. (f) Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock Option granted prior to the Listing Date shall not be transferable except by will or by the laws of descent and distribution and, to the extent provided in the Option Agreement, to such further extent as permitted by Section 260.140.41(d) of Title 10 of the California Code of Regulations at the time of the grant of the Option, and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. A Nonstatutory Stock Option granted on or after the Listing Date shall be transferable to the extent provided in the Option Agreement. If the Nonstatutory Stock Option does not provide for transferability, then the Nonstatutory 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 Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder 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 Optionholder, shall thereafter be entitled to exercise the Option. (g) Vesting Generally. The total number of shares of Common Stock subject to an Option may, but need not, vest and therefore become exercisable in periodic installments that may, but need not, be equal. 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 vesting provisions of individual Options may vary. The provisions of this subsection 6(g) are subject to any Option provisions governing the minimum number of shares of Common Stock as to which an Option may be exercised. (h) Minimum Vesting Prior to the Listing Date. Notwithstanding the foregoing subsection 6(g), to the extent that the following restrictions on vesting are required by Section 260.140.41(f) of Title 10 of the California Code of Regulations at the time of the grant of the Option, then: (i) Options granted prior to the Listing Date to an Employee who is not an Officer, Director or Consultant shall provide for vesting of the total number of shares of Common Stock at a rate of at least twenty percent (20%) per year over five (5) years from the date the Option was granted, subject to reasonable conditions such as continued employment; and (ii) Options granted prior to the Listing Date to Officers, Directors or Consultants may be made fully exercisable, subject to reasonable conditions such as continued employment, at any time or during any period established by the Company. (i) Termination of Continuous Service. In the event an Optionholders Continuous Service terminates (for reasons other than Cause or upon the Optionholders death or Disability), 10
the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholders Continuous Service (or such longer or shorter period specified in the Option Agreement, which period shall not be less than thirty (30) days for Options granted prior to the Listing Date unless such termination is for Cause), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate. (j) Extension of Termination Date. An Optionholders Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholders Continuous Service (for reasons other than Cause or upon the Optionholders death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in subsection 6(a) or (ii) the expiration of a period of three (3) months after the termination of the Optionholders Continuous Service during which the exercise of the Option would not be in violation of such registration requirements. (k) Disability of Optionholder. In the event that an Optionholders Continuous Service terminates as a result of the Optionholders Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option 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, which period shall not be less than six (6) months for Options granted prior to the Listing Date) or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate. (l) Death of Optionholder. In the event (i) an Optionholders Continuous Service terminates as a result of the Optionholders death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholders Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholders 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 Optionholders death pursuant to subsection 6(e) or 6(f), but only within the period ending on the earlier of (1) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement, which period shall not be less than six (6) months for Options granted prior to the Listing Date) or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate. (m) Termination for Cause. In the event an Optionholders Continuous Service is terminated for Cause, the Option shall terminate upon the termination date of such 11
Optionholders Continuous Service and the Optionholder is prohibited from exercising his or her Option at the time of such termination. (n) Early Exercise. The Option may, but need not, include a provision whereby the Optionholder may elect at any time before the Optionholders Continuous Service terminates to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full vesting of the Option. Subject to the Repurchase Limitation in subsection 10(h), any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate. (o) Right of Repurchase. Subject to the Repurchase Limitation in subsection 10(h), the Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to repurchase all or any part of the vested shares of Common Stock acquired by the Optionholder pursuant to the exercise of the Option. (p) 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 Optionholder of the intent to transfer all or any part of the shares of Common Stock received upon the exercise of the Option. Except as expressly provided in this subsection 6(p), such right of first refusal shall otherwise comply with any applicable provisions of the Bylaws of the Company. 7. PROVISIONS OF STOCK A WARDS OTHER THAN OPTIONS. (a) Stock Bonus Awards. Each stock bonus agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of stock bonus agreements may change from time to time, and the terms and conditions of separate stock bonus agreements need not be identical, but each stock bonus agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions: (i) Consideration. A stock bonus may be awarded in consideration for past services actually rendered to the Company or an Affiliate for its benefit. (ii) Vesting. Subject to the Repurchase Limitation in subsection 10(h), shares of Common Stock awarded under the stock bonus agreement may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board. (iii) Termination of Participants Continuous Service. Subject to the Repurchase Limitation in subsection 10(h), in the event a Participants Continuous Service terminates, the Company may reacquire any or all of the shares of Common Stock held by the Participant which have not vested as of the date of termination under the terms of the stock bonus agreement. 12
(iv) Transferability. For a stock bonus award made before the Listing Date, rights to acquire shares of Common Stock under the stock bonus agreement shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant. For a stock bonus award made on or after the Listing Date, rights to acquire shares of Common Stock under the stock bonus agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the stock bonus agreement, as the Board shall determine in its discretion, so long as Common Stock awarded under the stock bonus agreement remains subject to the terms of the stock bonus agreement. (b) Restricted Stock Awards. Each restricted stock purchase agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of the restricted stock purchase agreements may change from time to time, and the terms and conditions of separate restricted stock purchase agreements need not be identical, but each 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: (i) Purchase Price. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the purchase price under each restricted stock purchase agreement shall be such amount as the Board shall determine and designate in such restricted stock purchase agreement. For restricted stock awards made prior to the Listing Date, the purchase price shall not be less than eighty-five percent (85%) of the Common Stocks Fair Market Value on the date such award is made or at the time the purchase is consummated. For restricted stock awards made on or after the Listing Date, the purchase price shall not be less than eighty-five percent (85%) of the Common Stocks Fair Market Value on the date such award is made or at the time the purchase is consummated. (ii) Consideration. The purchase price of Common Stock acquired pursuant to the restricted stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Board, according to a deferred payment or other similar arrangement with the Participant; or (iii) in any other form of legal consideration that may be acceptable to the Board in its discretion; provided, however, that at any time that the Company is incorporated in Delaware, then payment of the Common Stocks par value, as defined in the Delaware General Corporation Law, shall not be made by deferred payment. (iii) Vesting. Subject to the Repurchase Limitation in subsection 10(h), shares of Common Stock acquired under the restricted stock purchase agreement may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board. (iv) Termination of Participants Continuous Service. Subject to the Repurchase Limitation in subsection 10(h), in the event a Participants Continuous Service terminates, the Company may repurchase or otherwise reacquire any or all of the shares of Common Stock held by the Participant which have not vested as of the date of termination under the terms of the restricted stock purchase agreement. 13
(v) Transferability. For a restricted stock award made before the Listing Date, rights to acquire shares of Common Stock under the restricted stock purchase agreement shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant. For a restricted stock award made on or after the Listing Date, rights to acquire shares of Common Stock under the restricted stock purchase agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the restricted stock purchase agreement, as the Board shall determine in its discretion, so long as Common Stock awarded under the restricted stock purchase agreement remains subject to the terms of the restricted stock purchase agreement. 8. COVENANTS OF THE COMPANY . (a) Availability of Shares. During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Stock Awards. (b) Securities Law Compliance. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any Common 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 Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained. 9. USE OF PROCEEDS FROM STOCK . Proceeds from the sale of Common Stock pursuant to Stock Awards shall constitute general funds of the Company. 10. MISCELLANEOUS . (a) Acceleration of Exercisability and Vesting. 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 in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest. (b) Stockholder Rights. No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award unless and until such Participant has satisfied all requirements for exercise of the Stock Award pursuant to its terms. 14
(c) No Employment or other Service Rights. Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without Cause, (ii) the service of a Consultant pursuant to the terms of such Consultants agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be. (d) Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder 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) Investment Assurances. The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participants 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 (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participants own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (1) the issuance of the shares of Common Stock upon the exercise or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act or (2) 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 necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock. (f) Withholding Obligations. To the extent provided by the terms of a Stock Award Agreement, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common Stock under a Stock Award by any of the following means (in addition to the Companys right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under the Stock Award, provided, however, that no shares of Common Stock are 15
withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (iii) delivering to the Company owned and unencumbered shares of Common Stock. (g) Information Obligation. Prior to the Listing Date, to the extent required by Section 260.140.46 of Title 10 of the California Code of Regulations, the Company shall deliver financial statements to Participants at least annually. This subsection 10(g) shall not apply to key Employees whose duties in connection with the Company assure them access to equivalent information. (h) Repurchase Limitation. The terms of any repurchase option shall be specified in the Stock Award and may be either at Fair Market Value at the time of repurchase or at not less than the original purchase price. To the extent required by Section 260.140.41 and Section 260.140.42 of Title 10 of the California Code of Regulations at the time a Stock Award is made, any repurchase option contained in a Stock Award granted prior to the Listing Date to a person who is not an Officer, Director or Consultant shall be upon the terms described below: (i) Fair Market Value. If the repurchase option gives the Company the right to repurchase the shares of Common Stock upon termination of employment at not less than the Fair Market Value of the shares of Common Stock to be purchased on the date of termination of Continuous Service, then (i) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares of Common Stock within ninety (90) days of termination of Continuous Service (or in the case of shares of Common Stock issued upon exercise of Stock Awards after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the Company and the Participant (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code regarding qualified small business stock) and (ii) the right terminates when the shares of Common Stock become publicly traded. (ii) Original Purchase Price. If the repurchase option gives the Company the right to repurchase the shares of Common Stock upon termination of Continuous Service at the original purchase price, then (i) the right to repurchase at the original purchase price shall lapse at the rate of at least twenty percent (20%) of the shares of Common Stock per year over five (5) years from the date the Stock Award is granted (without respect to the date the Stock Award was exercised or became exercisable) and (ii) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares of Common Stock within ninety (90) days of termination of Continuous Service (or in the case of shares of Common Stock issued upon exercise of Options after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the Company and the Participant (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code regarding qualified small business stock). 11. ADJUSTMENTS UPON CHANGES I N STOCK . (a) Capitalization Adjustments. If any change is made in the Common Stock subject to the Plan, or subject to any Stock Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock 16
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) (individually, a Capitalization Adjustment), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant to subsection 4(a) and the maximum number of securities subject to award to any person pursuant to subsection 5(c), and the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of securities and price per share of Common Stock subject to such outstanding Stock Awards. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a transaction without receipt of consideration by the Company.) (b) Dissolution or Liquidation. In the event of a dissolution or liquidation of the Company, then all outstanding Stock Awards shall terminate immediately prior to such event. (c) Asset Sale, Merger, Consolidation or Reverse Merger. In the event of (i) a sale of substantially all of the assets of the Company, (ii) a merger or consolidation 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 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, or (iv) any transaction or series of related transactions in which in excess of 50% of the Companys voting power is transferred other than a transaction which is primarily a capital raising transaction (individually, a Corporate Transaction), then 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 Corporate Transaction for those outstanding under the Plan). 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, then with respect to Stock Awards held by Participants whose Continuous Service has not terminated, the vesting of such Stock Awards (and, if applicable, the time during which such Stock Awards may be exercised) shall be accelerated in full, and the Stock Awards shall terminate if not exercised (if applicable) at or prior to the Corporate Transaction. With respect to any other Stock Awards outstanding under the Plan, such Stock Awards shall terminate if not exercised (if applicable) prior to the Corporate Transaction. 12. A MENDMENT OF THE PLAN AND STOCK A WARDS. (a) Amendment of Plan. The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 11 relating to adjustments upon changes in Common Stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements. (b) Stockholder Approval. 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 17
thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. (c) Contemplated Amendments. 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) No Impairment of Rights. Rights 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 Participant and (ii) the Participant consents in writing. (e) Amendment of Stock Awards. The Board at any time, and from time to time, may amend the terms of any one or more Stock Awards; provided, however, that the rights under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing. 13. TERMINATION OR SUSPENSION OF THE PLAN. (a) Plan Term. The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10th) anniversary of 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) No Impairment of Rights. Suspension or termination of the Plan shall not impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the Participant. 14. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined by the Board, but no Stock Award shall be exercised (or, in the case of a stock bonus, shall be granted) 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. 15. CHOICE OF LAW. The law of the State of California shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such states conflict of laws rules. 18
AMBIT BIOSCIENCES CORPORATION FORM OF STOCK OPTION A GREEMENT [ WITH SPECIAL V ESTING A CCELERATION PROVISIONS ] (INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION) Pursuant to your Stock Option Grant Notice (Grant Notice) and this Stock Option Agreement, Ambit Biosciences Corporation (the Company) has granted you an option under its 2001 Equity Incentive Plan (the Plan) to purchase the number of shares of the Companys Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant Notice. Defined terms not explicitly defined in this Stock Option Agreement but defined in the Plan shall have the same definitions as in the Plan. The details of your option are as follows: 1. V ESTING. Subject to the limitations contained herein, your option will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service. a. Special Acceleration Provisions. Notwithstanding any other provisions of your Grant Notice to the contrary, if (i) a Change in Control, as defined below, occurs and (ii) within thirteen (13) months after the date of such Change in Control your Continuous Service terminates due to an involuntary termination (not including death or Disability) without Cause or due to a Constructive Termination, as defined below, then the vesting and exercisability of your option shall be accelerated in full or any reacquisition or repurchase rights held by the Company with respect to Common Stock acquired pursuant to the early exercise of your option shall lapse in full, as appropriate. For purposes of this subsection 1(a) only, Change in Control means: (i) a sale or other disposition of all or substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving entity and in which the stockholders of the Company immediately prior to such consolidation or merger own less than fifty percent (50%) of the surviving entitys voting power immediately after the transaction; (iii) a reverse merger in which the Company is the surviving entity but the shares of 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, and in which the stockholders of the Company immediately prior to such reverse merger own less than fifty percent (50%) of the Companys voting power immediately after the transaction; or (iv) after the Listing Date an acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or subsidiary of the Company or other entity controlled by the Company) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the 1
Company representing at least fifty percent (50%) of the voting power entitled to vote in the election of directors. For purposes of this subsection 1(a) only, Constructive Termination means: such persons voluntary resignation following (i) a change in his or her position with the Company which materially reduces his or her level of responsibility, (ii) a reduction in his or her level of base salary, or (iii) a relocation of such persons place of employment by more than fifty (50) miles, provided and only in such change, reduction or relocation is effected by the Company without the persons consent. b. Parachute Payments. In the event that the acceleration of the vesting and exercisability of your option and/or the lapse of reacquisition or repurchase rights with respect to Common Stock acquired pursuant to the early exercise of your option provided for in subsection 1(a) and benefits otherwise payable to you (i) constitute parachute payments within the meaning of Section 280G of the Code, or any comparable successor provisions, and (ii) but for this subsection would be subject to the excise tax imposed by Section 4999 of the Code, or any comparable successor provisions (the Excise Tax), then your benefits hereunder shall be either 1) provided to you in full, or 2) provided to you as to such lesser extent which would result in no portion of such benefits being subject to the Excise Tax, whichever of the foregoing amounts, when taking into account applicable federal, state, local and foreign income and employment taxes, the Excise Tax, and any other applicable taxes, results in the receipt by you, on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under the Excise Tax. Unless the Company and you otherwise agree in writing, any determination required under this subsection shall be made in writing in good faith by the Accountants. In the event of a reduction of benefits hereunder, you shall be given the choice of which benefits to reduce. For purposes of making the calculations required by this subsection, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of the Code, and other applicable legal authority. The Company and you shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this subsection. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this subsection. If, notwithstanding any reduction described in this subsection, the IRS determines that you are liable for the Excise Tax as a result of the receipt of the payment of benefits as described above, then you shall be obligated to pay back to the Company, within thirty (30) days after a final IRS determination or in the event that you challenge the final IRS determination, a final judicial determination, a portion of the payment equal to the Repayment Amount. The Repayment Amount with respect to the payment of benefits shall be the smallest such amount, if any, as shall be required to be paid to the Company so that your net after-tax proceeds with respect to any payment of benefits (after taking into account the payment of the Excise Tax and all other 2
applicable taxes imposed on such payment) shall be maximized. The Repayment Amount with respect to the payment of benefits shall be zero if a Repayment Amount of more than zero would not result in your net after-tax proceeds with respect to the payment of such benefits being maximized. If the Excise Tax is not eliminated pursuant to this paragraph, you shall pay the Excise Tax. Notwithstanding any other provision of this subsection 1(b), if (i) there is a reduction in the payment of benefits as described in this subsection, (ii) the IRS later determines that you are liable for the Excise Tax, the payment of which would result in the maximization of your net after-tax proceeds (calculated as if your benefits had not previously been reduced), and (iii) you pay the Excise Tax, then the Company shall pay to you those benefits which were reduced pursuant to this subsection contemporaneously or as soon as administratively possible after you pay the Excise Tax so that your net after-tax proceeds with respect to the payment of benefits is maximized. 2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common Stock subject to your option and your exercise price per share referenced in your Grant Notice may be adjusted from time to time for Capitalization Adjustments, as provided in the Plan. 3. EXERCISE PRIOR TO V ESTING (EARLY EXERCISE). If permitted in your Grant Notice (i.e., the Exercise Schedule indicates that Early Exercise of your option is permitted) and subject to the provisions of your option, you may elect at any time that is both (i) during the period of your Continuous Service and (ii) during the term of your option, to exercise all or part of your option, including the nonvested portion of your option; provided, however, that: a. a partial exercise of your option shall be deemed to cover first vested shares of Common Stock and then the earliest vesting installment of unvested shares of Common Stock; b. any shares of Common Stock so purchased from installments that 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 Companys form of Early Exercise Stock Purchase Agreement; c. you shall enter into the Companys form of Early Exercise Stock Purchase Agreement with a vesting schedule that will result in the same vesting as if no early exercise had occurred; and d. if your option is an incentive stock option, then, as provided in the Plan, to the extent that the aggregate Fair Market Value (determined at the time of grant) of the shares of Common Stock with respect to which your option plus all other incentive stock options you hold are exercisable for the first time by you during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), your option(s) or portions thereof that exceed such limit (according to the order in which they were granted) shall be treated as nonstatutory stock options. 3
4. METHOD OF PAYMENT. Payment of the exercise price is due in full upon exercise of all or any part of your option. You may elect to make payment of the exercise price in cash or by check or in any other manner permitted by your Grant Notice , which may include one or more of the following: a. In the Companys sole discretion at the time your option is exercised and provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, 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. b. Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, by delivery of already-owned shares of Common Stock either that you have held for the period required to avoid a charge to the Companys reported earnings (generally six months) or that you did not acquire, directly or indirectly from the Company, that are owned free and clear of any liens, claims, encumbrances or security interests, and that are valued at Fair Market Value on the date of exercise. Delivery for these purposes, in the sole discretion of the Company at the time you exercise your option, shall include delivery to the Company of your attestation of ownership of such shares of Common Stock in a form approved by the Company. Notwithstanding the foregoing, you may not exercise your option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Companys stock. c. Pursuant to the following deferred payment alternative: 1) Not less than one hundred percent (100%) of the aggregate exercise price, plus accrued interest, shall be due four (4) years from date of exercise or, at the Companys election, upon termination of your Continuous Service. 2) Interest shall be compounded at least annually and shall be charged at the market rate of interest necessary to avoid a charge to earnings for financial accounting purposes. 3) At any time that the Company is incorporated in Delaware, payment of the Common Stocks par value, as defined in the Delaware General Corporation Law, shall be made in cash and not by deferred payment. 4) In order to elect the deferred payment alternative, you must, as a part of your written notice of exercise, give notice of the election of this payment alternative and, in order to secure the payment of the deferred exercise price to the Company hereunder, if the Company so requests, you must tender to the Company a promissory note and a security agreement covering the purchased shares of Common Stock, both in form and substance satisfactory to the Company, or such other or additional documentation as the Company may request. 4
5. WHOLE SHARES. You may exercise your option only for whole shares of Common Stock. 6. SECURITIES LAW COMPLIANCE . Notwithstanding anything to the contrary contained herein, you may not exercise your option unless the shares of Common Stock issuable upon such exercise are then registered under the Securities Act or, if such shares of Common Stock are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of your option must also comply with other applicable laws and regulations governing your option, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with such laws and regulations. 7. TERM. You may not exercise your option before the commencement of its term or after its term expires. The term of your option commences on the Date of Grant and expires upon the earliest of the following: a. As of the date of termination of your Continuous Service if such termination is for Cause; b. three (3) months after the termination of your Continuous Service for any reason other than Cause or your Disability or death, provided that if during any part of such three- (3-) month period your option is not exercisable solely because of the condition set forth in the preceding paragraph relating to Securities Law Compliance, your option shall not expire until the earlier of the Expiration Date or until it shall have been exercisable for an aggregate period of three (3) months after the termination of your Continuous Service; c. twelve (12) months after the termination of your Continuous Service due to your Disability; d. eighteen (18) months after your death if you die either during your Continuous Service or within three (3) months after your Continuous Service terminates; e. the Expiration Date indicated in your Grant Notice; or f. the day before the tenth (10th) anniversary of the Date of Grant. If your option is an incentive stock option, note that, to obtain the federal income tax advantages associated with an incentive stock option, the Code requires that at all times beginning on the date of grant of your option and ending on the day three (3) months before the date of your options exercise, you must be an employee of the Company or an Affiliate, except in the event of your death or Disability. The Company has provided for extended exercisability of your option under certain circumstances for your benefit but cannot guarantee that your option will necessarily be treated as an incentive stock option if you continue to provide services to the Company or an Affiliate as a Consultant or Director after your employment terminates or if you otherwise exercise your option more than three (3) months after the date your employment terminates. 5
8. EXERCISE. a. You may exercise the vested portion of your option (and the unvested portion of your option if your Grant Notice so permits) during its term by delivering a Notice of Exercise (in a 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. b. By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of your option, (2) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (3) the disposition of shares of Common Stock acquired upon such exercise. c. If your option is an incentive stock option, by exercising your option you agree that you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of your option that occurs within two (2) years after the date of your option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of your option. d. By exercising your option you agree that the Company (or a representative of the underwriter(s)) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, require that you not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by you, for a period of time specified by the underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act. You further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to your shares of Common Stock until the end of such period. The underwriters of the Companys stock are intended third party beneficiaries of this Section 8(d) and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. 9. TRANSFERABILITY . a. If your option is an incentive stock option, your option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. 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 your option. 6
b. If your option is a nonstatutory stock option, your option is not transferable, except (i) by will or by the laws of descent and distribution, (ii) with the prior written approval of the Company, by instrument to an inter vivos or testamentary trust, in a form accepted by the Company, in which the option is to be passed to beneficiaries upon the death of the trustor (settlor) and (iii) with the prior written approval of the Company, by gift, in a form accepted by the Company, to your immediate family as that term is defined in 17 C.F.R. 240.16a-1(e). The term immediate family is defined in 17 C.F.R. 240.16a-1(e) to mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and includes adoptive relationships. Your option is exercisable during your life only by you or a transferee satisfying the above-stated conditions. The right of a transferee to exercise the transferred portion of your option after termination of your Continuous Service shall terminate in accordance with your right to exercise your option as specified in your option. In the event that your Continuous Service terminates due to your death, your transferee will be treated as a person who acquired the right to exercise your option by bequest or inheritance. In addition to the foregoing, the Company may require, as a condition of the transfer of your option to a trust or by gift, that your transferee enter into an option transfer agreement provided by, or acceptable to, the Company. The terms of your option shall be binding upon your transferees, executors, administrators, heirs, successors, and assigns. 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 your option. 10. RIGHT OF FIRST REFUSAL. Shares of Common Stock that you acquire upon exercise of your option are subject to any right of first refusal that may be described in the Companys bylaws in effect at such time the Company elects to exercise its right. The Companys right of first refusal shall expire on the Listing Date. 11. RIGHT OF REPURCHASE . To the extent provided in the Companys bylaws as amended from time to time, the Company shall have the right to repurchase all or any part of the shares of Common Stock you acquire pursuant to the exercise of your option. 12. OPTION NOT A SERVICE CONTRACT . Your option is not an employment or service contract, and nothing in your option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment. In addition, nothing in your option shall obligate the Company or an Affiliate, their respective stockholders, Boards of Directors, Officers or Employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate. 13. WITHHOLDING OBLIGATIONS. a. At the time you exercise your option, in whole or in part, or at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a cashless exercise pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums 7
required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with your option. b. Upon your request and subject to approval by the Company, in its sole discretion, and compliance with any applicable conditions or restrictions of law, the Company may withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of your option a number of whole shares of Common Stock having a Fair Market Value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law. If the date of determination of any tax withholding obligation is deferred to a date later than the date of exercise of your option, share withholding pursuant to the preceding sentence shall not be permitted unless you make a proper and timely election under Section 83(b) of the Code, covering the aggregate number of shares of Common Stock acquired upon such exercise with respect to which such determination is otherwise deferred, to accelerate the determination of such tax withholding obligation to the date of exercise of your option. Notwithstanding the filing of such election, shares of Common Stock shall be withheld solely from fully vested shares of Common Stock determined as of the date of exercise of your option that are otherwise issuable to you upon such exercise. Any adverse consequences to you arising in connection with such share withholding procedure shall be your sole responsibility. c. You may not exercise your option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your option when desired even though your option is vested, and the Company shall have no obligation to issue a certificate for such shares of Common Stock or release such shares of Common Stock from any escrow provided for herein. 14. NOTICES. Any notices provided for in your option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company. 15. GOVERNING PLAN DOCUMENT . Your option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your option and those of the Plan, the provisions of the Plan shall control. 8
AMBIT BIOSCIENCES CORPORATION FORM OF STOCK OPTION A GREEMENT [ WITHOUT SPECIAL V ESTING A CCELERATION PROVISIONS ] (INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION) Pursuant to your Stock Option Grant Notice (Grant Notice) and this Stock Option Agreement, Ambit Biosciences Corporation (the Company) has granted you an option under its 2001 Equity Incentive Plan (the Plan) to purchase the number of shares of the Companys Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant Notice. Defined terms not explicitly defined in this Stock Option Agreement but defined in the Plan shall have the same definitions as in the Plan. The details of your option are as follows: 1. V ESTING. Subject to the limitations contained herein, your option will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service. 2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common Stock subject to your option and your exercise price per share referenced in your Grant Notice may be adjusted from time to time for Capitalization Adjustments, as provided in the Plan. 3. EXERCISE PRIOR TO V ESTING (EARLY EXERCISE). If permitted in your Grant Notice (i.e., the Exercise Schedule indicates that Early Exercise of your option is permitted) and subject to the provisions of your option, you may elect at any time that is both (i) during the period of your Continuous Service and (ii) during the term of your option, to exercise all or part of your option, including the nonvested portion of your option; provided, however, that: a. a partial exercise of your option shall be deemed to cover first vested shares of Common Stock and then the earliest vesting installment of unvested shares of Common Stock; b. any shares of Common Stock so purchased from installments that 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 Companys form of Early Exercise Stock Purchase Agreement; c. you shall enter into the Companys form of Early Exercise Stock Purchase Agreement with a vesting schedule that will result in the same vesting as if no early exercise had occurred; and d. if your option is an incentive stock option, then, as provided in the Plan, to the extent that the aggregate Fair Market Value (determined at the time of grant) of the shares of Common Stock with respect to which your option plus all other incentive stock options you hold 1
are exercisable for the first time by you during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), your option(s) or portions thereof that exceed such limit (according to the order in which they were granted) shall be treated as nonstatutory stock options. 4. METHOD OF PAYMENT. Payment of the exercise price is due in full upon exercise of all or any part of your option. You may elect to make payment of the exercise price in cash or by check or in any other manner permitted by your Grant Notice , which may include one or more of the following: a. In the Companys sole discretion at the time your option is exercised and provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, 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. b. Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, by delivery of already-owned shares of Common Stock either that you have held for the period required to avoid a charge to the Companys reported earnings (generally six months) or that you did not acquire, directly or indirectly from the Company, that are owned free and clear of any liens, claims, encumbrances or security interests, and that are valued at Fair Market Value on the date of exercise. Delivery for these purposes, in the sole discretion of the Company at the time you exercise your option, shall include delivery to the Company of your attestation of ownership of such shares of Common Stock in a form approved by the Company. Notwithstanding the foregoing, you may not exercise your option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Companys stock. c. Pursuant to the following deferred payment alternative: 1) Not less than one hundred percent (100%) of the aggregate exercise price, plus accrued interest, shall be due four (4) years from date of exercise or, at the Companys election, upon termination of your Continuous Service. 2) Interest shall be compounded at least annually and shall be charged at the market rate of interest necessary to avoid a charge to earnings for financial accounting purposes. 3) At any time that the Company is incorporated in Delaware, payment of the Common Stocks par value, as defined in the Delaware General Corporation Law, shall be made in cash and not by deferred payment. 4) In order to elect the deferred payment alternative, you must, as a part of your written notice of exercise, give notice of the election of this payment alternative and, 2
in order to secure the payment of the deferred exercise price to the Company hereunder, if the Company so requests, you must tender to the Company a promissory note and a security agreement covering the purchased shares of Common Stock, both in form and substance satisfactory to the Company, or such other or additional documentation as the Company may request. 5. WHOLE SHARES. You may exercise your option only for whole shares of Common Stock. 6. SECURITIES LAW COMPLIANCE . Notwithstanding anything to the contrary contained herein, you may not exercise your option unless the shares of Common Stock issuable upon such exercise are then registered under the Securities Act or, if such shares of Common Stock are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of your option must also comply with other applicable laws and regulations governing your option, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with such laws and regulations. 7. TERM. You may not exercise your option before the commencement of its term or after its term expires. The term of your option commences on the Date of Grant and expires upon the earliest of the following: a. As of the date of termination of your Continuous Service if such termination is for Cause; b. three (3) months after the termination of your Continuous Service for any reason other than Cause or your Disability or death, provided that if during any part of such three- (3-) month period your option is not exercisable solely because of the condition set forth in the preceding paragraph relating to Securities Law Compliance, your option shall not expire until the earlier of the Expiration Date or until it shall have been exercisable for an aggregate period of three (3) months after the termination of your Continuous Service; c. twelve (12) months after the termination of your Continuous Service due to your Disability; d. eighteen (18) months after your death if you die either during your Continuous Service or within three (3) months after your Continuous Service terminates; e. the Expiration Date indicated in your Grant Notice; or f. the day before the tenth (10th) anniversary of the Date of Grant. If your option is an incentive stock option, note that, to obtain the federal income tax advantages associated with an incentive stock option, the Code requires that at all times beginning on the date of grant of your option and ending on the day three (3) months before the date of your options exercise, you must be an employee of the Company or an Affiliate, except in the event 3
of your death or Disability. The Company has provided for extended exercisability of your option under certain circumstances for your benefit but cannot guarantee that your option will necessarily be treated as an incentive stock option if you continue to provide services to the Company or an Affiliate as a Consultant or Director after your employment terminates or if you otherwise exercise your option more than three (3) months after the date your employment terminates. 8. EXERCISE. a. You may exercise the vested portion of your option (and the unvested portion of your option if your Grant Notice so permits) during its term by delivering a Notice of Exercise (in a 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. b. By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of your option, (2) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (3) the disposition of shares of Common Stock acquired upon such exercise. c. If your option is an incentive stock option, by exercising your option you agree that you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of your option that occurs within two (2) years after the date of your option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of your option. d. By exercising your option you agree that the Company (or a representative of the underwriter(s)) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, require that you not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by you, for a period of time specified by the underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act. You further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to your shares of Common Stock until the end of such period. The underwriters of the Companys stock are intended third party beneficiaries of this Section 8(d) and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. 9. TRANSFERABILITY . 4
a. If your option is an incentive stock option, your option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. 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 your option. b. If your option is a nonstatutory stock option, your option is not transferable, except (i) by will or by the laws of descent and distribution, (ii) with the prior written approval of the Company, by instrument to an inter vivos or testamentary trust, in a form accepted by the Company, in which the option is to be passed to beneficiaries upon the death of the trustor (settlor) and (iii) with the prior written approval of the Company, by gift, in a form accepted by the Company, to your immediate family as that term is defined in 17 C.F.R. 240.16a-1(e). The term immediate family is defined in 17 C.F.R. 240.16a-1(e) to mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and includes adoptive relationships. Your option is exercisable during your life only by you or a transferee satisfying the above-stated conditions. The right of a transferee to exercise the transferred portion of your option after termination of your Continuous Service shall terminate in accordance with your right to exercise your option as specified in your option. In the event that your Continuous Service terminates due to your death, your transferee will be treated as a person who acquired the right to exercise your option by bequest or inheritance. In addition to the foregoing, the Company may require, as a condition of the transfer of your option to a trust or by gift, that your transferee enter into an option transfer agreement provided by, or acceptable to, the Company. The terms of your option shall be binding upon your transferees, executors, administrators, heirs, successors, and assigns. 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 your option. 10. RIGHT OF FIRST REFUSAL. Shares of Common Stock that you acquire upon exercise of your option are subject to any right of first refusal that may be described in the Companys bylaws in effect at such time the Company elects to exercise its right. The Companys right of first refusal shall expire on the Listing Date. 11. RIGHT OF REPURCHASE . To the extent provided in the Companys bylaws as amended from time to time, the Company shall have the right to repurchase all or any part of the shares of Common Stock you acquire pursuant to the exercise of your option. 12. OPTION NOT A SERVICE CONTRACT . Your option is not an employment or service contract, and nothing in your option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment. In addition, nothing in your option shall obligate the Company or an Affiliate, their respective stockholders, Boards of Directors, Officers or Employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate. 13. WITHHOLDING OBLIGATIONS. 5
a. At the time you exercise your option, in whole or in part, or at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a cashless exercise pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with your option. b. Upon your request and subject to approval by the Company, in its sole discretion, and compliance with any applicable conditions or restrictions of law, the Company may withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of your option a number of whole shares of Common Stock having a Fair Market Value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law. If the date of determination of any tax withholding obligation is deferred to a date later than the date of exercise of your option, share withholding pursuant to the preceding sentence shall not be permitted unless you make a proper and timely election under Section 83(b) of the Code, covering the aggregate number of shares of Common Stock acquired upon such exercise with respect to which such determination is otherwise deferred, to accelerate the determination of such tax withholding obligation to the date of exercise of your option. Notwithstanding the filing of such election, shares of Common Stock shall be withheld solely from fully vested shares of Common Stock determined as of the date of exercise of your option that are otherwise issuable to you upon such exercise. Any adverse consequences to you arising in connection with such share withholding procedure shall be your sole responsibility. c. You may not exercise your option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your option when desired even though your option is vested, and the Company shall have no obligation to issue a certificate for such shares of Common Stock or release such shares of Common Stock from any escrow provided for herein. 14. NOTICES. Any notices provided for in your option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company. 15. GOVERNING PLAN DOCUMENT . Your option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your option and those of the Plan, the provisions of the Plan shall control. 6
Exhibit 10.6 AMBIT BIOSCIENCES CORPORATION EMPLOYMENT AGREEMENT This EMPLOYMENT A GREEMENT (this Agreement ) is made and entered into effective as of July 23, 2010 (the Effective Date) by and among AMBIT BIOSCIENCES CORPORATION (the Company) and Alan Lewis (the Executive). The Company and Executive are hereinafter collectively referred to as the Parties, and individually referred to as a Party. RECITALS A. The Company desires assurance of the association and services of Executive in order to retain Executives experience, skills, abilities, background and knowledge, and is willing to engage Executives services on the terms and conditions set forth in this Agreement. B. Executive desires to be in the employ of the Company, and is willing to accept such employment on the terms and conditions set forth in this Agreement. AGREEMENT In consideration of the foregoing Recitals and the mutual promises and covenants herein contained, and for other good and valuable consideration, the Parties, intending to be legally bound, agree as follows: 1. EMPLOYMENT . 1.1 Title. Effective as of the Effective Date, Executives position shall be Chief Executive Officer and President of the Company, subject to the terms and conditions set forth in this Agreement. Executive shall also continue to serve as a member of the Companys Board of Directors (the Board) for so long as he continues to serve as Chief Executive Officer. At such time as Executives service as Chief Executive Officer terminates, he agrees to immediately resign as a member of the Board. 1.2 Term. The term of this Agreement shall begin on the Effective Date and shall continue until it is terminated pursuant to Section 4 herein (the Term). 1.3 Duties. Executive shall do and perform all services, acts or things necessary or advisable to manage and conduct the business of the Company and that are normally associated with the position of Chief Executive Officer and President. Executive shall report to the Board. 1.4 Policies and Practices. The employment relationship between the Parties shall be governed by this Agreement and by the policies and practices established by the Company and/or the Board, or any designated committee thereof. In the event that the terms of this Agreement differ from or are in conflict with the Companys policies or practices or the Companys Employee Handbook, this Agreement shall control. 1.
1.5 Location. Unless the Parties otherwise agree in writing, during the Term Executive shall perform the services Executive is required to perform pursuant to this Agreement at the Companys offices in San Diego, California, provided, however, that the Company may from time to time require Executive to travel temporarily to other locations in connection with the Companys business. 2. LOYALTY; NONCOMPETITION ; NONSOLICITATION. 2.1 Loyalty. During Executives employment with the Company, Executive shall devote Executives full business energies, interest, abilities and productive time to the proper and efficient performance of Executives duties under this Agreement; provided, however, that Executive shall be entitled to continue his service as Chairman of the Board of Cytochroma and as a board member of Biomarin, in each case so long as Executive remains in compliance with Section 2.2 and such service does not interfere with Executives duties under this Agreement. 2.2 Agreement not to Participate in Companys Competitors. During Executives employment with the Company, Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known by Executive to be adverse or antagonistic to the Company, its business, or prospects, financial or otherwise, or in any company, person, or entity that is, directly or indirectly, in competition with the business of the Company or any of its Affiliates (as defined below). Ownership by Executive, in professionally managed funds over which the Executive does not have control or discretion in investment decisions, or as a passive investment, of less than two percent (2%) of the outstanding shares of capital stock of any corporation with one or more classes of its capital stock listed on a national securities exchange or publicly traded on a national securities exchange or in the over-the-counter market shall not constitute a breach of this Section. For purposes of this Agreement, Affiliate, means, with respect to any specific entity, any other entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified entity. 2.3 Covenant not to Compete. During Executives employment with the Company, and during any post-termination period in which the Executive is receiving severance benefits from the Company, the Executive shall not engage in competition with the Company and/or any of its Affiliates, either directly or indirectly, in any manner or capacity, as adviser, principal, agent, affiliate, promoter, partner, officer, director, employee, stockholder, owner, co-owner, consultant, or member of any association or otherwise, in any phase of the business of developing, manufacturing and marketing of products or services that are in the same field of use or which otherwise compete with the products or services of the Company, except with the prior written consent of the Board. 3. COMPENSATION OF THE EXECUTIVE . 3.1 Base Salary. The Company shall pay Executive a base salary at the annualized rate of Three Hundred and Seventy Five Thousand Dollars ($375,000.00) (the Base Salary), less payroll deductions and all required withholdings, payable in regular periodic 2.
installments in accordance with the Companys normal payroll practices. The Base Salary shall be prorated for any partial year of employment on the basis of a 365-day fiscal year. 3.2 Discretionary Bonus. At the sole discretion of the Board, following each calendar year of employment Executive shall be eligible to receive a discretionary cash bonus of up to forty percent (40%) of Executives then-current base salary (the Bonus), based on Executives achievement relative to certain performance goals ( Performance Goals) to be established by the Board. The determination of whether Executive has met the Performance Goals for any given year, and if so, the amount of any Bonus that will be paid for such year (if any), shall be determined by the Board in its sole and absolute discretion. In order to be eligible to earn or receive any Bonus, Executive must remain employed by the Company through and including the date of payment of such Bonus. 3.3 Stock Options. As soon as practicable following the Effective Date, Executive will be granted an option to purchase up to 1,577,380 shares of the Companys Common Stock (the Option) pursuant to the terms of the Companys 2001 Equity Incentive Plan, as amended from time to time (the Plan), which Option represents a number of shares of Common Stock equal to approximately four and one-half percent (4.5%) of the fully-diluted capitalization of the Company as of the Effective Date. For purposes of this section, fully-diluted capitalization of the Company means (1) all issued and outstanding equity securities of the Company, (2) all shares issuable upon the conversion, exercise, or exchange of any outstanding options, warrants, or other convertible or exchangeable securities of the Company, (3) all shares reserved for future issuance pursuant to the Plan and (4) all shares issuable to GrowthWorks Canadian Fund Limited Ltd. ( GrowthWorks) pursuant to the terms of the Amended and Restated Put Agreement among the Company, GrowthWorks and Ambit Biosciences (Canada) Corporation dated as of October 30, 2007, as amended. The Option shall be subject to vesting such that, subject to Executives continued employment with the Company, one-fourth ( 1/4 ) of the shares subject to the Option shall vest as of the first anniversary of the Effective Date and 1/4 8th of the shares subject to the Option shall vest in equal monthly installments on the monthly anniversary of the Effective Date of each month for the thirty-six (36) months thereafter. The exercise price per share of the Option will be equal to the fair market value of a single share of Common Stock on the date the Option is granted, as determined in good faith by the Board. The Option will be governed by the Plan and shall be granted pursuant to a separate stock option grant notice and stock option agreement. 3.4 Expense Reimbursements. The Company will reimburse Executive for all reasonable business expenses Executive incurs in conducting his duties hereunder, pursuant to the Companys usual expense reimbursement policies; provided that Executive supplies the appropriate substantiation for such expenses no later than the end of the calendar month following the month in which such expenses were incurred by Executive. 3.5 Changes to Compensation. Executives compensation will be reviewed annually and may be changed from time to time in the Companys sole discretion. 3.6 Employment Taxes. All of Executives compensation shall be subject to customary withholding taxes and any other employment taxes as are commonly required to be collected or withheld by the Company. 3.
3.7 Benefits. Executive shall, in accordance with Company policy and the terms of the applicable plan documents, be eligible to participate in benefits under any benefit plan or arrangement that may be in effect from time to time and made available to the Companys senior management employees. 3.8 Holidays and Vacation. Executive shall be eligible to accrue up to four (4) weeks of paid vacation per year and will receive paid Company holidays in accordance with Company policy. 4. TERMINATION. 4.1 Termination by the Company. Executives employment with the Company is at will and may be terminated by the Company at any time and for any reason, or for no reason, including, but not limited to, under the following conditions: 4.1.1 Termination by the Company for Cause. The Company may terminate Executives employment under this Agreement for Cause (as defined below) by delivery of written notice to Executive. Any notice of termination given pursuant to this section shall effect termination as of the date of the notice, or as of such other date specified in the notice. 4.1.2 Termination by the Company without Cause. The Company may terminate Executives employment under this Agreement without Cause at any time and for any reason, or for no reason. Such termination shall be effective on the date Executive is so informed, or as otherwise specified by the Company. 4.2 Termination By The Executive. The Executive may terminate his employment with the Company at any time and for any reason, or for no reason, upon thirty (30) days written notice to the Company. 4.3 Termination for Death or Complete Disability. Executives employment with the Company shall automatically terminate effective upon the date of Executives death or Complete Disability (as defined below). 4.4 Termination by Mutual Agreement of the Parties. Executives employment with the Company may be terminated at any time upon a mutual agreement in writing of the Parties. Any such termination of employment shall have the consequences specified in such agreement. 4.5 Compensation Upon Termination. 4.5.1 Death or Complete Disability. If Executives employment is terminated by death or Complete Disability, the Company shall pay to Executive, or to Executives heirs, Executives base salary and accrued and unused vacation benefits earned through the date of termination at the rate in effect at the time of termination, less standard deductions and withholdings. The Company shall thereafter have no further obligations to Executive and/or Executives heirs under this Agreement, except as otherwise provided by law. 4.
4.5.2 Termination For Cause If the Company terminates Executives employment for Cause, then the Company shall pay Executives base salary and accrued and unused vacation benefits earned through the date of termination, at the rate in effect at the time of termination, less standard deductions and withholdings. The Company shall thereafter have no further obligations to Executive under this Agreement, except as otherwise provided by law. 4.5.3 Termination Without Cause Not In Connection with a Change of Control. If the Company terminates Executives employment without Cause at any time other than upon the occurrence of, or within the twelve (12) months immediately following, the effective date of a Change of Control (as defined below), the Company shall pay Executives base salary and accrued and unused vacation benefits earned through the date of termination, at the rate in effect at the time of termination, less standard deductions and withholdings. In addition, if Executive furnishes to the Company an executed waiver and release of claims in the form attached hereto as Exhibit A (or in such other form as may be specified by the Company) (the Release) within the time period specified therein, but in no event later than forty-five (45) days following Executives termination, and if Executive allows such Release to become effective in accordance with its terms, then (i) Executive shall be entitled to severance in the form of continuation of his base salary, at the rate in effect at the time of termination (the Severance Payments), for a period of twelve (12) months following the termination date (the Severance Period), (ii) pay directly to the insurance provider the premium for COBRA continuation coverage for the Executive and the Executives family during the Severance Period or until he obtains new employment, whichever comes first (the COBRA Coverage), and (iii) all vested stock options granted to Executive pursuant to the Plan shall remain exercisable pursuant to their terms for a period of twelve (12) months following the termination date, after which date all such stock options shall expire; provided, however, that no such stock option shall be exercisable after the expiration of its maximum term pursuant to the terms thereof. The Severance Payments will be subject to standard payroll deductions and withholdings and will be made on the Companys regular payroll cycle, provided, however, that any Severance Payments otherwise scheduled to be made prior to the effective date of the Release shall accrue and be paid in the first payroll period that follows such effective date. The Company shall thereafter have no further obligations to Executive under this Agreement, except as otherwise provided by law. 4.5.4 Termination Without Cause In Connection with a Change of Control. If the Company terminates Executives employment without Cause upon the occurrence of, or within the twelve (12) months immediately following, the effective date of a Change of Control, the Company shall pay Executives base salary and accrued and unused vacation benefits earned through the date of termination, at the rate in effect at the time of termination, less standard deductions and withholdings. In addition, if Executive furnishes to the Company an executed Release within the time period specified therein, but in no event later than forty-five (45) days following Executives termination, and if Executive allows such Release to become effective in accordance with its terms, then Executive shall be entitled to: (1) the Severance Payments and COBRA coverage described in Section 4.5.3 above; (2) accelerated vesting of any unvested shares subject to the Option and any additional equity awards of the Company, such that Executive shall become vested in one hundred percent (100%) of the shares subject to such Option and any additional equity awards of the Company on the effective date of the Release and (3) all stock options granted to Executive pursuant to the Plan shall remain exercisable pursuant to their terms for a period of twelve (12) months following the termination 5.
date, after which date all such stock options shall expire; provided, however, that no such stock option shall be exercisable after the expiration of its maximum term pursuant to the terms thereof. The Company shall thereafter have no further obligations to Executive under this Agreement, except as otherwise provided by law. 4.6 Definitions. For purposes of this Agreement, the following terms shall have the following meanings: 4.6.1 Complete Disability. Complete Disability shall mean the inability of Executive to perform Executives duties under this Agreement, whether with or without reasonable accommodation, because Executive has become permanently disabled within the meaning of any policy of disability income insurance covering employees of the Company then in force. In the event the Company has no policy of disability income insurance covering employees of the Company in force when Executive becomes disabled, the term Complete Disability shall mean the inability of Executive to perform Executives duties under this Agreement, whether with or without reasonable accommodation, by reason of any incapacity, physical or mental, which the Board, based upon medical advice or an opinion provided by a licensed physician acceptable to the Board, determines to have incapacitated Executive from satisfactorily performing all of Executives usual services for the Company, with or without reasonable accommodation, for a period of at least one hundred twenty (120) days during any twelve (12) month period (whether or not consecutive). Based upon such medical advice or opinion, the determination of the Board shall be final and binding and the date such determination is made shall be the date of such Complete Disability for purposes of this Agreement. 4.6.2 Cause. Cause shall mean the occurrence of any of the following: (i) Executives conviction of any felony or any crime involving fraud or dishonesty that has a material adverse effect on the Company; (ii) Executives participation (whether by affirmative act or omission) in a fraud, act of dishonesty or other act of misconduct against the Company and/or its affiliates; (iii) conduct by Executive which, based upon a good faith and reasonable factual investigation by the Board, demonstrates Executives gross unfitness to serve; (iv) Executives violation of any statutory or fiduciary duty, or duty of loyalty, owed to the Company; (v) Executives breach of any material term of any material contract between such Executive and the Company; and (vi) Executives repeated violation of any material Company policy. An occurrence of cause as set forth in the preceding sentence shall be based upon a good faith determination by the Board. Executives Complete Disability shall not constitute Cause as set forth herein. The determination that a termination is for Cause shall be by the Board in its sole and exclusive judgment and discretion. 4.6.3 Change of Control. Change of Control shall mean: (A) a sale, lease, exclusive license or other disposition of all or substantially all of the assets of the Company approved by the Board, (B) any consolidation or merger of the Company with or into any other corporation or other entity or person approved by the Board in which the stockholders of the Company immediately prior to such consolidation or merger own less than 50% of the voting power of the surviving entity immediately after such consolidation or merger or, where the surviving entity is a wholly-owned subsidiary of another entity, the surviving entitys parent or (C) any transaction or series of transactions to which the Company is a party in which in 6.
excess of 50% of the Companys voting power is transferred, provided that a Change of Control shall not include any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by the Company or any successor or indebtedness of the Company is cancelled or converted or a combination thereof. 4.7 Survival of Certain Sections. Sections 2, 3.4, 4 through 13, 16, and 18 of this Agreement will survive the termination of this Agreement. 4.8 Parachute Payment. If any payment or benefit the Executive would receive pursuant to this Agreement ( Payment ) would (i) constitute a Parachute Payment within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the Code), and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the Excise Tax), then such Payment shall be equal to the Reduced Amount. The Reduced Amount shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (y) the largest portion, up to and including the total of the Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in the Executives receipt, on an after-tax basis, of the greatest economic benefit notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting Parachute Payments is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the manner that results in the greatest economic benefit for you. If more than one method of reduction will result in the same economic benefit, the items so reduced will be reduced pro rata. In the event it is subsequently determined by the Internal Revenue Service that some portion of the Reduced Amount (as determined pursuant to clause (x) in the preceding paragraph) is subject to the Excise Tax, Executive agrees to promptly return to the Company a sufficient amount of the Payment so that no portion of the Reduced Amount is subject to the Excise Tax. For the avoidance of doubt, if the Reduced Amount is determined in accordance with clause (y) in the preceding paragraph, Executive will have no obligation to return any portion of the Payment pursuant to the preceding sentence. Unless Executive and the Company agree on an alternative accounting or law firm, the accounting firm then engaged by the Company for general tax compliance purposes shall perform the foregoing calculations. If the accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Company shall appoint a nationally recognized accounting, law or consulting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such accounting, law or consulting firm required to be made hereunder. The Company shall use commercially reasonable efforts such that the accounting, law or consulting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to Executive and the Company within fifteen (15) calendar days after the date on which Executives right to a Payment is triggered (if requested at that time by the Executive or the Company) or such other time as requested by the Executive or the Company. 7.
4.9 Application of Internal Revenue Code Section 409A. Notwithstanding anything to the contrary set forth herein, any payments and benefits provided under this Agreement (the Severance Benefits) that constitute deferred compensation within the meaning of Section 409A of the Code and the regulations and other guidance thereunder and any state law of similar effect (collectively Section 409A) shall not commence in connection with Executives termination of employment unless and until Executive has also incurred a separation from service (as such term is defined in Treasury Regulation Section 1.409A-1(h) ( Separation From Service), unless the Company reasonably determines that such amounts may be provided to Executive without causing Executive to incur the additional 20% tax under Section 409A. It is intended that each installment of the Severance Benefits payments provided for in this Agreement is a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2)(i). For the avoidance of doubt, it is intended that payments of the Severance Benefits set forth in this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A provided under Treasury Regulation Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9). However, if the Company (or, if applicable, the successor entity thereto) determines that the Severance Benefits constitute deferred compensation under Section 409A and Executive is, on the termination of service, a specified employee of the Company or any successor entity thereto, as such term is defined in Section 409A(a)(2)(B)(i) of the Code, then, solely to the extent necessary to avoid the incurrence of the adverse personal tax consequences under Section 409A, the timing of the Severance Benefit payments shall be delayed until the earlier to occur of: (i) the date that is six months and one day after Executives Separation From Service, or (ii) the date of Executives death (such applicable date, the Specified Employee Initial Payment Date ), the Company (or the successor entity thereto, as applicable) shall (A) pay to Executive a lump sum amount equal to the sum of the Severance Benefit payments that Executive would otherwise have received through the Specified Employee Initial Payment Date if the commencement of the payment of the Severance Benefits had not been so delayed pursuant to this Section and (B) commence paying the balance of the Severance Benefits in accordance with the applicable payment schedules set forth in this Agreement. Notwithstanding anything to the contrary set forth herein, Executive shall receive the Severance Benefits described above, if and only if Executive duly executes and returns to the Company within the applicable time period set forth therein, but in no event more than forty-five days following Separation From Service, the Release and permits the Release to become effective in accordance with its terms. Notwithstanding any other payment schedule set forth in this Agreement, none of the Severance Benefits will be paid or otherwise delivered prior to the effective date of the Release. Except to the extent that payments may be delayed until the Specified Employee Initial Payment Date pursuant to the preceding paragraph, on the first regular payroll pay day following the effective date of the Release, the Company will pay Executive the Severance Benefits Executive would otherwise have received under the Agreement on or prior to such date but for the delay in payment related to the effectiveness of the Release, with the balance of the Severance Benefits being paid as originally scheduled. All amounts payable under the Agreement will be subject to standard payroll taxes and deductions. 8.
5. CONFIDENTIAL A N D PROPRIETARY INFORMATION. As a condition of employment, Executive agrees to execute and abide by the Companys standard form of Proprietary Information and Inventions Agreement (PIIA). 6. A SSIGNMENT AND BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of Executive and Executives heirs, executors, personal representatives, assigns, administrators and legal representatives. Because of the unique and personal nature of Executives duties under this Agreement, neither this Agreement nor any rights or obligations under this Agreement shall be assignable by Executive. This Agreement shall be binding upon and inure to the benefit of the Company and its successors, assigns and legal representatives. Any such successor of the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes. For this purpose, successor means any person, firm, corporation or other business entity which at any tie, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company. 7. NOTICES. All notices or demands of any kind required or permitted to be given by the Company or Executive under this Agreement shall be given in writing and shall be personally delivered (and receipted for) or faxed during normal business hours or mailed by certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Company: Ambit Biosciences Corporation 4215 Sorrento Valley Boulevard San Diego, CA 92121 Attention: General Counsel If to Executive: Alan Lewis 702 Midori Court Solana Beach, CA 92075 Any such written notice shall be deemed given on the earlier of the date on which such notice is personally delivered or three (3) days after its deposit in the United States mail as specified above. Either Party may change its address for notices by giving notice to the other Party in the manner specified in this Section. 8. CHOICE OF LAW. This Agreement shall be construed and interpreted in accordance with the internal laws of the State of California without regard to its conflict of laws principles. 9.
9. INTEGRATION. This Agreement, including Exhibit A and the PIIA, contains the complete, final and exclusive agreement of the Parties relating to the terms and conditions of Executives employment and the termination of Executives employment, and supersedes any and all prior and/or contemporaneous oral and written employment agreements or arrangements between the Parties, including without limitation, that certain letter agreement between Executive and the Company, dated June 16, 2009, regarding service of Executive on the Board and any previous arrangements regarding Executives service as Executive Chairman of the Company. 10. A MENDMENT . This Agreement cannot be amended or modified except by a written agreement signed by Executive and the Company. 11. WAIVER. No term, covenant or condition of this Agreement or any breach thereof shall be deemed waived, except with the written consent of the Party against whom the wavier is claimed, and any waiver or any such term, covenant, condition or breach shall not be deemed to be a waiver of any preceding or succeeding breach of the same or any other term, covenant, condition or breach. 12. SEVERABILITY . The finding by a court of competent jurisdiction of the unenforceability, invalidity or illegality of any provision of this Agreement shall not render any other provision of this Agreement unenforceable, invalid or illegal. Such court shall have the authority to modify or replace the invalid or unenforceable term or provision with a valid and enforceable term or provision, which most accurately represents the Parties intention with respect to the invalid or unenforceable term, or provision. 13. INTERPRETATION; CONSTRUCTION . The headings set forth in this Agreement are for convenience of reference only and shall not be used in interpreting this Agreement. This Agreement has been drafted by legal counsel representing the Company, but the Executive has been encouraged to consult with, and has consulted with, Executives own independent counsel and tax advisors with respect to the terms of this Agreement. The Parties acknowledge that each Party and its counsel has reviewed and revised, or had an opportunity to review and revise, this Agreement, and any rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 14. REPRESENTATIONS AND WARRANTIES . Executive represents and warrants that Executive is not restricted or prohibited, contractually or otherwise, from entering into and performing each of the terms and covenants contained in this Agreement, and that Executives execution and performance of this Agreement 10.
will not violate or breach any other agreements between the Executive and any other person or entity. 15. COUNTERPARTS. This Agreement may be executed in two counterparts, each of which shall be deemed an original, all of which together shall contribute one and the same instrument. 16. A RBITRATION. To ensure the rapid and economical resolution of disputes that may arise in connection with the Executives employment with the Company, Executive and the Company agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to Executives employment, or the termination of that employment, will be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration pursuant to both the substantive and procedural provisions of the Federal Arbitration Act in San Diego, California conducted by the Judicial Arbitration and Mediation Services/Endispute, Inc. ( JAMS ), or its successors, under the then current rules of JAMS for employment disputes; provided that the arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrators essential findings and conclusions and a statement of the award. Accordingly, Executive and the Company hereby waive any right to a jury trial. Both Executive and the Company shall be entitled to all rights and remedies that either Executive or the Company would be entitled to pursue in a court of law. The Company shall pay any JAMS filing fee and shall pay the arbitrators fee. Nothing in this Agreement is intended to prevent either Executive or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the foregoing, Executive and the Company each have the right to resolve any issue or dispute involving confidential, proprietary or trade secret information, or intellectual property rights, by Court action instead of arbitration. 17. TRADE SECRETS OF OTHERS. It is the understanding of both the Company and Executive that Executive shall not divulge to the Company and/or its subsidiaries any confidential information or trade secrets belonging to others, including Executives former employers, nor shall the Company and/or its Affiliates seek to elicit from Executive any such information. Consistent with the foregoing, Executive shall not provide to the Company and/or its Affiliates, and the Company and/or its Affiliates shall not request, any documents or copies of documents containing such information. 18. A DVERTISING WAIVER. Executive agrees to permit the Company, and persons or other organizations authorized by the Company, to use, publish and distribute advertising or sales promotional literature concerning the products and/or services of the Company, or the machinery and equipment used in the provision thereof, in which Executives name and/or pictures of Executive taken in the course of Executives provision of services to the Company appear. Executive 11.
hereby waives and releases any claim or right Executive may otherwise have arising out of such use, publication or distribution. [R EMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 12.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written. AMBIT BIOSCIENCES CORPORATION By: Its: /s/ Allan Marchington Director
Dated: 26th July 2010 EXECUTIVE : /s/ Alan Lewis ALAN LEWIS Dated: 7-23-10 [SIGNATURE PAGE TO EMPLOYMENT A GREEMENT ]
EXHIBIT A RELEASE AND WAIVER OF CLAIMS TO BE SIGNED ON OR FOLLOWING THE SEPARATION DATE ONLY In consideration of the payments and other benefits set forth in the Employment Agreement of July , 2010, to which this form is attached, I, Alan Lewis, hereby furnish AMBIT BIOSCIENCES CORPORATION (the Company), with the following release and waiver ( Release and Waiver). In exchange for the consideration provided to me by the Employment Agreement that I am not otherwise entitled to receive, I hereby generally and completely release the Company and its current and former directors, officers, employees, stockholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns (collectively, the Released Parties) from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to or on the date that I sign this Agreement (collectively, the Released Claims). The Released Claims include, but are not limited to: (a) all claims arising out of or in any way related to my employment with the Company, or the termination of that employment; (b) all claims related to my compensation or benefits from the Company including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (c) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (d) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (e) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, misclassification, attorneys fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (the ADEA), the California Labor Code, and the California Fair Employment and Housing Act (as amended). Notwithstanding the foregoing, the following are not included in the Released Claims (the Excluded Claims): (a) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the Company to which I am a party, the charter, bylaws, or operating agreements of the Company, or under applicable law; (b) any rights or claims to unemployment compensation, funds accrued in my 401k account, or any vested equity incentives; (c) any rights that are not waivable as a matter of law; or (d) any claims arising from the breach of this Agreement. I hereby represent and warrant that, other than the Excluded Claims, I am not aware of any claims I have or might have against any of the Released Parties that are not included in the Released Claims. I also acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor. I hereby expressly waive and relinquish all rights and benefits under that
Section and any law of any jurisdiction, including New York, of similar effect with respect to any claims I may have against the Company. I acknowledge that, among other rights, I am waiving and releasing any rights I may have under ADEA, that this Release and Waiver is knowing and voluntary, and that the consideration given for this Release and Waiver is in addition to anything of value to which I was already entitled as an executive of the Company. If I am 40 years of age or older upon execution of this Release and Waiver, I further acknowledge that I have been advised, as required by the Older Workers Benefit Protection Act, that: (a) the release and waiver granted herein does not relate to claims under the ADEA which may arise after this Release and Waiver is executed; (b) I should consult with an attorney prior to executing this Release and Waiver; and (c) I have twenty-one (21) days from the date of termination of my employment with the Company in which to consider this Release and Waiver (although I may choose voluntarily to execute this Release and Waiver earlier); (d) I have seven (7) days following the execution of this Release and Waiver to revoke my consent to this Release and Waiver; and (e) this Release and Waiver shall not be effective until the seven (7) day revocation period has expired without my having previously revoked this Release and Waiver. I acknowledge my continuing obligations under my Proprietary Information and Inventions Agreement. Pursuant to the Proprietary Information and Inventions Agreement I understand that among other things, I must not use or disclose any confidential or proprietary information of the Company and I must immediately return all Company property and documents (including all embodiments of proprietary information) and all copies thereof in my possession or control. I understand and agree that my right to the severance pay I am receiving in exchange for my agreement to the terms of this Release and Waiver is contingent upon my continued compliance with my Proprietary Information and Inventions Agreement. This Release and Waiver constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company that is not expressly stated herein. This Release and Waiver may only be modified by a writing signed by both me and a duly authorized officer of the Company. Date: By: Alan Lewis
Exhibit 10.7 December 13, 2006 Wendell Wierenga, Ph.D. 18608 Via Catania Rancho Santa Fe, CA 92091 Dear Wendell: I am very pleased to provide you a formal offer to join Ambit Biosciences Corporation (the Company). This letter sets forth the principal terms of our offer for you to join the Company. Initial Position: Commencement Date: Reporting Relationship: Location: Initial Responsibilities: Executive Vice President, Research & Development January 1, 2007 You will report to Scott Salka, Chief Executive Officer. You will be based initially in San Diego, California. You will be responsible for the creation, design and implementation of all facets of the Companys drug discovery, drug development and technology development activities. During your employment by the Company, you agree to devote your full business energies, interest, abilities and productive time to the proper and efficient performance of your duties under this agreement. Notwithstanding the foregoing, however, you may continue to serve on the Boards of Directors and Advisory Boards of Onyx Pharmaceuticals, Inc., XenoPort, Inc. and Concert Pharmaceuticals so long as such service does not interfere with the performance of your duties under this agreement. It is anticipated that you will continue to serve as a member of the Board of Directors of the Company.
Board of Directors:
Wendell Wierenga, Ph.D. December 6, 2006 Page 2 Compensation: Equity: You will be a regular full-time, exempt employee and receive an annual gross salary of $310,000 which will be paid semi-monthly in arrears in accordance with the Companys normal payroll practices. I will recommend to the Companys Board of Directors to approve the grant of an option to you to purchase 270,000 shares of the Common Stock of the Company (about 2% of the Companys fully-diluted stock outstanding) at the fair market value as determined by the Board. These options will be awarded to you upon the commencement of your full-time employment. Vesting will also begin upon the commencement of your employment and will vest according to the following schedule: 25% shall fully vest on the first anniversary of your start date and the remainder shall vest at a rate of one forty-eighth ( 1/4 8) each month thereafter until fully vested on the fourth anniversary of your start date. You and the Company agree that all stock options to purchase shares of the Companys Common Stock granted to you prior to the Commencement Date shall cease vesting as of the Commencement Date but shall otherwise remain outstanding and exercisable pursuant to their terms to purchase up to the number of shares that have vested as of the Commencement Date for so long as you continue to provide service to the Company as an employee, consultant or director, as more fully set forth in the Companys stock plan pursuant to which those options were granted. Incentive Bonus: You will be eligible to receive an annual incentive bonus driven by company-wide goals approved by the Companys Board of Directors, which shall be initially targeted at 32.5% of your annual base salary. You will receive annual performance reviews which, subject to your actual performance, may result in one or more of the following: i) salary adjustments; ii) merit increases; and iii) additional option grants. The Company will provide you a $50,000 sign-on bonus upon commencement of your employment. In the event your employment with the Company terminates, voluntarily or with or without cause, within one year of the commencement of your employment, you agree to repay to the Company the full amount the sign on bonus within 30 days of such termination. The beginning of the month following your commencement as a full-time employee you and your eligible dependants will be able to enroll in one of three medical plans and a dental plan sponsored by the Company. You will be provided a summary of these plans
Sign On Bonus:
Benefits:
Wendell Wierenga, Ph.D. December 6, 2006 Page 3 and upon commencement of full-time employment, enrollment forms will be provided. As an alternative, the Company will reimburse you for the health insurance premiums under the current health insurance plan that you have in place. We understand that the monthly premiums under your current plan are approximately $200. Vision, Life, AD&D, and LTD insurance is also provided for full-time employees. You will begin accruing paid personal leave (PPL) according to company guidelines beginning with your first pay period as a full-time employee. In your first year as a full-time employee you will accrue 25 days of PPL. The Company also has established 12 paid holidays per calendar year. You will also be eligible for enrollment in a 401 K plan and a flexible benefit plan. Severance: In the event of (a) prior to a Change of Control (as defined in the Companys Change of Control Incentive Plan), termination of your employment by the Company or its successor without cause (as defined below) or (b) following a Change of Control, termination of your employment by the Company or its successor without cause or termination of your employment by you for good reason (defined as not being offered employment with the Company or its successor in the greater San Diego, California metropolitan area involving status, duties, salary and benefits substantially equivalent to those enjoyed by you in your then existing position with the Company or its successor), the Company shall, in case of (a) or (b) listed above: Continue to pay you as severance payments your salary (as in effect at such time), continue vesting your option grants and continue your then existing employee benefits over the 12-month period following the date of such termination and, in the case of (b) listed above: Accelerate in full the vesting of all stock options then held by you to purchase shares of the Companys Common Stock (exclusive of your director options granted to you prior to the Commencement Date). The provision of these severance benefits is conditioned upon your execution of a general release of claims in favor of the company, in a form to be provided by the Company at the time of your termination, and such release becoming effective pursuant to its terms. You agree that in the event of a termination under the circumstances described above, you will not be entitled to any other compensation or benefits (other than accrued salary and vacation as of the date of termination).
Wendell Wierenga, Ph.D. December 6, 2006 Page 4 For Severance purposes Cause means, the occurrence of any of the following: (i) such Employees conviction of any felony or any crime involving fraud or dishonesty that has a material adverse effect on the Company; (ii) such Employees participation (whether by affirmative act or omission) in a fraud, act of dishonesty or other act of misconduct against the Company and/or a parent or subsidiary; (iii) conduct by such Employee which, based upon a good faith and reasonable factual investigation by the Company demonstrates such Employees gross unfitness to serve; (iv) such Employees violation of any statutory or fiduciary duty, or duty of loyalty, owed to the Company and/or a parent or subsidiary; (v) such Employees breach of any material term of any material contract between such Employee and the Company and/or a parent or subsidiary; and (vi) such Employees repeated violation of any material Company policy. Change of Control Incentive Plan: You will be included in the Companys Change of Control Incentive Plan (a copy of which is provided to you herewith).
You should be aware that your employment with the Company is for no specified period and constitutes at-will employment. As a result, you are free to resign at any time, for any reason or for no reason. Similarly, the Company is free to conclude its employment relationship with you at any time, with or without cause, and with or without notice. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated. As a Company employee, you will be expected to abide by company polices and regulations. You will be specifically required to sign an acknowledgment that you have read and understand the company rules of conduct, which is included in our employee handbook. You will also be expected to sign and comply with an Employee Proprietary Information and Inventions Agreement which requires, among other provisions, the assignment of patent rights to any invention made during your employment at the Company and non-disclosure of proprietary information. To indicate your acceptance of the Companys offer, please sign and date this letter in the space provided below and return it to Donald Myll, SVP Commercial Operations and CFO. A duplicate original is enclosed for your records. This letter, along with the agreement relating to proprietary rights between you and the Company, set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral.
Wendell Wierenga, Ph.D. December 6, 2006 Page 5 Without limiting the foregoing, that certain letter agreement between you and the Company regarding the terms of your service as a member of the Board of Directors is terminated and of no further force or effect as of the Commencement Date. This letter may not be modified or amended except by a written agreement, signed by an officer of the Company and by you. If a response is not received by December 18, 2005 this offer will be considered null and void. We are excited about your expanded role on the Ambit Team. I hope you will decide to continue helping us build a world-class company. Sincerely, /s/ M. Scott Salka M. Scott Salka Chief Executive Officer ACCEPTED AND AGREED TO this 16th Day of December, 2006 /s/ Wendell Wierenga Wendell Wierenga, Ph.D. Enclosures Duplicate Original Letter Employee Proprietary Information and Inventions Agreement Change of Control Incentive Plan
Exhibit 10.8
January 21, 2009 Mr. Christopher J. Morl 920 Derrhill Road Oak Park, CA 91377 Dear Christopher: I am very pleased to make you a formal offer to join Ambit Biosciences Corporation (the Company). This letter sets forth the principal terms of an offer for you to join the Company. Initial Position: Start Date: Reporting Relationship: Initial Responsibilities: Chief Business Officer The tentative start date, to be agreed upon by you will be Monday, January 26, 2009 You will initially report to M. Scott Salka, Chief Executive Officer You will be responsible for, but not limited to, developing long range strategic plans for the Company as well as identifying and pursuing strategic business opportunities, mergers, acquisitions, partnerships, alliances and/or joint ventures. You will also serve on the Executive Management Committee. You will initially be based in San Diego, California You will be a regular full-time, exempt employee and receive a gross monthly salary of $23,541.67 ($282,500 annualized) which will be paid semi-monthly in arrears in accordance with the Companys normal payroll procedures. You will be eligible for relocation reimbursement up to $20,000 for reasonable expenses. Eligible expenses include: Reasonable housing cost Ambit Biosciences Corporation 4215 Sorrento Valley Boulevard San Diego, CA 92121 tel 858-334-21 00 fax 858-334-2198 wwvv.ambirbio.com
Location: Compensation:
Relocation Allowance:
Christopher J. Morl January 21, 2009 Page 2 Costs associated with the sale of your existing home, including and/or purchase of a new home. Travel expenses, one-way, related to moving you and your family such as mileage reimbursement for your drive from Oak Park to San Diego. Movement of household items for one home, vendor to be agreed upon in advance with Ambit, from quotes from three reputable companies. Transportation for up to two (2) cars. You may defer the relocation allowance for up to 12-months after your employment with the company. All expenses must be documented. In the event you voluntarily leave the Company within twelve months of employment, your relocation allowance amount will be immediately due and payable to the Company. If a portion of your relocation allowance was deferred and you voluntarily leave the company within 12 months of receiving your relocation reimbursement, your reimbursement will be immediately due and payable to the company. Equity: Following commencement of your full-time employment we will recommend to the Compensation Committee of the Board of Directors of the Company that you be granted an option to purchase 182,505 shares of Common Stock of the Company at the then current fair market value as determined by the Board at that meeting. These shares will vest according to the following schedule: 25% shall vest on the first anniversary of your start date and the remainder shall vest at a rate of one forty-eighth ( 1/4 8) each month thereafter until fully vested on the fourth anniversary of your start date. In addition, you will be eligible for a contingent grant of 39,108 subject to a successful corporate collaboration, the determination of which shall be subject to board approval. These shares to vest based upon the above schedule. The beginning of the month following your start as a full-time employee you and your eligible dependents will be able to enroll in the following insurance plans: medical, dental, vision, life, AD&D, and disability. You will also be eligible for our 401(k) and flexible benefit plans. You will accrue paid personal leave (PPL) according to company guidelines. In your first year as a full-time employee you will accrue 20 days of PPL. The Company has also established 12 paid holidays per calendar year.
Benefits:
Christopher J. Morl January 21, 2009 Page 3 Incentive Bonus: Severance: You will be eligible to receive an annual incentive bonus, initially targeted at 30% of your annual base salary. In the event that your Stock Options is accelerated as set forth in Section 1 (a) of the Company Stock Option Agreement, at your sole discretion you may elect to receive a severance package of six (6) months of your then base pay.
You should be aware that your employment with the Company is for no specified period and constitutes at-will employment. As a result, you are free to resign at any time, for any reason or for no reason. Similarly, the Company is free to conclude its employment relationship with you at any time, with or without cause, and with or without notice. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated. As a Company employee, you will be expected to abide by company rules and regulations. You will be specifically required to sign an acknowledgment that you have read and understand the company rules of conduct, which is included in our employee handbook. You will also be expected to sign and comply with an Employee Proprietary Information and Inventions Agreement which requires, among other provisions, the assignment of patent rights to any invention made during your employment at the Company and non-disclosure of proprietary information. To indicate your acceptance of the Companys offer, please sign and date this letter in the space provided below and return it to Emily Derr, Human Resources Manager. A duplicate original is enclosed for your records. This letter, along with the agreement relating to proprietary rights between you and the Company, set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by an officer of the Company and by you. If a response is not received by Friday, November 28, 2009, this offer will be considered null and void. We look forward to working with you at Ambit Biosciences Corporation. We hope that you will decide to join us in building this world-class company. Sincerely, /s/ M. Scott Salka M. Scott Salka Chief Executive Officer
Christopher J. Morl January 21, 2009 Page 4 ACCEPTED AND AGREED TO this 21 Day of January , 2009
/s/ Christopher J. Morl Christopher J. Morl Enclosures: Duplicate Original Letter Employee Proprietary Information and Inventions Agreement
Exhibit 10.9 September 13, 2010 Mr. Alan Fuhrman 4667 Torrey Circle G101 San Diego, CA 92130 Dear Alan: I am very pleased to make you a formal offer to join Ambit Biosciences Corporation (the Company). This letter sets forth the principal terms of an offer for you to join the Company. Initial Position: Start Date: Reporting Relationship: Initial Responsibilities: Chief Financial Officer The tentative start date, to be agreed upon by you, will be Monday, October 11, 2010 You will initially report to Dr. Alan J. Lewis, President & Chief Executive Officer Responsibilities will include, but not limited to: Location: Compensation: Directing Ambit financial functions to help attain the companys financial goals. Developing and auditing financial policies and programs following good accounting practices. Building and maintaining strong relationships with the financial community. Developing long term financial plans for the organization. Formulating and executing the Companys plan for building a world class biopharmaceutical business to support the Companys goals of building a deep pipeline and development cancer drugs. Performing other duties as assigned.
You will be based initially in San Diego, California. You will be a regular full-time, exempt employee and receive a gross monthly salary of $22,916.67 ($275,000 on an annualized basis), which will be paid semi-monthly in arrears in accordance with the Companys normal payroll procedures.
Alan Fuhrman September 13, 2010 Page 2 Equity: Following commencement of your full-time employment we will recommend to the Stock Option Committee of the Board of Directors of the Company that you be granted options to purchase 300,000 shares of Common Stock of the Company at the current fair market value as determined by the Board. These options will vest according to the following schedule: 25% shall fully vest on the first anniversary of your start date and the remainder shall vest at a rate of one forty-eighth ( 1/4 8) each month thereafter until fully vested on the fourth anniversary of your start date. You will be eligible to be considered for a discretionary annual incentive bonus, initially targeted at 30% of your annual base salary. You will receive annual performance reviews which, subject to your actual performance, may result in one or more of the following: i) salary adjustments; ii) merit increases; and, iii) additional option grants. The beginning of the month following your start as a full-time employee you and your eligible dependants will be able to enroll in one of three medical plans and a dental plan sponsored by the Company. You will be provided a summary of these plans and upon commencement of full-time employment, enrollment forms will be provided. Vision, Life, AD&D, and LTD insurance is also provided for full-time employees. You will begin accruing paid personal leave (PPL) according to company guidelines beginning with your first pay period as a full-time employee. In your first year as a full-time employee you will accrue 20 days of PPL. The Company also has established 12 paid holidays per calendar year. You will also be eligible for enrollment in a 401(k) plan and a flexible benefit plan. Severance: In the event of (a) termination of your employment by the Company or its successor without cause (as defined below), or (b) termination (or constructive termination) of your employment with the Company or its successor by you or the Company following a change of control transaction because you were not offered a position in the greater San Diego, California metropolitan area involving status, duties, salary and benefits substantially equivalent to those enjoyed by you in your then existing position with the Company, the Company shall, in case of (a) or (b) listed above: Continue to pay you as severance payment your salary (as in effect at such time) over the one (1) year period following the date of such termination (the Severance Period), accelerate by one (1) year the vesting of your option grants and/or restricted stock then held by you and continue your then existing employee benefits over the Severance Period, and, in the case of (b) listed above: Accelerate 100% of the vesting of your option grants and/or restricted stock then held by you. The provision of each of the above benefits is conditioned upon your execution of a general release of claims in favor of the company, in the form attached to this letter. You agree that in the event of a termination under the circumstances described above, you will not be entitled to any other compensation or benefits. For Severance purposes Cause means, the occurrence of any of the following: (i) your conviction of any felony or any crime involving fraud or dishonesty that has a material adverse effect on the Company; (ii) your participation (whether by affirmative act or omission) in a fraud, act of dishonesty or other act of misconduct against the Company and/or a parent or subsidiary; (iii) conduct by you which, based upon a good faith and reasonable factual investigation by the Company demonstrates such Employees gross unfitness to serve; (iv) your violation of any statutory or fiduciary duty, or duty
Incentive Bonus:
Benefits:
Alan Fuhrman September 13, 2010 Page 3 of loyalty, owed to the Company and/or a parent or subsidiary; (v) your breach of any material term of any material contract between you and the Company and/or a parent or subsidiary; and (vi) your repeated violation of any material Company policy. You should be aware that your employment with the Company is for no specified period and constitutes at-will employment. As a result, you are free to resign at any time, for any reason or for no reason. Similarly, the Company is free to conclude its employment relationship with you at any time, with or without cause, and with or without notice. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated. As a Company employee, you will be expected to abide by company rules and regulations. You will be specifically required to sign an acknowledgment that you have read and understand the company rules of conduct, which is included in our employee handbook. You will also be expected to sign and comply with an Employee Proprietary Information and Inventions Agreement which requires, among other provisions, the assignment of patent rights to any invention made during your employment at the Company and non-disclosure of proprietary information. To indicate your acceptance of the Companys offer, please sign and date this letter in the space provided below and return it to Emily Derr, Human Resources Manager. A duplicate original is enclosed for your records. This letter, along with the agreement relating to proprietary rights between you and the Company, set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written agreement, signed by an officer of the Company and by you. If a response is not received by September 24, 2010, this offer will be considered null and void. We look forward to continuing working with you at Ambit Biosciences Corporation. We hope that you will decide continue building this world-class company. Sincerely, Ambit Biosciences Corporation /s/ Alan J. Lewis Alan J. Lewis, Ph.D. President and Chief Executive Officer ACCEPTED AND AGREED TO this 14 Day of September, 2010 /s/ Alan Fuhrman Alan Fuhrman Enclosures Duplicate Original Letter
Exhibit 10.10
(Amendment to employment offer dated January 18, 2008) January 22, 2008 Dr. Robert Corringham 12976 Caminito Bautizo San Diego, CA 92130 Dear Robert: I am very pleased to make you a formal offer to join Ambit Biosciences Corporation (the Company). This letter sets forth the principal terms of an offer for you to join the Company. Position: Start Date: Reporting Relationship: Responsibilities: Sr. Vice President, Clinical Development The start date, to be agreed upon by you, will be March 1, 2008 or March 8, 2008 You will report to Wendell Wierenga, PhD. EVP, Research & Development Responsible for the full scope of clinical functions, including Phase I-IV trial design and execution, clinical research (including human PK/PD) and data analysis and management. You will serve as member of the Sr. Management and Research & Development committee. Work closely with the Research & Development and Regulatory teams, ensuring effective trial strategy, design and execution and regulatory submission. Provide leadership to the entire organization, moving compounds into, and through, the clinical development process. Participate in the business development process, assessing and integrating clinical candidate molecules and leading the clinical component of Ambits product lifecycle management. Manage and develop a first-rate clinical development team, consisting of development operations, statistics data management and PK; the department is expected to grow in the coming years. Location: You will be based in San Diego, California. Ambit Biosciences Corporation 4215 Sorrento Valley Boulevard San Diego CA, 92121 tel 858-334-2100 fax 858-334-2198 www.ambitbio.com
Dr. Robert Corringham January 22, 2008 Page 2 of 4 Compensation: Sign on Bonus: You will be a regular full-time, exempt employee and receive a gross monthly salary of $25,833.34 (annual equivalent is $310,000), which will be paid semi-monthly in arrears in accordance with the Companys normal payroll procedures. You will receive a sign on bonus in the amount of $25,000 minus applicable taxes, after you start your employment with the Company. Should you decide to terminate your relationship with Ambit Biosciences Corporation prior to completing one year of employment, you will be required to reimburse Ambit Biosciences Corporation for the full amount of the sign on bonus. You will be eligible for relocation reimbursement up to $20,000 (grossed up to account for taxes, if applicable), for reasonable expenses. Eligible expenses include the following: Costs associated with the sale of your home in Pennsylvania, including realtor commissions, fees and closing costs. Movement of household items for your home in Pennsylvania to San Diego. Transportation for up to two (2) cars or transportation for one car plus mileage reimbursement for the other car. All expenses must be documented. In the event you voluntarily leave the Company within twelve (12) months of employment, your relocation allowance amount will be immediately due and payable to the Company. Bonus: Equity: You will be eligible to receive an annual incentive bonus, initially targeted up to 30% of your annual base salary. This is conditional on meeting corporate and individual goals. Bonus payout is pro-rated based on date of hire. Following commencement of your full-time employment we will recommend to the Compensation Committee of the Board of Directors of the Company that you be granted an option to purchase 100,000 shares of Common Stock of the Company at the then current fair market value as determined by the Board at that meeting. These shares will vest according to the following schedule: 25% shall vest on the first anniversary of your start date and the remainder shall vest at a rate of one forty-eighth (1/48) each month thereafter until fully vested on the fourth anniversary of your start date. Depending on performance milestones or Company policies and subject to CEO and Board approval, you may be eligible to receive additional stock options. In the event of termination of your employment by the Company without cause (as defined below) the Company shall provide you two weeks notice and continue to pay you as severance payment your salary (as in effect at such time) and continue your then existing employee benefits for a period of two weeks for every full year of employment following the date of such termination (the Severance Period). The provision of these severance benefits is conditioned upon your execution of a general release of claims in favor of the company, in a form to be provided at the time of your termination. You agree that in the event of a termination
Relocation Allowance:
Severance:
Dr. Robert Corringham January 22, 2008 Page 3 of 4 other than the circumstances described above, you will not be entitled to other compensation or benefits. This severance excludes any Change of Control provisions. For Severance purposes Cause means, the occurrence of any of the following: (i) such Employees conviction of any felony or any crime involving fraud or dishonesty that has a material adverse effect on the Company; (ii) such Employees participation (whether by affirmative act or omission) in a fraud, act of dishonesty or other act of misconduct against the Company and/or a parent or subsidiary; (iii) conduct by such Employee which, based upon a good faith and reasonable factual investigation by the Company demonstrates such Employees gross unfitness to serve; (iv) such Employees violation of any statutory or fiduciary duty, or duty of loyalty, owed to the Company and/or a parent or subsidiary; (v) such Employees breach of any material term of any material contract between such Employee and the Company and/or a parent or subsidiary; and (vi) such Employees repeated violation of any material Company policy. Benefits: The beginning of the month following your start as a full-time employee you and your eligible dependents will be able to enroll in the following insurance plans: medical, dental, vision, life, AD&D, and disability. You will also be eligible for our 401 (k) and flexible benefit plans. You will accrue paid personal leave (PPL) according to company guidelines. In your first year as a full-time employee you will accrue 17 days of PPL. The Company has also established 12 paid holidays per calendar year. You should be aware that your employment with the Company is for no specified period and constitutes at-will employment. As a result, you are free to resign at any time, for any reason or for no reason. Similarly, the Company is free to conclude its employment relationship with you at any time, with or without cause, and with or without notice. For purposes of federal immigration law, you will be required to provide to the Company documentary evidence of your identity and eligibility for employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated. As a Company employee, you will be expected to abide by company rules and regulations. You will be specifically required to sign an acknowledgment that you have read and understand the company rules of conduct, which is included in our employee handbook. You will also be expected to sign and comply with an Employee Proprietary Information and Inventions Agreement which requires, among other provisions, the assignment of patent rights to any invention made during your employment at the Company and nondisclosure of proprietary information. To indicate your acceptance of the Companys offer, please sign and date this letter in the space provided below and return it to Emily Derr, Human Resources Manager. A duplicate original is enclosed for your records. This letter, along with the agreement relating to proprietary rights between you and the Company, set forth the terms of your employment with the Company and supersede any prior representations or agreements, whether written or oral. This letter may not be modified or amended except by a written
Dr. Robert Corringham January 22, 2008 Page 4 of 4 agreement, signed by an officer of the Company and by you. If a response is not received by Tuesday, January 29, 2008 this offer will be considered null and void. We look forward to working with you at Ambit Biosciences Corporation. We hope that you will decide to join us in building this world-class company. Sincerely, Ambit Biosciences Corporation /s/ Wendell Wierenga Wendell Wierenga, Ph.D. EVP, Research & Development ACCEPTED AND AGREED TO this 29 Day of January, 2008 /s/ Robert Corringham Dr. Robert Corringham Enclosures Duplicate Original Letter
Exhibit 10.11
June 17, 2009 Saiid Zarrabian PO Box 675765 Rancho Santa Fe, CA 92067 Dear Saiid: We are delighted that you have agreed to join the Board of Directors (the Board) of Ambit Biosciences, Inc. ( Ambit ). This letter sets forth the agreement between you and Ambit regarding your Board membership: 1. Appointment as Board Member . Your service as an Ambit Board member began as of May 13, 2009. Your appointment as a member of the Board was made pursuant to Section 1.2(b) of the Amended and Restated Voting Agreement dated October 30, 2007 among Ambit and the investors named therein (the Voting Agreement), and your continued service shall be subject to and in accordance with the terms and conditions of the Voting Agreement, as well as the applicable provisions of the Delaware General Corporation Law and Ambits Bylaws. 2. Compensation. a. For so long as you serve as a Board member, you shall be paid a nonrefundable annual cash stipend of $17,500, payable in a lump sum in advance on each anniversary of your appointment (with the first such payment being made concurrently with the execution and delivery by Ambit and you of this Agreement). In addition, you will be paid a cash fee of $2,500 for each regularly scheduled Board meeting that you attend in person or $500 for each regularly scheduled Board meeting that you attend by telephone. We anticipate approximately four such regularly scheduled meetings will be held each year. In addition, you will be entitled to a cash fee of $3,000 per day (pro rated based on an eight-hour day for time actually spent during any particular day) for (i) attendance in person or by telephone in excess of two hours per day at special Board meetings that may be scheduled and (ii) time spent serving on any Board committees to which you may be appointed or other services performed as a Board member. b. In addition, the Board has approved the grant to you of a nonstatutory stock option to purchase 100,000 shares of Ambit common stock. The option will be governed by a separate stock option agreement and Ambits 2001 Equity Incentive Plan, as amended (the Plan). The exercise price per share will be equal to the fair market value per share of Ambits common stock on the grant date, as determined by the Board. As more fully set forth in your option agreement and the Plan, the option will vest on a monthly basis over three years so long as you provide Continuous Service to Ambit Ambit Biosciences Corporation 4215 Sorrento Valley Boulevard San Diego, CA 92121 tel 858-334-2100, fax 858-334-2198 www.ambitbio.com
in accordance with the Plan, provided that if a Covered Transaction (as defined below) occurs during your Continuous Service, the vesting of such option shall accelerate in full. Covered Transaction means the occurrence, in a single transaction or in a series of related transactions, of (i) a merger or consolidation of Ambit in which Ambits stockholders immediately prior to such transaction do not immediately following such transaction own at least a majority of the surviving corporations voting shares; (ii) a sale of all or substantially all of Ambits assets or (iii) a sale or other transfer of shares of Ambits capital stock as a result of which Ambits stockholders immediately prior to such transaction do not immediately following such transaction own at least a majority of the surviving corporations voting shares, other than a transaction involving the issuance of shares by Ambit primarily for the purpose of raising capital for Ambit. 3. Miscellaneous. Each payment to you pursuant to this Agreement shall be subject to withholding of any applicable taxes required to be withheld from such payment. This Agreement, and all disputes arising under or related to it, shall be governed by the substantive law of the State of California. This Agreement, and the rights and obligations of you and Ambit hereunder, shall inure to the benefit of and shall be binding upon, you, your heirs and representatives, and upon Ambit and Ambits successors and assigns. This Agreement may not be assigned. Any assignment in contravention of this Section shall be null and void. In the event that any one or more of the provisions of this Agreement shall be 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. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior and contemporaneous conflicting agreements, promises, covenants, arrangements, understandings, communications, representations or warranties, whether oral or written, by any party hereto (or representative of either party hereto). No provision of this Agreement may be modified, amended, waived or discharged unless such waiver, modification, amendment or discharge is agreed to in writing and signed by you and a duly authorized disinterested member of the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. If the foregoing correctly conforms to your understanding of the agreement between you and Ambit, please sign and date the enclosed copy of this letter and return it to us. Very truly yours, AMBIT BIOSCIENCES, INC. /s/ Kerry Kelly Kerry Kelly, VP & General Counsel Accepted and agreed: /s/ Saiid Zarrabian Saiid Zarrabian 2
Exhibit 10.12 April 15, 2010 Mr. M. Scott Salka Re: Separation Agreement Dear Scott: This letter agreement (the Agreement) sets forth your agreement with Ambit Biosciences, Inc. (the Company), regarding the terms of your resignation as an employee of the Company and as a member of the Companys Board of Directors. The releases provided by you herein and the Companys obligations as specified in Sections 2, 3, 5, and 6 herein shall become effective on the Effective Date specified in Section 14 below. All other provisions of this Agreement shall be effective on the date you sign this Agreement 1. Separation Date. You have resigned your employment with the Company effective March 31, 2010 (the Separation Date) and the Company accepts such resignation. 2. Severance Benefits. In exchange for your promises and releases in this Agreement, and provided that this Agreement becomes effective, you will receive the following benefits: i) severance in the form of continuation of your base salary in effect as of the Separation Date for a period of twelve (12) months following the Separation Date (the Severance Period), less required deductions, paid semi-monthly on the Companys regular payroll dates; and ii) provided that you timely elect continued health insurance coverage under the federal COBRA law, the Company will pay one-hundred percent of the cost of premiums for such health insurance continuation coverage during the Severance Period. 3. Option Vesting and Exercise. Your options to purchase stock of the Company (the Options) shall cease to vest on the Separation Date. Notwithstanding anything to the contrary in your stock option grant notice, stock option agreement, or the applicable equity incentive plan of the Company and any other documents between you and the Company setting forth the terms of your stock option grants (the Option Documents), you and the Company agree that the Company shall, if you so elect, extend the exercise period for your Options such that you may exercise any vested Options on or before June 30, 2011. The extension of the exercise period may affect the tax treatment of your Options. You are advised that you should seek independent advice regarding the tax and other consequences of extending the exercise period, and by your signature below, you acknowledge and agree that you shall obtain such advice. You and the Company hereby consent to the modification and amendment of the terms governing your Options and the Option Documents to conform to the provisions of this Agreement. Except as modified by this Agreement, all terms, conditions and limitations applicable to the Options will remain in full force and effect pursuant to the applicable Option Documents. Attached hereto as Exhibit A is a spreadsheet showing the status of your Options.
Mr. M. Scott Salka April 15, 2010 4. Accrued Salary and Vacation. The Company has paid you all accrued salary earned through the Separation Date, at the rates then in effect, subject to standard payroll deductions and withholdings. The Company will calculate and pay your accrued, unused vacation pay, if any. You are entitled to these payments by law. 5. Loan Forgiveness. In exchange for your promises and covenants in this Agreement and your compliance with all obligations stated herein, and provided that this Agreement becomes effective, the Company will forgive in full, including all remaining principal and interest outstanding, the Promissory Note between you and the Company dated April 30, 2001 (principal amount of $79,000) and the Promissory note between you and the Company dated September 4, 2001 (principal amount of $250,000) as follows: i) one-third ( 1/3 ) of the aggregate loan balance shall be forgiven on the Effective Date of this Agreement; ii) one-third ( 1/3 ) of the aggregate loan balance shall be forgiven on January 1, 2011; and iii) one-third ( 1/3 ) of the aggregate loan balance shall be forgiven on January 1, 2012. You are advised that you should seek independent advice regarding the tax and other consequences of such loan forgiveness, and by your signature below, you acknowledge and agree that you shall obtain such advice. 6. Transition Payments. Provided that this Agreement becomes Effective and that you comply with all your obligations under this Agreement, the Company will make three transition payments to you of one hundred thirty five thousand dollars ($135,000) each (collectively, the Transition Payments), less required deductions, as follows: i) the first payment shall be made within ten (10) days following the Effective Date; ii) the second payment shall be made within ten (10) days following January 1, 2011; and iii) the third payment shall be made within ten (10) days following January 1, 2012. 7. Resignation from the Board of Directors. In exchange for the consideration provided by the Company in this Agreement, you have submitted and the Company accepts your resignation from the Board of Directors of the Company (the Board) effective March 31, 2010. 8. Voting Proxy. In exchange for the consideration provided by the Company in this Agreement, you agree to the terms of the Voting Trust Agreement attached here to as Exhibit B and agree to execute and return to the Companys legal counsel, Cooley Godward Kronish LLP, the executed Voting Trust Agreement no later than ten (10) days following the Effective Date. 9. Other Compensation or Benefits. You acknowledge that, except as expressly provided in this Agreement, you will not receive any additional compensation, severance, or benefits after the Separation Date. 10. Expense Reimbursement. You agree that within thirty (30) days following the Separation Date you will submit your final documented employee expense reimbursement statement reflecting all business expenses you incurred through the Separation Date, if any, for which you seek reimbursement. The Company will reimburse you for these expenses pursuant to its regular business practice. 2.
Mr. M. Scott Salka April 15, 2010 11. Return of Company Property. You will promptly return to the Company all Company documents (and all copies thereof) and other Company property in your possession or control, including, but not limited to, Company files, correspondence, memoranda, notes, notebooks, drawings, books and records, plans, forecasts, reports, proposals, studies, agreements, financial information, personnel information, sales and marketing information, research and development information, systems information, specifications, computer-recorded information, tangible property and equipment, credit cards, entry cards, identification badges and keys; and any materials of any kind that contain or embody any proprietary or confidential information of the Company (and all reproductions thereof in whole or in part) (Company Property). 12. Proprietary Information Obligations. You hereby acknowledge and reaffirm your continuing obligations under your Employee Proprietary Information and Inventions Agreement with the Company (the PIIA). 13. Cooperation and Assistance; Confidentiality. You agree that you will not voluntarily provide assistance, information, encouragement, or advice, directly or indirectly (including through agents or attorneys), to any person or entity in connection with any claim by or against the Company, nor shall you induce or encourage any person or entity to do so. The foregoing sentence shall not prohibit you from testifying truthfully under subpoena. You agree to cooperate with the Company to the extent necessary regarding transition-related issues and to provide (voluntarily and without legal compulsion) prompt cooperation and accurate and complete information to the Company in the event of litigation involving the Company or its officers or directors and to respect and preserve all privileges held by or available to the Company. The provisions of this Agreement shall be held in the strictest confidence and shall not be publicized or disclosed in any manner whatsoever. Notwithstanding the prohibition in the preceding sentence; (a) you may disclose this Agreement, in confidence, to your immediate family; (b) the parties may disclose this Agreement in confidence to their attorneys, accountants, auditors, tax preparers, and financial advisors; (c) the Company may disclose this Agreement as necessary to comply with standard corporate filing and reporting obligations; and (d) the parties may disclose this Agreement insofar as such disclosure may be necessary to enforce its terms or as otherwise required by law. 14. Nondisparagement. You agree not to disparage the Company or its respective officers, directors, employees, products, research, business operations, shareholders and agents, as applicable, in any manner likely to be harmful to them or their business, business reputation or personal reputation and the Company agrees to instruct its officers and directors not to disparage you in any manner likely to be harmful to you or your business reputation or your personal reputation and to make good faith efforts to ensure that no such disparagement occurs; provided that both you and the Company may respond accurately and fully to any question, inquiry or request for information when required by legal process. 15. Your Release of the Company. In exchange for the consideration provided to you by this Agreement that you are not otherwise entitled to receive, you hereby generally and completely release the Company and its directors, officers, employees, shareholders, members, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and 3.
Mr. M. Scott Salka April 15, 2010 unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to your signing this Agreement. This general release includes, but is not limited to: (1) all claims arising out of or in any way related to your employment with the Company or the termination of that employment; (2) all claims related to your compensation or benefits from the Company, including, but not limited to, salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including, but not limited to, claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including, but not limited to, claims for discrimination, harassment, retaliation, attorneys fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act (ADEA), and the California Fair Employment and Housing Act (as amended). Notwithstanding the foregoing, the provisions of this Section 15 shall not release or affect (i) any rights you may have under this Agreement or your Options listed on Exhibit A or (ii) any rights to indemnification, reimbursement or similar protection you may otherwise have under the Bylaws of the Company or pursuant to any written indemnification or similar agreement between you and the Company. 16. Section 1542 Waiver. In granting the releases herein, you and the Company hereby acknowledge that each has read and understands Section 1542 of the California Civil Code: A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor. You and the Company hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to the release of claims herein. 17. ADEA Waiver. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you may have under ADEA, and that the consideration given for the waiver and release in the preceding paragraphs is in addition to anything of value to which you were already entitled. You further acknowledge that you have been advised by this writing that: (a) your waiver and release do not apply to any rights or claims that may arise after the execution date of this Agreement; (b) you should consult with an attorney prior to executing this Agreement; (c) you have twenty-one (21) days to consider this Agreement (although you may choose to voluntarily execute this Agreement earlier); (d) you have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (e) this Agreement will not be effective until the date upon which the revocation period has expired without you having revoked this Agreement (the Effective Date). 18. The Companys Release of You. In exchange for the consideration provided by you pursuant to this Agreement, except as otherwise specifically noted below, the Company hereby generally and completely releases you from any and all claims liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected, disclosed and undisclosed that arise our of or are in any way related to events, acts, conduct, or omissions occurring prior to and including the Company signing this Agreement; provided, however, that 4.
Mr. M. Scott Salka April 15, 2010 while no member of the Companys management (exclusive of yourself) nor any members of the Companys Board of Directors has any knowledge of any acts of intentional financial misconduct, embezzlement, financial fraud, or willful misappropriation of corporate resources committed personally by you against the Company. (Retained Claims), the Company does not release you from any Retained Claims involving your participation. 19. Indemnity. The Company acknowledges and agrees that it will indemnify you against third-party claims arising out of your employment with the Company to the fullest extent permitted pursuant to California Labor Code section 2802 and, as applicable, the Companys articles of incorporation and that you shall continue to be included as an insured in any Directors & Officers liability insurance policies the Company may in the future maintain. 20. Miscellaneous. This Agreement, including the exhibits hereto, along with your PIIA, constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to this subject matter. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations. This Agreement may not be modified or amended except in a writing signed by both you and a duly authorized executive officer of the Company. This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors and assigns. The failure to enforce any breach of this Agreement shall not be deemed to be a waiver of any other or subsequent breach. For purposes of construing this Agreement, any ambiguities shall not be construed against either party as the drafter. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement and the provision in question will be modified so as to be rendered enforceable in a manner consistent with the intent of the parties insofar as possible. This Agreement will be deemed to have been entered into and will be construed and enforced in accordance with the laws of the State of California as applied to contracts made and to be performed entirely within California. This Agreement may be executed in counterparts or with facsimile signatures, which shall be deemed equivalent to originals. If this Agreement is acceptable to you, please sign below and return one original to me. Sincerely, Ambit Biosciences Corporation By : /s/ Alan J. Lewis Alan J. Lewis, Ph.D. Chairman of the Board
AGREED AND A CCEPTED: /s/ M. Scott Salka M. Scott Salka 5. 15 Apr. 2010 Date
Exhibit 10.13 April 21, 2010 Laura Killmer 6122 La Pintura Drive La Jolla, CA 92037 Dear Laura: This letter sets forth the separation agreement (the Agreement) that Ambit Biosciences Corporation (the Company) is offering to you to aid in your employment transition. This Agreement will become effective on the Effective Date as defined in section 13 herein. 1. Separation. Your last day of work with the Company and your employment termination date will be April 5, 2010 (the Separation Date). 2. Accrued Salary And Paid Time Off. On the Separation Date, the Company will pay you all accrued salary, and all accrued and unused vacation earned through the Separation Date, subject to standard payroll deductions and withholdings. You are entitled to these payments by law. 3. Severance Payment. Although the Company has no policy or procedure for providing severance benefits, provided that this Agreement becomes effective, the Company will deliver to you or your attorney, as you direct, the amount of $40,000.00, less any taxes or withholding that may be due and payable, within five (5) business days following the Effective Date. 4. Stock Options. Under the terms of your stock option agreement and the applicable plan documents, vesting of your stock options will cease as of the Separation Date. Your right to exercise any vested shares, and all other rights and obligations with respect to your stock options(s), will be as set forth in your stock option agreement, grant notice and applicable plan documents. 5. Option Exercise. The Company shall extend the exercise period for your Options such that you may exercise any vested Options on or before April 5, 2011. 6. Other Compensation or Benefits. You acknowledge that, except as expressly provided in this Agreement, you will not receive any additional compensation, severance, or benefits after the Separation Date. 7. Expense Reimbursements. You agree that, within ten (10) days of the Separation Date, you will submit your final documented expense reimbursement statement reflecting all business expenses you incurred in accordance with Company policy through the Separation
Laura Kilmer April 21, 2010 Page Two Date, if any, for which you seek reimbursement. The Company will reimburse you for these expenses pursuant to its regular business practice. 8. Return of Company Property. By the Separation Date, you agree to return to the Company all Company documents (and all copies thereof) and other Company property that you have had in your possession at any time, including, but not limited to, Company files, notes, drawings, records, business plans and forecasts, financial information, specifications, computer-recorded information, tangible property (including, but not limited to, computers), credit cards, entry cards, identification badges, and keys; and, any materials of any kind that contain or embody any proprietary or confidential information of the Company (and all reproductions thereof). Your timely return of all such Company documents and other property is a condition precedent to your receipt of the severance benefits provided under this Agreement. 9. Proprietary Information Obligations. You acknowledge your continuing obligations under your Proprietary Information and Inventions Agreement, a copy of which is attached hereto as Exhibit A. 10. Confidentiality. The provisions of this Agreement will be held in strictest confidence by you and the Company and will not be publicized or disclosed in any manner whatsoever; provided, however, that: (a) you may disclose this Agreement in confidence to your immediate family; (b) the parties may disclose this Agreement in confidence to their respective attorneys, accountants, auditors, tax preparers, and financial advisors; (c) the Company may disclose this Agreement as necessary to fulfill standard or legally required corporate reporting or disclosure requirements; and (d) the parties may disclose this Agreement insofar as such disclosure may be necessary to enforce its terms or as otherwise required by law. In particular, and without limitation, you agree not to disclose the terms of this Agreement to any current or former Company employee. 11. No Admissions. You understand and agree that the promises and payments in consideration of this Agreement shall not be construed to be an admission of any liability or obligation by the Company to you or to any other person, and that the Company makes no such admission. 12. Release of Claims. In exchange for the consideration under this Agreement to which you would not otherwise be entitled, you hereby generally and completely release the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date you sign this Agreement. This general release includes, but is not limited to: (a) all claims arising out of or in any way related to your employment with the Company or the termination of that employment; (b) all claims related to your compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the
Laura Kilmer April 21, 2010 Page Three Company; (c) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (d) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (e) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967, as amended (ADEA), and the California Fair Employment and Housing Act (as amended). The release of claims in this Agreement does not extend to those rights which as a matter of law cannot be waived, including but not limited to unwaivable rights the you may have under the California Labor Code. 13. ADEA Waiver. You acknowledge that you are knowingly and voluntarily waiving and releasing any rights you may have under the Federal Age Discrimination in Employment Act (the ADEA), and that the consideration given for the waiver and release in the preceding paragraphs is in addition to anything of value to which you were already entitled. You further acknowledge that you have been advised by this writing that: (a) your waiver and release do not apply to any rights or claims that may arise after the execution date of this Agreement; (b) you should consult with an attorney prior to executing this Agreement; (c) you have twenty-one (21) days to consider this Agreement (although you may choose to voluntarily execute this Agreement earlier); (d) you have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (e) this Agreement will not be effective until the date upon which the revocation period has expired, provided that you have not earlier revoked the Agreement (the Effective Date). You will not receive any of the benefits provided by this Agreement until after the Effective Date. 14. Section 1542 Waiver. In granting the release herein, which includes claims which may be unknown to you at present, you acknowledge that you have read and understand Section 1542 of the California Civil Code: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. You hereby expressly waive and relinquish all rights and benefits under that section and any law or legal principle of similar effect in any jurisdiction with respect to the releases granted herein, including but not limited to the release of unknown and unsuspected claims granted in this Agreement. 15. Miscellaneous. This Agreement, including Exhibit A, constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with regard to its subject matter. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and it supersedes any other such promises, warranties or representations. This Agreement may not be modified or amended except in a writing signed by both you and a duly authorized officer of the Company. This Agreement will bind the heirs, personal representatives, successors and assigns of both you and the Company, and inure to the benefit of both you and the Company, their heirs, successors and
Laura Kilmer April 21, 2010 Page Four assigns. If any provision of this Agreement is determined to be invalid or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement and the provision in question will be modified so as to be rendered enforceable. This Agreement will be deemed-to have-been-entered-into and will be construed and enforced in-accordance-with the laws of the State of California as applied to contracts made and to be performed entirely within California. Any ambiguity in this Agreement shall not be construed against either party as the drafter. Any waiver of a breach of this Agreement shall be in writing and shall not be deemed to be a waiver of any successive breach. This Agreement may be executed in counterparts and facsimile signatures will suffice as original signatures. If this Agreement is acceptable to you, please sign below and return the original to me. We wish you the best in your future endeavors. Sincerely, AMBIT BIOSCIENCES CORPORATION By: /s/ Kerry Ann Kelly Kerry A. Kelly, VP and General Counsel I HAVE READ, UNDERSTAND AND AGREE FULLY TO THE FOREGOING AGREEMENT : /s/ Laura Killmer Laura Killmer Date: April 27, 2010
Exhibit 10.14 AMBIT BIOSCIENCES CORPORATION 2008 INCENTIVE COMPENSATION PLAN The staff of Ambit Biosciences Corporation (the Company) may be eligible for a year~end salary bonus. There is no guarantee of an incentive payout. The program has been developed as a reward for extraordinary individual successes combined with excellent corporate results. The Incentive Compensation Plan of the Company (the ~Plan~) is designed to: Provide incentive to exceed Corporate Goals and Individual Goals (each as defined below) Encourage teamwork Reward those who significantly impact corporate results
P LAN GOVERNANCE The Compensation Committee (the ~Compensation Committee~), appointed by the Board of Directors of the Company (the Board), is responsible for administrating the Plan. Their primary responsibilities are to ensure that measurable goals are established and to eventually determine the degree to which they have been achieved. The Compensation Committee may at any time, and from time to time, amend, suspend or terminate the Plan. ESTABLISHMENT OF GOALS Key management employees will work with employees in establishing individual goals, which will include goals relating to each individuals department (the Individual Goals). Individual Goals must be documented in writing and approved by the department head. Individual Goals are typically set in January of the plan year and scheduled meetings are to be held on or before June 30 th and September 30 th and a final evaluation in December of the plan year. Individual Goals must be established on or before these meeting dates for employees hired throughout the year. The Goal Setting Cover Sheet on the last page of this document should be attached to the Individual Goals sheet and used to document meetings discussing Individual Goal achievements throughout the year. Confidential Page 1
MINIMUM A CHIEVEMENT LEVEL 70% of both corporate goals (the Corporate Goals) and Individual Goals must be achieved for any awards to take place. For example, if 50% of the Corporate Goals are achieved, no awards will be paid to any employee. If 80% of the Corporate Goals are achieved, but an individual only met 50% of his/her Individual Goals, no award will be paid to that individual. Corporate Goals will be recommended by senior management and approved by the Compensation Committee. TARGET A WARD PERCENTAGE The following table summarizes the target award percentage available to each position in the Company. In extraordinary situations, where Corporate Goals and/or Individual Goals are exceeded in a meaningful way, the Compensation Committee may award beyond the Target Award Percentage.
Position Level(s) Target Award Percentage
Chief Executive Officer President and CSO Vice President* /Senior VP/Executive VP Director/Senior Director/Exec Director Group Leader/Head/Assoc Director Senior Research Scientist/Senior Manager Associate Scientist/Research Scientist/Manager All Other Employees B ASIS FOR A WARDS Awards are based on corporate goals and individual goals at the following ratio:
29 28 25~27 22~24 20~21 17~19 12~16 1~11
40 25/30/32.5 15/16.5/18 12.5 10 7.5 5
Position
Corporate Goals
Individual Goals
CEO/President and CSO Vice President levels All Other Employees Confidential
100% 75% 50%
0% 25% 50% Page 2
G OAL A CHIEVEMENT PERCENTAGE The goal achievement percentage represents the degree to which the performance goals have been met. The goal achievement percentage for corporate goals is determined by the Compensation Committee. The goal achievement percentage for department/individual goals is determined by each employees supervisor and department head. ELIGIBILITY AND PARTIAL~Y EAR PARTICIPATION All regular employees are eligible for awards, provided that they maintain an average grade of meets expectations in their individual performance review, or otherwise be considered to perform their duties in a satisfactory manner, in order to maintain eligibility. An employee becomes eligible to participate in the Plan as of their first day of employment. The award will be calculated by multiplying the full year award amount by the number of days of regular employment during the plan year divided by 365. Example: An employee hired September 1 will be awarded their full year award amount multiplied by 122 days and divided by 365 days. Employees hired after September 30 th of the plan year will not be eligible for an award in that plan year. Regular employment does not include leave of absences. If a participant~s employment is terminated during a plan year for reason of death or disability, the award will be determined based on performance as of the end of the plan year. The final award will be calculated by multiplying the full year award amount by the number of days of employment during the performance period divided by 365. Other terminations will not be eligible for participation in this Plan. C ALCULATION OF A WARD (ILLUSTRATION) The awards are determined by multiplying each employees year~end base salary by their target award percentage and then by the percentage of goals achieved. The award total is then multiplied by the number of days the employee participated in the Plan and divided by 365. The following table illustrates the calculation of an award for a Research Associate that joined the Company approximately half~way through the Plan year.
Year~End Base Salary Target Award
Corporate Goals Achieved
Individual Goals Achieved
No. of Days Participated (Divided by 365)
Award
G OAL A CHIEVEMENT PERCENTAGE $35,000 2.5% $35,000 2.5%
80%
85%
152/365 152/365 TOTAL
$291.51 $309.73 $601.24 Page 3
Confidential
C HANGE I N CONTROL In the event of a Qualified Change in Control of the Company (defined below), each participant will receive a pro rata share of the annual bonus for the year in which the Qualified Change in Control occurs, calculated on the basis of each participant~s target award for that year and on the assumption that all performance goals have been or will be achieved at 100%. For this purpose, the pro rata share will be calculated by dividing the number of days employed during the performance period prior to the Qualified Change in Control by 365. The bonus amount so determined will be paid to participants within 15 days of the Qualified Change in Control. After such Qualified Change in Control, the Plan shall terminate in its entirety. For purposes of the Plan, a~Qualified Change in Control~means (i) the sale or exchange of all or substantially all of the assets of the Company or (ii) a merger or consolidation of the Company with any other corporation that would result in voting securities of the Company outstanding immediately prior thereto representing (either by remaining outstanding or by being converted into voting securities of the surviving entity) less than fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such sale, exchange, merger or consolidation; so long as, in each case ((i) and (ii)), the total consideration received by the Company or the stockholders in such transaction is at least three times greater than the fully~diluted post~money valuation of the Company as of the most recent venture capital financing (determined by multiplying the applicable price per share in such financing by the fully diluted shares outstanding on an as~converted~to~common stock basis, including all shares subject to outstanding options or warrants or reserved for issuance pursuant to plans adopted by the Company). ADMINISTRATION Notwithstanding any other provision of this Plan, the Company reserves the right to modify this Plan in any way and at any time, retroactively or prospectively, with or without cause. Nothing in this Plan shall be deemed an employment contract or provide any rights to continued employment. The Board or the Compensation Committee shall have the power to construe and interpret the Plan and to establish, amend and revoke rules and regulations for its administration. The Board or the Compensation Committee, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. Confidential Page 4
AMBIT BIOSCIENCES CORPORATION G OAL SETTING COVER SHEET Attached are goals developed by the employee and supervisor that are important to his/her position and support departmental and company goals. The goals should be defined in a manner that permits measurement of results achieved. Include timetables with estimated start and completion dates (if possible). As the year progresses, it may be necessary to prioritize/revise established goals. Employee Name: Hire Date: Supervisor Name: Date goals established: Date Supervisor Initials Employee Initials
Supervisors should meet periodically with their staff and review progress made and current objectives in terms of expected results. Meetings should be scheduled close to the following dates: June 30 th, September 30 th, and the final year~end meeting by December 10 th. After each meeting, please complete and sign:
Scheduled Meeting Actual Meeting Date Supervisor Signature Employee Signature
On or before 6/30 On or before 9/30 On or before 12/10 Comments:
Confidential
Page 5
Exhibit 10.15 AMBIT BIOSCIENCES CORPORATION EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT In consideration of my employment or continued employment by AMBIT BIOSCIENCES CORPORATION (the Company), and the compensation now and hereafter paid to me, I hereby agree as follows: 1. NONDISCLOSURE 1.1 Recognition of Companys Rights; Nondisclosure. At all times during my employment and thereafter, I will hold in strictest confidence and will not disclose, use, lecture upon or publish any of the Companys Proprietary Information (defined below), except as such disclosure, use or publication may be required in connection with my work for the Company, or unless an officer of the Company expressly authorizes such in writing. I will obtain Companys written approval before publishing or submitting for publication any material (written, verbal, or otherwise) that relates to my work at Company and/or incorporates any Proprietary Information. I hereby assign to the Company any rights I may have or acquire in such Proprietary Information and recognize that all Proprietary Information shall be the sole property of the Company and its assigns. I have been informed and acknowledge that the unauthorized taking of the Companys trade secrets could result in a civil liability under California Civil Code Section 3426, and that, if willful, could result in an award for double the amount of the Companys damages and attorneys fees; and is a crime under California Penal Code Section 444(c), punishable by imprisonment for a time not exceeding one (1) year, or by a fine not exceeding five thousand dollars ($5,000), or by both. 1.2 Proprietary Information. The term Proprietary Information shall mean any and all confidential and/or proprietary knowledge, data or information of the Company. By way of illustration but not limitation, Proprietary Information includes: (a) chemical compounds, building blocks, chemical libraries, reaction protocols for chemical libraries, chemical structures, chemical design and model relationship data, chemical databases, assays, samples, media and other biological materials, procedures and formulations for producing any such materials, products, processes, ideas, know-how, trade secrets, drawings, inventions, improvements, formulas, equations, methods, developmental or experimental work, research or clinical data, discoveries, developments, designs, techniques, instruments, devices, computer software and hardware (collectively, Inventions); and (b) information regarding research, development, new service offerings or products, marketing and selling, business plans, business methods, budgets, finances, licensing, collaboration and development arrangements, prices and costs, buying habits and practices, contact and mailing lists and databases, vendors, customers and clients, and potential business opportunities; and (c) information regarding the names, addresses, identities, skills and compensation of employees, independent contractors and consultants of the Company and its affiliates and (d) any other information regarding the Company, its affiliates and their businesses that the Company and its affiliates treat in a confidential manner and is not readily available to the public. Notwithstanding the foregoing, it is understood that, at all such times, I am free to use information which is generally known in the trade or industry, which is not gained as result of a breach of this Agreement, and my own skill, knowledge, know-how and experience to whatever extent and in whichever way I wish. 1.3 Third Party Information. I understand, in addition, that the Company has received and in the future will receive from third parties confidential or proprietary information ( Third Party Information) subject to a duty on the Companys part to maintain the confidentiality of such information and to use it only for certain limited purposes. During the term of my employment and thereafter, I will hold Third Party Information in the strictest confidence and will not disclose to anyone (other than 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 authorized by an officer of the Company in writing. 1.4 No Improper Use of Information of Prior Employers and Others. During my employment by the Company I will not improperly use or disclose any confidential information or trade secrets, if any, of any former employer or any other person to whom I have an obligation of confidentiality, and I will not bring onto the premises of the Company any unpublished documents or any property belonging to any former employer or any other person to whom I have an obligation of confidentiality unless consented to in writing by that former employer or person. I will use in the performance of my duties only information which is generally known and used by persons with
training and experience comparable to my 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. 2. A SSIGNMENT OF INVENTIONS . 2.1 Proprietary Rights. The term Proprietary Rights shall mean all trade secret, patent, copyright, mask work and other intellectual property rights throughout the world. 2.2 Prior Inventions. Inventions, if any, patented or unpatented, which I made prior to the commencement of my employment with the Company are excluded from the scope of this Agreement. To preclude any possible uncertainty, I have set forth on Exhibit B (Previous Inventions) attached hereto a complete list of all Inventions that I have, 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 my employment with the Company, that I consider to be my property or the property of third parties and that I wish to have excluded from the scope of this Agreement (collectively referred to as Prior Inventions). If disclosure of any such Prior Invention would cause me to violate any prior confidentiality agreement, I understand that I am not to list such Prior Inventions in Exhibit B but am only to disclose a cursory name for each such invention, a listing of the party(ies) to whom it belongs and the fact that full disclosure as to such inventions has not been made for that reason. A space is provided on Exhibit B for such purpose. If no such disclosure is attached, I represent that there are no Prior Inventions. If, in the course of my employment with the Company, I incorporate a Prior Invention into a Company product, process or machine, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license (with rights to sublicense through multiple tiers of sublicensees) to make, have made, modify, use and sell such Prior Invention. Notwithstanding the foregoing, I agree that I will not incorporate, or permit to be incorporated, Prior Inventions in any Company Inventions without the Companys prior written consent. 2.3 Assignment of Inventions. Subject to Sections 2.4, and 2.6, I hereby assign and agree to assign in the future (when any such Inventions or Proprietary Rights are first reduced to practice or first fixed in a tangible medium, as applicable) to the Company all my right, title and interest in and to any and all Inventions (and all Proprietary Rights with
respect thereto) whether or not patentable or registrable under copyright or similar statutes, made or conceived or reduced to practice or learned by me, either alone or jointly with others, during the period of my employment with the Company. Inventions assigned to the Company, or to a third party as directed by the Company pursuant to this Section 2, are hereinafter referred to as Company Inventions. 2.4 Nonassignable Inventions. This Agreement does not apply to an Invention which qualifies fully as a nonassignable Invention under Section 2870 of the California Labor Code (hereinafter Section 2870). I have reviewed the notification on Exhibit A (Limited Exclusion Notification) and agree that my signature acknowledges receipt of the notification. 2.5 Obligation to Keep Company Informed. During the period of my employment and for six (6) months after termination of my employment with the Company, I will promptly disclose to the Company fully and in writing all Inventions authored, conceived or reduced to practice by me, either alone or jointly with others. In addition, I will promptly disclose to the Company all patent applications filed by me or on my behalf within a year after termination of employment. At the time of each such disclosure, I will advise the Company in writing of any Inventions that I believe fully qualify for protection under Section 2870; and I will at that time provide to the Company in writing all evidence necessary to substantiate that belief. The Company will keep in confidence and will not use for any purpose or disclose to third parties without my consent any confidential information disclosed in writing to the Company pursuant to this Agreement relating to Inventions that qualify fully for protection under the provisions of Section 2870. I will preserve the confidentiality of any Invention that does not fully qualify for protection under Section 2870. 2.6 Government or Third Party. I also agree to assign all my right, title and interest in and to any particular Company Invention to a third party, including without limitation the United States, as directed by the Company. 2.7 Works for Hire. I acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of my employment and which are protectable by copyright are works made for hire, pursuant to United States Copyright Act (17 U.S.C., Section 101). 2.8 Enforcement of Proprietary Rights. I will assist the Company in every proper way to obtain, and 2.
from time to time enforce, United States and foreign Proprietary Rights relating to Company Inventions in any and all countries. To that end I will execute, verify and deliver such documents and perform such other acts (including appearances as a witness) as the Company may reasonably request for use in applying for, obtaining, perfecting, evidencing, sustaining and enforcing such Proprietary Rights and the assignment thereof. In addition, I will execute, verify and deliver assignments of such Proprietary Rights to the Company or its designee. My obligation to assist the Company with respect to Proprietary Rights relating to such Company Inventions in any and all countries shall continue beyond the termination of my employment, but the Company shall compensate me at a reasonable rate after my termination for the time actually spent by me at the Companys request on such assistance. In the event the Company is unable for any reason, after reasonable effort, to secure my signature on any document needed in connection with the actions specified in the preceding paragraph, I hereby irrevocably designate and appoint the Company and its duly authorized officers and agents as my agent and attorney in fact, which appointment is coupled with an interest, to act for and in my behalf to execute, verify and file any such documents and to do all other lawfully permitted acts to further the purposes of the preceding paragraph with the same legal force and effect as if executed by me. I hereby waive and quitclaim to the Company any and all claims, of any nature whatsoever, which I now or may hereafter have for infringement of any Proprietary Rights assigned hereunder to the Company. 3. RECORDS. I agree to keep and maintain adequate and current records (in the form of notes, sketches, drawings and in any other form that may be required by the Company) of all Proprietary Information developed by me and all Inventions made by me during the period of my employment at the Company, which records shall be available to and remain the sole property of the Company at all times. 4. A DDITIONAL A CTIVITIES. I agree that during the period of my employment by the Company I will not, without the Companys express written consent, engage in any employment or business activity which is competitive with, or would otherwise conflict with, my employment by the Company. I agree to adhere to the Conflict of Interest Guidelines attached hereto as Exhibit D. I agree further that for the period of my employment by the Company and for one (l) year after the date of termination of my employment by the Company I will not, either directly or through others, 3.
solicit or attempt to solicit any employee, independent contractor or consultant of the company to terminate his or her relationship with the Company in order to become an employee, consultant or independent contractor to or for any other person or entity. 5. NO CONFLICTING OBLIGATION. I represent that my performance of all the terms of this Agreement and 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 my employment by the Company. I have not entered into, and I agree I will not enter into, any agreement either written or oral in conflict herewith. 6. RETURN OF COMPANY DOCUMENTS . When I leave the employ of the Company, I will deliver to the Company any and all drawings, notes, memoranda, specifications, devices, formulas, and documents, together with all copies thereof, and any other material containing or disclosing any Company Inventions, Third Party Information or Proprietary Information of the Company. I further agree that any property situated on the Companys premises and owned by the Company, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or without notice. Prior to leaving, I will cooperate with the Company in completing and signing the Companys Termination Certification attached hereto as Exhibit C. 7. LEGAL AND EQUITABLE REMEDIES . Because my services are personal and unique and because I may have access to and become acquainted with the Proprietary Information of the Company, the Company shall have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief, without bond and without prejudice to any other rights and remedies that the Company may have for a breach of this Agreement. 8. NOTICES. Any notices required or permitted hereunder shall be given to the appropriate party at the address specified below or at such other address as the party shall specify in writing. Such notice shall be deemed given upon personal delivery to the appropriate address or if sent by certified or registered mail, three (3) days after the date of mailing. 9. NOTIFICATION OF NEW EMPLOYER . In the event that I leave the employ of the Company, I hereby consent to the notification of my new employer of my rights and obligations under this Agreement.
10. GENERAL PROVISIONS . 10.1 Governing Law; Consent to Personal Jurisdiction. This Agreement will be governed by and construed according to the laws of the State of California, as such laws are applied to agreements entered into and to be performed entirely within California between California residents. I hereby expressly consent to the personal jurisdiction of the state and federal courts located in San Diego County, California for any lawsuit filed there against me by Company arising from or related to this Agreement. 10.2 Severability. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. If moreover, any one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to duration, geographical scope, activity or subject, it shall be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law as it shall then appear. 10.3 Successors and Assigns. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Company, its successors, and its assigns. 10.4 Survival. The provisions of this Agreement shall survive the termination of my employment and the assignment of this Agreement by the Company to any successor in interest or other assignee. 10.5 Employment. I agree and understand 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 my right or the Companys right to terminate my employment at any time, with or without cause. 10.6 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 to enforce strict adherence to all terms of this Agreement.
10.7 Entire Agreement. The obligations pursuant to Sections 1 and 2 of this Agreement shall apply to any time during which I was previously employed, or am 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 between us. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement. This Agreement shall be effective as of the first day of my employment with the Company, namely: , 2010. I HAVE READ THIS A GREEMENT CAREFULLY AND UNDERSTAND I HAVE COMPLETELY FILLED OUT EXHIBIT B TO THIS AGREEMENT .
ITS TERMS.
Dated: By: ACCEPTED AND A GREED TO: AMBIT BIOSCIENCES CORPORATION By: Title: Address: 4215 Sorrento Valley Blvd. San Diego, CA 92121
Dated:
4.
EXHIBIT A LIMITED EXCLUSION NOTIFICATION THIS IS TO NOTIFY you in accordance with Section 2872 of the California Labor Code that the foregoing Agreement between you and the Company does not require you to assign or offer to assign to the Company any invention that you developed entirely on your own time without using the Companys equipment, supplies, facilities or trade secret information except for those inventions that either: 1. 2. Relate at the time of conception or reduction to practice of the invention to the Companys business, or actual or demonstrably anticipated research or development of the Company; or Result from any work performed by you for the Company.
To the extent a provision in the foregoing Agreement purports to require you to assign an invention otherwise excluded from the preceding paragraph, the provision is against the public policy of this state and is unenforceable. This limited exclusion does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States. I ACKNOWLEDGE RECEIPT of a copy of this notification.
Date: W ITNESSED BY : By: Print Name:
EXHIBIT B TO: FROM: DATE: SUBJECT: , 2010 Previous Inventions Ambit Biosciences Corporation
1. Except as listed in Section 2 below, the following is a complete list of all inventions or improvements relevant to the subject matter of my employment by Ambit Biosciences Corporation (the Company) that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my engagement by the Company: No inventions or improvements. See below:
Additional sheets attached.
2. Due to a prior confidentiality agreement, I cannot complete the disclosure under Section 1 above with respect to inventions or improvements generally listed below, the proprietary rights and duty of confidentiality with respect to which I owe to the following party(ies):
Invention or Improvement Party(ies) Relationship
1. 2. 3. Date: By: 2. Additional sheets attached. EMPLOYEE
EXHIBIT C TERMINATION CERTIFICATION This is to certify that I do not have in my possession, nor have I failed to return, any devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any aforementioned items belonging to the Company. I further certify that I have complied with all the terms of the Companys Employee Proprietary Information and Inventions Agreement signed by me, including the reporting of any inventions and original works of authorship (as defined therein), conceived or made by me (solely or jointly with others) covered by that agreement. I further agree that, in compliance with the Employee Proprietary Information and Inventions Agreement, I will preserve as confidential all trade secrets, confidential knowledge, data or other proprietary information relating to products, processes, know-how, designs, formulas, developmental or experimental work, data bases, other original works of authorship, customer lists, business plans, financial information or other subject matter pertaining to any business of the Company or any of its employees, clients, consultants or licensees. I further agree that for twelve (12) months from this date, I will not hire any employees of the Company and I will not solicit, induce, recruit or encourage any of the Companys employees to leave their employment. Date: By: 3. EMPLOYEE
EXHIBIT D AMBIT BIOSCIENCES CONFLICT OF INTEREST GUIDELINES It is the policy of Ambit Biosciences to conduct its affairs in strict compliance with the letter and spirit of the law and to adhere to the highest principles of business ethics. Accordingly, all officers, employees and independent contractors must avoid activities which are in conflict, or give the appearance of being in conflict, with these principles and with the interests of the Company. The following are potentially compromising situations which must be avoided. Any exceptions must be reported to the CEO and written approval for continuation must be obtained. 1. Revealing confidential information to outsiders or misusing confidential information. Unauthorized divulging of information is a violation of this policy whether or not for personal gain and whether or not harm to the Company is intended. (The Employee Proprietary Information and Inventions Agreement elaborates on this principle and is a binding agreement.) 2. Accepting or offering substantial gifts, excessive entertainment, favors or payments which may be deemed to constitute undue influence or otherwise be improper or embarrassing to the Company. 3. Participating in civic or professional organizations that might involve divulging confidential information of the Company. 4. Initiating or approving personnel actions affecting reward or punishment of employees or applicants where there is a family relationship or appears to be a personal or social involvement. 5. Initiating or approving any form of personal or social harassment of employees. 6. Investing or holding outside directorship in suppliers, customers, or competing companies, including financial speculations, where such investment or directorship might influence in any manner a decision or course of action of the Company. 7. Borrowing from or lending to employees, customers or suppliers. 8. Acquiring real estate of interest to the Company. 9. Improperly using or disclosing to the Company any proprietary information or trade secrets of any former or concurrent employer or other person or entity with whom obligations of confidentiality exist. 10. Unlawfully discussing prices, costs, customers, sales or markets with competing companies or their employees. 11. Making any unlawful agreement with distributors with respect to prices. 12. Improperly using or authorizing the use of any inventions which are the subject of patent claims of any other person or entity. 13. Engaging in any conduct which is not in the best interest of the Company. Each officer, employee and independent contractor must take every necessary action to ensure compliance with these guidelines and to bring problem areas to the attention of higher management for review. Violations of this conflict of interest policy may result in discharge without warning. 4.
Exhibit 10.17 AMBIT BIOSCIENCES CORPORATION FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

PAGE
SECTION 1. 1.1 SECTION 2. 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 2.14 SECTION 3. 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12
GENERAL Definitions REGISTRATION; RESTRICTIONS ON TRANSFER Restrictions on Transfer Demand Registration Piggyback Registrations Form S-3 Registration Expenses of Registration Obligations of the Company Termination of Registration Rights Delay of Registration; Furnishing Information Indemnification Assignment of Registration Rights Amendment of Registration Rights Limitation on Subsequent Registration Rights Market Stand-Off Agreement; Agreement to Furnish Information Rule 144 Reporting COVENANTS OF THE COMPANY Basic Financial Information and Reporting Inspection Rights Reservation of Common Stock Stockholder Meeting Observation Rights Option Pool Increase Compensation Committee Audit Committee Key-Man Insurance Director and Officer Insurance Director Compensation Ambit Canada Actions i.
1 1 4 4 6 7 8 9 10 12 12 12 14 15 15 15 16 16 16 17 17 17 18 18 18 18 19 19 19 19

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3.13 SECTION 4. 4.1 4.2 4.3 4.4 4.5 4.6 SECTION 5. 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12
Termination of Covenants RIGHTS OF FIRST REFUSAL Subsequent Offerings Exercise of Rights Issuance of Equity Securities to Other Persons Termination and Waiver of Rights of First Refusal Transfer of Rights of First Refusal Excluded Securities MISCELLANEOUS Governing Law Survival Successors and Assigns Entire Agreement Severability Amendment and Waiver Delays or Omissions Notices Attorneys Fees Titles and Subtitles Additional Investors Counterparts ii.
20 20 20 20 20 21 21 21 22 22 22 22 23 23 23 23 24 24 24 24 24
AMBIT BIOSCIENCES CORPORATION FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT THIS FOURTH A MENDED AND RESTATED INVESTOR RIGHTS A GREEMENT (the Agreement ) is entered into as of October 30, 2007 by and among AMBIT BIOSCIENCES CORPORATION, a Delaware corporation (the Company) and the investors listed on Exhibit A hereto, referred to hereinafter as the Investors and each individually as an Investor. RECITALS W HEREAS, the Company previously entered into a Third Amended and Restated Investor Rights Agreement dated as of August 13, 2004, as amended by that First Amendment to Third Amended and Restated Investor Rights Agreement dated as of February 23, 2005 and that Second Amendment to Third Amended and Restated Investor Rights Agreement dated as of December 9, 2005 (the Prior Agreement ), with certain purchasers (the Prior Investors) of Series A Preferred Stock of the Company (the Series A Preferred), Series B Preferred Stock of the Company (the Series B Preferred) and Series C Preferred Stock of the Company (the Series C Preferred ); W HEREAS, certain of the Investors are purchasing shares of Series D Preferred Stock of the Company (the Series D Preferred) pursuant to that certain Series D Preferred Stock Purchase Agreement dated as of even date herewith (the Purchase Agreement and the transactions contemplated thereby, the Financing); W HEREAS, the obligations in the Purchase Agreement are conditioned upon the execution and delivery of this Agreement; W HEREAS, the Company and the Prior Investors desire to amend and restate the Prior Agreement as set forth below; and W HEREAS, in connection with the consummation of the Financing, the parties desire to enter into this Agreement in order to grant registration, information rights and other rights to the Investors as set forth below. NOW , THEREFORE , in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree hereto as follows: SECTION 1. GENERAL. 1.1 Definitions. As used in this Agreement the following terms shall have the following respective meanings: Affiliate means (i) any affiliate within the meaning ascribed thereto in the Business Corporations Act (Ontario); and (ii) in the case of Canadian Medical Discoveries Fund Inc. ( CMDF ) or any CMDF Entity, any CMDF Entity. 1.
Charter means the Amended and Restated Certificate of Incorporation of the Company filed with the Secretary of State of the State of Delaware on or about the date hereof. CMDF Entity means (i) CMDF; (ii) JovFunds Management Inc ( JovFunds); (iii) JovInvestment Management Inc. ( Jov); (iv) any Affiliate of CMDF, JovFunds or Jov; (v) any investment fund (whether corporation, partnership, limited liability corporation or partnership, trust or other form of business entity which is an investment fund) to which JovFunds, Jov or an Affiliate thereof provides management or investment advisory services; (vi) any corporation or limited partnership the general partner of which is controlled, directly or indirectly, by CMDF, JovFunds or Jov; (vii) each of their successors or permitted assigns to the extent they acquire shares of the Companys capital stock in a Permitted Transfer; and (viii) Bioscience Managers Limited and any investment funds managed or advised by Bioscience Managers Limited. Control or Controlled means, for purposes of Section 2.1, holding 50% or more of the voting power of an entity and/or having the right to appoint at least a majority of the members of an entitys Board of Directors. Control Group means any company that (i) a Holder directly or indirectly holds Control of, (ii) the Holder is directly or indirectly Controlled by, or (iii) is directly or indirectly under common Control with the Holder. In addition, Control Group means any company or Investment Fund which manages any of the aforementioned companies or is managed by any of the aforementioned companies or a general partner, officer, director or manager of such Person and any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person. Exchange Act means the Securities Exchange Act of 1934, as amended. Form S-3 means such form under the Securities Act as in effect on the date hereof or any successor or similar 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. Holder means any person owning of record Registrable Securities that have not been sold to the public or any assignee of record of such Registrable Securities in accordance with Section 2.10 hereof. Initial Offering means a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act covering the offer and sale of Common Stock of the Company for the account of the Company in which (a) if the closing thereof occurs on or prior to the second anniversary of the Filing Date (as defined in the Charter), (i) the per share price is at least $10.12 (as adjusted for stock splits, dividends, recapitalizations and the like after the Filing Date), and (ii) the net cash proceeds to the Company (after deducting underwriting discounts, commissions and fees) are at least $50,000,000, or (b) if such closing occurs after the second anniversary of the Filing Date, (i) the per share price is at least $15.18 (as adjusted for stock splits, dividends, recapitalizations and the like after the Filing Date), and (ii) 2.
the net cash proceeds to the Company (after deducting underwriting discounts, commissions and fees) are at least $50,000,000. Investment Fund means any Person holding Shares for investment purposes. Member of the same Group means (a) if the Person concerned is a body corporate, any holding company or parent undertaking or subsidiary or subsidiary undertaking or subsidiary or subsidiary undertaking of any such holding company or parent undertaking of such person where subsidiary and holding company shall have the meanings given to them in section 736 of the Companies Act 1985, or (b) if the Person concerned is a firm or other unincorporated body, any corporation directly or indirectly controlled (as defined in section 840 of the Income and Corporation Taxes Act 1988) by such Person. Key Employee means the president, chief executive officer, chief financial officer, chief operating officer, chief technology officer, vice presidents of operations, research, development, sales or marketing, or any other individual who performs a significant role in the leadership and operations of the Company or a subsidiary or in the development or conception of any material intellectual property of the Company as may be reasonably designated by the Board of Directors of the Company. Permitted Transfer means a transfer of shares by a Holder to a Control Group. Person means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a fund, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. 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. Registrable Securities means (a) Common Stock of the Company issued or issuable upon conversion of the Shares and (b) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such above-described securities. Notwithstanding the foregoing, Registrable Securities shall not include any securities sold by a person to the public either pursuant to a registration statement or Rule 144 or sold in a private transaction in which the transferors rights under Section 2 of this Agreement are not assigned. Registrable Securities then outstanding shall be the number of shares determined by calculating the total number of shares of the Companys Common Stock that are Registrable Securities and either (a) are then issued and outstanding or (b) are issuable pursuant to then exercisable or convertible securities. Registration Expenses shall mean all expenses incurred by the Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, 3.
reasonable fees and disbursements 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). SEC or Commission means the Securities and Exchange Commission. Securities Act shall mean the Securities Act of 1933, as amended. Selling Expenses shall mean all underwriting discounts and selling commissions applicable to the sale. Shares shall mean the Companys (i) Series A Preferred issued pursuant to the Stock Purchase Agreement dated as of December 5, 2000, (ii) Series B Preferred issued pursuant to the Series B Preferred Stock Purchase Agreement dated as of June 26, 2001 and Second Series B Preferred Stock Purchase Agreement dated as of May 29, 2002, (iii) Series C Preferred issued pursuant to the Series C Preferred Stock Purchase Agreement dated August 13, 2004 (the Series C Purchase Agreement ) and the Series C Preferred Stock Purchase Agreement dated December 9, 2005 by and between the Company and Bristol-Myers Squibb Company (the Second Purchase Agreement and, together with the Series C Purchase Agreement, the Series C Purchase Agreements ), (iv) shares of the Companys Series C-2 Preferred Stock (the Series C-2 Preferred) if and when issued pursuant to the Amended and Restated Put Agreement among the Company, CMDF and Ambit Biosciences (Canada) Corporation ( Ambit Canada) dated on or about the date hereof (the Put Agreement ), (v) Series D Preferred issued pursuant to the Purchase Agreement and (vi) shares of Series D Preferred if and when issued pursuant to the Put Agreement, in each case as held by the Investors listed on Exhibit A hereto and their permitted assigns. Special Registration Statement shall mean (i) a registration statement relating to any employee benefit plan or (ii) with respect to any corporate reorganization or other transaction under Rule 145 of the Securities Act, including any registration statements related to the resale of securities issued in such a transaction or (iii) a registration related to stock issued upon conversion of debt securities. SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER. 2.1 Restrictions 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 4.
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 in unusual circumstances. After its Initial Offering, the Company will not require the transferee to be bound by the terms of this Agreement. (iii) Notwithstanding the provisions of paragraphs (i) and (ii) above, no such registration statement or opinion of counsel shall be necessary for a transfer by a Holder that is (A) a partnership transferring to its partners, former partners or a subsidiary Controlled by any such partner or former partner in accordance with partnership interests, (B) an Investment Fund or its trustee, custodian or nominee to (1) the beneficial owner or owners in respect of which the transferor is a nominee or custodian, (2) any trustee, nominee, subsidiary, subsidiary undertaking or custodian for such Investment Fund and vice versa, (3) any unitholder, shareholder, partner, participant in, manager or adviser (or an employee of such manager or adviser) of the Investment Fund including any person to whom such partner may have assigned its interest or any interest therein, (4) any other Investment Fund, or its trustee, nominee, subsidiary, subsidiary undertaking or custodian, managed or advised by the same manager or adviser or whose general partner is the same general partner as the Investment Fund, (5) in the case of Apposite Healthcare Fund LP ( Apposite), Mizuho Financial Group or any of its subsidiaries, and (6) trustee, nominee, custodian or to a Member of the same Group of any of the Persons referred to in sub-clauses (1)-(5) of clause (B) of this Section 2.1(a)(iii) (collectively referred to herein as an Investor Group), (C) a corporation transferring to a wholly-owned subsidiary or a parent corporation that owns all of the capital stock of the Holder, (D) a limited liability company transferring to its members or former members in accordance with their interest in the limited liability company, (E) an individual transferring to the Holders family member or trust for the benefit of an individual Holder or (F) a Permitted Transfer; provided that in each case the transferee will be subject to the terms of this Agreement to the same extent as if he were an original Holder hereunder, and such transfer complies with state, federal and foreign securities laws. (b) Each certificate representing Shares or Registrable Securities shall (unless otherwise permitted by the provisions of the Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable state securities laws): 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. 5.
(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 state securities laws and the stop-transfer instructions 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 at least thirty-five percent (35%) of the Registrable Securities (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, net of underwriting discounts and commissions, exceeding $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, effect, as expeditiously as reasonably possible, the registration under the Securities Act of all Registrable Securities that the Holders request to be registered. (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 or any request pursuant to Section 2.4 and the Company shall include such information in the written notice referred to in Section 2.2(a) or Section 2.4(a), as applicable. In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by at least sixty-seven percent (67%) 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 or Section 2.4, 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); provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting). Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration. 6.
(c) The Company shall not be required to effect a registration pursuant to this Section 2.2: (i) prior to the earlier of (A) the third anniversary of the date of this Agreement or (B) one hundred eighty (180) days following the effective date of the registration statement pertaining to the Initial Offering; (ii) after the Company has effected two (2) registrations pursuant to this Section 2.2, and such registrations have been declared or ordered effective; (iii) during the period starting with the date of filing of, 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 is actively employing in good faith all reasonable 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 Companys intention to file a registration statement for 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 shareholders 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 the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S3 pursuant to a request made pursuant to Section 2.4 below. 2.3 Piggyback Registrations. The Company shall notify all Holders of Registrable Securities in writing at least fifteen (15) 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 Special Registration Statements) 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 7.
statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. (a) Underwriting. 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 Holders participation in such underwriting and the inclusion of such Holders Registrable Securities in the underwriting to the extent provided herein. 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 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 the Holders on a pro rata basis based on the total number of Registrable Securities held by the Holders; and third, to any shareholder of the Company (other than a Holder) on a pro rata basis. No such reduction shall reduce the amount of securities of the selling Holders included in the registration below thirty percent (30%) 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 shareholders, in which event any or all of the Registrable Securities of the Holders may be excluded in accordance with the immediately preceding sentence. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the registration statement. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration. For any Holder which is a partnership or corporation, the partners, retired partners and shareholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing person shall be deemed to be a single Holder, and any pro rata reduction with respect to such Holder shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such Holder, as defined in this sentence. (b) Right to Terminate Registration. 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 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 2.5 hereof. 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 8.
(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 Holders 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 is not available for such offering by the Holders; (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, net of underwriting discounts and commissions, of less than one million dollars ($1,000,000); (iii) if within thirty (30) days of receipt of a written request from any Holder or Holders pursuant to this Section 2.4, the Company gives notice to such Holder or Holders of the Companys intention to make a public offering within ninety (90) days, other than pursuant to a Special Registration Statement; (iv) 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 shareholders 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; (v) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two (2) registrations on Form S-3 for the Holders pursuant to this Section 2.4; or (vi) 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 so requested to be registered as soon as practicable after receipt of the requests of the Holders. Registrations effected pursuant to this Section 2.4 shall not be counted as demands for registration or registrations effected pursuant to Sections 2.2 or 2.3, respectively. 2.5 Expenses of Registration. Except as specifically provided in this Section 2.5, all Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Section 2.2 or any registration under Section 2.3 or Section 2.4 herein shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder, 9.
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 at the time of such request or (b) the Holders of at least sixty-seven percent (67%) of Registrable Securities agree to forfeit their right 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) above, then the Holders shall not forfeit their rights pursuant to Section 2.2 or Section 2.4 to a demand registration. 2.6 Obligations of the Company. Whenever required to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of at least sixty-seven percent (67%) 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 provided, however, that (i) such 90-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 90-day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that Rule 415, or any successor rule under the Securities Act, permits an offering on a continuous or delayed basis, and provided further that applicable rules under the Securities Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment which (I) includes any prospectus required by Section 10(a)(3) of the Securities Act or (II) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in (I) and (II) above to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the registration statement. (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 for the period set forth in paragraph (a) above. (c) Furnish to the Holders of the Registrable Securities covered by the registration statement 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. 10.
(d) Furnish to the Holders of the Registrable Securities covered by the registration statement or to their counsel copies of all material communications between the Company and the SEC related to such registration statement, including any and all SEC comment letters and the Companys responses thereto. (e) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders of the Registrable Securities covered by the registration statement; 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, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act. (f) Within a reasonable time before each filing of the registration statement or prospectus or amendments or supplements thereto with the SEC, furnish to counsel selected by Holders of a majority in interest of the Registrable Securities participating in such registration copies of such documents proposed to be filed, which documents shall be subject to review and comment by such counsel. (g) 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. (h) Promptly make available for inspection by the selling Holders, any managing underwriters participating in any disposition pursuant to such registration statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the selling Holders, all financial and other records, pertinent corporate documents, and properties of the Company, and cause the Companys officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent, in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith. (i) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. The Company will use reasonable efforts to amend or supplement such prospectus in order to cause such prospectus not to include any untrue statement of a material fact or omit 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. (j) Use its best efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, 11.
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, 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 to underwriters in an underwritten public offering addressed to the underwriters, if any. 2.7 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 Companys Initial Offering. In addition, a Holders registration rights shall expire if all Registrable Securities held by and issuable to such Holder (and its affiliates) may be sold under Rule 144 during any ninety (90) day period. 2.8 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 or 2.4 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. (c) The Company shall have no obligation with respect to any registration requested pursuant to Section 2.2 or Section 2.4 if, due to the operation of subsection 2.2(b), the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Companys obligation to initiate such registration as specified in Section 2.2 or Section 2.4, whichever is applicable. 2.9 Indemnification. In the event any Registrable Securities are included in a registration statement under Sections 2.2, 2.3 or 2.4: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers and directors 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 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 12.
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 state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law in connection with the offering covered by such registration statement; and the Company will pay as incurred to each such Holder, partner, officer, director, underwriter or controlling person for any 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 2.9(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 it 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 law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration qualifications or compliance is being effected, indemnify and hold harmless the Company, each of its directors, its officers 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 Holders 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 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 pay as incurred 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 2.9(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 2.9 exceed the net proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 2.9 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 2.9, deliver to the indemnifying party a written notice of the commencement 13.
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 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 2.9, 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 2.9. (d) If the indemnification provided for in this Section 2.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the 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 or by the indemnified party and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by a Holder hereunder exceed the net proceeds from the offering received by such Holder. (e) The obligations of the Company and Holders under this Section 2.9 shall survive completion of any offering of Registrable Securities in a registration statement and the termination of this Agreement. No indemnifying party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. 2.10 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 that (a) is an Investor Group or Control Group member, subsidiary, affiliate, parent, general partner, limited partner, retired partner, member or retired member of a Holder, (b) is a Holders family member or trust for the benefit of an individual Holder, (c) acquires at least ten thousand (10,000) shares of Registrable Securities (as adjusted for stock splits and combinations) or (d) in the case of an assignment by CMDF, is a CMDF Entity; provided, however, (i) 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 14.
securities with respect to which such registration rights are being assigned and (ii) such transferee shall agree to be subject to all restrictions set forth in this Agreement. 2.11 Amendment of Registration Rights. Any provision of this Section 2 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Holders of at least sixty-seven percent (67%) of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this Section 2.11 shall be binding upon each Holder and the Company. By acceptance of any benefits under this Section 2, Holders of Registrable Securities hereby agree to be bound by the provisions hereunder. 2.12 Limitation on Subsequent Registration Rights. Other than as provided in Section 5.11, after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of at least sixty-seven percent (67%) of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that would grant such holder any registration rights. 2.13 Market Stand-Off Agreement; Agreement to Furnish Information. Each Holder hereby agrees that such Holder shall not sell, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Common Stock (or other securities) of the Company held by such Holder (other than those included in the registration or acquired following the Companys Initial Offering) for a period specified by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act (or such longer period as necessary to permit compliance with NASD Rule 2711 and similar or successor regulatory rules and regulations) (the Lock-Up Period); provided that (i) such agreement shall apply only to the Companys Initial Offering; and (ii) all officers and directors of the Company and holders of at least one percent (1%) of the Companys voting securities enter into similar agreements. Each Holder agrees to execute and deliver such other agreements as may be reasonably requested by the Company and the managing underwriter that are consistent with the Holders obligations under this Section 2.13 or that are necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, each Holder shall provide, within ten (10) days of such request, such information as may be required by the Company or such representative in connection with the completion of any public offering of the Companys securities pursuant to a registration statement filed under the Securities Act. The obligations described in this Section 2.13 shall not apply to a Special Registration Statement. 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 the Lock-Up Period. Each Holder agrees that any transferee of any shares of Registrable Securities shall be bound by this Section 2.13. The underwriters of the Companys stock are intended third party beneficiaries of this Section 2.13 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. 15.
2.14 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 or pursuant to a registration on Form S-3, the Company agrees to use its best efforts to: (a) Make and keep public information available, as those terms are understood and defined in SEC 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) Take such action, including the voluntary registration of its Common Stock under Section 12 of the Exchange Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective; (c) File with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and (d) 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 said Rule 144 of the Securities Act, and of the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies); a copy of the most recent annual or quarterly report of the Company; and such other information, 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 or pursuant to such form. SECTION 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 eighty (180) days thereafter, the Company will furnish each Investor holding at least fifty thousand (50,000) shares of Registrable Securities (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like) (a Major Investor) a balance sheet of the Company, as at the end of such fiscal year, and a statement of income and a 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 referred to in this Section 3.1(b) shall be accompanied by a report and opinion thereon by such 16.
independent public accountants of national standing selected by the Companys Board of Directors. (c) The Company will furnish each Major 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 balance sheet of the Company as of the end of each such quarterly period, and a statement of income and a 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 such statements shall be unaudited, no notes need be attached to such statements and year-end audit adjustments may not have been made. (d) The Company will furnish each Major Investor, as soon as practicable after the end of the first, second, fourth, fifth, seventh, eighth, tenth and eleventh monthly accounting periods in each fiscal year of the Company, and in any event within thirty (30) days thereafter, a balance sheet of the Company as of the end of each such monthly period, and a statement of income and a 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 such statements shall be unaudited, no notes need be attached to such statements and year-end audit adjustments may not have been made. (e) The Company will furnish to each Major Investor at least thirty (30) days prior to the beginning of each fiscal year an annual budget and operating plans for such fiscal year forecasting, on a monthly basis, the Companys revenues, expenses and cash position for such fiscal year (and as soon as available, any subsequent revisions thereto). 3.2 Inspection Rights. Each Major Investor shall have the right to visit and inspect any of the properties of the Company or any of its subsidiaries, and to discuss the affairs, finances and accounts of the Company or any of its subsidiaries with its officers, and to review such information as is reasonably requested all at such reasonable times and as often as may be reasonably requested; provided, however, that the Company shall not be obligated under this Section 3.2: (a) with respect to a competitor of the Company (as determined by the Companys Board of Directors in good faith), (b) with respect to information that is subject to attorney-client privilege or (c) with respect to proprietary information, the disclosure of which the Companys Board of Directors determines in good faith is reasonably likely to have a material adverse effect on the Company and should not, therefore, be disclosed. 3.3 Reservation of Common Stock. The Company will at all times reserve and keep available, solely for issuance and delivery upon the conversion of the Preferred Stock, all Common Stock issuable from time to time upon such conversion. 3.4 Stockholder Meeting. At the request of at least sixty-seven percent (67%) of the outstanding shares of Registrable Securities, the Company will conduct at any time a meeting of the stockholders (or initiate a corporate proceeding) to elect directors to serve until the next annual meeting of the stockholders or until the directors successor is duly elected and has been qualified provided, however, that the Company is only required to conduct such meeting (or initiate such corporate proceeding) once within any twelve month period. 17.
3.5 Observation Rights. The Company shall allow one representative designated by GIMV NV, one representative designated by Roche Finance Ltd (Roche), one representative designated by Apposite, one representative designated by MedImmune Ventures, Inc. ( MedImmune), one representative designated by Avalon Ventures (Avalon) and one representative designated by GeneChem Therapeutics Venture Fund L.P. (GeneChem) to attend all meetings of the Companys Board of Directors in a nonvoting capacity, and in connection therewith, the Company shall give such representatives copies of all notices, minutes, consents and other materials, financial or otherwise, which the Company provides to its Board of Directors at the same time it provides such materials to the Board of Directors; 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 confidential proprietary information or for other similar reasons. Each of GIMV NV, Roche, Apposite, MedImmune, Avalon and GeneChem agrees, and any representatives of GIMV NV, Roche, Apposite, MedImmune, Avalon and GeneChem will agree, to hold in confidence and trust and not use or disclose any confidential information provided to or learned by it in connection with the rights set forth in this Section 3.5. The Company shall not be responsible for reimbursement of any expenses incurred by such representatives in connection with attending meetings of the Companys Board of Directors. 3.6 Option Pool Increase. As of immediately following the Initial Closing (as defined in the Purchase Agreement), the Company shall have reserved an aggregate number of shares of Common Stock for issuance to officers, directors, employees and consultants of the Company under its 2001 Equity Incentive Plan (the Option Plan) equal to three million six hundred seventy-two thousand six hundred thirteen (3,672,613) shares. As of immediately following the Subsequent Closing (as defined in the Purchase Agreement), the Company shall have reserved an aggregate number of shares of Common Stock for issuance to officers, directors, employees and consultants of the Company under the Option Plan equal to three million eight hundred thirty-eight thousand four hundred thirteen (3,838,413) shares. 3.7 Compensation Committee. The Company acknowledges and agrees that any grant of stock options issued under the Option Plan to, and/or increase in salary and/or benefits of, any Key Employee or any member of the Board of Directors of the Company shall be approved by a Compensation Committee of the Board of Directors of the Company (the Compensation Committee). The members of the Compensation Committee shall be appointed within a reasonable time following the closing of the Financing and shall include the Series D Representative (as defined in the Charter) that is designated by Apposite pursuant to the terms of the Amended and Restated Voting Agreement, dated as of even date herewith, by and among Company, the persons and entities set forth on Exhibit A and Exhibit B thereto (the Voting Agreement); provided, however that the Series D Representative may decline to serve on the Compensation Committee in his or her discretion. 3.8 Audit Committee. The Company will use commercially reasonable efforts to appoint an Audit Committee of the Board of Directors of the Company (the Audit Committee ), which will be responsible for the quality and integrity of the accounting, auditing and reporting practices of the Company. The members of the Audit Committee shall be appointed within a reasonable time following the closing of the Financing and shall include the 18.
Series D Representative that is designated by Apposite pursuant to the terms of the Voting Agreement; provided, however, that the Series D Representative may decline to serve on the Audit Committee in his or her discretion. 3.9 Key-Man Insurance. The Company will use its reasonable efforts to obtain, and thereafter maintain in full force and effect, a term life insurance policy in an amount to be determined by the Board of Directors of the Company on the life of its Chief Executive Officer under which the Company is named beneficiary. 3.10 Director and Officer Insurance. Prior to the Initial Closing, the Company obtained a 60-day extension of its existing director and officer liability insurance policy. The Company shall, within 45 days from the date hereof, renew its director and officer liability insurance policy and thereafter maintain in full force and effect such director and officer liability insurance in an amount to be determined by the Board of Directors of the Company. 3.11 Director Compensation. In the event that the Company pays any compensation to any member of the Board of Directors of the Company that is designated by MedImmune (each a MedImmune Designee) in recognition of his or her service on the Board of Directors of the Company, such compensation (including any equity compensation) otherwise payable to the MedImmune Designee shall, upon the direction of such MedImmune Designee, be paid directly to MedImmune. Nothing in this Section 3.11 shall create an obligation on the part of the Company to pay any compensation to the MedImmune Designee. 3.12 Ambit Canada Actions. (a) The Company shall not, in its capacity as a shareholder of Ambit Canada or as a party to the applicable agreement, amend or waive, or agree to amend or waive, any provision of (i) the Amended and Restated Articles of Incorporation of Ambit Canada, (ii) the Put Agreement, (iii) the Amended and Restated Shareholders Agreement among the Company, CMDF and Ambit Canada, dated on or about the date hereof (the Shareholders Agreement ), (iv) the Co-Development, Distribution and Licence Agreement dated February 23, 2005 by and between the Company and Ambit Canada, or (v) the Research and Development Cost Sharing Agreement dated February 23, 2005 by and between the Company and Ambit Canada, without the approval of the Companys Board of Directors (including, for the avoidance of doubt, at least two-thirds ( 2/3 ) of the Preferred Representatives (as defined in the Charter) then serving on the Companys Board of Directors). (b) In addition to the foregoing, the Company shall not, (i) in its capacity as a shareholder of Ambit Canada, approve or give its consent to any of the matters identified in Schedule 3.8 of the Shareholders Agreement or (ii) in its capacity as a party to the Put Agreement, enter into or approve the terms of any agreement as described in Section 5.11 of the Put Agreement with a CMDF Entity in connection with a proposed transfer and/or assignment to such CMDF Entity of the Purchased Shares (as defined in the Put Agreement) and the rights of CMDF under the Put Agreement, without the approval of the Companys Board of Directors (including, for the avoidance of doubt, at least two-thirds ( 2/3 ) of the Preferred Representatives then serving on the Companys Board of Directors). 19.
3.13 Termination of Covenants. All covenants of the Company contained in Section 3 of this Agreement shall expire and terminate as to each Investor upon the earlier of (i) the effective date of the registration statement pertaining to the Initial Offering or (ii) upon an Acquisition or Asset Transfer (each as defined in the Charter); provided, that the Companys obligation to maintain director and officer liability insurance under Section 3.10 hereof shall not terminate upon the effective date of the registration statement pertaining to the Initial Offering. SECTION 4. RIGHTS OF FIRST REFUSAL. 4.1 Subsequent Offerings. Each Major Investor shall have a right of first refusal to purchase its pro rata share of all Equity Securities, as defined below, 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 4.6 hereof. Each Major Investors pro rata share is equal to the ratio of (a) the number of shares of the Companys Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Shares) of which such Investor is deemed to be a holder immediately prior to the issuance of such Equity Securities to (b) the total number of shares of the Companys outstanding Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Shares or, to the extent not included within the meaning of Shares, upon the exercise of any outstanding warrants or options) immediately prior to the issuance of the Equity Securities; provided, however, that if the price per share of such Equity Securities is less than $5.06 per share (as adjusted for stock splits, dividends, recapitalizations and the like after the date hereof), each Major Investors pro rata share shall be equal to the ratio of (a) the number of shares of the Companys Series Preferred (as defined in the Charter) of which such Major Investor is deemed to be a holder immediately prior to the issuance of such Equity Securities to (b) the total number of shares of the Companys issued and outstanding Series Preferred (as defined in the Charter) immediately prior to the issuance of such Equity Securities. The term Equity Securities shall mean (i) any Common Stock, Preferred Stock or other security of the Company, (ii) any security convertible, with or without consideration, into any Common Stock, 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, Preferred Stock or other security or (iv) any such warrant or right. 4.2 Exercise of Rights. If the Company proposes to issue any Equity Securities, it shall give each Major Investor written notice of its intention, describing the Equity Securities, the price and the terms and conditions upon which the Company proposes to issue the same. Each Major Investor shall have twenty (20) days from the giving of such notice to agree to purchase up to its 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 Major Investor who would cause the Company to be in violation of applicable federal securities laws by virtue of such offer or sale. 4.3 Issuance of Equity Securities to Other Persons. If not all of the Major Investors elect to purchase their pro rata share (determined in accordance with Section 4.1 above) of the Equity Securities, then the Company shall promptly notify in writing the Major Investors who do so elect (the Fully-Exercising Investors) of the number of Equity Securities 20.
remaining unsubscribed (the Unsubscribed Shares) and shall offer such Fully-Exercising Investors the right to acquire such Unsubscribed Shares. The Fully-Exercising Investors shall have ten (10) days after receipt of such notice to notify the Company of its election to purchase all or a portion of the Unsubscribed Shares. In the event that the number of shares subscribed for by the Fully-Exercising Investors pursuant to the immediately preceding sentence exceeds the total number of Unsubscribed Shares, then the Unsubscribed Shares shall be allocated among such FullyExercising Investors so electing on a pro rata basis. For purposes of this Section 4.3, Each Fully-Exercising Investors pro rata share shall be equal to the ratio of (a) the number of shares of the Companys Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Shares) of which such Investor is deemed to be a holder immediately prior to the issuance of such Equity Securities to (b) the number of shares of the Companys Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Shares) of which the FullyExercising Investors electing to purchase Unsubscribed Shares under this Section 4.3 are deemed to hold immediately prior to the issuance of such Equity Securities. If the Fully-Exercising Investors fail to exercise in full the rights of first refusal, the Company shall have ninety (90) days thereafter to sell the Equity Securities in respect of which the Major Investors 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 Companys notice to the Major Investors pursuant to Section 4.2 hereof. If the Company has not sold such Equity Securities within ninety (90) days of the notice provided pursuant to Section 4.2, the Company shall not thereafter issue or sell any Equity Securities, without first offering such securities to the Major Investors in the manner provided above. 4.4 Termination and Waiver of Rights of First Refusal. The rights of first refusal established by this Section 4 shall not apply to, and shall terminate upon the earliest of (i) the effective date of the registration statement pertaining to the Companys Initial Offering, (ii) an Acquisition or (iii) an Asset Transfer. The rights of first refusal established by this Section 4 may be amended or waived with the written consent of the Company and the holders of at least sixty-seven percent (67%) of the Registrable Securities then held by the Major Investors. 4.5 Transfer of Rights of First Refusal. The rights of first refusal of each Investor under this Section 4 may be transferred to the same parties, subject to the same restrictions as any transfer of registration rights pursuant to Section 2.10. 4.6 Excluded Securities. The rights of first refusal established by this Section 4 shall have no application to any of the following Equity Securities: (a) shares of Common Stock issued upon conversion of any then outstanding Preferred Stock of the Company; (b) (i) before the occurrence of the Subsequent Closing, up to one million one hundred nineteen thousand five hundred (1,119,500) shares of Common Stock and/or options, warrants or other Common Stock purchase rights, and (ii) after the occurrence of the Subsequent Closing, up to one million two hundred eighty-five thousand three hundred (1,285,300) shares of Common Stock and/or options, warrants or other Common Stock purchase rights (in each case as adjusted for stock splits, dividends, recapitalizations and the like after the Filing Date) and the Common Stock issued pursuant to such options, warrants or other rights to employees, officers 21.
or directors of, or consultants or advisors to, the Company or any subsidiary pursuant to stock purchase or stock option plans or other arrangements approved by the Companys Board of Directors; (c) any Equity Securities issued upon the exercise of options, warrants or convertible securities outstanding as of the Filing Date; (d) any Equity Securities issued pursuant to any commercial transaction, licensing arrangement, equipment loan or leasing arrangement, real property leasing arrangement or debt financing transaction, in each case which has been unanimously approved by the Companys Board of Directors (including, for the avoidance of doubt, the Preferred Representatives); (e) shares of Common Stock issued in connection with any stock split, stock dividend or recapitalization by the Company; (f) up to an aggregate of one million five hundred thirty-eight thousand four hundred sixty-two (1,538,462) shares of Series C-2 Preferred issued pursuant to the Put Agreement; (g) up to an aggregate of six hundred twelve thousand six hundred forty-nine (612,649) shares of Series D Preferred issued pursuant to the Put Agreement; and (h) shares of Series D Preferred issued pursuant to the Purchase Agreement. SECTION 5. MISCELLANEOUS. 5.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 5.2 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. 5.3 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 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. 22.
5.4 Entire Agreement. This Agreement, the Exhibits and Schedules hereto, the Purchase Agreement and the other documents delivered pursuant thereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein and therein. The Company and holders of at least sixty-six and two-thirds percent (66- 2/3 %) of the Registrable Securities held by the Prior Investors and, with respect to Section 4 of the Prior Agreement, by the Major Investors (as defined in the Prior Agreement) hereby agree, as evidenced by their signatures hereto, that all rights granted and covenants made under the Prior Agreement are hereby waived, released and terminated in their entirety and shall have no further force or effect whatsoever, including the right of first offer set forth in Section 4 of the Prior Agreement, and such holders hereby further agree and acknowledge that the right of first offer set forth in Section 4 of the Prior Agreement did not apply to and is hereby waived with respect to the Series D Preferred issued pursuant to the Purchase Agreement. The rights and covenants provided herein set forth the sole and entire agreement between the parties hereto with respect to the subject matter hereof. 5.5 Severability. In the event one or more of the provisions of this Agreement should, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 5.6 Amendment and Waiver. (a) Except as otherwise expressly provided, this Agreement may be amended or modified only upon the written consent of the Company and the holders of at least sixty-seven percent (67%) of the Registrable Securities. (b) Except as otherwise expressly provided, the obligations of the Company and the rights of the Holders under this Agreement may be waived only with the written consent of the holders of at least sixty-seven percent (67%) of the Registrable Securities. (c) Notwithstanding the foregoing, until the earlier of (i) the effective date of the registration statement pertaining to the Initial Offering or (ii) upon an Acquisition or Asset Transfer (each as defined in the Charter), (A) Section 3.5 of this Agreement shall not be amended or waived to alter any of the rights of GIMV NV, Roche, Apposite, MedImmune, Avalon or GeneChem as set forth therein without the written consent of GIMV NV, Roche, Apposite, MedImmune, Avalon or GeneChem, as applicable, and (B) Sections 3.7 and 3.8 shall not be amended or waived without the written consent of Apposite, so long as Apposite or any member of its Investor Group continues to hold shares of Series D Preferred. (d) For the purposes of determining the number of Holder or Investors entitled to vote or exercise any rights hereunder, the Company shall be entitled to rely solely on the list of record holders of its stock as maintained by or on behalf of the Company. 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 23.
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 Holders part of any breach, default or noncompliance under the Agreement or any waiver on such Holders 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: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth on the signature pages hereof or Exhibit A hereto or at such other address as such party may designate by ten (10) days advance written notice to the other parties hereto. 5.9 Attorneys Fees. In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 5.10 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. 5.11 Additional Investors. Notwithstanding anything to the contrary contained herein, if the Company shall issue (i) shares of its Series C-2 Preferred Stock pursuant to the Put Agreement, (ii) additional Series D Preferred pursuant to the Purchase Agreement or (iii) Series D Preferred pursuant to the Put Agreement, any purchaser of such shares of Series C-2 Preferred Stock or Series D Preferred may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement and shall be deemed an Investor, a Holder and/or a Major Investor, as applicable. 5.12 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.
IN WITNESS WHEREOF, the parties hereto have executed this FOURTH A MENDED AND RESTATED INVESTOR RIGHTS A GREEMENT as of the date set forth in the first paragraph hereof. COMPANY: AMBIT BIOSCIENCES CORPORATION By: Name: Title: /s/ M. Scott Salka M. Scott Salka By: CEO /s/ Dr. Allan Marchington Name: Dr. Allan Marchington Its: (if entity) Entity: Forward Ventures IV, L.P. (if applicable) By: /s/ Standish Fleming INVESTORS: APPOSITE HEALTHCARE FUND LP Acting by its manager APPOSITE CAPITAL LLP
Address: 4215 Sorrento Valley Boulevard San Diego, CA 92121
Name: Standish Fleming Its: (if entity) Entity: Forward Ventures IV B, L.P. (if applicable) By: /s/ Standish Fleming
Name: Standish Fleming Its: (if entity) [Signature Page to Fourth Amended and Restated Investor Rights Agreement]
Entity: Perseus-Soros Biopharmaceutical Fund, L.P. (if applicable) By: /s/ Jay A. Schoenfarber
Name: Jay A. Schoenfarber, Its: Attorney-in-Fact (if entity)
Entity: GeneChem Therapeutics Venture Fund LP (if applicable) By: /s/ Louis Lacasse
Name: Louis Lacasse Its: President, Genechem Management Inc. (if entity)
Entity: The Tomlin Childrens 2002 Irrevocable Trust U/T/D March 5, 2002Duncan Tomlin Nonexempt Shares (if applicable) By: /s/ Stephen L. Tomlin
Name: Stephen L. Tomlin Its: Co-Trustee (if entity)
[Signature Page to Fourth Amended and Restated Investor Rights Agreement]
Entity: The Tomlin Childrens 2002 Irrevocable Trust U/T/D March 5, 2002-Faith Tomlin Nonexempt Shares (if applicable) By: /s/ Stephen L. Tomlin
Entity: The Tomlin Family Trust Dated June 1, 1999 (if applicable) By: /s/ Stephen L. Tomlin
Entity: ME DI MMUNE V ENTURES, INC. By: /s/ William C. Bertrand, Jr.
Name: William C. Bertrand, Jr. Its: SVP, General Counsel & Secretary (if entity)
Entity: Avalon Ventures VI, L.P. (if applicable) By: /s/ Kevin J. Kinsella
Name: Kevin J. Kinsella Its: Managing Member (if entity)
Entity: Avalon GP Fund, LLC (if applicable) By: /s/ Kevin J. Kinsella
Entity: Avalon Ventures VI GP Fund, LLC (if applicable) By: /s/ Kevin J. Kinsella
Entity: The Kevin J. Kinsella Re-stated Trust December 7, 2000 (if applicable) By: /s/ Kevin J. Kinsella
Name: Kevin J. Kinsella Its: Trustee (if entity)
Entity: (if applicable) By: /s/ Tamara Kinsella
Name: Tamara Kinsella Its: (if entity) Entity: (if applicable) By: /s/ Robert D. English
Name: Robert D. English Its: (if entity) ROCHE FINANCE LTD. By: /s/ Andreas Knierzinger Andreas Knierzinger Authorized Signatory By: /s/ Beat Kraehenmann
Name: Beat Kraehenmann Authorized Signatory [Signature Page to Fourth Amended and Restated Investor Rights Agreement]
Entity: ADVIESBEHEER GIMV L IFE SCIENCES NV (if applicable) By: /s/ Dirk Boogmans
Name: Dirk Boogmans Its: Director (if entity) /s/ Dirk Beeusaert
By:
Name: Dirk Beeusaert Its: Special Proxy Holder
Entity: GIMV NV (if applicable) By: /s/ Dirk Boogmans
Name: Dirk Boogmans Its: President and CEO (if entity)
Entity: Horizon Technology Funding Company II LLC (if applicable) By: Horizon Technology Finance, LLC, its member & agent By: /s/ Robert D. Pomeroy, Jr.
Name: Robert D. Pomeroy, Jr. Its: Managing Member (if entity)
AMBIT BIOSCIENCES CORPORATION FIRST AMENDMENT TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT This FIRST A MENDMENT TO FOURTH A MENDED AND RESTATED INVESTOR RIGHTS A GREEMENT (this Amendment ), amending the Fourth Amended and Restated Investor Rights Agreement by and among AMBIT BIOSCIENCES CORPORATION, a Delaware corporation (the Company), and the persons and entities listed on Exhibit A attached thereto (the Investors) dated as of October 30, 2007 (the Investor Rights Agreement ), is entered into as of November 6, 2007 by and among the Company and the Investors. Capitalized terms used herein which are not defined herein shall have the definition ascribed to them in the Investor Rights Agreement. RECITALS W HEREAS, the Company and the Investors have previously entered into the Investor Rights Agreement; W HEREAS, Section 5.6 of the Investor Rights Agreement provides that the Investor Rights Agreement may be amended with the written consent of (i) the Company and (ii) the Investors holding at least sixty-seven percent (67%) of the Registrable Securities (the Requisite Investors); and W HEREAS, the undersigned constitute the Company and the Requisite Investors. AGREEMENT NOW , THEREFORE , in consideration of the foregoing and the promises and covenants contained herein and in the Investor Rights Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Second Recital of the Investor Rights Agreement. The second recital in the Investor Rights Agreement is hereby amended and restated in its entirety to read as follows: W HEREAS, certain of the Investors are purchasing shares of Series D Preferred Stock of the Company (the Series D Preferred) pursuant to that certain Series D Preferred Stock Purchase Agreement dated as of even date herewith, as may be amended from time to time (the Purchase Agreement and the transactions contemplated thereby, the Financing); 2. Section 3.5 of the Investor Rights Agreement. Section 3.5 of the Investor Rights Agreement is hereby amended and restated in its entirety to read as follows: 3.5 Observation Rights. The Company shall allow one representative designated by GIMV NV, one representative designated by Roche Finance Ltd (Roche), one representative designated by Apposite, one representative
designated by MedImmune Ventures, Inc. (MedImmune), one representative designated by Avalon Ventures (Avalon), one representative designated by GeneChem Therapeutics Venture Fund L.P. (GeneChem), one representative designated by Radius Venture Partners III, LLC (Radius) and one representative designated by OrbiMed Advisors, LLC ( OrbiMed) to attend all meetings of the Companys Board of Directors in a nonvoting capacity, and in connection therewith, the Company shall give such representatives copies of all notices, minutes, consents and other materials, financial or otherwise, which the Company provides to its Board of Directors at the same time it provides such materials to the Board of Directors; 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 confidential proprietary information or for other similar reasons. Each of GIMV NV, Roche, Apposite, MedImmune, Avalon, GeneChem, Radius and OrbiMed agrees, and any representatives of GIMV NV, Roche, Apposite, MedImmune, Avalon, GeneChem, Radius and OrbiMed will agree, to hold in confidence and trust and not use or disclose any confidential information provided to or learned by it in connection with the rights set forth in this Section 3.5. The Company shall not be responsible for reimbursement of any expenses incurred by such representatives in connection with attending meetings of the Companys Board of Directors. 3. Section 5.6(c) of the Investor Rights Agreement. Section 5.6(c) of the Investor Rights Agreement is hereby amended and restated in its entirety to read as follows: (c) Notwithstanding the foregoing, until the earlier of (i) the effective date of the registration statement pertaining to the Initial Offering or (ii) upon an Acquisition or Asset Transfer (each as defined in the Charter), (A) Section 3.5 of this Agreement shall not be amended or waived to alter any of the rights of GIMV NV, Roche, Apposite, MedImmune, Avalon, GeneChem, Radius or OrbiMed as set forth therein without the written consent of GIMV NV, Roche, Apposite, MedImmune, Avalon, GeneChem, Radius or OrbiMed, as applicable, and (B) Sections 3.7 and 3.8 shall not be amended or waived without the written consent of Apposite, so long as Apposite or any member of its Investor Group continues to hold shares of Series D Preferred. 4. Effect of Amendment . Except as expressly modified by this Amendment, the Investor Rights Agreement shall remain unmodified and in full force and effect. 5. Governing Law. This Amendment shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 6. Counterparts. This Amendment may be executed in any number of counterparts and signatures delivered by facsimile, each of which shall be deemed an original, but all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties have executed this FIRST A MENDMENT TO FOURTH A MENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date first written above. COMPANY: AMBIT BIOSCIENCES CORPORATION INVESTORS: Entity: APPOSITE HEALTHCARE FUND LP (if applicable) By: /s/ Allan Marchington
Signature: Print Name: Title:
/s/ M. Scott Salka
Name: Dr. A.P. Marchington Its: (if entity)
Address:
4215 Sorrento Valley Blvd. San Diego, CA 92121
Entity: MEDIMMUNE V ENTURES, INC. (if applicable) By: /s/ Edward T. Mathers
Name: Edward T. Mathers Its: EVP, Corporate, Dev. & Venture (if entity)
Entity: AVALON V ENTURES VI, L.P. By: /s/ Kevin J. Kinsella
Entity: AVALON GP FUND, LLC By: /s/ Kevin J. Kinsella
Entity: AVALON V ENUTRES VI GP FUND, LLC By: /s/ Kevin J. Kinsella
Entity: T H E KEVIN J. KINSELLA R E - STATED TRUST DECEMBER 7, 2000 By: /s/ Kevin J. Kinsella
Entity: P ERSEUS-SOROS BIOPHARMACEUTICAL FUND, L.P. (if applicable) By: /s/ Jay A. Schoenfarber
Name: Jay A. Schoenfarber Its: Attorney-in-Fact (if entity)
Entity: FORWARD V ENTURES IV, L.P. By: /s/ Standish Fleming
Name: Standish Fleming Its: (if entity) Entity: FORWARD V ENTURES IV B, L.P. By: /s/ Standish Fleming
Name: Standish Fleming Its: (if entity)
Entity: GENECHEM THERAPEUTICS V ENTURE FUND L.P. (if applicable) By: /s/ Louis Lacasse
Name: Louis Lacasse Its: President, GeneChem Management Inc. (if entity)
Entity: HORIZON TECHNOLOGY FUNDING COMPANY II LLC (if applicable) By: Horizon Technology Finance, LLC, its member & agent /s/ Robert D. Pomeroy, Jr.
By:
Name: Robert D. Pomeroy, Jr. Its: Managing Member (if entity)
ROCHE FINANCE LTD. By: /s/ Andreas Knierzinger
Andreas Knierzinger Authorized Singatory By: /s/ Bruno Maier
Name: Bruno Maier Authorized Signatory
Entity: GIMV NV By: Name: Its: /s/ Dirk Boogmans Dirk Boogmans President and CEO (if entity)
Entity: ADVIESBEHEER GIMV L IFE SCIENCES NV By: Name: Its: /s/ Dirk Boogmans Dirk Boogmans Director (if entity) /s/ Dirk Beeusaert Dirk Beeusaert Special Mandatory
By: Name: Its: ENTITY :
(if applicable) By: Name: Its: (if entity) /s/ Bob English Bob English
AMBIT BIOSCIENCES CORPORATION SECOND AMENDMENT TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT This S ECOND A MENDMENT TO FOURTH A MENDED AND RESTATED INVESTOR RIGHTS A GREEMENT (this Amendment ), amending the Fourth Amended and Restated Investor Rights Agreement by and among AMBIT BIOSCIENCES CORPORATION, a Delaware corporation (the Company), and the persons and entities listed on Exhibit A attached thereto (the Investors) dated as of October 30, 2007, as amended (the Investor Rights Agreement ), is entered into as of March 12, 2009 by and among the Company and the Investors. Capitalized terms used herein which are not defined herein shall have the definition ascribed to them in the Investor Rights Agreement. RECITALS W HEREAS, the Company and the Investors have previously entered into the Investor Rights Agreement; W HEREAS, Section 5.6 of the Investor Rights Agreement provides that the Investor Rights Agreement may be amended with the written consent of (i) the Company and (ii) the Investors holding at least sixty-seven percent (67%) of the Registrable Securities (the Requisite Investors); and W HEREAS, the undersigned constitute the Company and the Requisite Investors. AGREEMENT NOW , THEREFORE , in consideration of the foregoing and the promises and covenants contained herein and in the Investor Rights Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Section 4.6(b) of the Investor Rights Agreement. Section 4.6(b), clause (ii) of the Investor Rights Agreement is hereby amended and restated in its entirety to read as follows: (ii) after the occurrence of the Subsequent Closing, up to two million three hundred three thousand one hundred thirty-four (2,303,134) shares of Common Stock and/or options, warrants or other Common Stock purchase rights (in each case as adjusted for stock splits, dividends, recapitalizations and the like after the Filing Date) and the Common Stock issued pursuant to such options, warrants or other rights to employees, officers or directors of, or consultants or advisors to, the Company or any subsidiary pursuant to stock purchase or stock option plans or other arrangements approved by the Companys Board of Directors; 2. Effect of Amendment . Except as expressly modified by this Amendment, the Investor Rights Agreement shall remain unmodified and in full force and effect.
3. Governing Law. This Amendment shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 4. Counterparts. This Amendment may be executed in any number of counterparts and signatures delivered by facsimile, each of which shall be deemed an original, but all of which together shall constitute one instrument. [R EMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties have executed this S ECOND A MENDMENT TO FOURTH A MENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date first written above. COMPANY: AMBIT BIOSCIENCES CORPORATION Signature: /s/ M. Scott Salka
Print Name: M. Scott Salka Title: Address: CEO 4215 Sorrento Valley Blvd. San Diego, CA 92121
INVESTORS: APPOSITE HEALTHCARE FUND LP Acting by its manager APPOSITE CAPITAL LLP /s/ Allan Machington Allan Marchington
By: Its:
MEDIMMUNE V ENTURES, IN C. By: /s/ Joseph L. Amprey Name: Joseph L. Amprey Title: Senior Managing Director [SIGNATURE PAGE TO SECOND A MENDMENT TO FOURTH A MENDED AND R ESTATED INVESTOR R IGHTS A GREEMENT ]
FORWARD V ENTURES IV, L.P. By: Forward IV Associates, LLC Its: General Partner /s/ Standish Fleming By: Standish Fleming Its: Managing Member FORWARD V ENTURES IV B, L.P. By: Forward IV Associates, LLC Its: General Partner /s/ Standish Fleming By: Standish Fleming Its: Managing Member G ENEC HEM THERAPEUTICS V ENTURE FUND L.P. /s/ Louis Lacasse By: Louis Lacasse, President Its: Genechem Management Inc. GIMV NV /s/ Koen Dejonckheere By: Koen Dejonchheere Its: CEO ADVIESBEHEER GIMV L IFE SCIENCES NV /s/ Koen Dejonckheere By: Koen Dejonchheere Its: Director and /s/ Marc Vercruysse By: Marc Vercruysse Its: Director
[SIGNATURE PAGE TO SECOND A MENDMENT TO FOURTH A MENDED AND R ESTATED INVESTOR R IGHTS A GREEMENT ]
ROCHE FINANCE LTD /s/ A. Knierzinger By: A. Knierzinger Its: /s/ B. Urhenmann By: B. Urhenmann, Its: authorized signatories P ERSEUS- SOROS BIOPHARMACEUTICAL FUND, LP /s/ Jay A. Schoenfarber By: Jay A. Schoenfarber Its: Attorney-in-Fact /s/ M. Scott Salka M. Scott Salka [SIGNATURE PAGE TO SECOND A MENDMENT TO FOURTH A MENDED AND R ESTATED INVESTOR R IGHTS A GREEMENT ]
AMBIT BIOSCIENCES CORPORATION THIRD AMENDMENT TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT This THIRD A MENDMENT TO FOURTH A MENDED AND RESTATED INVESTOR RIGHTS A GREEMENT (this Amendment ), amending the Fourth Amended and Restated Investor Rights Agreement by and among AMBIT BIOSCIENCES CORPORATION, a Delaware corporation (the Company), and the persons and entities listed on Exhibit A attached thereto (the Investors) dated as of October 30, 2007, as amended (the Investor Rights Agreement ), is entered into as of June 4, 2009 by and among the Company and the Investors. Capitalized terms used herein which are not defined herein shall have the definition ascribed to them in the Investor Rights Agreement. RECITALS W HEREAS, the Company and the Investors have previously entered into the Investor Rights Agreement; W HEREAS, Section 5.6 of the Investor Rights Agreement provides that the Investor Rights Agreement may be amended with the written consent of (i) the Company and (ii) the Investors holding at least sixty-seven percent (67%) of the Registrable Securities (the Requisite Investors); and W HEREAS, the undersigned constitute the Company and the Requisite Investors. AGREEMENT NOW , THEREFORE , in consideration of the foregoing and the promises and covenants contained herein and in the Investor Rights Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Section 3.5 of the Investor Rights Agreement. Section 3.5 of the Investor Rights Agreement is hereby amended to (i) rename the existing Section 3.5 as Section 3.5(a) and (ii) add the following Section 3.5(b) immediately following Section 3.5(a): (b) Five Percent Investor Observer Rights. For so long as an Investor entitled to designate a representative pursuant to Section 3.5(a) (each such representative an Observer), together with its Affiliates (as such term is defined in that certain Note and Warrant Purchase Agreement by and among the Company and the parties listed as Purchasers thereunder, dated June 4, 2009), holds five percent (5%) or more of the outstanding capital stock of the Company (calculated on a fully-diluted basis and including the shares of capital stock reserved for future issuance under the Option Plan (as defined below)) (each a Five Percent Investor ), the Company shall, in addition to the rights set forth in Section 3.5(a) provide such Five Percent Investors Observer with notice of and opportunity to be present at all meetings of the Board and at all meetings of the compensation 1
committee of the Board, and each other committee of the Board, as well as the boards of directors or other similar managing bodies (and any committee thereof) of each of the subsidiaries of the Company, and the Five Percent Investors Observer shall be notified of any such meetings, including such meetings time and place, in the same manner as the members of the Board or committees thereof, as applicable. The Company shall provide the Five Percent Investors Observer with the same access to information concerning the business and operations of the Company and at the same time as the directors of the Company and its subsidiaries and the members of the various committees thereof, including the compensation committee of the Board, as applicable, and shall allow such Five Percent Investors Observer to participate in discussions and consult with, and make proposals and furnish advice to, the Board, the board of directors of the subsidiaries of the Company, and the various committees thereof, including the compensation committee of the Board, but such Five Percent Investors Observer shall not have the right to vote. Notwithstanding the foregoing, the Company reserves the right to exclude such Five Percent Investors Observer 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 confidential proprietary information or for other similar reasons; provided, however, that the Company shall, prior to the occurrence of the meeting, communicate to the excluded Five Percent Investors Observer of the occurrence of the meeting and the reason for exclusion, via email, voicemail, or telephone. If the Company excludes any such Five Percent Investors Observer from a meeting of the Board or any committee of the Board or any portion thereof in accordance with the preceding sentence, the Company will, following such scheduled meeting, promptly inform such excluded Five Percent Investors Observer of any resolutions passed or recommendations made; provided that, the Company reserves the right to withhold such information in order to preserve the attorney-client privilege, to protect confidential proprietary information or for other similar reasons. Each Five Percent Investor agrees, and such Five Percent Investors Observer will agree, to hold in confidence and trust and not use or disclose any confidential information provided to or learned by it in connection with the rights set forth in this Section 3.5(b). The Company shall not be responsible for reimbursement of any expenses incurred by each Five Percent Investors Observer in connection with their exercise of the rights set forth herein. In addition, should any other Investor not listed above have an individual not a board member attend a Board or committee meeting, then such person will agree to hold in confidence and trust and not use or disclose any confidential information provided to or learned by it in connection with attending such meeting. 2. Effect of Amendment . Except as expressly modified by this Amendment, the Investor Rights Agreement shall remain unmodified and in full force and effect. 3. Governing Law. This Amendment shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 2
4. Counterparts. This Amendment may be executed in any number of counterparts and signatures delivered by facsimile, each of which shall be deemed an original, but all of which together shall constitute one instrument. [R EMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 3
IN WITNESS WHEREOF, the parties have executed this THIRD A MENDMENT TO FOURTH A MENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date first written above. COMPANY: AMBIT BIOSCIENCES CORPORATION /s/ M. Scott Salka M. SCOTT SALKA Chief Executive Officer Address: 4215 Sorrento Valley Blvd. San Diego, CA 92121
INVESTORS: APPOSITE HEALTHCARE FUND LP Acting by its manager APPOSITE CAPITAL LLP /s/ Allan Marchington Allan Marchington
By: Its:
MEDIMMUNE V ENTURES, IN C. By: /s/ Joseph L. Amprey Name: Joseph L. Amprey Title: Senior Managing Director
FORWARD V ENTURES IV, L.P. By: Forward IV Associates, LLC By: /s/ Standish Fleming Name: Standish Fleming Title: Managing Member FORWARD V ENTURES IV B, L.P. By: Forward IV Associates, LLC By: /s/ Standish Fleming Name: Standish Fleming Title: Managing Member G ENEC HEM THERAPEUTICS V ENTURE FUND L.P. By: /s/ Louis Lacasse
Name: Louis Lacasse Title: GIMV NV /s/ Dirk Beeusaert By: Dirk Beeusaert Its: EVP Business Development ADVIESBEHEER GIMV L IFE SCIENCES NV /s/ Dirk Beeusaert By: Dirk Beeusaert Its: Special Proxyholder /s/ Patrick Van Beneden By: Patrick Van Beneden Its: Director /s/ Patrick Van Beneden By: Patrick Van Beneden Its: EVP Life Sciences
ROCHE FINANCE LTD By: /s/ Andreas Knierzinger
Name: Andreas Knierzinger Title: By: /s/ Beat Kraehenmann
Name: Beat Kraehenmann P ERSEUS- SOROS BIOPHARMACEUTICAL FUND, LP By: /s/ Jay A. Schoenfarber
Name: Jay A. Schoenfarber Title: Attorney-in-Fact RADIUS V ENTURE PARTNERS III, L.P. By: /s/ Jordan Davis
Name: Jordan Davis Title: Managing Member RADIUS V ENTURE PARTNERS III QP, L.P. By: /s/ Jordan Davis
Name: Jordan Davis Title: Managing Member
RADIUS V ENTURE PARTNERS III (OHIO), L.P. By: /s/ Jordan Davis
Name: Jordan Davis Title: Managing Member C ADUCEUS PRIVATE INVESTMENTS III, LP By: /s/ Carl Gordon
Name: Carl Gordon Title: General Partner O R B IMED A SSOCIATES III, LP By: /s/ Carl Gordon
Name: Carl Gordon Title: General Partner
AMBIT BIOSCIENCES CORPORATION FOURTH AMENDMENT TO FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT This FOURTH A MENDMENT TO FOURTH A MENDED AND RESTATED INVESTOR RIGHTS A GREEMENT (this Amendment ), amending the Fourth Amended and Restated Investor Rights Agreement by and among AMBIT BIOSCIENCES CORPORATION, a Delaware corporation (the Company), and the persons and entities listed on Exhibit A attached thereto (the Investors) dated as of October 30, 2007, as amended (the Investor Rights Agreement ), is entered into as of September 30, 2010 by and among the Company and the parties who are signatories hereto. Capitalized terms used herein which are not defined herein shall have the definition ascribed to them in the Investor Rights Agreement. RECITALS W HEREAS, the Company and the Investors have previously entered into the Investor Rights Agreement; W HEREAS, Section 5.6 of the Investor Rights Agreement provides that the Investor Rights Agreement may be amended with the written consent of (i) the Company and (ii) the Investors holding at least sixty-seven percent (67%) of the Registrable Securities (the Requisite Investors); W HEREAS, the Company is concurrently herewith consummating a bridge financing whereby it will issue secured subordinated convertible promissory notes (the Notes) to certain of the Investors (the Bridge Financing); W HEREAS, the undersigned constitute the Company and the Requisite Investors; and W HEREAS, in connection with the Bridge Financing, the undersigned desire to amend or waive certain provisions of the Investor Rights Agreement, as more fully set forth herein. AGREEMENT NOW , THEREFORE , in consideration of the foregoing and the promises and covenants contained herein and in the Investor Rights Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Section 1.1 of the Investor Rights Agreement. The definitions of Registrable Securities and Shares in Section 1.1 of the Investor Rights Agreement are hereby amended and restated in their entirety as follows: Registrable Securities means (a) Common Stock of the Company issued or issuable upon conversion of the Shares, (b) Common Stock of the Company issued upon the conversion of the Notes or the exercise of the Warrants issued pursuant to the Note and Warrant Purchase Agreement dated September 30, 1
2010 (the 2010 Note Purchase Agreement ), (c) Common Stock issued upon the exercise of warrants issued pursuant to the Note and Warrant Purchase Agreement dated September 30, 2010 by and among the Company, Ambit Biosciences (Canada) Corporation and GrowthWorks Canadian Fund Ltd. (the 2010 Canadian Note Purchase Agreement ), (d) Common Stock of the Company issued upon the exercise of warrants issued pursuant to the Note and Warrant Purchase Agreement dated June 4, 2009 (the 2009 Note Purchase Agreement ), (e) Common Stock of the Company issued upon the exercise of warrants issued pursuant to the Note and Warrant Purchase Agreement dated July 8, 2009 by and among the Company, Ambit Biosciences (Canada) Corporation and GrowthWorks Canadian Fund Ltd. (the 2009 Canadian Note Purchase Agreement), and (f) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such above-described securities. Notwithstanding the foregoing, Registrable Securities shall not include any securities sold by a person to the public either pursuant to a registration statement or Rule 144 or sold in a private transaction in which the transferors rights under Section 2 of this Agreement are not assigned. Shares shall mean the Companys (i) Series A Preferred issued pursuant to the Stock Purchase Agreement dated as of December 5, 2000, (ii) Series B Preferred issued pursuant to the Series B Preferred Stock Purchase Agreement dated as of June 26, 2001 and Second Series B Preferred Stock Purchase Agreement dated as of May 29, 2002, (iii) Series C Preferred issued pursuant to the Series C Preferred Stock Purchase Agreement dated August 13, 2004 (the Series C Purchase Agreement ) and the Series C Preferred Stock Purchase Agreement dated December 9, 2005 by and between the Company and Bristol-Myers Squibb Company (the Second Purchase Agreement and, together with the Series C Purchase Agreement, the Series C Purchase Agreements ), (iv) shares of the Companys Series C-2 Preferred Stock (the Series C-2 Preferred) if and when issued pursuant to the Amended and Restated Put Agreement among the Company, CMDF and Ambit Biosciences (Canada) Corporation (Ambit Canada ) and dated October 30, 2007, as amended (the Put Agreement ), (v) Series D Preferred issued pursuant to the Purchase Agreement, (vi) shares of Series D Preferred if and when issued pursuant to the Put Agreement, (vii) shares of Series D Preferred Stock issued upon the conversion of convertible promissory notes issued pursuant to the 2009 Note Purchase Agreement, (viii) shares of Series D Preferred Stock issued upon the exercise of Additional Warrants issued pursuant to 2009 Canadian Note Purchase Agreement, (ix) shares of Preferred Stock issued upon the conversion of the Notes issued pursuant to the 2010 Note Purchase Agreement and (x) shares of Preferred Stock issued upon the exercise of warrants issued pursuant to the 2010 Canadian Note Purchase Agreement in each case as held by the Investors listed on Exhibit A hereto and their permitted assigns. 2
2. Joinder/Restatement of Exhibit A of Investor Rights Agreement. GrowthWorks Canadian Fund Ltd. is a holder of Shares pursuant to the exercise of Additional Warrants issued pursuant to the 2009 Canadian Note Purchase Agreement and is purchasing warrants pursuant to the 2010 Canadian Note Purchase Agreement and hereby agrees to become a party to the Investor Rights Agreement, as amended by this Amendment, and shall be deemed to be an Investor thereunder. The List of Investors on Exhibit A of the Investor Rights Agreement is hereby amended and restated to include GrowthWorks Canadian Fund Ltd. and is attached hereto, as amended and restated, as Annex A. 3. Effect of Amendment . Except as expressly modified by this Amendment, the Investor Rights Agreement shall remain unmodified and in full force and effect. 4. Governing Law. This Amendment shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 5. Counterparts. This Amendment may be executed in any number of counterparts and signatures delivered by facsimile, each of which shall be deemed an original, but all of which together shall constitute one instrument. [R EMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 3
IN WITNESS WHEREOF, the parties have executed this FOURTH A MENDMENT TO FOURTH A MENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date first written above. COMPANY: AMBIT BIOSCIENCES CORPORATION /s/ Alan J. Lewis ALAN J. LEWIS, PH.D. Chief Executive Officer Address: 4215 Sorrento Valley Blvd. San Diego, CA 92121 INVESTORS: G ROWTHW ORKS CANADIAN FUND LTD. By: /s/ Tim Lee Name: Tim Lee Title: SVP Investments APPOSITE HEALTHCARE FUND LP Acting by its manager APPOSITE CAPITAL LLP /s/ Allan Marchington By: Allan Marchington Its:
MEDIMMUNE V ENTURES, IN C. By: /s/ Ron Laufer
Name: Ron Laufer Title: Sr. Managing Director FORWARD V ENTURES IV, L.P. By: /s/ Standish M. Fleming
Name: Standish M. Fleming Title: Managing Member FORWARD V ENTURES IV B, L.P. By: /s/ Standish M. Fleming
Name: Standish M. Fleming Title: Managing Member FORWARD V ENTURES IV-C, L.P. By: /s/ Standish M. Fleming
Name: Standish M. Fleming Title: Managing Member
GIMV NV /s/ Koen Dejonckheere By: Koen Dejonckheere Its: CEO ADVIESBEHEER GIMV L IFE SCIENCES 2004 NV /s/ Koen Dejonckheere By: Koen Dejonckheere Its: CEO ROCHE FINANCE LTD By: /s/ Andreas Knierzinger
Name: Andreas Knierzinger Title: Authorized Signatory By: /s/ Carole Nuechterlein
Name: Carole Nuechterlein P ERSEUS- SOROS BIOPHARMACEUTICAL FUND, LP By: /s/ Jay A. Schoenfarber
Name: Jay A. Schoenfarber Title: Attorney-in-Fact
P HARMAB IO DEVELOPMENT IN C. By: /s/ John L. Bradley
Name: John L. Bradley Title: Vice President RADIUS V ENTURE PARTNERS III, L.P. By: /s/ Jordan Davis
Name: Jordan Davis Title: Managing Member RADIUS V ENTURE PARTNERS III QP, L.P. By: /s/ Jordan Davis
Name: Jordan Davis Title: Managing Member RADIUS V ENTURE PARTNERS III (OHIO), L.P. By: /s/ Jordan Davis
Name: Jordan Davis Title: Managing Member C ADUCEUS PRIVATE INVESTMENTS III, LP By: /s/ Eric Bittelman
Name: Eric Bittelman Title: CFO
O R B IMED A SSOCIATES III, LP By: /s/ Eric Bittelman
Name: Eric Bittelman Title: CFO ALEXANDRIA EQUITIES, LLC, a Delaware limited liability company By: Alexandria Real Estate Equities, Inc., a Maryland corporation, managing member /s/ Dean A. Shigenaga Name: Dean A. Shigenaga Title: Senior Vice President Chief Financial Officer INVESTOR: By: JOHN K. FREEMAN
By:
/s/ John K. Freeman
Name: John K. Freeman Title: INVESTOR: By: TONY S. HSU
/s/ Tony S. Hsu
Name: Tony S. Hsu Title:
EXHIBIT 10.18 MASTER SECURITY AGREEMENT No. 2081012 Dated as of November 15, 2002 (Agreement) THIS AGREEMENT is between Oxford Finance Corporation (together with its successors and assigns, if any, Secured Party) and Ambit Biosciences Corporation (Debtor). Secured Party has an office at 133 N. Fairfax Street, Alexandria, VA 22314. Debtor is a corporation organized and existing under the laws of the state of Delaware. Debtors mailing address and chief place of business is 9875 Towne Centre Drive, San Diego, CA 92121. 1. CREATION OF SECURITY INTEREST
Debtor grants to Secured Party, its successors and assigns, a security interest in and against the equipment and property listed on any collateral schedule now or in the future annexed to or made a part of this Agreement ( Collateral Schedule), and in and against all additions, attachments, accessories and accessions to such property, all substitutions, replacements or exchanges therefor, and all insurance and/or other proceeds thereof (all such equipment and property is individually and collectively called the Collateral). This security interest is given to secure the payment and performance of all debts, obligations and liabilities of any kind whatsoever of Debtor to Secured Party, now existing or arising in the future, in connection with the payment and performance of certain Promissory Notes from time to time identified on any Collateral Schedule (collectively Notes and each a Note), and any renewals, extensions and modifications of such debts, obligations and liabilities (such Notes, debts, obligations and liabilities are called the Indebtedness). Unless otherwise provided by applicable law, notwithstanding anything to the contrary contained in this Agreement, to the extent that Secured Party asserts a purchase money security interest in any items of Collateral ( PMSI Collateral): (i) the PMSI Collateral shall secure only that portion of the Indebtedness which has been advanced by Secured Party to enable Debtor to purchase, or acquire rights in or the use of such PMSI Collateral (the PMSI Indebtedness), and (ii) no other Collateral shall secure the PMSI Indebtedness. 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR. Debtor represents, warrants and covenants as of the date of this Agreement and as of the date of each Collateral Schedule that: (a) Debtors exact legal name is as set forth in the preamble of this Agreement and Debtor is, and will remain, duly organized, existing and in good standing under the laws of the state set forth in the preamble of this Agreement, has its chief executive offices at the location specified in the preamble, and is, and will remain, duly qualified and licensed in every jurisdiction wherever necessary to carry on its business and operations; Debtor has adequate power and capacity to enter into, and to perform its obligations under this Agreement, each Note and any other documents evidencing, or given in connection with, any of the Indebtedness (all of the foregoing are called the Debt Documents); This Agreement and the other Debt Documents have been duly authorized, executed and delivered by Debtor and constitute legal, valid and binding agreements enforceable in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws or laws affecting creditors rights generally; No approval, consent or withholding of objections is required from any governmental authority or instrumentality with respect to the entry into, or performance by Debtor of any of the Debt Documents, except any already obtained; The entry into, and performance by, Debtor of the Debt Documents will not (i) violate any of the organizational documents of Debtor or any judgment, order, law or regulation applicable to Debtor, or (ii) result in any breach of or constitute a default under any contract to which Debtor is a party, or result in the creation of any lien, claim or encumbrance on any of Debtors property (except for liens in favor of Secured Party) pursuant to any indenture, mortgage, deed of trust, bank loan, credit agreement, or other agreement or instrument to which Debtor is a party; There are no suits or proceedings pending in court or before any commission, board or other administrative agency against or affecting Debtor which could, in the aggregate, have a material adverse effect on Debtor, its business or operations, or its ability to perform its obligations under the Debt Documents, nor does Debtor have reason to believe that any such suits or proceedings are threatened; All financial statements delivered to Secured Party in connection with the Indebtedness have been prepared in accordance with generally accepted accounting principles, and since the date of the most recent financial statement, there has been no material adverse change in Debtors financial condition; The Collateral is not, and will not be, used by Debtor for personal, family or household purposes; Page 1 of 7
(b) (c)
(d) (e)
(f)
(g)
(h)
(i) (j) (k) (l)
The Collateral is, and will remain, in good condition and repair, normal wear and tear excepted, and Debtor will not be negligent in its care and use; All of the tangible Collateral is located at the locations set forth on each Collateral Schedule. Debtor shall give the Secured Party 30 days prior written notice of any relocation of any Collateral; Debtor is, and will remain, the sole and lawful owner, and in possession of, the Collateral, and has the sole right and lawful authority to grant the security interest described in this Agreement; The Collateral is, and will remain, free and clear of all liens, claims and encumbrances of any kind whatsoever, except for (i) liens in favor of Secured Party, (ii) liens for taxes not yet due or for taxes being contested in good faith and which do not involve, in the judgment of Secured Party, any risk of the sale, forfeiture or loss of any of the Collateral, and (iii) inchoate material mens, mechanics, repairmens and similar liens arising by operation of law in the normal course of business for amounts which are not delinquent (all of such liens are called Permitted Liens).
(m) All federal, state and local tax returns required to be filed by Debtor have been filed with the appropriate governmental agencies and all taxes due and payable by Debtor have been timely paid. Debtor will pay when due all taxes, assessments and other liabilities except as contested in good faith and by appropriate proceedings and for which adequate reserves have been established; (n) No event or condition exists under any material agreement, instrument or document, to which Debtor is a party or may be subject, or by which Debtor or any of its properties are bound, which constitutes a default or an event of default thereunder, or will, with the giving of notice, passage of time, or both, would constitute a default or event of default thereunder; All reports, certificates, schedules, notices and financial information submitted by Debtor to the Secured Party pursuant to this Agreement shall be certified as true and correct by the president or chief financial officer of Debtor; Debtor shall give the Secured Party prompt written notice of any event, occurrence or other matter which has resulted or may result in a material adverse change in its financial condition or business operations which would impair the ability of Debtor to perform its obligations hereunder or under any of the other financing agreements to which it is a party or of Secured Party to enforce the Indebtedness or realize upon the Collateral.
(o) (p)
3.
COLLATERAL. (a) Until the declaration of any default, Debtor shall remain in possession of the Collateral; except that Secured Party shall have the right to possess (i) any chattel paper or instrument that constitutes a part of the Collateral, and (ii) any other Collateral in which Secured Partys security interest may be perfected only by possession. Secured Party may inspect any of the Collateral during normal business hours after giving Debtor reasonable prior notice. Debtor shall (i) use the Collateral only in its trade or business, (ii) maintain all of the Collateral in good operating order and repair, normal wear and tear excepted, (iii) use and maintain the Collateral in substantial compliance with manufacturers recommendations and in full compliance with all applicable laws, and (iv) keep all of the Collateral free and clear of all liens, claims and encumbrances (except for Permitted Liens). Secured Party does not authorize and Debtor agrees it shall not (i) part with possession of any of the Collateral (except to Secured Party or for maintenance and repair), (ii) remove any of the Collateral from the continental United States, or (iii) sell, rent, lease, mortgage, license, grant a security interest in or otherwise transfer or encumber (except for Permitted Liens) any of the Collateral. Debtor shall pay promptly when due all taxes, license fees, assessments and public and private charges levied or assessed on any of the Collateral, on its use, or on this Agreement or any of the other Debt Documents, except as contested in good faith and by appropriate proceedings and for which adequate reserves have been established. At its option, Secured Party may discharge taxes, liens, security interests or other encumbrances at any time levied or placed on the Collateral and may pay for the maintenance, insurance and preservation of the Collateral and effect compliance with the terms of this Agreement or any of the other Debt Documents. Debtor agrees to reimburse Secured Party, on demand, all costs and reasonable expenses incurred by Secured Party in connection with such payment or performance and agrees that such reimbursement obligation shall constitute Indebtedness. Debtor shall, at all times, keep accurate and complete records of the Collateral, and Secured Party shall have the right to inspect and make copies of all of Debtors books and records relating to the Collateral during normal business hours, after giving Debtor reasonable prior notice. Debtor agrees and acknowledges that any third person who may at any time possess all or any portion of the Collateral shall be deemed to hold, and shall hold, the Collateral as the agent of, and as pledge holder for, Secured Party. Secured Party may, at any time give notice to any third person described in the preceding sentence that such third person is holding the Collateral as the agent of, and as pledge holder for, the Secured Party. Page 2 of 7
(b)
(c)
(d)
(e)
(f)
4.
INSURANCE. (a) (b) Debtor shall at all times bear the entire risk of any loss, theft, damage to, or destruction of, any of the Collateral from any cause whatsoever. Debtor agrees to keep the Collateral insured against loss or damage by fire and extended coverage perils, theft, burglary, and for any or all Collateral, which are vehicles, for risk of loss by collision, and if requested by Secured Party, against such other risks as Secured Party may reasonably require. The insurance coverage shall be in an amount no less than the full replacement value of the Collateral, and deductible amounts, insurers and policies shall be acceptable to Secured Party in its reasonable discretion consistent with normal and prudent industry practices. Debtor shall deliver to Secured Party policies or certificates of insurance evidencing such coverage. Each policy shall name Secured Party as a loss payee, shall provide for coverage to Secured Party regardless of the breach by Debtor of any warranty or representation made therein, shall not be subject to co-insurance and shall provide that coverage may not be canceled or altered by the insurer except upon thirty (30) days prior written notice to Secured Party. Debtor appoints Secured Party as its attorney-in-fact to make proof of loss, claim for insurance and adjustments with insurers, and to receive payment of and execute or endorse all documents, checks or drafts in connection with insurance payments. Secured Party shall not act as Debtors attorney-in-fact unless Debtor is in default. Proceeds of insurance shall be applied, at the option of Secured Party, to repair or replace the Collateral or to reduce any of the Indebtedness.
5.
REPORTS. (a) Debtor shall promptly notify Secured Party of (i) any change in the name of Debtor, (ii) any change in the state of its incorporation or registration, (iii) any relocation of its chief executive offices, (iv) any of the Collateral being lost, stolen, missing, destroyed, materially damaged or worn out, or (v) any lien, claim or encumbrance other than Permitted Liens attaching to or being made against any of the Collateral. Debtor will deliver to Secured Party within ninety (90) days of the close of each fiscal year of Debtor, Debtors complete financial statements including a balance sheet, income statement, statement of shareholders equity and statement of cash flows, each prepared in accordance with generally accepted accounting principles consistently applied, certified by a recognized firm of certified public accountants satisfactory to Secured Party. Debtor will deliver to Secured Party copies of Debtors quarterly financial statements including a balance sheet, income statement and statement of cash flows, each prepared by Debtor in accordance with generally accepted accounting principles consistently applied by Debtor and certified by Debtors chief financial officer, within ninety (90) days after the close of each of Debtors fiscal quarter. Debtor will deliver to Secured Party copies of all Forms 10-K and 10-Q, if any, within 30 days after the dates on which they are filed with the Securities and Exchange Commission. Debtor will deliver to Secured Party copies of Debtors monthly financial statements including a balance sheet and income statement, each prepared by Debtor in accordance with generally accepted accounting principles consistently applied by Debtor and certified by Debtors chief financial officer, within forty-five (45) days after the close of each month. Debtor will deliver to Secured Party promptly upon request of Secured Party, in form satisfactory to Secured Party, such other and additional information as Secured Party may reasonably request from time to time.
(b)
6.
FURTHER ASSURANCES. (a) Debtor shall, upon request of Secured Party, furnish to Secured Party such further information, execute and deliver to Secured Party such documents and instruments (including, without limitation, Uniform Commercial Code financing statements) and shall do such other acts and things as Secured Party may any time reasonably request relating to the perfection or protection of the security interest created by this Agreement or for the purpose of carrying out the intent of this Agreement. Without limiting the foregoing, Debtor shall cooperate and do all acts deemed necessary or advisable by Secured Party to continue in Secured Party a perfected first security interest in the Collateral, and shall use reasonable efforts to obtain and furnish to Secured Party any subordinations, releases, landlord waivers, lessor waivers, mortgage waivers, or control agreements, and similar documents as may be from time to time requested by, and in form and substance satisfactory to, Secured Party. Debtor shall perform any and all acts requested by the Secured Party to establish, maintain and continue the Secured Partys security interest and liens in the Collateral, including but not limited to, executing or authenticating financing statements and such other instruments and documents when and as reasonably requested by the Secured Party. Debtor hereby authorizes Secured Party through any of Secured Partys employees, agents or attorneys to file any and all financing statements, including, without limitation, any original filings, continuations, transfers or amendments thereof required to perfect Secured Partys security interest and liens in the Collateral under the UCC without authentication or execution by Debtor. Debtor hereby irrevocably authorizes the Secured Party at any time and from time to time to file in any filing office in any Uniform Commercial Code jurisdiction any initial financing statement(s) and amendments thereto that (a) indicate the Collateral secures the Indebtedness, and (b) provide any other information required by part 5 of Article 9 of the Uniform Commercial Code of the State or such other jurisdiction for the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether the Debtor is an organization, the type of organization and any organization identification number issued to the Debtor, and (ii) in the case of a financing statement filed as a fixture filing, a sufficient description Page 3 of 7
(b)
of real property to which the Collateral relates. The Debtor agrees to furnish any such information to the Secured Party promptly upon the Secured Partys request. (c) Debtor shall indemnify and defend the Secured Party, its successors and assigns, and their respective directors, officers and employees (each, an Indemnitee), from and against all claims, actions and suits (including, without limitation, related reasonable attorneys fees) of any kind whatsoever arising, directly or indirectly, in connection with any of the Collateral, except for claims, actions, and suits (and any costs or attorneys fees related thereto) arising out of Secured Partys gross negligence or willful misconduct. Each Indemnitee shall use its reasonable efforts to cooperate with Debtor respecting the defense of any matter indemnified hereunder except insofar and to the extent the Secured Partys interests with respect thereto may be adverse to Debtors, as determined by Secured Party in Secured Partys sole discretion.
7.
DEFAULT AND REMEDIES. (a) Debtor shall be in default under this Agreement and each of the other Debt Documents if: (i) (ii) (iii) (iv) (v) (vi) Debtor breaches its obligation to pay within five (5) days after when due any installment or other amount due or coming due under any of the Debt Documents; Debtor, without the prior written consent of Secured Party, attempts to or does sell, rent, lease, license, mortgage, grant a security interest in, or otherwise transfer or encumber (except for Permitted Liens) any of the Collateral; Debtor breaches any of its insurance obligations under Section 4 and such breach is not cured within (5) days after written notice from Secured Party; Debtor breaches any of its other non-payment obligations under any of the Debt Documents and fails to cure that breach within thirty (30) days after written notice from Secured Party; Any warranty, representation or statement made by Debtor in any of the Debt Documents or otherwise in connection with any of the Indebtedness shall be false or misleading in any material respect as of the date when made; Any of the Collateral is subjected to attachment, execution, levy, seizure or confiscation in any legal proceeding or otherwise, or if any legal or administrative proceeding is commenced against Debtor or any of the Collateral, which in the good faith judgment of Secured Party subjects any of the Collateral to a material risk of attachment, execution, levy, seizure or confiscation and no bond is posted or protective order obtained to negate such risk; Debtor breaches or is in default under any other agreement between Debtor and Secured Party, and such breach or default is not cured by Debtor or waived by Secured Party within the applicable cure period, if any; Debtor or any guarantor or other obligor for any of the Indebtedness (collectively Guarantor) dissolves, terminates its existence, becomes insolvent or ceases to do business as a going concern; Debtor or any Guarantor is a natural person, Debtor or any such Guarantor dies or becomes incompetent; A receiver is appointed for all or of any part of the property of Debtor or any Guarantor, or Debtor or any Guarantor makes any assignment for the benefit of creditors; Debtor or any Guarantor files a petition under any bankruptcy, insolvency or similar law, or any such petition is filed against Debtor or any Guarantor and is not dismissed within forty-five (45) days; Debtors improper filing of an amendment or termination statement relating to a filed financing statement describing the Collateral; Debtor shall merge with or consolidate into any other entity or sell all or substantially all of its assets or in any manner terminate its existence without Secured Partys prior written consent which consent shall not be unreasonable withheld, delayed, or conditioned; Debtor is a privately held corporation, more than 35% of Debtors voting capital stock, or effective control of Debtors voting capital stock issued and outstanding from time to time, is not retained by the holders of such stock on the date the Agreement is executed without Secured Partys prior written consent which consent shall not be unreasonable withheld, delayed, or conditioned; Page 4 of 7
(vii) (viii) (ix) (x) (xi) (xii) (xiii)
(xiv)
(xv)
Debtor is a publicly held corporation, there shall be a change in the ownership of Debtors stock such that Debtor is no longer subject to the reporting requirements of the Securities Exchange Act of 1934 or no longer has a class of equity securities registered under Section 12 of the Securities Act of 1933; Debtor defaults under any other financing arrangement between Debtor and a third party resulting in the acceleration by such third party of any indebtedness owed by Debtor to such third party in an amount in excess of $50,000; and
(xvi)
(xvii) Secured Party shall have determined in its sole and good faith judgment that there has been a material adverse change in the financial condition or business operations of Debtor from the date hereof, or a change or event shall have occurred which would impair the ability of Debtor to perform its obligations hereunder or under any of the other financing agreements to which it is a party or of Secured Party to enforce the Indebtedness or realize upon the Collateral; (b) If Debtor is in default, the Secured Party, at its option, may declare any or all of the Indebtedness to be immediately due and payable, without demand or notice to Debtor or any Guarantor. The accelerated obligations and liabilities shall bear interest (both before and after any judgment) until paid in full at the lower of eighteen percent (18%) per annum or the maximum rate not prohibited by applicable law. After a default has occurred and is continuing, Secured Party shall have all of the rights and remedies of a Secured Party under the Uniform Commercial Code, and under any other applicable law. Without limiting the foregoing, Secured Party shall have the right to (i) notify any account debtor of Debtor or any obligor on any instrument which constitutes part of the Collateral to make payment to the Secured Party, (ii) with or without legal process, enter any premises where the Collateral may be and take possession of and remove the Collateral from the premises or store it on the premises, (iii) sell the Collateral at public or private sale, in whole or in part, and have the right to bid and purchase at said sale, or (iv) lease or otherwise dispose of all or part of the Collateral, applying proceeds from such disposition to the obligations then in default. If requested by Secured Party, Debtor shall promptly assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party, which is reasonably convenient to both parties. Secured Party may also render any or all of the Collateral unusable at the Debtors premises and may dispose of such Collateral on such premises without liability for rent or costs. Any notice that Secured Party is required to give to Debtor under the Uniform Commercial Code of the time and place of any public sale or the time after which any private sale or other intended disposition of the Collateral is to be made shall be deemed to constitute reasonable notice if such notice is given to the last known address of Debtor at least five (5) days prior to such action. Upon the occurrence and during the continuation of an Event of Default, Debtor hereby appoints Secured Party as Debtors attorney-in-fact, with full authority in Debtors place and stead and in Debtors name or otherwise, from time to time in Secured Partys sole and arbitrary discretion, to take any action and to execute any instrument which Secured Party may deem necessary or advisable to accomplish the purpose of this Agreement. Proceeds from any sale or lease or other disposition shall be applied: first, to all costs of repossession, storage, and disposition including without limitation attorneys, appraisers, and auctioneers fees; second, to discharge the obligations then in default; third, to discharge any other Indebtedness of Debtor to Secured Party, whether as obligor, endorser, guarantor, surety or indemnitor; fourth, to expenses incurred in paying or settling liens and claims against the Collateral and lastly, to Debtor, if there exists any surplus. Debtor shall remain fully liable for any deficiency. Debtor agrees to pay all reasonable attorneys fees and other costs incurred by Secured Party in connection with the enforcement, assertion, defense or preservation of Secured Partys right and remedies under this Agreement, or if prohibited by law, such lesser sum as may be permitted. Debtor further agrees that such fees and costs shall constitute Indebtedness. Secured Partys rights and remedies under this Agreement or otherwise arising are cumulative and may be exercised singularly or concurrently. Neither the failure nor any delay on the part of the Secured Party to exercise any right, power or privilege under this Agreement shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise of that or any other right, power or privilege. SECURED PARTY SHALL NOT BE DEEMED TO HAVE WAIVED ANY OF ITS RIGHTS UNDER THIS AGREEMENT OR UNDER ANY OTHER AGREEMENT, INSTRUMENT OR PAPER SIGNED BY DEBTOR UNLESS SUCH WAIVER IS EXPRESSED IN WRITING AND SIGNED BY SECURED PARTY. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. DEBTOR AND SECURED PARTY UNCONDITIONALLY WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE INDEBTEDNESS SECURED HEREBY, ANY DEALINGS BETWEEN DEBTOR AND SECURED PARTY RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN DEBTOR AND SECURED PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT. THIS WAIVER IS IRREVOCABLE. THIS WAIVER MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING. THE WAIVER ALSO SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER DEBT DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
(c)
(d)
(e)
(f)
(g)
8.
MISCELLANEOUS. (a) This Agreement, any Note and/or any of the other Debt Documents may be assigned, in whole or in part, by Secured Party without notice to Debtor, and Debtor agrees not to assert against any such assignee, or assignees assigns, any defense, set-off, recoupment claim or counterclaim which Debtor has or may at any time have against Secured Party for any reason whatsoever. Debtor agrees that if Debtor receives written notice of an assignment from Secured Party, Debtor will pay all amounts payable under any assigned Debt Documents to such assignee or as instructed by Secured Party. Debtor also agrees to confirm in writing receipt of the notice of assignment as may be reasonably requested by Secured Party or assignee.
Page 5 of 7
(b)
All notices to be given in connection with this Agreement shall be in writing, shall be addressed to the parties at their respective addresses set forth in this Agreement (unless and until a different address may be specified in a written notice to the other party), and shall be deemed given (i) on the date of receipt if delivered in hand or by facsimile transmission, (ii) on the next business day after being sent by express mail, and (iii) on the fourth business day after being sent by regular, registered or certified mail. As used herein, the term business day shall mean and include any day other than Saturdays, Sundays, or other days on which commercial banks in New York, New York are required or authorized to be closed. Secured Party may correct patent errors, subject to Debtors written approval, and fill in all blanks in this Agreement or in any Collateral Schedule consistent with the agreement of the parties. Time is of the essence of this Agreement. This Agreement shall be binding, jointly and severally, upon all parties described as the Debtor and their respective heirs, executors, representatives, successors and assigns, and shall inure to the benefit of Secured Party, its successors and assigns. This Agreement and its Collateral Schedules constitute the entire agreement between the parties with respect to the subject matter of this Agreement and supersede all prior understandings (whether written, verbal or implied) with respect to such subject matter. THIS AGREEMENT AND ITS COLLATERAL SCHEDULES SHALL NOT BE CHANGED OR TERMINATED ORALLY OR BY COURSE OF CONDUCT, BUT ONLY BY A WRITING SIGNED BY BOTH PARTIES. Section headings contained in this Agreement have been included for convenience only, and shall not affect the construction or interpretation of this Agreement. This Agreement shall continue in full force and effect until all of the Indebtedness has been indefeasibly paid in full to Secured Party or its assignee. The surrender, upon payment or otherwise, of any Note or any of the other documents evidencing any of the Indebtedness shall not affect the right of Secured Party to retain the Collateral for such other Indebtedness as may then exist. This Agreement shall automatically be reinstated if Secured Party is ever required to return or restore the payment of all or any portion of the Indebtedness (all as though such payment had never been made). DEBTOR AGREES THAT SECURED PARTY AND/OR ITS SUCCESSORS AND ASSIGNS SHALL HAVE THE OPTION BY WHICH STATE LAWS THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED: (A) THE LAWS OF THE COMMONWEALTH OF VIRGINIA; OR (B) IF COLLATERAL HAS BEEN PLEDGED TO SECURE THE LIABILITIES, THEN BY THE LAWS OF THE STATE OR STATES WHERE THE COLLATERAL IS LOCATED, AT SECURED PARTYS OPTION. THIS CHOICE OF STATE LAWS IS EXCLUSIVE TO THE SECURED PARTY. DEBTOR SHALL NOT HAVE ANY OPTION TO CHOOSE THE LAWS BY WHICH THIS AGREEMENT SHALL BE GOVERNED. DEBTOR ACKNOWLEDGES THAT THIS AGREEMENT IS BEING SIGNED BY THE SECURED PARTY IN PARTIAL CONSIDERATION OF SECURED PARTYS RIGHT TO ENFORCE IN THE JURISDICTION STATED ABOVE. DEBTOR CONSENTS TO JURISDICTION IN THE COMMONWEALTH OF VIRGINIA OR THE STATE IN WHICH ANY COLLATERAL IS LOCATED AND VENUE IN ANY FEDERAL OR STATE COURT IN THE COMMONWEALTH OF VIRGINIA OR THE STATE IN WHICH COLLATERAL IS LOCATED FOR SUCH PURPOSES AND WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE AND ANY OBJECTION THAT SAID COUNTY IS NOT CONVENIENT. DEBTOR WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST SECURED PARTY IN ANY JURISDICTION EXCEPT VIRGINIA, OR IF SECURED PARTY CHOOSES TO LITIGATE IN A STATE WHERE COLLATERAL IS LOCATED THEN IN SUCH COUNTY AND STATE. SECURED PARTY AND DEBTOR HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY WITH RESPECT TO ANY MATTER WHATSOEVER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE LOAN, THE DOCUMENTS AND/OR THE TRANSACTIONS WHICH ARE THE SUBJECT OF THE DOCUMENTS. Page 6 of 7
(c) (d)
(e)
(f)
(g)
IN WITNESS WHEREOF, Debtor and Secured Party, intending to be legally bound hereby, have duly executed this Agreement in one or more counterparts, each of which shall be deemed to be an original, as of the day and year first aforesaid. SECURED PARTY: Oxford Finance Corporation By: /s/ M. J. Altenburger DEBTOR: Ambit Biosciences Corporation By: /s/ M. Scott Salka
Name: M. J. Altenburger Title: CFO
Name: M. Scott Salka Title Page 7 of 7 CEO
EXHIBIT 10.19 MASTER SECURITY AGREEMENT No. 6081115 Dated as of June 21, 2006 (Agreement) THIS AGREEMENT is between Oxford Finance Corporation (Oxford) and Webster Bank, National Association (Webster) (together with their respective successors and assigns, if any (Oxford and Webster are each referred to herein individually as Secured Party and collectively as Secured Parties) and Ambit Biosciences Corporation (Debtor). Secured Party Oxford has an office at 133 N. Fairfax Street, Alexandria, VA 22314, and Secured Party Webster has an office at 80 Elm Street, New Haven, CT 06510. Debtor is a corporation organized and existing under the laws of the state of Delaware. Debtors mailing address and chief place of business is 4215 Sorrento Valley Boulevard, San Diego, CA 92121. 1. CREATION OF SECURITY INTEREST.
Debtor giants to Secured Parties, and their respective successors and assigns, for the ratable benefit of Secured Parties, a security interest in and against the equipment and property listed on any collateral schedule now or in the future annexed to or made a part of this Agreement (Collateral Schedule), and in and against all additions, attachments, accessories and accessions to such property, all substitutions, replacements or exchanges therefor, and all insurance and/or other proceeds thereof (all such equipment and property is individually and collectively called the Collateral). This security interest is given to secure the payment and performance of all debts, obligations and liabilities of any kind whatsoever of Debtor to Secured Parties, now existing or arising in the future under this Agreement, in connection with the payment and performance of certain Promissory Notes front time to time identified on any Collateral Schedule (collectively Notes and each a Note), and any renewals, extensions and modifications of such debts, obligations and liabilities (such Notes, debts, obligations and liabilities are called the Indebtedness). 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR. Debtor represents, warrants and covenants as of the date of this Agreement and as of the date of each Collateral Schedule that: (a) Debtors exact legal name is as set forth in the preamble of this Agreement and Debtor is, and will remain, duly organized, existing and in good standing under the laws of the state set forth in the preamble of this Agreement, has its chief executive offices at the location specified in the preamble, and is, and will remain, duly qualified and licensed in every jurisdiction wherever necessary to carry on its business and operations; Debtor has adequate power and capacity to enter into, and to perform its obligations under this Agreement, each Note and any other documents evidencing, or given in connection with, any of the Indebtedness (all of the foregoing are called the Debt Documents); This Agreement and the other Debt Documents have been duly authorized, executed and delivered by Debtor and constitute legal, valid and binding agreements enforceable in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws or laws affecting creditors rights generally; No approval, consent or withholding of objections is required from any governmental authority or instrumentality with respect to the entry into, or performance by Debtor of any of the Debt Documents, except any already obtained; The entry into, and performance by, Debtor of the Debt Documents will not (i) violate any of the organizational documents of Debtor or any judgment, order, law or regulation applicable to Debtor, or (ii) result in any breach of or constitute a default under any contract to which Debtor is a party, or result in the creation of any lien, claim or encumbrance on any of Debtors property (except for liens in favor of Secured Parties) pursuant to any indenture, mortgage, deed of trust, bank loan, credit agreement, or other agreement or instrument to which Debtor is a party; There are no suits or proceedings pending in court or before any commission, board or other administrative agency against or affecting Debtor which could, in the aggregate, have a material adverse effect on Debtor, its business or operations, or its ability to perform its obligations under the Debt Documents, nor does Debtor have reason to believe that any such suits or proceedings are threatened; All financial statements delivered to Secured Parties in connection with the Indebtedness have been prepared in accordance with generally accepted accounting principles, and since the date of the most recent financial statement, there has been no material adverse change in Debtors financial condition; The Collateral is not, and will not be, used by Debtor for personal, family or household purposes; Page 1 of 7
(b) (c)
(d) (e)
(f)
(g)
(h)
(i) (j) (k) (l)
The Collateral is, and will remain, in good condition and repair, normal wear and tear excepted, and Debtor will not be negligent in its care and use; All of the tangible Collateral is located at the locations set forth on each Collateral Schedule. Debtor shall give the Secured Parties 30 days prior written notice of any relocation of any Collateral; Debtor is, and will remain, the sole and lawful owner; and in possession of, the Collateral, and has the sole right and lawful authority to grant the security interest described in this Agreement; The Collateral is, and will remain, free and clear of all liens, claims and encumbrances of any kind whatsoever, except for (i) liens in favor of Secured Parties, (ii) liens for taxes not yet due or for taxes being contested in good faith and which do not involve, in the judgment of Secured Parties, any risk of the sale, forfeiture or loss of any of the Collateral, and (iii) inchoate material mens, mechanics, repairmens and similar liens arising by operation of law in the normal course of business for amounts which are not delinquent (all of such liens are called Permitted Liens).
(m) All federal, state and local tax returns required to be filed by Debtor have been filed with the appropriate governmental agencies and all taxes due and payable by Debtor have been timely paid. Debtor will pay when due all taxes, assessments and other liabilities except as contested in good faith and by appropriate proceedings and for which adequate reserves have been established; (n) No event or condition exists under any material agreement, instrument or document to which Debtor is a party or may be subject, or by which Debtor or any of its properties are bound, which constitutes a default or an event of default thereunder, or will, with the giving of notice, passage of time, or both, would constitute a default or event of default thereunder; All reports, certificates, schedules, notices and financial information submitted by Debtor to the Secured Parties pursuant to this Agreement shall be certified as true and correct by the president or chief financial officer of Debtor; Debtor shall give the Secured Parties prompt written notice of any event, occurrence or other matter which has resulted or may result in a material adverse change in its financial condition or business operations which would impair the ability of Debtor to perform its obligations hereunder or under any of the other financing agreements to which it is a party or of Secured Parties to enforce the Indebtedness or realize upon the Collateral; Debtor maintains its Primary Account (the Primary Operating Account ) and the Wire Transfer Instructions for the Primary Operating Account are as follows: State Street Bank & Trust Company 225 Franklin Street Boston, MA 02110 ABA No.: 011000028 Account No.: 17039843 (DE 1455) Account Name: Ambit Biosciences Corporation Debtor hereby agrees that Loans will be advanced to the account specified above and regularly scheduled payments will be automatically debited from the same account. (r) Debtor hereby grants to Secured Parties a right (but not an obligation) to invest up to $750,000 each, in each of the Debtors Subsequent Financings on the same terms, conditions and pricing offered to the lead investor of such financing. Debtor shall give Secured Party at least thirty (30) days prior written notice of each Subsequent Financing containing the terms, conditions and pricing of each Subsequent Financing. As used herein, Subsequent Financing shall mean the next and any future round of private equity financing [in which the Debtor receives, in the aggregate, at least $2,000,000.00 of gross cash proceeds (excluding any bridge debt financing except to the extent actually converted to equity in the Debtor).
(o) (p)
(q)
3.
COLLATERAL. (a) Until the declaration of any default, Debtor shall remain in possession of the Collateral; except that Secured Parties shall have the right to possess (i) any chattel paper or instrument that constitutes a part of the Collateral, and (ii) any other Collateral in which Secured Parties security interest may be perfected only by possession. Secured Parties may inspect any of the Collateral during normal business hours after giving Debtor reasonable prior notice. Debtor shall (i) use the Collateral only in its trade or business, (ii) maintain all of the Collateral in good operating order and repair, normal wear and tear excepted, (iii) use and maintain the Collateral in substantial compliance with manufacturers recommendations and in full compliance with all applicable laws, and (iv) keep all of the Collateral free and clear of all liens, claims and encumbrances (except for Permitted Liens). Page 2 of 7
(b)
(c)
Secured Parties do not authorize and Debtor agrees it shall not (i) part with possession of any of the Collateral (except to Secured Parties or for maintenance and repair), (ii) remove any of the Collateral from the continental United States, or (iii) sell, rent, lease, mortgage, license, grant a security interest in or otherwise transfer or encumber (except for Permitted Liens) any of the Collateral. Debtor shall pay promptly when due all taxes, license fees, assessments and public and private charges levied or assessed on any of the Collateral, on its use, or on this Agreement or any of the other Debt Documents, except as contested in good faith and by appropriate proceedings and for which adequate reserves have been established. At their option, Secured Parties may discharge taxes, liens, security interests or other encumbrances at any time levied or placed on the Collateral and may pay for the maintenance, insurance and preservation of the Collateral and effect compliance with the terms of this Agreement or any of the other Debt Documents. Debtor agrees to reimburse Secured Parties, on demand, all costs and reasonable expenses incurred by Secured Parties in connection with such payment or performance and agrees that such reimbursement obligation shall constitute Indebtedness. Debtor shall, at all times, keep accurate and complete records of the Collateral, and Secured Parties shall have the right to inspect and make copies of all of Debtors books and records relating to the Collateral during normal business hours, after giving Debtor reasonable prior notice. Debtor agrees and acknowledges that any third person who may at any time possess all or any portion of the Collateral shall be deemed to hold, and shall hold, the Collateral as the agent of, and as pledge holder for, Secured Parties. Secured Parties may at any time give notice to any third person described in the preceding sentence that such third person is holding the Collateral as the agent of, and as pledge holder for, the Secured Parties.
(d)
(e)
(f)
4.
INSURANCE. (a) (b) Debtor shall at all times bear the entire risk of any loss, theft, damage to, or destruction of, any of the Collateral from any cause whatsoever. Debtor agrees to keep the Collateral insured against loss or damage by fire and extended coverage perils, theft, burglary, and for any or all Collateral, which are vehicles, for risk of loss by collision, and if requested by Secured Parties, against such other risks as Secured Parties may reasonably require. The insurance coverage shall be in an amount no less than the full replacement value of the Collateral, and deductible amounts, insurers and policies shall be acceptable to Secured Parties in its reasonable discretion consistent with normal and prudent industry practices: Debtor shall deliver to Secured Parties policies or certificates of insurance evidencing such coverage. Each policy shall name Secured Parties as a loss payee, shall provide for coverage to Secured Parties regardless of the breach by Debtor of any warranty or representation made therein, shall not be subject to co-insurance, and shall provide that coverage may not be canceled or altered by the insurer except upon thirty (30) days prior written notice to Secured Parties. Debtor appoints Secured Parties as its attorney-in-fact to make proof of loss, claim for insurance and adjustments with insurers, and to receive payment of and execute or endorse all documents, checks or drafts in connection with insurance payments. Secured Parties shall not act as Debtors attorney-in-fact unless Debtor is in default. Proceeds of insurance shall be applied, at the option of Secured Parties, to repair or replace the Collateral or to reduce any of the Indebtedness.
5.
REPORTS. (a) Debtor shall promptly notify Secured Parties of (i) any change in the name of Debtor, (ii) any change in the state of its incorporation or registration, (iii) any relocation of its chief executive offices, (iv) any of the Collateral being lost, stolen, missing, destroyed, materially damaged or worn out, or (v) any lien, claim or encumbrance other than Permitted Liens attaching to or being made against any of the Collateral. Debtor will deliver to each of Secured Parties within one-hundred twenty (120) days of the close of each fiscal year of Debtor, Debtors complete financial statements including a balance sheet, income statement, statement of shareholders equity and statement of cash flows, each prepared in accordance with generally accepted accounting principles consistently applied, certified by a recognized firm of certified public accountants satisfactory to Secured Parties. Debtor will deliver to each of Secured Parties copies of Debtors quarterly financial statements including a balance sheet, income statement and statement of cash flows, each prepared by Debtor in accordance with generally accepted accounting principles consistently applied by Debtor and certified by Debtors chief financial officer, within ninety (90) days after the close of each of Debtors fiscal quarter. Debtor will deliver to each of Secured Parties copies of all Forms 10-K and 10-Q, if any, within 30 days after the dates on which they are filed with the Securities and Exchange Commission. Debtor will deliver to each of Secured Parties copies of Debtors monthly financial statements including a balance sheet and income statement, each prepared by Debtor in accordance with generally accepted accounting principles consistently applied by Debtor and certified by Debtors chief financial officer, within forty-five (45) days after the close of each month. Debtor will deliver to each of Secured Parties promptly upon request of Secured Parties, in form satisfactory to Secured Parties, such other and additional information as each of Secured Parties may reasonably request from time to time. Page 3 of 7
(b)
6.
FURTHER ASSURANCES. (a) Debtor shall, upon request of Secured Parties, furnish to Secured Parties such further information, execute and deliver to Secured Parties such documents and instruments (including, without limitation, Uniform Commercial Code financing statements) and shall do such other acts and things as Secured Parties may at any time reasonably request relating to the perfection or protection of the security interest created by this Agreement or for the purpose of carrying out the intent of this Agreement. Without limiting the foregoing, Debtor shall cooperate and do all acts deemed necessary or advisable by Secured Parties to continue in Secured Parties a perfected first security interest in the Collateral, and shall use reasonable efforts to obtain and furnish to Secured Parties any subordinations, releases, landlord waivers, lessor waivers, mortgagee waivers, or control agreements, and similar documents as may be from time to time requested by, and in form and substance satisfactory to, Secured Parties. Debtor shall perform any and all acts requested by the Secured Parties to establish, maintain and continue the Secured Parries security interest and liens in the Collateral, including but not limited to, executing or authenticating financing statements and such other instruments and documents when and as reasonably requested by the Secured Parties. Debtor hereby authorizes Secured Parties through any of Secured Parties employees, agents or attorneys to file any and all financing statements; including, without limitation, any original filings, continuations, transfers or amendments thereof required to perfect Secured Parties security interest and liens in the Collateral under the UCC without authentication or execution by Debtor. Debtor hereby irrevocably authorizes the Secured Parties at any time and from time to time to file in any filing office in any Uniform Commercial Code jurisdiction any initial financing statement(s) and amendments thereto that (a) indicate the Collateral secures the Indebtedness, and (b) provide any other information required by part 5 of Article 9 of the Uniform Commercial Code of the State or such other jurisdiction for the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether the Debtor is an organization, the type of organization and any organization identification number issued to the Debtor, and (ii) in the case of a financing statement filed as a fixture filing, a sufficient description of real property to which the Collateral relates, The Debtor agrees to furnish any such information to the Secured Parties promptly upon the Secured Parties request. Debtor shall indemnify and defend the Secured Parties, its successors and assigns, arid their respective directors, officers and employees (each, an Indemnitee), from and against all claims, actions and suits (including, without limitation, related reasonable attorneys fees) of any kind whatsoever arising, directly or indirectly, in connection with any of the Collateral, except for claims, actions, and suits (and any costs or attorneys fees related thereto) arising out of Secured Parties gross negligence or willful misconduct. Each Indemnitee shall use its reasonable efforts to cooperate with Debtor respecting the defense of any matter indemnified hereunder except insofar and to the extent the Secured Parties interests with respect thereto may be adverse to Debtors, as determined by Secured Parties in Secured Parties sole discretion. Debtor shall not incur any indebtedness for borrowed money or lease obligations (collectively, Bridge Loans) from any of its officers, directors or shareholders (collectively, Bridge Loan Lenders) unless each of the Bridge Loan Lenders have executed and delivered subordination agreements in favor of Secured Parties, in form satisfactory to Secured Parties, which subordinate all of the Bridge Loans to the Indebtedness.
(b)
(c)
(d)
7.
DEFAULT AND REMEDIES. (a) Debtor shall be in default under this Agreement and each of the other Debt Documents if any one of the following should occur: (i) (ii) (iii) (iv) (v) (vi) Debtor breaches its obligation to pay within five (5) days after when due any installment or other amount due or coming due under any of the Debt Documents; Debtor, without the prior written consent of Secured Parties, attempts to or does sell, rent, lease, license, mortgage, grant a security interest in, or otherwise transfer or encumber (except for Permitted Liens) any of the Collateral; Debtor breaches any of its insurance obligations under Section 4 and such breach is not cured within five (5) days after written notice from Secured Parties; Debtor breaches any of its other non-payment obligations under any of the Debt Documents and fails to cure that breach within thirty (30) days after written notice from Secured Parties; Any warranty, representation or statement made by Debtor in any of- the Debt Documents or otherwise in connection with any of the Indebtedness shall be false or misleading in any material respect as of the date when made; Any of the Collateral is subjected to attachment, execution, levy, seizure or confiscation in any legal proceeding or otherwise, or if any legal or administrative proceeding is commenced against Debtor or any of the Collateral, which in the good faith judgment of Secured Parties Page 4 of 7
subjects any of the Collateral to a material risk of attachment, execution, levy, seizure or confiscation and no bond is posted or protective order obtained to negate such risk; (vii) (viii) (ix) (x) (xi) (xii) (xiii) Debtor breaches or is in default under any other agreement between Debtor and Secured Parties, and such breach or default is not cured by Debtor or waived by Secured Parties within the applicable cure period, if any; Debtor or any guarantor or other obligor for any of the Indebtedness (collectively Guarantor) dissolves, terminates its existence, becomes insolvent or ceases to do business as a going concern; Debtor or any Guarantor is a natural person, Debtor or any such Guarantor dies or becomes incompetent; A receiver is appointed for all or of any part of the property of Debtor or any Guarantor, or Debtor or any Guarantor makes any assignment for the benefit of creditors; Debtor or any Guarantor files a petition under any bankruptcy, insolvency or similar law, or any such petition is filed against Debtor or any Guarantor and is not dismissed within forty-five (45) days; Debtors improper filing of an amendment or termination statement relating to a filed financing statement describing the Collateral; Debtor shall merge with or consolidate into any other entity or sell all or substantially all of its assets or in any manner terminate its existence without Secured Parties prior written consent which consent shall not be unreasonably withheld, delayed, or conditioned; Debtor is a privately held corporation, more than 35% of Debtors voting capital stock, or effective control of Debtors voting capital stock, issued and outstanding from time to time, is not retained by the holders of such stock on the date the Agreement is executed without Secured Parties prior written consent which consent shall not be unreasonable withheld, delayed, or conditioned; Debtor is a publicly held corporation, there shall be a change in the ownership of Debtors stock such- that Debtor is no longer subject to the reporting requirements of the Securities Exchange Act of 1934 or no longer has a class of equity securities registered under Section 12 of the Securities Act of 1933; Debtor defaults under any other financing arrangement between Debtor and a third party resulting in the acceleration by such third party of any indebtedness owed by Debtor to such third party in an amount in excess of $50,000; or
(xiv)
(xv)
(xvi)
(xvii) Secured Parties shall have determined in their sole and good faith judgment that there has been a material adverse change in the financial condition or business operations of Debtor from the date hereof, or a change or event shall have occurred which would impair the ability of Debtor to perform its obligations hereunder or under any of the other financing agreements to which it is a party or of Secured Parties to enforce the Indebtedness or realize upon the Collateral. (b) If Debtor is in default, the Secured Parties, at their option, may declare any or all of the Indebtedness to be immediately due and payable, without demand or notice to Debtor or any Guarantor. The accelerated obligations and liabilities shall bear interest (both before and after any judgment) until paid in full at the lower of eighteen percent (18%) per annum or the maximum rate not prohibited by applicable law. After a default has occurred and is continuing, each of Secured Parties shall have all of the rights and remedies of a Secured Party under the Uniform Commercial Code, and under any other applicable law. Without limiting the foregoing, Secured Patties shall have the right to (i) notify any account debtor of Debtor or any obligor on any instrument which constitutes part of the Collateral to make payment to the Secured Parties, (ii) with or without legal process, enter any premises where the Collateral may be and take possession of and remove the Collateral -from the premises or store it on the premises, (iii) sell the Collateral at public or private sale, in whole or in part, and have the right to bid and purchase at said sale, or (iv) lease or otherwise dispose of all or part of the Collateral, applying proceeds from such disposition to the obligations then in default. If requested by Secured Parties, Debtor shall promptly assemble the Collateral and make it available to Secured Parties at a place to be designated by Secured Parties, which is reasonably convenient to both parties. Secured Parties may also render any or all of the Collateral unusable at the Debtors premises and may dispose of such Collateral on such premises without liability for rent or costs. Any notice that Secured Parties is required to give to Debtor under the Uniform Commercial Code of the time and place of any public sale or the time after which any private sale or other intended disposition of the Collateral is to be made shall be deemed to constitute reasonable notice if such notice is given to the last known address of Debtor at least five (5) days prior to such action. Upon the occurrence and during the continuation of an Event of Default, Debtor hereby appoints Secured Parties as Debtors attorney-in-fact, Page 5 of 7
(c)
with full authority in Debtors place and stead and in Debtors name or otherwise, from time to time in Secured Parties sole and arbitrary discretion, to take any action and to execute any instrument which Secured Parties may deem necessary or advisable to accomplish the purpose of this Agreement. (d) Proceeds from any sale or lease or other disposition shall be applied: first, to all costs of repossession, storage, and disposition including without limitation attorneys, appraisers, and auctioneers fees; second, to discharge the obligations then in default; third, to discharge any other Indebtedness of Debtor to Secured Parties, whether as obligor, endorser, guarantor, surety or indemnitor; fourth, to expenses incurred in paying or settling liens and claims against the Collateral; and lastly, to Debtor, if there exists any surplus. Debtor shall remain fully liable for any deficiency. Debtor agrees to pay all reasonable attorneys fees and other costs incurred by Secured Parties in connection with the enforcement, assertion, defense or preservation of Secured Parties rights and remedies under this Agreement, or if prohibited by law, such lesser sum as may be permitted. Debtor further agrees that such fees and costs shall constitute Indebtedness. Secured Parties rights and remedies under this Agreement or otherwise arising are cumulative and may be exercised singularly or concurrently, in accordance with the Intercreditor Agreement between the Lenders of even date with this Agreement. Neither the failure nor any delay on the part of the Secured Parties to exercise any right, power or privilege under this Agreement shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise of that or any other right, power or privilege. SECURED PARTIES SHALL NOT BE DEEMED TO HAVE WAIVED ANY OF ITS RIGHTS UNDER THIS AGREEMENT OR UNDER ANY OTHER AGREEMENT, INSTRUMENT OR PAPER SIGNED BY DEBTOR UNLESS SUCH WAIVER IS EXPRESSED IN WRITING AND SIGNED BY SECURED PARTIES. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. DEBTOR AND SECURED PARTIES UNCONDITIONALLY WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE INDEBTEDNESS SECURED HEREBY, ANY DEALINGS BETWEEN DEBTOR AND SECURED PARTIES RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN DEBTOR AND SECURED PARTIES. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT. THIS WAIVER IS IRREVOCABLE. THIS WAIVER MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING. THE WAIVER ALSO SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER DEBT DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
(e)
(f)
(g)
8.
MISCELLANEOUS. (a) This Agreement, any Note and/or any of the other Debt Documents may be assigned, in whole or in part, by Secured Parties without notice to Debtor, and Debtor agrees not to assert against any such assignee, or assignees assigns, any defense, set-off, recoupment claim or counterclaim which Debtor has or may at any time have against Secured Parties for any reason whatsoever. Debtor agrees that if Debtor receives written notice of an assignment from Secured Parties, Debtor will pay all amounts payable under any assigned Debt Documents to such assignee or as instructed by Secured Parties. Debtor also agrees to confirm in writing receipt of the notice of assignment as may be reasonably requested by Secured Parties or assignee. All notices to be given in connection with this Agreement shall be in writing, shall be addressed to the parties at their respective addresses set forth in this Agreement (unless and until a different address may be specified in a written notice to the other party), and shall be deemed given (i) on the date of receipt if delivered in hand or by facsimile transmission, (ii) on the next business day after being sent by express mail, and (iii) on the fourth business day after being sent by regular, registered or certified mail. As used herein, the term business day shall mean and include any day other than Saturdays, Sundays, or other days on which commercial banks in New York, New York are required or authorized to be closed. Secured Parties may correct patent errors, subject to Debtors written approval, and fill in all blanks in this Agreement or in any Collateral Schedule consistent with the agreement of the parties. Time is of the essence of this Agreement. This Agreement shall be binding, jointly and severally, upon all parties described as the Debtor and their respective heirs, executors, representatives, successors and assigns, and shall inure to the benefit of Secured Parties, and their respective successors and assigns. Page 6 of 7
(b)
(c)
(d)
This Agreement and its Collateral Schedules constitute the entire agreement between the parties with respect to the subject matter of this Agreement and supersede all prior understandings (whether written, verbal or implied) with respect to such subject matter. THIS AGREEMENT AND ITS COLLATERAL SCHEDULES SHALL NOT BE CHANGED OR TERMINATED ORALLY OR BY COURSE OF CONDUCT, BUT ONLY BY A WRITING SIGNED BY BOTH PARTIES. Section headings contained in this Agreement have been included for convenience only, and shall not affect the construction or interpretation of this Agreement. This Agreement shall continue in full force and effect until all of the Indebtedness has been indefeasibly paid in full to Secured Parties or its assignee. The surrender, upon payment or otherwise, of any Note or any of the other documents evidencing any of the Indebtedness shall not affect the right of Secured Parties to retain the Collateral for such other Indebtedness as may then exist. This Agreement shall automatically be reinstated if Secured Parties are ever required to return or restore the payment of all or any portion of the Indebtedness (all as though such payment had never been made). DEBTOR AGREES THAT SECURED PARTIES AND/OR THEIR RESPECTIVE SUCCESSORS AND ASSIGNS SHALL HAVE THE OPTION BY WHICH STATE LAWS THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED: (A) THE LAWS OF THE COMMONWEALTH OF VIRGINIA; OR (B) IF COLLATERAL HAS BEEN PLEDGED TO SECURE THE LIABILITIES, THEN BY THE LAWS OF THE STATE OR STATES WHERE THE COLLATERAL IS LOCATED, AT SECURED PARTIESS OPTION. THIS CHOICE OF STATE LAWS IS EXCLUSIVE TO THE SECURED PARTIES. DEBTOR SHALL NOT HAVE ANY OPTION TO CHOOSE THE LAWS BY WHICH THIS AGREEMENT SHALL BE GOVERNED, DEBTOR ACKNOWLEDGES THAT THIS AGREEMENT IS BEING SIGNED BY THE SECURED PARTIES IN PARTIAL CONSIDERATION OF SECURED PARTIESS RIGHT TO ENFORCE IN THE JURISDICTION STATED ABOVE, DEBTOR CONSENTS TO JURISDICTION IN THE COMMONWEALTH OF VIRGINIA OR THE STATE IN WHICH ANY COLLATERAL IS LOCATED AND VENUE IN ANY FEDERAL OR STATE COURT IN THE COMMONWEALTH OF VIRGINIA OR THE STATE IN WHICH COLLATERAL IS LOCATED FOR SUCH PURPOSES AND WAIVES ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE AND ANY OBJECTION THAT SAID COUNTY IS NOT CONVENIENT. DEBTOR WAIVES ANY RIGHTS TO COMMENCE ANY ACTION AGAINST SECURED PARTIES IN ANY JURISDICTION EXCEPT VIRGINIA, OR IF SECURED PARTIES CHOOSES TO LITIGATE IN A STATE WHERE COLLATERAL IS LOCATED THEN IN SUCH COUNTY AND STATE, SECURED PARTIES AND DEBTOR HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY WITH RESPECT TO ANY MATTER WHATSOEVER RELATING TO, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE LOAN, THE DOCUMENTS AND/OR THE TRANSACTIONS WHICH ARE THE SUBJECT OF THE DOCUMENTS.
(e)
(f)
IN WITNESS WHEREOF, Debtor and Secured Parties, intending to be legally bound hereby, have duly executed this Agreement in one or more counterparts, each of which shall be deemed to be an original, as of the day and year first aforesaid. SECURED PARTY: Oxford Finance Corporation By: Name: Title: /s/ M. J. Altenburger Michael J. Altenburger Chief Financial Officer SECURED PARTY: Webster Bank, National Association By: /s/ Peter R. Hicks
Name: PETER R. HICKS Title: V.P. DEBTOR: AMBIT BIOSCIENCES CORPORATION By: /s/ Donald R. Myll
Name: Donald R. Myll Title: C.F.O. Page 7 of 7
AMENDMENT AGREEMENT THIS AMENDMENT AGREEMENT (this Amendment) is made this 7th day of September, 2006, by and between Ambit Biosciences, Inc. (Debtor) and Oxford Finance Corporation and Webster Bank National Association (Secured Parties) with respect to the following facts: RECITALS A. Debtor and Secured Parties have entered into that certain Master Security Agreement No. 6081115 dated as of June 21, 2006, (together with all agreements entered into in connection therewith, the MSA). B. Debtor and Secured Parties wish to amend the MSA to reflect the change of primary bank account for Debtor. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Debtor and Secured Parties agree that paragraph 2(q) of the MSA is hereby amended as follows: 2. (q) Debtor maintains two operating accounts and hereby agrees that Loans will be advanced to the first of such operating accounts, the wire transfer instructions for which are as follows: State Street Bank & Trust Company 225 Franklin Street Boston, MA 02110 ABA No.: 011000028 Account No.: 17039843 (DE 1455) Account Name: Ambit Biosciences Corporation Debtor further hereby agrees that regularly scheduled payments to Secured Parties will be automatically debited by Secured Parties, respectively, from the second of such operating accounts, the Wire Transfer instructions for which are as follows: Union Bank of California La Jolla Office 7807 Girard Ave la Jolla, CA 92037 ABA No.: 122000496 Account No.: 6050021260 Account Name: Ambit Biosciences Corporation. Except as expressly amended as set forth above, all of the terms of the MSA remain in full force and effect and unmodified. IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by their respective duly authorized representatives the date first set forth above. Debtor: Ambit Biosciences, Inc. By: /s/ Donald R. Myll Title: CFO Secured Party: Oxford Finance Corporation /s/ Michael J. Altenburger By: Title: Chief Financial Officer Secured Party: Webster Bank, National Association /s/ Peter R. Hicks By: Title: V.P. Page 1 of 1
EXHIBIT 10.20 SECURITY AGREEMENT Dated as of March 31, 2010 by and between OXFORD FINANCE CORPORATION a Delaware corporation 133 N. Fairfax Street Alexandria, VA 22314 as Lender And AMBIT BIOSCIENCES CORPORATION, a Delaware corporation 4215 Sorrento Valley Blvd. San Diego, CA 92121 as Borrower
This Security Agreement (this Agreement) is made as of March 31, 2010, by and between Ambit Biosciences Corporation, a Delaware corporation ( Borrower), and Oxford Finance Corporation, a Delaware corporation ( Lender). The Lender and Borrower hereby agree as follows: AGREEMENT 1. Definitions and Construction. 1.1 Definitions. As used in this Agreement, the following capitalized terms shall have the following meanings: Account Control Agreement means an agreement acceptable to Lender which perfects via control Lenders security interest in Borrowers deposit accounts and/or accounts holding securities. Affiliate means any Person that owns or controls directly or indirectly ten percent (10%) or more of the stock of another entity, any Person that controls or is controlled by or is under common control with such Persons or any Affiliate of such Persons and each of such Persons officers, directors, joint venturers or partners. Agreement means this certain Security Agreement by and between Borrower and Lender dated as of the date on the cover page hereto (as it may from time to time be amended or supplemented in writing signed by the Borrower and Lender). Ambit CN means Ambit Biosciences (Canada) Corporation, a corporation incorporated under the laws of the Province of Ontario, whollyowned by the Borrower GrowthWorks Canadian Fund Ltd., and Osler, Hoskin & Harcourt LLP. Ambit UK means Ambit Europe Limited, a limited company registered in England and Wales, wholly-owned by the Borrower. Borrower means the Borrower as set forth on the cover page of this Agreement. Business Day means any day that is not a Saturday, Sunday, or other day on which banking institutions are authorized or required to close in Virginia or California. Claim has the meaning given such term in Section 10.3 of this Agreement. Code means the Uniform Commercial Code as adopted and in effect in the Commonwealth of Virginia, as amended from time to time; provided that if by reason of mandatory provisions of law, the creation and/or perfection or the effect of perfection or non-perfection of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than Virginia, the term Code shall also mean the Uniform Commercial Code as in effect from time to time in such jurisdiction for purposes of the provisions hereof relating to such creation, perfection or effect of perfection or non-perfection. 1
Collateral has the meaning given such term in Section 4.1 of this Agreement. Default means any event which with the passing of time or the giving of notice or both would become an Event of Default hereunder. Default Rate means the per annum rate of interest equal to five percent (5%) over the rate that is otherwise applicable thereto pursuant to the Notes, but such rate shall in no event be more than the highest rate permitted by applicable law to be charged on commercial loans in a default situation. Disclosure Schedule means Exhibit A attached hereto. Dollars means lawful currency of the United States. Environmental Laws means all foreign, federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act and the Emergency Planning and Community Right-to-Know Act. Equity Securities of any Person means (a) all common stock, preferred stock, participations, shares, partnership interests, membership interests or other equity interests in and of such Person (regardless of how designated and whether or not voting or non-voting) and (b) all warrants, options and other rights to acquire any of the foregoing. ERISA has the meaning given to such term in Section 7.12 of this Agreement. Event of Default has the meaning given to such term in Section 8 of this Agreement. GAAP means generally accepted accounting principles as in effect in the United States of America from time to time, consistently applied. Governmental Approval is any consent, authorization, approval, order, licenses, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority. Governmental Authority means (a) any federal, state, county, municipal or foreign government, or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality or public body, (c) any court or administrative tribunal, or (d) with respect to any Person, any arbitration tribunal or other non-governmental authority to whose jurisdiction that Person has consented. Hazardous Materials means all those substances which are regulated by, or which may form the basis of liability under, any Environmental Law, including all substances identified 2
under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste. Horizon means Compass Horizon Funding Company LLC, a Delaware limited liability company. Indebtedness means, with respect to Borrower or any Subsidiary, the aggregate amount of, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services (excluding trade payables aged less than one hundred eighty (180) days), (d) all capital lease obligations of such Person, (e) all obligations or liabilities of others secured by a Lien on any asset of such Person, whether or not such obligation or liability is assumed, (f) all obligations or liabilities of others guaranteed by such Person, and (g) any other obligations or liabilities which are required by GAAP to be shown as debt on the balance sheet of such Person. Unless otherwise indicated, the term Indebtedness shall include all Indebtedness of Borrower and the Subsidiaries. Indemnified Person has the meaning given such term in Section 10.3 of this Agreement. Intellectual Property means all of Borrowers right, title and interest in and to patents, patent rights (and applications and registrations therefor and divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same), patent licenses, trademarks and service marks (and applications and registrations therefor and the goodwill associated therewith), trademark and service mark licenses, inventions, copyrights (including applications and registrations therefor and like protections in each work or authorship and derivative work thereof), copyright licenses, mask works (and applications and registrations therefor), trade names, trade styles, software and computer programs, source code, object code, trade secrets, methods, processes, know how, drawings, specifications, descriptions, and all memoranda, notes, and records with respect to any research and development, all whether now owned or subsequently acquired or developed by Borrower and whether in tangible or intangible form or contained on magnetic media readable by machine together with all such magnetic media (but not including embedded computer programs and supporting information included within the definition of goods under the Code). Investment means the purchase or acquisition of any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or the extension of any advance, loan, extension of credit or capital contribution to, or any other investment in, or deposit with, any Person. Investor Loan Agreement means that certain Note and Warrant Purchase Agreement dated as of June 4, 2009 by and among Borrower and the Investors. Investors means the parties listed in the Schedule of Purchasers (as defined in the Investor Loan Agreement) attached to the Investor Loan Agreement. 3
Landlord Agreement means an agreement substantially in the form provided by Lender to Borrower or such other form as Lender may agree to accept. Lender means Oxford Finance Corporation. Lenders Expenses means all reasonable costs or expenses (including reasonable attorneys fees and expenses) incurred in connection with the preparation, negotiation, documentation, administration and funding of the Loan Documents; and Lenders reasonable attorneys fees, costs and expenses incurred in amending, modifying, enforcing or defending the Loan Documents (including fees and expenses of appeal or review), including the exercise of any rights or remedies afforded hereunder or under applicable law, whether or not suit is brought, whether before or after bankruptcy or insolvency, including without limitation all fees and costs incurred by Lender in connection with Lenders enforcement of its rights in a bankruptcy or insolvency proceeding filed by or against Borrower or its Property. Lien means any voluntary or involuntary security interest, pledge, bailment, lease, mortgage, hypothecation, conditional sales and title retention agreement, encumbrance or other lien with respect to any Property in favor of any Person. Loan or Loans means an advance or advances of credit by Lender to Borrower under the Notes. Loan Documents means, collectively, the Notes, this Agreement, any Landlord Agreement, any Account Control Agreement and all other documents, instruments and agreements entered into in connection with this Agreement, including, without limitation, under any guaranty of the Obligations or any document providing security for such guaranty, all as amended or extended from time to time. Note has the meaning given such term in Section 2 of this Agreement. Obligations means all debt, principal, interest, fees, charges, expenses and attorneys fees and costs and other amounts, obligations, covenants, and duties owing by Borrower to Lender of any kind and description (whether pursuant to or evidenced by the Notes, the other Loan Documents, or by any other agreement between Lender and Borrower, and whether or not for the payment of money), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, including all Lenders Expenses; provided that Obligations shall not include any amounts, obligations, covenants or duties owing by Borrower to Lender under the Warrants. Perfection Certificate means that certain Perfection Certificate completed and executed by the Borrower and delivered to the Lender and Horizon on or before the date hereof. Permitted Indebtedness means and includes: (a) Indebtedness of Borrower to Lender and/or Horizon; 4
(b) Indebtedness of Borrower incurred after the date hereof in an original aggregate principal amount not to exceed One Million Five Hundred Thousand Dollars ($1,500,000) which is secured by Liens permitted under clause (e) of the definition of Permitted Liens; (c) Indebtedness arising from the endorsement of instruments in the ordinary course of business; (d) Unsecured indebtedness to trade creditors arising from the endorsement of instruments in the ordinary course of business; (e) Indebtedness existing on the date hereof and set forth on the Disclosure Schedule; (f) Indebtedness subordinated to the Obligations, provided that, such subordination terms and conditions are acceptable to Lender in its sole discretion; (g) Other Indebtedness in an original aggregate principal amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000); (h) Intercompany Indebtedness owing from Borrower to Ambit CN in an aggregate original principal amount not to exceed Four Million Dollars ($4,000,000); and (i) Extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower. Permitted Investments means and includes any of the following Investments as to which Lender has a perfected security interest: (j) Deposits and deposit accounts with commercial banks organized under the laws of the United States or a state thereof if such institution has an aggregate capital and surplus of not less than One Hundred Million Dollars ($100,000,000); (k) Investments in marketable obligations issued or fully guaranteed by the United States and maturing not more than one (1) year from the date of issuance; (l) Investments in open market commercial paper rated at least A1 or P1 or higher by a national credit rating agency and maturing not more than one (1) year from the creation thereof; (m) Investments pursuant to or arising under currency agreements or interest rate agreements entered into in the ordinary course of business; 5
(n) Investments consisting of notes receivable of, or prepaid royalties or other credit extensions to, customers and suppliers who are not Affiliates in the ordinary course of business; (o) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business; (p) Investments consisting of Borrowers accounts receivable in the ordinary course of business; (q) Investments, not requiring the use of cash or the assumption of liabilities, in joint ventures, partnerships or similar business arrangements entered into in the ordinary course of business in substantially the same industry and growth stage as Borrower; (r) Investments consisting of loans to employees, officers or directors of Borrower relating to: (x) the purchase of equity securities of Borrower pursuant to Borrowers employee stock option plan, stock purchase plan or other similar arrangements approved by the Borrowers board of directors; (y) Borrowers compensation or relocation plans or agreements each as approved in good faith by the Borrowers board of directors; or (z) travel advances, employee relocation loans and other employee loans and advances in the ordinary course of business; provided, however, that the aggregate amount of cash used for such Investments relating to subsections (x), (y) and (z) above outstanding at any time shall not exceed $500,000 without Lenders prior written consent; (s) Investments made pursuant to an investment policy adopted in good faith by the Borrowers Board of directors but outside those categories of Investments described in (a) through (c) above; provided that the aggregate amount of such investments shall not exceed $100,000 without Lenders prior written consent; (t) Investments not requiring the use of Borrowers cash, consisting of Borrowers receipt of equity securities of a business partner as consideration for strategic transactions with such business partner; (u) Investments consisting of the acquisitions of shares of stock held by GrowthWorks Canadian Fund Ltd. ( GrowthWorks) in Ambit CN pursuant to that certain Amended and Restated Put Agreement by and among Borrower, Ambit CN and Canadian Medical Discoveries Fund, Inc. dated October 30, 2007 as amended by that certain Amendment to Amended and Restated Put Agreement by and among Borrower, Ambit CN and GrowthWorks dated July 8, 2009; provided that the consideration for such acquisitions may consist of: (a) shares of the Borrower, or (b) upon prior written consent of the Lender, which consent shall be at Lenders sole discretion, Borrowers cash; (v) Investments consisting of loans or equity investments in (x) Ambit CN in an amount not to exceed Ten Thousand Dollars ($10,000) in any fiscal year of Borrower 6
and (y) Ambit UK in an amount not to exceed Ten Thousand Dollars ($10,000) in any fiscal year of Borrower; and (w) Other Investments aggregating not in excess of Two Hundred Fifty Thousand Dollars ($250,000) at any time. Permitted Liens means and includes: (a) the Lien created by this Agreement and the Liens created by the Venture Loan and Security Agreement; (b) Liens for fees, taxes, levies, imposts, duties or other governmental charges of any kind which are not yet delinquent or which are being contested in good faith by appropriate proceedings which suspend the collection thereof ( provided that such appropriate proceedings do not involve any substantial danger of the sale, forfeiture or loss of any material item of Collateral which in the aggregate is material to Borrower and that Borrower has adequately bonded such Lien or reserves sufficient to discharge such Lien have been provided on the books of Borrower); (c) Liens identified on the Disclosure Schedule; (d) carriers, warehousemens, mechanics, materialmens, repairmens or other similar Liens arising in the ordinary course of business and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings (provided that such appropriate proceedings do not involve any substantial danger of the sale, forfeiture or loss of any material item of Collateral or Collateral which in the aggregate is material to Borrower and that Borrower has adequately bonded such Lien or reserves sufficient to discharge such Lien have been provided on the books of Borrower); (e) Liens upon any equipment or other personal property acquired by Borrower after the date hereof to secure (i) the purchase price of such equipment or other personal property, or (ii) lease obligations or indebtedness incurred solely for the purpose of financing the acquisition of such equipment or other personal property; provided that (A) such Liens are confined solely to the equipment or other personal property so acquired and the proceeds thereof and the amount secured does not exceed the acquisition price thereof, and (B) no such Lien shall be created, incurred, assumed or suffered to exist in favor of Borrowers officers, directors or shareholders holding five percent (5%) or more of Borrowers Equity Securities; (f) licenses of Intellectual Property presently existing or hereafter entered into in the ordinary course of business, consistent with industry practice and with the consent of Borrowers Board of Directors, including without limitation, a research and/or development collaboration or partnering event with one or more parties that would include licensing one or more of Borrowers product development programs; (g) any interest or title of a licensor or licensee under any license or sublicense to Borrower; 7
(h) bankers liens, rights of setoff and similar Liens incurred on deposits made in the ordinary course of business and Liens in favor of financial institutions arising in connection with Borrowers deposit accounts or securities accounts held at such institutions to secure customary fees and charges; (i) any judgment, attachment or similar Lien unless the judgment it secures has not been discharged or execution thereof effectively stayed and bonded against pending appeal within 45 days of the entry thereof; (j) Liens to secure payment of workers compensation, unemployment insurance, old age pensions or other social security obligations of Borrower in the ordinary course of business; (k) easements, reservations, rights-of-way, restrictions, minor defects or irregularities in title and similar charges or encumbrances affecting real property not constituting a material adverse effect on the business or condition (financial or otherwise) of Borrower; (l) Liens securing Permitted Indebtedness permitted by clause (f) of the definition thereof, provided that, such subordination terms and conditions are acceptable to Lenders in its sole discretion; and (m) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described above but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase. Person means and includes any individual, any partnership, any corporation, any business trust, any joint stock company, any limited liability company, any unincorporated association or any other entity and any domestic or foreign national, state or local government, any political subdivision thereof, and any department, agency, authority or bureau of any of the foregoing. Property means any interest in any kind of property or asset, whether real, personal or mixed, whether tangible or intangible. Solvent has the meaning given such term in Section 5.11 of this Agreement. Subsidiary means any corporation or other entity of which a majority of the outstanding Equity Securities entitled to vote for the election of directors or other governing body (otherwise than as the result of a default) is owned by Borrower directly or indirectly through Subsidiaries. Transfer has the meaning given such term in Section 7.4 of this Agreement. Venture Loan and Security Agreement is that certain Venture Loan and Security Agreement dated as of the date hereof, by and among Borrower, as borrower, Horizon, as agent and a lender, and Lender, as a lender. 8
Warrants means one or more warrants dated on or prior to the date hereof in favor of the Lender or its designee to purchase securities of Borrower. 1.2 Construction. References in this Agreement to Articles, Sections, Exhibits, Schedules and Annexes are to recitals, articles, sections, exhibits, schedules and annexes herein and hereto unless otherwise indicated. References in this Agreement and each of the other Loan Documents to any document, instrument or agreement shall include (a) all exhibits, schedules, annexes and other attachments thereto, (b) all documents, instruments or agreements issued or executed in replacement thereof, and (c) such document, instrument or agreement, or replacement or predecessor thereto, as amended, modified and supplemented from time to time and in effect at any given time. The words hereof, herein and hereunder and words of similar import when used in this Agreement or any other Loan Document shall refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. The words include and including and words of similar import when used in this Agreement or any other Loan Document shall not be construed to be limiting or exclusive. Unless otherwise indicated in this Agreement or any other Loan Document, all accounting terms used in this Agreement or any other Loan Document shall be construed, and all accounting and financial computations hereunder or thereunder shall be computed, in accordance with GAAP, and all terms describing Collateral shall be construed in accordance with the Code. The terms and information set forth on the cover page of this Agreement are incorporated into this Agreement. 2. Notes; Master Security Agreement . Borrower has borrowed funds from Lender pursuant to (a) certain promissory notes executed in connection with a Master Security Agreement #2081012 between Borrower and Lender dated as of November 15, 2002, and (b) certain promissory notes executed in connection with a Master Security Agreement #6081115 between Borrower and Lender dated as of June 21, 2006 (such promissory notes, as each may be amended from time to time, collectively, the Notes and such Master Security Agreements, collectively, the Master Security Agreements). Pursuant to that certain Assignment and Assumption Agreement dated as of March , 2010, Webster Bank, National Association, assigned all of its right, title and interest in and to the Notes and Master Security Agreements to Lender. Lender represents and warrants to Borrower that, as of the date hereof, it is the sole lender thereunder. To the extent that any provision of this Agreement conflicts with any provision of the Master Security Agreements, the provision of this Agreement shall govern. 3. Intentionally Omitted. 4. Creation of Security Interest. 4.1 Grant of Security Interest . Borrower grants to Lender a valid, first priority, continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt, full and complete payment of any and all Obligations and in order to secure prompt, full and complete performance by Borrower of each of its covenants and duties under the Notes and each of the other Loan Documents (other than the Warrants). The 9
Collateral shall mean and include all right, title, interest, claims and demands of Borrower in and to all personal property of Borrower, including without limitation, all of the following: (a) All goods (and embedded computer programs and supporting information included within the definition of goods under the Code) and equipment now owned or hereafter acquired, including, without limitation, all laboratory equipment, computer equipment, office equipment, machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located; (b) All inventory now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of Borrowers custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrowers books relating to any of the foregoing; (c) All contract rights and general intangibles (excluding Intellectual Property), now owned or hereafter acquired, including, without limitation, goodwill, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, software, computer programs, computer disks, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payment intangibles, commercial tort claims, payments of insurance and rights to payment of any kind; (d) All now existing and hereafter arising accounts, contract rights, royalties, license rights, license fees and all other forms of obligations owing to Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Borrower (subject, in each case, to the contractual rights of third parties to require funds received by Borrower to be expended in a particular manner), whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrowers books relating to any of the foregoing; (e) All documents, cash, deposit accounts, letters of credit (whether or not the letter of credit is evidenced by a writing), certificates of deposit, instruments, promissory notes, chattel paper (whether tangible or electronic) and investment property, including, without limitation, all securities, whether certificated or uncertificated, security entitlements, securities accounts, commodity contracts and commodity accounts, and all financial assets held in any securities account or otherwise, wherever located, now owned or hereafter acquired and Borrowers books relating to the foregoing; (f) Any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof, including, without 10
limitation, insurance, condemnation, requisition or similar payments and proceeds of the sale or licensing of Intellectual Property; but (g) Notwithstanding the foregoing, the grant of a security interest as provided herein shall not extend to, and the term Collateral shall not include (a) any Intellectual Property; provided, however, that the Collateral shall include all accounts receivables, accounts, and general intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in, the foregoing (the Rights to Payment), (b) intent-to-use trademarks at all times prior to the first use thereof, whether such first use thereof occurs by the actual use thereof in commerce, the recording of a statement of use with the United States Patent and Trademark Office or otherwise, (c) any contract, instrument or chattel paper in which the Borrower has any right, title or interest if and to the extent any such contract, instrument or chattel paper includes a provision containing a restriction on assignment such that the creation of a security interest in the right, title or interest of Borrower therein would be prohibited and would, in and of itself, cause or result in a default thereunder enabling another person party to such contract, instrument or chattel paper to enforce any remedy with respect thereto (provided that the foregoing exclusion shall not apply if (i) such prohibition has been waived or such person has otherwise consented to the creation hereunder of a security interest in such contract, instrument or chattel paper or (ii) such prohibition would be rendered ineffective pursuant to Sections 9-407(a) or 9-408(a) of the Code, as applicable and as then in effect in any relevant jurisdiction, or any other applicable law (including the federal bankruptcy code) or principles of equity; provided further that immediately upon the ineffectiveness, lapse or termination of any such provision, the Collateral shall include, and Borrower shall be deemed to have granted a security interest in, all its rights, title and interest in and to such contract, instrument or chattel paper as if such provision had never been in effect; and provided further that the foregoing exclusion shall in no way be construed so as to limit, impair or otherwise affect Lenders unconditional continuing security interest in and to all rights, title and interests of Borrower in or to any payment obligations or other rights to receive monies due or to become due under any such contract, instrument or chattel paper and in any such monies and other proceeds of such contract, instrument or chattel paper), or (d) more than 65% of the total combined voting power of all classes of stock entitled to vote the shares of capital stock of any Subsidiary of Borrower not incorporated or organized under the laws of one of the States or jurisdictions of the United States. Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of the date hereof, include the Intellectual Property to the extent necessary to permit perfection of Lenders security interest in the Rights to Payment. 4.2 After-Acquired Property. If Borrower shall at any time acquire a commercial tort claim, as defined in the Code, Borrower shall immediately notify Lender in writing signed by Borrower of the brief details thereof and grant to Lender in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to Lender. 11
4.3 Duration of Security Interest . Lenders security interest in the Collateral shall continue until the payment in full and the satisfaction of all Obligations (other than inchoate indemnity obligations) and termination of Lenders commitment to fund the Loans whereupon such security interest shall terminate. Lender shall, at Borrowers sole cost and expense, execute such further documents and take such further actions as may be reasonably necessary to make effective the release contemplated by this Section 4.3, including duly authorizing and delivering termination statements for filing in all relevant jurisdictions under the Code. 4.4 Location and Possession of Collateral . The Collateral is and shall remain in the possession of Borrower at its location listed on the cover page hereof or as set forth in the Disclosure Schedule or Perfection Certificate. Notwithstanding the foregoing, Borrower shall be allowed to relocate Collateral; provided that, Borrower shall provide Lender five (5) Business Days prior written notice of such re-location of Collateral and, if such location is not subject to a landlord agreement or bailee waiver in favor of Lender, Borrower shall provide Lender with such landlord agreement or bailee waiver within thirty (30) days of such notice. Borrower shall remain in full possession, enjoyment and control of the Collateral (except only as may be otherwise required by Lender for perfection of its security interest therein or as otherwise set forth in the Disclosure Schedule or Perfection Certificate) and so long as no Event of Default has occurred and is continuing, shall be entitled to manage, operate and use the same and each part thereof with the rights and franchises appertaining thereto; provided that the possession, enjoyment, control and use of the Collateral shall at all time be subject to the observance and performance of the terms of this Agreement. 4.5 Delivery of Additional Documentation Required . Borrower shall from time to time execute and deliver to Lender, at the request of Lender, all financing statements and other documents Lender may reasonably request, in form satisfactory to Lender, to perfect and continue Lenders perfected security interests in the Collateral and in order to consummate fully all of the transactions contemplated under the Loan Documents. 4.6 Right to Inspect. Lender (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrowers usual business hours, but, if an Event of Default has not occurred and is continuing, not more than twice per year, to inspect Borrowers books and records and to make copies thereof and to inspect, test, and appraise the Collateral in order to verify Borrowers financial condition or the amount, condition of, or any other matter relating to, the Collateral. 4.7 Protection of Intellectual Property . While any Obligations remain outstanding Borrower shall (i) protect, defend and maintain the validity and enforceability of its Intellectual Property material to Borrowers business and promptly advise Lender in writing of material infringements, and (ii) not allow any Intellectual Property material to Borrowers business to be abandoned, forfeited or dedicated to the public without Lenders written consent. 4.8 Lien Subordination. Lenders agree that the Liens granted to it hereunder in Third Party Equipment shall be subordinate to the Liens of existing or future lenders providing equipment financing and equipment lessors for equipment and other personal property acquired 12
by Borrower after the date hereof (Third Party Equipment) or, if such lenders prohibit the granting of Liens to other lenders, Lenders shall waive its Lien with respect to such equipment at the request of such equipment lender; provided that, such Liens (a) are confined solely to the equipment so financed and the proceeds thereof and (b) are Permitted Liens. Notwithstanding the foregoing, the Obligations hereunder shall not be subordinate in right of payment to any obligations to other equipment lenders or equipment lessors and Lenders rights and remedies hereunder shall not in any way be subordinate to the rights and remedies of any such lenders or equipment lessors. So long as no Event of Default has occurred and is continuing, Lenders agree to execute and deliver such agreements and documents as may be reasonably requested by Borrower from time to time which set forth the lien subordination described in this Section 4.8 and are reasonably acceptable to Lenders. Lenders shall have no obligation to execute any agreement or document which would impose obligations, restrictions or lien priority on Lenders which are less favorable to Lenders than those described in this Section 4.8. 5. Representations and Warranties. Except as set forth in the Disclosure Schedule, Borrower represents and warrants as follows: 5.1 Organization and Qualification. Borrower is a corporation duly organized and validly existing under the laws of its state of incorporation and qualified and licensed to do business in, and is in good standing in, any state in which the conduct of its business or its ownership of Property requires that it be so qualified or in which the Collateral is located, except for such states as to which any failure to so qualify would not have a material adverse effect on Borrower. 5.2 Authority. Borrower has all necessary power and authority to execute, deliver, and perform in accordance with the terms thereof, the Loan Documents to which it is a party. Borrower has all requisite power and authority to own and operate its Property and to carry on its businesses as now conducted. Borrower has obtained all licenses, permits, approvals and other authorizations necessary for the operation of its business. 5.3 Conflict with Other Instruments, etc . Neither the execution and delivery of any Loan Document to which Borrower is a party nor the consummation of the transactions therein contemplated nor compliance with the terms, conditions and provisions thereof will conflict with or result in a breach of any of the terms, conditions or provisions of the certificate of incorporation, the by-laws, or any other organizational documents of Borrower or any law or any regulation, order, writ, injunction or decree of any court or governmental instrumentality or any material agreement or instrument to which Borrower is a party or by which it or any of its Property is bound or to which it or any of its Property is subject, or constitute a default thereunder or result in the creation or imposition of any Lien, other than Permitted Liens. 5.4 Authorization; Enforceability. The execution and delivery of this Agreement, the granting of the security interest in the Collateral, the incurring of the Loans, the execution and delivery of the other Loan Documents to which Borrower is a party and the consummation of the transactions herein and therein contemplated have each been duly authorized by all necessary action on the part of Borrower. No authorization, consent, approval, license or exemption of, and no registration, qualification, designation, declaration or filing 13
with, or notice to, any Person is, was or will be necessary to (i) the valid execution and delivery of any Loan Document to which Borrower is a party, (ii) the performance of Borrowers obligations under any Loan Document, or (iii) the granting of the security interest in the Collateral, except for filings in connection with the perfection of the security interest in any of the Collateral. The Loan Documents have been duly executed and delivered and constitute legal, valid and binding obligations of Borrower, enforceable in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws of general application relating to or affecting the enforcement of creditors rights or by general principles of equity. 5.5 No Prior Encumbrances. Borrower has good and marketable title to the Collateral, free and clear of Liens except for Permitted Liens. Borrower has good title and ownership of, or is licensed under, all of Borrowers current Intellectual Property. Borrower has not received any communications alleging that Borrower has violated, or by conducting its business as proposed, would violate any proprietary rights of any other Person. Borrower has no knowledge of any infringement or violation by it of the intellectual property rights of any third party and has no knowledge of any violation or infringement by a third party of any of its Intellectual Property. The Collateral and the Intellectual Property constitute substantially all of the assets and property of Borrower. 5.6 Name; Location of Chief Executive Office, Principal Place of Business and Collateral . Borrower has not done business under any name other than that specified on the signature page hereof. Borrowers jurisdiction of incorporation, chief executive office, principal place of business, and the place where Borrower maintains its records concerning the Collateral are presently located in the state and at the address set forth on the cover page of this Agreement. The Collateral is presently located at the address set forth on the cover page hereof or as set forth in the Disclosure Schedule. 5.7 Litigation. There are no actions or proceedings pending by or against Borrower before any court or administrative agency in which an adverse decision could have a material adverse effect on Borrower or the aggregate value of the Collateral. Borrower does not have knowledge of any such pending or threatened actions or proceedings. 5.8 Financial Statements. All financial statements relating to Borrower or any Affiliate that have been or may hereafter be delivered by Borrower to Lender present fairly in all material respects Borrowers financial condition as of the date thereof and Borrowers results of operations for the period then ended. 5.9 No Material Adverse Effect . No event has occurred and no condition exists which could reasonably be expected to have a material adverse effect on the financial condition, business or operations of Borrower since December 31, 2008. 5.10 Full Disclosure. No representation, warranty or other statement made by Borrower in any Loan Document (including the Disclosure Schedule), certificate or written statement furnished to Lender contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or 14
statements not misleading, it being recognized by Lender that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not to be viewed as facts and that actual results during the period or periods covered by any such projections and forecasts may differ from the projected or forecasted results. There is no fact known to Borrower which materially adversely affects, or which could in the future be reasonably expected to materially adversely affect, its ability to perform its obligations under this Agreement. 5.11 Solvency, Etc. Borrower is Solvent (as defined below) and, after the execution and delivery of the Loan Documents and the consummation of the transactions contemplated thereby, Borrower will be Solvent. Solvent means, with respect to any Person on any date, that on such date (a) the fair value of the property of such Person is greater than the fair value of the liabilities (including, without limitation, contingent liabilities) of such Person, (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Persons ability to pay as such debts and liabilities mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Persons property would constitute an unreasonably small capital. 5.12 Subsidiaries. Borrower has no Subsidiaries, except as set forth on the Disclosure Schedule. 5.13 Material Licenses. Except as set forth on Schedule 5.13 hereto, if any, Borrower is not a party to, nor is it bound by, any material license. 5.14 Catastrophic Events; Labor Disputes . Neither Borrower nor its properties is or has been affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or other casualty that could reasonably be expected to have a material adverse effect on the financial condition, business or operations of Borrower. There are no disputes presently subject to grievance procedure, arbitration or litigation under any of the collective bargaining agreements, employment contracts or employee welfare or incentive plans to which Borrower is a party, and there are no strikes, lockouts, work stoppages or slowdowns, or, to the knowledge of Borrower, jurisdictional disputes or organizing activity occurring or threatened which could reasonably be expected to have a material adverse effect on the financial condition, business or operations of Borrower. 5.15 Certain Agreements of Officers, Employees and Consultants . (a) No Violation. To the knowledge of Borrower, no officer, employee or consultant of Borrower is, or is now expected to be, in violation of any term of any employment contract, proprietary information agreement, nondisclosure agreement, noncompetition agreement or any other material contract or agreement or any restrictive covenant relating to the right of any such officer, employee or consultant to be employed by Borrower because of the nature of the business conducted or to be conducted by Borrower or relating to the use of trade 15
secrets or proprietary information of others, and to Borrowers knowledge, the continued employment of Borrowers officers, employees and consultants does not subject Borrower to any material liability for any claim or claims arising out of or in connection with any such contract, agreement, or covenant. (b) No Present Intention to Terminate. To the knowledge of Borrower, no officer of Borrower, and no employee or consultant of Borrower whose termination, either individually or in the aggregate, could reasonably be expected to have a material adverse effect on the financial condition, business or operations of Borrower, has any present intention of terminating his or her employment or consulting relationship with Borrower. 6. Affirmative Covenants. Borrower, until the full and complete payment of the Obligations (other than inchoate indemnity obligations), covenants and agrees that: 6.1 Good Standing. Borrower shall maintain its corporate existence and its good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which the failure to so qualify could reasonably be expected to have a material adverse effect on the financial condition, operations or business of Borrower. Borrower shall maintain in force all licenses, approvals and agreements, the loss of which could reasonably be expected to have a material adverse effect on its financial condition, operations or business. 6.2 Government Compliance. Borrower shall comply with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could reasonably be expected to materially adversely affect the financial condition, operations or business of Borrower. Borrower shall obtain all government approvals necessary for the performance by Borrower of its Obligations under the Loan Documents to which it is a party and the grant of a security interest for Lender. 6.3 Notice of Defaults . As soon as possible, and in any event within five (5) days after the discovery of a Default or an Event of Default, Borrower shall provide Lender with a certificate setting forth the facts relating to or giving rise to such Default or Event of Default and the action which Borrower proposes to take with respect thereto. 6.4 Taxes. Borrower shall make due and timely payment or deposit of all federal, state, and local taxes, assessments, or contributions required of it by law or imposed upon any Property belonging to it, and will execute and deliver to Lender, on demand, appropriate certificates attesting to the payment or deposit thereof; and Borrower will make timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Lender with proof satisfactory to Lender indicating that Borrower has made such payments or deposits; provided that Borrower may defer any payment of contested taxes if the amount or validity of such payment is contested in good faith by appropriate proceedings which suspend the collection thereof (provided that such proceedings do not involve any substantial danger of the sale, forfeiture or loss of any material item of Collateral or Collateral which in the aggregate is material to Borrower and that 16
Borrower has adequately bonded such amounts or reserves sufficient to discharge such amounts have been provided on the books of Borrower). 6.5 Use; Maintenance. Borrower shall keep and maintain all items of equipment and other similar types of personal property that form any significant portion or portions of the Collateral in good operating condition and repair, ordinary wear and tear excepted, and shall make all necessary replacements thereof and renewals thereto so that the value and operating efficiency thereof shall at all times be maintained and preserved. Borrower shall not permit any such material item of Collateral to become a fixture to real estate or an accession to other personal property, without the prior written consent of Lender. Borrower shall not permit any such material item of Collateral to be operated or maintained in violation of any applicable law, statute, rule or regulation. With respect to items of leased equipment (to the extent Lender has any security interest in any residual Borrowers interest in such equipment under the lease), Borrower shall keep, maintain, repair, replace and operate such leased equipment in accordance with the terms of the applicable lease. 6.6 Insurance. Borrower shall keep its business and the Collateral insured for risks and in amounts standard for companies in Borrowers industry and location, and as Lender may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are satisfactory to Lender. All property policies shall have a lenders loss payable endorsement showing Lender as an additional loss payee and all liability policies shall show Lender as an additional insured and all policies shall provide that the insurer must give Lender at least thirty (30) days notice before canceling, amending or declining to renew its policy. At Lenders request, Borrower shall deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any policy shall, at Lenders option, be payable to Lender on account of the Obligations. Notwithstanding the foregoing, so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy up to $250,000 with respect to any loss, but not exceeding $500,000 in the aggregate for all losses under all casualty policies in any one year, toward the replacement or repair of destroyed or damaged property; provided that (i) any such replaced or repaired property (a) shall be of equal or like value as the replaced or repaired Collateral and (b) shall be deemed Collateral in which Lender has been granted a first priority security interest and (ii) after the occurrence and during the continuation of an Event of Default all proceeds payable under such casualty policy shall, at the option of Lender, be payable to Lender on account of the Obligations. If Borrower fails to obtain insurance as required under Section 6.6 or to pay any amount or furnish any required proof of payment to third persons and Lender, Lender may make all or part of such payment or obtain such insurance policies required in Section 6.6, and take any action under the policies Lender deems prudent. On or prior to the date hereof, and prior to each policy renewal, Borrower shall furnish to Lender certificates of insurance or other evidence satisfactory to Lender that insurance complying with all of the above requirements is in effect. 6.7 Security Interest. Assuming the proper filing of one or more financing statement(s) identifying the Collateral with the proper state and/or local authorities, the security interests in the Collateral granted to Lender pursuant to this Agreement (i) constitute and will continue to constitute first priority security interests (except to the extent any Permitted Liens 17
may have a superior priority to Lenders Lien under this Agreement) to the extent a security interest may be perfected by the filing of such financing statement(s) and (ii) are and will continue to be superior and prior to the rights of all other creditors of Borrower (except to the extent of such Permitted Liens) to the extent a security interest may be perfected by the filing of such financing(s). Except as set forth in the Disclosure Schedule, none of Borrowers Intellectual Property is registered with either the US Patent and Trademark Office or the US Copyright Office. 6.8 Further Assurances . At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Lender to make effective the purposes of this Agreement, including without limitation, the continued perfection and priority of Lenders security interest in the Collateral. 6.9 Subsidiaries. Upon Lenders request, Borrower shall provide Lender, within twenty (20) days of such request, with a guaranty of the Obligations from its Subsidiaries and grant a security interest in any of Borrowers Subsidiarys assets to secure such guaranty. Upon Lenders request, Borrower shall grant and pledge to Lender, within twenty (20) days of such request, a perfected security interest in the stock, units or other evidence of ownership of any Subsidiary of Borrower subject to the limitations set forth in Section 4.1(g)(e) above. Notwithstanding the foregoing, (i) Borrower shall not be required to provide Lender a guaranty of the Obligations from Ambit CN, grant a security interest in the assets of Ambit CN to secure such guaranty, or grant and pledge to Lender a perfected security interest in the stock of Ambit CN until twenty (20) days after the date hereof, (ii) Borrower shall not be required to grant and pledge to Lender a perfected security interest in the stock of Ambit UK until twenty (20) days after the date hereof, and (iii) Borrower shall not be required to provide Lender a guaranty of the Obligations from Ambit UK or grant a security interest in the assets of Ambit UK to secure such guaranty unless and until Ambit UKs assets exceed $10,000. 6.10 Material Licenses. Borrower shall provide written notice to Lender within thirty (30) days of entering or becoming bound by any material license (other than over-the-counter software that is commercially available to the public). 7. Negative Covenants. Borrower, until the full and complete payment of the Obligations (other than inchoate indemnity obligations), covenants and agrees that Borrower shall not: 7.1 Chief Executive Office . Change its name, jurisdiction of incorporation, principal place of business, add any new offices or business locations including warehouses (unless such new offices or business locations contain less than $50,000 in Borrowers assets) or any of the items set forth in Section 1 of the Disclosure Schedule without thirty (30) days prior written notice to Lender. 7.2 Collateral Control. Subject to its rights under Sections 4.4 and 7.4, remove any items of Collateral from Borrowers facility located at the address set forth on the cover page hereof or as set forth on the Disclosure Schedule. 18
7.3 Liens. Create, incur, assume or suffer to exist any Lien of any kind upon any of Borrowers Property, whether now owned or hereafter acquired, except Permitted Liens. 7.4 Other Dispositions of Collateral . Convey, sell, lease or otherwise dispose of all or any part of the Collateral to any Person (collectively, a Transfer), except for: (i) Transfers of inventory in the ordinary course of business; (ii) Transfers of worn-out or obsolete equipment; (iii) Transfers permitted under subclause (f) of the definition of Permitted Liens with respect to Collateral, or (iv) other Transfers which in the aggregate do not exceed $200,000 in any fiscal year. 7.5 Distributions. (i) Pay any dividends or make any distributions on its Equity Securities; (ii) purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Securities (other than (y) redemptions of the Borrowers Series C Preferred Stock, Series C-2 Preferred Stock, and Series D Preferred Stock as permitted under the Borrowers certificate of incorporation; provided that Borrower has either obtained Lenders prior written consent to such redemptions, which consent shall be at the Lenders sole discretion, or Borrower has prepaid the Loans in full together with all accrued interest thereon and all other sums, if any, that shall have become due and payable under the Notes prior to such redemptions, and (z) repurchases pursuant to the terms of employee stock purchase plans, employee restricted stock agreements or similar arrangements in an aggregate amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in any fiscal year); (iii) return any capital to any holder of its Equity Securities as such; (iv) make any distribution of assets, Equity Securities, obligations or securities to any holder of its Equity Securities as such; or (v) set apart any sum for any such purpose; provided, however, Borrower may pay dividends payable solely in Borrowers common stock and may exchange its capital stock for another class of its capital stock. 7.6 Mergers or Acquisitions. Merge or consolidate with or into any other Person or acquire all or substantially all of the capital stock or assets of another Person other than mergers or consolidations of a Subsidiary into another Subsidiary of the Borrower or into the Borrower. 7.7 Change in Ownership. Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower or reasonably related thereto or have a material change in its ownership of greater than fifty percent (50%) (other than by the sale by Borrower of Borrowers Equity Securities in a public offering or to venture capital investors so long as Borrower identifies to Lender the venture capital investors prior to the closing of the investment). 7.8 Transactions With Affiliates/Subsidiaries. (i) Enter into any contractual obligation with any Affiliate or engage in any other transaction with any Affiliate except upon terms at least as favorable to Borrower as an arms-length transaction with Persons who are not Affiliates of Borrower or (ii) create a Subsidiary, except in compliance with Section 6.11 above. 7.9 Indebtedness Payments. (i) Prepay, redeem, purchase, defease or otherwise satisfy in any manner prior to the scheduled repayment thereof any Indebtedness for borrowed money (other than amounts due under this Agreement and the Venture Loan and Security 19
Agreement) or lease obligations other than repayment of such Indebtedness or obligations by conversion into Equity Securities of the Borrower, (ii) amend, modify or otherwise change the terms of any Indebtedness for borrowed money or lease obligations so as to accelerate the scheduled repayment thereof or (iii) repay any notes to officers, directors or shareholders, other than repayment of such notes by conversion into Equity Securities of the Borrower. 7.10 Indebtedness. Create, incur, assume or permit to exist any Indebtedness except Permitted Indebtedness. 7.11 Investments. Make any Investment except for Permitted Investments. Notwithstanding the foregoing or the definition of Permitted Investments, Permitted Investments shall not include, and Borrower and each Subsidiary is prohibited from purchasing, purchasing participations in, entering into any type of swap or other derivative transaction, or otherwise holding or engaging in any ownership interest in any type of debt instrument or any corporate or municipal bonds with a long-term nominal maturity for which the interest rate is reset through a dutch auction and more commonly referred to as an auction rate security. 7.12 Compliance. Become an investment company or a company controlled by an investment company under the Investment Company Act of 1940 or undertake as one of its important activities extending credit to purchase or carry margin stock, or use the proceeds of any Loan for that purpose; fail to meet the minimum funding requirements of the Employment Retirement Income Security Act of 1974, and its regulations, as amended from time to time ( ERISA), permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrowers business or operations or could reasonably be expected to cause a material adverse change, or permit any of its Subsidiaries to do so. 7.13 Maintenance of Accounts . (i) Maintain any deposit account or account holding securities owned by Borrower except accounts with respect to which Lender are able to take such actions as it deems necessary to obtain a perfected security interest in such accounts through one or more Account Control Agreements; or (ii) grant or allow any other Person (other than Lender and Horizon) to perfect a security interest in, or enter into any agreements with any Persons (other than Lender and Horizon) accomplishing perfection via control as to, any of its deposit accounts or accounts holding securities. 7.14 Negative Pledge Regarding Intellectual Property . Create, incur, assume or suffer to exist any Lien of any kind upon any Intellectual Property or Transfer any Intellectual Property, whether now owned or hereafter acquired, other than Liens or Transfers permitted under subsections (f) and (g) of the definition of Permitted Liens. 7.15 Cash in Subsidiaries. Permit Ambit CN to hold more than Four Million Dollars ($4,000,000) in cash or cash equivalents at any time and Ambit UK to hold more than Ten Thousand Dollars ($10,000) in cash or cash equivalents at any time. 20
8. Events of Default. Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement: 8.1 Failure to Pay. If Borrower fails to make any payments when due and payable or when declared due and payable in accordance with the Notes or the other Loan Documents (after taking into account any applicable cure period set forth therein). 8.2 Certain Covenant Defaults. If Borrower fails to perform any obligation or covenant under Section 6.6 or Section 6.9 of this Agreement or violates any of the covenants contained in Section 7 of this Agreement. 8.3 Other Covenant Defaults. If Borrower fails or neglects to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Agreement (other than as set forth in Sections 8.1, 8.2 or 8.4 through 8.15 ), in any of the other Loan Documents and Borrower has failed to cure such Default within twenty (20) days of the occurrence of such Default. During this twenty (20) day period, the failure to cure the Default is not an Event of Default. 8.4 Material Adverse Change . If there occurs a material adverse change in Borrowers business, operations or condition (financial or otherwise) or if there is a material impairment of the prospect of repayment of any portion of the Obligations owing to Lender or a material impairment in the perfection or priority of Lenders security interest in the Collateral or in the value of such Collateral. 8.5 Investor Abandonment . If Lender determines in its good faith judgment, that it is the clear intention of Borrowers investors not to continue to fund the Borrower in the amounts and within the timeframe necessary to enable Borrower to satisfy the Obligations as they become due and payable. 8.6 Seizure of Assets, Etc. If any material portion of Borrowers assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or Person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within twenty (20) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrowers assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrowers assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within twenty (20) days after Borrower receives notice thereof; provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower. 8.7 Service of Process . The service of process upon Lender seeking to attach by a trustee or other process any funds of the Borrower on deposit or otherwise held by Lender, or the delivery upon Lender of a notice of foreclosure by any Person seeking to attach or foreclose 21
on any funds of the Borrower on deposit or otherwise held by Lender, or the delivery of a notice of foreclosure or exclusive control to any entity holding or maintaining Borrowers deposit accounts or accounts holding securities by any Person (other than Lender and Horizon) seeking to foreclose or attach any such accounts or securities. 8.8 Default on Indebtedness. One or more defaults shall exist under any agreement with any third party or parties which consists of the failure to pay any Indebtedness at maturity or which results in a right by such third party or parties, whether or not exercised, to accelerate the maturity of Indebtedness in an aggregate amount in excess of One Hundred Thousand Dollars ($100,000) or a default shall exist under any other financing agreement with Lender or any of Lenders Affiliates (after giving effect to any grace or cure period). 8.9 Judgments. If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least Two Hundred Fifty Thousand Dollars ($250,000) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of twenty (20) days or more. 8.10 Misrepresentations. Any warranty, representation, statement, certification, or report made to Lender by Borrower or any officer, employee, agent, or director of Borrower shall prove to have been false or misleading in any material respect when made or furnished. 8.11 Intentionally Omitted. 8.12 Unenforceable Loan Document . If any Loan Document shall in any material respect cease to be, or Borrower shall assert that any Loan Document is not, a legal, valid and binding obligation of Borrower enforceable in accordance with its terms. 8.13 Involuntary Insolvency Proceeding . If a proceeding shall have been instituted in a court having jurisdiction in the premises seeking a decree or order for relief in respect of Borrower in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, custodian, trustee (or similar official) of Borrower or for any substantial part of its Property, or for the winding-up or liquidation of its affairs, and such proceeding shall remain undismissed or unstayed and in effect for a period of forty-five (45) consecutive days or such court shall enter a decree or order granting the relief sought in such proceeding. 8.14 Voluntary Insolvency Proceeding. If Borrower shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian (or other similar official) of Borrower or for any substantial part of its Property, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action in furtherance of any of the foregoing. 22
8.15 Governmental Approvals . Any Governmental Approval shall have been (a) revoked, rescinded, suspended, modified in an adverse manner or not renewed in the ordinary course for a full term or (b) subject to any decision by a Governmental Authority that designates a hearing with respect to any applications for renewal of any of such Governmental Approval or that could result in the Governmental Authority taking any of the actions described in clause (a) above, and such decision or such revocation, rescission, suspension, modification or non-renewal has, or could reasonably be expected to have, a material adverse effect on Borrower. 8.16 Cross-Default. Any one or more of the defaults listed in Section 7(a) of the Master Security Agreements shall constitute an Event of Default by Borrower under this Agreement. In addition, the occurrence of any Event of Default under and as defined in the Venture Loan and Security Agreement shall constitute a default under the Master Security Agreements and under this Agreement. 9. Lenders Rights and Remedies. 9.1 Rights and Remedies. Upon the occurrence of any Default or Event of Default, Lender shall not have any further obligation to advance money or extend credit to or for the benefit of Borrower. In addition, upon the occurrence of an Event of Default and during the continuance thereof, Lender shall have the rights, options, duties and remedies of a secured party as permitted by law or equity and, in addition to and without limitation of the foregoing, Lender may, at its election, without notice of election and without demand, do any one or more of the following, all of which are authorized by Borrower: (a) Acceleration of Obligations . Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, including (i) any accrued and unpaid interest, (ii) the unpaid principal balance of the Loans and (iii) all other sums, if any, that shall have become due and payable hereunder, immediately due and payable ( provided that upon the occurrence of an Event of Default described in Section 8.13 or 8.14 all Obligations shall become immediately due and payable without any action by Lender); (b) Protection of Collateral . Make such payments and do such acts as Lender considers necessary or reasonable to protect Lenders security interest in the Collateral. Borrower agrees to assemble the Collateral if Lender so require and to make the Collateral available to Lender as Lender may designate. Borrower authorizes Lender and its designees and agents to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any Lien which in Lenders determination appears or is claimed to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrowers owned premises, Borrower hereby grants Lender a license to enter into possession of such premises and to occupy the same, without charge, for up to one hundred twenty (120) days in order to exercise any of Lenders rights or remedies provided herein, at law, in equity, or otherwise; (c) Preparation of Collateral for Sale . Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for 23
herein) the Collateral. Lender and its agents and any purchasers at or after foreclosure are hereby granted a non-exclusive, irrevocable, perpetual, fully paid, royalty-free license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrowers Intellectual Property, including without limitation, labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any Property of a similar nature, now or at any time hereafter owned or acquired by Borrower or in which Borrower now or at any time hereafter has any rights; provided that such license shall only be exercisable in connection with the disposition of Collateral upon Lenders exercise of its remedies hereunder; (d) Sale of Collateral . Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrowers premises) as Lender determines are commercially reasonable; and (e) Purchase of Collateral . Credit bid and purchase all or any portion of the Collateral at any public sale. Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower. 9.2 Set Off Right . Lender may set off and apply to the Obligations any and all indebtedness at any time owing to or for the credit or the account of Borrower or any other assets of Borrower in Lenders possession or control. 9.3 Effect of Sale . Upon the occurrence of an Event of Default and during the continuance thereof, to the extent permitted by law, Borrower covenants that it will not at any time insist upon or plead, or in any manner whatsoever claim or take any benefit or advantage of, any stay or extension law now or at any time hereafter in force, nor claim, take nor insist upon any benefit or advantage of or from any law now or hereafter in force providing for the valuation or appraisement of the Collateral or any part thereof prior to any sale or sales thereof to be made pursuant to any provision herein contained, or to the decree, judgment or order of any court of competent jurisdiction; nor, after such sale or sales, claim or exercise any right under any statute now or hereafter made or enacted by any state or otherwise to redeem the property so sold or any part thereof, and, to the full extent legally permitted, except as to rights expressly provided herein, hereby expressly waives for itself and on behalf of each and every Person, except decree or judgment creditors of Borrower, acquiring any interest in or title to the Collateral or any part thereof subsequent to the date of this Agreement, all benefit and advantage of any such law or laws, and covenants that it will not invoke or utilize any such law or laws or otherwise hinder, delay or impede the execution of any power herein granted and delegated to Lender, but will suffer and permit the execution of every such power as though no such power, law or laws had been made or enacted. Any sale, whether under any power of sale hereby given or by virtue of judicial proceedings, shall operate to divest all right, title, interest, claim and demand whatsoever, either at law or in equity, of Borrower in and to the Property sold, and shall be a perpetual bar, both at law and in equity, against Borrower, its successors and 24
assigns, and against any and all Persons claiming the Property sold or any part thereof under, by or through Borrower, its successors or assigns. 9.4 Power of Attorney in Respect of the Collateral . Borrower does hereby irrevocably appoint Lender (which appointment is coupled with an interest), the true and lawful attorney in fact of Borrower with full power of substitution, for it and in its name to file any notices of security interests, financing statements and continuations and amendments thereof pursuant to the Code or federal law, as may be necessary to perfect, or to continue the perfection of Lenders security interests in the Collateral and authorizes Lender to do the same. Borrower does hereby irrevocably appoint Lender (which appointment is coupled with an interest) on the occurrence of an Event of Default and during the continuance thereof, the true and lawful attorney in fact of Borrower with full power of substitution, for it and in its name: (a) to ask, demand, collect, receive, receipt for, sue for, compound and give acquittance for any and all rents, issues, profits, avails, distributions, income, payment draws and other sums in which a security interest is granted under Section 4 with full power to settle, adjust or compromise any claim thereunder as fully as if Lender were Borrower itself; (b) to receive payment of and to endorse the name of Borrower to any items of Collateral (including checks, drafts and other orders for the payment of money) that come into Lenders possession or under Lenders control; (c) to make all demands, consents and waivers, or take any other action with respect to, the Collateral; (d) in Lenders discretion to file any claim or take any other action or proceedings, either in its own name or in the name of Borrower or otherwise, which Lender may reasonably deem necessary or appropriate to protect and preserve the right, title and interest of Lender in and to the Collateral; (e) endorse Borrowers name on any checks or other forms of payment or security; (f) sign Borrowers name on any invoice or bill of lading for any account or drafts against account debtors; (g) make, settle, and adjust all claims under Borrowers insurance policies; (h) settle and adjust disputes and claims about the accounts directly with account debtors, for amounts and on terms Lender determines reasonable; (i) transfer the Collateral into the name of Lender or a third party as the Code permits; and (j) to otherwise act with respect thereto as though Lender were the outright owner of the Collateral. 9.5 Lenders Expenses. If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Lender may do any or all of the following: (a) make payment of the same or any part thereof; or (b) obtain and maintain insurance policies of the type described in Section 6.6 of this Agreement, and take any action with respect to such policies as Lender deems prudent. Any amounts paid or deposited by Lender shall constitute Lenders Expenses, shall be immediately due and payable, shall bear interest at the Default Rate and shall be secured by the Collateral. Any payments made by Lender shall not constitute an agreement by Lender to make similar payments in the future or a waiver by Lender of any Event of Default under this Agreement. Borrower shall pay all reasonable fees and expenses, including without limitation, Lenders Expenses, incurred by Lender in the enforcement or attempt to enforce any of the Obligations hereunder not performed when due. 9.6 Remedies Cumulative. Lenders rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Lender shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. 25
No exercise by Lender of one right or remedy shall be deemed an election, and no waiver by Lender of any Event of Default on Borrowers part shall be deemed a continuing waiver. No delay by Lender shall constitute a waiver, election, or acquiescence by it. 9.7 Application of Collateral Proceeds . The proceeds and/or avails of the Collateral, or any part thereof, and the proceeds and the avails of any remedy hereunder (as well as any other amounts of any kind held by Lender, at the time of or received by Lender after the occurrence of an Event of Default hereunder) shall be paid to and applied as follows: (a) First, to the payment of out-of-pocket costs and expenses, including all amounts expended to preserve the value of the Collateral, of foreclosure or suit, if any, and of such sale and the exercise of any other rights or remedies, and of all proper fees, expenses, liability and advances, including reasonable legal expenses and attorneys fees, incurred or made hereunder by Lender, including, without limitation, Lenders Expenses; (b) Second, to the payment to Lender of the amount then owing or unpaid on the Loans for any accrued and unpaid interest, the principal balance of the Loans, and all other Obligations with respect to the Loans ( provided, however, if such proceeds shall be insufficient to pay in full the whole amount so due, owing or unpaid upon the Loans, then to the unpaid interest thereon, then to the principal balance of the Loans, and then to the payment of other amounts then payable to Lender under any of the Loan Documents); and (c) Third, to the payment of the surplus, if any, to Borrower, its successors and assigns, or to the Person lawfully entitled to receive the same. 9.8 Reinstatement of Rights . If Lender shall have proceeded to enforce any right under this Agreement or any other Loan Document by foreclosure, sale, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely, then and in every such case (unless otherwise ordered by a court of competent jurisdiction), Lender shall be restored to its former position and rights hereunder with respect to the Property subject to the security interest created under this Agreement. 9.9 Control Agreements . Notwithstanding anything contained herein or in any control agreement entered into among Lender, Horizon, Borrower, and any bank or securities intermediary to the contrary, Lender agrees that it will not deliver to such bank or securities intermediary a notice of exclusive control or otherwise exercise exclusive control over the deposit account or securities account that is the subject of such control agreement unless and until an Event of Default has occurred and during such time as when such Event of Default has not been waived by Lender. 10. Waivers; Indemnification. 10.1 Demand; Protest. Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, 26
documents, instruments, chattel paper, and guarantees at any time held by Lender on which Borrower may in any way be liable. 10.2 Lenders Liability for Collateral. So long as Lender complies with its obligations, if any, under the Code, Lender shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause other than Lenders gross negligence or willful misconduct; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower. 10.3 Indemnification and Waiver. Whether or not the transactions contemplated hereby shall be consummated: (a) General Indemnity. Borrower agrees upon demand to pay or reimburse Lender for all liabilities, obligations and out-of-pocket expenses, including Lenders Expenses and reasonable fees and expenses of counsel for Lender from time to time arising in connection with the enforcement or collection of sums due under the Loan Documents, and in connection with any amendment or modification of the Loan Documents or any work-out in connection with the Loan Documents. Borrower shall indemnify, reimburse and hold Lender, and its respective successors, assigns, agents, attorneys, officers, directors, equity holders, servants, agents and employees (each an Indemnified Person) harmless from and against all liabilities, losses, damages, actions, suits, demands, claims of any kind and nature (including claims relating to environmental discharge, cleanup or compliance), all costs and expenses whatsoever to the extent they may be incurred or suffered by such Indemnified Person in connection therewith (including reasonable attorneys fees and expenses), fines, penalties (and other charges of any applicable Governmental Authority), licensing fees relating to any item of Collateral, damage to or loss of use of property (including consequential or special damages to third parties or damages to Borrowers property), or bodily injury to or death of any person (including any agent or employee of Borrower) (each, a Claim), directly or indirectly relating to or arising out of the use of the proceeds of the Loans or otherwise, the falsity of any representation or warranty of Borrower or Borrowers failure to comply with the terms of this Agreement or any other Loan Document. The foregoing indemnity shall cover, without limitation, (i) any Claim in connection with a design or other defect (latent or patent) in any item of equipment or product included in the Collateral, (ii) any Claim for infringement of any patent, copyright, trademark or other intellectual property right, (iii) any Claim resulting from the presence on or under or the escape, seepage, leakage, spillage, discharge, emission or release of any Hazardous Materials on the premises owned, occupied or leased by Borrower, including any Claims asserted or arising under any Environmental Law, (iv) any Claim for negligence or strict or absolute liability in tort, or (v) any Claim asserted as to or arising under any Account Control Agreement or any Landlord Agreement; provided, however, Borrower shall not indemnify any Indemnified Person for any liability incurred by such Indemnified Person as a direct and sole result of such Indemnified Persons gross negligence or willful misconduct. Such indemnities shall continue in full force and effect, notwithstanding the expiration or termination of this Agreement. Upon Lenders written demand, Borrower shall assume and diligently conduct, at its sole cost and expense, the entire defense of Lender, its members, 27
partners, agents, employees, directors, officers, equity holders, successors and assigns against any indemnified Claim described in this Section 10.3(a). Borrower shall not settle or compromise any Claim against or involving Lender without first obtaining Lenders written consent thereto, which consent shall not be unreasonably withheld. (b) Waiver. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT OR ANYWHERE ELSE, BORROWER AGREES THAT IT SHALL NOT SEEK FROM LENDER UNDER ANY THEORY OF LIABILITY (INCLUDING ANY THEORY IN TORTS), ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES. (c) Survival; Defense. The obligations in this Section 10.3 shall survive payment of all other Obligations pursuant to Section 12.8. At the election of any Indemnified Person, Borrower shall defend such Indemnified Person using legal counsel satisfactory to such Indemnified Person in such Persons reasonable discretion, at the reasonable cost and expense of Borrower. All amounts owing under this Section 10.3 shall be paid within thirty (30) days after written demand. 11. Notices. Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by certified mail, postage prepaid, return receipt requested, by prepaid nationally recognized overnight courier, or by prepaid facsimile to Borrower or to Lender, as the case may be, at their respective addresses set forth below: If to Borrower: Ambit Biosciences Corporation 4215 Sorrento Valley Blvd. San Diego, CA 92121 Fax: Ph: Oxford Finance Corporation 133 N.Fairfax Street Alexandria, VA 22314 Attn: General Counsel Fax: (703) 519-5225 Ph: (703) 519-6015
If to Lender:
The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. 12. General Provisions. 12.1 Successors and Assigns . This Agreement and the Loan Documents shall bind and inure to the benefit of the respective successors and permitted assigns of each of the 28
parties; provided, however, neither this Agreement nor any rights hereunder may be assigned by Borrower without Lenders prior written consent, which consent may be granted or withheld in Lenders sole discretion. Lender shall have the right without the consent of or notice to Borrower to sell, transfer, assign, negotiate, or grant participations in all or any part of, or any interest in Lenders rights and benefits hereunder. Lender may disclose the Loan Documents and any other financial or other information relating to Borrower or any Subsidiary to any potential participant or assignee of any of the Loans, provided that such participant or assignee agrees to protect the confidentiality of such documents and information using the same measures that it uses to protect its own confidential information. 12.2 Time of Essence . Time is of the essence for the performance of all obligations set forth in this Agreement. 12.3 Severability of Provisions . Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 12.4 Entire Agreement; Construction; Amendments and Waivers . (a) Entire Agreement. This Agreement and each of the other Loan Documents dated as of the date hereof, taken together, constitute and contain the entire agreement between Borrower and Lender and supersede any and all prior agreements, negotiations, correspondence, understandings and communications between the parties, whether written or oral, respecting the subject matter hereof. Borrower acknowledges that it is not relying on any representation or agreement made by Lender or any employee, attorney or agent thereof, other than the specific agreements set forth in this Agreement and the Loan Documents. (b) Construction. This Agreement is the result of negotiations between and has been reviewed by each of Borrower and Lender as of the date hereof and their respective counsel; accordingly, this Agreement shall be deemed to be the product of the parties hereto, and no ambiguity shall be construed in favor of or against Borrower or Lender. Borrower and Lender agree that they intend the literal words of this Agreement and the other Loan Documents and that no parol evidence shall be necessary or appropriate to establish Borrowers or Lenders actual intentions. (c) Amendments and Waivers. Any and all discharges or waivers of, or consents to any departures from any provision of this Agreement or of any of the other Loan Documents shall not be effective without the written consent of Lender. Any and all amendments and modifications of this Agreement or of any of the other Loan Documents shall not be effective without the written consent of Lender and Borrower. Any waiver or consent with respect to any provision of the Loan Documents shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on Borrower in any case shall entitle Borrower to any other or further notice or demand in similar or other circumstances. Any amendment, modification, waiver or consent affected in accordance with this Section 12.4 shall be binding upon Lender and on Borrower. 29
12.5 Reliance by Lender. All covenants, agreements, representations and warranties made herein by Borrower shall be deemed to be material to and to have been relied upon by Lender, notwithstanding any investigation by Lender. 12.6 No Set-Offs by Borrower. All sums payable by Borrower pursuant to this Agreement or any of the other Loan Documents shall be payable without notice or demand and shall be payable in United States Dollars without set-off or reduction of any manner whatsoever. 12.7 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts (including signatures delivered by facsimile or other electronic means), each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. 12.8 Survival. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations (other than inchoate indemnity obligations) or commitment to fund remain outstanding. The obligations of Borrower to indemnify Lender with respect to the expenses, damages, losses, costs and liabilities described in Section 10.3 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Lender have run. 13. Relationship of Parties . Borrower and Lender acknowledge, understand and agree that the relationship between Borrower, on the one hand, and Lender, on the other, is, and at all time shall remain solely that of a borrower and lender. Lender shall not under any circumstances be construed to be a partner or a joint venturer of Borrower or any of its Affiliates; nor shall Lender under any circumstances be deemed to be in a relationship of confidence or trust or a fiduciary relationship with Borrower or any of its Affiliates, or to owe any fiduciary duty to Borrower or any of its Affiliates. Lender does not undertake or assume any responsibility or duty to Borrower or any of its Affiliates to select, review, inspect, supervise, pass judgment upon or otherwise inform Borrower or any of its Affiliates of any matter in connection with its or their Property, any Collateral held by Lender or the operations of Borrower or any of its Affiliates. Borrower and each of its Affiliates shall rely entirely on their own judgment with respect to such matters, and any review, inspection, supervision, exercise of judgment or supply of information undertaken or assumed by Lender in connection with such matters is solely for the protection of Lender and neither Borrower nor any Affiliate is entitled to rely thereon. 14. Confidentiality. All information (other than periodic reports filed by Borrower with the Securities and Exchange Commission) disclosed by Borrower to Lender in writing or through inspection pursuant to this Agreement that is marked confidential shall be considered confidential. Lender agrees to use the same degree of care to safeguard and prevent disclosure of such confidential information as Lender uses with its own confidential information, but in any event no less than a reasonable degree of care. Lender shall not disclose such information to any third party (other than to Lenders members, partners, attorneys, governmental regulators, or auditors, or to Lenders subsidiaries and affiliates and prospective transferees and purchasers of the Loans, all subject to the same confidentiality obligation set forth herein or as required by law, 30
regulation, subpoena or other order to be disclosed) and shall use such information only for purposes of evaluation of its investment in Borrower and the exercise of Lenders rights and the enforcement of its remedies under this Agreement and the other Loan Documents. The obligations of confidentiality shall not apply to any information that (a) was known to the public prior to disclosure by Borrower under this Agreement, (b) becomes known to the public through no fault of Lender, (c) is disclosed to Lender by a third party having a legal right to make such disclosure, or (d) is independently developed by Lender. Notwithstanding the foregoing, Lenders agreement of confidentiality shall not apply if Lender have acquired indefeasible title to any Collateral or in connection with any enforcement or exercise of Lenders rights and remedies under this Agreement following an Event of Default, including the enforcement of Lenders security interest in the Collateral. 15. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE COMMONWEALTH OF VIRGINIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. EACH OF BORROWER AND LENDER HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE COMMONWEALTH OF VIRGINIA. BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. [Remainder of page intentionally left blank.] 31
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. BORROWER: AMBIT BIOSCIENCES CORPORATION By: Name: Title: /s/ Kerry Ann Kelly Kerry Ann Kelly VP and General Counsel
LENDER: OXFORD FINANCE CORPORATION By: Name: Title: 32 /s/ John G. Henderson John G. Henderson Vice President & General Counsel
Exhibit 10.21 VENTURE LOAN AND SECURITY AGREEMENT Dated as of March 31, 2010 by and among COMPASS HORIZON FUNDING COMPANY LLC, a Delaware limited liability company 76 Batterson Park Road Farmington, CT 06032 as a Lender COMPASS HORIZON FUNDING COMPANY LLC, a Delaware limited liability company 76 Batterson Park Road Farmington, CT 06032 as Agent OXFORD FINANCE CORPORATION a Delaware corporation 133 N. Fairfax Street Alexandria, VA 22314 as a Lender And AMBIT BIOSCIENCES CORPORATION, a Delaware corporation 4215 Sorrento Valley Blvd. San Diego, CA 92121 as Borrower Commitment Amount (Horizon): Commitment Amount (Oxford): Commitment Termination Date: $ $ 6,000,000 6,000,000 March 31, 2010
This Venture Loan and Security Agreement (the Agreement) is made as of date hereof, by and among Ambit Biosciences Corporation, a Delaware corporation (Borrower), Compass Horizon Funding Company LLC, a Delaware limited liability company ( Horizon), Oxford Finance Corporation, a Delaware corporation ( Oxford and collectively with Horizon, Lenders) and Compass Horizon Funding Company LLC, a Delaware limited liability company, as Agent under Section 16 below. The Lenders, Borrower and Agent hereby agree as follows: AGREEMENT 1. Definitions and Construction. 1.1 Definitions. As used in this Agreement, the following capitalized terms shall have the following meanings: Account Control Agreement means an agreement acceptable to Lenders which perfects via control Lenders security interest in Borrowers deposit accounts and/or accounts holding securities. Affiliate means any Person that owns or controls directly or indirectly ten percent (10%) or more of the stock of another entity, any Person that controls or is controlled by or is under common control with such Persons or any Affiliate of such Persons and each of such Persons officers, directors, joint venturers or partners. Agreement means this certain Venture Loan and Security Agreement by and between Borrower and Lenders dated as of the date on the cover page hereto (as it may from time to time be amended or supplemented in writing signed by the Borrower and Lenders). Ambit CN means Ambit Biosciences (Canada) Corporation, a corporation incorporated under the laws of the Province of Ontario, whollyowned by the Borrower, GrowthWorks Canadian Fund Ltd., and Osler, Hoskin & Harcourt LLP. Ambit UK means Ambit Europe Limited, a limited company registered in England and Wales, wholly-owned by the Borrower. Borrower means the Borrower as set forth on the cover page of this Agreement. Business Day means any day that is not a Saturday, Sunday, or other day on which banking institutions are authorized or required to close in Connecticut or California. Claim has the meaning given such term in Section 10.3 of this Agreement Code means the Uniform Commercial Code as adopted and in effect in the State of Connecticut, as amended from time to time; provided that if by reason of mandatory provisions of law, the creation and/or perfection or the effect of perfection or non-perfection of the security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than Connecticut, the term Code shall also mean the Uniform Commercial 1
Code as in effect from time to time in such jurisdiction for purposes of the provisions hereof relating to such creation, perfection or effect of perfection or non-perfection. Collateral has the meaning given such term in Section 4.1 of this Agreement. Commitment Amount means, collectively, Commitment Amount (Oxford) and Commitment Amount (Horizon). Commitment Amount (Horizon) has the meaning as set forth on the cover page of this Agreement. Commitment Amount (Oxford) has the meaning as set forth on the cover page of this Agreement. Commitment Fee has the meaning given such term in Section 2.6(c) of this Agreement. Commitment Termination Date has the meaning as set forth on the cover page of this Agreement. Default means any event which with the passing of time or the giving of notice or both would become an Event of Default hereunder. Default Rate means the per annum rate of interest equal to five percent (5%) over the Loan Rate, but such rate shall in no event be more than the highest rate permitted by applicable law to be charged on commercial loans in a default situation. Dollars means lawful currency of the United States. Disclosure Schedule means Exhibit A attached hereto. Environmental Laws means all foreign, federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act and the Emergency Planning and Community Right-to-Know Act. Equity Securities of any Person means (a) all common stock, preferred stock, participations, shares, partnership interests, membership interests or other equity interests in and of such Person (regardless of how designated and whether or not voting or non-voting) and (b) all warrants, options and other rights to acquire any of the foregoing. ERISA has the meaning given to such term in Section 7.12 of this Agreement. Event of Default has the meaning given to such term in Section 8 of this Agreement. 2
Funding Certificate means a certificate executed by a Responsible Officer of Borrower substantially in the form of Exhibit B or such other form as Lenders may agree to accept. Funding Date means any date on which a Loan is made to or on account of Borrower under this Agreement. GAAP means generally accepted accounting principles as in effect in the United States of America from time to time, consistently applied. Good Faith Deposit has the meaning given such term in Section 2.6(a) of this Agreement. Governmental Approval is any consent, authorization, approval, order, licenses, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority. Governmental Authority means (a) any federal, state, county, municipal or foreign government, or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality or public body, (c) any court or administrative tribunal, or (d) with respect to any Person, any arbitration tribunal or other non-governmental authority to whose jurisdiction that Person has consented. Hazardous Materials means all those substances which are regulated by, or which may form the basis of liability under, any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or toxic substance, or petroleum or petroleum derived substance or waste. Horizon means Compass Horizon Funding Company LLC, a Delaware limited liability company. Indebtedness means, with respect to Borrower or any Subsidiary, the aggregate amount of, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of property or services (excluding trade payables aged less than one hundred eighty (180) days), (d) all capital lease obligations of such Person, (e) all obligations or liabilities of others secured by a Lien on any asset of such Person, whether or not such obligation or liability is assumed, (f) all obligations or liabilities of others guaranteed by such Person, and (g) any other obligations or liabilities which are required by GAAP to be shown as debt on the balance sheet of such Person. Unless otherwise indicated, the term Indebtedness shall include all Indebtedness of Borrower and the Subsidiaries. Indemnified Person has the meaning given such term in Section 10.3 of this Agreement. Intellectual Property means all of Borrowers right, title and interest in and to patents, patent rights (and applications and registrations therefor and divisions, continuations, renewals, 3
reissues, extensions and continuations-in-part of the same), patent licenses, trademarks and service marks (and applications and registrations therefor and the goodwill associated therewith), trademark and service mark licenses, inventions, copyrights (including applications and registrations therefor and like protections in each work or authorship and derivative work thereof), copyright licenses, mask works (and applications and registrations therefor), trade names, trade styles, software and computer programs, source code, object code, trade secrets, methods, processes, know how, drawings, specifications, descriptions, and all memoranda, notes, and records with respect to any research and development, all whether now owned or subsequently acquired or developed by Borrower and whether in tangible or intangible form or contained on magnetic media readable by machine together with all such magnetic media (but not including embedded computer programs and supporting information included within the definition of goods under the Code). Intercreditor Agreement means that certain Intercreditor Agreement by and between the Lenders dated on or about the date hereof setting forth the agreement between the Lenders with respect to the rights and obligations of the Lenders as co-lenders under this Agreement, and under the Oxford Security Agreements. Investment means the purchase or acquisition of any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or the extension of any advance, loan, extension of credit or capital contribution to, or any other investment in, or deposit with, any Person. Investor Loan Agreement means that certain Note and Warrant Purchase Agreement dated as of June 4, 2009 by and among Borrower and the Investors. Investor Subordination Agreement means that certain Subordination Agreement dated on or about the date hereof by and among Investors and Lenders subordinating all obligations pursuant to the Investor Loan Agreement of Borrower to Investors and any security interest securing such obligations to the Obligations and the security interest of Lenders securing such Obligations, upon terms and conditions satisfactory to Lenders in their sole discretion. Investors means the parties listed in the Schedule of Purchasers (as defined in the Investor Loan Agreement) attached to the Investor Loan Agreement. Landlord Agreement means an agreement substantially in the form provided by Lenders to Borrower or such other form as Lenders may agree to accept. Lender means each Lender as set forth on the cover page of this Agreement and Lenders means collectively the Compass Horizon Funding Company LLC and Oxford Finance Corporation. Lenders Expenses means all reasonable costs or expenses (including reasonable attorneys fees and expenses) incurred in connection with the preparation, negotiation, documentation, administration and funding of the Loan Documents; and Lenders reasonable attorneys fees, costs and expenses incurred in amending, modifying, enforcing or defending the 4
Loan Documents (including fees and expenses of appeal or review), including the exercise of any rights or remedies afforded hereunder or under applicable law, whether or not suit is brought, whether before or after bankruptcy or insolvency, including without limitation all fees and costs incurred by Lenders in connection with Lenders enforcement of their rights in a bankruptcy or insolvency proceeding filed by or against Borrower or its Property. Lien means any voluntary or involuntary security interest, pledge, bailment, lease, mortgage, hypothecation, conditional sales and title retention agreement, encumbrance or other lien with respect to any Property in favor of any Person. Loan means an advance of credit by a Lender to Borrower under this Agreement and Loans, means, collectively, the Loan (Horizon) and Loan (Oxford). Loan (Horizon) means the advance made by Horizon pursuant to the terms of this Agreement in the Commitment Amount (Horizon). Loan (Oxford) means the advance made by Oxford pursuant to the terms of this Agreement in the Commitment Amount (Oxford). Loan Documents means, collectively, this Agreement, the Notes, any Landlord Agreement, any Account Control Agreement and all other documents, instruments and agreements entered into in connection with this Agreement, including, without limitation, under any guaranty of the Obligations or any document providing security for such guaranty, all as amended or extended from time to time. Loan Rate means, with respect to each Loan, interest at the per annum rate (based on a year of twelve 30-day months) equal to the greater of (a) 12.25% or (b) 12.25 % plus the difference between (i) the one month LIBOR Rate (rounded to the nearest one hundredth percent), as reported in the Wall Street Journal, on the date which is three (3) Business Days before the Funding Date for such Loan (or, if the Wall Street Journal is not published on such date, the next earlier date on which it is published) and (ii) 0.30%. The Loan Rate shall be fixed for the term of the Loan. Maturity Date means October 1, 2013 or if earlier, the date of acceleration of the Loans following an Event of Default or the date of prepayment, whichever is applicable. Note means each promissory note executed in connection with a Loan in substantially the form of Exhibit C attached hereto, and, collectively, Notes means all such promissory notes. Obligations means all debt, principal, interest, fees, charges, expenses and attorneys fees and costs and other amounts, obligations, covenants, and duties owing by Borrower to Lenders of any kind and description (whether pursuant to or evidenced by the Loan Documents, or by any other agreement among Lenders and Borrower, and whether or not for the payment of money), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, including all Lenders Expenses; provided that Obligations shall not include any amounts, obligations, covenants or duties owing by Borrower to Lender under the Warrants. 5
Officers Certificate means a certificate executed by a Responsible Officer substantially in the form of Exhibit E or such other form as Lenders may agree to accept. Oxford means Oxford Finance Corporation, a Delaware corporation and its successors and assigns. Oxford Security Agreements means (i) that certain Master Security Agreement #6081115 by and among Oxford and Borrower dated June 21, 2006, as amended, (ii) that certain Master Security Agreement #2081012 by and between Oxford and Borrower dated November 15, 2002, as amended, and (iii) that certain the Security Agreement of even date herewith by and between Oxford and Borrower, as the same may be amended from time to time. Payment Date has the meaning given such term in Section 2.2(a) of this Agreement. Perfection Certificate means that certain Perfection Certificate completed and executed by the Borrower and delivered to the Lenders on or before the date hereof Permitted Indebtedness means and includes: (a) Indebtedness of Borrower to Lenders; (b) Indebtedness of Borrower incurred after the date hereof in an original aggregate principal amount not to exceed One Million Five Hundred Thousand Dollars ($1,500,000) which is secured by Liens permitted under clause (e) of the definition of Permitted Liens; (c) Indebtedness arising from the endorsement of instruments in the ordinary course of business; (d) Unsecured indebtedness to trade creditors arising from the endorsement of instruments in the ordinary course of business; (e) Indebtedness existing on the date hereof and set forth on the Disclosure Schedule; (f) Indebtedness subordinated to the Obligations, provided that, such subordination terms and conditions are acceptable to Lenders in their sole discretion; (g) Other Indebtedness in an original aggregate principal amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000); (h) Intercompany Indebtedness owing from Borrower to Ambit CN in an aggregate original principal amount not to exceed Four Million Dollars ($4,000,000); and (i) Extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness above, provided that the principal amount thereof is not 6
increased or the terms thereof are not modified to impose more burdensome terms upon Borrower. Permitted Investments means and includes any of the following Investments as to which Lenders have a perfected security interest: (j) Deposits and deposit accounts with commercial banks organized under the laws of the United States or a state thereof if such institution has an aggregate capital and surplus of not less than One Hundred Million Dollars ($100,000,000); (k) Investments in marketable obligations issued or fully guaranteed by the United States and maturing not more than one (1) year from the date of issuance; (l) Investments in open market commercial paper rated at least A1 or P1 or higher by a national credit rating agency and maturing not more than one (1) year from the creation thereof; (m) Investments pursuant to or arising under currency agreements or interest rate agreements entered into in the ordinary course of business; (n) Investments consisting of notes receivable of, or prepaid royalties or other credit extensions to, customers and suppliers who are not Affiliates in the ordinary course of business; (o) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business; (p) Investments consisting of Borrowers accounts receivable in the ordinary course of business; (q) Investments, not requiring the use of cash or the assumption of liabilities, in joint ventures, partnerships or similar business arrangements entered into in the ordinary course of business in substantially the same industry and growth stage as Borrower; (r) Investments consisting of loans to employees, officers or directors of Borrower relating to: (x) the purchase of equity securities of Borrower pursuant to Borrowers employee stock option plan, stock purchase plan or other similar arrangements approved by the Borrowers board of directors; (y) Borrowers compensation or relocation plans or agreements each as approved in good faith by the Borrowers board of directors; or (z) travel advances, employee relocation loans and other employee loans and advances in the ordinary course of business; provided, however, that the aggregate amount of cash used for such Investments relating to subsections (x), (y) and (z) above outstanding at any time shall not exceed $500,000 without Lenders prior written consent; 7
(s) Investments made pursuant to an investment policy adopted in good faith by the Borrowers Board of directors but outside those categories of Investments described in (a) through (c) above; provided that the aggregate amount of such investments shall not exceed $100,000 without Lenders prior written consent; (t) Investments not requiring the use of Borrowers cash, consisting of Borrowers receipt of equity securities of a business partner as consideration for strategic transactions with such business partner; (u) Investments consisting of the acquisitions of shares of stock held by GrowthWorks Canadian Fund Ltd. (GrowthWorks) in Ambit CN pursuant to that certain Amended and Restated Put Agreement by and among Borrower, Ambit CN and Canadian Medical Discoveries Fund, Inc. dated October 30, 2007 as amended by that certain Amendment to Amended and Restated Put Agreement by and among Borrower, Ambit CN and GrowthWorks dated July 8, 2009; provided that the consideration for such acquisitions may consist of: (a) shares of the Borrower, or (b) upon prior written consent of the Lenders, which consent shall be at Lenders sole discretion, Borrowers cash; (v) Investments consisting of loans or equity investments in (x) Ambit CN in an amount not to exceed Ten Thousand Dollars ($10,000) in any fiscal year of Borrower and (y) Ambit UK in an amount not to exceed Ten Thousand Dollars ($10,000) in any fiscal year of Borrower; and (w) Other Investments aggregating not in excess of Two Hundred Fifty Thousand Dollars ($250,000) at any time. Permitted Liens means and includes: (a) the Lien created by this Agreement and the Oxford Security Agreements; (b) Liens for fees, taxes, levies, imposts, duties or other governmental charges of any kind which are not yet delinquent or which are being contested in good faith by appropriate proceedings which suspend the collection thereof ( provided that such appropriate proceedings do not involve any substantial danger of the sale, forfeiture or loss of any material item of Collateral which in the aggregate is material to Borrower and that Borrower has adequately bonded such Lien or reserves sufficient to discharge such Lien have been provided on the books of Borrower); (c) Liens identified on the Disclosure Schedule; (d) carriers, warehousemens, mechanics, materialmens, repairmens or other similar Liens arising in the ordinary course of business and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings (provided that such appropriate proceedings do not involve any substantial danger of the sale, forfeiture or loss of any material item of Collateral or Collateral which in the aggregate 8
is material to Borrower and that Borrower has adequately bonded such Lien or reserves sufficient to discharge such Lien have been provided on the books of Borrower); (e) Liens upon any equipment or other personal property acquired by Borrower after the date hereof to secure (i) the purchase price of such equipment or other personal property, or (ii) lease obligations or indebtedness incurred solely for the purpose of financing the acquisition of such equipment or other personal property; provided that (A) such Liens are confined solely to the equipment or other personal property so acquired and the proceeds thereof and the amount secured does not exceed the acquisition price thereof, and (B) no such Lien shall be created, incurred, assumed or suffered to exist in favor of Borrowers officers, directors or shareholders holding five percent (5%) or more of Borrowers Equity Securities; (f) licenses of Intellectual Property presently existing or hereafter entered into in the ordinary course of business, consistent with industry practice and with the consent of Borrowers Board of Directors, including without limitation, a research and/or development collaboration or partnering event with one or more parties that would include licensing one or more of Borrowers product development programs; (g) Any interest or title of a licensor or licensee under any license or sublicense to Borrower; (h) bankers liens, rights of setoff and similar Liens incurred on deposits made in the ordinary course of business and Liens in favor of financial institutions arising in connection with Borrowers deposit accounts or securities accounts held at such institutions to secure customary fees and charges; (i) any judgment, attachment or similar Lien unless the judgment it secures has not been discharged or execution thereof effectively stayed and bonded against pending appeal within 45 days of the entry thereof; (j) Liens to secure payment of workers compensation, unemployment insurance, old age pensions or other social security obligations of Borrower in the ordinary course of business; (k) easements, reservations, rights-of-way, restrictions, minor defects or irregularities in title and similar charges or encumbrances affecting real property not constituting a material adverse effect on the business or condition (financial or otherwise) of Borrower; (l) Liens securing Permitted Indebtedness permitted by clause (f) of the definition thereof, provided that, such subordination terms and conditions are acceptable to Lenders in their sole discretion; and (m) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described above but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase. 9
Person means and includes any individual, any partnership, any corporation, any business trust, any joint stock company, any limited liability company, any unincorporated association or any other entity and any domestic or foreign national, state or local government, any political subdivision thereof, and any department, agency, authority or bureau of any of the foregoing. Property means any interest in any kind of property or asset, whether real, personal or mixed, whether tangible or intangible. Responsible Officer has the meaning given such term in Section 6.3 of this Agreement. Scheduled Payments has the meaning given such term in Section 2.2(a) of this Agreement. Solvent has the meaning given such term in Section 5.11 of this Agreement. Subsidiary means any corporation or other entity of which a majority of the outstanding Equity Securities entitled to vote for the election of directors or other governing body (otherwise than as the result of a default) is owned by Borrower directly or indirectly through Subsidiaries. Transfer has the meaning given such term in Section 7.4 of this Agreement. Warrants means the separate warrants dated on or prior to the date hereof in favor of one or more of the Lenders or their designees to purchase securities of Borrower. 1.2 Construction. References in this Agreement to Articles, Sections, Exhibits, Schedules and Annexes are to recitals, articles, sections, exhibits, schedules and annexes herein and hereto unless otherwise indicated. References in this Agreement and each of the other Loan Documents to any document, instrument or agreement shall include (a) all exhibits, schedules, annexes and other attachments thereto, (b) all documents, instruments or agreements issued or executed in replacement thereof, and (c) such document, instrument or agreement, or replacement or predecessor thereto, as amended, modified and supplemented from time to time and in effect at any given time. The words hereof, herein and hereunder and words of similar import when used in this Agreement or any other Loan Document shall refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. The words include and including and words of similar import when used in this Agreement or any other Loan Document shall not be construed to be limiting or exclusive. Unless otherwise indicated in this Agreement or any other Loan Document, all accounting terms used in this Agreement or any other Loan Document shall be construed, and all accounting and financial computations hereunder or thereunder shall be computed, in accordance with GAAP, and all terms describing Collateral shall be construed in accordance with the Code. The terms and information set forth on the cover page of this Agreement are incorporated into this Agreement. 10
2. Loan; Repayment. 2.1 Commitment. (a) The Commitment Amount . Subject to the terms and conditions of this Agreement and relying upon the representations and warranties herein set forth as and when made or deemed to be made, Oxford agrees to lend to Borrower on or prior to the Commitment Termination Date, the Loan (Oxford). Subject to the terms and conditions of this Agreement and relying upon the representations and warranties herein set forth as and when made or deemed to be made, Horizon agrees to lend to Borrower on or prior to the Commitment Termination Date, the Loan (Horizon). (b) The Loans and the Notes. The obligation of Borrower to repay the unpaid principal amount of and interest on each Loan shall be evidenced by a Note issued to the applicable Lender for such Loan in the form of Exhibit C attached hereto, duly completed, executed and delivered to such Lender dated on or about the Funding Date for such Loan and made payable to such Lender. Borrower hereby authorizes each Lender to record on its Note or on its internal computerized records, the principal amount of such Loan and of each payment of principal received by such Lender on account of such Loan, which, recordation, in the absence of manifest error, shall be conclusive as to the outstanding principal balance of such Loan; provided that, the failure to make such recordation with respect to any Loan or payment shall not limit or otherwise affect the obligations of Borrower under this Agreement, the Notes or the other Loan Documents. (c) Use of Proceeds . The proceeds of each Loan shall be used for working capital or general corporate purposes of Borrower and to repay the Indebtedness of Borrower to Horizon Technology Funding Company V LLC pursuant to a certain Venture Loan and Security Agreement dated as of September 24, 2007. (d) Termination of Commitment to Lend . Notwithstanding anything in the Loan Documents, each Lenders obligation to lend the undisbursed portion of the Commitment Amount to Borrower hereunder shall terminate on the earlier of (i) at each Lenders sole election, the occurrence of any Default or Event of Default hereunder, and (ii) the Commitment Termination Date. Notwithstanding the foregoing, each Lenders obligation to lend the undisbursed portion of the Commitment Amount to Borrower shall terminate if, in such Lenders commercially reasonable judgment, there has been a material adverse change in the general affairs, management, results of operations, or financial condition of Borrower, whether or not arising from transactions in the ordinary course of business, or there has been any material adverse deviation by Borrower from the business plan of Borrower presented to Lenders on or before the date of this Agreement. 2.2 Payments. (a) Scheduled Payments. Borrower shall make a payment of accrued interest only on the outstanding principal amount of each Loan on the first twelve (12) Payment Dates specified in the Note applicable to such Loan and thereafter, an equal payment of principal 11
plus accrued interest on the outstanding principal amount of each Loan on the next thirty (30) Payment Dates as set forth in the Note applicable to such Loan (collectively, the Scheduled Payments). Borrower shall make such Scheduled Payments commencing on the date set forth in the Note applicable to such Loan and continuing thereafter on the first Business Day of each calendar month (each a Payment Date) through the Maturity Date. In any event, all unpaid principal and accrued interest shall be due and payable in full on the Maturity Date. (b) Interim Payment. Unless the Funding Date for a Loan is the first day of a calendar month, Borrower shall pay the per diem interest (accruing at the Loan Rate from the Funding Date through the last day of that month) payable with respect to such Loan on the first Business Day of the next calendar month. Thousand and
00/100
(c) Final Payment. On the Maturity Date, Borrower shall make a payment to Lenders in the amount of Three Hundred Sixty Dollars ($360,000).
(d) Payment of Interest . Borrower shall pay interest on each Loan at a per annum rate of interest equal to the Loan Rate. All computations of interest (including interest at the Default Rate, if applicable) shall be based on a year of twelve 30-day months. Notwithstanding any other provision hereof, the amount of interest payable hereunder shall not in any event exceed the maximum amount permitted by the law applicable to interest charged on commercial loans. (e) Application of Payments . All payments received by Lenders prior to an Event of Default shall be applied as follows: (1) first, to Lenders Expenses then due and owing; and (2) second to all Scheduled Payments then due and owing ( provided, however, if such payments are not sufficient to pay the whole amount then due, such payments shall be applied first to unpaid interest at the Loan Rate, then to the remaining amount then due). After an Event of Default, all payments and application of proceeds shall be made as set forth in Section 9.7. (f) Late Payment Fee. Borrower shall pay to Lenders a late payment fee equal to six percent (6%) of any Scheduled Payment not paid within five (5) Business Days of the Payment Date. (g) Default Rate. Borrower shall pay interest at a per annum rate equal to the Default Rate on any amounts required to be paid by Borrower under this Agreement or the other Loan Documents (including Scheduled Payments), payable with respect to any Loan, accrued and unpaid interest, and any fees or other amounts which remain unpaid after such amounts are due. If an Event of Default has occurred and the Obligations have been accelerated (whether automatically or by Lenders election), Borrower shall pay interest on the aggregate, outstanding accelerated balance hereunder from the date of the Event of Default until all Events of Default are cured, at a per annum rate equal to the Default Rate. 12
2.3 Prepayments. (a) Mandatory Prepayment Upon an Acceleration . If the Loans are accelerated following the occurrence of an Event of Default pursuant to Section 9.1(a) hereof, then Borrower, in addition to any other amounts which may be due and owing hereunder, shall immediately pay to Lenders the amount set forth in Section 2.3(b) below, as if the Borrower had opted to prepay on the date of such acceleration. (b) Optional Prepayment. Upon five (5) Business Days prior written notice to Lenders, Borrower may, at its option, at any time, prepay all of the Loans by paying to Lenders an amount equal to (i) any accrued and unpaid interest on the outstanding principal balance of the Loans; (ii) an amount equal to (A) if the Loans are prepaid on or before twelve (12) months from the Funding Date thereof, four (4%) percent of the then outstanding principal balance of the Loans, (B) if the Loans are prepaid more than twelve (12) months from the Funding Date thereof, but on or before twenty-four (24) months from the Funding Date thereof, three (3%) percent of the then outstanding principal balance of the Loans, or (C) if the Loans are prepaid more than twenty-four (24) months from the Funding Date thereof, two (2%) percent of the then outstanding principal balance of the Loans; (iii) the outstanding principal balance of the Loans and (iv) all other sums, if any, that shall have become due and payable hereunder. Notwithstanding the foregoing, if the Loans are prepaid with the proceeds of a new loan or loans from the Lenders, the amount due under Section 2.3(b)(ii) above shall not be due. 2.4 Other Payment Terms. (a) Place and Manner. Borrower shall make all payments due to Lenders in lawful money of the United States. All payments of principal, interest, fees and other amounts payable by Borrower hereunder shall be made, in immediately available funds, not later than 10:00 a.m. Connecticut time, on the date on which such payment is due. Borrower shall make such payments to Lenders as follows: Payment via wire transfer to Compass Horizon: Credit: Bank Name: Bank Address: Account No.: ABA Routing No.: Reference: Payments via wire transfer to Oxford: ABA#: 026 009 593 Bank name: Bank of America Acct#: 81881-07882 Acct name: Oxford Finance 13
Compass Horizon Funding Company LLC/Horizon Credit I LLC U.S. Bank National Association P.O. Box 643857 Cincinnati OH 45264-3857 Lockbox No.: 153910632600 123000848 Ambit Invoice #
Corporation Address:
1655 Grant Street Concord, CA 94520
(b) Date. Whenever any payment is due hereunder on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall be included in the computation of interest or fees, as the case may be. 2.5 Procedure for Making the Loans . (a) Notice. Borrower shall notify Lenders of the date on which Borrower desires Lenders to make the Loans at least three (3) Business Days in advance of the desired Funding Date, unless Lenders elect at their sole discretion to allow the Funding Date to be within three (3) Business Days of Borrowers notice. Borrowers execution and delivery to Lenders of a Note shall be Borrowers agreement to the terms and calculations thereunder with respect to the Loan. Lenders obligation to make any Loans shall be expressly subject to the satisfaction of the conditions set forth in Section 3. (b) Loan Rate Calculation. Prior to the Funding Date, Lenders shall establish the Loan Rate with respect to the Loans, which shall be set forth in the Notes to be executed by Borrower with respect to such Loans and shall be conclusive in the absence of a manifest error. (c) Disbursement. Each Lender shall disburse the proceeds of its Loan by wire transfer to Borrower at the account specified in the Funding Certificate for the Loans. 2.6 Good Faith Deposit; Legal and Closing Expenses; and Commitment Fee . (a) Good Faith Deposit. Borrower has delivered to Horizon, for the ratable benefit of Lenders, a good faith deposit in the amount of Seventy Thousand Dollars ($70,000) (the Good Faith Deposit). If the Funding Date occurs, the Good Faith Deposit will be credited to the Lenders Expenses and Horizon will promptly refund to Borrower the remaining amount, if any, of the Good Faith Deposit. If the Funding Date does not occur, Lenders shall retain the Good Faith Deposit as compensation for their time, expenses and opportunity cost. (b) Legal, Due Diligence and Documentation Expenses . Concurrently with its execution and delivery of this Agreement, Borrower shall pay to Lenders, Lenders legal, due diligence and documentation expenses in connection with the negotiation and documentation of this Agreement and the Loan Documents. Notwithstanding anything contained in this Agreement to the contrary, the aggregate amount of attorneys fees by Lenders and reimbursable by Borrower in connection with the preparation, negotiation, documentation, and funding of the Loan Documents (including the Oxford Security Agreements) through the Funding Date shall not exceed $70,000. 14
(c) Commitment Fee. Borrower shall pay Lenders concurrently with its execution and delivery of this Agreement a commitment fee in the amount of Fifty Thousand Dollars ($50,000) (the Commitment Fee). The Commitment Fee shall be retained by Lenders and be deemed fully earned upon receipt. 3. Conditions of Loan . 3.1 Conditions Precedent to Closing . At the time of the execution and delivery of this Agreement, Lenders shall have received, in form and substance reasonably satisfactory to Lenders, all of the following (unless Lenders have agreed to waive such condition or document, in which case such condition or document shall be a condition precedent to the making of any Loans and shall be deemed added to Section 3.2): (a) Loan Agreement. This Agreement duly executed by Borrower and Lenders. (b) Warrants. The Warrants duly executed by Borrower. (c) Secretarys Certificate. A certificate of the secretary or assistant secretary of Borrower with copies of the following documents attached: (i) the certificate of incorporation and bylaws of Borrower certified by Borrower as being complete and in full force and effect on the date thereof, (ii) incumbency and representative signatures, and (iii) resolutions authorizing the execution and delivery of this Agreement and each of the other Loan Documents. (d) Good Standing Certificates. A good standing certificate from Borrowers state of incorporation and the state in which Borrowers principal place of business is located, each dated as of a recent date. (e) Certificate of Insurance . Evidence of the insurance coverage required by Section 6.8 of this Agreement. (f) Consents. All necessary consents of shareholders and other third parties with respect to the execution, delivery and performance of this Agreement, the Warrants and the other Loan Documents. (g) Legal Opinion. A legal opinion of Borrowers counsel covering the matters set forth in Exhibit D hereto. (h) Account Control Agreements . Account Control Agreements for all of Borrowers deposit accounts and accounts holding securities duly executed by all of the parties thereto, in the forms provided by or reasonably acceptable to Lenders. (i) Perfection Certificate. The Perfection Certificate duly executed by Borrower. (j) Other Documents. Such other documents and completion of such other matters, as Lenders may reasonably deem necessary or appropriate. 15
3.2 Conditions Precedent to Making a Loan . The obligation of each Lender to make its Loan is further subject to the following conditions: (a) No Default. No Default or Event of Default shall have occurred and be continuing. (b) Investor Subordination Agreement . The Investor Subordination Agreement duly executed by the Investors and Lenders. (c) Intercreditor Agreement . The Intercreditor Agreement duly executed by Lenders. (d) Landlord Agreements . Borrower shall have provided Lenders with a Landlord Agreement for each location where Borrowers books and records and the Collateral is located (unless Borrower is the fee owner thereof). (e) Notes. Borrower shall have duly executed and delivered to each Lender a Note in the amount of such Lenders Loan. (f) UCC Financing Statements. Lenders shall have received such documents, instruments and agreements, including UCC financing statements or amendments to UCC financing statements, as Lenders shall reasonably request to evidence the perfection and priority of the security interests granted to Lenders pursuant to Section 4. Borrower authorizes Lenders to file any UCC financing statements, continuations of or amendments to UCC financing statements it deems necessary to perfect their security interest in the Collateral. (g) Funding Certificate. Borrower shall have duly executed and delivered to Lenders a Funding Certificate for the Loans. (h) Fees. Borrower shall have paid the fees and Lenders Expenses then due as specified in Section 2.6(b). (i) Other Documents. Such other documents and completion of such other matters, as Lenders may reasonably deem necessary or appropriate. 3.3 Covenant to Deliver. Borrower agrees (not as a condition but as a covenant) to deliver to Lenders each item required to be delivered to Lenders as a condition to each Loan, if such Loan is advanced. Borrower expressly agrees that the extension of such Loan prior to the receipt by Lenders of any such item shall not constitute a waiver by Lenders of Borrowers obligation to deliver such item, and any such extension in the absence of a required item shall be in Lenders sole discretion. 4. Creation of Security Interest . 4.1 Grant of Security Interest . Borrower grants to Lenders a valid, first priority, continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt, full and complete payment of any and all Obligations and in order to 16
secure prompt, full and complete performance by Borrower of each of its covenants and duties under each of the Loan Documents (other than the Warrants). The Collateral shall mean and include all right, title, interest, claims and demands of Borrower in and to all personal property of Borrower, including without limitation, all of the following: (a) All goods (and embedded computer programs and supporting information included within the definition of goods under the Code) and equipment now owned or hereafter acquired, including, without limitation, all laboratory equipment, computer equipment, office equipment, machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located; (b) All inventory now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of Borrowers custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrowers books relating to any of the foregoing; (c) All contract rights and general intangibles (excluding Intellectual Property), now owned or hereafter acquired, including, without limitation, goodwill, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, software, computer programs, computer disks, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payment intangibles, commercial tort claims, payments of insurance and rights to payment of any kind; (d) All now existing and hereafter arising accounts, contract rights, royalties, license rights, license fees and all other forms of obligations owing to Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Borrower (subject, in each case, to the contractual rights of third parties to require funds received by Borrower to be expended in a particular manner), whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrowers books relating to any of the foregoing; (e) All documents, cash, deposit accounts, letters of credit (whether or not the letter of credit is evidenced by a writing), certificates of deposit, instruments, promissory notes, chattel paper (whether tangible or electronic) and investment property, including, without limitation, all securities, whether certificated or uncertificated, security entitlements, securities accounts, commodity contracts and commodity accounts, and all financial assets held in any securities account or otherwise, wherever located, now owned or hereafter acquired and Borrowers books relating to the foregoing; (f) Any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof, including, without limitation, 17
insurance, condemnation, requisition or similar payments and proceeds of the sale or licensing of Intellectual Property; but (g) Notwithstanding the foregoing, the grant of a security interest as provided herein shall not extend to, and the term Collateral shall not include (a) any Intellectual Property; provided, however, that the Collateral shall include all accounts receivables, accounts, and general intangibles that consist of rights to payment and proceeds from the sale, licensing or disposition of all or any part, or rights in, the foregoing (the Rights to Payment), (b) intent-to-use trademarks at all times prior to the first use thereof, whether such first use thereof occurs by the actual use thereof in commerce, the recording of a statement of use with the United States Patent and Trademark Office or otherwise, (c) any contract, instrument or chattel paper in which the Borrower has any right, title or interest if and to the extent any such contract, instrument or chattel paper includes a provision containing a restriction on assignment such that the creation of a security interest in the right, title or interest of Borrower therein would be prohibited and would, in and of itself, cause or result in a default thereunder enabling another person party to such contract, instrument or chattel paper to enforce any remedy with respect thereto (provided that the foregoing exclusion shall not apply if (i) such prohibition has been waived or such person has otherwise consented to the creation hereunder of a security interest in such contract, instrument or chattel paper or (ii) such prohibition would be rendered ineffective pursuant to Sections 9-407(a) or 9-408(a) of the Code, as applicable and as then in effect in any relevant jurisdiction, or any other applicable law (including the federal bankruptcy code) or principles of equity; provided further that immediately upon the ineffectiveness, lapse or termination of any such provision, the Collateral shall include, and Borrower shall be deemed to have granted a security interest in, all its rights, title and interest in and to such contract, instrument or chattel paper as if such provision had never been in effect; and provided further that the foregoing exclusion shall in no way be construed so as to limit, impair or otherwise affect Lenders unconditional continuing security interest in and to all rights, title and interests of Borrower in or to any payment obligations or other rights to receive monies due or to become due under any such contract, instrument or chattel paper and in any such monies and other proceeds of such contract, instrument or chattel paper), or (d) more than 65% of the total combined voting power of all classes of stock entitled to vote the shares of capital stock of any Subsidiary of Borrower not incorporated or organized under the laws of one of the States or jurisdictions of the United States. Notwithstanding the foregoing, if a judicial authority (including a U.S. Bankruptcy Court) holds that a security interest in the underlying Intellectual Property is necessary to have a security interest in the Rights to Payment, then the Collateral shall automatically, and effective as of the date hereof, include the Intellectual Property to the extent necessary to permit perfection of Lenders security interest in the Rights to Payment. 4.2 After-Acquired Property. If Borrower shall at any time acquire a commercial tort claim, as defined in the Code, Borrower shall immediately notify Lenders in writing signed by Borrower of the brief details thereof and grant to Lenders in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to Lenders. 4.3 Duration of Security Interest . Lenders security interest in the Collateral shall continue until the payment in full and the satisfaction of all Obligations (other than 18
inchoate indemnity obligations) and termination of Lenders commitment to fund the Loans whereupon such security interest shall terminate. Lenders shall, at Borrowers sole cost and expense, execute such further documents and take such further actions as may be reasonably necessary to make effective the release contemplated by this Section 4.3, including duly authorizing and delivering termination statements for filing in all relevant jurisdictions under the Code. 4.4 Location and Possession of Collateral . The Collateral is and shall remain in the possession of Borrower at its location listed on the cover page hereof or as set forth in the Disclosure Schedule or Perfection Certificate. Notwithstanding the foregoing, Borrower shall be allowed to relocate Collateral; provided that, Borrower shall provide Lender five (5) Business Days prior written notice of such re-location of Collateral and, if such location is not subject to a landlord agreement or bailee waiver in favor of Lenders, Borrower shall provide Lenders with such landlord agreement or bailee waiver within thirty (30) days of such notice. Borrower shall remain in full possession, enjoyment and control of the Collateral (except only as may be otherwise required by Lenders for perfection of their security interest therein or as otherwise set forth in the Disclosure Schedule or Perfection Certificate) and so long as no Event of Default has occurred and is continuing, shall be entitled to manage, operate and use the same and each part thereof with the rights and franchises appertaining thereto; provided that the possession, enjoyment, control and use of the Collateral shall at all time be subject to the observance and performance of the terms of this Agreement. 4.5 Delivery of Additional Documentation Required . Borrower shall from time to time execute and deliver to Lenders, at the request of Lenders, all financing statements and other documents Lenders may reasonably request, in form satisfactory to Lenders, to perfect and continue Lenders perfected security interests in the Collateral and in order to consummate fully all of the transactions contemplated under the Loan Documents. 4.6 Right to Inspect. Lenders (through any of their officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrowers usual business hours, but, if an Event of Default has not occurred and is continuing, not more than twice per year, to inspect Borrowers books and records and to make copies thereof and to inspect, test, and appraise the Collateral in order to verify Borrowers financial condition or the amount, condition of, or any other matter relating to, the Collateral. 4.7 Protection of Intellectual Property . While any Obligations remain outstanding Borrower shall (i) protect, defend and maintain the validity and enforceability of its Intellectual Property material to Borrowers business and promptly advise Lenders in writing of material infringements, and (ii) not allow any Intellectual Property material to Borrowers business to be abandoned, forfeited or dedicated to the public without Lenders written consent. 4.8 Lien Subordination. Lenders agree that the Liens granted to them hereunder in Third Party Equipment shall be subordinate to the Liens of existing or future lenders providing equipment financing and equipment lessors for equipment and other personal property acquired by Borrower after the date hereof (Third Party Equipment) or, if such lenders prohibit the granting of Liens to other lenders, Lenders shall waive their Lien with 19
respect to such equipment at the request of such equipment lender; provided that, such Liens (a) are confined solely to the equipment so financed and the proceeds thereof and (b) are Permitted Liens. Notwithstanding the foregoing, the Obligations hereunder shall not be subordinate in right of payment to any obligations to other equipment lenders or equipment lessors and Lenders rights and remedies hereunder shall not in any way be subordinate to the rights and remedies of any such lenders or equipment lessors. So long as no Event of Default has occurred and is continuing, Lenders agree to execute and deliver such agreements and documents as may be reasonably requested by Borrower from time to time which set forth the lien subordination described in this Section 4.8 and are reasonably acceptable to Lenders. Lenders shall have no obligation to execute any agreement or document which would impose obligations, restrictions or lien priority on Lenders which are less favorable to Lenders than those described in this Section 4.8. 5. Representations and Warranties. Except as set forth in the Disclosure Schedule, Borrower represents and warrants as follows: 5.1 Organization and Qualification. Borrower is a corporation duly organized and validly existing under the laws of its state of incorporation and qualified and licensed to do business in, and is in good standing in, any state in which the conduct of its business or its ownership of Property requires that it be so qualified or in which the Collateral is located, except for such states as to which any failure to so qualify would not have a material adverse effect on Borrower. 5.2 Authority. Borrower has all necessary power and authority to execute, deliver, and perform in accordance with the terms thereof, the Loan Documents to which it is a party. Borrower has all requisite power and authority to own and operate its Property and to carry on its businesses as now conducted. Borrower has obtained all licenses, permits, approvals and other authorizations necessary for the operation of its business. 5.3 Conflict with Other Instruments, etc . Neither the execution and delivery of any Loan Document to which Borrower is a party nor the consummation of the transactions therein contemplated nor compliance with the terms, conditions and provisions thereof will conflict with or result in a breach of any of the terms, conditions or provisions of the certificate of incorporation, the by-laws, or any other organizational documents of Borrower or any law or any regulation, order, writ, injunction or decree of any court or governmental instrumentality or any material agreement or instrument to which Borrower is a party or by which it or any of its Property is bound or to which it or any of its Property is subject, or constitute a default thereunder or result in the creation or imposition of any Lien, other than Permitted Liens. 5.4 Authorization; Enforceability. The execution and delivery of this Agreement, the granting of the security interest in the Collateral, the incurring of the Loans, the execution and delivery of the other Loan Documents to which Borrower is a party and the consummation of the transactions herein and therein contemplated have each been duly authorized by all necessary action on the part of Borrower. No authorization, consent, approval, license or exemption of, and no registration, qualification, designation, declaration or filing with, or notice to, any Person is, was or will be necessary to (i) the valid execution and delivery 20
of any Loan Document to which Borrower is a party, (ii) the performance of Borrowers obligations under any Loan Document, or (iii) the granting of the security interest in the Collateral, except for filings in connection with the perfection of the security interest in any of the Collateral or the issuance of the Warrants. The Loan Documents have been duly executed and delivered and constitute legal, valid and binding obligations of Borrower, enforceable in accordance with their respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws of general application relating to or affecting the enforcement of creditors rights or by general principles of equity. 5.5 No Prior Encumbrances. Borrower has good and marketable title to the Collateral, free and clear of Liens except for Permitted Liens. Borrower has good title and ownership of, or is licensed under, all of Borrowers current Intellectual Property. Borrower has not received any communications alleging that Borrower has violated, or by conducting its business as proposed, would violate any proprietary rights of any other Person. Borrower has no knowledge of any infringement or violation by it of the intellectual property rights of any third party and has no knowledge of any violation or infringement by a third party of any of its Intellectual Property. The Collateral and the Intellectual Property constitute substantially all of the assets and property of Borrower. 5.6 Name; Location of Chief Executive Office, Principal Place of Business and Collateral . Borrower has not done business under any name other than that specified on the signature page hereof. Borrowers jurisdiction of incorporation, chief executive office, principal place of business, and the place where Borrower maintains its records concerning the Collateral are presently located in the state and at the address set forth on the cover page of this Agreement. The Collateral is presently located at the address set forth on the cover page hereof or as set forth in the Disclosure Schedule. 5.7 Litigation. There are no actions or proceedings pending by or against Borrower before any court or administrative agency in which an adverse decision could have a material adverse effect on Borrower or the aggregate value of the Collateral. Borrower does not have knowledge of any such pending or threatened actions or proceedings. 5.8 Financial Statements. All financial statements relating to Borrower or any Affiliate that have been or may hereafter be delivered by Borrower to Lenders present fairly in all material respects Borrowers financial condition as of the date thereof and Borrowers results of operations for the period then ended. 5.9 No Material Adverse Effect . No event has occurred and no condition exists which could reasonably be expected to have a material adverse effect on the financial condition, business or operations of Borrower since December 31, 2008. 5.10 Full Disclosure. No representation, warranty or other statement made by Borrower in any Loan Document (including the Disclosure Schedule), certificate or written statement furnished to Lenders contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading, it being recognized by Lenders that the projections and forecasts 21
provided by Borrower in good faith and based upon reasonable assumptions are not to be viewed as facts and that actual results during the period or periods covered by any such projections and forecasts may differ from the projected or forecasted results. There is no fact known to Borrower which materially adversely affects, or which could in the future be reasonably expected to materially adversely affect, its ability to perform its obligations under this Agreement. 5.11 Solvency, Etc. Borrower is Solvent (as defined below) and, after the execution and delivery of the Loan Documents and the consummation of the transactions contemplated thereby, Borrower will be Solvent. Solvent means, with respect to any Person on any date, that on such date (a) the fair value of the property of such Person is greater than the fair value of the liabilities (including, without limitation, contingent liabilities) of such Person, (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Persons ability to pay as such debts and liabilities mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Persons property would constitute an unreasonably small capital. 5.12 Subsidiaries. Borrower has no Subsidiaries, except as set forth on the Disclosure Schedule. 5.13 Material Licenses. Except as set forth on Schedule 5.13 hereto, if any, Borrower is not a party to, nor is it bound by, any material license. 5.14 Catastrophic Events; Labor Disputes . Neither Borrower nor its properties is or has been affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or other casualty that could reasonably be expected to have a material adverse effect on the financial condition, business or operations of Borrower. There are no disputes presently subject to grievance procedure, arbitration or litigation under any of the collective bargaining agreements, employment contracts or employee welfare or incentive plans to which Borrower is a party, and there are no strikes, lockouts, work stoppages or slowdowns, or, to the knowledge of Borrower, jurisdictional disputes or organizing activity occurring or threatened which could reasonably be expected to have a material adverse effect on the financial condition, business or operations of Borrower. 5.15 Certain Agreements of Officers, Employees and Consultants . (a) No Violation. To the knowledge of Borrower, no officer, employee or consultant of Borrower is, or is now expected to be, in violation of any term of any employment contract, proprietary information agreement, nondisclosure agreement, noncompetition agreement or any other material contract or agreement or any restrictive covenant relating to the right of any such officer, employee or consultant to be employed by Borrower because of the nature of the business conducted or to be conducted by Borrower or relating to the use of trade secrets or proprietary information of others, and to Borrowers knowledge, the continued 22
employment of Borrowers officers, employees and consultants does not subject Borrower to any material liability for any claim or claims arising out of or in connection with any such contract, agreement, or covenant. (b) No Present Intention to Terminate. To the knowledge of Borrower, no officer of Borrower, and no employee or consultant of Borrower whose termination, either individually or in the aggregate, could reasonably be expected to have a material adverse effect on the financial condition, business or operations of Borrower, has any present intention of terminating his or her employment or consulting relationship with Borrower. 6. Affirmative Covenants. Borrower, until the full and complete payment of the Obligations (other than inchoate indemnity obligations), covenants and agrees that: 6.1 Good Standing. Borrower shall maintain its corporate existence and its good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which the failure to so qualify could reasonably be expected to have a material adverse effect on the financial condition, operations or business of Borrower. Borrower shall maintain in force all licenses, approvals and agreements, the loss of which could reasonably be expected to have a material adverse effect on its financial condition, operations or business. 6.2 Government Compliance. Borrower shall comply with all statutes, laws, ordinances and government rules and regulations to which it is subject, noncompliance with which could reasonably be expected to materially adversely affect the financial condition, operations or business of Borrower. Borrower shall obtain all government approvals necessary for the performance by Borrower of its Obligations under the Loan Documents to which it is a party and the grant of a security interest for Lenders. 6.3 Financial Statements, Reports, Certificates . Borrower shall deliver to Lenders: (a) as soon as available, but in any event within thirty (30) days after the end of each month, a company prepared balance sheet, income statement and cash flow statement covering Borrowers operations during such period, certified by Borrowers president, treasurer or chief financial officer (each, a Responsible Officer); (b) as soon as available, but in any event within one hundred eighty (180) days after the end of Borrowers fiscal year, audited financial statements of Borrower prepared in accordance with GAAP, together with an unqualified opinion on such financial statements of a nationally recognized or other independent public accounting firm reasonably acceptable to Lenders (provided that Lenders acknowledge that a going concern exception, in and of itself, will not render such opinion unacceptable to Lenders); and (c) as soon as available, but in any event within ninety (90) days after the end of Borrowers fiscal year or the date of Borrowers board of directors adoption, Borrowers operating budget and plan for the next fiscal year; and (d) such other financial information as Lenders may reasonably request from time to time. In addition, Borrower shall deliver to Lenders (i) promptly upon becoming available, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders; and (ii) immediately upon receipt of notice thereof, a report of any material legal actions pending or threatened against Borrower or the commencement of any action, proceeding or governmental investigation involving Borrower is commenced that is reasonably expected to result in damages or costs to Borrower 23
of Fifty Thousand Dollars ($50,000) or more; and (iii) such other financial information as Lenders may reasonably request from time to time. 6.4 Certificates of Compliance . Each time the monthly and annual financial statements are furnished pursuant to Section 6.3 above, Borrower shall deliver to Lenders an Officers Certificate signed by a Responsible Officer in the form of, and certifying to the matters set forth in Exhibit E hereto. 6.5 Notice of Defaults . As soon as possible, and in any event within five (5) days after the discovery of a Default or an Event of Default, Borrower shall provide Lenders with an Officers Certificate setting forth the facts relating to or giving rise to such Default or Event of Default and the action which Borrower proposes to take with respect thereto. 6.6 Taxes. Borrower shall make due and timely payment or deposit of all federal, state, and local taxes, assessments, or contributions required of it by law or imposed upon any Property belonging to it, and will execute and deliver to Lenders, on demand, appropriate certificates attesting to the payment or deposit thereof; and Borrower will make timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Lenders with proof satisfactory to Lenders indicating that Borrower has made such payments or deposits; provided that Borrower may defer any payment of contested taxes if the amount or validity of such payment is contested in good faith by appropriate proceedings which suspend the collection thereof (provided that such proceedings do not involve any substantial danger of the sale, forfeiture or loss of any material item of Collateral or Collateral which in the aggregate is material to Borrower and that Borrower has adequately bonded such amounts or reserves sufficient to discharge such amounts have been provided on the books of Borrower). 6.7 Use; Maintenance. Borrower shall keep and maintain all items of equipment and other similar types of personal property that form any significant portion or portions of the Collateral in good operating condition and repair, ordinary wear and tear excepted, and shall make all necessary replacements thereof and renewals thereto so that the value and operating efficiency thereof shall at all times be maintained and preserved. Borrower shall not permit any such material item of Collateral to become a fixture to real estate or an accession to other personal property, without the prior written consent of Lenders. Borrower shall not permit any such material item of Collateral to be operated or maintained in violation of any applicable law, statute, rule or regulation. With respect to items of leased equipment (to the extent Lenders have any security interest in any residual Borrowers interest in such equipment under the lease), Borrower shall keep, maintain, repair, replace and operate such leased equipment in accordance with the terms of the applicable lease. 6.8 Insurance. Borrower shall keep its business and the Collateral insured for risks and in amounts standard for companies in Borrowers industry and location, and as Lenders may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are satisfactory to Lenders. All property policies shall have a lenders loss payable endorsement showing Horizon Technology Finance Management LLC and Oxford as an 24
additional loss payee and all liability policies shall show Horizon Technology Finance Management LLC and Oxford as an additional insured and all policies shall provide that the insurer must give Horizon Technology Finance Management LLC and Oxford at least thirty (30) days notice before canceling, amending or declining to renew its policy. At Lenders request, Borrower shall deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any policy shall, at Lenders option, be payable to Horizon Technology Finance Management LLC and Oxford on account of the Obligations (and Horizon shall cause Horizon Technology Finance Management LLC to apply such proceeds on account of the Obligations). Notwithstanding the foregoing, so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy up to $250,000 with respect to any loss, but not exceeding $500,000 in the aggregate for all losses under all casualty policies in any one year, toward the replacement or repair of destroyed or damaged property; provided that (i) any such replaced or repaired property (a) shall be of equal or like value as the replaced or repaired Collateral and (b) shall be deemed Collateral in which Lenders have been granted a first priority security interest and (ii) after the occurrence and during the continuation of an Event of Default all proceeds payable under such casualty policy shall, at the option of Lenders, be payable to Horizon Technology Finance Management LLC and Oxford, on account of the Obligations (and Horizon shall cause Horizon Technology Finance Management LLC to apply such proceeds on account of the Obligations). If Borrower fails to obtain insurance as required under Section 6.8 or to pay any amount or furnish any required proof of payment to third persons and Lenders, Lenders may make all or part of such payment or obtain such insurance policies required in Section 6.8, and take any action under the policies Lenders deem prudent. On or prior to the first Funding Date and prior to each policy renewal, Borrower shall furnish to Lenders certificates of insurance or other evidence satisfactory to Lenders that insurance complying with all of the above requirements is in effect. 6.9 Security Interest. Assuming the proper filing of one or more financing statement(s) identifying the Collateral with the proper state and/or local authorities, the security interests in the Collateral granted to Lenders pursuant to this Agreement (i) constitute and will continue to constitute first priority security interests (except to the extent any Permitted Liens may have a superior priority to Lenders Lien under this Agreement) to the extent a security interest may be perfected by the filing of such financing statement(s) and (ii) are and will continue to be superior and prior to the rights of all other creditors of Borrower (except to the extent of such Permitted Liens) to the extent a security interest may be perfected by the filing of such financing(s). Except as set forth in the Disclosure Schedule, none of Borrowers Intellectual Property is registered with either the US Patent and Trademark Office or the US Copyright Office. 6.10 Further Assurances . At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Lenders to make effective the purposes of this Agreement, including without limitation, the continued perfection and priority of Lenders security interest in the Collateral. 6.11 Subsidiaries. Upon any Lenders request, Borrower shall provide Lenders, within twenty (20) days of such request, with a guaranty of the Obligations from its Subsidiaries 25
and grant a security interest in any of Borrowers Subsidiarys assets to secure such guaranty. Upon Lenders request, Borrower shall grant and pledge to Lenders, within twenty (20) days of such request, a perfected security interest in the stock, units or other evidence of ownership of any Subsidiary of Borrower subject to the limitations set forth in Section 4.1(g)(d) above. Notwithstanding the foregoing, (i) Borrower shall not be required to provide Lenders a guaranty of the Obligations from Ambit CN, grant a security interest in the assets of Ambit CN to secure such guaranty, or grant and pledge to Lenders a perfected security interest in the stock of Ambit CN until twenty (20) days after the Funding Date, (ii) Borrower shall not be required to grant and pledge to Lenders a perfected security interest in the stock of Ambit UK until twenty (20) days after the Funding Date, and (iii) Borrower shall not be required to provide Lenders a guaranty of the Obligations from Ambit UK or grant a security interest in the assets of Ambit UK to secure such guaranty unless and until Ambit UKs assets exceed $10,000. 6.12 Material Licenses. Borrower shall provide written notice to Lenders within thirty (30) days of entering or becoming bound by any material license (other than over-the-counter software that is commercially available to the public). 7. Negative Covenants. Borrower, until the full and complete payment of the Obligations (other than inchoate indemnity obligations), covenants and agrees that Borrower shall not: 7.1 Chief Executive Office . Change its name, jurisdiction of incorporation, principal place of business, add any new offices or business locations including warehouses (unless such new offices or business locations contain less than $50,000 in Borrowers assets) or any of the items set forth in Section 1 of the Disclosure Schedule without thirty (30) days prior written notice to Lenders. 7.2 Collateral Control. Subject to its rights under Sections 4.4 and 7.4, remove any items of Collateral from Borrowers facility located at the address set forth on the cover page hereof or as set forth on the Disclosure Schedule. 7.3 Liens. Create, incur, assume or suffer to exist any Lien of any kind upon any of Borrowers Property, whether now owned or hereafter acquired, except Permitted Liens. 7.4 Other Dispositions of Collateral . Convey, sell, lease or otherwise dispose of all or any part of the Collateral to any Person (collectively, a Transfer), except for: (i) Transfers of inventory in the ordinary course of business; (ii) Transfers of worn-out or obsolete equipment; (iii) Transfers permitted under subclause (f) of the definition of Permitted Liens with respect to Collateral, or (iv) other Transfers which in the aggregate do not exceed $200,000 in any fiscal year. 7.5 Distributions. (i) Pay any dividends or make any distributions on its Equity Securities; (ii) purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Securities (other than (y) redemptions of the Borrowers Series C Preferred Stock, Series C-2 Preferred Stock, and Series D Preferred Stock as permitted under the Borrowers certificate of incorporation; provided that Borrower has either obtained Lenders prior written consent to such 26
redemptions, which consent shall be at the Lenders sole discretion, or Borrower has prepaid the Loans in accordance with Section 2.3(b) prior to such redemptions, and (z) repurchases pursuant to the terms of employee stock purchase plans, employee restricted stock agreements or similar arrangements in an aggregate amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in any fiscal year); (iii) return any capital to any holder of its Equity Securities as such; (iv) make any distribution of assets, Equity Securities, obligations or securities to any holder of its Equity Securities as such; or (v) set apart any sum for any such purpose; provided, however, Borrower may pay dividends payable solely in Borrowers common stock and may exchange its capital stock for another class of its capital stock. 7.6 Mergers or Acquisitions. Merge or consolidate with or into any other Person or acquire all or substantially all of the capital stock or assets of another Person other than mergers or consolidations of a Subsidiary into another Subsidiary of the Borrower or into the Borrower. 7.7 Change in Ownership. Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower or reasonably related thereto or have a material change in its ownership of greater than fifty percent (50%) (other than by the sale by Borrower of Borrowers Equity Securities in a public offering or to venture capital investors so long as Borrower identifies to Lenders the venture capital investors prior to the closing of the investment). 7.8 Transactions With Affiliates/Subsidiaries. (i) Enter into any contractual obligation with any Affiliate or engage in any other transaction with any Affiliate except upon terms at least as favorable to Borrower as an arms-length transaction with Persons who are not Affiliates of Borrower or (ii) create a Subsidiary, except in compliance with Section 6.11 above. 7.9 Indebtedness Payments. (i) Prepay, redeem, purchase, defease or otherwise satisfy in any manner prior to the scheduled repayment thereof any Indebtedness for borrowed money (other than amounts due under this Agreement) or lease obligations other than repayment of such Indebtedness or obligations by conversion into Equity Securities of the Borrower, (ii) amend, modify or otherwise change the terms of any Indebtedness for borrowed money or lease obligations so as to accelerate the scheduled repayment thereof or (iii) repay any notes to officers, directors or shareholders, other than repayment of such notes by conversion into Equity Securities of the Borrower. 7.10 Indebtedness. Create, incur, assume or permit to exist any Indebtedness except Permitted Indebtedness. 7.11 Investments. Make any Investment except for Permitted Investments. Notwithstanding the foregoing or the definition of Permitted Investments, Permitted Investments shall not include, and Borrower and each Subsidiary is prohibited from purchasing, purchasing participations in, entering into any type of swap or other derivative transaction, or otherwise holding or engaging in any ownership interest in any type of debt instrument or any corporate or municipal bonds with a long-term nominal maturity for which the interest rate is reset through a dutch auction and more commonly referred to as an auction rate security. 27
7.12 Compliance. Become an investment company or a company controlled by an investment company under the Investment Company Act of 1940 or undertake as one of its important activities extending credit to purchase or carry margin stock, or use the proceeds of any Loan for that purpose; fail to meet the minimum funding requirements of the Employment Retirement Income Security Act of 1974, and its regulations, as amended from time to time ( ERISA), permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrowers business or operations or could reasonably be expected to cause a material adverse change, or permit any of its Subsidiaries to do so. 7.13 Maintenance of Accounts . (i) Maintain any deposit account or account holding securities owned by Borrower except accounts with respect to which Lenders are able to take such actions as they deem necessary to obtain a perfected security interest in such accounts through one or more Account Control Agreements; or (ii) grant or allow any other Person (other than Lenders) to perfect a security interest in, or enter into any agreements with any Persons (other than Lenders) accomplishing perfection via control as to, any of its deposit accounts or accounts holding securities. 7.14 Negative Pledge Regarding Intellectual Property . Create, incur, assume or suffer to exist any Lien of any kind upon any Intellectual Property or Transfer any Intellectual Property, whether now owned or hereafter acquired, other than Liens or Transfers permitted under subsections (f) and (g) of the definition of Permitted Liens. 7.15 Cash in Subsidiaries. Permit Ambit CN to hold more than Four Million Dollars ($4,000,000) in cash or cash equivalents at any time and Ambit UK to hold more than Ten Thousand Dollars ($10,000) in cash or cash equivalents at any time. 8. Events of Default . Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement: 8.1 Failure to Pay. If Borrower fails to pay when due and payable or when declared due and payable in accordance with the Loan Documents: (i) any Scheduled Payment on the relevant Payment Date or on the relevant Maturity Date, or (ii) any other portion of the Obligations within three (3) Business days after receipt of written notice from Lenders that such payment is due (which 3 Business days shall not apply to payments due on the relevant Maturity Date). 8.2 Certain Covenant Defaults. If Borrower fails to perform any obligation or covenant under Section 6.8 or Section 6.11 of this Agreement or violates any of the covenants contained in Section 7 of this Agreement. 8.3 Other Covenant Defaults. If Borrower fails or neglects to perform, keep, or observe any other material term, provision, condition, covenant, or agreement contained in this Agreement (other than as set forth in Sections 8.1, 8.2 or 8.4 through 8.15 ), in any of the other Loan Documents and Borrower has failed to cure such default within twenty (20) days of the 28
occurrence of such default. During this twenty (20) day period, the failure to cure the default is not an Event of Default. 8.4 Material Adverse Change . If there occurs a material adverse change in Borrowers business, operations or condition (financial or otherwise) or if there is a material impairment of the prospect of repayment of any portion of the Obligations owing to Lenders or a material impairment in the perfection or priority of Lenders security interest in the Collateral or in the value of such Collateral. 8.5 Investor Abandonment . If Lenders determines in their good faith judgment, that it is the clear intention of Borrowers investors not to continue to fund the Borrower in the amounts and within the timeframe necessary to enable Borrower to satisfy the Obligations as they become due and payable. 8.6 Seizure of Assets, Etc. If any material portion of Borrowers assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or Person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within twenty (20) days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrowers assets, or if a notice of lien, levy, or assessment is filed of record with respect to any of Borrowers assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within twenty (20) days after Borrower receives notice thereof; provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower. 8.7 Service of Process . The service of process upon Lenders seeking to attach by a trustee or other process any funds of the Borrower on deposit or otherwise held by Lenders, or the delivery upon Lenders of a notice of foreclosure by any Person seeking to attach or foreclose on any funds of the Borrower on deposit or otherwise held by Lenders, or the delivery of a notice of foreclosure or exclusive control to any entity holding or maintaining Borrowers deposit accounts or accounts holding securities by any Person (other than Lenders) seeking to foreclose or attach any such accounts or securities. 8.8 Default on Indebtedness. One or more defaults shall exist under any agreement with any third party or parties which consists of the failure to pay any Indebtedness at maturity or which results in a right by such third party or parties, whether or not exercised, to accelerate the maturity of Indebtedness in an aggregate amount in excess of One Hundred Thousand Dollars ($100,000) or a default shall exist under any other financing agreement with Lenders or any of Lenders Affiliates (after giving effect to any grace or cure period), including, without limitation, a default under any of the Oxford Security Agreements. 8.9 Judgments. If a judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least Two Hundred Fifty Thousand Dollars 29
($250,000) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of twenty (20) days or more. 8.10 Misrepresentations. Any warranty, representation, statement, certification, or report made to Lenders by Borrower or any officer, employee, agent, or director of Borrower shall prove to have been false or misleading in any material respect when made or furnished. 8.11 Breach of Warrants. If Borrower shall breach any material term of the Warrants. 8.12 Unenforceable Loan Document . If any Loan Document shall in any material respect cease to be, or Borrower shall assert that any Loan Document is not, a legal, valid and binding obligation of Borrower enforceable in accordance with its terms. 8.13 Involuntary Insolvency Proceeding . If a proceeding shall have been instituted in a court having jurisdiction in the premises seeking a decree or order for relief in respect of Borrower in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, custodian, trustee (or similar official) of Borrower or for any substantial part of its Property, or for the winding-up or liquidation of its affairs, and such proceeding shall remain undismissed or unstayed and in effect for a period of forty-five (45) consecutive days or such court shall enter a decree or order granting the relief sought in such proceeding. 8.14 Voluntary Insolvency Proceeding. If Borrower shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian (or other similar official) of Borrower or for any substantial part of its Property, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action in furtherance of any of the foregoing. 8.15 Governmental Approvals . Any Governmental Approval shall have been (a) revoked, rescinded, suspended, modified in an adverse manner or not renewed in the ordinary course for a full term or (b) subject to any decision by a Governmental Authority that designates a hearing with respect to any applications for renewal of any of such Governmental Approval or that could result in the Governmental Authority taking any of the actions described in clause (a) above, and such decision or such revocation, rescission, suspension, modification or non-renewal has, or could reasonably be expected to have, a material adverse effect on Borrower. 9. Lenders Rights and Remedies . 9.1 Rights and Remedies. Upon the occurrence of any Default or Event of Default, Lenders shall not have any further obligation to advance money or extend credit to or for the benefit of Borrower. In addition, upon the occurrence of an Event of Default and during 30
the continuance thereof, Lenders shall have the rights, options, duties and remedies of a secured party as permitted by law or equity and, in addition to and without limitation of the foregoing, Lenders may, at their election, without notice of election and without demand, do any one or more of the following, all of which are authorized by Borrower: (a) Acceleration of Obligations . Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, including (i) any accrued and unpaid interest, (ii) the amounts which would have otherwise come due under Section 2.3, including, without limitation, if the Loans had been voluntarily prepaid, (iii) the unpaid principal balance of the Loans and (iv) all other sums, if any, that shall have become due and payable hereunder, immediately due and payable ( provided that upon the occurrence of an Event of Default described in Section 8.13 or 8.14 all Obligations shall become immediately due and payable without any action by Lenders); (b) Protection of Collateral . Make such payments and do such acts as Lenders consider necessary or reasonable to protect Lenders security interest in the Collateral. Borrower agrees to assemble the Collateral if Lenders so require and to make the Collateral available to Lenders as Lenders may designate. Borrower authorizes Lenders and their designees and agents to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any Lien which in Lenders determination appears or is claimed to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrowers owned premises, Borrower hereby grants Lenders a license to enter into possession of such premises and to occupy the same, without charge, for up to one hundred twenty (120) days in order to exercise any of Lenders rights or remedies provided herein, at law, in equity, or otherwise; (c) Preparation of Collateral for Sale . Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Lenders and their agents and any purchasers at or after foreclosure are hereby granted a non-exclusive, irrevocable, perpetual, fully paid, royalty-free license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrowers Intellectual Property, including without limitation, labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any Property of a similar nature, now or at any time hereafter owned or acquired by Borrower or in which Borrower now or at any time hereafter has any rights; provided that such license shall only be exercisable in connection with the disposition of Collateral upon Lenders exercise of its remedies hereunder; (d) Sale of Collateral . Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrowers premises) as Lenders determine are commercially reasonable; and (e) Purchase of Collateral . Credit bid and purchase all or any portion of the Collateral at any public sale. 31
Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower. 9.2 Set Off Right . Lenders may set off and apply to the Obligations any and all indebtedness at any time owing to or for the credit or the account of Borrower or any other assets of Borrower in Lenders possession or control. 9.3 Effect of Sale . Upon the occurrence of an Event of Default and during the continuance thereof, to the extent permitted by law, Borrower covenants that it will not at any time insist upon or plead, or in any manner whatsoever claim or take any benefit or advantage of, any stay or extension law now or at any time hereafter in force, nor claim, take nor insist upon any benefit or advantage of or from any law now or hereafter in force providing for the valuation or appraisement of the Collateral or any part thereof prior to any sale or sales thereof to be made pursuant to any provision herein contained, or to the decree, judgment or order of any court of competent jurisdiction; nor, after such sale or sales, claim or exercise any right under any statute now or hereafter made or enacted by any state or otherwise to redeem the property so sold or any part thereof, and, to the full extent legally permitted, except as to rights expressly provided herein, hereby expressly waives for itself and on behalf of each and every Person, except decree or judgment creditors of Borrower, acquiring any interest in or title to the Collateral or any part thereof subsequent to the date of this Agreement, all benefit and advantage of any such law or laws, and covenants that it will not invoke or utilize any such law or laws or otherwise hinder, delay or impede the execution of any power herein granted and delegated to Lenders, but will suffer and permit the execution of every such power as though no such power, law or laws had been made or enacted. Any sale, whether under any power of sale hereby given or by virtue of judicial proceedings, shall operate to divest all right, title, interest, claim and demand whatsoever, either at law or in equity, of Borrower in and to the Property sold, and shall be a perpetual bar, both at law and in equity, against Borrower, its successors and assigns, and against any and all Persons claiming the Property sold or any part thereof under, by or through Borrower, its successors or assigns. 9.4 Power of Attorney in Respect of the Collateral . Borrower does hereby irrevocably appoint each Lender (which appointment is coupled with an interest), the true and lawful attorney in fact of Borrower with full power of substitution, for it and in its name to file any notices of security interests, financing statements and continuations and amendments thereof pursuant to the Code or federal law, as may be necessary to perfect, or to continue the perfection of Lenders security interests in the Collateral and authorizes each Lender to do the same. Borrower does hereby irrevocably appoint each Lender (which appointment is coupled with an interest) on the occurrence of an Event of Default and during the continuance thereof, the true and lawful attorney in fact of Borrower with full power of substitution, for it and in its name: (a) to ask, demand, collect, receive, receipt for, sue for, compound and give acquittance for any and all rents, issues, profits, avails, distributions, income, payment draws and other sums in which a security interest is granted under Section 4 with full power to settle, adjust or compromise any claim thereunder as fully as if each Lender were Borrower itself; (b) to receive payment of and to endorse the name of Borrower to any items of Collateral (including checks, drafts and other orders for the payment of money) that come into any Lenders possession or under any Lenders control; (c) to make all demands, consents and waivers, or take any other 32
action with respect to, the Collateral; (d) in any Lenders discretion to file any claim or take any other action or proceedings, either in its own name or in the name of Borrower or otherwise, which any Lender may reasonably deem necessary or appropriate to protect and preserve the right, title and interest of Lenders in and to the Collateral; (e) endorse Borrowers name on any checks or other forms of payment or security; (f) sign Borrowers name on any invoice or bill of lading for any account or drafts against account debtors; (g) make, settle, and adjust all claims under Borrowers insurance policies; (h) settle and adjust disputes and claims about the accounts directly with account debtors, for amounts and on terms Lenders determine reasonable; (i) transfer the Collateral into the name of Lenders or a third party as the Code permits; and (j) to otherwise act with respect thereto as though Lenders were the outright owner of the Collateral. 9.5 Lenders Expenses. If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Lenders may do any or all of the following: (a) make payment of the same or any part thereof; or (b) obtain and maintain insurance policies of the type described in Section 6.8 of this Agreement, and take any action with respect to such policies as Lenders deem prudent. Any amounts paid or deposited by any Lender shall constitute Lenders Expenses, shall be immediately due and payable, shall bear interest at the Default Rate and shall be secured by the Collateral. Any payments made by any Lender shall not constitute an agreement by such Lender to make similar payments in the future or a waiver by any Lender of any Event of Default under this Agreement. Borrower shall pay all reasonable fees and expenses, including without limitation, Lenders Expenses, incurred by Lenders in the enforcement or attempt to enforce any of the Obligations hereunder not performed when due. 9.6 Remedies Cumulative. Lenders rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Lenders shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Lenders of one right or remedy shall be deemed an election, and no waiver by Lenders of any Event of Default on Borrowers part shall be deemed a continuing waiver. No delay by Lenders shall constitute a waiver, election, or acquiescence by them. 9.7 Application of Collateral Proceeds . The proceeds and/or avails of the Collateral, or any part thereof, and the proceeds and the avails of any remedy hereunder (as well as any other amounts of any kind held by Lenders, at the time of or received by Lenders after the occurrence of an Event of Default hereunder) shall be paid to and applied as follows: (a) First, to the payment of out-of-pocket costs and expenses, including all amounts expended to preserve the value of the Collateral, of foreclosure or suit, if any, and of such sale and the exercise of any other rights or remedies, and of all proper fees, expenses, liability and advances, including reasonable legal expenses and attorneys fees, incurred or made hereunder by Lenders, including, without limitation, Lenders Expenses; (b) Second, to the payment to Lenders of the amount then owing or unpaid on the Loans for any accrued and unpaid interest, the amounts which would have otherwise come due under Section 2.3, including , without limitation, if the Loans had been voluntarily prepaid, 33
the principal balance of the Loans, and all other Obligations with respect to the Loans ( provided, however, if such proceeds shall be insufficient to pay in full the whole amount so due, owing or unpaid upon the Loans, then to the unpaid interest thereon, then to the amounts which would have otherwise come due under Section 2.3, then to the principal balance of the Loans, and then to the payment of other amounts then payable to Lenders under any of the Loan Documents); and (c) Third, to the payment of the surplus, if any, to Borrower, its successors and assigns, or to the Person lawfully entitled to receive the same. 9.8 Reinstatement of Rights . If Lenders shall have proceeded to enforce any right under this Agreement or any other Loan Document by foreclosure, sale, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely, then and in every such case (unless otherwise ordered by a court of competent jurisdiction), Lenders shall be restored to their former position and rights hereunder with respect to the Property subject to the security interest created under this Agreement. 9.9 Control Agreements . Notwithstanding anything contained herein or in any control agreement entered into among Lenders, Borrower, and any bank or securities intermediary to the contrary, Lenders agree that they will not deliver to such bank or securities intermediary a notice of exclusive control or otherwise exercise exclusive control over the deposit account or securities account that is the subject of such control agreement unless and until an Event of Default has occurred and during such time as when such Event of Default has not been waived by Lenders. 10. Waivers; Indemnification. 10.1 Demand; Protest. Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Lenders on which Borrower may in any way be liable. 10.2 Lenders Liability for Collateral . So long as Lenders comply with their obligations, if any, under the Code, Lenders shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause other than Lenders gross negligence or willful misconduct; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower. 10.3 Indemnification and Waiver. Whether or not the transactions contemplated hereby shall be consummated: (a) General Indemnity. Borrower agrees upon demand to pay or reimburse Lenders for all liabilities, obligations and out-of-pocket expenses, including Lenders Expenses 34
and reasonable fees and expenses of counsel for Lenders from time to time arising in connection with the enforcement or collection of sums due under the Loan Documents, and in connection with any amendment or modification of the Loan Documents or any work-out in connection with the Loan Documents. Borrower shall indemnify, reimburse and hold Lenders, and each of their respective successors, assigns, agents, attorneys, officers, directors, equity holders, servants, agents and employees (each an Indemnified Person) harmless from and against all liabilities, losses, damages, actions, suits, demands, claims of any kind and nature (including claims relating to environmental discharge, cleanup or compliance), all costs and expenses whatsoever to the extent they may be incurred or suffered by such Indemnified Person in connection therewith (including reasonable attorneys fees and expenses), fines, penalties (and other charges of any applicable Governmental Authority), licensing fees relating to any item of Collateral, damage to or loss of use of property (including consequential or special damages to third parties or damages to Borrowers property), or bodily injury to or death of any person (including any agent or employee of Borrower) (each, a Claim), directly or indirectly relating to or arising out of the use of the proceeds of the Loans or otherwise, the falsity of any representation or warranty of Borrower or Borrowers failure to comply with the terms of this Agreement or any other Loan Document. The foregoing indemnity shall cover, without limitation, (i) any Claim in connection with a design or other defect (latent or patent) in any item of equipment or product included in the Collateral, (ii) any Claim for infringement of any patent, copyright, trademark or other intellectual property right, (iii) any Claim resulting from the presence on or under or the escape, seepage, leakage, spillage, discharge, emission or release of any Hazardous Materials on the premises owned, occupied or leased by Borrower, including any Claims asserted or arising under any Environmental Law, (iv) any Claim for negligence or strict or absolute liability in tort, or (v) any Claim asserted as to or arising under any Account Control Agreement or any Landlord Agreement; provided, however, Borrower shall not indemnify any Indemnified Person for any liability incurred by such Indemnified Person as a direct and sole result of such Indemnified Persons gross negligence or willful misconduct. Such indemnities shall continue in full force and effect, notwithstanding the expiration or termination of this Agreement. Upon Lenders written demand, Borrower shall assume and diligently conduct, at its sole cost and expense, the entire defense of each Lender, each of its members, partners, and each of their respective, agents, employees, directors, officers, equity holders, successors and assigns against any indemnified Claim described in this Section 10.3(a). Borrower shall not settle or compromise any Claim against or involving Lenders without first obtaining Lenders written consent thereto, which consent shall not be unreasonably withheld. (b) Waiver. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT OR ANYWHERE ELSE, BORROWER AGREES THAT IT SHALL NOT SEEK FROM LENDERS UNDER ANY THEORY OF LIABILITY (INCLUDING ANY THEORY IN TORTS), ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES. (c) Survival; Defense. The obligations in this Section 10.3 shall survive payment of all other Obligations pursuant to Section 12.8. At the election of any Indemnified Person, Borrower shall defend such Indemnified Person using legal counsel satisfactory to such Indemnified Person in such Persons reasonable discretion, at the reasonable cost and expense of 35
Borrower. All amounts owing under this Section 10.3 shall be paid within thirty (30) days after written demand. 11. Notices. Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by certified mail, postage prepaid, return receipt requested, by prepaid nationally recognized overnight courier, or by prepaid facsimile to Borrower or to Lenders, as the case may be, at their respective addresses set forth below: If to Borrower: Ambit Biosciences Corporation 4215 Sorrento Valley Blvd. San Diego, CA 92121 Fax: Ph: Compass Horizon Funding Company LLC 76 Batterson Park Road Farmington, CT 06032 Attention: Legal Department Fax: (860) 676-8655 Ph: (860) 676-8654 Oxford Finance Corporation 133 N.Fairfax Street Alexandria, VA 22314 Attn: General Counsel Fax: (703) 519-5225 Ph: (703) 519-6015 The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. 12. General Provisions. 12.1 Successors and Assigns . This Agreement and the Loan Documents shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, neither this Agreement nor any rights hereunder may be assigned by Borrower without Lenders prior written consent, which consent may be granted or withheld in Lenders sole discretion. Each Lender shall have the right without the consent of or notice to Borrower to sell, transfer, assign, negotiate, or grant participations in all or any part of, or any interest in such Lenders rights and benefits hereunder. Lenders may disclose the Loan Documents and any other financial or other information relating to Borrower or any Subsidiary to any potential participant or assignee of any of the Loans, provided that such participant or 36
If to Lenders:
assignee agrees to protect the confidentiality of such documents and information using the same measures that it uses to protect its own confidential information. Borrower hereby authorizes and directs Horizon, for and on behalf of the Borrower, to maintain a record of ownership of the Note issued in favor of Horizon and any interest therein, which record, or book-entry system, shall identify the owner or owners of such Note and any interests therein. Notwithstanding any other provision of this Agreement or the Loan Documents, the right to the principal of, and stated interest on, such Note may be transferred only through such book-entry system. 12.2 Time of Essence . Time is of the essence for the performance of all obligations set forth in this Agreement. 12.3 Severability of Provisions . Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 12.4 Entire Agreement; Construction; Amendments and Waivers . (a) Entire Agreement. This Agreement and each of the other Loan Documents dated as of the date hereof, taken together, constitute and contain the entire agreement between Borrower and Lenders and supersede any and all prior agreements, negotiations, correspondence, understandings and communications between the parties, whether written or oral, respecting the subject matter hereof. Borrower acknowledges that it is not relying on any representation or agreement made by Lenders or any employee, attorney or agent thereof, other than the specific agreements set forth in this Agreement and the Loan Documents. (b) Construction. This Agreement is the result of negotiations between and has been reviewed by each of Borrower and Lenders as of the date hereof and their respective counsel; accordingly, this Agreement shall be deemed to be the product of the parties hereto, and no ambiguity shall be construed in favor of or against Borrower or Lenders. Borrower and Lenders agree that they intend the literal words of this Agreement and the other Loan Documents and that no parol evidence shall be necessary or appropriate to establish Borrowers or Lenders actual intentions. (c) Amendments and Waivers. Any and all discharges or waivers of, or consents to any departures from any provision of this Agreement or of any of the other Loan Documents shall not be effective without the written consent of Lenders. Any and all amendments and modifications of this Agreement or of any of the other Loan Documents shall not be effective without the written consent of Lenders and Borrower. Any waiver or consent with respect to any provision of the Loan Documents shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on Borrower in any case shall entitle Borrower to any other or further notice or demand in similar or other circumstances. Any amendment, modification, waiver or consent affected in accordance with this Section 12.4 shall be binding upon Lenders and on Borrower. 37
12.5 Reliance by Lenders. All covenants, agreements, representations and warranties made herein by Borrower shall be deemed to be material to and to have been relied upon by Lenders, notwithstanding any investigation by Lenders. 12.6 No Set-Offs by Borrower. All sums payable by Borrower pursuant to this Agreement or any of the other Loan Documents shall be payable without notice or demand and shall be payable in United States Dollars without set-off or reduction of any manner whatsoever. 12.7 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts (including signatures delivered by facsimile or other electronic means), each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. 12.8 Survival. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations (other than inchoate indemnity obligations) or commitment to fund remain outstanding. Upon the payment in full and the satisfaction of all Obligations (other than inchoate indemnity obligations) and termination of Lenders commitment to fund the Loans, this Agreement shall terminate, provided that the obligations of Borrower to indemnify Lenders with respect to the expenses, damages, losses, costs and liabilities described in Section 10.3 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Lenders have run. 13. Relationship of Parties . Borrower and Lenders acknowledge, understand and agree that the relationship between Borrower, on the one hand, and Lenders, on the other, is, and at all time shall remain solely that of a borrower and lenders. Lenders shall not under any circumstances be construed to be a partner or a joint venturer of Borrower or any of its Affiliates; nor shall Lenders under any circumstances be deemed to be in a relationship of confidence or trust or a fiduciary relationship with Borrower or any of its Affiliates, or to owe any fiduciary duty to Borrower or any of its Affiliates. Lenders do not undertake or assume any responsibility or duty to Borrower or any of its Affiliates to select, review, inspect, supervise, pass judgment upon or otherwise inform Borrower or any of its Affiliates of any matter in connection with its or their Property, any Collateral held by Lenders or the operations of Borrower or any of its Affiliates. Borrower and each of its Affiliates shall rely entirely on their own judgment with respect to such matters, and any review, inspection, supervision, exercise of judgment or supply of information undertaken or assumed by Lenders in connection with such matters is solely for the protection of Lenders and neither Borrower nor any Affiliate is entitled to rely thereon. 14. Confidentiality. All information (other than periodic reports filed by Borrower with the Securities and Exchange Commission) disclosed by Borrower to Lenders in writing or through inspection pursuant to this Agreement that is marked confidential shall be considered confidential. Lenders agrees to use the same degree of care to safeguard and prevent disclosure of such confidential information as Lenders uses with their own confidential information, but in any event no less than a reasonable degree of care. Lenders shall not disclose such information 38
to any third party (other than to Lenders members, partners, attorneys, governmental regulators, or auditors, or to Lenders subsidiaries and affiliates and prospective transferees and purchasers of the Loans, all subject to the same confidentiality obligation set forth herein or as required by law, regulation, subpoena or other order to be disclosed) and shall use such information only for purposes of evaluation of its investment in Borrower and the exercise of Lenders rights and the enforcement of its remedies under this Agreement and the other Loan Documents. The obligations of confidentiality shall not apply to any information that (a) was known to the public prior to disclosure by Borrower under this Agreement, (b) becomes known to the public through no fault of Lenders, (c) is disclosed to Lenders by a third party having a legal right to make such disclosure, or (d) is independently developed by Lenders. Notwithstanding the foregoing, Lenders agreement of confidentiality shall not apply if Lenders have acquired indefeasible title to any Collateral or in connection with any enforcement or exercise of Lenders rights and remedies under this Agreement following an Event of Default, including the enforcement of Lenders security interest in the Collateral. 15. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CONNECTICUT, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. EACH OF BORROWER AND LENDERS HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF CONNECTICUT. BORROWER AND LENDERS HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. 16. THE AGENT. 16.1 Authorization and Action. Without limiting the rights of either Lender hereunder, Lenders appoints and authorize Horizon, as agent (Agent) to take such action as agent on their behalf and to exercise Lenders powers under this Agreement as are granted to Lenders by the terms hereof, together with such powers as are reasonably incidental thereto, including without limitation, executing any and all documents necessary to create or perfect a security interest in any Collateral. As to any matters not expressly provided for by this Agreement (including enforcement or collection of the Notes), Agent shall only take action, upon the instructions of the Lenders, and such instructions shall be binding upon Lenders and all holders of Notes; provided, however, that Agent shall not be required to take any action that exposes Agent to personal liability or that is contrary to this Agreement or applicable law. Lenders, at their option, shall direct Agent as to any actions to be taken to enforce the rights of Agent and Lender under this Agreement. 16.2 Agents Reliance, Etc. Neither Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, Agent: (i) may treat 39
the payee of any Note as the holder thereof until Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to Agent; (ii) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with this Agreement; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of Borrower or to inspect the property (including the books and records) of Borrower; (v) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; and (vi) shall incur no liability under or in respect of this Agreement by acting upon any notice, consent, certificate or other instrument or writing believed by it to be genuine and signed or sent by the proper party or parties. 16.3 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. 16.4 Indemnification. Lenders shall indemnify Agent (to the extent not reimbursed by Borrower), ratably according to the respective principal amounts of the Notes then held by each of them (or if no Notes are at the time outstanding or if any Notes are held by Persons who are not Lenders, ratably according to the respective amounts of their Commitment Amounts), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent in any way relating to or arising out of this Agreement or any action taken or omitted by Agent under this Agreement in its capacity as Agent, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from Agents gross negligence or willful misconduct. Without limiting the foregoing, each Lender shall reimburse Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by Agent, acting as Agent, in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that Agent is not reimbursed for such expenses by Borrower. 16.5 Successor Agent. Agent may resign at any time by giving written notice thereof to Lenders and Borrower. Upon any such resignation, Lenders shall have the right to appoint a successor Agent with the prior consent of Borrower, which consent shall not be unreasonably withheld or delayed, provided that such consent of the Borrower shall not be 40
required at any time an Event of Default exists. If no successor Agent shall have been so appointed by Lenders, and shall have accepted such appointment, within thirty (30) days after the retiring Agents giving of notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations as Agent under this Agreement. 41
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. BORROWER: AMBIT BIOSCIENCES CORPORATION By: /s/ Kerry Ann Kelly Name: Kerry Ann Kelly Title: VP and General Counsel LENDERS: COMPASS HORIZON FUNDING COMPANY LLC By: Horizon Technology Finance Management LLC, its advisor By: /s/ Robert D. Pomeroy, Jr. Name: Robert D. Pomeroy, Jr. Title: Chief Executive Officer OXFORD FINANCE CORPORATION By: /s/ John G. Henderson Name: John G. Henderson Title: Vice President & General Counsel AGENT: COMPASS HORIZON FUNDING COMPANY LLC By: Horizon Technology Finance Management LLC, its advisor By: /s/ Robert D. Pomeroy, Jr. Name: Robert D. Pomeroy, Jr. Title: Chief Executive Officer 42
LIST OF EXHIBITS AND SCHEDULES Exhibit A Exhibit B Exhibit C Exhibit D Exhibit E Disclosure Schedule Funding Certificate Form of Note Form of Legal Opinion Form of Officers Certificate
EXHIBIT A DISCLOSURE SCHEDULE See attached.
EXHIBIT B FUNDING CERTIFICATE The undersigned, being the duly elected and acting of AMBIT BIOSCIENCES CORPORATION, a Delaware corporation (Borrower), does hereby certify to COMPASS HORIZON FUNDING COMPANY LLC and OXFORD FINANCE CORPORATION, (collectively, the Lenders) in connection with that certain Venture Loan and Security Agreement dated on or about the date hereof by and between Borrower and Lenders (the Loan Agreement; with other capitalized terms used below having the meanings ascribed thereto in the Loan Agreement) that: 1. The representations and warranties made by Borrower in Section 5 of the Loan Agreement and in the other Loan Documents are true and correct in all material respects as of the date hereof. 2. No event or condition has occurred that would constitute a Default or an Event of Default under the Loan Agreement or any other Loan Document. 3. Borrower is in compliance with the covenants and requirements contained in Sections 4, 6 and 7 of the Loan Agreement. 4. All conditions referred to in Section 3 of the Loan Agreement to the making of the Loan to be made on or about the date hereof have been satisfied. 5. No material adverse change in the general affairs, management, results of operations, or financial condition of Borrower, whether or not arising from transactions in the ordinary course of business has occurred , nor has there been any material adverse deviation by Borrower from the business plan of Borrower presented to Lenders on or before the date hereof. 6. The proceeds for Loans shall be disbursed as follows: Disbursement from Horizon: Loan Amount Less: Legal Fees Balance of Commitment Fee Net Proceeds due from Horizon: Disbursement from Oxford: Loan Amount Less: Legal Fees Balance of Commitment Fee Net Proceeds due from Oxford:
$6,000,000 $ $ $ $6,000,000 $ $ $
The aggregate net proceeds of the Loans in the amount of $ Account Name: Bank Name: Bank Address: Attention: Telephone: Account Number: ABA Number: Dated: March , 2010
shall be transferred to Borrowers account as follows:
BORROWER: AMBIT BIOSCIENCES CORPORATION By: Name: Title:
EXHIBIT C SECURED PROMISSORY NOTE [CHF/Oxford] $6,000,000.00 Dated: March , 2010
FOR VALUE RECEIVED, the undersigned, AMBIT BIOSCIENCES CORPORATION, a Delaware corporation ( Borrower), HEREBY PROMISES TO PAY TO [COMPASS HORIZON FUNDING COMPANY LLC, a Delaware limited liability company/OXFORD FINANCE CORPORATION, a ] (the Lender) the principal amount of Six Million and 00/100 Dollars ($6,000,000.00) or such lesser amount as shall equal the outstanding principal balance of the Loan (the Loan) made to Borrower by Lender pursuant to the Loan Agreement (as defined below), and to pay all other amounts due with respect to the Loan on the dates and in the amounts set forth in the Loan Agreement. Interest on the principal amount of this Note from the date of this Note shall accrue at the Loan Rate or, if applicable, the Default Rate. The Loan Rate for this Note is % per annum based on a year of twelve 30-day months. If the Funding Date is not the first day of the month, interim interest accruing from the Funding Date through the last day of that month shall be paid on the first calendar day of the next calendar month. Commencing May 1, 2010, through and including April 1, 2011, on the first day of each month (each an Interest Payment Date) Borrower shall make payments of accrued interest only on the outstanding principal amount of the Loan in the amount of Dollars ($ ). Commencing on May 1, 2011, and continuing on the first day of each month thereafter (each a Principal and Interest Payment Date and, collectively with each Interest Payment Date, each a Payment Date), Borrower shall make to Lender thirty (30) equal payments of principal plus accrued interest on the then outstanding principal amount due hereunder each in the amount of Dollars ($ ). If not sooner paid, on October 1, 2013 the Borrower shall make a payment of One Hundred Eighty Thousand and 00/100 Dollars ($180,000) to the Lender. If not sooner paid, all outstanding amounts hereunder and under the Loan Agreement shall become due and payable on October 1, 2013. Principal, interest and all other amounts due with respect to the Loan, are payable in lawful money of the United States of America to Lender as set forth in the Loan Agreement. The principal amount of this Note and the interest rate applicable thereto, and all payments made with respect thereto, shall be recorded by Lender and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Note. This Note is referred to in, and is entitled to the benefits of, the Venture Loan and Security Agreement dated on or about the date hereof by and between Borrower, Lender and [CHF/Oxford] (the Loan Agreement). The Loan Agreement, among other things, (a) provides for the making of a secured Loan to Borrower, and (b) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events. This Note may not be prepaid, except as set forth in Section 2.3 of the Loan Agreement.
This Note and the obligation of Borrower to repay the unpaid principal amount of the Loan, interest on the Loan and all other amounts due Lender under the Loan Agreement is secured under the Loan Agreement. Presentment for payment, demand, notice of protest and all other demands and notices of any kind in connection with the execution, delivery, performance and enforcement of this Note are hereby waived. Borrower shall pay all reasonable fees and expenses, including, without limitation, reasonable attorneys fees and costs, incurred by Lender in the enforcement or attempt to enforce any of Borrowers obligations hereunder not performed when due. This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of Connecticut. IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed by one of its officers thereunto duly authorized on the date hereof. BORROWER: AMBIT BIOSCIENCES CORPORATION By: Name: Title:
EXHIBIT D ITEMS TO BE COVERED BY OPINION OF BORROWERS COUNSEL 1. Borrower is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware, and is duly qualified and authorized to do business in the State of California. 2. Borrower has the full corporate power, authority and legal right, and has obtained all necessary approvals, consents and given all notices to execute and deliver the Loan Documents and perform the terms thereof. 3. The Loan Documents have been duly authorized, executed and delivered by Borrower and constitute valid, legal and binding agreements, and are enforceable in accordance with their terms. 4. To our knowledge, there is no action, suit, audit, investigation, proceeding or patent claim pending or threatened against Borrower in any court or before any governmental commission, agency, board or authority which might have a material adverse effect on the business, condition or operations of Borrower or the ability of Borrower to perform its obligations under the Loan Documents. 5. The Shares (as defined in the Warrant) issuable pursuant to exercise or conversion of the Warrant have been duly authorized and reserved for issuance by Borrower and, when issued in accordance with the terms thereof, will be validly issued, fully paid and nonassessable. 6. The shares of Common Stock issuable upon conversion of the Shares have been duly authorized and reserved and, when issued in accordance with the terms of Borrowers Certificate of Incorporation, as amended, will be validly issued, fully paid and nonassessable. 7. The rights, preferences, privileges and restrictions granted to or imposed upon the Shares and the holders thereof are as set forth in Borrowers Certificate of Incorporation, as amended and as filed with the Secretary of State of Delaware as of the Date of Grant. 8. The execution and delivery of the Loan Documents are not, and the issuance of the Shares upon exercise of the Warrant in accordance with the terms thereof will not be, inconsistent with Borrowers Certificate of Incorporation, as amended, or Bylaws, do not and will not contravene any law, governmental rule or regulation, judgment or order applicable to Borrower, and do not and will not conflict with or contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other agreement or instrument of which Borrower is a party or by which it is bound or require the consent or approval of, the giving of notice to, the registration or filing with or the taking of any action in respect of or by, any federal, state or local government authority or agency or other person, except for the filing of notices pursuant to federal and state securities laws, which filings will be effected by the time required thereby.
EXHIBIT E FORM OF OFFICERS CERTIFICATE TO: COMPASS HORIZON FUNDING COMPANY LLC Reference is made to the Venture Loan and Security Agreement dated as of , 201 (as it may be amended from time to time, the Loan Agreement) by and between AMBIT BIOSCIENCES CORPORATION ( Borrower) and COMPASS HORIZON FUNDING COMPANY LLC AND OXFORD FINANCE CORPORATION (collectively, the Lenders). Unless otherwise defined herein, capitalized terms have the meanings given such terms in the Loan Agreement. The undersigned Responsible Officer of Borrower hereby certifies to Lenders that: 1. 2. 3. 4. 5. No Event of Default or Default has occurred under the Loan Agreement. (If a Default or Event of Default has occurred, specify the nature and extent thereof and the action Borrower proposes to take with respect thereto.) The information provided in Section 1 of the Disclosure Schedule is currently true and accurate, except as noted below. Borrower is in compliance with the provisions of Sections 4, 6 and 7 of the Loan Agreement, except as noted below. The Disclosure Schedule accurately lists all of Borrowers Intellectual Property as to which Borrower has made filings, applications or registrations with the United States Copyright Office or the United States Patent and Trademark Office except as noted below. Attached herewith are the [monthly financial statements pursuant to Section 6.3(a) of the Loan Agreement/annual audited financial statements pursuant to Section 6.3(b) of the Loan Agreement]. These have been prepared in accordance with GAAP and are consistent from one period to the next except as noted below. NOTES TO ABOVE CERTIFICATIONS:
BORROWER: AMBIT BIOSCIENCES CORPORATION By: Name: Title:
Exhibit 10.22
1. Basic Provisions ( Basic Provisions). 1.1 Parties: This Lease ( Lease), dated for reference purposes only is made by and between liability company July 22, 2004 LMC-Sorrento Investment Company, LLC, a California limited ( Lessor )
and
Ambit Biosciences Corporation, a Delaware corporation
( Lessee), (collectively the Parties, or individually a Party). 1.2(a) Premises: That certain portion of the Project (as defined below), including all improvements therein or to be provided by Lessor under the terms of this Lease, commonly known by the street address of described in the Addendum , located in the City of , County of , State of , with zip code , as outlined on Exhibit attached hereto ( Premises) and generally described as (describe briefly the nature of the Premises): . In addition to Lessees rights to use and occupy the Premises as hereinafter specified, Lessee shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any rights to the roof, exterior walls or utility raceways of the building containing the Premises (Building) or to any other buildings in the Project. The Premises, the Building, the Common Areas, the land upon which they are located, along with all other buildings and improvements thereon, are herein collectively referred to as the Project. (See also Paragraph 2) 1.2(b) Parking: 76 unreserved vehicle parking spaces ( Unreserved Parking Spaces); and reserved vehicle parking spaces ( Reserved Parking Spaces). (See also Paragraph 2.6) years and N/A months (Original Term) commencing (Expiration Date). (See also Paragraph 3) (
1.3 Term: see Addendum Commencement Date) and ending 1.4 Early Possession:
(Early Possession Date). (See also Paragraphs 3.2 and 3.3)
1.5 Base Rent: $ see Addendum see Addendum Base Rent to be adjusted.
per month (Base Rent), payable on the first day of each month commencing . (See also Paragraph 4) x If this box is checked, there are provisions in this Lease for the percent (50%) (Lessees Share).
1.6 Lessees Share of Common Area Operating Expenses: fifty 1.7 Base Rent and Other Monies Paid Upon Execution: (a) (b) (c) (d) (e) Base Rent: $ 65,107.00 for the period first month
. first month (estimated).
Common Area Operating Expenses: $ Security Deposit: $ 65,107.00 Other: $ N/A for N/A
for the period
(Security Deposit). (See also Paragraph 5)
Total Due Upon Execution of this Lease: $ see Addendum see Addendum . (See also Paragraph 6)
1.8 Agreed Use:
1.9 Insuring Party. Lessor is the Insuring Party. (See also Paragraph 8) 1.10 Real Estate Brokers: (See also Paragraph 15) (a) Representation: The following real estate brokers (the Brokers) and brokerage relationships exist in this transaction (check applicable boxes):
Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010 Powered by Morningstar Document Research
Grubb & Ellis/BRE Commercial Irving Hughes
represents Lessor exclusively ( Lessors Broker); represents Lessee exclusively ( Lessees Broker); or represents both Lessor and Lessee ( Dual Agency).
(b) Payment to Brokers: Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Brokers the brokerage fee agreed to in a separate written agreement (or if there is no such agreement, the sum of or % of the total Base Rent for the brokerage services rendered by the Brokers). 1.11 Guarantor. The obligations of the Lessee under this Lease are to be guaranteed by N/A (Guarantor). (See also Paragraph 37) 1.2 through 54 and Exhibits 1
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda consisting of Paragraphs through 2 , all of which constitute a part of this Lease. 2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less. 2.2 Condition. Lessor shall deliver that portion of the Premises contained within the Building ( Unit) to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs ( Start Date), and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems ( HVAC), loading doors, if any, and all other such elements in the Unit, other than those constructed by Lessee, shall be in good operating condition on said date and that the structural elements of the roof, bearing walls and foundation of the Unit shall be free of material defects. If a non-compliance with such warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as Lessors sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessors expense. The warranty periods shall be as follows: (i) 6 months as to the HVAC systems, and (ii) 30 days as to the remaining systems and other elements of the Unit. If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessees sole cost and expense (except for the repairs to the fire sprinkler systems, roof, foundations, and/or bearing walls see Paragraph 7). 2.3 Compliance. Lessor warrants that the improvements on the Premises and the Common Areas comply with the building codes that were in effect at the time that each such improvement, or portion thereof, was constructed, and also with all applicable laws, covenants or restrictions of record, regulations, and ordinances in effect on the Start Date ( Applicable Requirements). Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the Applicable Requirements, /s/ LMC /s/ MS Initials FORM MTN-2-2/99
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and especially the zoning, are appropriate for Lessees intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessors expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessees sole cost and expense. If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Unit, Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building ( Capital Expenditure), Lessor and Lessee shall allocate the cost of such work as follows: (a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessees termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to 6 months Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure. (b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for the portion of such costs reasonably attributable to the Premises pursuant to the formula set out in Paragraph 7.1(d); provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessors termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with interest, from Rent until Lessors share of such costs have been fully paid. If Lessee is unable to finance Lessors share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor. (c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall be fully responsible for the cost thereof, and Lessee shall not have any right to terminate this Lease. 2.4 Acknowledgements. Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including hut not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Lessees intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessors agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Lessees ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessors sole responsibility to investigate the financial capability and/or suitability of all proposed tenants. 2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work. 2.6 Vehicle Parking. Lessee shall be entitled to use the number of Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph 1.2(b) on those portions of the Common Areas designated from time to time by Lessor for parking. Lessee shall not use more parking spaces than said number. Said parking spaces shall be used for parking by vehicles no larger than full-size passenger automobiles or pick-up trucks, herein called Permitted Size Vehicles. Lessor may regulate the loading and unloading of vehicles by adopting Rules and Regulations as provided in Paragraph 2.9. No vehicles other than Permitted Size Vehicles may be parked in the Common Area without the prior written permission of Lessor. (a) Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessees employees, suppliers, shippers, customers, contractors or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities. (b) Lessee shall not service or store any vehicles in the Common Areas. (c) If Lessee permits or allows any of the prohibited activities described in this Paragraph 2.6, then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the Vehicle involved and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor, 2.7 Common Areas - Definition. The term Common Areas is defined as all areas and facilities outside the Premises and within the exterior boundary line of the Project and interior utility raceways and installations within the Unit that are provided and designated by the Lessor from time to time for the general non-exclusive use of Lessor, Lessee and other tenants of the Project and their respective employees, suppliers, shippers, customers, contractors and invitees, including parking areas, loading and unloading areas, trash areas, roadways, walkways, driveways and landscaped areas. 2.8 Common Areas - Lessees Rights. Lessor grants to Lessee, for the benefit of Lessee and its employees, suppliers, shippers, contractors, customers and invitees, during the term of this Lease, the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Lessor under the terms hereof or under the terms of any
rules and regulations or restrictions governing the use of the Project. Under no circumstances shall the right herein granted to use the Common Areas be deemed to include the right to store any property, temporarily or permanently, in the Common Areas. Any such storage shall be permitted only by the prior written consent of Lessor or Lessors designated agent, which consent may be revoked at any time. In the event that any unauthorized storage shall occur then Lessor shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove the property and charge the cost to Lessee, which cost shall be immediately payable upon demand by Lessor. 2.9 Common Areas - Rules and Regulations. Lessor or such other person(s) as Lessor may appoint shall have the exclusive control and management of the Common Areas and shall have the right, from time to time, to establish, modify, amend and enforce reasonable rules and regulations (Rules and Regulations) for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of the Building and the Project and their invitees. Lessee agrees to abide by and conform to all such Rules and Regulations, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessor shall not be responsible to Lessee for the non-compliance with said Rules and Regulations by other tenants of the Project. 2.10 Common Areas - Changes. Lessor shall have the right, in Lessors sole discretion, from time to time: (a) To make changes to the Common Areas, including, without limitation, changes in the location, size, shape and number of driveways, entrances, parking spaces, parking areas, loading and unloading areas, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways; (b) To close temporarily any of the Common Areas for maintenance purposes so tong as reasonable access to the Premises remains available; (c) To designate other land outside the boundaries of the Project to be a part of the Common Areas; (d) To add additional buildings and improvements to the Common Areas; /s/ LMC /s/ MS Initials FORM MTN-2-2/99
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(e) To use the Common Areas while engaged in making additional improvements, repairs or alterations to the Project, or any portion thereof; and (f) To do and perform such other acts and make such other changes in, to or with respect to the Common Areas and Project as Lessor may, in the exercise of sound business judgment, deem to be appropriate. see Addendum 3. Term. 3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. 3.2 Early Possession. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including but not limited to the obligations to pay Lessees Share of Common Area Operating Expenses, Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period. Any such early possession shall not affect the Expiration Date. 3.3 Delay In Possession. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until it receives possession of the Premises. If possession is not delivered within 60 days after the Commencement Date, Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said 10 day period, Lessees right to cancel shall terminate. Except as otherwise provided, if possession is not tendered to Lessee by the Start Date and Lessee does not terminate this Lease, as aforesaid, any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession of the Premises is not delivered within 4 months after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing. 3.4 Lessee Compliance. Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessors election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied. 4. Rent. 4.1 Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent (Rent). 4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during the term hereof, in addition to the Base Rent, Lessees Share (as specified in Paragraph 1.6) of all Common Area Operating Expenses, as hereinafter defined, during each calendar year of the term of this Lease, in accordance with the following provisions: (a) Common Area Operating Expenses are defined, for purposes of this Lease, as all costs incurred by Lessor relating to the ownership and operation of the Project, including, but not limited to, the following: see Addendum (i) The operation, repair and maintenance, in neat, clean, good order and condition of the following: (aa) The Common Areas and Common Area improvements, including parking areas, loading and unloading areas, trash areas, roadways, parkways, walkways, driveways, landscaped areas, bumpers, irrigation systems, Common Area lighting facilities, fences and gates, elevators, roofs, and roof drainage systems. (bb) Exterior signs and any tenant directories. (cc) Any fire detection and/or sprinkler systems. (ii) The cost of water, gas, electricity and telephone to service the Common Areas and any utilities not separately metered.
(iii) Trash disposal, pest control services, property management, security services, and the costs of any environmental inspections. (iv) Reserves set aside for maintenance and repair of Common Areas. (v) Real Property Taxes (as defined in Paragraph 10).
(vi) The cost of the premiums for the insurance maintained by Lessor pursuant to Paragraph 8. (vii) Any deductible portion of an insured loss concerning the Building or the Common Areas. (viii) The cost of any Capital Expenditure to the Building or the Project not covered under the provisions of Paragraph 2.3 provided; however, that Lessor shall allocate the cost of any such Capital Expenditure over a 12 year period and Lessee shall not be required to pay more than Lessees Share of 1/144th of the cost of such Capital Expenditure in any given month. (ix) Any other services to be provided by Lessor that are stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes that are specifically attributable to the Unit, the Building or to any other building in the Project or to the operation, repair and maintenance thereof, shall be allocated entirely to such Unit, Building, or other building. However, any Common Area Operating Expenses and Real Property Taxes that are not specifically attributable to the Building or to any other building or to the operation, repair and maintenance thereof, shall be equitably allocated by Lessor to all buildings in the Project. (c) The inclusion of the improvements, facilities and services set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to either have said improvements or facilities or to provide those services unless the Project already has the same, Lessor already provides the services, or Lessor has agreed elsewhere in this Lease to provide the same or some of them. (d) Lessees Share of Common Area Operating Expenses shall be payable by Lessee within 10 days after a reasonably detailed statement of actual expenses is presented to Lessee. At Lessors option, however, an amount may be estimated by Lessor from time to time of Lessees Share of annual Common Area Operating Expenses and the same shall be payable monthly or quarterly, as Lessor shall designate, during each 12 month period of the Lease term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to Lessee within 60 days after the expiration of each calendar year a reasonably detailed statement showing Lessees Share of the actual Common Area Operating Expenses incurred during the preceding year. If Lessees payments under this Paragraph 4.2(d) during the preceding year exceed Lessees Share as indicated on such statement, Lessor shall be credited the amount of such over-payment against Lessees Share of Common Area Operating Expenses next becoming due. If Lessees payments under this Paragraph 4.2(d) during the preceding year were less than Lessees Share as indicated on such statement, Lessee shall pay to Lessor the amount of the deficiency within 10 days after delivery by Lessor to Lessee of the statement. 4.3 Payment. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessors rights to the balance of such Rent, regardless of Lessors endorsement of any check so stating. In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any late charges which may be due. 5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessees faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, /s/ LMC /s/ MS Initials FORM MTN-2-2/99
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apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessors reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessors reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 14 days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within 30 days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease. 6. Use. 6.1 Use. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessees objections to the change in the Agreed Use. 6.2 Hazardous Substances. see Addendum (a) Reportable Uses Require Consent. The term Hazardous Substance as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessees expense) with all Applicable Requirements. Reportable Use shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit. (b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance. (c) Lessee Remediation. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessees expense, take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party. (d) Lessee Indemnification. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys and consultants fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from areas outside of the Project). Lessees obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.
(e) Lessor Indemnification. Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which existed as a result of Hazardous Substances on the Premises prior to the Start Date or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessors obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. (f) Investigations and Remediations . Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to the Start Date, unless such remediation measure is required as a result of Lessees use (including Alterations, as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessors agents to have reasonable access to the Premises at reasonable times in order to carry out Lessors investigative and remedial responsibilities. (g) Lessor Termination Option. If a Hazardous Substance Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessors rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessors option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessors expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessors desire to terminate this Lease as of the date 60 days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessees commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times /s/ LMC /s/ MS Initials FORM MTN-2-2/99
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the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessors notice of termination. 6.3 Lessees Compliance with Applicable Requirements. Except as otherwise provided in this Lease, Lessee shall, at Lessees sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessors engineers and/or consultants which relate in any manner to the Premises, without regard to whether said requirements are now in effect or become effective after the Start Date. Lessee shall, within 10 days after receipt of Lessors written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessees compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements. 6.4 Inspection; Compliance. Lessor and Lessors Lender (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a contamination is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination. 7. Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations. 7.1 Lessees Obligations. (a) In General. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessees Compliance with Applicable Requirements), 7.2 (Lessors Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessees sole expense, keep the Premises, Utility Installations (intended for Lessees exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessees use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fixtures, interior walls, interior surfaces of exterior walls, ceilings, floors, windows, doors, plate glass, and skylights but excluding any items which are the responsibility of Lessor pursuant to Paragraph 7.2. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessees obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. (b) Service Contracts. Lessee shall, at Lessees sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler and pressure vessels, (iii) clarifiers, and (iv) any other equipment, if reasonably required by Lessor. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof. (c) Failure to Perform. If Lessee fails to perform Lessees obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessees behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly reimburse Lessor for the cost thereof. (d) Replacement. Subject to Lessees indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessees failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (ie. 1/144th of the cost per month). Lessee shall pay interest on the unamortized balance at a rate that is commercially reasonable in the judgment of Lessors accountants. Lessee may, however, prepay its obligation at any time. 7.2 Lessors Obligations. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessees Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good order, condition and repair the foundations, exterior walls, structural condition of interior bearing walls, exterior roof, fire sprinkler system, Common Area fire alarm and/or smoke detection systems, fire hydrants, parking lots, walkways, parkways, driveways, landscaping, fences, signs and utility systems serving the Common Areas and all parts thereof, as well as providing the services for which there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or replace windows, doors or plate glass of the Premises. Lessee expressly waives the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease. 7.3 Utility Installations; Trade Fixtures; Alterations. (a) Definitions. The term Utility Installations refers to all floor and window coverings, air lines, power panels, electrical distribution, security and fire protection systems, communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term Trade Fixtures shall mean Lessees machinery and equipment that can be removed without doing material damage to the
Premises. The term Alterations shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. Lessee Owned Alterations and/or Utility Installations are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a). (b) Consent. Lessee shall not make any Alterations or Utility installations to the Premises without Lessors prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 months Base Rent in the aggregate or a sum equal to one months Base Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessees: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount in excess of one months Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessees posting an additional Security Deposit with Lessor. (c) Indemnification. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanics or materialmans lien against the Premises or any interest therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any /s/ LMC /s/ MS Initials FORM MTN-2-2/99
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work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessors attorneys fees and costs. 7.4 Ownership; Removal; Surrender; and Restoration. see Addendum (a) Ownership. Subject to Lessors right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises. (b) Removal. By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent. (c) Surrender; Restoration. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. Ordinary wear and tear shall not include any damage or deterioration that would have been prevented by good maintenance practice. Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall also completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Project) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below. 8. Insurance; indemnity. 8.1 Payment of Premiums. The cost of the premiums for the insurance policies required to be carried by Lessor, pursuant to Paragraphs 8.2(b), 8.3(a) and 8.3(b), shall be a Common Area Operating Expense. Premiums for policy periods commencing prior to, or extending beyond, the term of this Lease shall be prorated to coincide with the corresponding Start Date or Expiration Date. 8.2 Liability Insurance. (a) Carried by Lessee. Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000, an Additional InsuredManagers or Lessors of Premises Endorsement and contain the Amendment of the Pollution Exclusion Endorsement for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an insured contract for the performance of Lessees indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. (b) Carried by Lessor. Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. 8.3 Property Insurance Building, Improvements and Rental Value. (a) Building and Improvements. Lessor shall obtain and keep in force a policy or policies of insurance in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof. Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessees personal property shall be insured by Lessee under Paragraph 8.4. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss, Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence. (b) Rental Value. Lessor shall also obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days ( Rental Value
Insurance). Said insurance shall contain an agreed Valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period. (c) Adjacent Premises. Lessee shall pay for any increase in the premiums for the property insurance of the Building and for the Common Areas or other buildings in the Project if said increase is caused by Lessees acts, omissions, use or occupancy of the Premises. (d) Lessees Improvements. Since Lessor is the Insuring Party, Lessor shall not be required to insure Lessee Owned Alterations and Utility installations unless the item in question has become the property of Lessor under the terms of this Lease. 8.4 Lessees Property; Business interruption Insurance. (a) Property Damage. Lessee shall obtain and maintain insurance coverage on all of Lessees personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force. (b) Business Interruption. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils. (c) No Representation of Adequate Coverage. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessees property, business operations or obligations under this Lease. 8.5 Insurance Policies. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a General Policyholders Rating of at least B+, V, as set forth in the most current issue of Bests Insurance Guide, or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such /s/ LMC /s/ MS Initials FORM MTN-2-2/99
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policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor. Lessee shall, at least 30 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or insurance binders evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same. 8.6 Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby. 8.7 Indemnity. Except for Lessors gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessors master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys and consultants fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessees expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified. 8.8 Exemption of Lessor from Liability. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessees employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other detects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building, or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor nor from the failure of Lessor to enforce the provisions of any other lease in the Project. Notwithstanding Lessors negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessees business or for any loss of income or profit therefrom. 9. Damage or Destruction. 9.1 Definitions. (a) Premises Partial Damage shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 3 months or less from the date of the damage or destruction, and the cost thereof does not exceed a sum equal to 6 months Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total. (b) Premises Total Destruction shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 3 months or less from the date of the damage or destruction and/or the cost thereof exceeds a sum equal to 6 months Base Rent. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total. (c) Insured Loss shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved. (d) Replacement Cost shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation. (e) Hazardous Substance Condition shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises. 9.2 Partial Damage - Insured Loss. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessors expense, repair such damage (but not Lessees Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessors election, make the repair of any damage or destruction the total cost to repair of which is $5,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.
9.3 Partial Damage - Uninsured Loss. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessees expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessors expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective 60 days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessees commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment. In such event this Lease shall continue in lull force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice. 9.4 Total Destruction. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessors damages from Lessee, except as provided in Paragraph 8.6. 9.5 Damage Near End of Term. If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one months Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessees receipt of Lessors written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires, if Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessors commercially reasonable expense, repair such damage as soon as /s/ LMC /s/ MS Initials FORM MTN-2-2/99
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reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessees option shall be extinguished. 9.6 Abatement of Rent; Lessees Remedies. (a) Abatement. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessees use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein. (b) Remedies. If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessees election to terminate this Lease on a date not less than 60 days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect. Commence shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs. 9.7 Termination; Advance Payments. Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessees Security Deposit as has not been, or is not then required to be, used by Lessor. 9.8 Waive Statutes. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extant inconsistent herewith. 10. Real Property Taxes.
10.1 Definition. As used herein, the term Real Property Taxes shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Project, Lessors right to other income therefrom, and/or Lessors business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Project address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Project is located. The term Real Property Taxes shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Project or any portion thereof or a change in the improvements thereon. In calculating Real Property Taxes for any calendar year, the Real Property Taxes for any real estate tax year shall be included in the calculation of Real Property Taxes for such calendar year based upon the number of days which such calendar year and tax year have in common. 10.2 Payment of Taxes. Lessor shall pay the Real Property Taxes applicable to the Project, and except as otherwise provided in Paragraph 10.3, any such amounts shall be included in the calculation of Common Area Operating Expenses in accordance with the provisions of Paragraph 4.2. 10.3 Additional Improvements. Common Area Operating Expenses shall not include Real Property Taxes specified in the tax assessors records and work sheets as being caused by additional improvements placed upon the Project by other lessees or by Lessor for the exclusive enjoyment of such other lessees. Notwithstanding Paragraph 10.2 hereof, Lessee shall, however, pay to Lessor at the time Common Area Operating Expenses are payable under Paragraph 4.2, the entirety of any increase in Real Property Taxes if assessed solely by reason of Alterations, Trade Fixtures or Utility Installations placed upon the Premises by Lessee or at Lessees request. 10.4 Joint Assessment. If the Building is not separately assessed, Real Property Taxes allocated to the Building shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations assigned in the assessors work sheets or such other information as may be reasonably available. Lessors reasonable determination thereof, in good faith, shall be conclusive. 10.5 Personal Property Taxes. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises. When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessees said property shall be assessed with Lessors real property, Lessee shall pay Lessor the taxes attributable so Lessees property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessees property. 11. Utilities. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. Notwithstanding the provisions of Paragraph 4.2, if at any time in Lessors sole judgment, Lessor determines that Lessee is using a disproportionate amount of water, electricity or other commonly metered utilities, or that Lessee is generating such a large volume of trash as to require an increase in the size of the dumpster and/or an increase in the number of times per month that the dumpster is emptied, then Lessor may increase Lessees Base Rent by an amount equal to such increased costs. see Addendum 12. Assignment and Subletting. 12.1 Lessors Consent Required. see Addendum
(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, assign or assignment) or sublet all or any part of Lessees interest in this Lease or in the Premises without Lessors prior written consent. (b) A change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of 25% or more of the voting control of Lessee shall constitute a change in control for this purpose. (c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessees assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. Net Worth of Lessee shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles. (d) An assignment or subletting without consent shall, at Lessors option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustments to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent. (e) Lessees remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief. 12.2 Terms and Conditions Applicable to Assignment end Subletting. (a) Regardless of Lessors consent, no assignment or subletting shall: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations /s/ LMC /s/ MS Initials FORM MTN-2-2/99
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hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee. (b) Lessor may accept Rent or performance of Lessees obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessors right to exercise its remedies for Lessees Default or Breach. (c) Lessors consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting. (d) In the event of any Default or Breach by Lessee. Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessees obligations under this Lease, including any assignee or sublessee, without first exhausting Lessors remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor. (e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessors determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $1,000 or 10% of the current monthly Base Rent applicable to the portion of the Premises which is the subject of the proposed assignment or sublease, whichever is greater, as consideration for Lessors considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested. (f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed so conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing. (g) Lessors consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing. (See Paragraph 39.2) 12.3 Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: (a) Lessee hereby assigns and transfers to Lessor all of Lessees interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessees obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessees obligations, Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessees obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessees obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary. (b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor. (c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor. (d) No sublessee shall further assign or sublet all or any part of the Premises without Lessors prior written consent. (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee. 13. Default; Breach; Remedies. 13.1 Default; Breach. A Default is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A Breach is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period: (a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism. (b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee. see Addendum (c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 41 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days
following written notice to Lessee. (d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 2.9 hereof, other than those described in subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessees Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion. (e) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a debtor as defined in 11 U.S.C. 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessees assets located at the Premises or of Lessees interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessees assets located at the Premises or of Lessees interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions. (f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false. (g) If the performance of Lessees obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantors liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantors becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantors refusal to honor the guaranty, or (v) a Guarantors breach of its guaranty obligation on an anticipatory basis, and Lessees failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease. 13.2 Remedies. If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessees behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee upon receipt of invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made by Lessee to be by cashiers check. In the event of a Breach, Lessor may, with or without further notice or demand, and without /s/ LMC /s/ MS Initials FORM MTN-2-2/99
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limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach: (a) Terminate Lessees right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have bean earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessees failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessees Breach of this Lease shall not waive Lessors right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute. (b) Continue the Lease and Lessees right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessors interests, shall not constitute a termination of the Lessees right to possession. (c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessees right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessees occupancy of the Premises, 13.3 Inducement Recapture. Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessees entering into this Lease, all of which concessions are hereinafter referred to as Inducement Provisions, shall be deemed conditioned upon Lessees full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance. 13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessees Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessors option, become due and payable quarterly in advance. 13.5 Interest. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments. The interest ( Interest) charged shall be equal to the prime rate reported in the Wall Street Journal as published closest prior to the date when due plus 4%, but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4. 13.6 Breach by Lessor. (a) Notice of Breach. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessors obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion. (b) Performance by Lessee on Behalf of Lessor. In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessees expense and offset from Rent an amount equal to the greater of one months Base Rent or the Security Deposit, and to pay an excess of such expense under protest, reserving Lessees right to reimbursement from Lessor. Lessee shall document the cost of said cure and supply said documentation to Lessor.
14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively Condemnation), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the floor area of the Unit, or more than 25% of Lessees Reserved Parking Spaces, is taken by Condemnation, Lessee may, at Lessees option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessees relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation. 15. Brokerage Fees. 15.1 Additional Commission. In addition to the payments owed pursuant to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee acquires from Lessor any rights to the Premises or other premises owned by Lessor and located within the Project, (c) if Lessee remains in possession of the /s/ LMC /s/ MS Initials FORM MTN-2-2/99
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Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of the Brokers in effect at the time of the execution of this Lease. 15.2 Assumption of Obligations. Any buyer or transferee of Lessors interest in this Lease shall be deemed to have assumed Lessors obligation hereunder. Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, than such amounts shall accrue interest. In addition, if Lessor fails to pay any amounts to Lessees Broker when due, Lessees Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition, Lessees Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessors Broker for the limited purpose of collecting any brokerage fee owed. 15.3 Representations and Indemnities of Broker Relationships. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finders fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys fees reasonably incurred with respect thereto. 16. Estoppel Certificates. (a) Each Party (as Responding Party) shall within 10 days after written notice from the other Party (the Requesting Party) execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current Estoppel Certificate form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party. (b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Partys performance, and (iii) if Lessor is the Requesting Party, not more than one months rent has been paid in advance. Prospective purchasers and encumbrances may rely upon the Requesting Partys Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate. (c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessees financial statements for the past 3 years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. Definition of Lessor. The term Lessor as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessees interest in the prior lease. In the event of a transfer of Lessors title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. Notwithstanding the above, and subject to the provisions of Paragraph 20 below, the original Lessor under this Lease, and all subsequent holders of the Lessors interest in this Lease shall remain liable and responsible with regard to the potential duties and liabilities of Lessor pertaining to Hazardous Substances as outlined in Paragraph 6.2 above. 18. Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. Days. Unless otherwise specifically indicated to the contrary, the word days as used in this Lease shall mean and refer to calendar days. 20. Limitation on Liability. Subject to the provisions of Paragraph 17 above, the obligations of Lessor under this Lease shall not constitute personal obligations of Lessor, the individual partners of Lessor or its or their individual partners, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against the individual partners of Lessor, or its or their individual partners, directors, officers or shareholders, or any of their personal assets for such satisfaction. 21. Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease. 22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Brokers liability shall not be applicable to any gross negligence or willful misconduct of such Broker.
23. Notices. 23.1 Notice Requirements. All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Partys signature on this Lease shall be that Partys address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessees taking possession of the Premises, the Premises shall constitute Lessees address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing. 23.2 Date of Notice. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given 48 hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day. 24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessors consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessors consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of /s/ LMC /s/ MS Initials FORM MTN-2-2/99
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such payment. 25. Disclosures Regarding The Nature of a Real Estate Agency Relationship. (a) When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction. Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows: (i) Lessors Agent. A Lessors agent under a listing agreement with the Lessor acts as the agent for the Lessor only. A Lessors agent or subagent has the following affirmative obligations: To the Lessor: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor. To the Lessee and the Lessor: (a) Diligent exercise of reasonable skills and care in performance of the agents duties. (b) A duty of honest and fair dealing and good faith. (c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above. (ii) Lessees Agent. An agent can agree to act as agent for the Lessee only. In these situations, the agent is not the Lessors agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor. An agent acting only for a Lessee has the following affirmative obligations. To the Lessee: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessee. To the Lessee and the Lessor (a) Diligent exercise of reasonable skills and care in performance of the agents duties. (b) A duty of honest and fair dealing and good faith. (c) A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above. (iii) Agent Representing Both Lessor and Lessee . A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee. In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee: (a) A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Lessor or the Lessee. (b) Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii). In representing both Lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered. The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests. Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional. (b) Brokers have no responsibility with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys fees), of any Broker with respect to any breach of duty, error or omission relating to this Lease shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Brokers liability shall not be applicable to any gross negligence or willful misconduct of such Broker. (c) Buyer and Seller agree to identify to Brokers as Confidential any communication or information given Brokers that is considered by such Party to be confidential. 26. No Right To Holdover. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee. 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28. Covenants and Conditions; Construction of Agreement. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it. 29. Binding Effect; Choice of Law. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 30. Subordination; Attornment; Non-Disturbance. see Addendum 30.1 Subordination. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, Security Device), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as Lender) shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. 30.2 Attornment. In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Device to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for
the remainder of the term hereof, or, at the election of such new owner, this Lease shall automatically become a new Lease between Lessee and such new owner, upon all of the terms and conditions hereof, for the remainder of the term hereof, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessors obligations hereunder, except that such new owner shall not: (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one months rent, or (d) be liable for the return of any security deposit paid to any prior lessor. 30.3 Non-Disturbance. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessees subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a Non-Disturbance Agreement ) from the Lender which Non-Disturbance Agreement provides that Lessees possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within 60 days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any preexisting Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessees option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement. 30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, atornment and/or NonDisturbance Agreement provided for herein. 31. Attorneys Fees. If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, Prevailing Party shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or /s/ LMC /s/ MS Initials FORM MTN-2-2/99
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the abandonment by the Other Party or Broker of its claim or defense. The attorneys fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys fees reasonably incurred. In addition, Lessor shall be entitled to attorneys fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation). see Addendum 32. Lessors Access; Showing Premises; Repairs. Lessor and Lessors agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary. All such activities shall be without abatement of rent or liability to Lessee. Lessor may at any time place on the Premises any ordinary For Sale signs and Lessor may during the last 6 months of the term hereof place on the Premises any ordinary For Lease signs. Lessee may at any time place on the Premises any ordinary For Sublease sign. 33. Auctions. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessors prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction. 34. Signs. Except far ordinary For Sublease signs which may be placed only on the Premises, Lessee shall not place any sign upon the Project without Lessors prior written consent. All signs must comply with all Applicable Requirements. 35. Termination; Merger. Unless specifically staled otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessors failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessors election to have such event constitute the termination of such interest. 36. Consents. Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessors actual reasonable costs and expenses (including but not limited to architects, attorneys, engineers and other consultants fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessors consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessors consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request. 37. Guarantor. 37.1 Execution. The Guarantors, if any, shall each execute a guaranty in the form most recently published by the American Industrial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease. 37.2 Default. It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantors behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect. 38. Quiet Possession. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessees part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof. 39. Options. If Lessee is granted an option, as defined below, then the following provisions shall apply. 39.1 Definition. Option shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor. 39.2 Options Personal To Original Lessee. Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting. 39.3 Multiple Options. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised. 39.4 Effect of Default on Options. (a) Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessees inability to exercise an
Option because of the provisions of Paragraph 39.4(a). (c) An Option shall terminate and be of no further force or effect, notwithstanding Lessees due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee 3 or more notices of separate Default during any 12 month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease. 40. Security Measures. Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 41. Reservations. Lessor reserves the right: (i) to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, (ii) to cause the recordation of parcel maps and restrictions, and (iii) to create and/or install new utility raceways, so long as such easements, rights, dedications, maps, restrictions, and utility raceways do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate such rights. 42. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment under protest and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay. 43. Authority. If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each party shall, within 30 days after request, deliver to the other party satisfactory evidence of such authority. 44. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 45. Offer. Preparation of this Lease by either party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto. 46. Amendments. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As /s/ LMC /s/ MS Initials FORM MTN-2-2/99
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long as they do not materially change Lessees obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises. 47. Multiple Parties. If more than one person or entity is named herein as either Lessor or Lessee, such multiple Parties shall have joint and several responsibility to comply with the terms of this Lease. 48. Waiver of Jury Trial. The Parties hereby waive their respective rights to trial by jury in any action or proceeding involving the Property or arising out of this Agreement. 49. Mediation and Arbitration of Disputes. An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease is is not attached to this Lease. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO: 1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. 2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE PREMISES FOR LESSEES INTENDED USE. WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED. The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures. Executed at: San Diego, California on: July 26, 2004 By LESSOR: LMC-Sorrento Investment Company, a California limited liability company By: /s/ Lee M. Chesnut Name Printed: Lee M. Chesnut Title: Manager By: Name Printed: Title: Address: San Diego, California Executed at: July 26, 2004 on: By LESSEE: Ambit Biosciences Corporation, a Delaware corporation /s/ M. Salka By: Name Printed: M SALKA CEO Title: By: Name Printed: Title: Address: Telephone: ( ) Facsimile: ( ) Federal ID No.
1935 Ocean Front Del Mar, California 92014
4215 Sorrento Valley Road San Diego, California 92121
Telephone: (858) 523-0694 Facsimile: (858) 523-0698 Federal ID No.
These forms are often modified to meet changing requirements of law and needs of the industry. Always write or call to make sure you are utilizing the most current form: American Industrial Real Estate Association, 700 South Flower Street, Suite 600, Los Angeles, CA 90017. (213) 687-8777. Copyright 1999By American Industrial Real Estate Association. All rights reserved. No part of these works may be reproduced in any form without permission in writing.
PAGE 14 FORM MTN-2-2/99
RULES AND REGULATIONS
Dated: By and Between:
July 22, 2004 LMC-Sorrento Investment Company, LLC, and Ambit Biosciences Corporation GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas, including driveways, walkways and stairways. 2. Lessor reserves the right to refuse access to any persons Lessor in good faith judges to be a threat to the safety and reputation of the Project and its occupants. 3. Lessee shall not make or permit any noise or odors that annoy or interfere with other lessees or persons having business within the Project. 4. Lessee shall not keep animals or birds within the Project, and shall not bring bicycles, motorcycles or other vehicles into areas not designated as authorized for same. 5. Lessee shall not make, suffer or permit litter except in appropriate receptacles for that purpose. 6. Lessee shall not alter any lock or install new or additional locks or bolts. 7. Lessee shall be responsible for the inappropriate use of any toilet rooms, plumbing or other utilities. No foreign substances of any kind are to be inserted therein. 8. Lessee shall not deface the walls, partitions or other surfaces of the Premises or Project. 9. Lessee shall not suffer or permit anything in or around the Premises or Building that causes excessive vibration or floor loading in any part of the Project. 10. Furniture, significant freight and equipment shall be moved into or out of the building only with the Lessors knowledge and consent, and subject to such reasonable limitations, techniques and timing, as may be designated by Lessor. Lessee shall be responsible for any damage to the Office Building Project arising from any such activity. 11. Lessee shall not employ any service or contractor for services or work to be performed in the Building, except as approved by Lessor. 12. Lessor reserves the right to close and lock the Building on Saturdays, Sundays and Building Holidays, and on other days between the hours of 6: 00 P.M. and 8:00 A.M. of the following day. If Lessee uses the Premises during such periods, Lessee shall be responsible for securely locking any doors it may have opened for entry. 13. Lessee shall return all keys at the termination of its tenancy and shall be responsible for the cost of replacing any keys that are lost. 14. No window coverings, shades or awnings shall be installed or used by Lessee. 15. No Lessee, employee or invitee shall go upon the roof of the Building. 16. Lessee shall not suffer or permit smoking or carrying of lighted cigars or cigarettes in areas reasonably designated by Lessor or by applicable governmental agencies as non-smoking areas. 17. Lessee shall not use any method of heating or air conditioning other than as provided by Lessor. 18. Lessee shall not install, maintain or operate any vending machines upon the Premises without Lessors written consent. 19. The Premises shall not be used for lodging or manufacturing, cooking or food preparation, except coffeemaker and microwave oven use. 20. Lessee shall comply with all safety, fire protection and evacuation regulations established by Lessor or any applicable governmental agency. 21. Lessor reserves the right to waive any one of these rules or regulations, and/or as to any particular Lessee, and any such waiver shall not constitute a waiver of any other rule or regulation or any subsequent application thereof to such Lessee. 22. Lessee assumes all risks from theft or vandalism and agrees to keep its Premises locked as may be required. 23. Lessor reserves the right to make such other reasonable rules and regulations as it may from time to time deem necessary for the appropriate operation and safety of the Project and its occupants. Lessee agrees to abide by these and such rules and regulations. PARKING RULES 1. Parking areas shall be used only for parking by vehicles no longer than full size, passenger automobiles herein called Permitted Size Vehicles. Vehicles other than Permitted Size Vehicles are herein referred to as Oversized Vehicles
2. Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessees employees, suppliers, shippers, customers, or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities. 3. Parking stickers or identification devices shall be the property of Lessor and be returned to Lessor by the holder thereof upon termination of the holders parking privileges. Lessee will pay such replacement charge as is reasonably established by Lessor for the loss of such devices. 4. Lessor reserves the right to refuse the sale of monthly identification devices to any person or entity that willfully refuses to comply with the applicable rules, regulations, laws and/or agreements. 5. Lessor reserves the right to relocate all or a part of parking spaces from floor to floor, within one floor, and/or to reasonably adjacent offsite location(s), and to reasonably allocate them between compact and standard size spaces, as long as the same complies with applicable laws, ordinances and regulations. 6. Users of the parking area will obey all posted signs and park only in the areas designated for vehicle parking. 7. Unless otherwise instructed, every person using the parking area is required to park and lock his own vehicle. Lessor will not be responsible for any damage to vehicles, injury to persons or loss of property, all of which risks are assumed by the party using the parking area. 8. Validation, if established, will be permissible only by such method or methods as Lessor and/or its licensee may establish at rates generally applicable to visitor parking. 9. The maintenance, washing, waxing or cleaning of vehicles in the parking structure or Common Areas is prohibited. 10. Lessee shall be responsible for seeing that all of its employees, agents and invitees comply with the applicable parking rules, regulations, laws and agreements. 11. Lessor reserves the right to modify these rules and/or adopt such other reasonable and non-discriminatory rules and regulations as it may deem necessary for the proper operation of the parking area. 12. Such parking use as is herein provided is intended merely as a license only and no bailment is intended or shall be created hereby. /s/ LMC /s/ MS Initials FORM MTN-2-2/99
PAGE 1 of 1
Exhibit 10.23 Addendum to Lease This Addendum, dated July 22, 2004, constitutes an addendum to that certain Standard Industrial/Commercial Multi-Tenant Lease (the Lease ) dated July 22, 2004, by and between (1) LMC-Sorrento Investment Company, LLC, a California limited liability company ( Lessor), and (2) Ambit Biosciences Corporation, a Delaware corporation ( Lessee). Lessor and Lessee hereby supplement and amend the Lease, as follows: 1.2 Premises. As used herein, the Building means the building commonly known as 4215 Sorrento Valley Road, San Diego, California 92121. The Unit consists of a portion of the Building depicted on Exhibit 1 attached hereto. The Premises consists of the Unit and Lessees interest in the Common Areas. 1.3 Term. 1.3.1 Original Term. The Original Term of the Lease shall commence on the date Lessor delivers to Lessee possession of the Premises (Commencement Date), which date is estimated to be July 23, 2004 ( Estimated Commencement Date ). Subject to Lessees option to extend and unless sooner terminated as herein provided, the tern of the Lease shall expire at 11:59 p.m. on the last day of the fifth Lease Year (defined below), which date is the expiration of the Original Term (Expiration Date). References in the Lease to Start Date shall mean the Commencement Date. 1.3.2 Option to Renew. Lessee shall have the right and option to renew the term of the Lease for a further term of five years commencing on the expiration of the Original Term. The option to extend the term of the Lease may be exercised only by the delivery by Lessee to Lessor, not less than nine months prior to the expiration of the term, of written notice of such exercise. Lessees exercise of the option shall be irrevocable. Lessees occupancy during the option period shall be subject to all terms and conditions of the Lease; however, the Base Rent payable during the option period shall be subject to adjustment as provided in Sections 1.5.3 and 1.5.4 below. 1.5 Base Rent. 1.5.1 Commencement and Adjustment. Commencing on the Commencement Date, Lessee shall pay Base Rent to Lessor, in advance without deduction, offset, notice or demand. During the Original Term and any extended term, Lessee shall not pay any additional rent or fee for parking. Subject to adjustment, as provided below, a schedule of the Base Rent to be paid during the Original Term is as follows:
Applicable Period Amount/Month
Lease Year 1 Lease Year 2 Lease Year 3 Lease Year 4 Lease Year 5 1.
$ $ $ $ $
61,316.08 63,768.72 66,319.47 68,972.25 71,731.41
If the Commencement Date occurs on other than the first day of a calendar month, then the Base Rent for such partial month of the term of the Lease shall be (1) prorated in the proportion that the number of days of the Lease is in effect during such period bears to 30 and (2) paid on the Commencement Date. 1.5.2 Lease Year Defined. As used herein, the term Lease Year shall mean each 12-month period commencing on the Commencement Date if the Commencement Date is the first day of a calendar month, but otherwise on the first day of the calendar month immediately next following the calendar month in which the Commencement Date occurs, and ending on the last day of the twelfth month thereafter; however, the first Lease Year shall include any partial month in which the Commencement Date occurs if the Commencement Date occurs on a day other than the first day of the month (e.g., if the Commencement Date were July 22, 2004, then the first Lease Year would be July 22, 2004, through July 31, 2005, and each subsequent Lease Year would start on August 1 and end on July 31). 1.5.3 Determination of Base Rent for First Lease Year of Option Period . The Base Rent to be paid by Lessee to Lessor during the first Lease Year of the option period shall be the Market Rental Rate (defined below), but in no event shall the Base Rent for the first Lease Year of the option period be less than the Base Rent for the fifth Lease Year of the Original Term. As used herein, the term Market Rental Rate shall mean that rate that is prevailing as of the commencement of the first Lease Year of the option period for comparable space in a comparable building in the Sorrento Valley area of San Diego, California, taking into consideration the size and age of and improvements in the Premises, the five-year term of the option period, and other relevant factors, which Market Rental Rate shall be determined as follows: (a) By mutual agreement between Lessor and Lessee evidenced in a writing signed by each and mutually delivered or (b) If Lessor and Lessee have not agreed upon the Market Rental Rate prior to the commencement of the first Lease Year of the option period, then either Lessor or Lessee may submit the issue of Market Rental Rate to determination by arbitration under the auspices of the American Arbitration Association, which shall be conducted pursuant to the commercial rules except as otherwise provided in this Lease. The venue for the arbitration shall be in the City of San Diego. With respect to the conduct of the arbitration, the following shall apply: (i) Not less than three weeks in advance of the date for the commencement of the arbitration hearing, Lessor and Lessee shall each exchange (1) the name, address and qualifications of any appraiser, broker or other expert intended to be called at the time of the arbitration (each, an Expert), (2) any reports and/or data relied upon by the Expert in connection with forming an opinion as to Market Rental Rate, and (3) a statement as to each partys determination of the Market Rental Rate ( MRR Statement) (i.e., Lessor shall give to Lessee Lessors determination of the Market Rental Rate and vice-versa). 2.
(ii) For a period of 10 days following the exchange of the MRR Statements, either party may accept the Market Rental Rate stated in the other partys MRR Statement, and, in such event, the accepted amount will become the Base Rent for the first Lease Year of the option period (e.g., if Lessor delivered to Lessee timely written notice of acceptance of Lessees determination of Market Rental Rate as provided in Lessees MRR Statement, then the amount shown on Lessees MRR Statement would become the Base Rent for the first Lease Year of the option period). (iii) If neither party accepts the other partys determination of Market Rental Rate, then the arbitration shall be conducted before a single arbitrator that shall be selected pursuant to the commercial rules. Not less than five days prior to the date set for the hearing for the arbitration, each party shall (1) make available for an oral deposition any Expert whose testimony is expected to be given at the time of the arbitration and (2) deliver to the other party all exhibits that are intended to be entered into evidence at the time of the arbitration. (iv) Except as provided below, each party shall bear its own attorneys fees and Experts fees. Except as provided below, each party shall share equally any administrative fees owed to the American Arbitration Association and the reasonable hourly fees owed to the arbitrator. Notwithstanding the foregoing, if the amount of the Market Rental Rate stated in Lessees MRR Statement is less than 95 percent of the Market Rental Rate determined by the arbitrator, then the arbitrator may, in the arbitrators discretion, assess against Lessee costs incurred by Lessor in connection with the arbitration, including, without limitation, reasonable attorneys fees, Experts fees, arbitrators fees and administration fees. If the amount of the Market Rental Rate stated in Lessors MRR Statement is greater than 105 percent of the Market Rental Rate determined by the arbitrator, then the arbitrator may, in the arbitrators discretion, assess against the Lessor costs incurred by Lessee in connection with the arbitration, including, without limitation, reasonable attorneys fees, Experts fees, arbitrators fees and administration fees. (v) Following rendition of the arbitrators award, either party may petition the Superior Court of the State of California for the County of San Diego to have the award confirmed and entered as a judgment. Pending determination of the Market Rental Rate for the option period, Lessee shall pay to Lessor Base Rent in an amount equal to 104 percent of the Base Rent in effect during the fifth Lease Year. If the Market Rental Rate is greater than 104 percent of the Base Rent payable during the fifth Lease Year, then, within 30 days following the arbitrators decision determining the amount of the Market Rental Rate, Lessee shall pay to Lessor the difference between (1) the Base Rent that should have been paid during the first Lease Year of the option period based upon the Market Renal Rate and (2) the actual amount of the Base Rent paid by Lessee during the first Lease Year of the option period. If it is determined that the Market Rental Rate is less than 104 percent of the Base Rent payable during the fifth Lease Year, then Lessee shall be entitled to credit against Base Rent next coming due in an amount equal to the excess paid by Lessee. 3.
1.5.4 Determination of Base Rent for Subsequent Lease Years of the Option Period . The Base Rent for each subsequent Lease Year of the option period will be equal to the amount derived by multiplying the Base Rent for the prior Lease Year of the option period by 1.04. By way of example, if the Base Rent for the first Lease Year of the option period were determined to be $78,000.00, the Base Rent for the second, third, fourth, and fifth Lease Years of the option period would be $81,120.00, $84,364.80, $87,739.39, and $91,248.97. 1.7(e) Amount Due on Execution. Upon execution of this Lease, Lessee shall pay to Lessor $122,632.16, $61,316.08 of which shall be applied to Base Rent for the first month of the Original Term and $61,316.08 of which shall be the Security Deposit. As of execution of this Lease, Lessor has not furnished to Lessee an estimate of Common Area Operating Expenses. Lessee shall commence to pay estimated payments of Lessees Share of Common Area Operating Expenses when the estimate is delivered to Lessee. 1.8 Agreed Use. The agreed use is for biotechnology research and development and related office uses, subject to Lessees compliance with applicable zoning and any existing recorded land use restrictions. 2.2 Condition. Notwithstanding anything to the contrary in Paragraph 2.2, should a noncompliance with this warranty be of a latent nature, such six-month and 30-day time limitation shall not apply, and Lessor shall rectify such noncompliance, at Lessors sole cost and expense promptly after receipt of written notice thereof. 2.3 Compliance. Notwithstanding anything in Section 2.3 to the contrary, should a noncompliance with Lessors warranty be of a latent nature, such six-month time limitation shall not apply, and Lessor shall rectify such noncompliance, at Lessors sole cost and expense, promptly after receipt of written notice thereof. The provisions of section 2.3(b) are deleted and replaced with the following: If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as governmentally mandated seismic modifications), then the same shall be performed at the sole cost of Lessor. 2.4 Acknowledgments. This section is hereby deleted in its entirety. 2.5 Lessee as Prior Owner/Occupant . This section is hereby deleted in its entirety. 2.9 Common AreasRules and Regulations . If any rule or regulation is in conflict with any term, covenant or condition of this Lease, this Lease shall prevail. Following a written request from Lessee, Lessor shall use commercially reasonable efforts to enforce the rules and regulations against other tenants of the Building. 2.10 Common AreasChanges . Lessor shall not exercise Lessors rights under Paragraph 2.10 of the Lease in a manner that materially and adversely affects Lessees use of the Premises. 4.
3.3. Delay in Possession. Notwithstanding anything in this Lease to the contrary, if possession is not delivered within 30 days after the Estimated Commencement Date, then Lessee may, at its option, by notice in writing until such delivery of possession, cancel this Lease, in which event Lessor shall return all sums previously paid or deposited by Lessee and the parties shall be discharged from all obligations hereunder. 4.2 Common Area Operating Expenses/Management Fees . Common Area Operating Expenses shall include all fees incurred by Lessor for third-party professional management of the Project; however, such fee shall not exceed an amount that is commercially reasonable for the area in which the Project is located and in no event more than three percent of the total Base Rent from all tenants of the Project. If Lessor does not engage the services of a third-party professional management company (i.e., if Lessor self-manages the Project), Common Area Operating Expenses will include a charge for Lessors management equal to three percent of total Base Rent from all tenants of the Project. As of the Commencement Date, the Project will be managed by Lessor. Lessor may, at any time, change the company that manages the Project. Common Area Operating Expenses do not include the following: 4.2.1 Any fines, penalty charges, or interest incurred by Lessor due to violation of law or late payment, violation of this Lease or any other lease in the Property, or due to Lessors negligence or willful misconduct. 4.2.2 The cost of repairs or other work occasioned by casualty or as a result of condemnation, construction defect or code violation. 4.2.3 Expenses incurred in connection with the services provided to others but not to Lessee. 4.2.4 Expenses incurred in connection with drafting or enforcing leases, such as, but not limited to, accounting, legal, architectural, space planning, or engineering fees, advertising, or promotions costs. 4.2.5 Repairs and maintenance necessary because of negligence or willful misconduct of other tenants, their officers, agents, employees, invitees, licensees, and those parties working through or under those tenants. 4.2.6 Costs for alterations of other tenants premises prior to and during duration of leases. 4.2.7 Interest and principal payment on mortgages and other debt costs. 4.2.8 Rent payments under ground leases. 4.2.9 Capital expenditures that are discretionary in nature and do not otherwise (1) constitute a repair or replacement of existing fixtures, equipment, or improvements or (2) have the intended effect of reducing Common Area Operating Expenses. 5.
4.2.10 Costs for Lessors overhead and management expenses in excess of the amounts described above. 4.2.11 Overhead profit increments paid to Lessors subsidiaries or affiliates for management or other services on or to the building or for supplies or other materials to the extent that the cost of the services, supplies, or materials exceeds the cost that would have been paid had the services, supplies, or materials been provided by unaffiliated parties on a competitive basis. 4.2.12 Leasing commissions, attorneys fees, costs, disbursements, and other expenses incurred in connection with negotiations or disputes with tenants, leasing, renovating, or improving space for tenants or other occupants or prospective tenants or other occupants of the Building. 4.2.13 Any depreciation on the Building or Project. 4.2.14 Costs incurred due to Lessors violation of any terms or conditions of this Lease or any other lease relating to the Building or Project. 4.2.15 All rental and other payable due under any ground or underlying lease or any lease for any equipment ordinarily considered to be of a capital nature (except janitorial equipment that is not affixed to the Building.) 4.2.16 Any compensation paid to clerks, attendants, or other persons in commercial concessions operated by Lessor. 4.2.17 Advertising and promotional expenditures. 4.2.18 Costs of repairs and other work occasioned by fire, windstorm, or other casualty of an insurable nature. 4.2.19 Wages, salaries, or other compensation paid to any executive employees above the grade of building manager. 4.2.20 The cost of correcting any building code or other violations that were violations prior to the Commencement Date. 4.2.21 The cost of containing, removing, or otherwise remediating any contamination of the Project (including the underlying land and ground water) by any toxic or hazardous materials (including, without limitation, asbestos and PCBs), where such contamination was not caused by Lessee. 4.2(e) Audit Rights. Lessor shall keep complete and accurate records in accordance with good bookkeeping and accounting practices regarding all Common Area Operating Expenses. Lessee shall have the right to audit such records for each calendar year 6.
during the term of this Lease by notifying Lessor within 120 days following the end of each such calendar year and/or 120 days after Lessor has furnished Lessee a statement of such actual expenses. If an audit (performed by a certified public accountant on behalf of Lessee) reveals that Lessor has overcharged Lessee for common Area Operating Expenses, Lessor shall refund the amount overcharged within ten days after such determination has been made. If Lessor has overcharged Lessee by more than 5 percent, Lessor shall refund the overcharged amount and, in addition, shall pay the costs of Lessees audit. 6.2 Hazardous Substances. Other than any matters that may be disclosed in the environmental report prepared for Pfizer (the prior occupant of the Building) (a copy of which has been made available to Lessee), Lessor represents and warrants that Lessor has no actual knowledge of the presence on the Premises of any Hazardous Substances (defined below). 6.2.1 Definition of Hazardous Substance. As used herein, the term Hazardous Substance means any hazardous or toxic substance, material or waste that is or becomes regulated by any local governmental authority, the State of California or the United States government. The term Hazardous Substance includes, without limitation, any material or substance that is (i) defined as a hazardous waste, extremely hazardous waste, or restricted hazardous waste under Section 25515 or 25117 or listed pursuant to Section 25140 of the California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii) defined as a hazardous substance under Section 25316 of the California Health and Safety Code, Division 2, Chapter 6.8 (Carpenter-Presly-Tanner Hazardous Substance Account Act), (iii) defined as a Hazardous Substance, hazardous substance, or hazardous waste under Section 25501 of the California Health and Safety Code, Division 20, Chapter 6.95 (Hazardous Substances), (iv) petroleum, (v) asbestos, (vi) listed under Article 9 and defined as hazardous or extremely hazardous pursuant to Article 11 of Title 22 of the California Administrative Code, Division 4, Chapter 20, (vii) designated as a hazardous substance pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C. section 1317), (viii) defined as a hazardous waste pursuant to Section 1004 of the Federal Resource Conversation and Recovery Act, 42 U.S.C. section 6901, et seq. (42 U.S.C section 6903), (ix) defined as hazardous substance pursuant to Section 101 of the Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. section 9601, et seq. (42 U.S.C. section 9601), or (x) any other material, substance, product or compound for which Lessee must obtain a license from California Department of Health Services or similar federal, state, or local agency lawfully to use or store such material, substance, product or compound anywhere in the Project. 6.2.2 Prohibition/Compliance. Lessee shall not cause or permit Lessees agents, employees, or contractors to bring, keep, or use in or about the Project any Hazardous Substance in violation of applicable law. If Lessee breaches the obligation stated in the preceding sentence, then Lessee shall indemnify, defend and hold harmless Lessor, its agents and contractors from any and all claims, judgments, damages, penalties, fines, costs, liabilities, or losses (including, without limitation, diminution in value of the Premises, damages for the loss or restriction on use of rentable or usable space or of any amenity of the Premises, damages arising from any adverse impact on marketing of space in the Premises and sums paid in settlement of claims, attorneys fees, consultants fees and experts fees) that arise during or after 7.
the Lease term as a result of such breach; provided, however, the foregoing indemnification obligation shall not cover losses and damages to the extent caused by Lessors negligence, willful misconduct or breach of this Lease. Lessees indemnification obligation includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal, or restoration work required by any federal, state or local governmental agency or political subdivision because of Hazardous Substance present in the air, soil or ground water above on or under the Premises. Without limiting the foregoing, if the presence of any Hazardous Substance on the Premises, the Project, or any adjacent property, caused or permitted by Lessees employees, agents, or contractors results in any unlawful contamination of the Premises, the Project, or adjacent property, Lessee shall promptly take all actions at its sole expense as are necessary to ensure that, with respect to such unlawful contamination, the Premises, the Project, and any adjacent property meets all applicable local, state and federal laws and any regulations or standards promulgated thereunder, in effect now or in the future, including requirements by any governmental agency or imposed by any governmental order or court having jurisdiction over the Premises, the Project, or any adjacent property, provided that Lessors approval of such action shall first be obtained, which approval shall not unreasonably be withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the Premises. 6.2.3 Business. Lessor acknowledges that this Section 6.2 does not prohibit Lessee from operating its business as described in Section 1.8 above. Lessee may operate its business according to the custom of the industry so long as the use or presence of Hazardous Substances is strictly and properly monitored according to all applicable governmental requirements and pursuant to and in compliance with all required licenses, approvals, and permits. As a material inducement to Lessor to allow Lessee to use Hazardous Substances in connection with its business, Lessee agrees to deliver to Lessor prior to the Commencement Date a list identifying each type of Hazardous Substance to be present on the Premises and setting forth any and all governmental approvals, licenses, or permits required in connection with the presence of such Hazardous Substance on the Premises (Hazardous Substance List). Lessee shall deliver to Lessor an updated Hazardous Substance List at least once a year. Lessee shall deliver to Lessor true and correct copies of the following documents (hereinafter referred to as the Documents) relating to the handling, storage, disposal and emission of Hazardous Substances prior to the Commencement Date or, if unavailable at that time, concurrent with the receipt from or submission to a governmental agency: licenses, permits, approvals, reports and correspondence, storage and management plans, notice of violations of any laws, plans relating to the installation of any storage tanks to be installed in or under the Project (provided that said installation of tanks shall be permitted only after Lessor has given Lessee its written consent to do so, which consent may be withheld in Lessors sole and absolute discretion), and all closure plans or any other documents required by any and all federal, state and local governmental agencies and authorities for any storage tanks installed in, on, or under the Project for the closure of any such tanks. Lessee is not required, however, to provide Lessor with any portion(s) of the Documents containing information of a proprietary nature, which, in and of themselves, do not contain a reference to any Hazardous Substance or hazardous activities. 8.
6.3 Lessees Compliance with Requirements. Anything to the contrary contained in this Lease notwithstanding, Lessee shall not be responsible for compliance with any Applicable Requirements where (i) the noncompliance existed prior to the Start Date or (ii) such compliance would require capital expenditures and is not related specifically to Lessees use and occupancy of the Premises. For example, if any governmental authority should require the Building or the Premises to be structurally strengthened against earthquake or the removal of asbestos from the Premises and such measures are imposed as a general requirement applicable to all tenants rather than as a condition to Lessees specific use or occupancy of the Premises, such work shall be performed by and at the sole cost of Lessor. 6.4 Inspection/Compliance. Lessor and Lessors Lender and consultants shall have the right to enter into the Premises at any time in the case of an emergency, the determination of which shall require Lessor to be reasonable, and otherwise at reasonable times with reasonable notice (of at least 48 hours) for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with the Lease. Lessor shall use reasonable efforts to provide Lessee with notice in the event of an emergency. In the event of any entry by Lessor onto the Premises, Lessor shall be subject to Lessees reasonable security requirements and shall use its best efforts not to interfere with the conduct of Lessees business. Lessor shall pay the cost of any such inspections, unless a material violation by Lessee is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority and Lessee has failed to adequately respond. In such case, Lessee shall, upon request, reimburse Lessor for the reasonable cost of such inspections, so long as such inspection is directly related to the violation or contamination. 6.5 Clearances Required upon Surrender. At the time Lessee surrenders possession of the Premises following expiration of the term or termination of the Lease, Lessee shall deliver to Lessor written evidence that Lessee has obtained from all appropriate governmental agencies approval of decontamination of the Premises and decommissioning of any licenses, permits, or approvals received by Lessee pertaining to Hazardous Substances used or stored by Lessee at the Project. Lessee shall be deemed to be a holdover tenant if (1) Lessee has not obtained all such approvals at the time Lessee surrenders possession and (2) Lessor may not lawfully allow occupancy of the Premises without such approvals (e.g., if (1) Lessee used radioactive materials in the Premises pursuant to a license or permit issued by an agency of California and (2) at the time Lessee surrendered possession, the agency had not approved the Premises to be occupied by another tenant until the license or permit was fully decommissioned, then Lessee would be deemed to be a holdover tenant until the agency decommissioned the license and allowed the Premises to be re-occupied). 7.2 Lessors Obligations. Notwithstanding the provisions of Paragraph 7.2, if Lessor fails to timely perform its maintenance and repair obligations hereunder, and, as a consequence, Lessees use of the Premises is substantially impaired, Lessee shall have the right to cause such repair or maintenance to be performed at Lessors expense and to deduct the costs thereof, together with interest thereon at 10 percent per annum, from the Rent payable to Lessor. 9.
7.4 AlterationsOwnership/Removal . If a conflict exists between Paragraph 7.4 of the Lease and Paragraph 50.4.3 of this Addendum, the provisions of this Addendum shall prevail. Notwithstanding any provision in this Lease to the contrary: (a) Lessee shall not be required to remove any improvements and fixtures installed by Lessee in, on or about the Premises pursuant to Lessees repair obligation under this Lease. (b) Lessees surrender obligation shall also be subject to casualty and condemnation. 8.3 Earthquake Insurance. As part of the insurance pertaining to the Building and improvements on the Premises, the Insuring Party shall obtain and keep in force a policy in the name of Lessor with loss payable to Lessor and Lender insuring loss or damage to the Premises caused by earthquake, but only if required by Lender. The current Lender requires earthquake insurance. 8.7 Indemnity. Except for Lessees negligence or willful misconduct and, subject to Paragraphs 8.6 and 8.8 of the Lease, Lessor shall indemnify, protect, defend and hold harmless Lessee and Lessees employees, officers, agents, directors, and shareholders, and the successors and assigns of each of the foregoing, from any and all claims, demands, liens, judgments, penalties, attorneys and consultants fees, expenses and/or liabilities arising out of, involving, or in connection with (i) Lessors or Lessors agents breach of any covenant, representation or warranty under this Lease and (ii) Lessors or Lessors agents negligence or willful misconduct. The mutual indemnity obligations of Lessor and Lessee under this Lease shall not, however, release the respective insurers of Lessor and Lessee from such insurers obligations under any policies covering their respective insureds. 8.8 Exemption of Lessor from Liability . The provisions of Section 8.8 shall in no event be interpreted to release Lessor from any liability that arises due to Lessors gross negligence or willful misconduct. 9.2 Partial DamageInsured Loss. Section 9.2 shall be deemed to end after the phrase full force and effect. 9.5 Damage Near End of Term . The reference is in the first sentence to one months Base Rent shall instead be deemed to be a reference to six months Base Rent. 9.6(c) Abatement of Rent; Lessees Remedies . Notwithstanding anything to the contrary in Paragraph 9, if Lessees use of the Premises is substantially impaired as a consequence of a casualty, Lessee shall have the right to terminate this Lease under the following circumstances: (i) The reasonably estimated time (as determined by Lessee as of the date of the casualty) that the substantial impairment of Lessees use of the Premises will continue is more than 120 days, in which case Lessee may terminate this Lease by delivery to Lessor of 10.
written notice within 30 days following the date of the casualty, and this Lease shall terminate upon the earlier of (1) the date on which Lessee vacates the Premises or (2) 30 days after Lessors receipt of Lessees notice. (ii) The actual duration of the substantial impairment exceeds the greater of (1) 120 days following the date of the casualty or (2) 30 days after the reasonably estimated time (as determined by Lessee as of the date of the casualty) that the substantial impairment of Lessees use of the Premises would continue, in which case Lessee may deliver to Lessor written notice that Lessee intends to terminate this Lease, and this Lease shall terminate if within 30 days after receipt of the notice, Lessor fails to complete repairs to the extent necessary to cause the substantial impairment to be abated. Additionally, if this Lease is terminated by either Lessor or Lessee pursuant to Article 9, Lessee shall not be required to pay for any insurance deductibles as part of Lessors insurance cost or otherwise. 11. Utilities. Lessee acknowledges that utilities furnished to the Premises are not separately metered. Subject to Lessees reimbursement obligation below, Lessor shall pay for all utilities furnished through a common meter. If the Project is occupied solely by Lessee, Lessee shall pay Lessor for all utilities furnished to the Project. If the Project is occupied by Lessee and one or more other tenants, Lessor shall reasonably determine the amount of utilities used by each tenant, including Lessee, and Lessee shall pay Lessor for the amount of Lessees utilities usage as reasonably determined by Lessor, and such payment shall be due on the later of (1) 20 days following Lessees receipt of a statement from Lessor advising Lessee of the amount due or (2) the date on which the next installment of Base Rent is due. 12.1(b) Lessors Consent Required. Notwithstanding any contrary provision contained in this Lease, Lessee may assign this Lease or sublet the Premises or any portion thereof, without Lessors consent, to any entity that controls, is controlled by, or is under common control with Lessee; to any entity that results from a merger of, reorganization of, or consolidation with Lessee or to any entity that acquires substantially all of the stock or assets of Lessee, as a going concern, with respect to the business that is being conducted in the Premises (each a Permitted Transfer and each such entity a Permitted Transferee). In addition, a sale or transfer of the capital stock of Lessee shall be deemed a Permitted Transfer if (1) such sale or transfer occurs in connection with any bona fide financing or capitalization for the benefit of Lessee or (2) Lessee is or becomes a publicly traded corporation. With respect to a Permitted Transfer (1) all requirements of Paragraph 12 of the Lease shall apply other than (i) the requirements for Lessors prior written consent and (ii) the requirement for payment of a fee under Paragraph 12.2(e) of the Lease and (2) the Permitted Transferee shall be required to fully (i) assume the Lessees obligations under the Lease in the case of a Permitted Transfer constituting assignment of Lessees interest under the Lease or (ii) guaranty Lessees obligations under the Lease in the case of any other Permitted Transfer. 12.1(d) Lessors Consent Required. Section 12.1(d) is hereby modified such that the provision ends immediately following the reference to Paragraph 13.1(c). 11.
12.3 Rent Recapture. With the exception of any Permitted Transfers, Lessee shall pay to Lessor, as additional rent, if and when received by Lessee, 50 percent of any excess rent or other premium on the assignment, subleasing or other transfer (e.g., if the assignment, sublease or other transfer document provides that the assignee, subtenant or other transferee thereunder is to pay any amount in excess of the rent and other charges due under this Lease, whether such premium be in the form of an increased monthly or annual rental, lump sum payment in consideration of the assignment, sublease or other transfer or consideration of any other form, including a sale of goodwill and/or a covenant not to compete or payment for furniture, fixtures or inventory in an amount in excess of the reasonable value thereof) after first deducting the reasonable costs incurred by Lessee in obtaining the assignment, sublease or transfer, including, without limitation, reasonable brokerage commissions and reasonable costs of leasehold improvements made by Lessee. 13.1(c) The following proviso is hereby added to the end of Section 13.1(c): , provided that if the nature of Lessees Default is such that more than 10 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 10day period and thereafter diligently prosecutes such cure to completion. 13.2 Lessors Remedies. In the event of any Breach by Lessee, Lessor may, at any time thereafter, with or without notice or demand and without limiting Lessor in the exercise of any right or remedy that Lessor may have by reason of such Breach, maintain Lessees right to possession in which case the Lease shall continue in effect whether or not Lessee shall have abandoned the Premises. In such event, Lessor shall be entitled to enforce all of Lessors rights and remedies under the Lease, including the right to recover the rent as it becomes due hereunder. The parties acknowledge and agree that Lessor shall have the remedy under Civil Code section 1951.4, which provides in part: The lessor has the remedy described in California Civil Code section 1951.4 (lessor may continue lease in effect after lessees breach and abandonment and recover rent as it becomes due, if lessee has right to sublet or assign, subject only to reasonable limitations). 13.4 Late Charges. The late charge described in Paragraph 13.4 is hereby changed to 5 percent, and the five-day period is changed to a five-business-day period. 14. Condemnation. Notwithstanding anything to the contrary in Paragraph 14, in the event that a partial condemnation occurs of such a nature that Lessee reasonably determines that such partial condemnation will materially interfere with the conduct of Lessees business, Lessee shall be entitled to terminate this Lease by delivering written notice to Lessor at any time within six months following the date on which the condemning authority takes possession that initiates the material interference. If Lessee elects to terminate this Lease as provided in the preceding sentence, Lessees notice shall specify the date on which termination shall occur, which date shall not be later than 90 days following Lessors receipt of the notice. In the event of either a partial or total condemnation, Lessee shall be entitled to any condemnation award or payment made under threat of condemnation for loss of goodwill, moving costs, the unamortized portion 12.
of any tenant improvements made at the expense of Lessee, and loss of Lessees personal property and trade fixtures. 16(c) Financial Statement. Lessor shall not request financial statements of Lessee pursuant to Paragraph 16.2 more frequently than once every six months during the term hereof. Lessees obligations are limited to its existing or published financial statements. 20. Limitation of Liability . The limitation of liability set forth in Section 20 shall not apply in the event Lessor fails to deliver the Security Deposit to a transferee or assignee as set forth in Section 17 of the Lease. 23. Notices. The provisions of Section 23 of the Lease shall not apply to any notices that are required to be served by Lessor as a condition precedent to the initiation of a special proceeding for unlawful detainer. Any notices required to be served as a condition precedent to the initiation of a special proceeding for unlawful detainer (including any notices under Section 13.1 of the Lease) shall be served in accordance with Code of Civil Procedure section 1162 as such section may be subsequently amended, repealed or replaced. With respect to all other notices, the parties acknowledge and agree that, in addition to the manner of delivery provided in Section 23 of the Lease, notices may be delivered by Federal Express or other similar overnight delivery service that provides evidence of receipt. If notice is delivered by Federal Express or such other overnight delivery service, the notice shall be deemed delivered as of the date shown by the evidence of receipt. 30. Attornment and Nondisturbance . Lessee acknowledges that the Subordination, Nondisturbance and Attornment Agreement attached hereto as Exhibit 2 is in form and content acceptable to Lessee and constitutes a commercially reasonable nondisturbance agreement within the meaning of Section 30.3 of the Lease. 31. Attorneys Fees. Lessor shall further be entitled to recover reasonable attorneys fees incurred in connection with any hearing or motion for assumption or rejection of the Lease under Title 11 of the United States Code. Lessee shall be further entitled to recover reasonable attorneys fees in connection with any hearing or adversary proceedings related to this Lease in any bankruptcy case filed by or against Lessor. 32. Lessors Access. Notwithstanding the provisions of Section 32, Lessor shall provide Lessee with at least 48 hours prior actual notice before entering the Premises. In the event of an emergency, the determination of which shall require Lessor to be reasonable, Lessor shall use its best efforts to provide Lessee with notice reasonable in such situation. In the event of any entry by Lessor onto the Premises, Lessor shall comply with Lessees reasonable security requirements and shall use reasonable efforts not to interfere with the conduct of Lessees business. 34. Signage. All signs placed in the exterior of the Premises and/or upon the Building shall be subject to Lessors prior written approval, which shall not be unreasonably withheld or delayed. 13.
50. Lessees Work. 50.1 Approval of Lessees Plans, Specifications and Contractor . Within the earlier of (1) one year following execution of the Lease or (2) 180 days following funding of the sale of Lessees Series C Preferred Stock, Lessee shall cause to be prepared and delivered to Lessor (1) preliminary space plan drawings and (2) preliminary specifications for the improvements, fixtures and equipment to be installed into the Premises. Within five business days following Lessors receipt of the preliminary plans and specifications, Lessor shall provide to Lessee approval of such preliminary plans and specifications unless Lessor has a reasonable and material objection thereto. Within 90 days following Lessors approval of the preliminary plans and specifications, Lessee shall cause to be prepared and delivered to Lessor (1) working plans that are sufficiently detailed in order to apply for and obtain a building permit for the interior improvements to the Premises that shall be based upon the preliminary plans previously approved by Lessor and (2) final specifications for the improvements, fixtures and equipment to be installed into the Premises that shall be based upon the preliminary specifications previously approved by Lessor. Within five business days following Lessors receipt of the working plans and specifications, Lessor shall approve such plans and specifications unless Lessor has a reasonable and material objection thereto. Following Lessors approval of the working plans and specifications, Lessee shall submit the working plans and specifications to the Building Inspection Department of the City of San Diego for the purpose of obtaining a building permit for the construction of the work described in the working plans and specifications (hereinafter Lessees Work). If, during the course of construction of Lessees Work, Lessee determines that it is necessary or desirable to make a material change to the working plans and specifications, then such proposed change shall be first submitted to Lessor for Lessors review and approval, which shall not be unreasonably withheld or delayed. Prior to commencement of Lessees Work, Lessee shall submit to Lessor the name, telephone number, license number and contact representative for the general contractor that Lessee intends to use to accomplish Lessees Work. Within three business days following Lessors receipt of such information concerning the proposed general contractor, Lessor shall approve Lessees selection of the general contractor unless Lessor has a reasonable and material objection thereto. If Lessors lender that is furnishing all or a portion of the funds for Lessors Allowance requires similar rights of approval of the plans, specifications and/or contractor, Lessee shall cooperate with Lessor to satisfy such lenders reasonable requests for information and requirements for approval. 50.2 Completion of Lessees Work . Following Lessors approval of the working plans and specifications and the issuance by the City of San Diego of a building permit for Lessees Work, Lessee shall, thereafter, diligently, competently and expeditiously, complete Lessees Work. With the exception of Lessors obligations with respect to payment of Lessors Allowance (defined below), Lessee shall indemnify and hold harmless Lessor from and against any and all claims, liabilities, damages, penalties, fines and costs (Claims) arising out of or relating to the completion of Lessees Work, including, without limitation, any claims of lien for payment by any general contractor, subcontractor and/or material supplier and/or any claim for death or injury to persons and/or damage to property; provided, however, the foregoing indemnification obligation shall exclude Claims to the extent arising from Lessors negligence, willful misconduct or breach of this Lease. 14.
50.3 Lessors Allowance. Concurrently with Lessees delivery to Lessor of (1) a building permit for Lessees Work and (2) written evidence that Lessee has received in Lessees bank account at least $20,000,000.00 from the sale of Series C Preferred Stock, Lessor shall deliver to Lessee $100,000.00 (Lessors Allowance) to be used to pay a portion of the cost of Lessees Work. 50.4 Special Provisions Re Lessees Work. With respect to Lessees Work, Lessor and Lessee further agree: 50.4.1 Interior Accessibility Requirements . To the extent required to obtain a building permit to perform Lessees Work, Lessee shall be responsible for installing into the interior of the Building all improvements that may be required to comply with Americans with Disabilities Act and/or any other similar laws concerning accessibility. Lessor shall, at Lessors sole cost and expense, be responsible for compliance with any such laws as they pertain to the exterior parking areas, walkways, and driveways of the Premises and entrances to the Building. 50.4.2 Roof . In the course of performing Lessees Work, Lessee shall be responsible to repair any penetrations made to the roof of the Building. Lessee shall not do anything that may cause the protections under Lessors roof warranty to be reduced or terminated. 50.4.3 Improvements Surrendered upon Expiration/Termination of Lease . All of Lessees Work shall, upon expiration or termination of the Lease, be surrendered to Lessor and shall become Lessors property and in no event shall Lessee have any obligation to remove Lessees Work upon surrender of the Premises. Lessee acknowledges and agrees that any fume hoods, laboratory benches, laboratory sinks, and similar systems installed by Lessee, if any, shall not constitute Lessees fixtures that Lessee is entitled to remove upon the expiration or termination of the Lease. Lessor agrees that as to the portion of Lessees Work that is in the nature of general office and conference room improvements, Lessee shall not be obligated to remove such improvements and restore the Premises upon expiration or termination of this Lease. Lessor reserves the right, upon expiration or termination of this Lease, to require Lessee to remove any alterations made by Lessee to the laboratory portion of the Premises and restore such laboratory space to the condition delivered to Lessee on the Commencement Date. 51. Lessors Warranty. Lessor hereby warrants that it is the fee owner of the Premises, that it has authority to enter into this Lease, and that it shall take all actions necessary, at its expense, to defend Lessees rights to possession of the Premises. 52. Delivery of Financial Statements . Within 30 days following Lessors request therefor, Lessee shall deliver to Lessor a copy of Lessees most recently prepared audited financial statement. Within 20 days following Lessors written request therefor, Lessee shall deliver to Lessor Lessees most recently prepared unaudited financial statement as maintained by Lessee for the period commencing at the beginning of the then-current fiscal year. As used herein, the team financial statement shall mean a detailed balance sheet and detailed statement of income and expenses prepared in accordance with generally accepted accounting principals 15.
and otherwise in the manner Lessee customarily prepares such documents. Lessees obligations hereunder are subject to the provisions of Section 16(c) of this Addendum above. 53. Lenders Consent and Nondisturbance . The obligations of Lessor and Lessee under the Lease are conditioned upon receipt by Lessor, on or before September 15, 2004, of (1) written approval from Aegon (i.e., Lessors existing lender) ( Aegon) of the terms of this Lease and (2) a nondisturbance agreement signed by Aegon in a form reasonably acceptable to Lessee. If on or before September 15, 2004, Aegon fails to deliver written approval of this Lease and a signed nondisturbance agreement reasonably acceptable to Lessee, then the following shall apply: 53.1 At any time after September 15, 2004, either party may deliver to the other party written notice of intention to terminate this Lease (a Termination Notice). 53.2 If Lessee delivers to Lessor a Termination Notice, then this Lease will terminate unless, with 15 days following receipt of the Termination Notice, (1) Aegon delivers written approval of this Lease and a signed nondisturbance agreement reasonably acceptable to Lessee and (2) Lessor delivers to Lessee a written waiver of Lessors right to deliver a Termination Notice. 53.3 If Lessor delivers to Lessee a Termination Notice, then this Lease will terminate unless, within 15 days following receipt of the Termination Notice, (1) Aegon delivers written approval of this Lease and (2) Lessee delivers to Lessor a written waiver of Lessees right to deliver a Termination Notice. 54. Interpretation. Except as the context may otherwise require, references to the Lease or this Lease shall mean collectively (1) the Standard Industrial/Commercial Multi-Tenant Lease dated July 22, 2004, by and between Lessee and Lessor and all exhibits attached thereto and (2) this Addendum. Lessor: LMC-Sorrento Investment Company, LLC, a California limited liability company By /s/ Lee M Chesnut Lee M. Chesnut, Manager Lessee: Ambit Biosciences Corporation, a Delaware corporation By /s/ M Salka Print Name M Salka Title CEO Schedule of Exhibits Exhibit 1 Exhibit 2 Diagram Depicting the Unit Subordination, Nondisturbance and Attornment Agreement 16.
Exhibit 1 Diagram Depicting the Unit [TO BE ADDED] Exhibit, Page 1 of 1
Exhibit 2 RECORDING REQUESTED BY: WHEN RECORDED MAIL TO: For Recorders Use Only Subordination, Nondisturbance and Attornment Agreement This Agreement is made and entered into this (Tenant), (2) (Landlord). day of , , by and among (1) (Lender), and (3)
Recitals WHEREAS, Landlord executed a Lease (the Lease) dated as of , premises therein described that is (1) commonly known as Demised Premises), and (2) a portion of certain real property legally described as: (said parcel of real estate being referred to herein as the Property), WHEREAS, Landlord has executed a Deed of Trust (the Mortgage) dated , 200 , in the amount of $ , recorded on , 200 , as Document No. in the office of the San Diego County Recorder in favor of Lender, payable upon the terms and conditions described therein, WHEREAS, a condition to said loan is that said Mortgage shall unconditionally be and remain at all times a lien or charge upon the Property, prior and superior to the Lease and to the leasehold estate created thereby, Exhibit 2, Page 1 of 5 , in favor of Tenant, covering a certain demised , California (the
WHEREAS, the parties hereto desire to assure Tenants possession and control of the Demised Premises under the Lease upon the terms and conditions therein contained, NOW, THEREFORE, for and in consideration of the mutual covenants and premises herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged and confessed by the parties hereto, the parties hereto do hereby agree as follows: Agreement 1. Subject to the nondisturbance covenants set forth herein, the Lease is and shall be subordinate to the Mortgage and to all renewals, modifications, consolidations, replacements and extensions thereof and to all future advances made thereunder. 2. Should Lender become the owner of the Property, should the Property be sold by reason of foreclosure or other proceedings brought to enforce the Mortgage that encumbers the Property, should the Property be transferred by deed in lieu of foreclosure, or should any portion of the Property be sold under a trustees sale, the Lease shall continue in full force and effect as a direct lease between the then-owner of the Property covered by the Mortgage and Tenant upon and subject to all of the terms, covenants and conditions of the Lease for the balance of the term thereof remaining, including any extensions therein provided. Subject to Lender (or the then-owner of the Property) not disturbing Tenants right of possession, Tenant does hereby agree to attorn to Lender or to any such owner as its landlord after Tenants receipt of written notice from Lender, and Lender hereby agrees that it will accept such attornment. 3. Notwithstanding any other provision of this Agreement, Lender shall not be (a) liable for any default of any landlord under the Lease (including Landlord), except that Lender agrees to cure any default of Landlord that is continuing as of the date Lender forecloses the Property, which shall be the earliest to occur of (1) delivery of a trustees deed following a nonjudicial foreclosure, (2) delivery of a marshals deed upon sale of the property following entry of judgment in a judicial foreclosure, and/or (3) delivery of a deed in lieu of foreclosure, within 30 days from the date Tenant delivers written notice to Lender of such continuing default, unless such default is of such a nature to reasonably require more than 30 days to cure and then Lender shall be permitted such additional time as is reasonably necessary to effect such cure, provided Lender commences such cure within such 30-day period and, thereafter, diligently and continuously proceeds to cure such default, (b) subject to any offsets or defenses that have accrued prior to the date of foreclosure as defined above, unless Tenant shall have delivered to Lender written notice of the default that gave rise to such offset or defense and permitted Lender the same right to cure such default as permitted Landlord under the Lease; (c) bound by any rent that Tenant may have paid under the Lease more than one month in advance, (d) bound by any amendment or modification of the Lease hereafter made without Lenders prior written consent, and (e) responsible for the return of any security deposit delivered to Landlord under the Lease and not subsequently received by Lender. 4. If Lender sends written notice to Tenant to direct its rent payments under the Lease to Lender instead of Landlord, then Tenant agrees to follow the instructions set forth in such written instructions and deliver rent payments to Lender; however, Landlord and Lender agree that Exhibit 2, Page 2 of 5
Tenant shall be credited under the Lease for any rent payments sent to Lender pursuant to such written notice. 5. All notices that may be or are required to be sent under this Agreement shall be in writing and sent by Federal Express (or similar overnight delivery service) or first-class, certified U.S. mail, postage prepaid, return receipt requested, and sent to the party at the address appearing below or such other address as any party shall hereafter inform the other party by written notice given as set forth above: TENANT:
Attention LANDLORD:
Attention LENDER:
Attention 6. Said Mortgage shall not cover or encumber or be construed as subjecting in any manner to the lien thereof any of Tenants improvements or trade fixtures, furniture, equipment or other personal property at any time placed or installed in the Premises. In the event the Property or any part thereof shall be taken for public purposes by condemnation or transfer in lieu thereof or the same are damaged or destroyed, the rights of the parties to any condemnation award or insurance proceeds shall be determined and controlled by the applicable provisions of the Lease. 7. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their successors in interest, heirs and assigns and any subsequent owner of the Property secured by the Mortgage. 8. The parties to this Agreement waive the right to jury trial with respect to any claim or cross-claim arising out of or relating to this Agreement. Exhibit 2, Page 3 of 5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. LENDER: TENANT:
By Print Name Title
By Print Name Title LANDLORD:
By Print Name Title Exhibit 2, Page 4 of 5
State of California County of San Diego
) ) )
ss.
On , 200 , before me, the undersigned, a notary public in and for said county and state, personally appeared , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that such person executed the same in his/her authorized capacity and that by his/her signature on the instrument, the person or entity upon whose behalf such person acted executed the instrument. WITNESS my hand and official seal.
) ) )
ss.
) ) )
ss.
Exhibit 2, Page 5 of 5
Exhibit 10.24 First Amendment to Lease This Amendment, dated February 24 th, 2005, is executed by (1) LMC-Sorrento Investment Company, LLC, a California limited liability company (Lessor), and (2) Ambit Biosciences Corporation, a Delaware corporation ( Lessee). This Amendment is executed with reference to the following facts: A. On or about July 22, 2004, Lessor and Lessee executed that certain Standard Industrial/Commercial Multi-Tenant LeaseNet ( the Lease ) pertaining to space in a building commonly known as 4215 Sorrento Valley Road, San Diego, California 92121. B. By this Amendment, Lessor and Lessee desire to amend the Lease, as provided below. In consideration of the above recitals and the mutual agreements stated below, the parties agree: 1. Expansion of Premises . Commencing March 1 st, 2005 (the Effective Date), the Premises is enlarged to consist of 39,050 rentable square feet. As expanded, the usable floor area of the Premises is diagrammatically depicted on Exhibit 1 attached hereto. 2. Additional Security Deposit. Concurrently with the execution of this Amendment, Lessee shall deliver to Lessor $24,593.92, which shall be added to the amount of the Security Deposit (i.e., when the $24,593.92 additional amount is added to the existing $61,316.08 to the Security Deposit, the total Security Deposit will be $85,910.00). 3. Increase to Lessees Share of Common Area Operating Expenses . Lessees Share, as defined in Paragraph 1.6 of the Lease is increased to 71.10 percent. 4. Adjustment to Base Rent. Commencing on the Effective Date, the schedule of Base Rent in Paragraph 1.5.1 of the Lease shall be replaced by the following:
Applicable Period Monthly Base Rent
March February 1, 2005 to July 31, 2005 August 1, 2005 to July 31, 2006 August 1, 2006 to July 31, 2007 August 1, 2007 to July 31, 2008 August 1, 2008 to July 31, 2009
$ $ $ $ $
85,910.00 89,346.40 92,920.26 96,637.07 100,502.55
5. Lenders Approval. Lessors and Lessees obligations under this Amendment are conditioned upon receipt by Lessor, on or before April 30 th, 2005, of written approval of Aegon (i.e., Lessors existing lender) ( Aegon) of the terms of this Amendment. If on or before April 30 th, 2005, Aegon fails to deliver written approval of this Amendment, then the following shall apply: 1
5.1 At any time after April 30 th, 2005, either party may deliver to the other party written notice of intention to terminate this Amendment (the Termination Notice). 5.2 If either party delivers a Termination Notice, then this Amendment will terminate unless, within 15 days following receipt of the Termination Notice, Aegon delivers written approval of this Amendment. 6. General Provisions. Lessor and Lessee further agree: 6.1 Lessees Representations. In connection with the execution of this Amendment, Lessee hereby represents to Lessor: 6.1.1 Lessor is not in Default and has not been in Default in the performance of Lessors obligations under the Lease, and, to the best of Lessees actual knowledge, no condition exists that with the passage of time or delivery of notice or both would constitute a Default by Lessor under the terms of the Lease. 6.1.2 Lessee has no right, claim, or action for recovery against Lessor, except as provided in Paragraph 5 of the Lease pertaining to the Security Deposit. 6.1.3 Lessee has not initiated any insolvency proceeding and has no present intent to initiate any insolvency proceeding. 6.2 Confirmation. Except as modified by this Amendment, the Lease is hereby ratified and confirmed. 6.3 Defined Terms. Defined (capitalized) terms used in this Amendment shall have the same meanings as in the Lease. LMC-Sorrento Investment Company, LLC, a California limited liability company By /s/ Lee M. Chesnut Lee M. Chesnut, Manager Ambit Biosciences Corporation, a Delaware corporation By /s/ M. Scott Salka Print name M SCOTT SALKA Title CEO Schedule of Exhibits Exhibit 1 Diagram of Premises as Expanded 2
Exhibit 10.25 Second Amendment to Lease This Amendment, dated November 1 st, 2005, is executed by (1) LMC-Sorrento Investment Company, LLC, a California limited liability company (Lessor), and (2) Ambit Biosciences Corporation, a Delaware corporation ( Lessee). This Amendment is executed with reference to the following facts: A. On or about July 22, 2004, Lessor and Lessee executed that certain Standard Industrial/Commercial Multi-Tenant LeaseNet ( the Lease) pertaining to space in a building commonly known as 4215 Sorrento Valley Road, San Diego, California 92121. B. Said Lease was first amended on or about February 24, 2005. C. By this Amendment, Lessor and Lessee desire to further amend the Lease, as provided below. In consideration of the above recitals and the mutual agreements stated below, the parties agree: 1. Expansion of Premises . Commencing November 1 st, 2005 (the Effective Date), the Premises is enlarged to consist of 47,417 rentable square feet. As expanded, the usable floor area of the Premises is diagrammatically depicted on Exhibit 2 attached hereto. 2. Additional Security Deposit. Concurrently with the execution of this Amendment, Lessee shall deliver to Lessor $18,407.40, which shall be added to the amount of the Security Deposit (i.e., when the $18,407.40 additional amount is added to the existing $85,910.00 to the Security Deposit, the total Security Deposit will be $104,317.40). 3. Increase to Lessees Share of Common Area Operating Expenses . Lessees Share, as defined in Paragraph 1.6 of the Lease is increased to 86.41 percent. 4. Adjustment to Base Rent. Commencing on the Effective Date, the schedule of Base Rent in Paragraph 1.5.1 of the Lease shall be replaced by the following:
Applicable Period Monthly Base Rent
November 1, 2005 to February 28, 2006 March 1, 2006 to July 31, 2006 August 1, 2006 to July 31, 2007 August 1, 2007 to July 31, 2008 August 1, 2008 to July 31, 2009
$ $ $ $ $
89,424.50 108,584.93 112,852.46 117,119.99 121,861.69
5. Lenders Approval. Lessors and Lessees obligations under this Amendment are conditioned upon receipt by Lessor, on or before March 1 st, 2006, of written approval of Aegon (i.e., Lessors existing lender) ( Aegon) of the teens of this Amendment. If on or before March 1
1 st, 2006, Aegon fails to deliver written approval of this Amendment, then the following shall apply: 5.1 At any time after March 1 st, 2006, either party may deliver to the other party written notice of intention to terminate this Amendment (the Termination Notice). 5.2 If either party delivers a Termination Notice, then this Amendment will terminate unless, within 15 days following receipt of the Termination Notice, Aegon delivers written approval of this Amendment. 6. General Provisions. Lessor and Lessee further agree: 6.1 Lessees Representations. In connection with the execution of this Amendment, Lessee hereby represents to Lessor: 6.1.1 Lessor is not in Default and has not been in Default in the performance of Lessors obligations under the Lease, and, to the best of Lessees actual knowledge, no condition exists that with the passage of time or delivery of notice or both would constitute a Default by Lessor under the terms of the Lease. 6.1.2 Lessee has no right, claim, or action for recovery against Lessor, except as provided in Paragraph 5 of the Lease pertaining to the Security Deposit. 6.1.3 Lessee has not initiated any insolvency proceeding and has no present intent to initiate any insolvency proceeding. 6.2 Confirmation. Except as modified by this Amendment, the Lease is hereby ratified and confirmed. 6.3 Defined Terms. Defined (capitalized) terms used in this Amendment shall have the same meanings as in the Lease. LMC-Sorrento Investment Company, LLC, a California limited liability company By /s/ Lee M. Chesnut Lee M. Chesnut, Manager Ambit Biosciences Corporation, a Delaware corporation By /s/ M. Salka Print name M SALKA Title CEO Schedule of Exhibits Exhibit 2 Diagram of Premises as Expanded 2
Exhibit 10.26 THIRD AMENDMENT TO STANDARD INDUSTRIAL/COMMERCIAL MULTITENANT LEASE NET THIS THIRD AMENDMENT TO STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE NET (this Amendment) is entered into as of this 19 day of June, 2008 (the Execution Date), by and between BMR-SORRENTO VALLEY LLC, a Delaware limited liability company (Lessor, as successor-in-interest to LMC-Sorrento Investment Company, LLC ( Original Lessor)), and AMBIT BIOSCIENCES CORPORATION, a Delaware corporation (Lessee). RECITALS A. WHEREAS, Original Lessor and Lessee entered into that certain Standard Industrial/Commercial Multi-Tenant LeaseNet dated as of July 22, 2004 (the Original Lease), as amended by that certain Addendum to Lease dated as of July 22, 2004 (the Addendum), that certain First Amendment to Lease dated as of February 24, 2005 (the First Amendment), and that certain Second Amendment to Lease dated as of November 1, 2005 (the Second Amendment and, collectively with the Original Lease, the Addendum and the First Amendment, and as the same may have been further amended, supplemented or otherwise modified from time to time, the Lease), whereby Lessee leases certain premises (the Original Premises) from Lessor at 4215 Sorrento Valley Boulevard in San Diego, California (the Building); B. WHEREAS, Lessee desires to expand its premises and extend the term of the Lease; and C. WHEREAS, Lessor and Lessee desire to modify and amend the Lease only in the respects and on the conditions hereinafter stated. AGREEMENT NOW, THEREFORE, Lessor and Lessee, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, agree as follows: 1. Definitions. For purposes of this Amendment, capitalized terms shall have the meanings ascribed to them in the Lease unless otherwise defined herein. The term Amended Lease means the Lease, as amended by this Amendment. 2. Premises. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, approximately seven thousand five hundred seven (7,507) rentable square feet of additional premises, as depicted on Exhibit A attached hereto (the Additional Premises). From and after the Additional Premises Rent Commencement Date (as defined below), the term Premises, as used in the Amended Lease, shall mean fifty-four thousand nine hundred twenty-four (54,924) rentable square feet, consisting of the Original Premises plus the Additional Premises. The second (2n d) sentence of Section 1.2(a) of the Original Lease is hereby deleted and of no further force or effect. The second (2 n d) and third (3 rd) sentences of Section 1.2 of the Addendum are hereby replaced in their entirety with the following: The Unit and the Premises consist of the Project. 3. Parking. Section 1.2(b) of the Original Lease is hereby replaced in its entirety with the following: Parking: All vehicle parking spaces at the Project. (See also Paragraph 2.6). 4. Common Area Operating Expenses . From and after the Additional Premises Rent Commencement Date (as defined below), Lessees Share of Common Area Operating Expenses equals one hundred percent (100%). 5. Term. a. Extension Term. The Expiration Date is hereby changed to July 31, 2014. The period from August 1, 2008, through July 31, 2014, is referred to herein as the Extension Period. b. Option Term. Section 1.3.2 of the Addendum is hereby replaced in its entirety with the following: Form dated 5/3/07
1.3.2 Lessee shall have the option to further extend the term of the Amended Lease by five (5) years as to the entire Premises (and no less than the entire Premises) upon the following terms and conditions. Any extension of the term pursuant to the option shall be on all the same terms and conditions as the Amended Lease, except as follows: a. The option is not assignable separate and apart from the Lease. b. The option is conditional upon Lessee giving Lessor written notice of its election to exercise the option at least twelve (12) months prior to the end of the expiration of the Extension Term. Time shall be of the essence as to Lessees exercise of the option. Lessee assumes full responsibility for maintaining a record of the deadlines to exercise the option. Lessee acknowledges that it would be inequitable to require Lessor to accept any exercise of the option after the date provided for in this paragraph. c. Notwithstanding anything contained in this Section 1.3.2, Lessee shall not have the right to exercise the option: i. During the time commencing from the date Lessor delivers to Lessee a written notice that Lessee is in monetary Default under any provisions of the Amended Lease and continuing until Lessee has cured the specified monetary Default to Lessors reasonable satisfaction; or ii. At any time after any Breach ( provided, however, that, for purposes of this Section 1.3.2(c)(ii), Lessor shall not be required to provide Lessee with notice of such Breach) and continuing until Lessee cures any such Breach, if such Breach is susceptible to being cured; or iii. In the event that Lessee has monetarily Defaulted in the performance of its obligations under the Amended Lease two (2) or more times and a service or late charge has become payable under Section 13.4 of the Amended Lease for each of such monetary Defaults during the twelve (12)-month period immediately prior to the date that Lessee intends to exercise the option, whether or not Lessee has cured such monetary Defaults. d. The period of time within which Lessee may exercise the option shall not be extended or enlarged by reason of Lessees inability to exercise such option because of the provisions of Section 1.3.2(c). e. All of Lessees rights under the provisions of the option shall terminate and be of no further force or effect even after Lessees due and timely exercise of the option if after such exercise, but prior to the commencement date of the new term, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of twenty (20) days after written notice from Lessor to Lessee, (b) Lessee fails to commence to cure a Default (other than a monetary Default) within thirty (30) days after the date Lessor gives notice to Lessee of such Default or (c) Lessee has Defaulted under the Lease two (2) or more times and a service or late charge under Section 13.4 of the Lease has become payable for any such Default, whether or not Lessee has cured such Defaults. c. Provided it is not then in Default of its obligations under the Amended Lease, Lessee shall have the right to terminate the Amended Lease as of July 31, 2011, or July 31, 2012, in each case upon twelve (12) months prior written notice to Lessor. i. If Lessee elects to terminate the Amended Lease as of: A. July 31, 2011, then Lessee shall pay to Lessor as a termination fee six (6) months of the July, 2011, Base Rent and operating expenses, plus the unamortized cost of 2
Tenant Improvements (as defined below) and unamortized leasing commissions as of the date of termination. B. If Lessee elects to terminate the Amended Lease as of July 31, 2012, then Lessee shall pay to Lessor as a termination fee three (3) months of the July, 2012, Base Rent and operating expenses, plus the unamortized cost of Tenant Improvements (as defined below) and unamortized leasing commissions as of the date of termination. ii. If Lessee elects to terminate the Amended Lease in accordance with this Section 5(c), then Lessor shall have the right to match an offer by any other landlord or potential landlord made to Lessee to lease available space in a project owned by such landlord ( ROFR ). Lessee shall deliver any such proposals to Lessor within five (5) business days after Lessee receives any such proposal (a Notice of Offer ). Following Lessors receipt of any Notice of Offer, Lessor shall respond to Lessee in writing within five (5) business days and inform Lessee whether Lessor (or an affiliate of Lessor owning a building in the Sorrento Valley area) will match, with respect to the Premises (or such other building), the terms contained in the Notice of Offer. A. If Lessor timely notifies Lessee that Lessor (or its affiliate) elects to lease the Premises (or other premises) on the terms and conditions set forth in the Notice of Offer, then Lessor shall lease the Premises to Lessee upon the terms and conditions set forth in the Notice of Offer, and Lessor (or its affiliate, as applicable) and Lessee shall use good faith efforts to execute a new lease or an amendment to the Amended Lease reflecting such terms and conditions within fifteen (15) days after Lessees receipt of notice of Lessors election. In the event that Landlord (or its affiliate, as applicable) and Tenant execute such new lease or amendment to the Amended Lease, Lessee shall not be required to pay any termination fees in accordance with this Section 5(c). B. If Lessor notifies Lessee that Lessor (and its affiliates) elects not to lease the Premises (or other premises) on the terms and conditions set forth in the Notice of Offer, or if Lessor fails to notify Lessee of Lessors election within the five (5) business day period described above, then Lessee shall have the right to consummate a lease of the other landlords premises on the same material terms as set forth in the Notice of Offer following Lessors (and its affiliates) election (or deemed election) not to lease the Premises to Lessee. If Lessee does not lease such other premises within ninety (90) days after Lessors election (or deemed election) not to lease the Premises (or other premises) to Lessee, then the ROFR shall be fully reinstated, and Lessee shall not thereafter lease any other such premises without again complying with the procedures set forth in this Section 5(c)(ii). 6. Base Rent. Notwithstanding anything in the Lease to the contrary, as of the commencement of the Extension Period, Base Rent shall equal Two and 50/100 Dollars ($2.50) per rentable square foot per month, increasing by three percent (3%) on each annual anniversary of the commencement of the Extension Period. a. Commencement. Lessee shall pay to Lessor Base Rent for the Additional Premises commencing on the date (the Additional Premises Rent Commencement Date) that is the earlier of (a) Tenants occupancy of the Additional Premises for the Agreed Use and (b) September 1, 2008; provided that Lessee shall have the right to access the Additional Premises prior to such date for the purpose of constructing the Tenant Improvements. b. Determination of Base Rent for First Lease Year of Option Period . i. In the first (1 st) sentence of Section 1.5.3 of the Addendum, the words for the fifth Lease Year of the Original Term are hereby replaced with the words at the expiration of the Extension Term. ii. In the last paragraph of Section 1.5.3 of the Addendum, the words (A) 104 percent are hereby replaced in each instance where they appear with the words one hundred three percent (103%) and (B) in effect during the fifth Lease Year and payable during the fifth Lease Year are hereby replaced in each instance where they appear with the words in effect at the expiration of the Extension Term. 3
c. Determination of Base Rent for Subsequent Lease Years of Option Period . In the first (1 st) sentence of Section 1.5.4 of the Addendum, the number 1.04 is hereby replaced with the words one and three hundredths (1.03). The second (2 n d) sentence of Section 1.5.4 of the Addendum is hereby deleted and of no further force or effect. 7. Broker. Lessee represents and warrants that it has not dealt with any broker or agent in the negotiation for or the obtaining of this Amendment, other than Grubb & Ellis | BRE Commercial (Broker), and agrees to indemnify, defend and hold Lessor harmless from any and all cost or liability for compensation claimed by any such broker or agent, other than Broker, employed or engaged by it or claiming to have been employed or engaged by it. Broker is entitled to a leasing commission in connection with the making of this Amendment, and Lessor shall pay such commission to Broker pursuant to a separate agreement between Lessor and Broker. 8. Condition. Lessee acknowledges that (a) it is in possession of the Original Premises and is fully familiar with the condition of the Premises and, notwithstanding anything contained in the Amended Lease to the contrary, agrees to take the same in their condition as is as of the first day of the Extension Term, and (b) Lessor shall have no obligation to alter, repair or otherwise prepare the Premises for Lessees occupancy for the Extension Term or to pay for any improvements to the Premises, except for Lessors obligations with respect to the TI Allowance (as defined below). Lessor hereby agrees that upon approval of the construction plans for the Additional Premises, Lessee shall have no obligation to return any of the Premises to the condition the Premises were in prior to the construction of any Tenant Improvements completed by Lessee. Therefore, the last sentence of Section 50.4.3 of the Addendum is hereby deleted and of no further force or effect. 9. Compliance. The last sentence of Section 2.3 of the Original Lease (beginning If the Applicable Requirements), Sections 2.3(a) and (c) of the Original Lease and the second (2 n d) sentence of Section 2.3 of the Addendum are hereby deleted and of no further force or effect. 10. Delay in Possession. Section 3.3 of the Addendum is hereby deleted and of no further force or effect. 11. Common Area Operating Expenses . Section 4.2 of the Original Lease and Section 4.2 of the Addendum are hereby replaced in their entirety with the following: Lessee shall pay to Lessor on the first day of each calendar month of the Extension Term and any subsequent extension thereof, as Rent, a property management fee equal to one percent (1%) of the Base Rent due from Lessee for such month. 12. Security Deposit. Lessee shall deposit with Lessor as of the Execution Date an increase in the Security Deposit in the amount of ThirtyTwo Thousand Nine Hundred Ninety-Two and 60/100 Dollars ($32,992.60), so that the total required Security Deposit equals One Hundred ThirtySeven Thousand Three Hundred Ten Dollars ($137,310). The Security Deposit shall be in the form of cash. 13. Maintenance; Repairs. a. Sections 7.1 and 7.2 of the Original Lease and Section 7.2 of the Addendum are hereby deleted and of no further force or effect. b. The following shall be added to Section 7.3(b) of the Original Lease: Lessee shall not need Lessors consent to make any Alterations to the Premises if the Alterations to be performed do not exceed Twenty Thousand Dollars ($20,000) in value. When consent is required by Lessor, such consent shall not be unreasonably withheld and shall be deemed approved if not given within ten (10) business days after Landlords receipt of all of the items required by this Section 7.3. c. Lessee, at its sole cost and expense, shall maintain and keep the Premises, all improvements thereon, and all appurtenances thereto, including but not limited to sidewalks, parking areas, curbs, roads, driveways, lighting standards, landscaping, sewers, water, gas and electrical distribution systems and facilities, drainage facilities, and all signs, both illuminated and non-illuminated that are now or hereafter on the Premises, in good condition and in a manner consistent with the Agreed Use. Lessee shall maintain and make all repairs, replacements and improvements, 4
including, without limitation, all structural, roof, HVAC, plumbing and electrical maintenance, repairs, replacements and improvements required, and shall keep the same free and clear from all rubbish and debris; provided, however, that, with respect only to any capital repairs or improvements made to the Premises as to which the useful life is longer than the remaining Extension Period as of the date of such repair or improvement, the cost of such repairs and improvements shall be amortized over their useful lives in accordance with generally accepted accounting principles (but in no event longer than ten (10) years) and Lessee shall be liable only for that portion of the amortized costs corresponding to the then-remaining term of the Amended Lease, as the term may be extended from time to time. All repairs made by Lessee shall be at least equal in quality to the original work, and shall be made only by a licensed, bonded contractor approved in advance, which approval shall not be unreasonably withheld and shall be given within five (5) business days by Lessor; provided, however, that such contractor need not be bonded or approved by Lessor if the non-structural alterations, repairs, additions or improvements to be performed do not exceed Fifty Thousand Dollars ($50,000) in value. Lessor may impose reasonable restrictions and requirements with respect to such repairs. Lessee shall not take or omit to take any action, the taking or omission of which shall cause waste, damage or injury to the Premises. Lessee shall indemnify, save, defend (by legal counsel acceptable to Lessor) and hold harmless Lessor from and against any and all demands, claims, liabilities, losses, costs, expenses, actions, causes of action, damages or judgments, and all reasonable expenses (including, without limitation, reasonable attorneys fees, charges and disbursements) incurred in investigating or resisting the same arising out of the failure of Lessee or Lessees Agents to perform the covenants contained in this paragraph. Lessees Agents shall be defined to include Lessees officers, employees, agents, contractors, invitees, customers and subcontractors. d. Lessee shall maintain the lines designating the parking spaces in good condition and paint the same as often as may be necessary, so that they are easily discernable at all times; resurface the parking areas as necessary to maintain them in good condition; paint any exterior portions of the Building as necessary to maintain them in good condition; maintain the roof and landscaping in good condition; maintain sightly screens, barricades or enclosures around any waste or storage areas; and take all reasonable precautions to insure that the drainage facilities of the roof are not clogged and are in good and operable condition at all times. e. There shall be no abatement of Rent and no liability of Lessor by reason of any injury to or interference with Lessees business arising from the making of any repairs, alterations or improvements in or to any portion of the Premises, or in or to improvements, fixtures, equipment and personal property therein, unless as the result of an act of gross negligence by Lessor. f. During the term, Lessor shall not be required to maintain or make any repairs or replacements of any nature or description whatsoever to the Premises. Lessee hereby expressly waives the right to make repairs at the expense of Lessor as provided for in any applicable laws in effect as of the Execution Date, or in any other applicable laws that may hereafter be enacted, and waives its rights under applicable laws relating to a landlords duty to maintain its premises in a tenantable condition. Notwithstanding the foregoing, if Lessee shall fail within thirty (30) days after reasonable notice, to maintain or to commence and thereafter to proceed with diligence to make any repair required of it pursuant to the terms of the Amended Lease, Lessor, without being under any obligation to do so and without thereby waiving such default by Lessee, may so maintain or make such repair and may charge Lessee for the costs thereof. Any expense reasonably incurred by Lessor in connection with the making of such repairs may be billed by Lessor to Lessee monthly or, at Lessors option, immediately, and shall be due and payable within fifteen (15) days after such billing or, at Lessors option, may be deducted from the Security Deposit. g. Lessor and Lessors agents shall have the right to enter upon the Premises or any portion thereof for the purposes of performing any repairs or maintenance Lessor is permitted to make pursuant to the Amended Lease, and of ascertaining the condition of the Premises or whether Lessee is observing and performing Lessees obligations hereunder, all without unreasonable interference from Lessee or Lessees Agents. Except for emergency maintenance or repairs, the right of entry contained in this paragraph shall be exercisable at reasonable times, at reasonable hours and on reasonable notice. 5
h. Lessee shall promptly after the full execution thereof provide to Landlord copies of all repair and maintenance contracts entered into by Lessee related to the Property. Lessor shall have the right to inspect the Premises upon twenty-four (24) hours prior notice to Lessee. 14. Insurance. a. Section 8.3(a) of the Original Lease is hereby replaced in its entirety with the following: Lessor shall maintain insurance for the Premises in amounts equal to full replacement cost (exclusive of the costs of excavation, foundations and footings, and without reference to depreciation taken by Lessor upon its books or tax returns) or such lesser coverage as Lessor may elect, provided that such coverage shall not be less than ninety percent (90%) of such full replacement cost or the amount of such insurance the Lender, if any, requires Lessor to maintain, providing protection against any peril generally included within the classification Fire and Extended Coverage, together with insurance against sprinkler damage (if applicable), vandalism and malicious mischief. Lessor, subject to availability thereof, shall further insure, if Lessor deems it appropriate, coverage against flood, environmental hazard, earthquake, loss or failure of building equipment, rental loss during the period of repairs or rebuilding, workmens compensation insurance and fidelity bonds for employees employed to perform services. Notwithstanding the foregoing, Lessor may, but shall not be deemed required to, provide insurance for any improvements installed by Lessee or that are in addition to the standard improvements customarily furnished by Lessor, without regard to whether or not such are made a part of or are affixed to the Building. In addition, Lessor shall carry public liability insurance with a single limit of not less than One Million Dollars ($1,000,000) for death or bodily injury, or property damage with respect to the Premises. Lessee shall pay within thirty (30) days after receipt of an invoice therefor from Lessor the costs of any premiums or deductibles related to insurance carried by Lessor pursuant to this Lease. b. Section 8.3 of the Addendum is hereby deleted and of no further force or effect. 15. Damage or Destruction. The following is added as Section 9(e) to the Original Lease: Hazardous Substance Condition means the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance in, on or under the Premises. 16. Real Property Taxes. a. Section 10.2 of the Original Lease is hereby replaced in its entirety with the following: Lessor shall pay the Real Property Taxes applicable to the Project, and Lessee shall reimburse Lessor within thirty (30) days after receipt from Lessor of an invoice therefor. b. Sections 10.3 and 10.4 of the Original Lease are hereby deleted and of no further force or effect. 17. Utilities. Section 11 of the Original Lease and Section 11 of the Addendum are hereby replaced in their entirety with the following: Lessee shall contract directly with utility providers for the Premises and shall pay for all utilities furnished to the Project directly to the providers thereof. 18. Lessees Work. The second (2 n d) sentence of Section 50.4.1 of the Addendum is hereby terminated and of no further force or effect. 19. Lenders Approval. Section 53 of the Addendum, Section 5 of the First Amendment and Section 5 of the Second Amendment are hereby deleted and of no further force or effect. 20. Tenant Improvements. a. Lessee shall cause to be constructed tenant improvements in the Additional Premises and perform capital improvements at the Project (the Tenant Improvements) at a cost to Lessor not to exceed (a) Four Hundred Twenty-One Thousand Dollars ($421,000) (the Base TI Allowance) plus (b) if properly requested by Lessee pursuant to this Section 20(a), Two Hundred Fifty Thousand Dollars ($250,000) (the Additional TI Allowance), for a total of Six Hundred Seventy-One Thousand Dollars ($671,000). The Base TI Allowance, together with Additional TI 6
Allowance (if properly requested by Lessee pursuant to this Section 20(a)), shall be referred to herein as the TI Allowance. The TI Allowance may be applied to the costs of (o) construction, (p) space planning, architect, engineering and other related services performed by third parties unaffiliated with Lessee, (q) building permits and other taxes, fees, charges and levies by governmental authorities for permits or for inspections of the Tenant Improvements, and (r) costs and expenses for labor, material, equipment and fixtures. In no event shall the TI Allowance be used for (v) the cost of work that is not authorized by plans approved in advance in writing by Lessor (the Approved Plans), which approval shall not be unreasonably withheld by Lessor and shall be given or withheld within ten (10) business days after Lessors receipt of the plans from Tenant, (w) payments to Lessee or any affiliates of Lessee, (x) the purchase of any furniture, personal property or other non-building system equipment, (y) costs resulting from any Default by Lessee of its obligations under the Amended Lease or (z) costs that are recoverable by Lessee from a third party (e.g., insurers, warrantors, or tortfeasors). b. Base Rent shall be increased to include the amount of the Additional TI Allowance disbursed by Lessor in accordance with this Amendment amortized over the Extension Term at a rate of nine percent (9%). Lessee shall have until December 31, 2009 (the TI Deadline), to expend the unused portion of the TI Allowance, after which date Lessors obligation to fund such costs shall expire. The amount by which Base Rent shall be increased shall be determined (and Base Rent shall be increased accordingly) as of the Additional Premises Rent Commencement Date and, if such determination does not reflect use by Lessee of all of the Additional TI Allowance, shall be determined again as of the TI Deadline, with Lessee paying (on the next succeeding day that Base Rent is due under the Amended Lease (the TI True-Up Date)) any underpayment of the further adjusted Base Rent for the period beginning on the Additional Premises Rent Commencement Date and ending on the TI True-Up Date. c. Lessor shall not be obligated to expend any portion of the Additional TI Allowance until Lessor shall have received from Lessee a letter in the form attached as Exhibit B hereto executed by an authorized officer of Lessee. d. Promptly after completion of the Tenant Improvements, Lessee shall deliver to Lessor (i) a certificate of occupancy for the Additional Premises suitable for the Agreed Use and (ii) a Certificate of Substantial Completion in the form of the American Institute of Architects document G704, executed by the project architect and the general contractor. e. Lessee shall execute and deliver to Lessor written acknowledgment of the actual Additional Premises Rent Commencement Date within ten (10) days after Lessee takes occupancy of the Additional Premises for the Agreed Use, in the form attached as Exhibit C hereto. Failure to execute and deliver such acknowledgment, however, shall not affect the Additional Premises Rent Commencement Date or Lessors or Lessees liability hereunder. Failure by Lessee to obtain validation by any medical review board or other similar governmental licensing of the Additional Premises required for the Agreed Use by Lessee shall not serve to extend the Additional Premises Rent Commencement Date. f. Prior to entering upon the Additional Premises, Lessee shall furnish to Lessor evidence satisfactory to Lessor that insurance coverages required of Lessee under the provisions of Section 8 of the Original Lease are in effect, and such entry shall be subject to all the terms and conditions of the Amended Lease other than the payment of Base Rent or Lessees Share of Common Area Operating Expenses. g. Lessee, at its sole cost and expense (except for the Base TI Allowance and, if properly requested by Tenant, the Additional TI Allowance), shall complete the Tenant Improvements in all respects in accordance with the provisions of the Amended Lease. The Tenant Improvements shall be deemed completed at such time as Lessee, at its sole cost and expense (except for the Base TI Allowance and, if properly requested by Tenant, the Additional TI Allowance) shall furnish to Lessor (i) evidence satisfactory to Lessor that (A) the Tenant Improvements have been completed and paid for in full (which shall be evidenced by the architects certificate of completion and the general contractors and each Major Subcontractors and Major Suppliers final waivers and releases of liens), (B) the Tenant Improvements have been accepted by Lessor, (C) any and all liens related to the Tenant Improvements have either been discharged of record (by payment, bond, order 7
of a court of competent jurisdiction or otherwise) or waived by the party filing such lien and (D) no security interests relating to the Tenant Improvements are outstanding, (ii) all certifications and approvals with respect to the Tenant Improvements that may be required from any governmental authority and any board of fire underwriters or similar body for the use and occupancy of the Premises, (c) certificates of insurance required by the Amended Lease to be purchased and maintained by Lessee, (d) a certificate from Lessees architect certifying that all work described in the Approved Plans is substantially complete, which certificate may be in the form of AIA Document G704, and (e) complete drawing print sets and electronic CADD flies on disc of all contract documents for work performed by their architect and engineers in relation to the Tenant Improvements. As used herein, the term Major Subcontractor shall mean any subcontractor who performs work in connection with the Tenant Improvements for compensation in excess of Ten Thousand Dollars ($10,000), and the term Major Supplier shall mean any material supplier who supplies materials in connection with the Tenant Improvements for a purchase price in excess of Twenty-Five Thousand Dollars ($25,000). Lessor and Lessee shall mutually agree upon the selection of the architect, engineer, general contractor and major subcontractors, and Lessor and Lessee shall each participate in the review of the competitive bid process. h. Lessee assumes sole responsibility and liability for any and all injuries or the death of any persons, including Lessees contractors and subcontractors and their respective employees, and for any and all damages to property caused by, resulting from or arising out of any act or omission on the part of Lessee, Lessees contractors or subcontractors, or their respective employees in the prosecution of the Tenant Improvements. Lessee agrees to indemnify, defend, protect and save free and harmless Lessor and Lessors affiliates, agents and employees from and against all losses and expenses, including reasonable attorneys fees and expenses, that Lessor may incur as the result of claims or lawsuits due to, because of, or arising out of any and all such injuries, death or damage, whether real or alleged, and Lessee and Lessees contractors and subcontractors shall assume and defend at their sole cost and expense all such claims or lawsuits; provided, however, that nothing contained in this Section 20(h) shall be deemed to indemnify or otherwise hold Lessor harmless from or against liability caused by the gross negligence or willful misconduct of Lessor or any agent, contractor or employee of Lessor. Any deficiency in design or construction of the Tenant Improvements shall be solely the responsibility of Lessee, notwithstanding the fact that Lessor may have approved of the same in writing. All material and equipment furnished by Lessee as the Tenant Improvements shall be new or like new and the Tenant Improvements shall be performed in a first-class, workmanlike manner. i. Upon submission by Lessee to Lessor of (a) a statement (an Advance Request) setting forth the total amount requested, (b) a detailed summary of the Tenant Improvements performed using AIA standard form Application for Payment (G 702) executed by the general contractor and by the architect, and (c) lien releases from the general contractor and each Major Subcontractor and Major Supplier with respect to the portion of the Tenant Improvements corresponding to the Advance Request, then Lessor shall, within thirty (30) days following receipt by Lessor of an Advance Request and the accompanying materials required by this Section 20(i), advance to Lessee the amount set forth in such Advance Request; provided, however, that, with respect to any Advance Requests subject to the limits set forth in Section 20(a), Lessor shall advance to Lessee the requested amount as limited by Section 20(a). 21. No Default. Lessee represents, warrants and covenants that, to the best of Lessees knowledge, Lessor and Lessee are not in default of any of their respective obligations under the Lease and no event has occurred that, with the passage of time or the giving of notice (or both) would constitute a default by either Lessor or Lessee thereunder. 22. Effect of Amendment . Except as modified by this Amendment, the Lease and all the covenants, agreements, terms, provisions and conditions thereof shall remain in full force and effect and are hereby ratified and affirmed. The covenants, agreements, terms, provisions and conditions contained in this Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and, except as otherwise provided in the Lease, their respective assigns. In the event of any conflict between the terms contained in this Amendment and the Lease, the terms herein contained shall supersede and control the obligations and liabilities of the parties. From and after the 8
date hereof, the term Lease as used in the Lease shall mean the Lease, as modified by this Amendment. 23. Miscellaneous. This Amendment becomes effective only upon execution and delivery hereof by Lessor and Lessee. The captions of the paragraphs and subparagraphs in this Amendment are inserted and included solely for convenience and shall not be considered or given any effect in construing the provisions hereof. All exhibits hereto are incorporated herein by reference. 24. Counterparts. This Amendment may be executed in one or more counterparts that, when taken together, shall constitute one original. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 9
IN WITNESS WHEREOF, Lessor and Lessee have hereunto set their hands as of the date and year first above written, and acknowledge that they possess the requisite authority to enter into this transaction and to execute this Amendment. LESSOR: BMR-SORRENTO VALLEY LLC, a Delaware limited liability company By: /s/ Greg Tubushkin
Name: Greg Tubushkin Title: VP, Chief Accounting Officer
LESSEE: AMBIT BIOSCIENCES CORPORATION, a Delaware corporation By: /s/ Donald R. Myll
Name: Donald R. Myll Title: CFO
EXHIBIT A ADDITIONAL PREMISES
EXHIBIT B FORM OF ADDITIONAL TI ALLOWANCE ACCEPTANCE LETTER [LESSEE LETTERHEAD] BMR-Sorrento Valley LLC 17190 Bernardo Center Drive San Diego, California 92128 Attn: General Counsel/Real Estate [Date] Re: Additional TI Allowance
To Whom It May Concern: This letter concerns that certain Third Amendment to Standard Industrial/Commercial Multi-Tenant LeaseNet dated as of June [ ], 2008 (the Amendment), between BMR-Sorrento Valley LLC (Lessor) and Ambit Biosciences Corporation ( Lessee). Capitalized terms not otherwise defined herein shall have the meanings given them in the Amendment. Lessee hereby notifies Lessor that it wishes to exercise its right to utilize the Additional TI Allowance pursuant to Section 20(c) of the Amendment. If you have any questions, please do not hesitate to call [ ] at ([ ]) [ ]- [ ].
Sincerely, [Name] [Title of Authorized Signatory] cc: Greg Lubushkin John Wilson Kevin Simonsen B-1
EXHIBIT C ACKNOWLEDGEMENT OF ADDITIONAL PREMISES RENT COMMENCEMENT DATE THIS ACKNOWLEDGEMENT OF ADDITIONAL PREMISES RENT COMMENCEMENT DATE is entered into as of [ ], 20[ ], with reference to that certain Third Amendment to Standard Industrial/Commercial Multi-Tenant Lease Net dated as of June [ ], 2008 (the Amendment), by AMBIT BIOSCIENCES CORPORATION, a Delaware corporation ( Lessee), in favor of BMR-Sorrento Valley LLC, a Delaware limited liability company (Lessor). All capitalized terms used herein without definition shall have the meanings ascribed to them in the Amendment. Lessee hereby confirms the following: 1. Lessee accepted possession of the Additional Premises on [ ], 2008.
2. All conditions of the Amended Lease to be performed by Lessor as a condition to the full effectiveness of the Amended Lease have been satisfied, and Lessor has fulfilled all of its duties in the nature of inducements offered to Lessee to lease the Additional Premises. 3. In accordance with the provisions of Section 20 of the Amendment, the Additional Premises Rent Commencement Date is [ 4. Lessee commenced occupancy of the Additional Premises for the Agreed Use on [ ], 20[ ]. ], 20[ ].
5. The Amended Lease is in full force and effect, and the same represents the entire agreement between Lessor and Lessee concerning the Premises[, except [ ]]. 6. Lessee has no existing defenses against the enforcement of the Amended Lease by Lessor, and there exist no offsets or credits against Rent owed or to be owed by Lessee. 7. The obligation to pay Rent is presently in effect and all Rent obligations on the part of Lessee under the Amended Lease with respect to the Additional Premises commenced to accrue on [ ], 20[ ]. 8. The undersigned Lessee has not made any prior assignment, transfer, hypothecation or pledge of the Amended Lease or of the rents thereunder or sublease of the Premises or any portion thereof. IN WITNESS WHEREOF, Lessee has executed this Acknowledgment of Additional Premises Rent Commencement Date as of the date first written above. LESSEE: AMBIT BIOSCIENCES CORPORATION, a Delaware corporation By: Name: Title: C-1
Exhibit 10.27 ***Text Omitted and Filed Separately with the Securities and Exchange Commission. Confidential Treatment Requested Under 17 C.F.R. Sections 200.80(b)(4) and Rule 406 of the Securities Act of 1933, as amended. EXECUTION VERSION
COLLABORATION AGREEMENT This COLLABORATION AGREEMENT (the Agreement), effective as of November 3, 2006 (the Effective Date), is made by and between Ambit Biosciences Corporation a Delaware corporation, having a principal place of business at 4215 Sorrento Valley Boulevard, San Diego, CA 92121 (Ambit), and Cephalon, Inc., a Delaware corporation, having a principal place of business at 41 Moores Road, Frazer, PA 19355 ( Cephalon). RECITALS WHEREAS, Ambit has expertise in the profiling of pharmaceutical compounds against human protein kinases and expertise in the research and development of pharmaceutical compounds; WHEREAS, Cephalon has expertise in the research, development and commercialization of pharmaceutical compounds; WHEREAS, the Parties have entered into a Profiling Services Agreement, dated as of the date hereof (the Profiling Services Agreement ), the terms of which are incorporated as set forth in Attachment A herein; WHEREAS, Cephalon and Ambit wish to enter into a collaboration employing the Parties medicinal chemistry and biology capabilities, in order to discover, develop and commercialize pharmaceutical compounds subject to and in accordance with the terms and conditions of this Agreement (the Collaboration); and WHEREAS, in addition, Ambit wishes to analyze and assess the activity of certain of Cephalons compounds against Ambit kinase targets, and to develop and commercialize those compounds subject to the terms and conditions of this Agreement. NOW THEREFORE, in consideration of the mutual covenants and conditions hereinafter set forth in this Agreement, the Parties hereto agree as follows: ARTICLE I. DEFINITIONS As used herein, the following terms shall have the meanings set forth below: 1.1. Affiliate shall mean, with respect to a particular Party, any Person controlled by, controlling, or under common control with such Party. For the purpose of this Section 1.1 only, control of a Person shall mean (a) the possession, directly or indirectly, of the power to direct the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise, or (b) the ownership,
directly or indirectly, of more than fifty percent (50%) of the voting securities or other ownership interest of such Person. 1.2. Ambit Compound shall mean any compound that (a) is brought to the Collaboration by Ambit, (b) is Controlled by Ambit, and (c) is proprietary to Ambit by virtue of being claimed or covered by an Ambit Patent or being part of the Ambit Know-How. 1.3. Ambit IP shall mean Ambit Patents and Ambit Know-how. 1.4. Ambit Know-how shall mean all proprietary ideas, inventions, data, know-how, instructions, processes, formulas, materials, expert opinion, technology or other information (including, biological, chemical, physical and analytical data and information, and any structure-function data), that (a) is either (i) Controlled by Ambit as of the Effective Date, or (ii) discovered, developed, conceived, reduced to practice or acquired during the Collaboration Term outside the course of both of the Collaboration and Ambits research and development under Article IV by employees or agents of Ambit or any of its respective Affiliates, either alone or jointly, and is Controlled by Ambit and (b) is necessary for the discovery, development, manufacture or use of Licensed Compounds, Collaboration Compounds and Derivative Compounds and/or the development, manufacture, use, sale or commercialization of corresponding Licensed Products and Collaboration Products; provided, however, that Ambit KnowHow shall not include Ambit Patents, Licensed Compound IP, Collaboration IP or Cephalon IP. 1.5. Ambit Patents shall mean all Patents Controlled by Ambit or its Affiliates as of the Effective Date, or any other Patent Controlled by Ambit or its Affiliates during the Collaboration Term and, with respect to Collaboration Clinical Candidates and Licensed Compounds, all Patents Controlled by Ambit or its Affiliates during the Term; in each case, necessary for the discovery (in the case of Collaboration Compounds), development, manufacture, importation or use of one or more Licensed Compounds, Collaboration Compounds, Derivative Compounds and/or the development, manufacture, use, sale, importation or commercialization of corresponding Licensed Products or Collaboration Products. 1.6. Ambit Target shall mean (a) the [***] Targets specified in Schedule A, and (b) such Targets that may be mutually agreed upon by the Parties pursuant to Section 4.2 to replace one (1) or more of such Targets specified in Schedule A, provided that in no event shall any such Targets include the Cephalon Exclusive Targets. 1.7. Cephalon Compound shall mean any Cephalon Library Compound and any additional compound brought to the Collaboration by Cephalon. 1.8. Cephalon Exclusive Targets shall mean the Targets, for which Cephalon has or expects to have active programs or Third Party obligations during the Collaboration Term, as specified in Schedule B and as may be reasonably updated from time to time by Cephalon. 1.9. Cephalon IP shall mean Cephalon Patents and Cephalon Know-how. ***Confidential Treatment Requested -2-
1.10. Cephalon Know-how shall mean all proprietary ideas, inventions, data, know-how, instructions, processes, formulas, materials, expert opinion, technology or other information (including biological, chemical, physical and analytical data and information, and any structure-function data), that (a) is either (i) Controlled by Cephalon as of the Effective Date, or (ii) discovered, developed, conceived, reduced to practice or acquired during the Collaboration Term outside the course of both of the Collaboration and Ambits research and development under Article IV by employees or agents of Cephalon or any of its respective Affiliates, either alone or jointly, and is Controlled by Cephalon and (b) is necessary for the discovery, development, manufacture or use of Licensed Compounds and Collaboration Compounds and/or the development, manufacture, use, sale or commercialization of corresponding Licensed Products and Collaboration Products; provided, however, that Cephalon Know-How shall not include Cephalon Patents, Licensed Compound IP, Ambit IP or Collaboration IP. 1.11. Cephalon Library Compounds shall mean Cephalons small molecule screening deck of [***] compounds, without chemical structures. Cephalon Analogue Compounds provided by Cephalon to Ambit pursuant to Section 4.3.2 shall be deemed Cephalon Library Compounds for the purposes of Article IV. 1.12. Cephalon Patents shall mean all Patents Controlled by Cephalon or its Affiliates as of the Effective Date, or any other Patent Controlled by Cephalon or its Affiliates during the Collaboration Term and, with respect to Collaboration Clinical Candidates and Licensed Compounds, all Patents Controlled by Cephalon or its Affiliates during the Term; in each case, necessary for the discovery, development, manufacture, importation or use of one or more Licensed Compounds or Collaboration Compounds and/or the development, manufacture, use, sale, importation or commercialization of corresponding Licensed Products and Collaboration Products. 1.13. Cephalon Target shall mean all Targets other than the Ambit Targets. 1.14. Change of Control shall mean with respect to Ambit: (a) the stockholders of Ambit approve a sale of all or substantially all of Ambits assets or business to which this Agreement relates to a Third Party or a plan of complete liquidation of Ambit; (b) the stockholders of Ambit approve a merger, reorganization or consolidation involving Ambit and a Third Party in which the stockholders of Ambit immediately prior to such transaction cease to own collectively fifty percent (50%) or more of the combined voting equity securities of a successor entity; or (c) the stockholders approve an acquisition of fifty percent (50%) or more of the voting equity securities of Ambit by a Third Party. 1.15. Collaboration shall have the meaning set forth in the Recitals, and mean any research and development activities undertaken by both Ambit and Cephalon under the direction and oversight of the JRC that relates to the development of Collaboration Compounds and Collaboration Clinical Candidates having activity against the Collaboration Target(s). ***Confidential Treatment Requested -3-
1.16. Collaboration Clinical Candidate shall mean a Collaboration Compound selected by Cephalon as a candidate for IND-enabling studies pursuant to Section 8.1. 1.17. Collaboration Compound shall mean, (a) with respect to the First Collaboration Target, (i) the Ambit Compounds that currently are the subject of Ambits research and development efforts, and (ii) any other compounds agreed by the JRC to be designated as Collaboration Compounds; and (b) with respect to the Second Collaboration Target, the compounds agreed by the JRC to be designated as Collaboration Compounds, which compounds may include Ambit Compounds, Cephalon Compounds and/or Non-Exclusive Compounds; in each case, including any compound that is derived, directly or indirectly, from such compounds that either (x) inhibits the activity of the First Collaboration Target according to the criteria set forth in the Research Plan or (y) appropriately inhibits or modulates the activity of the Second Collaboration Target at a level of potency to be established by the JRC, as applicable. For purposes of clarity, any compound synthesized in the course of the Collaboration and based on a Cephalon Compound or Ambit Compound that is active against a Collaboration Target at the level of potency and selectivity established by the JRC shall be deemed a Collaboration Compound. 1.18. Collaboration IP shall mean Collaboration Patents and Collaboration Know-how. Collaboration IP shall not include Ambit IP, Cephalon IP or Licensed Compound IP. 1.19. Collaboration Know-how shall mean all proprietary ideas, inventions, data, know-how, instructions, processes, formulas, materials, expert opinion, technology or other information (including, without limitation, (a) biological, chemical, physical and analytical data and information relating to Collaboration Compounds, and (b) any structure-function data related to Collaboration Compounds), in each case which is discovered, developed, conceived or reduced to practice during the Collaboration Term and in the course of the Collaboration, by employees or agents of Cephalon, Ambit or any of their respective Affiliates, either alone or jointly, and which is necessary for the discovery, development, manufacture or use of Collaboration Compounds and/or the development, manufacture, use, sale or commercialization of corresponding Collaboration Products; provided, however, that Collaboration Know-How shall not include Collaboration Patents, Licensed Compound IP, Ambit IP or Cephalon IP. 1.20. Collaboration Patents shall mean (a) all patents and patent applications claiming any invention or discovery which was conceived or reduced to practice during the Collaboration Term and in the course of the Collaboration, by employees or agents of Ambit, Cephalon or any of their respective Affiliates, either alone or jointly (including, without limitation, the synthesis and composition of matter of any Collaboration Compound or any Collaboration Product, or method of use thereof); and (b) any divisions, continuations, continuations-in-part, reissues, reexaminations, extensions or other governmental actions which extend any of the subject matter of the patent applications or patents in (a) above, and any substitutions, confirmations, registrations, revalidations, or additions of any of the foregoing; provided, however, that Collaboration -4-
Patents shall not include any Ambit Patents, Cephalon Patents or Licensed Compound Patents. 1.21. Collaboration Product shall mean any pharmaceutical product in any form or formulation that contains a Collaboration Compound that is sold by Cephalon or its Sublicensees or Affiliates. 1.22. Collaboration Targets shall mean the First Collaboration Target and the Second Collaboration Target. 1.23. Collaboration Term shall mean the Initial Term plus any extension pursuant to Section 16.2. 1.24. Combination Product shall mean a Collaboration Product or Licensed Product, as applicable, that comprises [***] active ingredients, [***] a Collaboration Compound or Licensed Compound. 1.25. Commercially Reasonable Efforts shall mean, in respect to each Party, efforts and resources expected to be used by biotechnology companies of a similar size and resource to that Party for a product at a similar stage in its research, development or commercialization and of similar market potential taking into account its safety and efficacy, its cost to develop, the competitiveness of alternative products, its patent and other proprietary position, the likelihood of regulatory approval and product reimbursement, its profitability and all other relevant commercial factors. For clarity, in respect of Ambit, Commercially Reasonable Efforts shall include the proper and reasonable management of its finances to ensure the adequate performance of the Collaboration and its obligations under Article IV in accordance with the terms of this Agreement. 1.26. Confidential Information as to each Party, shall mean such Partys confidential information, trade secrets, Patents and Know-how, all the data and materials of that Party relating to the Collaboration, the Ambit Targets, Cephalon Targets, Collaboration Targets, Ambit Compounds, Cephalon Compounds, Collaboration Compounds, Licensed Compounds, Cephalon Library Compounds, Collaboration Products and Licensed Products, and including, without limitation, all research, technical, clinical development, manufacturing, marketing, financial, personnel, and other business information and plans of such Party, in each case that (a) if disclosed in written form, is marked by such Party as confidential or proprietary, (b) if disclosed in non-written form, is indicated as confidential or proprietary at the time of disclosure and reduced in writing in reasonable detail, marked as confidential or proprietary and delivered to the receiving Party within thirty (30) days after disclosure or (c) notwithstanding clauses (a) and (b) above, is known or reasonably should be known by the receiving Party to be the confidential information of the disclosing Party. 1.27. Controls or Controlled shall mean possession of the ability to grant licenses or sublicenses pursuant to this Agreement without violating the terms of any ***Confidential Treatment Requested -5-
agreement or other arrangement with, or the rights of, any Third Party and without the requirement of additional or increased payments to the Third Party. 1.28. Derivative Compound shall mean, with respect to a Cephalon Library Compound, a compound that was derived by or on behalf of Ambit from such Cephalon Library Compound (whether from the Cephalon Library Compound or from a predecessor compound that is derived from a Cephalon Library Compound), or derived or synthesized by or on behalf of Ambit from Cephalons Confidential Information covering the structure or identity of the Cephalon Library Compound. 1.29. Executive Officers shall mean the Chief Executive Officer of Ambit, the Executive Vice President of Research and Development of Cephalon, and/or such other executive officer of a Party as may be substituted from time to time upon the giving of written notice to the other Party. 1.30. Fair Market Value shall mean the cash consideration, which a willing seller would realize from an unrelated willing buyer in an arms length sale of an identical item sold in the same quantity and at the same time and place of the transaction. 1.31. FDA shall mean the U.S. Food and Drug Administration, any successor thereto, or any corresponding foreign registration or regulatory authority. 1.32. Field shall mean [***]. 1.33. First Collaboration Target shall mean the [***]. 1.34. First Commercial Sale shall mean, with respect to a Collaboration Product or Licensed Product, as applicable, in any country, the first sale for use or consumption by the general public of such Collaboration Product or Licensed Product, as applicable, in such country after all Regulatory Approvals have been obtained in such country. 1.35. IND shall mean an Investigational New Drug Application, as defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder for initiating clinical trials in the United States, or any corresponding foreign application, registration or certification. 1.36. Initial Term shall mean the period commencing on the Effective Date and ending three (3) years thereafter. 1.37. Joint Research Committee or JRC shall mean the entity organized to manage the scientific implementation of the Collaboration and acting pursuant to Article III. 1.38. KinomeScan Panel means [***]. ***Confidential Treatment Requested -6-
1.39. Licensed Compound shall mean an Option Compound (as defined in Section 4.4.1 herein) as to which Ambit exercises its Option, and [***] (such [***], the Backup Compounds), provided that a Backup Compound shall be deemed a Licensed Compound only if (a) Ambit has provided written notice to Cephalon designating such Backup Compound as a Licensed Compound and (b) the Backup Compound otherwise meets all of the applicable requirements set forth in Article IV. 1.40. Licensed Compound IP shall mean the Licensed Compound Know-how and Licensed Compound Patents. 1.41. Licensed Compound Know-how shall mean all proprietary ideas, inventions, data, know-how, instructions, processes, formulas, materials, expert opinion, technology or other information (including, without limitation, (a) biological, chemical, physical and analytical data and information, and (b) any structure-function data), in each case which is discovered, developed, conceived or reduced to practice during the Term in connection with the research and development activities conducted in connection with Article IV, including with respect to Licensed Compounds and Derivative Compounds, by employees or agents of Ambit or any of its Affiliates, either alone or jointly; provided, however, that Licensed Compound Know-how shall not include Licensed Compound Patents, Collaboration IP, Ambit IP or Cephalon IP. 1.42. Licensed Compound Patents shall mean (a) all Patents conceived or reduced to practice during the Term by employees or agents of Ambit or any of its respective Affiliates, either alone or jointly, that are related to any Licensed Compound or Derivative Compound (including, without limitation, the synthesis and composition of matter of any such compound or Licensed Products, or method of use thereof) or otherwise result from Ambits research and development activities conducted in connection with Article IV, including with respect to Licensed Compounds and Derivative Compounds; and (b) any divisions, continuations, continuations-in-part, reissues, reexaminations, extensions or other governmental actions which extend any of the subject matter of the patent applications or patents in (a) above, and any substitutions, confirmations, registrations, revalidations, or additions of any of the foregoing. For the avoidance of doubt, Licensed Compound Patents shall not include Collaboration Patents. 1.43. Licensed Products shall mean any pharmaceutical product in any form or formulation that contains a Licensed Compound that is developed by Ambit, or its permitted Sublicensees or Affiliates, pursuant to Article IV. ***Confidential Treatment Requested -7-
1.44. Mutant Form Candidate shall mean a Collaboration Clinical Candidate that is directed against a [***], other than [***]. 1.45. NDA shall mean a New Drug Application, as defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder, or any corresponding foreign application, registration or certification. 1.46. Net Revenue shall mean the gross amount of all consideration (whether as an up-front payment, royalties or otherwise) received by Ambit or its Affiliates, directly or indirectly, from a Third Party for or on account of any sublicenses or other rights granted by Ambit to such Third Party with respect to a Licensed Product, including any investments made by such Third Party in Ambit or an Affiliate, without deduction of any kind, but excluding the following: (a) payments made by distributors appointed by Ambit to distribute the Licensed Product in respect of amounts invoiced by Ambit to such distributors for the sale by Ambit of such Licensed Product to such distributors to the extent that Ambit pays royalties to Cephalon for Net Sales of such Licensed Product pursuant to Section 4.11(a); (b) payments received by Ambit or an Affiliate for performance of research and development by either Ambit or such Affiliate to the extent that such payments cover the actual cost of the research and development work; (c) payments made to either Ambit or an Affiliate to the extent they cover the actual costs of conducting clinical testing and other activities in connection with obtaining regulatory approval for a product; and (d) reimbursed expenses of either Ambit or an Affiliate. The monetary value of any investment made by a Third Party in Ambit or an Affiliate shall be equal to the current market value of the investment, which shall be determined as of the earlier of the date when the investment is made or the day prior to the date when the investment is first publicly disclosed on the Dow Jones New Wire (the Determination Date). If there is no public market for the securities of Ambit or an Affiliate, then the current market value shall be determined by Ambits or the Affiliates board of directors in good faith, and if Cephalon disputes such determination, the current market value shall be determined by an independent banker designated by the Parties whose fees shall be shared by the Parties. If there is a public market for Ambits or an Affiliates securities, then the current market value shall be determined using the average of the closing bid and asked prices of the securities in the Over-The-Counter Market Summary or the closing price quoted on any exchange on which the securities are listed as published in The Wall Street Journal for the ten (10) trading days prior to the Determination Date. Notwithstanding the foregoing, if the Third Party is acquiring Ambits or an Affiliates securities in connection with an initial public offering of Ambit or the Affiliate, the current market value shall be determined using the offering price of such securities to the public in the initial public offering. ***Confidential Treatment Requested -8-
With respect to any other non-monetary consideration received by Ambit or an Affiliate, a commercially reasonable valuation method shall be applied to determine the monetary value of such consideration. 1.47. Net Sales shall mean the gross amount invoiced and any other amounts or rebates received by a Party, its Affiliates or Sublicensees for the worldwide sale of Collaboration Products or Licensed Products, as applicable, to bona fide independent Third Parties less, to the extent paid, allowed or given: (a) outer packing, freight, postage, shipment or transportation charges and insurance costs relating thereto, (b) sales, value added and excise taxes or customs duties, tariffs or surcharges paid by the selling Party, and any other governmental charges (excluding income taxes) incurred in connection with the sale or exportation of the Collaboration Products or Licensed Products, as applicable, (c) reasonable distributors fees, amounts repaid or credited, rebates (including, without limitation, government-mandated rebates such as Medicaid charge backs or rebates) or allowances (including, without limitation, cash, credit or free goods allowances), actually granted, allowed or incurred, (d) trade and prompt payment discounts, quantity discounts, cash discounts or reasonable charge-backs actually granted, allowed or incurred in the ordinary course of business in connection with the sale of the Collaboration Products or Licensed Products, as applicable, and (e) reasonable allowances, refunds or credits to customers, not in excess of the selling price of the Collaboration Products or Licensed Products, as applicable, on account of rejection, damage, spoilage, outdating, recalls or return of, or price adjustments or billing errors regarding the Collaboration Products or Licensed Products, as applicable. A sale shall include any transfer or other disposition for consideration of a Collaboration Product or Licensed Product, as applicable, and Net Sales shall include the Fair Market Value of all other consideration received by a Party, its Affiliates or its Sublicensees from the sale or distribution of a Collaboration Product or Licensed Product, as applicable, whether such consideration is in cash, payment in kind, exchange or another form. In the event that a Collaboration Product or Licensed Product, as applicable, is packaged with other products of a Party, any discount applied to such Collaboration Product or Licensed Product, as applicable, to determine Net Sales shall be no greater than the average discount of the entire package. The disposal or sale of a Collaboration Product or Licensed Product, as applicable, by a Party, its Affiliates or Sublicensees (i) solely for the research or clinical testing of such Collaboration Product or Licensed Product, as applicable, or (ii) for -9-
indigent, charitable or similar public support or compassionate use programs or (iii) as free samples shall not be deemed to give rise to a sale under this Agreement and shall be excluded from the computation of Net Sales. All sales of Collaboration Products or Licensed Products, as applicable between a Party and its Affiliates or its Sublicensees shall be disregarded for purposes of computing Net Sales, unless such a purchaser is the end-user of such Collaboration Product or Licensed Product, as applicable. To calculate the value of Net Sales of Combination Products, the gross sales of such Combination Products will be multiplied by the fraction A/(A + B) where A is the Fair Market Value of the Collaboration Compound or Licensed Compound, as applicable, when sold separately, and B is the Fair Market Value of the other active ingredient when sold separately. Allowed deductions may then be subtracted, prorated based on the proportion of gross sales attributable to the Collaboration Compound or Licensed Compound, as applicable, to compute Net Sales. 1.48. Non-Exclusive Compound shall mean any compound brought to the Collaboration by either Party which is non-proprietary to both Parties at or after the Effective Date. 1.49. Party shall mean Ambit or Cephalon. Ambit and Cephalon shall be collectively referred to as the Parties. 1.50. Patent shall mean: (i) issued and unexpired letters patent, including any extension, registration, confirmation, reissue, continuation, supplementary protection certificate, divisional, continuation-in-part, re-examination or renewal thereof, (ii) pending applications for letters patent, including provisional applications, and (iii) foreign counterparts of any of the foregoing; in each case to the extent the same has not been held, by a court, administrative body or governmental agency of competent jurisdiction, to be invalid or unenforceable in a decision from which no appeal can be taken or from which no appeal was taken within the time permitted for appeal. 1.51. Patent Committee shall mean the committee that may be formed pursuant to Section 3.5. 1.52. Person shall mean any natural person, corporation, firm, business trust, joint venture, association, organization, company, partnership or other business entity, or any government or agency or political subdivision thereof. 1.53. Phase I, Phase II and Phase III shall mean Phase I (or Phase I/II), Phase II (or Phase II/III) and Phase III clinical trials, respectively, in each case as prescribed by applicable FDA IND Regulations, or any corresponding foreign statutes, rules or regulations. 1.54. Regulatory Agency shall mean the FDA or the applicable department, bureau or other governmental regulatory authority in each country in the Territory involved in the granting of Regulatory Approvals. -10-
1.55. Regulatory Approval shall mean any and all approvals (including price reimbursement approvals), licenses, registrations, or authorizations of any Regulatory Agency, necessary for the manufacture, use, storage, import, export, transport or sale of a Collaboration Product. 1.56. Relevant Third Party Patent Right shall mean a Patent owned or controlled by a Third Party which claims the composition of matter of a Collaboration Compound, the process of manufacture of that Collaboration Compound, use of the Collaboration Product for the treatment of a therapeutic indication or the use of a Collaboration Product against a Collaboration Target where such Collaboration Compound (in each case) is being used as an active ingredient in a Collaboration Product. 1.57. Research Plan shall mean, on a Collaboration Target-by-Collaboration Target basis, a description of the Parties respective activities and objectives with respect to a Collaboration Target. Minutes of JRC meetings, if signed by a JRC representative of each Party, shall be deemed included within the Research Plan. 1.58. Second Collaboration Target shall mean the Target selected by the JRC pursuant to Section 2.4. 1.59. Significant Activity shall mean any of the following in relation to a Collaboration Compound, Collaboration Product, Licensed Compound or Licensed Product: (a) [***]; (b) [***] (c) [***]; (d) [***]; (e) [***]; ***Confidential Treatment Requested -11-
(f) [***]; (g) [***]; and (h) [***]. Notwithstanding the foregoing, any activities set forth in (a) through (h) above, that normally would be related to an earlier phase of development and/or commercialization, shall not be considered Significant Activity once development of the applicable Collaboration Compound, Collaboration Product, Licensed Compound or Licensed Product has progressed beyond such earlier phase for a particular indication, as evidenced by the performance of any activity that normally would be considered to be related to any later phase for such indication, provided always that to the extent that a Party can reasonably demonstrate that activities relating to an earlier phase of development are reasonably necessary, then such activities shall be considered Significant Activity. 1.60. Sublicensee shall mean, as to each Party, a Person other than an Affiliate of the Party, to whom has been granted sublicense rights under the license granted to such Party hereunder, which rights include at least the right to sell a Collaboration Product or Licensed Product. As used in this Agreement, Sublicensee shall also include a Third Party to whom a Party has granted a sublicense under this Agreement to distribute a Collaboration Product or Licensed Product, provided that such Third Party has the primary responsibility for marketing and promotion, at its expense, of such Collaboration Product or Licensed Product within countries in the Territory for which such distribution rights are granted, which marketing and promotional activities are not subsidized directly or indirectly by that Party, such as, without limitation, through a specific allowance or a guaranteed selling margin for such Third Party meant to cover its expenses. Third Parties that are permitted to manufacture or finish Collaboration Products or Licensed Products for supply to a Party, its Affiliates or Sublicensees are not Sublicensees. For avoidance of doubt, a Sublicensee shall not include any subcontractor permitted under Section 18.15. 1.61. Substantial Generic Competition shall have the meaning set forth in Section 9.4(c). 1.62. Target shall mean [***]. 1.63. Territory shall mean all the countries of the world. ***Confidential Treatment Requested -12-
1.64. Third Party shall mean any Person other than Ambit, Cephalon, or their respective Affiliates. 1.65. Valid Claim shall mean a claim of an issued patent which has not lapsed or become abandoned, been held permanently revoked, unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or un-appealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise. The following defined terms have the meanings specified in referenced Section:
Term Section
Adverse Financial Event AFE Determination Date Agreement Ambit Ambit Hit Ambit Indemnitees Ambit Losses Ambit Stock Backup Compounds Cephalon Cephalon Analogue Compounds Cephalon Indemnitees Cephalon License Notice Cephalon Losses Claims Collaboration Commercializing Party Decision Notice Determination Date Disclosing Party Discontinuance Notice Effective Date Exclusivity Period Negotiation Period Nominated Targets Nomination Notice Notice Option Option Compound Option License Patent Owner Profiling Services Agreement
17.2.1(b) 17.2.1(b) Preamble Preamble 4.3.1 15.3 15.3 17.2.1 1.38 Preamble 4.3.2 15.2 4.7.2 15.2 15.4 Recitals 11.4 4.2 1.46 12.1.1 11.2.6 Preamble 5.1 4.7.2 4.2 4.2 4.7.3 4.4.1 4.4.1 4.4.1 11.3.2 Recitals -13-
Receiving Party RFN Negotiation Period Right of First Negotiation Share Price Sole Discretion Rejection Term Third Nomination Period Third Party Agreement
12.1.1 4.7.3(a) 4.7.3 17.2.2 4.2 16.1 4.2 4.7.5
1.66. Rules of Construction . (a) Each of the Parties acknowledges and agrees that this Agreement has been diligently reviewed by and negotiated by and between them, that in such negotiations each of them has been represented by competent counsel and that the final agreement contained herein, including the language whereby it has been expressed, represents the joint efforts of the Parties hereto and their counsel. Accordingly, in the event an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement. (b) The definitions of the terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words include, includes and including shall be deemed to be followed by the phrase without limitation. The word will shall be construed to have the same meaning and effect as the word shall. The word any shall mean any and all unless otherwise clearly indicated by context. $ as used in this Agreement means the lawful currency of the United States. Where either Partys consent is required hereunder, except as otherwise specified herein, such Partys consent may be granted or withheld in such Partys sole discretion. (c) Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or therein), (ii) any reference to any laws herein shall be construed as referring to such laws as from time to time enacted, repealed or amended, (iii) any reference herein to any person shall be construed to include the persons successors and assigns, (iv) the words herein, hereof and hereunder, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, and (v) all references herein to Articles, Sections or Appendices, unless otherwise specifically provided, shall be construed to refer to Articles, Sections and Appendices of this Agreement. (d) References to sections of the Code of Federal Regulations and to the United States Code shall mean the cited sections, as these may be amended from time to time. -14-
ARTICLE II. PERFORMANCE OF THE COLLABORATION AGREEMENT 2.1. Goals of the Collaboration . 2.1.1. General. Each Party shall: (i) undertake an interactive, cooperative role in the Collaboration with the other Party as set forth in the applicable Research Plan, and such other activities which, from time to time, the JRC decides are necessary for the continuing success of the Collaboration, with the objective of identifying Collaboration Clinical Candidates with respect to the Collaboration Targets; (ii) use Commercially Reasonable Efforts to properly and diligently perform its activities pursuant to the applicable Research Plan, including, without limitation, by allocating personnel consistent with each applicable Research Plan project with sufficient skills and experience together with sufficient equipment and facilities, to carry out such Partys obligations under this Agreement and to accomplish the objectives of the Collaboration; and (iii) conduct the Collaboration 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 good laboratory practices to attempt to achieve its objectives efficiently and expeditiously. 2.2. Activities of Ambit . During the Collaboration Term: 2.2.1. Ambit will dedicate to the Collaboration such reasonable resources as specified by the JRC in the Research Plan to perform screening and counterscreening against the KinomeScan panel and follow-up Kd determination against individual kinases, cell-based assays, DMPK, cell pharmacology and medicinal chemistry with respect to Collaboration Targets and Collaboration Compounds. 2.2.2. Ambit further shall provide to the Collaboration Ambit Compounds having demonstrated activity against the Collaboration Targets as defined in the applicable Research Plan in order to support the Collaboration with respect to such Collaboration Targets. 2.2.3. Ambit shall provide Cephalon with all feedback in a timely manner on the progress of its efforts under the Collaboration necessary to enable Cephalon to provide Ambit the support that it requires to conduct its activities hereunder. 2.2.4. Within [***] of the Effective Date, Ambit shall disclose and make available to Cephalon all compounds (including profiling information and chemical structure) currently under research and development by Ambit with respect to the First Collaboration Target. ***Confidential Treatment Requested -15-
2.2.5. Ambit promptly shall disclose and make available to Cephalon all Collaboration IP conceived, generated or developed by or on behalf of Ambit under the Collaboration and all Ambit IP to enable Cephalon to conduct its development and commercialization activities under this Agreement. 2.2.6. Significant Activity of Ambit under Article IV . If at any time during the course of the development of a Licensed Compound, as discussed in Article IV, there has been no Significant Activity by Ambit in relation to such Licensed Compound for a period of [***], then: (a) Cephalon shall have the right to give written notice to Ambit requesting written justification for such lack of Significant Activity, in the form of detailed reasons why there has been no Significant Activity, and Ambit shall provide such written justification to Cephalon within [***] of the date of Cephalons request and shall recommence such Significant Activity within [***] of the date of Cephalons request; or (b) if Ambit fails to provide such justification to Cephalon or if there has still been no Significant Activity taken by Ambit within [***] of the date of Cephalons request, then, on notice by Cephalon to Ambit (to be given in Cephalons sole discretion), Ambit shall be deemed to have been given notice to terminate the development and commercialization of the Licensed Compound (including all associated Backup Compounds) and any license rights to such Licensed Compound granted by Cephalon to Ambit shall revert back to Cephalon. For purposes of Article IV, Ambit shall be deemed to be engaging in Significant Activity with respect to a Licensed Compound if it is engaging Significant Activity with respect to any one (1) of the Option Compound or its Backup Compounds. 2.3. Activities of Cephalon . 2.3.1. During the Collaboration Term, as determined by the JRC in the Research Plan, Cephalon shall provide reasonable resources to perform necessary in vivo biology (xenograft and other models) and drug development qualifying activities prior to designation of the Collaboration Clinical Candidate (during lead optimization). 2.3.2. With respect to the Second Collaboration Target, upon agreement of the JRC, Cephalon shall provide to the Collaboration Cephalon Compounds having demonstrated activity against the Second Collaboration Target as defined in the applicable Research Plan in order to support the Collaboration with respect to the Second Collaboration Target. 2.3.3. Cephalon promptly shall disclose and make available to Ambit all Collaboration IP conceived, generated or developed by or on behalf of ***Confidential Treatment Requested -16-
Cephalon under the Collaboration that may be necessary or useful for Ambit to conduct its obligations under the Collaboration pursuant to the applicable Research Plan. 2.3.4 Significant Activity of Cephalon under Article III and Article VIII . If at any time during the course of the clinical development and commercialization of a Collaboration Clinical Candidate there has been no Significant Activity by Cephalon in relation to such Collaboration Clinical Candidate for a period of [***], then: (a) Ambit shall have the right to give written notice to Cephalon requesting written justification for such lack of Significant Activity, in the form of detailed reasons why there has been no Significant Activity, and Cephalon shall provide such written justification to Ambit within [***] of the date of Ambits request and shall recommence such Significant Activity within [***] of the date of Ambits request; or (b) if Cephalon fails to provide such justification to Ambit or if there has still been no Significant Activity taken by Cephalon within [***] of the date of Ambits request, then, on notice by Ambit to Cephalon (to be given in Ambits sole discretion), Cephalon shall be deemed to have been given notice to terminate the development and commercialization of the Collaboration Compound or Collaboration Clinical Candidate in relation to which such Significant Activity has not occurred and any license rights to such Collaboration Compound or Collaboration Clinical Candidate granted by Ambit to Cephalon shall revert back to Ambit. 2.4. Selection of Collaboration Targets . At the first JRC meeting the JRC will approve a Research Plan for the First Collaboration Target, including the particular assays and the associated reagents that will be used to test for the specified modes of modulating the First Collaboration Target. No later than [***] from the Effective Date or as otherwise agreed to in writing by the Parties, each Party shall submit a proposal for a Target to be designated as the Second Collaboration Target, along with a draft Research Plan applicable to such proposed Second Collaboration Target, as the basis of a research program within the Collaboration via the JRC. The JRC shall discuss each of the proposals and shall determine whether any of the proposed Targets shall be designated as the Second Collaboration Target, provided that either Party may, via the JRC, decline to accept any such proposed Target as the Second Collaboration Target if, at the time the other Party proposes the Target, (i) the declining Party has existing contractual commitments to a Third Party related to the proposed Target that would prevent it from collaborating with the other Party on such Target, or (ii) the declining Party can document the existence of an active internal research program related to such Target that existed prior to the other Partys proposal of the Target. If a proposed Target is declined pursuant to the foregoing, it shall not be subject to the provisions of Section 3.4. 2.5. Records and Reports. Each Party shall maintain records in sufficient detail and in good scientific manner appropriate for patent and FDA purposes and so as to properly reflect all work done and results achieved in the performance of this Agreement (including all data in the form required under any applicable governmental regulations ***Confidential Treatment Requested -17-
and as directed by the JRC). In addition, each Party shall keep or cause to be kept written laboratory notebooks, marketing and commercialization records, pre-clinical records (including CMC, toxicology, ADME, pharmacology, and other), regulatory filings and other records and reports of the progress of its activities in the Collaboration and, with respect to Ambit, also under Article IV, in sufficient detail and in good scientific manner for all other purposes, reflecting all work done on a program and the results achieved thereunder by such Party. Such records shall be maintained throughout the Collaboration Term and for as long as required by applicable laws, rules and regulations. Such records shall include applicable books, records, reports, research notes, charts, graphs, comments, computations, analyses, recordings, photographs, computer programs and documentation thereof, samples of materials and other graphic or written data generated in connection with the Collaboration and Ambits activities under Article IV, including any data required to be maintained pursuant to applicable governmental regulations. During the Term, each Party shall respond to reasonable requests from the other for information based on such records. ARTICLE III. GOVERNANCE OF THE COLLABORATION 3.1. Joint Research Committee. Within thirty (30) days after the Effective Date, Cephalon and Ambit shall establish a Joint Research Committee, comprised of Ambit and Cephalon scientists, to manage the scientific implementation of the Collaboration. The responsibilities of the JRC shall include: (a) monitoring and reporting the progress of the Collaboration and ensuring open and frequent exchange between the Parties; (b) establishing criteria for the selection of Collaboration Compounds for each Collaboration Target; (c) identifying and resolving any scientific or technical conflicts between the Parties; (d) approving, modifying and overseeing the implementation of a Research Plan for each Collaboration Target and its associated program undertaken in the Collaboration; (e) coordinating with the Patent Committee all patent activities as they relate to the results of the Collaboration, and in keeping with the overall patent strategy delineated by the Patent Committee; and (f) taking such action that is contemplated for the JRC to take pursuant to Article IV. 3.2. Membership. The JRC shall include three (3) named representatives of each of the Parties, and each Partys representatives shall be selected by that Party and identified by written notice to the other Party. Each Party may replace its representatives at any time, upon written notice to the other Party. From time to time, the JRC may establish subcommittees, to oversee particular projects or activities, and to manage the more frequent interactions between the Parties scientists with respect to individual research projects. Such subcommittees will be constituted as the JRC determines, in its sole discretion. 3.3. Meetings and Minutes. During the Collaboration Term, unless otherwise agreed to by the Parties, the JRC shall meet at least quarterly, or more frequently as agreed by the Parties, at such locations or by such teleconferencing means as the Parties may determine from time to time. In addition to regularly scheduled meetings, the JRC representatives will communicate regularly by telephone, electronic mail, facsimile -18-
and/or videoconference. Other representatives of Ambit or Cephalon may attend JRC meetings as nonvoting observers. Each Party shall be responsible for all of its expenses associated with attending the JRC meetings. The Parties shall alternate preparing agendas for each JRC meeting and written minutes of each JRC meeting and shall prepare a written record of all JRC voting and decisions, whether made at a JRC meeting or otherwise. A copy of the Research Plan for each Collaboration Target shall be signed and appended to the minutes of the JRC meeting at which such Research Plan is approved. The written minutes of each JRC meeting and the written record of all JRC voting and decisions shall be written and disseminated to the JRC members for review within ten (10) business days of the JRC meeting, and upon signature by Ambit and Cephalon, shall become final. 3.4. Decision-Making. Decisions of the JRC shall be made by unanimous vote, and each Party shall have a single vote. In the event that, with respect to any decision for which the JRC is empowered to make a decision, a unanimous vote is not obtained, the decision shall be referred to the Executive Officers, who shall promptly meet and endeavor to reach consensus in a timely manner. On and after the time a Collaboration Clinical Candidate is designated, if such individuals cannot resolve such dispute with respect to such Collaboration Clinical Candidate, then such dispute shall be decided by [***]. 3.5. Patent Committee. Upon recommendation of the JRC, the Parties shall form a patent committee (the Patent Committee) to be in existence as long as Patents within the Collaboration IP are being filed and/or prosecuted. Each Party shall designate at least one (1) chemist and one (1) patent attorney or equally qualified legally trained personnel, as its representatives on the Patent Committee. The Patent Committee shall be responsible for recommending patent filings and coordinating patent-related matters and such other matters as are delegated to it by the JRC. Such meetings shall be held at mutually agreed times and locations. It is recognized and understood that the Patent Committee will communicate as necessary, whether in writing, by telephone, in person or otherwise, to ensure compliance with relevant patent filing and prosecution timetables and deadlines. Each Party shall bear its own expenses associated with such meetings and the activities of the Patent Committee; provided, however, that each Party shall bear the expense of providing the other Party with copies of all Patents filed pursuant to this Agreement including all substantive correspondence with U.S. and foreign patent offices. If the JRC does not form a Patent Committee, all references herein to a Patent Committee shall refer instead to the JRC, and the JRC shall decide all patent-related matters in consultation with a patent attorney. 3.6. Clinical Development Updates. Cephalon shall deliver to Ambit written quarterly clinical updates with respect to the status of the clinical development of the Collaboration Clinical Candidate. ***Confidential Treatment Requested -19-
ARTICLE IV. AMBIT SELECTED COMPOUNDS 4.1. Cephalon Library. Within [***] of the Effective Date, Cephalon will commence the delivery of its Cephalon Compound Library on a schedule to be mutually agreed to by the Parties. Cephalon shall use its reasonable efforts to complete such delivery within [***] of the Effective Date. 4.2. Ambit Nominated Targets. Within [***] of each of the [***],[***] and [***] anniversaries of the Effective Date (each a Nomination Period), Ambit shall have the right to nominate up to two (2) Targets (the Nominated Targets) to be designated as replacements for up to two (2) of the then-current Ambit Targets. Ambit shall specify such Nominated Targets in a written notice (the Nomination Notice) delivered to Cephalon within the applicable Nomination Period, which Nomination Notice also shall specify the then-current Ambit Targets that Ambit proposes to replace with the Nominated Targets. Cephalon shall consider such Nominated Targets and within [***] of the receipt of the Nomination Notice shall deliver to Ambit a written decision (the Decision Notice) indicating whether or not Cephalon agrees to designate the Nominated Targets as Ambit Targets. Cephalon may reject any Nominated Target if Cephalon can document the existence of an active or scheduled internal research program or Third Party obligations related to such Nominated Target. In any Nomination Period, Cephalon may also reject up to two (2) Nominated Targets in its sole discretion (each, a Sole Discretion Rejection); provided, that if Cephalon has previously rejected two (2) Nominated Targets in a Nomination Period, Cephalon may only reject any subsequent Nominated Targets in such Nomination Period if Cephalon can document the existence of an active or scheduled internal research program or Third Party obligation related to such Nominated Target; and provided further, that with respect to the Nomination Period following the [***] anniversary of the Effective Date (the Third Nomination Period), if Cephalon has used [***] Sole Discretion Rejections prior to the Third Nomination Period, then Cephalon may reject a Nominated Target in the Third Nomination Period only if Cephalon can document the existence of any active or scheduled internal research program or Third Party obligation related to the applicable Nominated Target. Upon agreement by the Parties on a Nominated Target, such Nominated Target shall be deemed an Ambit Target as of the date of such agreement, and the corresponding Ambit Target designated in the Nomination Notice to be replaced shall no longer be deemed an Ambit Target as of the date of such agreement. Schedule A shall be updated consistent with the foregoing. For clarification, no more than [***] Targets shall be concurrently classified as Ambit Targets during the Initial Term. If Cephalon shall not have given a Decision Notice within the allotted time period specified above, it shall be deemed that Cephalon does not agree to include the Nominated Target as an Ambit Target. ***Confidential Treatment Requested -20-
4.3. Ambit Profiling. 4.3.1. Ambit shall profile the Cephalon Library Compounds against the KinomeScan Panel consistent with the Profiling Services Agreement as further described in Attachment A. Such screening shall be performed solely on Ambits own behalf and in furtherance of the provisions of this Article IV. Within [***] of receipt of all of the Cephalon Library Compounds, Ambit shall provide Cephalon with all profiling data from the primary screening related to each Cephalon Library Compound. Ambit may request that Cephalon provide it with information relating to the chemical structure of any Cephalon Library Compound that demonstrates binding affinity of [***] against one (1) or more Ambit Targets (an Ambit Hit), which request Cephalon may deny in its sole discretion. Notwithstanding the above, if fewer than [***] Ambit Hits against an Ambit Target have a binding affinity of [***], then Ambit may request that Cephalon provide it with information relating to the chemical structure of any Cephalon Library Compounds having binding affinities of less than [***] against such Ambit Target (such Cephalon Library Compounds also shall be considered Ambit Hits), which request Cephalon may deny in its sole discretion. If, after expanding the binding affinity standard as set forth in the prior sentence, (i) there are fewer than [***] Ambit Hits for any particular Ambit Target or (ii) Cephalon rejects Ambits request for chemical structures for Ambit Hits such that there are fewer than [***] Ambit Hits for any particular Ambit Target for which Cephalon has provided the chemical structures, then Ambit may request to replace such Ambit Target by providing Cephalon with written notice thereof, provided that Cephalon may reject such request for a replacement Ambit Target only if Cephalon can document the existence of an active or scheduled internal research program or Third Party obligation related to such replacement Ambit Target. Cephalon shall consider such replacement Ambit Target and within [***] of the receipt of the written notice from Ambit with respect to such replacement Ambit Target shall deliver to Ambit a written decision indicating whether or not Cephalon agrees to designate the replacement Ambit Target as an Ambit Target. 4.3.2. In addition, for each Ambit Hit, Ambit may request to receive for profiling additional Cephalon Compounds that have the chemical structures most similar with the Ambit Hit, as determined in good faith by Cephalon (a Cephalon Analogue Compound ), which request Cephalon may deny if Cephalon can document the existence of an active or scheduled internal research program or Third Party obligations related to such Cephalon Library Compound and/or any related Cephalon Analogue Compound. If Cephalon cannot provide sufficient Cephalon Analogue Compounds to Ambit as determined by the JRC, then Ambit may request to replace the applicable Ambit Target in the manner set forth in the last two sentences of Section 4.3.1. Ambit shall utilize such information and Cephalon Analogue Compounds solely for the purpose of performing more comprehensive analysis to define a subset of Cephalon Library Compounds and Cephalon Analogue Compounds that show the most promising activity against the Ambit Targets. ***Confidential Treatment Requested -21-
4.3.3. In connection with its activities under this Section 4.3, Ambit is granted a limited, non-exclusive, non-transferable, nonsublicenseable (except as permitted by Section 18.15) license under the Cephalon IP and Cephalons share of the Licensed Compound IP during the Collaboration Term to optimize solely for its own research and development purposes Cephalon Library Compounds having the requisite level of binding affinity set forth in Section 4.3.1 and, for purposes of Section 4.4, to create associated Derivative Compounds having the ability to appropriately inhibit, stimulate or otherwise modulate the production or activity of the same Ambit Target as the Cephalon Library Compound. 4.3.4. Cephalon shall own all right and title to any profiling data generated by Ambit in connection with the screening of the Cephalon Library Compounds, and Cephalon hereby grants to Ambit a limited, non-exclusive, non-transferable, non-sublicenseable research license during the Collaboration Term to use such data for the purposes contemplated by this Article IV. Ambit hereby grants to Cephalon a non-exclusive, worldwide, perpetual, irrevocable fully-paid up, royalty-free, sublicenseable and transferable license to any Ambit IP that is necessary for and only for the puposes of Cephalon copying, distributing, making derivative works of, using and otherwise exploiting such data. 4.4. Ambit Option. 4.4.1.If profiling by Ambit of a Cephalon Library Compound or Derivative Compound demonstrates that a significant mechanism of action of the Cephalon Library Compound or Derivative Compound is modulation of an Ambit Target, as determined by the JRC, then Ambit shall be entitled to and at Ambits sole election upon written notice to Cephalon Ambit will receive an exclusive option (the Option) from Cephalon for such Cephalon Library Compound or Derivative Compound (the Option Compound), as the case may be. Such written notice from Ambit shall specify the Option Compound to be covered by the Option along with reasonable supporting research and analysis demonstrating the requisite level of action of the Option Compound against the Ambit Target. Ambit shall be entitled to receive an Option for an Option Compound if it provides the written notice described above no later than the latter of (i) [***] after completion of the initial screening of the applicable Option Compound against the applicable Ambit Target(s) as demonstrated by Ambits records or (ii) [***] after the date on which the applicable Ambit Target was designated an Ambit Target pursuant to the terms hereof. Subject to Sections 4.4.2 and 4.4.3, each Option, which shall be exercisable during the Initial Term, is for an exclusive, worldwide, non-sublicenseable (except as permitted by Sections 4.7 and 18.15), non-transferable (except as permitted by Section 4.7), royalty-free (except as set forth in Section 4.11), perpetual (except as expressly set forth herein) license (the Option License) under the Cephalon IP and Cephalons share of the Licensed Compound IP to develop, make, have made, use, sell, offer to sell and import Licensed Compounds, solely in connection with products that modulate the Ambit Target. Within [***] of Ambits receiving an Option, Cephalon shall notify Ambit whether the corresponding Option Compound(s) are subject to any Third Party payment or other obligations or are covered by Cephalon IP. Within [***] of receipt of such notice from ***Confidential Treatment Requested -22-
Cephalon, Ambit may elect to terminate its Option if the Option Compound is subject to such Third Party obligations, and such termination shall not be counted for purposes of Section 4.4.4. If Ambit does not cancel the Option within such [***] period, Ambit agrees that it shall be solely responsible for satisfying such Third Party obligations. 4.4.2. The Option shall be exclusive as to Ambit, unless, at the time Ambit elects to obtain the Option pursuant to Section 4.4.1, Cephalon has entered into a binding commitment with a Third Party that prevents Cephalon from granting the Option or the license that Cephalon would be required to grant to Ambit upon Ambits exercise of the Option (i.e., the Option License) , in which case Cephalon will grant to Ambit an Option of the maximum permissible scope, if any, that would not conflict with the Third Party commitment. If, upon Cephalons notice to Ambit of the information relating to such Third Party commitment in the prior sentence, Ambit determines in its reasonable discretion that Ambit will not pursue such Option, then the JRC shall determine in good faith the appropriate manner to proceed, including, without limitation, the options set forth in Section 4.3.1 or the provision by Cephalon of additional Cephalon Compounds for Ambit to profile pursuant to 4.3.1. Ambit shall exercise the Option by providing written notice to Cephalon specifying the Option Compound for which it is exercising the Option. Upon Cephalons receipt of such notice, Cephalon agrees to grant, and hereby does grant to Ambit the Option License as set forth above. 4.4.3. Notwithstanding the foregoing, in the event that a Cephalon Library Compound, or a Derivative Compound made pursuant to Section 4.3.3, is equipotent (as determined by the JRC) against one or more Ambit Targets and one or more Cephalon Exclusive Targets, or if such a Derivative Compound is significantly active against a Cephalon Exclusive Target, Ambits right to obtain an Option to such Cephalon Library Compound or Derivative Compound shall be subject to this Section 4.4.3. (a) If Ambit desires an Option to an equipotent Cephalon Library Compound or Derivative Compound, it shall provide Cephalon with a written request specifying the Cephalon Library Compound or Derivative Compound that Ambit requests to be covered by the Option along with reasonable supporting research and analysis demonstrating the requisite level of action of the Cephalon Library Compound or Derivative Compound against the Ambit Targets and Cephalon Exclusive Targets. Cephalon shall have at least [***] from the receipt of such notice to consider such request, and the Parties shall discuss in good faith Ambits request at the next JRC meeting, including proposed licensing structures applicable to such equipotent Cephalon Library Compound or Derivative Compound (e.g. co-exclusive license instead of an exclusive license) that may be required by Cephalon. In the event that the JRC is unable to agree upon Ambits request, then Cephalon may reject Ambits request for such Option if Cephalon can document the existence of an active or scheduled internal research program or Third Party obligation related to such Cephalon Exclusive Target. In the event the JRC or Cephalon reject Ambits request, and Ambit determines in its reasonable discretion that Ambit will not pursue such Option, then the JRC shall determine in good faith the appropriate manner to proceed, including, without limitation, ***Confidential Treatment Requested -23-
the options set forth in Section 4.3.1 or the provision by Cephalon of additional Cephalon Compounds for Ambit to profile pursuant to 4.3.1. (b) If such Cephalon Library Compound or Derivative Compound is significantly active against a Cephalon Target as determined by the JRC, Ambit shall not have the right to obtain an Option thereon without Cephalons prior written consent, and if such Derivative Compound is covered by Ambit IP or Licensed Compound IP, Ambit agrees to grant, and hereby does grant, to Cephalon an exclusive, irrevocable, perpetual, worldwide, royalty-free, transferable and sublicenseable license under the Ambit IP and Ambits rights in the Licensed Compound IP limited to developing, making, having made, using, selling, offering to sell and importing such Derivative Compound. 4.4.4. During the Initial Term, Ambit shall have the right to receive and hold an Option to [***] Option Compounds at any time, provided, however, that if Ambit can demonstrate to Cephalons reasonable satisfaction that it possesses the requisite capabilities required to adequately resource additional drug discovery programs, using Commercially Reasonable Efforts, the number can be increased to a maximum of [***]. Not more than once per year, Ambit may elect to terminate [***] Options by providing written notice of such termination to Cephalon [***] prior to the next anniversary of the Effective Date, in which case such Options shall terminate and Ambit shall have the right to receive a corresponding number of additional Options pursuant to Section 4.4.1, in each case commencing on such next anniversary date. 4.4.5. Ambit shall have the right to be licensed to [***] Licensed Compounds (and the associated Backup Compounds) at any time, provided, however, that if Ambit can demonstrate to Cephalon that it possesses the requisite capabilities required to adequately resource additional drug discovery programs using Commercially Reasonable Efforts, upon Cephalons written consent, the number can be increased to a maximum of [***]. Not more than once per year, Ambit may elect to terminate work on [***] its Licensed Compounds (including the associated Backup Compounds) by providing written notice of such termination to Cephalon [***] prior to the next anniversary of the Effective Date, in which case Ambits license to such Licensed Compounds (including the associated Backup Compounds) shall terminate and Ambit shall have the right thereafter to exercise a corresponding number of additional Options and obtain a license to other Option Compounds pursuant to Section 4.4, in each case commencing on such next anniversary date. 4.4.6. Ambit at any time may replace a Backup Compound with a Derivative Compound developed by it pursuant to the applicable Option License on prior written notice to Cephalon and with Cephalons written approval, not to be unreasonably withheld, provided that such Derivative Compound meets all of the applicable requirements set forth in this Article IV. Upon receipt of such approval from Cephalon, such Derivative Compound shall be deemed a Backup Compound, and the replaced Backup Compound shall no longer be a Licensed Compound. ***Confidential Treatment Requested -24-
4.5. Ambit Development. 4.5.1. Except as set forth in Sections 4.3.3 and 6.4, and except as permitted under an Option License, Ambit shall have no right hereunder to optimize or otherwise develop any Cephalon Library Compounds or any other Cephalon Compounds. Ambit represents and warrants that it will optimize Cephalon Library Compounds and Licensed Compounds solely against the Ambit Targets, unless otherwise approved in writing by Cephalon. 4.5.2. Ambit shall be solely responsible for the optimization, study and commercialization of Licensed Compounds. Ambit shall use its Commercially Reasonable Efforts to develop the Licensed Compounds, including developing at least one (1) Licensed Compound per Option License granted by Cephalon to Ambit to the point where such Licensed Compounds are suitable for IND submission. If at any time Ambit determines that it will not be able to exercise such Commercially Reasonable Efforts, it promptly shall notify Cephalon, and, without limiting Section 2.2.6, the Parties shall discuss in good faith an appropriate course of action. 4.5.3. If, at any time during the course of Ambits research and development activities under this Article IV, the significant activity of any Licensed Compound or any Derivative Compound is found to be significantly active against a Cephalon Target (instead of an Ambit Target), then Ambit may not continue to work on such Licensed Compound. In such case, Ambit promptly shall disclose such Licensed Compound to Cephalon, along with the results of its work. If such Licensed Compound is covered by Ambit IP or Licensed Compound IP, Ambit agrees to grant, and hereby does grant, to Cephalon an exclusive, irrevocable, perpetual, worldwide, royalty-free, transferable and sublicenseable license under the Ambit IP and Ambits rights in the Licensed Compound IP for the limited purpose of developing, making, having made, using, selling, offering to sell and importing such Licensed Compound or Derivative Compound. 4.5.4. If, at any time during the course of such optimization, the activity of any Licensed Compound or Derivative Compound is found to be equipotent against a Cephalon Exclusive Target and an Ambit Target, then the Parties shall negotiate in good faith as to the proper manner for each Party to proceed with respect to such License Compound or Derivative Compound. If, at any time during the course of such optimization, the activity of any Licensed Compound or Derivative Compound is found to be equipotent against a Cephalon Target (which is not a Cephalon Exclusive Target) and an Ambit Target, then Ambit may continue to work on such Licensed Compound or Derivative Compound, provided that: (a) the focus of the work is to develop compounds whose activity is against the Ambit Target, and, (b) Cephalon shall have, and is hereby granted, a non-exclusive, irrevocable, perpetual, worldwide, royalty-free, non-transferable right without right to grant sublicenses under the Ambit IP and Ambits rights in the Licensed Compound IP for the limited purpose of developing, making, having made, and using, such Licensed Compound, for its own research and development purposes only. -25-
4.6. Discontinuation of Option or Option License . 4.6.1. Upon termination of an Option, all rights granted hereunder by Cephalon to Ambit and relating to the applicable Option Compound shall revert to, and are hereby assigned by Ambit to, Cephalon, at no cost. 4.6.2. Upon termination of an Option License (without limitation of Section 4.4) and/or this Agreement, all rights granted hereunder by Cephalon to Ambit under the Option License shall terminate. 4.7. Cephalon Buy Back Rights and Right of First Negotiation . 4.7.1. Upon the completion of IND enabling activities for each Licensed Compound, Ambit shall provide to Cephalon, in confidence, a complete detailed summary of its Licensed Compound program, including relevant data and results that would be submitted as part of an IND filing. Cephalon shall have the exclusive option for [***] after the delivery of such summary to reacquire all rights to the Licensed Compound on mutually agreed upon terms, negotiated in good faith and consistent with pharmaceutical industry standards for small molecule programs at such stage of development, taking into account Ambits investment and sunk cost, risk, market potential, NPV, and other commonly accepted licensing metrics. Should Cephalon decline this option or if the Parties are not able to agree upon the terms for the reacquisition by Cephalon of all rights to the Licensed Compound, Cephalon shall continue to have the Right of First Negotiation. 4.7.2. (a) Upon completion by Ambit of the first human proof-of-concept study for each Licensed Compound, Ambit shall provide to Cephalon, in confidence, a complete detailed summary of its Licensed Compound program, including relevant data and results generated from such study (including but not limited to information from or relating to clinical studies, correspondence with FDA, information regarding Third Party patents, and information regarding the manufacture, sourcing and cost of goods for the Licensed Compound) (the Cephalon License Notice). Cephalon shall have the exclusive option for [***] following receipt of the Cephalon License Notice to determine whether it wishes to pursue reacquiring the Licensed Compound. If Cephalon notifies Ambit in writing of its election to pursue the reacquisition of such Licensed Compound within [***] after Cephalons receipt of such Cephalon License Notice, Ambit shall enter into good faith, exclusive negotiations with Cephalon with respect to such reacquisition for a period of [***] following receipt of such election from Cephalon (the Negotiation Period). Such reacquisition shall be upon terms, consistent with pharmaceutical industry standards for small molecule programs at such stage of development, taking into account Ambits investment and sunk cost, risk, market potential, NPV, and other commonly accepted licensing metrics. (b) During the Negotiation Period, Cephalon shall have the opportunity to make a written proposal of terms and conditions with respect to such a license and Ambit will either accept the proposal or provide a counter offer to Cephalon. ***Confidential Treatment Requested -26-
If Cephalon has not provided Ambit with such a written proposal regarding all principal financial terms of such a license within the first [***] of the Negotiation Period, the Negotiation Period shall terminate. If Ambit and Cephalon are able to conclude an agreement in principle within the Negotiation Period as set forth in a mutually satisfactory term sheet with respect to such license, the Negotiation Period shall be extended for an additional [***] and the Parties shall negotiate in good faith a definitive agreement within such [***] period. During the Negotiation Period, Ambit shall not negotiate or otherwise discuss with any Third Party any licensing or other arrangement with respect to the Licensed Compound. (c) Should Cephalon decline this option or if the Parties are not able to agree upon the terms for the reacquisition by Cephalon of all rights to the Licensed Compound, Cephalon shall continue have the Right of First Negotiation. 4.7.3. Cephalon Right of First Negotiation . Cephalon shall have a right of first negotiation with respect to Licensed Compounds (the Right of First Negotiation), which is a right independent of Cephalons buyback rights set forth in 4.7.1 and 4.7.2. The Right of First Negotiation shall be defined as follows. (a) In the event that Ambit desires to enter into a license or other arrangement with respect to any Licensed Compound, before entering into negotiations with any Third Party with respect to such license, Ambit will notify Cephalon of its desire and provide Cephalon with information in Ambits possession and control that is reasonably necessary for Cephalon to perform its due diligence with respect to such Licensed Compound (including but not limited to information from or relating to preclinical studies, clinical studies, correspondence with FDA, information regarding Third Party Patents, and information regarding the manufacture, sourcing and cost of goods for the Licensed Compound) (the Notice). If Cephalon notifies Ambit in writing of its election to pursue a license for such Licensed Compound within [***] after Cephalon receipt of such Notice, Ambit shall enter into good faith, exclusive negotiations with Cephalon with respect to such license for a period of [***] (the RFN Negotiation Period) following receipt of such election from Cephalon. Cephalon shall have the right to determine the scope of Licensed Compounds with respect to the license (i.e., whether such license will cover, for example, a single Licensed Compound or a list of several Licensed Compounds or the entire genus of Licensed Compounds) and the proposals and term sheets that Ambit delivers to Cephalon during that RFN Negotiation Period shall include the terms for the scope of Licensed Compounds requested by Cephalon. For one Licensed Compound mutually agreed to by the Parties, negotiations with Third Parties and other rights under this Section 4.7.3 shall only be available to Ambit after the IND enabling activities have been completed, or best efforts have been made to complete such activities, as determined by the JRC. (b) During the RFN Negotiation Period, Ambit will provide Cephalon with an opportunity to make a written proposal of terms and conditions with respect to such a license and Ambit will either accept the proposal or provide a counter offer to ***Confidential Treatment Requested -27-
Cephalon. If Cephalon has not provided Ambit with such a written proposal regarding all principal financial terms of such a license within [***] of the RFN Negotiation Period, the RFN Negotiation Period will terminate. If Ambit and Cephalon are able to conclude an agreement in principle within the RFN Negotiation Period as set forth in a mutually satisfactory term sheet with respect to such license, the Parties shall negotiate a definitive agreement in good faith with the goal of executing such agreement within [***] thereafter. (c) If Cephalon does not elect to pursue a license within the [***] period set forth above, or if Cephalon does so elect but Ambit and Cephalon do not conclude an agreement in principle with respect to such license within the RFN Negotiation Period, or if Cephalon does not provide Ambit with a written proposal regarding the material terms of such a license within the first [***] of the RFN Negotiation Period, Ambit will then be free to enter into negotiations with any Third Party regarding a license for such Licensed Compound; provided that (i) with respect to Licensed Compounds subject to Ambit IP, the material terms of such license shall not be more favorable to the Third Party than the best material terms offered by Cephalon to Ambit during the RFN Negotiation Period and (ii) with respect to Licensed Compounds subject to Cephalon IP, the material terms of such license shall not be more favorable to the Third Party than the best material terms offered by Ambit to Cephalon during the RFN Negotiation Period. 4.8. Reservation of Rights . Except as expressly set forth above, Cephalon shall have the sole and exclusive right to commercialize Cephalon Compounds and Cephalon Library Compounds. 4.9. License to Licensed Compound IP . Without limitation of any other rights or licenses granted to Cephalon herein, Ambit hereby grants to Cephalon, and Cephalon hereby accepts, a fully paid-up, royalty-free, worldwide, perpetual, non-exclusive, sublicenseable and transferable right under the Licensed Compound IP and Ambit IP for the limited purpose of developing, making, having made, offering to sell, selling, importing and using any compound resulting from Ambits research and development activities under this Article IV, including all Derivative Compounds, other than any Licensed Compounds subject to an existing Option License and as to which Ambit is exercising Significant Activity or any Licensed Compound subject to a Third Party licensing agreement or other arrangement pursuant to Section 4.7.3(c) that is in compliance with the terms of this Agreement. For the avoidance of doubt, Ambit retains exclusive rights under Ambit IP relating to the Licensed Compound IP to develop, make, have made, offer to sell, sell, import, use, and commercialize any Licensed Compound subject to a Third Party licensing agreement or other arrangement pursuant to Section 4.7.3(c), and, assuming the existence of such agreement or arrangement pursuant to Section 4.7.3(c), Cephalon is granted no rights to commercialize any such Licensed Compound. From time to time, Ambit shall deliver to Cephalon upon its request such information (including chemical structures) as may be reasonably required by Cephalon. 4.10. Compound Co-Exclusivity. The development, manufacture, sale, import and use of any Licensed Compounds or any Derivative Compounds made by or on behalf ***Confidential Treatment Requested -28-
of Ambit, and rights under the Licensed Compound IP and with respect to any chemistry produced by Ambit relating to or derived from the Cephalon Library Compounds, shall be co-exclusive as between the Parties until the earlier of (a) with respect to a Licensed Compound, Cephalons having elected to not exercise its rights under Section 4.7 with respect to a Licensed Compound and (b) with respect to all Licensed Compounds and Derivative Compounds, [***] after the expiration or termination of the Collaboration Term. The terms of this Section 4.10 shall not be applicable to those Licensed Compounds or any Derivative Compounds that are both (i) derived from Non-Exclusive Compounds and (ii) not subject to Cephalon IP. 4.11. Royalty Payments to Cephalon. (a) Net Sales. Ambit shall pay to Cephalon royalties equal to [***] of Net Sales by Ambit or its Affiliates of each Licensed Product that at any time is subject to a Valid Claim that (i) covers a composition of matter and (ii) either is (x) included in any Cephalon Patent in existence as of the Effective Date or (y) included in any Cephalon Patent that is issued after the Effective Date and based on invention disclosures in existence as of the Effective Date, as evidenced by Cephalons written records. Ambit shall pay Cephalon royalties on Net Sales of each Licensed Product pursuant to the terms of this Agreement, on a Licensed Product-by-Licensed Product and country-by-country basis, for a period from the date of the First Commercial Sale of such Licensed Product in such country until the date of expiration of the last-to-expire Cephalon Patent containing a Valid Claim covering a composition of matter which would be infringed by the making, using, or selling of the applicable Licensed Product in the applicable country. (b) Net Revenues. Ambit shall pay to Cephalon [***] of Net Revenues of each Licensed Product (i) that at any time is subject to a Valid Claim that (x) covers a composition of matter and (y) either is (A) included in any Cephalon Patent in existence as of the Effective Date or (B) included in any Cephalon Patent that is issued after the Effective Date and based on invention disclosures in existence as of the Effective Date, as evidenced by Cephalons written records, and (ii) as to which Ambit has granted any sublicense or other rights to any Third Party. Ambit shall pay Cephalon such amount for each such Licensed Product pursuant to the terms of this Agreement, on a Licensed Product-by-Licensed Product basis, for a period from the date on which Ambit first receives Net Revenues from a Third Party with respect to such Licensed Product until the date of expiration of the last-to-expire Cephalon Patent containing a Valid Claim covering a composition of matter which would be infringed by the making, using, or selling of the applicable Licensed Product in the applicable country. (c) Payment Report. After the date on which payments are due to Cephalon with respect to a Licensed Product under this Section 4.11, Ambit shall provide Cephalon with a payment report on a quarterly calendar basis within ninety (90) days after the end of the calendar quarter to which such report applies. Each such report shall state, separately for Ambit, and each Affiliate and Sublicensee, the number, description, and aggregate Net Sales or Net Revenues, as applicable, on a country-by-country basis and product-by-product basis, if applicable, generated or received during the calendar ***Confidential Treatment Requested -29-
quarter that is the subject of the report. Contemporaneously with the submission of the reports Ambit shall pay to Cephalon all payments due for the subject calendar quarter. (d) Records Retention. Ambit shall keep, and require its Affiliates and Sublicensees to keep, for a period of not less than [***], complete and accurate records of all Net Sales and Net Revenues. Cephalon shall have the right, at its sole expense, through a certified public accountant reasonably acceptable to Ambit, and following reasonable notice, to inspect such records during regular business hours, during the life of Ambits obligation to make payments under this Section 4.11; provided, however, that such inspection shall not (i) take place more often than once a year and (ii) cover any records which date prior to the date of the last examination, and further provided that, such accountants shall report only as to the accuracy of the royalty statements and payments and the amount of any underpayment. Copies of such reports shall be supplied to Ambit. In the event that the report is in disagreement with the Net Sales or Net Revenues as calculated by Ambit, Ambit shall notify Cephalon within ten (10) days of receipt by Ambit whether or not it agrees with the report. If Ambit notifies its agreement with the report within the ten (10) day period or fails to give any notification within that period, the Net Sales or Net Revenues calculated by the report shall be used for purposes of calculating any monies owed and any monies owed by Ambit to Cephalon shall be paid by Ambit in accordance with the provisions of this Section 4.11. If within ten (10) days starting on the day after receipt of the notification referred to in this Section 4.11, the Parties have not agreed to the terms in dispute in relation to the report, either Party may refer the items in dispute to a partner of at least ten (10) years qualified experience at an independent, internationally recognized, public accounting firm agreed by the Parties in writing for final and binding resolution, or failing agreement on the identity of the public accounting firm within fifteen (15) days starting on the day after receipt of the notification referred to in this Section 4.11, an independent, internationally recognized, public accounting firm appointed on the application of either Party by the President for the time being of the Institute of Chartered Accountants in the United States. Such person appointed shall act on the following basis: (i) such person shall act as an expert and not as an arbitrator; (ii) such persons terms of reference shall be to determine the matters in dispute within twenty (20) days of his appointment; (iii) the Parties shall each provide such person with all information relating to the items in dispute which such person reasonably requires and such person shall be entitled (to the extent he considers appropriate) to base his determination on such information; (iv) the decision of such person is, in the absence of fraud or manifest error, final and binding on the Parties; and (v) [***]. ***Confidential Treatment Requested -30-
Where Ambit agrees that it has or is found to have underpaid any amounts due under this Section 4.11, Ambit promptly shall pay such royalties together with interest at [***] applied to the amount unpaid from the date due to the date paid. If Ambit has overpaid such amounts, Ambit may credit such overpayments against future amounts owed to Cephalon ; provided that to the extent that no further amounts are due to Cephalon under this Section 4.11, Ambit shall invoice Cephalon for the outstanding overpayment amount and Cephalon shall repay same within forty-five (45) days of the invoice. The interest available to each Party pursuant to this Section shall in no way limit any other remedies available to each Party. (e) Form of Payment . All payments required according to this Section 4.11 shall be made in U.S. dollars, for Cephalons account, by wire transfer to a bank in the United States designated in writing by Cephalon; provided, however, that where payments in respect of Net Sales are based on Net Sales in non-U.S. currencies, the amount of Net Sales and any deductions used to calculate Net Sales, if any, shall be converted by Ambit, based on the average of the bid and asked exchange rate provided by the Wall Street Journal Europe, for the last business day of each calendar quarter, into U.S. dollars. Any undisputed payments that are not paid on the date such payments are due under this Agreement shall bear interest to the extent permitted by applicable law at the prime rate as reported by the Chase Manhattan Bank, New York, New York, on the date such payment is due, plus an additional two percent (2%) calculated on the number of days such payment is delinquent. The interest available to each Party pursuant to this Section shall in no way limit any other remedies available. (f) Blocked Payments. In the event that, by reason of applicable laws or regulations in any country, it becomes impossible or illegal for Ambit to transfer, or have transferred on its behalf, royalties or other payments to Cephalon, such royalties or other payments shall be deposited in local currency in the relevant country to the credit of Cephalon in a recognized banking institution designated by Cephalon or, if none is designated by Cephalon within a period of thirty (30) days, in a recognized banking institution selected by Ambit and identified in a notice in writing given to Cephalon. ARTICLE V. COLLABORATION EXCLUSIVITY 5.1. Collaboration Targets. Neither Party may engage in any research and development activities with respect to a Collaboration Target with any Third Party or independently outside of the Collaboration during the applicable Exclusivity Period, provided that the foregoing shall not prohibit a Party from engaging a subcontractor pursuant to Section 18.15 to perform certain of its obligations hereunder. The Exclusivity Period shall mean the period starting when a particular Collaboration Target is accepted into the Collaboration, and shall continue for the longer of: (a) [***], (b) [***], or (c) [***]. ***Confidential Treatment Requested -31-
For the avoidance of doubt, Ambit shall be free to continue to provide its screening services (similar to those provided under the Profiling Services Agreement) to Third Parties. 5.2 Non-Compete. During the Collaboration Term and for a period of [***] thereafter, Ambit shall not, and shall cause each of its Affiliates to not, (a) conduct or fund any research, development and/or commercialization activity, either on its own, or with, for the benefit of, or sponsored by, any Third Party, in connection with or related to any product that (i) would compete with or is directed to any Cephalon Exclusive Target or Collaboration Target and (ii) is based on or related to any Licensed Compound, any Derivative Compound or any Collaboration Compound or covered by any Licensed Compound IP or Collaboration IP; or (b) grant any license or other rights to any Third Party to enable it to perform any of the activities described in clause (a) above. ARTICLE VI. INTELLECTUAL PROPERTY; LICENSES 6.1. Ownership of Intellectual Property . 6.1.1. Cephalon shall own all Licensed Compound IP related to any Derivative Compound that is covered by Cephalon IP (whether in whole or in part). Ambit shall own all Licensed Compound IP related to any Derivative Compound that is covered solely by Ambit IP. All other Licensed Compound IP shall be the sole or joint property, as the case may be, of the Party or Parties inventing or generating the same. 6.1.2. All Cephalon Compounds and Cephalon IP shall be the sole property of Cephalon. All Ambit Compounds and Ambit IP shall be the sole property of Ambit. All Collaboration IP shall be the sole or joint property, as the case may be, of the Party or Parties inventing or generating the same, provided that Cephalon shall exclusively own any Collaboration IP that is derived from any Cephalon IP (whether in whole or in part), other than for Collaboration IP solely related to a Collaboration Clinical Candidate. 6.1.3. Upon the request and at the expense of the requesting Party, the other Party shall execute and deliver any and all instruments and documents and take such other actions as may be necessary or reasonably requested by the requesting Party to effect the licenses and assignments granted to it hereunder. 6.2. Licenses to Cephalon. 6.2.1. Exclusive Option. Ambit hereby grants to Cephalon an exclusive option to obtain the licenses described in Section 6.2.2 to all Collaboration Compounds, which option shall be exercised by Cephalons designation of a Collaboration Clinical Candidate pursuant to Section 8.1. ***Confidential Treatment Requested -32-
6.2.2. License to Commercialize Collaboration Compounds . (a) Upon designation of a Collaboration Compound as a Collaboration Clinical Candidate against the First Collaboration Target pursuant to Section 8.1, Ambit agrees to grant, and hereby does grant, to Cephalon a worldwide, perpetual, irrevocable, exclusive, royalty-bearing and transferable license, with the right to sublicense, under the Ambit IP and Ambits interest in the Collaboration IP and Licensed Compound IP (if applicable), to make, have made, use, sell, offer to sell and import the Collaboration Clinical Candidate and/or Collaboration Products based on such Collaboration Clinical Candidate, for any and all uses and indications in the Field. If Cephalon determines at any time that the Collaboration Clinical Candidate against the First Collaboration Target demonstrates potential utility outside the Field, then Ambit shall extend, and hereby does extend, the license described in this Section 6.2.2(a) to cover such uses and indications outside the Field. (b) Upon designation of a Collaboration Compound as a Collaboration Clinical Candidate against the Second Collaboration Target pursuant to Section 8.1, Ambit agrees to grant, and hereby does grant, to Cephalon a worldwide, perpetual, irrevocable, exclusive, royalty-bearing and transferable license, with the right to sublicense, under the Ambit IP and Ambits interest in the Collaboration IP and Licensed Compound IP (if applicable), to make, have made, use, sell, offer to sell and import the Collaboration Clinical Candidate and/or Collaboration Products based on such Collaboration Clinical Candidate, for any and all uses and indications. (c) If Cephalon desires to develop a Collaboration Compound that is directed against the First Collaboration Target, and which Collaboration Compound is not at the time a Collaboration Clinical Candidate, for uses and indications outside the Field, then Cephalon shall request the consent of Ambit for such development for uses and indications outside the Field, which consent shall not be unreasonably withheld. Upon Ambits consent to such development and upon designation of a Collaboration Compound as a Collaboration Clinical Candidate against the First Collaboration Target pursuant to Section 8.1, Ambit agrees to grant, and hereby does grant, to Cephalon a worldwide, perpetual, irrevocable, exclusive, royalty-bearing and transferable license, with the right to sublicense, under the Ambit IP and Ambits interest in the Collaboration IP and Licensed Compound IP (if applicable), to make, have made, use, sell, offer to sell and import the Collaboration Clinical Candidate and/or Collaboration Products based on such Collaboration Clinical Candidate for such uses and indications outside the Field. 6.2.3. License to Compounds Derived from Cephalon Compounds . Ambit grants to Cephalon a worldwide, perpetual, irrevocable, exclusive, royalty-free and transferable license, with the right to sublicense, under the Ambit IP and Ambits interest in the Collaboration IP, to exploit for any and all purposes all compounds derived from Cephalon Compounds (whether in whole or in part) in connection with the Collaboration, except for the Collaboration Compounds that are licensed to Cephalon pursuant to Section 6.2.2. -33-
6.2.4. Other Cephalon Licenses. Cephalon shall have the licenses to the Ambit IP and the Licensed Compound IP as set forth in Sections 4.3.4, 4.4.3(b), 4.5.3, 4.5.4, and 4.9. 6.3. Ambit Licenses. Ambit shall have the licenses to the Cephalon IP and the Licensed Compound IP as set forth in Sections 4.3.3, 4.3.4 and 4.4.2. 6.4. Research Licenses. Notwithstanding any other license granted herein, Ambit and Cephalon hereby grant each other non-exclusive, worldwide, royalty-free research licenses, without the right to sublicense, under their respective interests in the Ambit IP, Cephalon IP and Collaboration IP, in order for each Party to perform its research obligations pursuant to Research Plans during the Collaboration Term. 6.5. Restrictions on Sublicenses. Subject to the terms and conditions of this Agreement, each Party shall have the right to sublicense its rights hereunder solely to the extent expressly set forth herein, provided that the sublicensing Party shall provide the other Party with at least the following information with respect to each Sublicensee: (a) the identity of the Sublicensee; (b) a description of the rights granted to the Sublicensee; and (c) the territory in which the products covered by the sublicense will be sold. Each such sublicense shall be consistent with, and subject to, all the terms and conditions of this Agreement (including all diligence obligations set forth herein), provided that the Party granting the sublicense shall be fully responsible to the other Party with respect to any breach or violation of such sublicense. Each Party shall be an intended third party beneficiary of any sublicense agreement entered into by the other Party. 6.6. No Implied Licenses. Only the licenses expressly granted pursuant to the terms of this Agreement shall be of any legal force or effect. No other license rights shall be created by implication, estoppel or otherwise. 6.7. Notification of Transfer of License Rights . A Party transferring or granting to a Third Party any rights granted to it by the other Party pursuant to this Agreement, other than under Section 18.15, shall notify the other Party of such transfer in writing thirty (30) days prior to such transfer or grant. ARTICLE VII. FUNDING 7.1. License and Collaboration Fees. In consideration for the licenses granted hereunder, and Ambits performance of its obligations under the Collaboration, Cephalon agrees to pay Ambit within thirty (30) days of the Effective Date the following: (a) Technology Access Fee: In consideration of access to Ambits proprietary KinomeScan Panel, the sum of [***]; and (b) Collaboration Targets: In consideration of the options and licenses granted by Ambit hereunder to Collaboration IP and Ambit IP, the sum of [***]. ***Confidential Treatment Requested -34-
Other than the milestone and royalty payments set forth in Article VIII, no further payments shall be due to Ambit from Cephalon, unless the Parties mutually agree to change the Collaboration or to extend the Collaboration Term pursuant to Section 16.2. ARTICLE VIII. COLLABORATION CLINICAL CANDIDATES; MILESTONE PAYMENTS 8.1. Designation of Collaboration Clinical Candidate . Upon designation of a Collaboration Clinical Candidate by the JRC and ratification of such Collaboration Clinical Candidate by the Cephalon R&D committee, Cephalon will be subject to the payment obligations set forth in Section 8.3, and shall use its Commercially Reasonable Efforts to conduct scale-up manufacturing, initiate GLP toxicology studies and conduct IND-enabling studies with respect to such Collaboration Clinical Candidate and related Collaboration Products as are necessary to permit the filing of an IND for a Collaboration Product. 8.2. Diligence. Cephalon will be solely responsible for the worldwide clinical development and commercialization of Collaboration Clinical Candidates, subject to the diligence and payment obligations set forth in this Article VIII. Cephalon will use Commercially Reasonable Efforts to develop and commercialize at least one Collaboration Clinical Candidate directed against the First Collaboration Target and one Collaboration Clinical Candidate directed against the Second Collaboration Target in the United States, Europe and Japan, either directly, through one or more Affiliates and/or Sublicensees, or some combination of the foregoing. 8.3. Milestone Payments by Cephalon . 8.3.1. (a) Cephalon shall pay to Ambit the following milestone payments within thirty (30) days of the achievement thereof, each of which shall be payable (i) one time in respect of a Collaboration Clinical Candidate designated as such pursuant to Section 8.1 after [***] from the Effective Date and directed against the First Collaboration Target within the Field, provided that no milestone payments shall be payable in respect of such Collaboration Clinical Candidate if Cephalon has made or is required to make the milestone payments set forth in Section 8.3.1(b), (ii) one time in respect of a Collaboration Clinical Candidate directed against the Second Collaboration Target, (iii) one time in respect of the first Mutant Form Candidate directed against the First Collaboration Target within the Field, (iv) one time in respect of the second Mutant Form Candidate directed against the First Collaboration Target within the Field, and (v) one time in respect of a Collaboration Clinical Candidate directed against the First Collaboration Target outside the Field:
Milestone Amount (US$)
[***]
$[***] ***Confidential Treatment Requested -35-
[***] [***] [***] [***] [***] [***] [***] [***] [***] [***] [***]
$[***] $[***] $[***] $[***] $[***] $[***] $[***] $[***] $[***] $[***] $[***]
(b) Cephalon shall pay to Ambit the following milestone payments within thirty (30) days of the achievement thereof, each of which shall be payable one time in respect to the first Collaboration Clinical Candidate (whether or not a Mutant Form Candidate) designated as such pursuant to Section 8.1 within [***] of the Effective Date and directed against the First Collaboration Target (specifically, the [***] within the Field:
Milestone Amount (US$)
[***] [***] [***] [***] [***] [***] [***] [***]
$[***] $[***] $[***] $[***] $[***] $[***] $[***] $[***] ***Confidential Treatment Requested -36-
[***] [***] [***]
$[***] $[***] $[***]
8.3.2. No Duplicate Payments. Milestone payments shall be payable only once in respect of the Second Collaboration Target, regardless of how many Collaboration Compounds directed at such Collaboration Target ultimately are designated as Collaboration Clinical Candidates. Milestone payments shall be payable only once in respect of the First Collaboration Target within the Field, once in respect of the First Collaboration Target outside the Field (provided that if milestones have previously been paid with respect to the same Collaboration Clinical Candidate directed at the First Collaboration Target within the Field, Cephalon shall only pay for those milestones not previously paid), once for the first Mutant Form Candidate and once for the second Mutant Form Candidate (each Mutant Form Candidate shall be directed at a [***]), regardless of how many Collaboration Compounds, whether within or outside the Field, ultimately are designated as Collaboration Clinical Candidates with respect to the First Collaboration Target. Further, if milestones have previously been paid for a Collaboration Clinical Candidate and such Collaboration Clinical Candidates use is then expanded such that it could qualify for a new set of milestones, or if development of a Collaboration Clinical Candidate is terminated and replaced with a different Collaboration Clinical Candidate subject to the same set of milestones, Cephalon shall pay only once with respect to milestones not yet achieved by the Collaboration Clinical Candidate, whether such milestones subsequently are achieved with respect to the original use and/or the expanded use(s) or by the different Clinical Collaboration Candidate. 8.3.3. Invoices. Unless otherwise specified in writing, all payments required according to this Article VIII shall be made by transfer to the bank account nominated by Ambit upon timely receipt of an invoice. If invoice to Cephalon: Cephalon, Inc. 41 Moores Road Frazer, PA 19355 Attention: Accounts Payable Telephone: (610) 344-0200 Telecopy: (610) 344-0065 ARTICLE IX. ROYALTY PAYMENTS ***Confidential Treatment Requested -37-
9.1. Royalty Term. 9.1.1. Cephalon shall pay Ambit royalties on Net Sales of each Collaboration Product pursuant to the terms of this Agreement, on a Collaboration Product -by Collaboration Product and country-by-country basis, for a period from the date of First Commercial Sale of such Collaboration Product in such country until the date which is the later of (i) [***]. 9.1.2. If the licenses granted to Cephalon pursuant to Section 6.2.2 are still in force with respect to a particular Collaboration Clinical Candidate at the end of the period for which royalties on the corresponding Collaboration Product are due pursuant to this Agreement, such license shall be converted to a fully paid-up, nonexclusive, royalty-free, perpetual, irrevocable and worldwide license, with the right to sublicense, under any Collaboration IP and Ambit IP necessary to make, have made, use, sell, offer to sell, and import the applicable Collaboration Product on a country-by-country and Collaboration Product -by-Collaboration Product basis. 9.2. Royalties on Collaboration Products . Cephalon shall pay to Ambit royalties on Net Sales of each Collaboration Product that is subject to Section 8.3.1(a) and sold by Cephalon or its Affiliates or Sublicensees in the Territory, according to the following schedule: (a) for that portion of total annual Net Sales of a Collaboration Product which is less than or equal to [***], Cephalon shall pay to Ambit a royalty rate of [***]. (b) for that portion of total annual Net Sales of a Collaboration Product which is greater than [***] and less than or equal to [***], Cephalon shall pay to Ambit a royalty rate of [***]. (c) for that portion of total annual Net Sales of a Collaboration Product which is greater than [***] and less than or equal to [***], Cephalon shall pay to Ambit a royalty rate of [***]. (d) for that portion of total annual Net Sales of a Collaboration Product which is greater than [***], Cephalon shall pay to Ambit a royalty rate of [***]. 9.2A. Royalties on Collaboration Products Not Subject to Section 9.2 . Cephalon shall pay to Ambit royalties on Net Sales of the Collaboration Product that is subject to Section 8.3.1(b) sold by Cephalon or its Affiliates or Sublicensees in the Territory, according to the following schedule: ***Confidential Treatment Requested -38-
(a) if total annual Net Sales are less than or equal to [***], Cephalon shall pay to Ambit a royalty rate of [***] on all such total annual Net Sales. (b) if total annual Net Sales are greater than [***] and less than or equal to [***], Cephalon shall pay to Ambit a royalty rate of [***] on all such total Net Sales. (c) if total annual Net Sales are greater than [***] and less than or equal to [***], Cephalon shall pay to Ambit a royalty rate of [***] on all such total annual Net Sales. (d) if total annual Net Sales are greater than [***], Cephalon shall pay to Ambit a royalty rate of [***] on all such total annual Net Sales. 9.3. Payment of Royalties . 9.3.1. Royalty Report. After the First Commercial Sale of a Collaboration Product for which royalties are due and payable by Cephalon, its Affiliates or Sublicensees hereunder, Cephalon shall provide Ambit with a royalty report on a quarterly calendar basis within ninety (90) days after the end of the calendar quarter to which such royalty report applies. Each such report shall state, separately for Cephalon, and each Affiliate and Sublicensee, the number, description, and aggregate Net Sales, on a country-by-country basis, and product-by-product basis during the calendar quarter during which a royalty is payable. Contemporaneously with the submission of the royalty reports Cephalon shall pay to Ambit all royalties due for such calendar quarter. 9.3.2.Records Retention. Cephalon shall keep, and require its Affiliates and Sublicensees to keep, for a period of not less than [***], complete and accurate records of all Net Sales. Ambit shall have the right, at its sole expense, through a certified public accountant reasonably acceptable to Cephalon, and following reasonable notice, to inspect such records during regular business hours, during the life of Cephalons obligation to pay royalties on Collaboration Products; provided, however, that such inspection shall not (i) take place more often than once a year and (ii) cover any records which date prior to the date of the last examination, and further provided that, such accountants shall report only as to the accuracy of the royalty statements and payments and the amount of any underpayment. Copies of such reports shall be supplied to Cephalon. In the event that the report is in disagreement with the Net Sales as calculated by Cephalon, Cephalon shall notify Ambit within ten (10) days of receipt by Cephalon whether or not it agrees with the report. If Cephalon notifies its agreement with the report within the ten (10) day period or fails to give any notification within that period, the Net Sales calculated by the report shall be used for purposes of calculating any monies owed and any monies owed by Cephalon to Ambit shall be paid by that Party in accordance with the provisions of this Section 9.3.2. If within ten (10) days starting on the day after receipt of the notification referred to in this Section 9.3.2, the Parties have ***Confidential Treatment Requested -39-
not agreed to the terms in dispute in relation to the report, either Party may refer the items in dispute to a partner of at least ten (10) years qualified experience at an independent, internationally recognized, public accounting firm agreed by the Parties in writing for final and binding resolution, or failing agreement on the identity of the public accounting firm within fifteen (15) days starting on the day after receipt of the notification referred to in this Section 9.3.2, an independent, internationally recognized, public accounting firm appointed on the application of either Party by the President for the time being of the Institute of Chartered Accountants in the United States. Such person appointed shall act on the following basis: (i) such person shall act as an expert and not as an arbitrator; (ii) such persons terms of reference shall be to determine the matters in dispute within twenty (20) days of his appointment; (iii) the Parties shall each provide such person with all information relating to the items in dispute which such person reasonably requires and such person shall be entitled (to the extent he considers appropriate) to base his determination on such information; (iv) the decision of such person is, in the absence of fraud or manifest error, final and binding on the Parties; and (v) [***]. Where Cephalon agrees that it has or is found to have underpaid royalties, Cephalon promptly shall pay such royalties together with interest at [***] applied to the amount unpaid from the date due to the date paid. If Cephalon has overpaid royalties, Cephalon may credit such overpayments against future royalties owed to Ambit. The interest available to each Party pursuant to this Section shall in no way limit any other remedies available to each Party. 9.3.3. Form of Payment . All payments required according to this Article IX shall be made in U.S. dollars, for Ambits account, by wire transfer to a bank in the United States designated in writing by Ambit; provided, however, that where payments in respect of Net Sales are based on Net Sales in non-U.S. currencies, the amount of Net Sales and any deductions used to calculate Net Sales, if any, shall be converted by Cephalon, based on the average of the bid and asked exchange rate provided by the Wall Street Journal Europe, for the last business day of each calendar quarter, into U.S. dollars. Any undisputed payments that are not paid on the date such payments are due under this Agreement shall bear interest to the extent permitted by applicable law at the prime rate as reported by the Chase Manhattan Bank, New York, New York, on the date such payment is due, plus an additional two percent (2%) calculated on the number of days such payment is delinquent. The interest available to each Party pursuant to this Section shall in no way limit any other remedies available. ***Confidential Treatment Requested -40-
9.4. Third Party Royalties and Royalty Reductions . (a) Cephalon shall be responsible for procuring such licenses as it deems, in its sole discretion, appropriate for the manufacture, use, marketing, sale or distribution of a Collaboration Product by it or its Affiliates or Sublicensees. In the event that Cephalon is required (as provided in Section 9.4(b) below) to pay royalties to a Third Party in respect of Relevant Third Party Patent Rights, then Cephalon will be entitled to deduct from the future royalties payable to Ambit in respect only of that country the amount due to such Third Party, provided, however, that the total amount of such deductions in any accounting period in respect of all claims in respect of Relevant Third Party Patent Rights shall not exceed [***] of the royalties payable for the country in question. (b) For purposes of Section 9.4(a), whether Cephalon is required to enter a license shall be determined as follows: (i) Cephalon shall be required to enter a license if so ordered by a court of competent jurisdiction, or if a court of competent jurisdiction has found Cephalon liable for infringing Relevant Third Party Patent Rights, or (ii) Cephalon shall bring to the attention of Ambit, in writing, any Relevant Third Party Patent Rights. The Parties agree to meet, within thirty (30) days after such written notification, along with their patent counsel under the appropriate confidentiality obligations, including if necessary the execution of a joint defense agreement to discuss in good faith the basis of the determination that such a license is required. During such meeting the Parties agree to discuss such facts, findings, conclusions, opinions and other information as the Parties deem relevant. If at the end of such discussions Cephalon and Ambit are unable to reach agreement, then the matter shall be referred to the Executive Officers, who shall promptly meet and endeavor to reach consensus in a timely manner. If such individuals cannot resolve such dispute, then such dispute shall be referred to an independent patent attorney acceptable to both Parties, who shall determine whether such license is reasonably necessary. The determination of such independent patent attorney will be binding upon the Parties. The costs of the independent patent attorney shall be borne equally by the Parties. (c) In respect of any country in the Territory where a Collaboration Product is not covered by a licensed Patent and there are no statutory data exclusivity or marketing exclusivity rights that can be enforced to prevent the entry of generic competition to that Collaboration Product, in the event of entry of Substantial Generic Competition into the marketplace in such country, Cephalon shall be entitled to reduce the royalties payable to Ambit in respect of sales of that Collaboration Product in such country by [***]. For purposes of this Section 9.4(c), Substantial Generic Competition in a country is defined as a Third Partys (or Third Parties) sales of a generic product containing the same Collaboration Clinical Candidate as found in the Collaboration Product in question (whether alone or in combination with other therapeutically active compounds), reaching a market share in such country greater than or equal to [***] of Cephalons unit sales of the Collaboration Product in such country, without obtaining a license from Cephalon. It is understood that ***Confidential Treatment Requested -41-
Cephalon shall continue to pay the Ambit royalties on Net Sales of a Collaboration Product within any given country at the full rates otherwise applicable under this Agreement, until such time as Cephalon has determined and confirmed in writing to Ambit, subject to reasonable verification, that there is Substantial Generic Competition with respect to a particular Collaboration Product in such country. At such time, subject to Section 11.3.8, Cephalon may reduce the payment of royalties to Ambit in such country with respect to such Collaboration Product pursuant to this Section. 9.5. Blocked Payments. In the event that, by reason of applicable laws or regulations in any country, it becomes impossible or illegal for Cephalon to transfer, or have transferred on its behalf, royalties or other payments to Ambit, such royalties or other payments shall be deposited in local currency in the relevant country to the credit of Ambit in a recognized banking institution designated by Ambit or, if none is designated by Ambit within a period of thirty (30) days, in a recognized banking institution selected by Cephalon and identified in a notice in writing given to Ambit. ARTICLE IX-A CO-DEVELOPMENT/CO-PROMOTION OF COLLABORATION PRODUCT 9A.1 Co-Development/Co-Promotion of a Collaboration Clinical Candidat e. At the conclusion by Cephalon of the first proof-of-concept study in humans involving a Collaboration Clinical Candidate directed against the First Collaboration Target, Cephalon shall notify Ambit in writing of the results of such study, and Ambit shall have [***] following receipt of such notice to request in writing of Cephalon participation in the codevelopment and co-promotion of such Collaboration Clinical Candidate. Cephalon, within [***] after such Ambit request, shall notify Ambit whether Cephalon will consider, in its sole discretion, such co-development and co-promotion. If Cephalon notifies Ambit that it will consider such request, both Parties will negotiate in good faith the terms of the co-development/co-promotion agreement, which will be capped at [***] participation by Ambit. Ambit shall participate in the costs of further development of the Collaboration Clinical Candidate at the rate equal to its codevelopment/co-promotion participation. Should Cephalon determine a co-development/co-promotion arrangement not to be beneficial, Cephalon will notify Ambit of such determination and shall continue to develop and commercialize the applicable Collaboration Clinical Candidate under terms of this Agreement. ARTICLE X. REPORTS, BOOKS AND TAX MATTERS 10.1. Examination of Books . Each of the Parties shall keep and maintain complete and accurate books in respect of its activities during the Term, and with respect to books and records for which payment may be required, in accordance with applicable accounting principles consistently applied and in accordance with local law. Each Party shall have the right, at its sole expense, during the Term and thereafter, through a certified public accountant reasonably acceptable to the other Party, and following reasonable notice, to inspect such records during regular business hours; provided, however, that such inspection shall not (i) take place more often than once a year and (ii) ***Confidential Treatment Requested -42-
cover any records which date prior to the date of the last examination. The Parties shall retain such records for the longer of the Term or as required by applicable law, unless otherwise expressly set forth herein or unless the Parties shall otherwise mutually agree. 10.2. Inspection. Ambit shall permit Cephalon, at Cephalons expense and upon reasonable prior notice, to visit and inspect Ambits facilities, to meet with scientific personnel and review the progress of the Collaboration no more that once a year. 10.3. Tax Matters. Each Party agrees that the other Party is entitled to all tax benefits, including in particular, tax credits and/or tax deductions attributable to amounts the other Party has paid hereunder. Each Party shall file its federal, state, and local tax returns on a basis consistent with this Agreement, and shall not take any action inconsistent with the other Partys entitlement to such tax benefits. In the event that a Party, in its judgment, determines that it must obtain information and verification regarding the use or application of such expenditures in order to prepare its tax returns or to respond to an inquiry during a tax audit or any other inquiry relating to such treatment of its tax return, or to defend its tax position in any proceeding including litigation, the Parties shall reasonably cooperate with each other and provide such information as the other Party may reasonably require at the request and expense of the requesting Party. ARTICLE XI. PATENTS 11.1. Disclosure by Employees, Agents or Independent Contractors . Cephalon and Ambit agree that as to any employees, agents, or independent contractors of Cephalon and Ambit presently in their employ or who are hired or retained by Cephalon or Ambit to perform, manage performance of, or participate in the activities done pursuant to this Agreement, Cephalon and Ambit will ensure that such employees, agents, or independent contractors will promptly disclose and assign to the Party engaging them any and all rights to inventions, developments, or improvements (whether patentable or not), conceived and/or reduced to practice during the course of their duties. Each Party will notify the other Party promptly of any sole or joint inventions within the Collaboration IP. 11.2. Patent Prosecution and Related Activities . 11.2.1. Ambit IP. Ambit shall be responsible, at its sole discretion and expense, for preparing, filing, prosecuting and maintaining in such countries it deems appropriate, by itself or with Third Parties, Ambit Patents, including conducting any interferences, re-examinations, reissues and oppositions relating to such Patents. 11.2.2. Cephalon IP. Cephalon shall be responsible, at its sole discretion and expense, for preparing, filing, prosecuting and maintaining in such countries it deems appropriate, by itself or with Third Parties, Cephalon Patents including conducting any interferences, reexaminations, reissues and oppositions relating to such Patents. -43-
11.2.3. Licensed Compound IP. (a) Prosecution by Cephalon. Cephalon shall have the right to prepare, file, prosecute and maintain in such countries as it deems appropriate in its discretion and at its sole expense, and upon appropriate consultation with Ambit and/or the Patent Committee pursuant to Section 11.2.4(c), Patents within the Licensed Compound IP that are owned (solely or jointly) by Cephalon pursuant to this Agreement or that cover compounds to which Cephalon has an exclusive license in force pursuant to this Agreement, including conducting any interferences, re-examinations, reissues, oppositions or requests for patent term extension or governmental equivalents relating to such Patents, and Ambit shall give reasonable cooperation in connection therewith, at Cephalons request. (b) Prosecution by Ambit . Ambit shall have the right to prepare, file, prosecute and maintain in such countries as it deems appropriate in its discretion and at its sole expense, and upon appropriate consultation with Cephalon and/or the Patent Committee pursuant to Section 11.2.4(c), Patents within the Licensed Compound IP that are not covered by Section 11.2.3(a), in each case including conducting any interferences, re-examinations, reissues, oppositions or requests for patent term extension or governmental equivalents relating to such Patents, and Cephalon shall give reasonable cooperation in connection therewith, at Ambits request. 11.2.4. Collaboration IP. (a) Prosecution by Cephalon. Cephalon shall have the right to prepare, file, prosecute and maintain in such countries as it deems appropriate in its discretion and at its sole expense, and upon appropriate consultation with Ambit and/or the Patent Committee pursuant to Section 11.2.4(c), Patents within the Collaboration IP owned (solely or jointly) by Cephalon, and/or Patents directed to any compounds to which Cephalon has an option or license in force pursuant to Sections 6.2.1, 6.2.2 or 6.2.3, in each case including conducting any interferences, reexaminations, reissues, oppositions or requests for patent term extension or governmental equivalents relating to such Patents within the Collaboration IP, and Ambit shall give reasonable cooperation in connection therewith, at Cephalons request. (b) Prosecution by Ambit . Ambit shall have the right to prepare, file, prosecute and maintain in such countries as it deems appropriate in its discretion and at its sole expense, and upon appropriate consultation with Cephalon and/or the Patent Committee pursuant to Section 11.2.4(c), Patents within the Collaboration IP not included in Section 11.2.4(a), including conducting any interferences, re-examinations, reissues, oppositions or requests for patent term extension or governmental equivalents relating to such Patents within the Collaboration IP, and Cephalon shall give reasonable cooperation in connection therewith, at Ambits request. (c) Cooperation; Request to Responsible Party . Each of Cephalon and Ambit shall keep the other fully informed as to the status of patent matters described in Sections 11.2.3 and 11.2.4, including, without limitation, by providing the -44-
Patent Committee the opportunity to fully review and comment on any invention disclosures. With respect to each Patent governed by Sections 11.2.3 or 11.2.4, the Patent Committee shall decide whether such Patent falls within Section 11.2.3(a) or 11.2.3(b) or within Section 11.2.4(a) or 11.2.4(b), as applicable. In the event of any overlap or conflict between subject matter that is claimed (or could be claimed) in a Patent for which Cephalon is responsible pursuant to Section 11.2.3(a) or 11.2.4(a) and subject matter that is claimed (or could be claimed) in a Patent for which Ambit is responsible pursuant to Section 11.2.3(b) or 11.2.4(b), the Patent Committee shall determine which Patent should claim such subject matter pursuant to the terms of this Agreement. Where practicable and where appropriate under the terms of this Agreement, the Patent Committee shall endeavor to adjust the scope of the claims of either such Patent or both such Patents, or to propose the filing of appropriate divisional applications, in order to avoid or minimize such overlap or conflict. Cephalon and Ambit shall each reasonably cooperate with and assist the other at its own expense in connection with such activities, at the other Partys request. Reasonable cooperation shall include, without limitation, providing the requesting Party with necessary or useful data and information relating to the Patents and reasonable access to the inventors of said inventions, as well as causing the execution of required patent assignments and/or other documents. Either Party may request the other Party, at the other Partys discretion, to file a patent application claiming any invention within the Collaboration IP or Licensed Compound IP, as applicable, for which the other Party has responsibility as set forth in Sections 11.2.3 or 11.2.4. It is understood and agreed that a Party shall not have any liability to the other Party with respect to such Partys preparation or prosecution of any Patent pursuant to this Section 11.2.4(c), as long as (i) such Party has complied with this Section 11.2.4(c) with respect to such Patent and (ii) such Party has not been negligent in conducting any such activities with respect to such Patent. (d) Procedure on Uncertainty to Prosecute. In cases where the prosecution of Collaboration IP is not clearly addressed by the provisions of Sections 11.2.3(a), 11.2.3(b), 11.2.4(a) and 11.2.4(b), the Patent Committee shall promptly hold discussions to determine how best to proceed and how costs should be apportioned between the Parties and shall make a recommendation to the JRC, which shall make a decision on the matter. 11.2.5. Inventorship. Inventorship of all Patents shall be determined based upon U.S. Patent Laws. 11.2.6. Election Not to Prosecute. Upon ninety (90) days written notice to the other Party (the Discontinuance Notice), the responsible Party, on a country-by-country basis, may elect to discontinue the prosecution of any patent applications filed pursuant to Sections 11.2.3 or 11.2.4 and/or not to file or conduct any further activities with respect to the Patents described in such Sections. In the event the responsible Party declines or elects not to file or, having filed, elects not to further prosecute or maintain any Patents filed pursuant to this Agreement which relate to the Collaboration IP or Licensed Compound IP, or if Ambit declines or elects not to file or, having filed, elects not to further prosecute or maintain any Ambit Patents licensed to Cephalon under Section 6.2.2, or to conduct any interferences, re-examinations, reissues, -45-
oppositions or requests for patent term extension or governmental equivalents with respect thereto, the other Party shall have the right, at its discretion, and at its sole expense, to prepare, file, prosecute and maintain such Patents in such countries as it deems appropriate, and conduct any interferences, re-examinations, reissues, oppositions or requests for patent term extension or governmental equivalents with respect thereto at its sole expense. The responsible Party agrees to cooperate in any manner reasonably requested in connection with any such actions by the other Party, at the expense of the other Party, and shall assign, provided the Patents are freely assignable and not subject to a terminal disclaimer or other encumbrance, all right, title and interest in and to such Patents to the Party continuing such activities. If the responsible Party does not receive written notice within ninety (90) days of the date of the Discontinuance Notice, then the responsible Party shall be free to abandon such Patents at its sole discretion without any legal recourse by the other Party. 11.2.7. Permitted Disclosures. Following a written notice from the other Party hereto, the Parties shall in good faith discuss granting each other permission in writing, not to be unreasonably withheld, to disclose in the specification of a patent application filed by the other Party pursuant to this Agreement, any Ambit IP, Cephalon IP, Collaboration IP or Licensed Compound IP necessary to support and enable claims in such patent applications. 11.3. Third Party Infringement. 11.3.1. Rights to Enforce. Cephalon and Ambit shall have the right to initiate legal action to enforce the Patents within the Collaboration IP or Licensed Compound IP against infringement or misappropriation by Third Parties or to defend any declaratory judgment action relating thereto. Each Party, at its sole expense, shall have the initial right but not the obligation to initiate and conduct legal proceedings including, without limitation, to enforce against any infringement of, or defend any declaratory judgment action involving, any Patent rights, the prosecution and maintenance for which that Party is responsible, pursuant to Section 11.2.3 or 11.2.4. Each Party shall notify the other Party of its decision to bring proceedings or not within sixty (60) days of the date that the infringement has come to its knowledge. If the actual or threatened infringement relates to the manufacture, use or sale of a product or material which is a competing product to a Collaboration Product or Licensed Product and Ambit is the Party conducting the suit with regard to the applicable Collaboration Product or Licensed Product, then Cephalon shall have the right at its option, to join with Ambit in the suit and participate in all meetings, negotiations, discussions and proceedings in respect of issues which relate to the infringement of the Patent(s) by such competing product. Where the conduct of the action relates to matters relevant only to issues of infringement by the competing product and not the scope or validity of Ambits Patents, Ambit shall follow Cephalons reasonable directions in the conduct of that part of the proceedings. In respect of other parts of the proceedings, Ambit agrees to take into account Cephalons reasonable views and comments. Subject to Section 11.3.8, in the circumstances outlined in this Section 11.3.1 where Cephalon exercises its right to participate in the suit, Cephalon shall bear [***]of the costs of such proceedings. ***Confidential Treatment Requested -46-
11.3.2. Failure to Enforce Collaboration Patent or Licensed Compound Patent . If, within sixty (60) days of the date that the infringement or misappropriation of Collaboration IP or Licensed Compound IP comes to its knowledge (or written notice of a declaratory judgment action alleging invalidity or unenforceability of such Collaboration IP or Licensed Compound IP), the Party with the initial right to bring proceedings ( Patent Owner) under Section 11.3.1 above fails to take action to halt such alleged infringement or misappropriation or defend such a declaratory judgment action, the other Party may, at its expense, take such legal action as it deems appropriate, in its own name (or to the extent necessary the Patent Owners name), to halt such an alleged infringement or misappropriation or defend such a declaratory judgment action. The other Party shall notify the Patent Owner of its decision to do so. Where, in accordance with the procedure set out in this Section, the other Party commences the proceedings, the Patent Owner may, at its option, join with the other Party in the suit and the Patent Owner shall have the right to participate in all meetings, discussions and proceedings in respect of issues regarding the validity and/or revocation of the relevant Patent(s). In those circumstances, the other Party (i.e., the Pursuing Party) agrees to take into account the Patent Owners reasonable views and comments in the conduct of the proceedings and, subject to Section 11.3.8, the Patent Owner shall bear [***] of the costs of such proceedings. The Patent Owner agrees to render such reasonable assistance as the Pursuing Party may request, including joining as a party to the proceedings. 11.3.3. Rights to Enforce Ambit Patent or Cephalon Patent . In the event that either Party becomes aware that any Patent within the Ambit IP or Cephalon IP is being infringed or misappropriated by a Third Party, or is subject to a declaratory judgment action arising from such infringement or misappropriation, such Party promptly shall notify the other Party. It is understood and agreed that Ambit shall have the initial right, but not the obligation, to initiate and conduct legal proceedings to enforce the Ambit IP against any infringement or misappropriation or defend any declaratory judgment action relating thereto, at its sole expense, and that Cephalon shall have the initial right, but not the obligation, to initiate and conduct legal proceedings to enforce the Cephalon IP against any infringement or misappropriation or defend any declaratory judgment action relating thereto, at its sole expense. Cephalon or Ambit (as the case may be) shall notify the other Party of its decision to bring proceedings or not within sixty (60) days of the date that the infringement has come to its knowledge. If the actual or threatened infringement of the Ambit IP relates to the manufacture, use or sale of a product or material which is a competing product to a Collaboration Product or Licensed Compound, then Cephalon shall have the right at its option, to join with Ambit in the suit and participate in all meetings, negotiations, discussions and proceedings in respect of issues which relate to the infringement of the Patent(s) by such competing product. Where the conduct of the action relates to matters relevant only to issues of infringement by the competing product and not the scope or validity of Ambits Patents, Ambit shall follow Cephalons reasonable directions in the conduct of that part of the proceedings. In respect of other parts of the proceedings, Ambit agrees to take into account Cephalons reasonable views and comments. Subject to Section 11.3.8, in the circumstances outlined in this Section 11.4.3 where the Commercializing Party exercises ***Confidential Treatment Requested -47-
its right to participate in the suit, the Commercializing Party shall bear [***] of the costs of such proceedings. 11.3.4. Failure to Enforce Ambit or Cephalon Patent . If, within sixty (60) days of the date that the infringement or misappropriation comes to its knowledge (or written notice of a declaratory judgment action alleging invalidity or unenforceability of such Ambit or Cephalon Patent, as the case may be), the Patent Owner fails to take action to halt such alleged infringement or misappropriation or defend such a declaratory judgment action under Section 11.3.3 above, the other Party may, if it has been granted an exclusive license under such Ambit or Cephalon Patent (as the case may be), at its expense, take such legal action as it deems appropriate, in its own name (or to the extent necessary the Patent Owners name), to halt such an alleged infringement or misappropriation or defend such a declaratory judgment action. The other Party shall notify the Patent Owner of its decision to do so. Where, in accordance with the procedure set out in this Section, the other Party commences the proceedings, the Patent Owner may, at its option, join with the other Party in the suit and the Patent Owner shall have the right to participate in all meetings, discussions and proceedings in respect of issues regarding the validity and/or revocation of the relevant Patent(s). In those circumstances, the other Party (i.e., the Pursuing Party) agrees to take into account the Patent Owners reasonable views and comments in the conduct of the proceedings and, subject to Section 11.3.8, the Patent Owner shall bear [***] of the costs of such proceedings. The Patent Owner agrees to render such reasonable assistance as the Pursuing Party may request. 11.3.5. Limitation on Timing to Bring Suit. The Parties acknowledge that there may exist in certain countries statutory limitations on the period during which suit may be filed or other enforcement actions initiated against a Third Partys infringement of the Patents (for example, the forty-five (45) day period for responding to a Third Party certification in the United States under 21 USC Sections 355(b)(2)(A)(iv) and 355(j)(2)(a)(vii), or any amendment or successor statute thereto, claiming that Patents covering a Collaboration Compound, Collaboration Product, Licensed Compound or Licensed Product are invalid or that infringement will not arise from the manufacture, use or sale of a product equivalent to the Collaboration Compound, Collaboration Product, Licensed Compound or Licensed Product, as the case may be, by such Third Party). In such event: (a) Ambit and Cephalon each shall immediately give written notice to the other of any potential infringement action against such Third Party infringer of which they become aware; and (b) the relevant Party shall have the right but not the obligation to bring suit, and the provisions of this Section 11.3.5 shall apply save that such Party shall be required to obtain a discontinuance or elect to bring suit at least fourteen (14) business days prior to the expiry of the relevant statutory period. If such Party elects to bring suit within such period, the provisions of this Section 11.3.5 shall apply; or ***Confidential Treatment Requested -48-
(c) if the relevant Party elects not to, or has failed to, bring an infringement action against such Third Party infringer in such country(ies) within the time period provided in this Section 11.3.5, then the other Party shall have the right but not the obligation, to bring suit against such infringer under this Section 11.3.5 prior to the expiration of the statutory period. In the event that such other Party elects to bring suit, the provisions of this Section 11.3 shall apply. 11.3.6. No Settlement Without Consent. Neither Party shall enter into any settlement of any claim, suit or proceeding under this Section 11.3 which admits or concedes that any Collaboration Patent or any Patent licensed from the other Party is invalid or unenforceable without the prior written consent of such other Party. 11.3.7. Cooperation. Each Party shall keep the other reasonably informed of the progress of any claim, suit or proceeding subject to this Section 11.3 and cooperate reasonably in connection with such activities at the request and expense of the Party involved in such claim, suit or proceeding. 11.3.8. Division of Recoveries . Any recovery received in connection with a suit brought by a Party pursuant to this Section 11.3 shall be retained by the Party initiating such suit. If Cephalon was a party to the suit, then any recovery received in connection with a suit brought pursuant to this Section 11.3 shall be used first to reimburse each Party pro rata for expenses (including attorneys, professional and expert fees) incurred in such suit, and any balance shall be retained by the Cephalon subject to a payment to the other Party of such other Partys lost royalties. 11.4. Infringement Claims by Third Parties . If the manufacture, sale or use of any product commercialized by a Party (the Commercializing Party) pursuant to this Agreement results in any claim, suit or proceeding alleging patent infringement against a Commercializing Party (or its Sublicensees), such Commercializing Party shall promptly notify the other Party in writing setting forth the facts of such claim in reasonable detail. The Commercializing Party shall have the exclusive right to defend and control the defense of any such claim, suit or proceeding, at its own expense, using counsel of its own choice; provided, however, it shall not enter into any agreement or settlement which admits or concedes that any Patent licensed from the other Party is invalid, unenforceable or not infringed, without the prior written consent of the other Party. The Commercializing Party shall keep the other Party reasonably informed of all material developments in connection with any such claim, suit or proceeding, and the other Party shall have the right (but not the obligation) to be separately represented, at its expense, by counsel of its own choice and to advise the Commercializing Party on the defense of such claim, suit or proceeding. 11.5. Patent Term Restoration. The Parties hereto shall give reasonable cooperation to each other in obtaining patent term restoration or supplemental protection certificates or their equivalents in any country in the Territory where applicable to the Collaboration IP. -49-
11.6. Bankruptcy. All rights and licenses granted under or pursuant to this Agreement by Ambit are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code (i.e., Title 11 of the U.S. Code) or analogous provisions of applicable law outside the United States, licenses of rights to intellectual property as defined under Section 101 of the U.S. Bankruptcy Code or analogous provisions of applicable law outside the United States. Each Party agrees that the other Party, as licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the U.S. Bankruptcy Code or any other provisions of applicable law outside the United States that provide similar protection for intellectual property. 11.7 CREATE Act. Neither Party shall invoke the Cooperative Research and Technology Enhancement (CREATE) Act of 2004 (Pub L. 108453) in connection with the prosecution of any patents related to this Agreement without the prior written consent of the other Party. ARTICLE XII. CONFIDENTIALITY 12.1. Confidentiality. 12.1.1. Term of Confidentiality . Except as otherwise provided in this Section 12.1, a Party receiving Confidential Information (the Receiving Party) shall keep all Confidential Information disclosed to it by the disclosing Party (the Disclosing Party) confidential for the Collaboration Term and [***] thereafter. Without the prior written consent of the Disclosing Party, the Receiving Party shall not disclose any Confidential Information to any Third Party, except to the officers, employees, agents, or representatives of the Receiving Party or the Receiving Partys Affiliates (collectively the Representatives), who, in each case, have a need to know any such Confidential Information for purposes of the implementation and performance by the Receiving Party of its obligations pursuant to this Agreement, and will use the Confidential Information provided by the Disclosing Party only for such limited purposes. 12.1.2. Warranty of Obligation. Each Party warrants that each of its Representatives to whom any Confidential Information is disclosed shall previously have been informed of the confidential nature of the Confidential Information and shall have agreed to be bound by terms and conditions equivalent to those set forth in this Agreement. The Receiving Party shall ensure that the Confidential Information provided by the Disclosing Party shall not be used or disclosed by such Representatives except as permitted by this Agreement. The Receiving Party shall stand responsible for any breach by its Representatives of the confidentiality provisions set forth in this Agreement. 12.1.3. Ownership of Confidential Information . Except as provided herein with respect to the ownership of any intellectual property, all Confidential Information disclosed by the Disclosing Party shall remain the property of the Disclosing Party. Upon the written request of the Disclosing Party (i) all tangible ***Confidential Treatment Requested -50-
Confidential Information provided by the Disclosing Party (including, but not limited to all copies thereof and all unused samples of materials provided by the Disclosing Party) except for Confidential Information consisting of analyses, studies and other documents and materials prepared by or for the benefit of the Receiving Party, shall be promptly returned to the Disclosing Party, and (ii) all portions of such analyses, studies and other documents prepared by or for the benefit of the Receiving Party (including all copies thereof) which are within the definition of Confidential Information shall be destroyed, and the Receiving Party shall certify such destruction in writing to the Disclosing Party. 12.1.4. Permitted Disclosures. The obligations of confidentiality and non-use set forth in this Agreement shall not apply to any portion of the Confidential Information which: (a) is or becomes public or available to the general public otherwise than through the wrongful act or default of the Receiving Party or its representatives; or (b) is obtained by the Receiving Party from a Third Party who is lawfully in possession of such Confidential Information and is not subject to an obligation of confidentiality or non-use owed to the Disclosing Party; or (c) is previously known to the Receiving Party prior to disclosure by the Disclosing Party, as shown by written evidence, and is not obtained or derived directly or indirectly from the Disclosing Party; or (d) is independently developed by the Receiving Party without the use of or reliance on any Confidential Information provided by the Disclosing Party hereunder, as shown by contemporaneous written evidence. 12.1.5. Legal Disclosure. The Receiving Party may disclose the Confidential Information of the Disclosing Party to the extent reasonably necessary in prosecuting or defending litigation, complying with applicable laws, governmental regulations or court order, or otherwise submitting required information to tax or other governmental authorities. If the Receiving Party intends to so disclose any such Confidential Information, the Receiving Party shall provide the Disclosing Party prompt prior notice of such fact so that the Disclosing Party may seek to obtain a protective order or other appropriate remedy concerning any disclosure of such Confidential Information. The Receiving Party will reasonably cooperate with the Disclosing Party in connection with the Disclosing Partys efforts to obtain any such order or other remedy. If any such order or other remedy does not fully preclude the disclosure of such Confidential Information, the Receiving Party will make such disclosure only to the extent that such disclosure is legally required and will use its reasonable efforts to have confidential treatment accorded to the disclosed Confidential Information. 12.1.6. No Warranty As To Reliability. Each of the Parties acknowledges that neither Party makes any representation or warranty as to the reliability, accuracy or completeness of any of the Confidential Information disclosed -51-
hereunder, except for any specific representation or warranty made in other sections of this Agreement. The Receiving Party agrees that neither the Disclosing Party nor any of the Disclosing Partys Representatives shall have any liability to the Receiving Party arising from the disclosure of Confidential Information by the Disclosing Party except as otherwise provided herein. 12.1.7. No Implied License. Except as otherwise expressly set forth in this Agreement, nothing herein shall be construed as giving the Receiving Party any right, title and interest in and to the Confidential Information of the Disclosing Party. 12.1.8. Public Domain. For the purpose of this Agreement, specific information disclosed as part of the Confidential Information shall not be deemed to be in the public domain or in the prior possession of the Receiving Party merely because it is embraced by more general information in the public domain or by more general information in the prior possession of the Receiving Party. 12.2. Publications. A Party desiring to submit a publication or presentation related to any matters that are the subject of this Agreement shall not do so without the prior written consent of the other Party, which consent shall not be unreasonably withheld. Each Party shall submit for the other Partys review any proposed publication or presentation containing any information generated by either Party (or by both Parties) hereunder during the Collaboration Term, or containing any Confidential Information of the other Party, at least forty-five (45) days in advance of such proposed publication or presentation. The reviewing Party shall promptly review such proposed publication and respond in any event within fortyfive (45) days after receipt, and shall make any objections that it may have to the publication of any such information, or of any Confidential Information of the reviewing Party contained therein. Should the reviewing Party make an objection to the publication of any such information or Confidential Information, then the Parties shall discuss the advantages and disadvantages of publishing such information and/or Confidential Information provided always that a Party shall not be compelled to agree to the disclosure of its Confidential Information and if following such discussions the Party still objects to the inclusion of such Confidential Information it shall be removed. If the Parties are unable to agree on whether particular subject matter may be published or presented, then the Executive Officers shall attempt to resolve the matter, but if it is unable to do so, such matter shall not be subject to the dispute resolution provisions of Sections 2.4 and 18.18. Notwithstanding the foregoing, upon the reviewing Partys request, the other Party shall not submit any such publication or presentation until the reviewing Party is given a reasonable period of time (not less than forty-five (45) days) to secure patent protection for any material in such publication or presentation that it believes to be patentable. 12.3. Terms of Agreement . The existence and the terms and conditions of the Agreement that the Parties have not specifically agreed to disclose pursuant to Section 12.1 shall be considered Confidential Information of both Parties. Either Party may disclose, upon the other Partys prior written consent, such terms to a bona fide potential investor, investment banker, acquiror, merger partner or other potential financial partner, and their attorneys and agents, provided that each such Person to whom such information -52-
is to be disclosed is informed of the confidential nature of such information and has agreed to maintain the confidentiality of such information. 12.4. Injunctive Relief . The Parties hereto understand and agree that remedies at law may be inadequate to protect against any breach of any of the provisions of this Article XII by either Party or their employees, agents, officers or directors or any other person acting in concert with it or on its behalf. Accordingly, each Party shall be entitled to, without the posting of bond, the granting of injunctive relief by a court of competent jurisdiction against any action that constitutes any such breach of this Article XII. 12.5. Registration and Filing of the Agreement . To the extent, if any, that a Party concludes in good faith that it is required to file or register this Agreement, a summary of the terms of this Agreement, or a notification thereof with any governmental authority, including without limitation the U.S. Securities and Exchange Commission and the Competition Directorate of the Commission of the European Communities, in accordance with applicable laws and regulations, such Party may do so, and the other Party shall cooperate in such filing or notification and shall execute all documents reasonably required in connection therewith at the, expense of the requesting Party. The Parties shall promptly inform each other as to the activities or inquiries of any such governmental authority relating to this Agreement, and shall cooperate, to respond to any request for further information therefrom at the expense of the requesting Party. ARTICLE XIII. REPRESENTATIONS AND WARRANTIES OF AMBIT 13.1. Representations and Warranties. Ambit represents and warrants to Cephalon as follows: 13.1.1. Organization. It is a corporation validly existing and in good standing under the laws of the State of Delaware. 13.1.2. Authority. It has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. All corporate acts and other proceedings required to authorize such execution, delivery, and consummation have been duly and properly taken and obtained. 13.1.3. Enforceability. This Agreement has been duly executed and delivered by Ambit and constitutes legal, valid, and binding obligations of Ambit enforceable against Ambit in accordance with its terms. 13.1.4. Approvals and Consents. No approval, authorization, consent, or other order or action of or filing with any court, administrative agency or other governmental authority is required for the execution and delivery by Ambit of this Agreement or the consummation by Ambit of the transaction contemplated hereby (other than contemplated Collaboration Product Regulatory Approvals). 13.1.5. No Conflicts. None of the execution, delivery, or performance of this Agreement by Ambit (i) conflicts with or results in a breach under -53-
the charter documents or any material contractual undertaking of Ambit, or its Affiliates or (ii) conflicts with or results in a violation of any of the laws of the jurisdiction of incorporation of Ambit. Ambit has not, to the best of its knowledge entered into, nor will Ambit, after the Effective Date, knowingly enter into any written or oral agreement that is or would be inconsistent with its obligations under this Agreement or deprives or would deprive Cephalon of the benefits of this Agreement. 13.1.6. Title. As of the Effective Date, Ambit has good title to or valid leases or licenses for all its properties, rights, and assets necessary for the fulfillment of its obligations and responsibilities under this Agreement. 13.1.7. Sufficient Rights. As of the Effective Date, to the best of Ambits knowledge after due inquiry, Ambit represents and warrants that Ambit owns or Controls its Patents necessary to conduct the Collaboration and to grant the rights and licenses to Cephalon, and to fulfill its duties and obligations pursuant to this Agreement. As of the Effective Date, to the best of Ambits knowledge after due inquiry, Ambit represents and warrants that the Collaboration Compounds described in Section 1.17(i), and Ambits activities with respect to the First Collaboration Target as currently conducted and as proposed to be conducted, including the practice of the Ambit IP in connection therewith, do not violate the valid patent rights or other intellectual property rights of any Third Party, and to the best knowledge of Ambit after due inquiry, as of the Effective Date, all other practice of the Ambit IP does not violate the valid patent rights or other intellectual property rights of any Third Party. 13.1.8. No Prior Grant or Patents. As of the Effective Date, Ambit has not (i) knowingly granted any licenses to Third Parties, or (ii) knowingly filed any patent application, in either case inconsistent with the licenses granted or to be granted to Cephalon hereunder. 13.1.9. Resources. As of the Effective Date and during the Collaboration Term, Ambit has and shall have sufficient financial and other resources to timely perform its obligations under the Profiling Services Agreement and this Agreement, including with respect to research and development of the Licensed Compounds and the Collaboration. 13.1.10. Disclaimer. Except as provided herein, Ambit specifically disclaims any guarantee that the Collaboration will be successful, in whole or in part. The failure of Ambit to successfully identify Collaboration Compounds that are suitable as Clinical Compounds will not, of itself, constitute a breach of any representation or warranty or other obligation under this Agreement. Ambit does not make any representation or warranty or guaranty that the Collaboration will be sufficient for the successful completion of the research contemplated thereby. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH HEREIN, AMBIT MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OR CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE AMBIT IP, COLLABORATION IP, COLLABORATION COMPOUNDS OR AMBIT COMPOUNDS INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF -54-
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF AMBIT IP OR COLLABORATION IP, PATENTED OR UNPATENTED, OR NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES. ARTICLE XIV. REPRESENTATIONS AND WARRANTIES OF CEPHALON 14.1. Representations and Warranties. Cephalon represents and warrants to Ambit as follows: 14.1.1. Organization. It is a corporation validly existing and in good standing under the laws of Delaware. 14.1.2. Authority. It has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. All corporate acts and other proceedings required to authorize such execution, delivery, and consummation have been duly and properly taken and obtained. 14.1.3. Enforceability. This Agreement has been duly executed and delivered by Cephalon and constitutes the legal, valid, and binding obligations of Cephalon enforceable against Cephalon in accordance with its terms. 14.1.4. Approvals and Consents. No approval, authorization, consent, or other order or action of or filing with any court, administrative agency or other governmental authority is required for the execution and delivery by Cephalon of this Agreement or the consummation by Cephalon of the transaction contemplated hereby (other than contemplated Collaboration Product Regulatory Approvals). 14.1.5. No Conflicts. None of the execution, delivery, or performance of this Agreement by Cephalon (i) conflicts with or results in a breach under the charter documents or any material contractual undertaking of Cephalon, or its Affiliates or (ii) conflicts with or results in a violation of any of the laws of the jurisdiction of incorporation of Cephalon. Cephalon has not, to the best of its knowledge entered into, nor will Cephalon, after the Effective Date, knowingly enter into any written or oral agreement that is or would be inconsistent with its obligations under this Agreement or deprives or would deprive Ambit of the benefits of this Agreement. 14.1.6. Sufficient Rights. As of the Effective Date, it owns or Controls its Patents necessary to conduct the Collaboration and to grant the rights and licenses to Ambit, and to fulfill its duties and obligations pursuant to this Agreement. To the knowledge of Cephalon, as of the Effective Date, the practice of the Cephalon IP does not violate the valid patent rights of any Third Party. 14.1.7. No Prior Grant or Patents. As of the Effective Date, Cephalon has not (i) knowingly granted any licenses to Third Parties, or (ii) knowingly filed any patent application, in either case inconsistent with the licenses granted or to be granted to Ambit hereunder. -55-
14.1.8. Title. As of the Effective Date, it has good title to or valid leases or licenses for all its properties, rights, and assets necessary for the fulfillment of its obligations and responsibilities under this Agreement. 14.1.9. Disclaimer. Except as provided herein, Cephalon specifically disclaims any guarantee that the Collaboration will be successful, in whole or in part. The failure of Cephalon to successfully identify Clinical Candidates will not, of itself, constitute a breach of any representation or warranty or other obligation under this Agreement. Cephalon does not make any representation or warranty or guaranty that the Collaboration will be sufficient for the successful completion of the research contemplated thereby. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH HEREIN, CEPHALON MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OR CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE CEPHALON IP, COLLABORATION IP, COLLABORATION COMPOUNDS, CEPHALON COMPOUNDS OR CEPHALON LIBRARY COMPOUNDS INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF CEPHALON IP OR COLLABORATION IP, PATENTED OR UNPATENTED, OR NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES. ARTICLE XV. SURVIVAL AND INDEMNIFICATION 15.1. Survival of Representations, Warranties, Covenants, and Agreement . The representations, warranties, covenants, and agreements contained in this Agreement shall survive as set forth in Section 16.6. Except as expressly provided herein, the Parties confirm that they have not relied upon any other representations, warranties, covenants, and agreements as an inducement to enter into this Agreement or the other agreements and instruments to be executed and delivered by the Parties pursuant to this Agreement. 15.2. Indemnification by Ambit . Ambit hereby agrees to indemnify and hold Cephalon, its Affiliates and their respective officers, directors, stockholders, employees, agents, and representatives (collectively, the Cephalon Indemnitees) harmless from and against any and all claims, liabilities, losses, damages, costs and expenses in respect of claims against the Cephalon Indemnitees by Third Parties other than the Cephalon Indemnitees, including reasonable fees and disbursements of counsel and expenses of reasonable investigation (collectively, Cephalon Losses), arising out of, based upon or caused by: (a) the inaccuracy of any representation or the breach of any warranty, covenant or agreement of Ambit contained in this Agreement or in any other agreement or instrument delivered by Ambit pursuant to this Agreement; (b) any failure by Ambit, its Affiliates or their respective designees to conduct the research pursuant to the Research Plans in a diligent and professional manner and in accordance with applicable laws and regulations; (c) any gross negligence or intentional wrongdoing by Ambit, its Affiliates or designees in the performance of the research hereunder; (d) any injury, illness or disease suffered by any Ambit employees in connection with the performance -56-
of the Collaboration; (e) any breach of Ambits contractual obligations to Third Parties; or (f) the development, preclinical and clinical testing, manufacture, distribution, sale and/or use (including but not limited to product liability claims) of any Licensed Compound, Collaboration Compound or Licensed Product for which Ambit is responsible for development and commercialization pursuant to the terms of this Agreement (except, in each case (a) to (f), to the extent that any Cephalon Loss is due to the gross negligence or willful misconduct of Cephalon Indemnitees). Except with respect to a breach arising under Sections 13.1.6, 13.1.7 or 13.1.8, in no event shall Ambits aggregate liability to the Cephalon Indemnitees with respect to Cephalon Losses arising out of, based upon or caused by the matters set forth in Section 15.2(a), (b), (c), (d) or (e) exceed [***]. 15.3. Indemnification by Cephalon . Subject to Section 15.2, Cephalon hereby agrees to indemnify and hold Ambit, its Affiliates, subcontractors and their respective officers, directors, stockholders, employees, agents, and representatives (collectively, the Ambit Indemnitees) harmless from and against any and all claims, liabilities, losses, damages, costs and expenses in respect of claims against the Ambit Indemnitees by Third Parties other than the Ambit Indemnitees, including reasonable fees and disbursements of counsel and expenses of reasonable investigation (collectively, Ambit Losses), arising out of, based upon or caused by: (a) the inaccuracy of any representation or the breach of any warranty, covenant or agreement of Cephalon contained in this Agreement or in any other agreement or instrument delivered by Cephalon pursuant to this Agreement; (b) any failure by Cephalon, its Affiliates or their respective designees to conduct the research pursuant to the Research Plans in a diligent and professional manner and in accordance with applicable laws and regulations; (c) any gross negligence or intentional wrongdoing by Cephalon, its Affiliates or designees in the performance of the research hereunder; (d) any injury, illness or disease suffered by any Cephalon employees in connection with the performance of the Collaboration; (e) any breach of Cephalons contractual obligations to Third Parties; or (f) the development, preclinical and clinical testing, manufacture, distribution, sale and/or use (including but not limited to product liability claims) of any Collaboration Clinical Candidate, Collaboration Compound or Collaboration Product for which Cephalon is responsible for development and commercialization pursuant to the terms of this Agreement (except, in each case (a) to (f), to the extent that any Ambit Loss is due to the gross negligence or willful misconduct of Ambit Indemnitees). Except with respect to a breach arising under Sections 14.1.6, 14.1.7 or 14.1.8, in no event shall Cephalons aggregate liability to the Ambit Indemnitees with respect to Ambit Losses arising out of, based upon or caused by the matters set forth in Section 15.3(a), (b), (c), (d) or (e) exceed [***]. 15.4. Notices. Each indemnified Party agrees to give the indemnifying Party prompt written notice of any action, claim, demand, discovery of fact, proceeding or suit (collectively, Claims) for which such indemnified Party intends to assert a right to indemnification under this Agreement; provided however, that failure to give such notification shall not affect the indemnified Partys entitlement to indemnification hereunder except to the extent that the indemnifying Party shall have been prejudiced as a result of such failure. The indemnifying Party shall have the initial right (but not the obligation) to defend, settle or otherwise dispose of any Claim for which the indemnified ***Confidential Treatment Requested -57-
Party intends to assert a right to indemnification under this Agreement as contemplated in the preceding sentence if and so long as the indemnifying Party has recognized in a written notice to the indemnified Party provided within thirty (30) days of such written notice its obligation to indemnify the indemnified Party for any Ambit Losses or Cephalon Losses (as the case may be) relating to such Claim; provided however that if the indemnifying Party assumes control of the defense, settlement, or disposition of a Claim, the indemnifying Party shall obtain the written consent of the indemnified Party prior to ceasing to defend, settling or otherwise disposing of the Claim in the event that such cessation, settlement or disposition would materially adversely affect the indemnified Party. If the indemnifying Party fails to state in a written notice during such thirty (30) day period its willingness to assume the defense of such a Claim, the Ambit or Cephalon Indemnitee, as the case may be, shall have the right to defend, settle or otherwise dispose of such claim at the indemnifying Partys sole expense, subject to the applicable provisions of Sections 15.2 and 15.3 above. The indemnified Party shall not settle or compromise an Indemnification Claim without the prior written consent of the indemnifying Party, and the indemnifying Party shall not settle or compromise an Indemnification Claim in any manner which would have an adverse effect on the indemnified Partys interests, without the prior written consent of the indemnified Party, which consent, in each case, shall not be unreasonably withheld or delayed. The indemnified Party shall reasonably cooperate with the indemnifying Party at the indemnifying Partys expense and shall make available to the indemnifying Party all pertinent information under the control of the indemnified Party, which information shall be subject to Article XII. ARTICLE XVI. TERM, TERMINATION, AND EXPIRATION 16.1. Term of Agreement . The term of this Agreement (the Term) shall commence on the Effective Date and shall continue in full force and effect on a country-by-country and Collaboration Product-by-Collaboration Product basis until both Parties and their respective Sublicensees have no remaining royalty obligations in a country, unless terminated earlier as provided in this Article XVI. 16.2. Collaboration Term. The Collaboration shall commence on the Effective Date and terminate on the last day of the Initial Term, unless extended by mutual agreement of the Parties. In the event that Cephalon desires to extend the Collaboration Term, it shall so inform Ambit of such desire not less than [***] before the last day of the Initial Term or then-current Collaboration Term, in which case the Parties shall negotiate additional consideration to Ambit for any such proposed extension. If the Initial Term or the extended Collaboration Term, as the case may be, is not extended in the manner set forth in the preceding sentence, the Collaboration shall terminate on the last day of the Initial Term or extended Collaboration Term, as the case may be. ***Confidential Treatment Requested -58-
16.3. Termination. 16.3.1. Breach. If either Party breaches, or defaults in the performance of, or fails to be in compliance with, any material warranty, representation, agreement or covenant of this Agreement, and such default or noncompliance shall not have been substantially remedied within [***] after receipt by the defaulting Party of a written notice thereof and demand to cure such default from the other Party, the Party not in default or breach shall have the right to terminate this Agreement upon written notice effective immediately. 16.3.2. Bankruptcy. Either Party may, subject to the provisions herein, terminate the Collaboration and this Agreement if, at any time, the other Party shall file in any court pursuant to any statute, a petition in bankruptcy or insolvency or for reorganization in bankruptcy or for an arrangement or for the appointment of a receiver or trustee of such Party or of its assets, or if such Party proposes a written agreement of composition or extension of its debts, or if such Party shall be served with an involuntary petition against it, filed in any insolvency proceeding, and such petition shall not be dismissed within sixty (60) days after the filing thereof, or if such Party shall propose or be a party to any dissolution, or if such Party shall make an assignment for the benefit of creditors. 16.3.3. Additional Termination by Cephalon. (a) Cephalon shall have the right to terminate this Agreement upon written notice effective immediately in the event of an Adverse Financial Event. (b) No earlier than [***] after final delivery of the Cephalon Library Compounds pursuant to Section 4.1, Cephalon shall have the right to terminate this Agreement, at its sole discretion, upon ninety (90) days prior written notice to Ambit. As of the effective date of any such termination, neither Party shall have any further obligation to perform any activities with respect to any Research Plan pursuant to this Agreement. 16.3.4. Rights in Law or Equity. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, TERMINATION BY EITHER PARTY PURSUANT TO THIS SECTION 16.3 SHALL NOT PREJUDICE ANY OTHER REMEDY THAT A PARTY MIGHT HAVE IN LAW OR EQUITY, EXCEPT THAT NEITHER PARTY MAY CLAIM COMPENSATION FOR LOST OPPORTUNITY OR LIKE CONSEQUENTIAL DAMAGES OR SPECIAL, INCIDENTAL OR PUNITIVE DAMAGES ARISING OUT OF THE FACTS OF SUCH TERMINATION, EXCEPT IN CONNECTION WITH A BREACH OF ARTICLE XII, A PARTYS INFRINGEMENT OR MISAPPROPRIATION OF THE OTHER PARTYS INTELLECTUAL PROPERTY RIGHTS OR A PARTYS INDEMNIFICATION OBLIGATIONS HEREUNDER. 16.4. Change of Control . ***Confidential Treatment Requested -59-
16.4.1. Ambit immediately shall notify Cephalon of the occurrence of a Change of Control prior to the completion of the Collaboration. Upon a Change of Control of Ambit occurring prior to completion of the Collaboration, Cephalon may, in its absolute discretion exercisable by giving Ambit notice in writing within thirty (30) days of Cephalon being notified of the Change of Control, elect to (a) continue working with Ambit or the successor Third Party under the terms of this Agreement, (b) assume responsibility for completing the Collaboration, and/or (c) terminate this Agreement. 16.4.2. Upon a Change of Control of Ambit, Ambit or the Third Party successor immediately shall halt their activities under the Collaboration and shall cease all access to and use of any Cephalon Confidential Information, Cephalon IP and any other rights owned hereunder by Cephalon, except as may otherwise be specified by Cephalon in writing. The rights to any compound covered by Cephalon Confidential Information, Cephalon IP and/or any other rights owned hereunder by Cephalon shall revert to Cephalon, except as may otherwise be specified by Cephalon in writing. The foregoing notwithstanding, any rights transferred to any Third Party under Section 4.7.3(c) prior to Change of Control shall not be affected by this Section 16.4. 16.4.3. Upon Cephalons election pursuant to Section 16.4.1(a), Cephalon and Ambit or the Third Party successor shall negotiate in good faith such amendments to this Agreement that shall be required by Cephalon to continue with the Collaboration. Such negotiations shall not occur for more than thirty (30) days, unless otherwise extended by Cephalon. 16.4.4. Upon Cephalons election pursuant to Section 16.4.1(b), the following provisions shall apply: (a) the Parties shall agree to times convenient to both Ambit and Cephalon when scientist(s) from Ambit may visit Cephalon to facilitate the transfer to Cephalon of that Ambit IP necessary for and limited to Cephalons completion of the Collaboration, which transfer shall be completed at Cephalons own cost and expense; (b) Ambit shall use its reasonable efforts to assign to Cephalon the benefit and burden of any agreement made between Ambit and any subcontractor pursuant to Section 18.15; (c) the milestone payments due to Ambit pursuant to Article VIII shall be reduced pro-rata to the number of months elapsed since the Effective Date (as a ratio to [***]) at the date of the cessation of Ambit involvement in the Collaboration (e.g., such that if this occurs after the third anniversary of the Effective Date there shall be no reduction in this milestones); provided however, if as of the date of Cephalons notice of election pursuant to 16.4.1(b), (i) a Collaboration Clinical Candidate has been designated; (ii) Ambit has completed the screening of the Cephalon Library Compounds; and (iii) Ambit has delivered all profiling data from the screening of the Cephalon Compound Library to Cephalon, then there shall be no such reduction in the milestone payments relating to any such Collaboration Clinical Candidate; and ***Confidential Treatment Requested -60-
(d) the JRC shall be dissolved, the obligations on Ambit under Section 2.2 shall transfer to Cephalon and those provisions concerning the JRC shall not apply. Furthermore, Sections 2.1, 2.3, 2.4, 3.1, 3.2, 3.3, 3.4, 3.5 and 8.2 shall not apply. All other provisions of the Agreement shall continue to apply save as expressly modified by this Section 16.4.4. 16.4.5. Upon Cephalon electing to terminate this Agreement pursuant to Section 16.4.1(c), this Agreement shall be terminated upon Cephalons written notice effective immediately, whereupon Ambit shall pay to Cephalon as liquidated damages the sum of [***], reduced, pro rata, over the remainder of the Initial Term of the Agreement; provided however, if as of the date of Cephalons notice of termination pursuant to 16.4.1(c) (i) a Collaboration Clinical Candidate has been designated; (ii) Ambit has completed the screening of the Cephalon Library Compounds; and (iii) Ambit has delivered all profiling data from the screening of the Cephalon Library Compounds to Cephalon, then there shall be no payment of liquidated damages per the terms of this 16.4.5. 16.5. Effect of Breach or Termination. 16.5.1. Accrued Obligations. Termination of this Agreement for any reason shall not release any Party hereto from any liability which, at the time of such termination, has already accrued to the other Party or which is attributable to a period prior to such termination. 16.5.2. Return of Materials . Upon any termination of this Agreement, Cephalon and Ambit shall promptly (a) return to the other Party all Confidential Information received from the other Party (except one copy of which may be retained for archival purposes) and (b) destroy any analyses, studies or other documents, prepared by or for the benefit of Cephalon or Ambit as the case may be, relating to such other Partys Confidential Information, in each case except to the extent necessary for a Party to exercise any of its rights under any licenses granted to it that survive termination. 16.5.3. Effect of Termination. In the event of any termination of the Collaboration, Ambit and Cephalon shall have no future obligation to conduct research activities pursuant to any Research Plan after the effective date of such termination. 16.5.4. Licenses. (a) Termination by Ambit Pursuant to Section 16.3.1 or 16.3.2. In the event of termination by Ambit of this Agreement pursuant to Section 16.3.1 or Section 16.3.2, Cephalons licenses under Section 6.2 shall terminate, and all exclusivity periods, rights and licenses granted to Ambit hereunder as of the effective termination date shall remain in effect, subject to the terms and conditions of this Agreement applicable thereto. Furthermore, (i) Ambit shall have the right to exercise any existing ***Confidential Treatment Requested -61-
Options upon written notice to Cephalon delivered within ten (10) days of the effective termination date, and (ii) Ambit shall have a fully paid-up, worldwide, perpetual, irrevocable, transferable, royalty-free and exclusive license, with the right to sublicense, under any Collaboration IP, Licensed Compound IP or Cephalon IP, as the case may be, necessary to make, have made, use, sell, offer to sell, and import any Collaboration Clinical Candidate (that had been designated pursuant to Section 8.1 prior to the effective termination date) or Licensed Compound (that had been designated pursuant to Section 4.4.2 prior to the effective termination date). Ambit shall have, at its sole expense, the right to prepare, file, prosecute and maintain in such countries as it deems appropriate in its discretion, all Patents subject to the license conveyed in this section 16.5.4(a)(i) and (ii). (b) Termination by Cephalon Pursuant to Section 16.3.1, 16.3.2 or 16.3.3(a). In the event of termination by Cephalon pursuant to Section 16.3.1, Section 16.3.2 or 16.3.3(a), all exclusivity periods, rights and licenses granted to Ambit hereunder shall terminate; and all exclusivity periods, rights and licenses granted to Cephalon hereunder shall remain in effect, subject to the terms and conditions of this Agreement applicable thereto. Furthermore, (i) upon written notice given within ten (10) days of the effective termination date, Cephalon shall have the right to designate any Collaboration Compounds as Collaboration Clinical Candidates, in which case Cephalon shall be licensed to such Collaboration Clinical Candidates as set forth in Section 6.2.1, provided that such license shall be fully paid-up and royalty-free, and (ii) Cephalon shall have an exclusive, royalty-free, fully-paid up, worldwide, transferable license, with the right to sublicense, under any Licensed Compound IP and Ambit IP necessary to make, have made, use, sell, offer to sell, and import Licensed Compounds and Derivative Compounds in existence as of the effective termination date. Cephalon shall have the right, at its sole expense, to prepare, file, prosecute and maintain in such countries as it deems appropriate in its discretion, all Patents subject to the license conveyed in this section 16.5.4(b)(i) and (ii). The foregoing in this Section 16.5.4(b) notwithstanding, any license agreement or other arrangement negotiated with a Third Party pursuant to Section 4.7.3(c) prior to termination under Section 16.3.2 or 16.3.3(a) shall not be subject to this Section 16.5.4(b). (c) Termination by Cephalon of the Agreement Pursuant to Section 16.3.3(b) . In the event of termination of the Agreement by Cephalon pursuant to Section 16.3.3(b), all licenses granted pursuant to this Agreement as of the effective termination date shall remain in effect, subject to the terms and conditions of this Agreement applicable thereto, including the applicable provisions of Articles V, VII, VIII and IX, which shall survive and be applicable to such licenses in addition to the provisions which survive pursuant to Section 16.6. 16.6. Survival. Without limiting Section 16.5, the provisions of Sections 2.5, 4.3.4 (last sentence), , 4.4.3(b), 4.5.3, 4.5.4, 4.7, 4.8, 4.9, 4.10, 4.11, 10.1, 10.3, 11.2, 11.3, 11.4, 11.5, 11.6, 11.7, 13.1.10, 14.1.9, 16.3.4, 16.4.5, 16.5 and 16.6, and Articles V, VI (other than Section 6.4), XII, XV, XVIII shall survive the expiration or termination of this Agreement, provided that: -62-
16.6.1. The provisions of Article V shall not survive as to Ambit if Ambit has terminated this Agreement pursuant to Section 16.3.1 or 16.3.2; and 16.6.2. The provisions of Article V shall not survive as to Cephalon if Cephalon has terminated this Agreement pursuant to Section 16.3.1, 16.3.2 or 16.3(a). ARTICLE XVII. FINANCIAL MATTERS 17.1. Financial Reports. During the Collaboration Term, Ambit shall provide to Cephalon: 17.1.1. as soon as practicable, but in any event within one hundred and twenty (120) days after the end of each fiscal year of Ambit, an income statement for such fiscal year and a balance sheet of Ambit as of the end of such fiscal year, such year-end financial reports to be in reasonable detail, prepared in accordance with GAAP, and audited and certified by independent public accountants of nationally recognized standing reasonably acceptable to Cephalon; 17.1.2. as soon as practicable, but in any event within thirty (30) days after the end of each of the first three (3) fiscal quarters of each fiscal year of Ambit, an unaudited profit or loss statement for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter; and 17.1.3. such other information relating to the financial condition, business, prospects and corporate affairs of Ambit as Cephalon may from time to time reasonably request and at Cephalons expense. Cephalon shall have the right, at its sole expense, to engage an auditor reasonably acceptable to Ambit to review and audit the financial statements provided to it by Ambit pursuant to this Section 17.1. 17.2. Right to Purchase Ambit Stock . Upon the occurrence of an Adverse Financial Event at any time during the Collaboration Term, Cephalon shall have either of the rights specified in Sections 17.2.1 and 17.2.2 below: 17.2.1. Cephalon shall have the right to purchase upon written notice to Ambit, and Ambit shall issue and sell to Cephalon, convertible debt instruments or shares of capital stock of Ambit having an aggregate purchase price reasonably determined by Cephalon to cure the existence of the Adverse Financial Event. Such capital stock shall be shares of Ambits capital stock (the Ambit Stock) and have terms as mutually agreed by the Parties. The purchase price to be paid by Cephalon for each share of Ambit Stock shall be the then-current fair market value thereof (the Share Price), determined as follows: (a) the fair market value per share of Ambit Stock shall be determined by the Board of Directors of Ambit; provided, however, that in the event that Cephalon -63-
disputes the fair market value as so determined, Cephalon and Ambit shall, within ten (10) days after Cephalon notifies Ambit in writing of such disagreement, appoint a mutually acceptable independent valuation expert who shall determine such fair market value. If the Parties hereto cannot agree on a valuation expert within such ten (10) day period, a valuation expert with substantial experience in valuing pharmaceutical companies comparable to Ambit shall be selected by the New York, New York office of the American Arbitration Association. The valuation expert so designated shall not be an employee, consultant, officer, director or stockholder of any Party hereto or of any Affiliate of any Party hereto. The valuation expert shall use such experts best efforts to establish the fair market value of the Ambit Stock within thirty (30) days after such experts appointment. The determination of the valuation expert as to the value of the Ambit Stock shall be binding and conclusive upon all Parties hereto, and the fees and expenses of such valuation expert shall be borne equally by Ambit and Cephalon. In determining such fair market value, the valuation expert shall not take into account the exercise price of stock options, financings which constituted less than five hundred thousand dollars ($500,000) in gross proceeds to Ambit, equity issued as a so-called equity feature (such as a warrant) of a transaction primarily involving a collaboration relationship, the provision of services or the incurrence of indebtedness for borrowed money, and issuances of stock to Affiliates of Ambit. (b) An Adverse Financial Event shall mean that Ambit shall have failed to have the greater of (i) sufficient freely available cash on hand to timely perform all of its obligations hereunder for the period of time between (i) the AFE Determination Date (as defined below) or (ii) the date [***] from the AFE Determination Date and (ii) [***] in freely available cash. AFE Determination Date shall mean any date(s) designated by Cephalon to perform an analysis of Ambits financial condition. Ambit shall provide reasonable assistance to Cephalon to determine the existence of an Adverse Financial Event. 17.2.2. Right to Require Financing. Cephalon shall have the right to cause Ambit, at Ambits expense to use its best efforts to initiate and complete a round of Third Party equity financing within [***] of Cephalons request thereof in such aggregate amount as is reasonably determined by Cephalon to cure the existence of the Adverse Financial Event. Cephalon shall have the right to participate in such round of financing on terms no less favorable than those negotiated by Ambit with its other investors. ***Confidential Treatment Requested -64-
ARTICLE XVIII. MISCELLANEOUS 18.1. Notices. Any notice or other communication required or permitted to be given by either Party under this Agreement shall be effective when delivered, if delivered by hand or by electronic facsimile or five (5) days after mailing if mailed by registered or certified mail, postage prepaid and return receipt requested, and shall be addressed to each Party at the following addresses or such other address an may be designated by notice pursuant to this Section: If to Ambit: Ambit Biosciences Corporation 4215 Sorrento Valley Blvd. San Diego, CA 92121 Attn: Stephen Keane Fax: (858) 334-2198 With a copy to: Ambit Biosciences Corporation 4215 Sorrento Valley Blvd. San Diego, CA 92121 Attn: Kerry A. Kelly, General Counsel Fax: (858) 334-2198 If to Cephalon: Cephalon, Inc. 41 Moores Road Frazer, PA 19355 Attn: Executive Vice President, Research & Development Fax: (610) 344-0065 With a copy to: Cephalon, Inc. 41 Moores Road Frazer, PA 19355 Attn: General Counsel Fax: (610) 344-0065 and: Dechert LLP Cira Centre 2929 Arch Street Philadelphia, PA 19104-2808 Attn: James A. Lebovitz, Esq. Fax: (215) 994-2222 18.2. Amendments. No amendment, modification or addition hereto shall be effective or binding on either Party unless set forth in writing and executed by duly authorized representatives of both Parties. 18.3. Waiver. No waiver of any rights under this Agreement shall be deemed effective unless contained in writing signed by the Party charged with such waiver, and no waiver of any breach or failure to perform shall be deemed a waiver of any future breach or failure to perform or any other right arising under this Agreement. -65-
18.4. Headings. The section headings contained in this Agreement are included for convenience only and form no part of the agreement between the Parties. 18.5. Applicable Law. This Agreement shall be governed by, subject to and construed in accordance with the laws of the State of Delaware, without regard to its conflict of law provisions. 18.6. Jurisdiction. Without limitation of Section 18.18, each Party hereby irrevocably submits to the exclusive jurisdiction of (i) the Superior Court of the State of Delaware, New Castle County, and (ii) the United States District Court for the District of Delaware, for the purposes of any suit, action or other proceeding arising out of this Agreement or out of any transaction contemplated hereby. Each Party agrees to commence any such action, suit or proceeding either in the United States District Court for the District of Delaware or if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in the Superior Court of the State of Delaware, New Castle County. Each Party further agrees that service of any process, summons, notice or document by personal delivery, by registered mail, or by a recognized international express delivery service to such Partys respective address set forth above shall be effective service of process for any action, suit or proceeding in Delaware with respect to any matters to which it has submitted to jurisdiction in this Section. Each Party irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the Superior Court of the State of Delaware, New Castle County, and (ii) the United States District Court for the District of Delaware, and hereby and thereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 18.7. Severability. If any provision of this Agreement is held to be invalid, void or unenforceable for any reason, it shall be adjusted, if possible, rather than voided in order to achieve the intent of the Parties to the maximal extent possible. In any event, all other provisions of this Agreement shall be deemed valid and enforceable to the fullest extent possible. 18.8. Assignment: Binding Effect. Neither this Agreement, nor any obligations or rights hereunder, shall be assignable or transferable (whether by contract, operation of law or otherwise) by any Party hereto without the prior written consent of the other Party; provided however, that Cephalon may assign this Agreement without the consent of the Ambit to its Affiliates or in connection with the sale or transfer of all or substantially all of its assets relating to this Agreement, whether by merger, sale of stock, operation of law or otherwise. Any purported assignment in contravention of this Section shall, at the option of the non-assigning Party, be null and void and of no effect. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties to the extent necessary to carry out the intent of this Agreement. Ambit acknowledges that Ambits being a party to this Agreement is essential to Cephalon. Accordingly, without limitation of any other provision herein, Ambit agrees that Cephalon shall have the right under 11 U.S.C. 365(c)(1) or successor provisions to refuse -66-
to accept performance from or render performance to any entity, including Ambit as the debtor or debtor in possession, in a case involving Ambit under the U.S. Bankruptcy Code, and Ambit shall not assert any arguments or defenses to the contrary. 18.9. Further Assurances . 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. 18.10. Force Majeure. No Party shall be liable for any failure or delay in performance under this Agreement to the extent such failure or delay arises from Force Majeure. A Force Majeure is fire, explosion, earthquake, storm, flood, strike, labor difficulties, war, insurrection, riot, act of God or the public enemy, or any law, act, order, export or import control regulations, proclamation, decree, regulation, ordinance, or instructions of local, state, federal or foreign governmental or other public authorities, or judgment or decree of a court of competent jurisdiction (but excluding a court injunction against a Partys performance) and not otherwise arising out of breach by such Party of this Agreement. In the event of the occurrence of such an event, the Party so affected shall give prompt written notice to the other Party, stating the period of time the occurrence is expected to continue and shall use best efforts to end the failure or delay and ensure that the effects of such Force Majeure are minimized. 18.11. Negation of Agency . Nothing herein contained shall be deemed to create an agency, joint venture, amalgamation, partnership, or similar relationship between Cephalon and Ambit. The relationship between the Parties established by this Agreement is that of independent contractors. 18.12. Publicity. Promptly after the Effective Date, Ambit and Cephalon shall have the right to issue a press release regarding this Agreement, in a form agreed to by the Parties prior to the Effective Date. No other public announcement concerning the existence or the terms of this Agreement shall be made, either directly or indirectly, by Ambit or Cephalon, except as may be legally required by applicable laws, regulations, or judicial order, without first obtaining the approval of the other Party and agreement upon the nature, text, and timing of such announcement, which approval and agreement shall not be unreasonably withheld. The Party desiring to make any such public announcement shall provide the other Party with a written copy of the proposed announcement in sufficient time prior to public release to allow such other Party to comment upon such announcement, prior to public release. Neither Party shall issue any press release or make any public announcement, which includes or otherwise uses the name of the other Party in any public statement or document except with the prior written consent of such Party. Notwithstanding the preceding sentence, Ambit and Cephalon shall issue joint press releases in a timely manner announcing the achievement of significant events related to or arising from the Collaboration. Such events include, by way of example, the achievement of milestone events and the payment of milestone payments, IND or NDA filings, and the commencement of specific clinical trials. -67-
18.13. Entire Agreement. This Agreement contains the entire agreement between the Parties with respect to the subject matter hereof. Any prior agreement, arrangement or undertaking, whether oral or in writing is hereby superseded. 18.14. Beneficiaries. No person, other than Cephalon or Ambit and their permitted assignees hereunder, shall be deemed an intended beneficiary hereunder or have any right to enforce any obligation of this Agreement. 18.15. Affiliates and Subcontractors. Either Party may engage, at its sole expense, its Affiliates or Third Party subcontractors (including contract research organizations) to perform certain of its obligations under this Agreement. Any Affiliate or Third Party subcontractor to be engaged by a Party to perform such Partys obligations set forth in this Agreement shall meet the qualifications typically required by such Party for the performance of work similar in scope and complexity to the subcontracted activity. The activities of any such Affiliates or Third Party subcontractors shall be considered activities of such Party under this Agreement. Such Party shall be responsible for ensuring compliance by any such Affiliates or Third Party subcontractors with the terms of this Agreement. In any case in which a Party engages an Affiliate or a Third Party subcontractor, such Party shall obtain sole ownership of, or exclusive license to, all inventions, data, information and related intellectual property rights made or developed by such Affiliate or Third Party subcontractor so that the Party is able to make the assignments and grant the licenses set forth herein. 18.16. Compliance with Laws. In exercising their rights under this Agreement, the Parties shall fully comply with the requirements of any and all applicable laws, regulations, rules and orders of any governmental body having jurisdiction over the exercise of rights under this Agreement. 18.17. Patent Marking. Each Party agrees to mark and have its Affiliates and Sublicensees mark all Collaboration Products and Licensed Products sold pursuant to this Agreement in accordance with the applicable statute or regulations relating to patent marking in the country or countries of manufacture and sale thereof. 18.18. Dispute Resolution. (a) Attempt to Settle. The Parties agree to take all reasonable efforts to resolve any and all disputes between them concerning diligence obligations and/or questions of material breach and default in connection with this Agreement in an amicable manner. Any such disputes shall promptly be presented to the Chief Executive Officer of Ambit and the Executive Vice President of Research and Development of Cephalon, or their respective designees, for resolution. If a dispute between the Parties arising out of or relating to the validity or interpretation of, compliance with, breach or alleged breach of or termination of this Agreement cannot be resolved within fifteen (15) business days of presentation to the Chief Executive Officer of Ambit and the Executive Vice President of Research and Development of Cephalon, or their respective designees, either Party may refer such dispute to binding arbitration or the courts to be conducted as set forth in this Section 18.18 and Section 18.6, respectively. -68-
(b) Binding Arbitration. Except in the event of alleged breach or default by a Party or lack of diligence by a bankrupt or insolvent Party, and except as set forth in Section 18.18(k), the Parties agree that any such dispute that arises in connection with this Agreement and which cannot be amicably resolved by the Parties in accordance with Section 18.18(a) shall be resolved by binding arbitration as set forth in this Section, conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association (AAA) by three (3) arbitrators. (c) Written Notice. If a Party intends to begin an arbitration to resolve a dispute, such Party shall provide written notice to the other Party informing the other Party of such intention and the issues to be resolved. Within twenty (20) business days after its receipt of such notice, the other Party may, by written notice to the Party initiating arbitration, add additional issues to be resolved. (d) Selection of Arbitrators . Within forty-five (45) days following the receipt of the notice of arbitration, the Parties shall agree on the arbitrators, or if the Parties are unable to agree the arbitrators shall be selected as provided in the AAA Commercial Arbitration Rules. The arbitrators shall not be employees, directors or shareholders of either Party or of an Affiliate and shall be selected in accordance with AAA rules. Where applicable, the arbitrators shall be independent experts in pharmaceutical product development (including clinical development and regulatory affairs) in the U.S., Japan and Europe. (e) Hearings. The arbitrators shall conduct one or more hearings to allow the Parties to present their positions regarding the dispute. (i) Discovery. The arbitrators shall determine what discovery will be permitted, consistent with the goal of limiting the cost and time that the Parties must expend for discovery; provided the arbitrators shall permit such discovery as they deem necessary to permit an equitable resolution of the dispute. Any written evidence originally in a language other than English shall be submitted in English translation accompanied by the original or a true copy thereof. The arbitrators shall have sole discretion with regard to the admissibility of any evidence. (ii) Proposed Ruling. At least ten (10) business days prior to a hearing, each Party must submit to the arbitrators and serve on the other Party a proposed ruling on each issue to be resolved. Such writings shall be limited to not more than fifty (50) pages. (iii) Time; Testimony. Each Party shall be entitled to no more than five (5) days of hearing to present testimony or documentary evidence. Such time limitation shall include any direct, cross or rebuttal testimony, but such time limitation shall only be charged against the Party conducting such direct, cross or rebuttal testimony. It shall be the responsibility of the arbitrators to determine whether the Parties have had the five (5) days to which each is entitled. -69-
(iv) Representation by an Attorney . Each Party shall have the right to be represented by counsel. (v) Location. The arbitration shall take place in Philadelphia, Pennsylvania. (f) Costs. The costs of the arbitration, including administrative and arbitrator fees, shall be shared equally by the Parties. Each Party shall bear its own costs and attorney and witness fees. (g) Written Decision. The arbitrators shall render a written decision with their resolution of the dispute. The decision of the arbitrators shall be final and not subject to appeal and binding on the Parties hereto. (h) Remedy. A disputed performance or suspended performances pending the resolution of the arbitration must be completed within thirty (30) days following the final decision of the arbitrators or such other reasonable period as the arbitrators determine in a written opinion. (i) Final Decision Within Six Months. Each arbitrator selected in accordance with Section 18.18(d) shall be required to acknowledge his or her intention to meet the Parties desire that a final decision be issued with respect to a dispute within six (6) months from the filing of notice of a request for such arbitration. (j) Equitable Relief . Notwithstanding anything in this Section 18.18, each Party shall have the right to seek injunctive or other equitable relief from a court of competent jurisdiction that may be necessary to avoid irreparable harm, maintain the status quo or preserve the subject matter of the arbitration. (k) Intellectual Property. Disputes regarding the validity, scope or enforceability of intellectual property rights shall not be subject to arbitration pursuant to this Section 18.18 but instead shall be submitted to a court of competent jurisdiction. 18.19. No Trademark Rights. Except as provided herein, no right, express or implied, is granted by this Agreement to use in any manner the name Ambit, Cephalon or any other trade name or trademark of the other Party or its Affiliates in connection with performance of this Agreement. 18.20. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, and may be executed through the use of facsimiles. 18.21. Taxes. Any tax paid or required to be withheld by a party (the payor) for the benefit of the other party (the payee) on account of payment payable under this Agreement shall be deducted from the amount of such payment otherwise due. The payor -70-
shall secure and send to the payee proof of any such taxes withheld and paid for its benefit of and shall, at the request of payee, provide reasonable assistance to payee in recovering said taxes. IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives as of the Effective Date. CEPHALON, INC. AMBIT BIOSCIENCES CORPORATION By: /s/ Scott Salka
By:
/s/ Jeffry L. Vaught
Name: Jeffry L. Vaught, Ph.D. Title: Executive Vice President Research & Development Date: November 3, 2006 -71-
Name: Scott Salka Title: CEO
Date:
3 Nov 06
SCHEDULE A AMBIT 6 TARGETS [***] For clarification, it is understood that Ambit will be allowed to optimize inhibitors against [***] which may also be active inhibitors of [***], and [***]. For clarification, it is understood that Ambit will be allowed to optimize inhibitors of [***] which may also be active inhibitors of [***],[***], and [***]. ***Confidential Treatment Requested -72-
SCHEDULE B CEPHALON EXCLUSIVE TARGETS [***] ***Confidential Treatment Requested -73-
ATTACHMENT A APPLICABLE PROFILING SERVICES AGREEMENT PROVISIONS The Parties agree that the following provisions of the Profiling Services Agreement shall apply with respect to Ambits profiling of any compounds under this Agreement, as if such terms were set forth in this Agreement : Sections 2.2.1, 2.3 (excluding any reference to Table 1), 2.5 (last two sentences, to be consistent with the terms of this Agreement), 2.7, 2.8, 2.9 (as applicable), 2.10, 6.2, 6.3, 6.5, 6.6, 6.7 and 6.9, and paragraphs D of Exhibit A. For the avoidance of doubt, the foregoing provisions shall not apply to any activities under this Agreement other than the profiling activities to be performed by Ambit hereunder. -74-
Exhibit 10.28 ***Text Omitted and Filed Separately with the Securities and Exchange Commission. Confidential Treatment Requested Under 17 C.F.R. Sections 200.80(b)(4) and Rule 406 of the Securities Act of 1933, as amended. EXECUTION COPY
LICENSE AGREEMENT between AMBIT BIOSCIENCES CORPORATION and BRISTOL-MYERS SQUIBB COMPANY
LICENSE AGREEMENT THIS LICENSE AGREEMENT (this Agreement) is made and entered into as of October 2, 2007 (the Effective Date), by and between Bristol-Myers Squibb Company, a Delaware corporation headquartered at 345 Park Avenue, New York, New York 10154 (BMS), and Ambit Biosciences Corporation, a Delaware corporation, having its principal office at 4215 Sorrento Valley Boulevard, San Diego, CA 92121 ( Ambit). BMS and Ambit are sometimes referred to herein individually as a Party and collectively as the Parties. RECITALS WHEREAS, BMS Controls (as defined below) certain patent rights and know-how rights with respect to the Licensed Compounds (as defined below); and WHEREAS, Ambit desires to obtain from BMS the licenses set forth herein, and BMS desires to grant such licenses to Ambit, all on the terms and conditions set forth in this Agreement; WHEREAS, BMS and Ambit are entering into a License and Profiling Services Agreement (as defined below) concurrently with this Agreement; and WHEREAS, BMS and Ambit are entering into an Amended and Restated License Agreement (as defined below) concurrently with this Agreement. NOW, THEREFORE in consideration of the foregoing and the mutual agreements set forth below, the Parties agree as follows: ARTICLE 1 DEFINITIONS The terms in this Agreement with initial letters capitalized, whether used in the singular or the plural, shall have the meaning set forth below or, if not listed below, the meaning designated in places throughout this Agreement. 1.1 AAA has the meaning set forth in Section 14.2. 1.2 Act means the United States Food, Drug and Cosmetic Act, as amended. 1.3 Affiliate of a Person means any other Person which (directly or indirectly) is controlled by, controls or is under common control with such Person. For the purposes of this definition, the term control (including, with correlative meanings, the terms controlled by and under common control with) as used with respect to a Person means (i) in the case of a corporate entity, direct or indirect ownership of voting securities entitled to cast at least fifty percent (50%) of the votes in the election of directors or (ii) in the case of a non-corporate entity, direct or indirect ownership of at least fifty percent (50%) of the voting securities with the power to direct the management and policies of such entity. 1.4 Agreement means this Agreement, together with all Appendices attached hereto, as the same may be amended or supplemented from time to time. -1-
1.5 Amended and Restated License Agreement means the agreement entitled Amended and Restated License Agreement which is entered into by Ambit and BMS concurrently with this Agreement. 1.6 Approval means, with respect to any Licensed Product in any regulatory jurisdiction, approval from the applicable Regulatory Authority sufficient for the manufacture, distribution, use and sale of the Licensed Product in such jurisdiction in accordance with applicable Laws, including receipt of pricing and reimbursement approvals, where applicable. 1.7 Blended Rate means [***], expressed as a percentage. 1.8 BMS Core Patent Rights means the patent applications and patents that are listed in Part I of Appendix 1 hereto, and (a) any patent application that claims or is entitled to claim priority to any of the patents and patent applications listed in Part I of Appendix 1 hereto (including any divisional, continuation, or continuation-in-part patent application, but only with respect to and to the extent that the claims thereof are entitled to claim priority to a patent or patent application listed in Part I of Appendix 1), and foreign counterparts thereof (but in each case, only with respect to claims in such application or foreign counterparts thereof that cover subject matter within the scope of the claims in the patent applications listed in Part I of Appendix 1 hereto), and (b) all patents issuing on any of the foregoing patent applications in clause (a) above, together with all registrations, reissues, re-examinations, supplemental protection certificates, or extensions thereof, and any foreign counterparts thereof (but in each case, only with respect to claims in such patents or foreign counterparts thereof that cover subject matter within the scope of the claims in the patent applications listed in Part I of Appendix 1 hereto). 1.9 BMS Know-How means all technical information and know-how known to and Controlled by BMS as of the Effective Date (including, without limitation, all biological, chemical, pharmacological, toxicological, clinical, manufacturing assay and related data, know-how and trade secrets) that is reasonably necessary for the Development or Commercialization of the Licensed Compounds and/or Licensed Products. BMS KnowHow shall not include information and know-how that is acquired or developed by BMS after the Effective Date. 1.10 BMS Other Patent Rights means the patents and patent applications which are listed in Part II of Appendix 1 hereto, and (a) any patent application that claims priority to any of the patents and patent applications listed in Part II of Appendix 1 hereto (including any divisional, continuation, or continuation-in-part patent application), and foreign counterparts thereof (but in each case, only with respect to claims in such application or foreign counterparts thereof that cover subject matter within the scope of the claims in the patents and patent applications listed in Part II of Appendix 1 hereto), and (b) all patents issuing on any of the foregoing patent applications which are listed in Part II of Appendix 1 hereto or any of the foregoing patent applications in clause (a) above, together with all registrations, reissues, re-examinations, supplemental protection certificates, or extensions thereof, and any foreign counterparts thereof (but in each case, only with respect to claims in such patents or foreign counterparts thereof that cover subject matter within the scope of the claims in the patents and patent applications listed in Part II of Appendix 1 hereto). 1.11 BMS Patent Rights means the BMS Core Patent Rights and the BMS Other Patent Rights. ***Confidential Treatment Requested -2-
1.12 Business Day or business day means a day other than Saturday, Sunday or any day on which commercial banks located in New York, New York are authorized or obligated by applicable Laws to close. 1.13 Calendar Quarter means the respective periods of three consecutive calendar months ending on March 31, June 30, September 30 and December 31. 1.14 Calendar Year means each successive period of 12 months commencing on January 1 and ending on December 31. 1.15 Collaboration and Profiling Services Agreement shall mean the agreement entitled Collaboration and Profiling Services Agreement with an effective December 9, 2005 between the Parties. 1.16 Combination Product means [***], except in the case where such delivery vehicle, adjuvant, or excipient is recognized by the FDA as an active ingredient in accordance with 21 CFR 210.3(b)(7). 1.17 Commercialization or Commercialize means activities directed to commercially manufacturing, obtaining pricing and reimbursement approvals, [***], marketing, promoting, distributing, importing or selling a pharmaceutical product. 1.18 Commercially Reasonable Efforts means, with respect to Licensed Compounds and Licensed Products the carrying out of Development or Commercialization activities in a diligent and sustained manner using the efforts that a company within the bio-pharmaceutical industry would devote to a product of similar market potential, profit potential or strategic value that is not subject to royalties or other Third Party rights, in all of the foregoing cases based on conditions then prevailing, taking into account the following: issues of safety and efficacy, product labeling or anticipated labeling, present and future market potential, competitiveness of the market, profitability of the applicable product, regulatory environment, and the patent or other proprietary position, manufacturing and development costs, and without regard to any other compound to which such Party or any of its Affiliates may have access. Without limiting the foregoing, Commercially Reasonable Efforts requires that a Party: (i) promptly assign responsibility for such Development and Commercialization activities to specific employees, contractors, agents, Affiliates or Sublicensees, as applicable, who are held accountable for progress and monitor such progress on an on-going basis, (ii) set and consistently seek to achieve specific and meaningful objectives and timelines for carrying out such Development and Commercialization activities, (iii) consistently make and implement decisions and allocate resources designed to advance progress with respect to such objectives and timelines, and (iv) employ compensation systems for its employees that are consistent with the compensation systems such Party customarily applies to its other programs, in order to reasonably incentivize such employees to achieve such objectives. 1.19 Confidential Information means all trade secrets, processes, formulae, data, know-how, improvements, inventions, chemical or biological materials, assays, techniques, marketing plans, strategies, customer lists, or other information that has been created, discovered, or developed by a Party, or has otherwise become known to a Party, or to which rights have been assigned to a Party, as well as any other information and materials that are deemed confidential or proprietary to or by a Party (including, without limitation, all information and materials of a Partys customers and any other Third Party and their consultants), in each case that are disclosed by such Party to the other Party, regardless of whether any of the foregoing are marked confidential or proprietary or communicated to the other by the disclosing Party in oral, written, graphic, or electronic form. ***Confidential Treatment Requested -3-
1.20 Controlled or Controls, when used in reference to intellectual property, means the legal authority or right of a Party hereto (or any of its Affiliates) to grant a license or sublicense of intellectual property rights to another Party, or to otherwise disclose proprietary or trade secret information to such other Party, without breaching the terms of any agreement with a Third Party, or misappropriating the proprietary or trade secret information of a Third Party. 1.21 Cover, Covered or Covering means, with respect to patent rights, that the making, using, importation, offer for sale or sale of an invention claimed in such patent rights or the conducting of an activity, in the absence of a license under such patent rights, would infringe at least one Valid Claim of such patent rights whether present in an issued patent or in a patent application if it issued as a patent containing such claim. 1.22 Development means non-clinical and clinical drug development activities reasonably related to the development and submission of information to a Regulatory Authority, including, without limitation, [***]. When used as a verb, Develop means to engage in Development. 1.23 Development Plan means, with respect to any Licensed Product, a comprehensive, multiyear plan specifying the anticipated timing and technical details of Development activities for such Licensed Product, including without limitation [***]. An outline of the initial Development Plan as of the Effective Date is attached hereto as Appendix 2. 1.24 Dollar or $ means the lawful currency of the United States. 1.25 Effective Date means the date specified in the initial paragraph of this Agreement. 1.26 EMEA means the European Agency for the Evaluation of Medicinal Products, or any successor agency thereto. 1.27 EU means the European Union, as its membership may be altered from time to time, and any successor thereto, and which, as of the Effective Date, consists of Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, The Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden and the United Kingdom, and that certain portion of Cyprus included in such organization. 1.28 Europe means the countries comprising the European Union as it may be constituted from time to time, together with those additional countries included in the European Economic Area as it may be constituted from time to time (which as of the Effective Date includes Iceland, Liechtenstein and Norway), Albania, Andorra, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Holy See (Vatican), Macedonia, Moldova, Monaco, Poland, Romania, Russian Federation, San Marino, Serbia and Montenegro, Switzerland, Turkey, Ukraine, other central and eastern European markets including former Soviet block and USSR countries, and any successors to, or new countries created from, any of the foregoing. ***Confidential Treatment Requested -4-
1.29 FDA means the U.S. Food and Drug Administration, or any successor agency thereto. 1.30 Field means [***]. 1.31 First Commercial Sale means, with respect to any Product, the first sale for use or consumption by the general public of such Product in any country in the Territory after Approval of such Product has been granted, or such marketing and sale is otherwise permitted, by the Regulatory Authority of such country. 1.32 GAAP means generally accepted accounting principles in the United States. 1.33 Generic Product means any pharmaceutical product containing as an active ingredient a Licensed Compound (or any salt, solvate, crystalline or noncrystalline form of such Licensed Compound) that is also contained in a Licensed Product, and which pharmaceutical product is sold in the same country as such Licensed Product by any Third Party that is not a Sublicensee of Ambit or its Affiliates. 1.34 IND means an Investigational New Drug Application, as defined in the Act, filed with the FDA or its foreign counterparts. 1.35 Indemnification Claim has the meaning set forth in Section 12.3. 1.36 Indemnitee has the meaning set forth in Section 12.3. 1.37 Indemnitor has the meaning set forth in Section 12.3. 1.38 Independent Evaluator means an independent certified public accounting firm or investment bank of nationally recognized standing, which is not at the time of the evaluation in Section 3.1 providing auditing or consulting services to either party, which is selected by Ambit and as to which BMS has no reasonable objection. BMS may reject a proposed Independent Evaluator selected by Ambit only by written notice stating the reasons for rejection to Ambit given within five (5) business days after Ambit notifies BMS of the identity of the proposed Independent Evaluator. 1.39 JNDA means a New Drug Application filed with the Koseisho required for marketing approval for the applicable Licensed Product in Japan. 1.40 JNDA Approval means the approval of a JNDA by the Koseisho for the applicable Licensed Product in Japan. 1.41 Koseisho means the Japanese Ministry of Health and Welfare, or any successor agency thereto. 1.42 Laws means all laws, statutes, rules, regulations, ordinances and other pronouncements having the effect of law of any federal, national, multinational, state, provincial, county, city or other political subdivision, agency or other body, domestic or foreign. 1.43 License and Profiling Services Agreement means the agreement entitled License and Profiling Services Agreement which is entered into by Ambit and BMS concurrently with this Agreement. ***Confidential Treatment Requested -5-
1.44 License has the meaning set forth in Section 2.2(a). License also refers to the corresponding arrangement for the grant by Ambit of rights back to BMS with respect to one or more Licensed Compound(s) and Product(s) pursuant to Article 3. 1.45 Licensed Compounds means: (a) [***]; (b) [***]. 1.46 Licensed Product means any product containing a Licensed Compound (alone or with other active ingredients), in all forms, presentations, formulations and dosage forms. 1.47 Losses and Claims has the meaning set forth in Section 12.1. 1.48 MAA Approval shall be achieved upon receiving Approval for the applicable Licensed Product in any Major European Country. 1.49 MAA Filing means filing with the EMEA of a marketing authorization application (MAA) for the applicable Licensed Product under the centralized European procedure. 1.50 Major European Country means [***]. 1.51 Major Market Countries means [***]. Major Market Country means one of these countries. 1.52 NDA means a New Drug Application filed with the FDA required for marketing approval for the applicable Licensed Product in the U.S. 1.53 NDA Approval means the approval of an NDA by the FDA for the applicable Licensed Product in the U.S. 1.54 NDA Filing means the acceptance by the FDA of the filing of an NDA for the applicable Licensed Product. 1.55 Negotiation Period has the meaning set forth in Article 3. 1.56 Net Sales means, with respect to any Product, the amount billed by a Party, an Affiliate of such Party, or any permitted Sublicensee for sales of such Product to a Third Party less: (a) discounts (including, without limitation, cash discounts and quantity discounts), retroactive price reductions, charge-back payments and rebates granted to managed health care organizations or to federal, state and local governments, their agencies, and purchasers and reimbursers or to trade customers (a Discount); provided however, that where any such Discount is based on sales of a bundled set of products in which such Product is included, the Discount shall be allocated to such Product on a pro rata basis based on the sales value (i.e., the unit average selling price multiplied by the unit volume) of the Product relative to the sales value contributed by the other constituent products in the bundled set, with respect to such sale; (b) credits or allowances actually granted upon claims, damaged goods, rejections or returns of such Product, including such Product returned in connection with recalls or withdrawals; ***Confidential Treatment Requested -6-
(c) freight out, postage, shipping and insurance charges for delivery of such Product; (d) taxes or duties levied on, absorbed or otherwise imposed on the sale of such Product, including, without limitation, value-added taxes, or other governmental charges otherwise imposed upon the billed amount, as adjusted for rebates and refunds, to the extent not paid by the Third Party; and (e) amounts written off by reason of uncollectible debt. Net Sales shall be determined in accordance with GAAP. In the case of any Combination Product sold in the Territory, Net Sales for such Combination Product shall be calculated by multiplying actual Net Sales of such Combination Product by the fraction A/(A+B) where A is the invoice price of the Product if sold separately, and B is the total invoice price of the other active ingredient or ingredients in the Combination Product, if sold separately. If, on a country-by-country basis, the other active ingredient or ingredients in the Combination Product are not sold separately in said country, Net Sales for the purpose of determining royalties of the Combination Product shall be calculated by multiplying actual Net Sales of such Combination Product by the fraction A/D, where A is the invoice price of the Product if sold separately, and D is the invoice price of the Combination Product. If neither the Product nor the other active ingredient(s) are sold separately in a given country, the Parties shall determine Net Sales for such Combination Product by mutual agreement based on the relative contribution of the Licensed Compound and each other active ingredient to the Combination Product, and shall take into account in good faith any applicable allocations and calculations that may have been made for the same period in other countries (giving more weight to allocations made for Major Market Countries than for other countries). Net Sales shall not include any payments among a Party, its Affiliates and Sublicensees. 1.57 Notice has the meaning set forth in Section 3.1.1(a). 1.58 Person means any individual, firm, corporation, partnership, limited liability company, trust, business trust, joint venture company, governmental authority, association or other entity. 1.59 Phase 1 Trial means a human clinical trial of a Product, the principal purpose of which is a preliminary determination of safety in healthy individuals or patients, as described in 21 C.F.R. 312.21(a), or a similar clinical study prescribed by the Regulatory Authorities in a foreign country. 1.60 Phase 2 Trial means a human clinical trial of a Product, the principal purpose of which is a determination of safety and efficacy in the target patient population, as described in 21 C.F.R. 312.21(b), or a similar clinical study prescribed by the Regulatory Authorities in a foreign country. 1.61 Phase 2 POC Study means [***]. As used herein, [***] shall mean [***], and [***] shall mean [***]. ***Confidential Treatment Requested -7-
1.62 Phase 3 Trial means a human clinical trial of a Product on a sufficient number of subjects that is designed to establish that a pharmaceutical product is safe and efficacious for its intended use, and to determine warnings, precautions, and adverse reactions that are associated with such pharmaceutical product in the dosage range to be prescribed, which trial is intended to support Approval of a Product, as described in 21 C.F.R. 312.21(c), or a similar clinical study prescribed by the Regulatory Authorities in a foreign country. For purposes of this Agreement, start of Phase 3 Trial for a Product means the first dosing of such Product in a human patient in a Phase 3 Trial. 1.63 Phase 4 Trial means a human clinical trial for a Product commenced after receipt of Approval in the country for which such trial is being conducted and that is conducted within the parameters of the Approval for the Product. Phase 4 Trials may include, without limitation, epidemiological studies, modeling and pharmacoeconomic studies, investigator sponsored clinical trials of the Product and post-marketing surveillance studies. 1.64 Product has the same meaning as Licensed Product. 1.65 Regulatory Authority means any national or supranational governmental authority, including, without limitation, the FDA, EMEA or Koseisho (i.e., the Japanese Ministry of Health and Welfare, or any successor agency thereto), that has responsibility in countries in the Territory over the Development and/or Commercialization of Licensed Compounds and Products. 1.66 Reviewer has the meaning set forth in Section 11.5.2. 1.67 Safety Reasons means [***]. 1.68 Sublicensee means any Third Party to whom rights are transferred with respect to any Licensed Compound or Product, including through any license, sublicense, co-development, co-discovery, co-promotion, distribution, joint venture, Development and Commercialization collaboration or similar transaction between a Party (or an Affiliate of a Party) and a Third Party. Sublicensee shall also include any Third Party that is a party to a License agreement. 1.69 Territory means any country in the world. 1.70 Third Party means any Person other than Ambit, BMS and their respective Affiliates. 1.71 Third Party Term Sheet has the meaning set forth in Section 3.1.2(b). 1.72 Title 11 has the meaning set forth in Section 13.8. 1.73 Trial Data means [***]. 1.74 United States or U.S. means the United States of America and its territories and possessions (including, without limitation, Puerto Rico). ***Confidential Treatment Requested -8-
1.75 Valid Claim means a claim of (i) an issued and unexpired patent or a supplementary protection certificate, which claim has not been held invalid or unenforceable by a court or other government agency of competent jurisdiction from which no appeal can be or has been taken and has not been held or admitted to be invalid or unenforceable through re-examination or disclaimer, opposition procedure, nullity suit or otherwise, or (ii) a pending patent application; provided, however, that if a claim of a pending patent application shall not have issued within five (5) years (or in Japan, seven (7) years) after the earliest filing date from which such claim takes priority, such claim shall not constitute a Valid Claim for the purposes of this Agreement unless and until a patent issues with such claim. ARTICLE 2 LICENSE GRANTS 2.1 BMS Patent Rights and BMS Know-How; Non-Assertion of Certain Patents . 2.1.1 BMS Core Patent Rights and BMS Know-How . Subject to all the terms and conditions set forth in this Agreement (including, without limitation, the reservation of rights in Section 2.5), BMS hereby grants to Ambit a non-transferable (except in accordance with Section 15.4), exclusive license, with the right to sublicense in accordance with Section 2.2, under the BMS Core Patent Rights and BMS Know-How solely to make, use (including in activities directed at the research and Development of Licensed Compounds), have made, sell, have sold, offer to sell, export, import, practice methods to use, and otherwise exploit or Commercialize Licensed Compounds and Licensed Products in the Field in the Territory. 2.1.2 BMS Other Patent Rights. Subject to all the terms and conditions set forth in this Agreement (including, without limitation, the reservation of rights in Section 2.5), BMS hereby grants to Ambit a non-transferable (except in accordance with Section 15.4), non-exclusive license, with the right to sublicense in accordance with Section 2.2, under the BMS Other Patent Rights solely to make, have made, use (including in activities directed at the research and Development of Licensed Compounds), export and import intermediates and starting materials for the manufacture of Licensed Compounds, and to practice methods for the manufacture of Licensed Compounds, and to practice methods for manufacturing such intermediates and starting materials, but only for the purposes of manufacturing, using, importing, exporting, selling, offering for sale and otherwise exploiting or Commercializing Licensed Compounds, in the Field in the Territory. For clarification, no rights are granted to sell or offer to sell any such intermediates or starting materials, or use such intermediates or starting materials for any purpose other than for the purposes of manufacturing Licensed Compounds. 2.1.3 Non-Assertion of Certain Patents . BMS will not assert against Ambit, its Affiliates or Sublicensees solely with respect to the Development or Commercialization of Licensed Compounds and Licensed Products in the Field in the Territory those claims that (i) are included in any patent that (a) is Controlled by BMS during the term of this Agreement, (b) was issued on or before the Effective Date or claims priority to a patent application that was abandoned or pending on the Effective Date, and (c) is not included in the BMS Patent Rights, (ii) Cover a Licensed Compound as a composition of matter, a use of a Licensed Compound in the Field, or a pharmaceutical composition containing a Licensed Compound, or the manufacture of a Licensed Compound and (iii) are reasonably necessary for the Development or Commercialization of Licensed Compounds or Licensed Products; provided that this Section 2.1.3 shall not apply with respect to any patent which is in-licensed by BMS from Third Party for which BMS would incur any payment obligation to a Third Party if such patent were included in this Section 2.1.3, unless and only to the extent that Ambit agrees in writing to fully reimburse BMS or pay directly to such Third Party such payment obligation. -9-
2.1.4 No rights or licenses are granted under this Section 2.1 or under any other provision of this Agreement with respect to any formulation technology of BMS that may be useful but is not reasonably necessary for the Development or Commercialization of any Licensed Compound or Licensed Product or with respect to any compound other than a Licensed Compound. For clarification, no rights are granted under this Section 2.1 or under any other provision of this Agreement to co-formulate or use in combination a Licensed Compound with any compound covered by BMS proprietary rights (as of the Effective Date or in the future) and not licensed hereunder. 2.2 Sublicenses. Ambit shall have the right to grant sublicenses with respect to the rights licensed to Ambit under Sections 2.1.1 and 2.1.2 to any Affiliate of Ambit for so long as such Affiliate remains an Affiliate of Ambit, provided that (i) such Affiliate shall agree in writing to be bound by and subject to the terms and conditions of this Agreement in the same manner and to the same extent as Ambit, (ii) Ambit shall remain responsible for the performance of this Agreement and shall cause such Affiliate to comply with the terms and conditions of this Agreement, and (iii) such sublicense is to make, use (including in activities directed at the research and Development of Licensed Compounds), have made, sell, offer to sell, export and import and otherwise exploit or Commercialize Licensed Compounds and Licensed Products in the Field in the Territory. In addition, Ambit shall have the right to grant (i) sublicenses with respect to the rights licensed to Ambit under Sections 2.1.1 and 2.1.2 to Third Parties provided each such sublicense is to make, use (including in activities directed at the research and Development of Licensed Compounds), have made, sell, offer to sell, export and import and otherwise exploit or Commercialize Licensed Compounds and Licensed Products in the Field in the Territory solely in accordance with this Section 2.2. (a) Subject to Article 3, Ambit shall only have the right to grant a (sub)license to any Third Party (sub)licensee with respect to the Development or Commercialization of any Licensed Compound or any Licensed Product containing such Licensed Compound (including without limitation any sublicense, co-development, co-promotion or similar arrangement expressly granting such rights) (such arrangement being a License) upon [***]. The foregoing (sub)license limitations shall not limit Ambits ability to engage Third Party contractors in the Development, manufacture and/or shipping/warehousing of any Licensed Compound or any Licensed Product containing such Licensed Compound, provided such engagement is essentially a fee-for-service or similar purchase arrangement and does not grant the Third Party contractor the right to sell or promote such Licensed Compound or such Licensed Product. Other than a permitted assignment of this Agreement in accordance with Section 15.4.1, Ambit shall not have the right to enter into any License for any Licensed Compound or any Licensed Product containing such Licensed Compound with a Third Party until after [***] as set forth above, and then only in accordance with this Section 2.2 and Article 3. (b) Subject to the foregoing and Article 3, Ambit shall have the right to enter into a License agreement with a Third Party, provided that, to the extent any such License agreement grants rights with respect to any Licensed Compound: ***Confidential Treatment Requested - 10 -
(i) such License agreement shall refer to this Agreement and shall be subordinate to and consistent with the terms and conditions of this Agreement, and shall not limit Ambits ability to fully perform all of its obligations under this Agreement or BMS rights under this Agreement; (ii) in such License agreement, the Sublicensee shall agree in writing to be bound to Ambit by terms and conditions that are substantially similar to, or less favorable to the Sublicensee than, or otherwise allow Ambit to fully perform, the corresponding terms and conditions of this Agreement; (iii) in such License agreement, BMS shall be made an express third party beneficiary of the Sublicensees obligations to Ambit under such License that relate to compliance with the terms and conditions of this Agreement; (iv) promptly after the execution of such License agreement, Ambit shall provide a copy of such License agreement to BMS, with financial and other commercially sensitive terms redacted, (v) Ambit shall remain responsible for the performance of this Agreement (including, without limitation, its obligations under Sections 5.1(a) and 6.1), the payment of all payments due, and making reports and keeping books and records, and shall use commercially reasonable efforts to monitor such Sublicensees compliance with the terms of such License; (vi) any sublicense rights granted by Ambit in a License (to the extent such sublicensed rights are granted to Ambit in this Agreement) shall terminate on a country-by-country and Licensed Product-by-Licensed Product basis effective upon the termination under Section 13.2 of the license from BMS to Ambit with respect to such sublicensed rights, provided that such sublicensed rights shall not terminate if, as of the effective date of such termination by BMS under Section 13.2, the Sublicensee is not in material breach of its obligations to Ambit under its License agreement, and within sixty (60) days of such termination the Sublicensee agrees in writing to be bound directly to BMS under a license agreement substantially similar to this Agreement with respect to the rights sublicensed hereunder, substituting such Sublicensee (a Surviving Sublicensee) for Ambit, and provided further that (A) such license agreement shall not prejudice any remedy BMS may have against Ambit for the circumstances which were the basis for such termination by BMS; (B) the scope of the rights granted to the Surviving Sublicensee under such license agreement (with respect to licensed activities, Licensed Products and territory) shall be equal to the scope of the rights that had been sublicensed by Ambit to the Surviving Sublicensee pursuant to the License agreement; (C) such license agreement shall not include the provisions of Article 3 or Section 8.1 hereof; (D) Ambit shall no longer be obligated under this Agreement to pay amounts set forth in Sections 8.2 and 8.3 hereof, to the extent such amounts are payable based on the activities of such Surviving Sublicensee, its Affiliates and its sublicensees; and (E) such license agreement shall obligate the Surviving Sublicensee to pay directly to BMS amounts corresponding to those set forth in Sections 8.2 and 8.3 hereof which are payable based on the activities of such Surviving Sublicensee, its Affiliates and its sublicensees; and (vii) such Sublicensees shall have the right to grant further sublicenses with respect to the Development or Commercialization of Licensed Products, provided that such further sublicenses shall be in accordance with and subject to all of the terms and conditions of this Section 2.2 other than any reference to Article 3 contained therein (i.e., the Sublicensee shall be subject to this Section 2.2 in the same manner and to the same extent as Ambit, but shall not be subject to Article 3). For purposes of clarification, the preceding provisions of this Section 2.2(b) shall not apply to Licensed Compounds with respect to which Ambit grants BMS a License. - 11 -
(c) For clarity, where provisions of this Agreement provide that Ambit shall be solely responsible or the like with respect to a matter (for example, Sections 5.4, 5.5, or 7.1), it is understood that such responsibilities may be carried out or borne on Ambits behalf by a permitted Sublicensee or contractor of Ambit. (d) It shall be a material breach of this Agreement for Ambit to enter into any License hereunder not in compliance with this Section 2.2. 2.3 No Trademark License. No right or license, express or implied, is granted to Ambit to use any trademark, trade name, trade dress or service mark owned or Controlled by BMS or any of its Affiliates. Ambit, at its sole cost and expense, shall be responsible for the selection, registration and maintenance of all trademarks which it employs in connection with its activities conducted pursuant to this Agreement, if any, and shall own and control such trademarks. 2.4 No Implied Licenses. No license or other right is or shall be created or granted hereunder by implication, estoppel or otherwise. All such licenses and rights are or shall be granted only as expressly provided in this Agreement. 2.5 Retained Rights. All rights not expressly granted under Section 2.1 are reserved by BMS and may be used by BMS for any purpose. Without limiting the foregoing, BMS retains any and all rights under the BMS Patent Rights and BMS Know-How to make, have made, use, sell, have sold, export or import any compounds which are not Licensed Compounds and products not containing any Licensed Compounds. For clarification, BMS retains the exclusive right under the BMS Patent Rights to develop and commercialize compounds within the BMS Patent Rights which are not Licensed Compounds. BMS also expressly reserves and retains the right (i) to make, have made and use Licensed Compounds for any internal research purposes, (ii) to support the filing and prosecution of patent applications, and (iii) to make, have made and use any Licensed Compound solely for use as an intermediate or starting material in the manufacture of any compound which is not a Licensed Compound or a Licensed Product. ARTICLE 3 BMS RIGHT OF FIRST NEGOTIATION 3.1 BMS Right of First Negotiation . 3.1.1 BMS shall have a right of first negotiation with respect to Licensed Compounds as follows (the Right of First Negotiation ). (a)In the event that Ambit desires to enter into a License arrangement with respect to any Licensed Compound, before entering into negotiations with any Third Party with respect to such License, Ambit will notify BMS of its desire and provide BMS with information in Ambits possession and control that Ambit reasonably determines is reasonably necessary for BMS to perform its due diligence with respect to such Licensed Compound (including but not limited to information from or relating to clinical studies, correspondence with FDA, information regarding Third Party patents, and information regarding the manufacture, sourcing and cost of goods for the Licensed Compound) (the Notice). The content of such information provided to BMS (and/or its consultants) for review shall be no less than the information Ambit may subsequently provide to any Third Party in connection with negotiations with such Third Party regarding a License as set forth in Section 3.1.2. If BMS notifies Ambit in writing of its election to pursue a License for such Licensed Compound within [***] after BMS receipt of such Notice, Ambit shall enter into good faith negotiations with BMS with respect to such License for a period ***Confidential Treatment Requested - 12 -
of [***] (the Negotiation Period) following receipt of such election from BMS. (b) During the Negotiation Period, Ambit will provide BMS with an opportunity to make a written proposal of terms and conditions with respect to such a License and Ambit will either accept the proposal or provide a counter offer to BMS. If BMS has not provided Ambit with such a written proposal regarding all principal financial terms of such a License within the first [***] of the Negotiation Period, the Negotiation Period will terminate. If Ambit and BMS are able to conclude an agreement in principle within the Negotiation Period as set forth in a mutually satisfactory term sheet with respect to such License, the parties shall negotiate a definitive agreement in good faith with the goal of executing such agreement within [***] thereafter. (c) If BMS does not elect to pursue a License within the [***] period set forth above, or if BMS does so elect but Ambit and BMS do not conclude an agreement in principle with respect to such License within the Negotiation Period, or if BMS does not provide Ambit with a written proposal regarding all principal financial terms of such a License within the first [***] of the Negotiation Period, Ambit will then be free to enter into negotiations with any Third Party regarding a License for such Licensed Compound subject to the provisions set forth below in Section 3.1.2. 3.1.2 Ambit shall not enter into an agreement with any Third Party with respect to such License for a Licensed Compound under terms and conditions Less Favorable to Ambit (as defined below) than the terms last offered to BMS except in accordance with the following procedure. (a) In the event that Ambit intends to enter into an agreement with a Third Party (based on bona fide arms length negotiations with an unaffiliated Third Party), Ambit shall provide BMS with notice and a representation that the terms of such License are not Less Favorable to Ambit than the last offer made by Ambit to BMS. If BMS does not notify Ambit in writing within [***] after BMS receipt of such notice that BMS elects to have Ambits representation reviewed (a Review), Ambit shall be free to enter into an agreement with such Third Party containing the terms and conditions of the proposed License. (b) If BMS notifies Ambit in writing within such [***] period of BMS election of a Review, Ambit shall provide an Independent Evaluator with a copy of the term sheet containing the terms and conditions of the proposed License agreement with such Third Party (the Third Party Term Sheet) and a copy of the term sheet last offered to BMS by Ambit, and Ambit shall provide BMS with written notice of this event. The Independent Evaluator shall promptly determine whether the terms and conditions of the Third Party Term Sheet are Less Favorable to Ambit than the terms and conditions last offered by Ambit to BMS. In addition, the Independent Evaluator will confirm that the Third Party is a party unaffiliated with Ambit. Within [***] after Ambit has provided copies of the Third Party Term Sheet and the term sheet last offered to BMS by Ambit, the Independent Evaluator will provide notice to BMS and Ambit regarding its determination, which determination shall be final and binding upon the parties and shall not be subject to appeal or challenge or to any dispute resolution proceeding except in the case where a Party alleges that the other Party acted in bad faith or engaged in willful misconduct in the independent evaluation process by the Independent Evaluator or that the Independent Evaluator did not act in good faith, breached a fiduciary duty or engaged in willful misconduct. (c)If the Independent Evaluator determines that the offer last made by Ambit to BMS was Less Favorable to Ambit than the Third Party Term Sheet, Ambit will be free to enter into an agreement with such Third Party having the terms and conditions set forth in the Third Party Term Sheet (or terms and conditions more favorable to Ambit than the terms and conditions set forth in the Third Party Term Sheet). ***Confidential Treatment Requested - 13 -
(d) If the Independent Evaluator determines that the terms and conditions set out in the Third Party Term Sheet are Less Favorable to Ambit than the terms and conditions last offered by Ambit to BMS, Ambit may at its discretion continue its negotiation with the Third Party (with the objective of obtaining terms and conditions which are more favorable to Ambit than the terms and conditions last offered by Ambit to BMS, provided that Ambit shall not enter into an agreement with such Third Party without first following the above procedure with respect to a revised Third Party Term Sheet) or Ambit may offer such terms and conditions set out in the Third Party Term Sheet to BMS (or Ambit may offer terms and conditions financially less favorable to Ambit than those set out in the Third Party Term Sheet). In the event that Ambit makes such offer to BMS, Ambit shall also offer to BMS the same terms with respect to governance and decision-making as set out in the Third Party Term Sheet (or otherwise proposed by Ambit to the Third Party). If Ambit offers such terms and conditions to BMS, BMS will have an additional [***] to provide Ambit with notice that BMS desires to enter into an agreement with Ambit on substantially the same terms and conditions as set out in the Third Party Term Sheet. If such notice is provided by BMS, the parties will work diligently and in good faith to expeditiously complete such an agreement. If such notice is not provided by BMS within such [***] period, or, subject to the provisions of Section 3.1.2(f) below, if BMS does provide such notice but, notwithstanding the parties good faith efforts, Ambit and BMS do not enter into a definitive written License agreement or a binding letter of intent with respect to a License based on the Third Party Term Sheet within [***] after BMS provides such notice, Ambit will be free to enter into an agreement with such Third Party having terms and conditions at least as favorable to Ambit as those set out in the Third Party Term Sheet. (e) The parties will initially share the fees of the Independent Evaluator on an equal (50/50) basis. If the Independent Evaluator determines that the offer last made by Ambit to BMS was Less Favorable to Ambit than the Third Party Term Sheet, then within 30 days after the Independent Evaluator notifies the parties of such determination, BMS will reimburse Ambit for the portion of such fees previously borne by Ambit. If the Independent Evaluator determines that the Third Party Term Sheet is Less Favorable to Ambit than the offer last made by Ambit to BMS, then within 30 days after the Independent Evaluator notifies the parties of such determination, Ambit will reimburse BMS for the portion of such fees previously borne by BMS. (f) In the event that Ambit has not entered into an agreement with a Third Party with respect to a License within [***] following the end of a Negotiation Period or at such time that Significant New Clinical Data (defined below) becomes available with respect to the applicable Licensed Compound, then thereafter, if Ambit desires to enter into a License arrangement, before entering into a License with any Third Party, Ambit will first notify BMS of its desire and the procedure described above shall apply again, and Ambit shall provide BMS with a [***] Negotiation Period, provided that Ambit shall be free to continue negotiations regarding a License with any Third Party (but not initiate any new negotiations with any other Third Party) during any such Negotiation Period after the initial Negotiation Period, but may not enter into a License except as permitted after the termination of such Negotiation Period, and further provided, that BMS shall work diligently and expeditiously to provide a new written proposal and shall not be entitled to the Negotiation Period and process set forth above unless BMS proposes financial terms and conditions for such License that are at least as favorable to Ambit as the terms last proposed to Ambit by BMS. (g) Upon the initiation of any such Negotiation Period, Ambit shall promptly provide BMS with all information in Ambits possession and control that Ambit would provide to any potential Third Party licensee, which would be reasonably necessary for such Third Party licensee to perform its due diligence with respect to such Licensed Compound (including but not limited to redacted information from or relating to clinical studies, correspondence with FDA, information regarding Third Party patents, and information regarding the manufacture, sourcing and cost of goods for the Licensed Compound). ***Confidential Treatment Requested - 14 -
3.1.3 Any License agreement entered into by Ambit with a Third Party in accordance with the foregoing procedure shall be consistent with the terms and conditions of this Agreement and shall fully enable Ambit to fully perform all of its obligations under the Agreement which will continue in effect. 3.1.4 Certain Definitions. For the purposes of this Article 3, the following capitalized terms shall have the following meanings: (a) Less Favorable to Ambit means, [***]. (b) Significant New Clinical Data means [***]. ARTICLE 4 TRANSFER OF KNOW-HOW 4.1 Documentation. During the [***] period following the Effective Date, BMS shall provide Ambit with one (1) electronic or paper copy of all documents, data or other information Controlled by BMS as of the Effective Date to the extent that such documents, data and information are (i) reasonably necessary for the manufacture, Development or Commercialization of the Licensed Compounds and subject to the BMS Know-How license under Section 2.1 (including, by way of example, relevant manufacturing processes, techniques and trade secrets, including any disclosed in the IND or other regulatory submissions), and (ii) are reasonably available to BMS; provided, however, that the foregoing shall not require BMS to provide copies of documents, data and information to the extent that such documents, data and information do not satisfy the requirements in clauses (i) and (ii) of the foregoing. Such documentation shall not be used by Ambit for any purpose other than Development, manufacture or Commercialization of Licensed Compounds and Licensed Products in accordance with this Agreement and is Confidential Information of BMS. BMS shall be responsible for the cost of providing one (1) set of copies only. BMS shall have no obligation to reformat or otherwise alter or modify any such materials, or to create materials in electronic form, in order to provide them to Ambit. If BMS becomes aware of any such documents, data or information subject to the foregoing after the [***] period following the Effective Date that has not been previously provided to Ambit, BMS shall promptly notify Ambit and Ambit shall have [***] from said notice to request that BMS provide said documents, data or information to Ambit. Upon receipt of Ambits decision to receive such documents, data or information, BMS shall then use good faith reasonable efforts to provide the documents, data or information to Ambit within [***] following such request. At any time during the term of this Agreement, Ambit may also request from BMS access to primary data that are within the BMS Know-How, but were not previously delivered to Ambit, and that are reasonably necessary for the continued manufacture, Development or Commercialization of the Licensed Compound or Licensed Product (including by way of example tissue samples from preclinical studies, which primary data would then be subject to the terms of this Section 4.1 and as applicable Section 4.3), and BMS shall ***Confidential Treatment Requested - 15 -
use good faith reasonable efforts to promptly provide such primary data to Ambit upon request to the extent that such primary data is in BMS possession and is available without undue searching. 4.2 Technical Assistance. During the [***] period following the Effective Date, BMS shall provide Ambit with reasonable access by teleconference or in-person at BMS facilities (subject to BMS customary rules and restrictions with respect to site visits by non-BMS personnel) to BMS personnel reasonably knowledgeable in the research and development of the Licensed Compounds and Licensed Products for up to [***] hours of consulting advice with respect to the Licensed Compounds and Licensed Products, provided that (i) such access shall be requested and coordinated through a single Ambit contact person to be designated by Ambit and a single BMS contact person reasonably knowledgeable with respect to the Licensed Compounds to be designated by BMS, (ii) BMS makes no warranty, express or implied, that Ambit shall be able to successfully implement and use the BMS Know-How, (iii) BMS shall not be obligated to provide more than [***] hours of consulting advice in such period, and (iv) BMS will use reasonable efforts to provide such consulting advice promptly. If Ambit requests further consulting advice related to Licensed Compounds and Licensed Products in excess of the [***] hour amount referenced above, BMS may at its sole discretion provide such consulting advice and, if BMS elects to provide such consulting advice, Ambit shall reimburse BMS for its time incurred in connection therewith at a rate of $[***] per hour, plus any reasonable out-of-pocket expenses incurred by BMS in providing such consulting advice requested by Ambit. Such reimbursement shall be made to BMS within thirty (30) days after submission of an invoice by BMS reasonably detailing BMS time expended, together with reasonable substantiation of any out-of-pocket expenses incurred. 4.3 Materials. BMS shall provide Ambit with BMS inventory of the GMP lots of the Licensed Compound under BMS Control as of the Effective Date (the Transferred Materials). Any such Transferred Materials shall be shall be subject to the terms and conditions of this Agreement, including the following. The Transferred Materials are provided AS IS. BMS shall have no obligation to test or quality assurance (QA) release any Transferred Materials and shall make representations or warranties with respect to the suitability of the Transferred Materials for use in future studies. Ambit shall be fully responsible for its and its Affiliates, Sublicensees and contractors use, storage, handling and disposition of the Transferred Materials. Under no circumstances shall BMS be liable or responsible for Ambits or its Affiliates, Sublicensees and contractors use, storage, handling or disposition of the Transferred Materials, and Ambit assumes sole responsibility for any claims, liabilities, damages and losses that might arise as a result of Ambits and its Affiliates, Sublicensees and contractors use, storage, handling or disposition of any Transferred Material. Ambit shall indemnify, defend and hold harmless BMS and its Affiliates, and their respective officers, directors, employees, agents, licensors, and their respective successors, heirs and assigns and representatives, from and against any and all damages, liabilities, losses, costs and expenses (including, without limitation, reasonable legal expenses, costs of litigation and reasonable attorneys fees) arising in connection with any claims, suits, proceedings, whether for money damages or equitable relief, of any kind, arising out of or relating, directly or indirectly, to Ambits, or any of its Affiliates, Sublicensees or contractors use, storage, handling or disposition of any Transferred Material. Transferred Materials may only be provided to Affiliates, Sublicensees and contractors of Ambit. ARTICLE 5 DEVELOPMENT 5.1 Development and Development Plan . ***Confidential Treatment Requested - 16 -
(a) Commercially Reasonable Efforts . Ambit (or its Sublicensees, as applicable) shall use Commercially Reasonable Efforts to Develop at least one Licensed Product, including but not limited to using Commercially Reasonable Efforts to expeditiously carry out the pre-clinical and clinical development for the Licensed Compounds and Licensed Products (including expeditiously pursuing regulatory filings and Approvals and marketing authorizations for at least one Licensed Product), in accordance with the Development Plan. (b) Development Plan. An outline of the initial Development Plan, which shall be directed to initial timelines for critical path activities, shall be provided by Ambit to BMS within [***] of the Effective Date. Such agreed upon outline shall be attached hereto as Appendix 2 to the Agreement. Ambit will provide BMS with any significant updates and revisions to the Development Plan for BMS review and comment. 5.2 Development Reports. Ambit will provide BMS with semi-annual written development reports within thirty (30) days following June and December of each Calendar Year presenting a meaningful summary of the Development activities accomplished by Ambit during the just ended six months, including updates to the Development Plan and a summary of significant results with respect to Licensed Compounds and Licensed Products. Upon reasonable request by BMS, Ambit shall also meet in-person with BMS to review Ambits Development activities for the Licensed Compounds and Licensed Products. However, if BMS requests more than one such in-person meeting in any Calendar Year and any such additional meeting is not held at Ambits facilities, then BMS will reimburse the travel and lodging expenses of Ambit personnel attending such meeting. In addition, upon reasonable request by BMS, Ambit shall provide BMS with summaries of clinical protocols, investigator brochures, regulatory submissions and correspondence from regulatory agencies with respect to each Licensed Compound and Licensed Product. 5.3 Records. Ambit shall maintain complete and accurate records of all work conducted in furtherance of the Development and Commercialization of the Licensed Compounds and Licensed Products and all material results, data and developments made in conducting such activities. Such records shall be complete and accurate and shall fully and properly reflect all such work done and results achieved in sufficient detail and in good scientific manner appropriate for patent and regulatory purposes. 5.4 Development Responsibilities and Costs . Ambit shall have sole responsibility for, and shall bear the cost of conducting, all Development with respect to the Licensed Compounds and Licensed Products. Ambit shall Develop the Licensed Compounds and Licensed Products in compliance with all applicable legal and regulatory requirements, including, without limitation, all legal and regulatory requirements pertaining to the design and conduct of clinical studies. 5.5 Regulatory Responsibilities and Costs . Ambit shall have sole responsibility for, and shall bear the cost of preparing, all regulatory filings and related submissions with respect to the Licensed Compounds and Licensed Products. Ambit shall be responsible for meeting the requirements of all pre-approval inspections required by any Regulatory Authorities. Except as set forth in Section 13.4, Ambit or its Affiliate or Sublicensee shall own all INDs, Approvals and submissions in connection therewith and all Approvals shall be obtained by and in the name of Ambit or its Affiliate or Sublicensee. 5.6 Subcontracting. Subject to and without limiting Section 2.2, Ambit may perform any activities in support of its Development or Commercialization of Licensed Compounds and Licensed Products through subcontracting to a Third Party contractor or contract service organization, provided that: (a) none of the rights of BMS hereunder are adversely affected as a result of such subcontracting; (b) any such Third Party subcontractor to whom Ambit discloses Confidential Information of BMS shall enter into an appropriate written agreement obligating such Third Party to be bound by obligations of ***Confidential Treatment Requested - 17 -
confidentiality and restrictions on use of such BMS Confidential Information that are no less restrictive than the obligations in this Agreement; (c) Ambit will obligate such Third Party to agree in writing to assign or license (with the right to grant sublicenses) to Ambit any inventions (and any patent rights covering such inventions) made by such Third Party in performing such services for Ambit; and (d) Ambit shall at all times be responsible for the performance of such subcontractor. ARTICLE 6 COMMERCIALIZATION 6.1 Ambit Obligations. Ambit (or its Sublicensees, as applicable) shall use Commercially Reasonable Efforts to Commercialize at least one (1) Licensed Product in countries in the Territory, including but not limited to the Major Market Countries. Without limiting the foregoing, Ambit shall use Commercially Reasonable Efforts to obtain Approvals in such countries with respect to at least one (1) Licensed Product and to effect the First Commercial Sale thereof in such countries as soon as reasonably practicable after receipt of such Approvals. 6.2 Continued Availability. Following the First Commercial Sale of a Licensed Product in a Major Market Country in the Territory and until the expiration or termination of this Agreement, Ambit shall use Commercially Reasonable Efforts to supply and keep such Licensed Product reasonably available to the public in such country. 6.3 Marking. Each Licensed Product Commercialized by Ambit under this Agreement shall be marked (to the extent not prohibited by applicable Laws): (i) with a notice that such Licensed Product is sold under a license from BMS and (ii) with applicable patent and other intellectual property notices relating to the BMS Patent Rights in such a manner as may be required by applicable Law. 6.4 Reports. Ambit shall provide BMS with semi-annual written reports within thirty (30) days following June and December of each Calendar Year summarizing significant commercial activities and events with respect to Licensed Products during the just ended six months. ARTICLE 7 MANUFACTURE AND SUPPLY 7.1 Manufacture and Supply. Ambit shall be solely responsible at its own expense for making or having made all of its requirements of the Licensed Compounds and Licensed Products. Ambit shall manufacture, test, QA release, handle, store and ship the Licensed Compounds and Licensed Products in compliance with all applicable Laws, with all regulatory filings, and with its applicable internal specifications and quality control procedures. ARTICLE 8 FINANCIAL TERMS FOR AMBIT 8.1 In partial consideration of the rights granted by BMS to Ambit pursuant to this Agreement, Ambit and BMS shall enter into the License and Profiling Services Agreement concurrently with this Agreement, and Ambit shall make the payments provided for in this Article 8. - 18 -
8.2 Development Milestone Payments . The following one-time milestone payments are payable by Ambit to BMS upon the first achievement by Ambit of the milestone event for the Licensed Compound.
Milestone Event Payment
[***] [***] [***] [***] [***] [***] [***]
$[***] $[***] $[***] $[***] $[***] $[***] $[***]
The milestone payments set forth above shall be payable by Ambit to BMS within thirty (30) days of the achievement of the specified milestone event with respect to a Licensed Product. Each milestone payment shall not be refundable or returnable in any event, nor shall it be creditable against royalties or other payments; provided, however, that if Development of a Licensed Product is discontinued after any such milestone payments have been made for such Licensed Product, then only the milestone payment(s) not previously paid with respect to the discontinued Licensed Product will be payable with respect to the replacement Licensed Product for such discontinued Licensed Product. 8.3 Royalty Payments. 8.3.1 Ambit shall pay to BMS in cash the following royalty payments on the total aggregate annual Net Sales in the Territory of all Licensed Products (including all indications and formulations for such Licensed Products) in a particular Calendar Year by Ambit, its Affiliates, and Sublicensees in the Territory:
Aggregate Annual Worldwide Net Sales of All Licensed Products in a Calendar Year Royalty Rate
[***] [***]
[***]% [***]%
By way of example, in a given Calendar Year, if the aggregate annual worldwide Net Sales for all Licensed Products is [***], the following royalty payment would be payable under this Section 8.3.1 (subject to the reductions set forth below): [***]. 8.3.2 Royalty Term. Royalties shall be payable on a product-by-product and country-by-country basis on Net Sales of Licensed Products from the First Commercial Sale of a ***Confidential Treatment Requested - 19 -
particular Licensed Product in a country until the later of (i) [***] or (ii) [***] or (iii) [***]. 8.3.3 Royalty Reduction. (a) In the event of Generic Product competition, the royalty amounts otherwise payable under Section 8.3.1 shall not be payable on a countryby-country basis at any such time that (i) there is no BMS Core Patent Right Controlled by Ambit or any of its Affiliates in effect for any reason providing or capable of providing marketing exclusivity with respect to the applicable Licensed Product in such country and (ii) there are sales of a Generic Product in such country. Such reduction shall be first applied with respect to such country starting with sales in the Calendar Quarter following the first Calendar Quarter where both conditions (i) and (ii) in the preceding sentence are met and shall continue for as long as both such conditions are met. If after both such conditions are met in a country they both cease to be met in that country, then the reduction under this Section 8.3.3 shall no longer apply for such country during the time both conditions are not met. (b) In the case where Ambit is unable to successfully enter into a License agreement with any Third Party due to the amount of the royalty payment payable to BMS under Section 3.1.2, BMS may consider any Ambit request to amend the Agreement to reduce the amount of the royalty payment payable under Section 3.1.2, provided that in no event shall BMS have any obligation to agree to any such proposed amendment. 8.3.4 Royalty Conditions. The royalties under Section 8.3.1 shall be subject to the following conditions: (a) that only one royalty shall be due with respect to the same unit of Licensed Product; (b) that no royalties shall be due upon the sale or other transfer among Ambit, its Affiliates, or Sublicensees, but in such cases the royalty shall be due and calculated upon Ambits or its Affiliates or Sublicensees Net Sales of Licensed Product to the first independent Third Party; and (c) no royalties shall accrue on the disposition of Licensed Product in reasonable quantities by Ambit, its Affiliates or Sublicensees as part of an expanded access program or as part of Phase 4 Trials or as donations to non-profit institutions or government agencies for non-commercial purposes, provided, in each case, that neither Ambit, its Affiliate or Sublicensees receives any payment for such Licensed Product. 8.3.5 Third Party Licenses. (a) If Ambit, in its reasonable judgment, is required to obtain a license from any Third Party under any patent Covering the applicable Licensed Compound as a composition of matter (i.e., this reduction shall not apply, for example, with respect to Third Party patents covering a formulation or method of use for the Licensed Compound or Licensed Product) in order to import, manufacture, use or sell any such Licensed Product, and if Ambit is required to pay to such Third Party a royalty under such ***Confidential Treatment Requested - 20 -
license calculated on sales of a Licensed Product, or if Ambit is required by a court of competent jurisdiction to pay such a royalty to such a Third Party, then the amount of Ambits royalty obligations under Section 8.3.1 hereof shall be reduced by [***] of the amount of the royalty paid to such Third Party, provided however, that the royalties payable under Section 8.3.1 hereof shall not be reduced in any such event [***]. (b) If Ambit, in its reasonable judgment, is required to obtain a license from any Third Party under any patent Covering the applicable Licensed Product, otherwise than as described in Section 8.3.5(a), in order to import, manufacture, use or sell any such Licensed Product and if Ambit is required to pay to such Third Party a royalty under such license calculated on sales of a Licensed Product, or if Ambit is required by a court of competent jurisdiction to pay such a royalty to such a Third Party, then the amount of Ambits royalty obligations under Section 8.3.1 hereof shall be reduced by [***] of the amount of the royalty paid to such Third Party, provided however, that the royalties payable under Section 8.3.1 hereof shall not be reduced in any such event [***]. (c) Ambit shall use its commercially reasonable efforts to minimize the amount of any of the foregoing payments owed by Ambit to a Third Party. Prior to Ambit exercising its reasonable judgment under this Section 8.3.5, Ambit shall provide BMS with written notice of a potential need to obtain any license from Third Parties. The Parties shall discuss the best course of action to resolve such potential license requirement(s), provided that such discussions shall not limit or unreasonably delay Ambits right to exercise its reasonable judgment. Prior to commencing any such discussions, the parties shall enter into a common interest and joint purpose agreement in form and substance reasonably acceptable to the Parties in order to enable the Parties to rely on the common interest and joint purpose exception to the waiver of the attorney/client and attorney work product privilege with respect to confidential information exchanged by the Parties in furtherance of such discussions. (d) For clarification, in no event shall the royalties payable under Section 8.3.1 be reduced [***] based on the aggregate of any reductions under this Section 8.3.5. 8.4 Manner of Payment . All payments to be made by Ambit hereunder shall be made in Dollars by wire transfer of immediately available funds to such United States bank account as shall be designated by BMS. Late payments shall bear interest at the rate provided in Section 8.9. 8.5 Sales Reports and Royalty Payments . After the First Commercial Sale of a Licensed Product and during the term of this Agreement, Ambit shall furnish to BMS a written report, within sixty (60) days after the end of each Calendar Quarter (or portion thereof, if this Agreement terminates during a Calendar Quarter), showing the amount of royalty due for such Calendar Quarter (or portion thereof). Royalty payments for each Calendar Quarter shall be due at the same time as such written report for the Calendar Quarter. With each quarterly payment, Ambit shall deliver to BMS a full and accurate accounting to include at least the following information: (a) the quantity of each Licensed Product sold (by country) by Ambit, its Affiliates, and Sublicensees; (b) the total gross sales and total Net Sales for each Licensed Product (by country) by Ambit, its Affiliates, and Sublicensees in local currency and in Dollars; (c) the calculation of Net Sales from such gross sales; (d) the exchange rates used in determining the amount of U.S. Dollars payable; ***Confidential Treatment Requested - 21 -
(e) the names and addresses of all Sublicensees of Ambit; (f) the royalties payable in Dollars which shall have accrued hereunder in respect of such Net Sales; (g) withholding taxes, if any, required by applicable Law to be deducted in respect of such royalties; and (h) the dates of the First Commercial Sales of Licensed Products in any country during the reporting period. If no royalty or payment is due for any royalty period hereunder, Ambit shall so report. 8.6 Sales Record Audit . Ambit shall keep, and shall cause each of its Affiliates, and Sublicensees, if any, to keep, full and accurate books of accounting in accordance with GAAP containing all particulars that may be necessary for the purpose of calculating all royalties payable to BMS. Such books of accounting (including, without limitation, those of Ambits Affiliates, and Sublicensees, if any) shall be kept at their principal place of business and, with all necessary supporting data, shall during all reasonable times for the [***] next following the end of the Calendar Year to which each shall pertain, be open for inspection at reasonable times by an independent certified accountant selected by BMS, and as to which Ambit has no reasonable objection, at BMS expense, for the purpose of verifying royalty statements for compliance with this Agreement. Such accountant must have agreed in writing to maintain all information learned as Ambit Confidential Information, except as necessary to disclose to BMS such compliance or noncompliance by Ambit. The results of each inspection, if any, shall be binding on both Parties and treated as Ambit Confidential Information. BMS shall pay for such inspections, except that in the event there is any upward adjustment in aggregate royalties payable for the Calendar Quarter period of such inspection of more than [***] of the amount paid, Ambit shall pay for the reasonable out-of-pocket costs of such inspection. Any underpayments shall be paid by Ambit within thirty (30) days of notification of the results of such inspection. Any overpayments shall be fully creditable against amounts payable in subsequent payment periods or, if no such amounts become payable within ninety (90) days after notification of such results, shall be refunded. 8.7 Currency Exchange. With respect to Net Sales invoiced in Dollars, the Net Sales and the amounts due to BMS hereunder shall be expressed in Dollars. With respect to Net Sales invoiced in a currency other than Dollars, the Net Sales shall be expressed in the domestic currency of the entity making the sale, together with the Dollar equivalent, calculated using the arithmetic average of the spot rates on the close of business on the last Business Day of each month of the Calendar Quarter in which the Net Sales were made. The closing mid-point rates found in the dollar spot forward against the dollar table published by The Financial Times or any other publication as agreed to by the Parties shall be used as the source of spot rates to calculate the average as defined in the preceding sentence. All payments shall be made in Dollars. 8.8 Tax Withholding. The withholding tax, duties, and other levies (if any) applied by a government of any country of the Territory on payments made by Ambit to BMS hereunder shall be borne by BMS. If applicable laws or regulations require that taxes be withheld from any amount payable hereunder, Ambit will deduct those taxes from the otherwise remittable payment, pay the taxes to the proper taxing authority, so notify BMS, and provide documentation evidencing the payment. Ambit, its Affiliates and Sublicensees shall cooperate with BMS to enable BMS to claim exemption therefrom under any double taxation or similar agreement in force and shall provide to BMS proper evidence of payments ***Confidential Treatment Requested - 22 -
of withholding tax and assist BMS by obtaining or providing in as far as possible the required documentation for the purpose of BMS tax returns. 8.9 Interest Due. Without limiting any other rights or remedies available to BMS, Ambit shall pay BMS interest on any payments that are not paid on or before the date such payments are due under this Agreement at a rate of one and one-half percent (1.5%) per month or the maximum applicable legal rate, if less, calculated on the total number of days payment is delinquent. ARTICLE 9 REPRESENTATIONS AND WARRANTIES; DISCLAIMER; LIMITATION OF LIABILITY 9.1 Mutual Representations and Warranties. Each Party represents and warrants to the other Party that (i) it has all requisite corporate power and authority to enter into this Agreement and to perform its obligations under this Agreement, (ii) execution of this Agreement and the performance by such Party of its obligations hereunder have been duly authorized, (iii) this Agreement is legally binding and enforceable on each Party in accordance with its terms, and (iv) the performance of this Agreement by it does not create a breach or default under any other agreement to which it is a Party. 9.2 Representations and Warranties of BMS . 9.2.1 BMS represents and warrants to Ambit that as of the Effective Date, to the reasonable knowledge of its in-house patent counsel, (i) there is no pending litigation which alleges, or any communication, written or otherwise, alleging, that the practice of BMS Patent Rights or the Licensed Compounds have infringed or misappropriated any of the intellectual property rights of any Third Party, (ii) all fees required to be paid by BMS in order to maintain the BMS Patent Rights have been paid to date, (iii) it has not previously assigned, transferred, conveyed or licensed (or granted an option to assign, transfer, convey or license) its right, title and interest in the BMS Core Patent Rights or the BMS Know-How, and (iv) it is not aware of any facts that would render or potentially render any BMS Patent Rights invalid or unenforceable. 9.2.2 BMS represents and warrants to Ambit that as of the Effective Date, to the reasonable knowledge of its in-house patent counsel, (i) other than the patents and patent applications subject to Section 2.1.3 and the BMS Patent Rights, BMS does not Control any patent(s) or patent application(s) that is reasonably necessary for the Development or Commercialization of any Licensed Compound or Licensed Product and that claims or discloses the composition of matter of any Licensed Compound or a method of manufacture or use of any Licensed Compound or Licensed Product, and (ii) none of the patents and patent applications subject to Section 2.1.3 contain any claims that would be sub-generic claims if included in any of the BMS Core Patent Rights. 9.2.3 BMS represents and warrants that as of the Effective Date it is not knowingly employing, either as an employee or Affiliate or Third Party contractor or in any other capacity, the services of any Person which has been debarred under Section 306 of the Act, 21 USC Section 335a(a) or (b), or similar local law in connection with the conduct of activities related to the Licensed Compound or Licensed Product. In the event BMS becomes aware or receives notice of any such debarment of any such Person in connection with the conduct of activities relating to the Licensed Compound or Licensed Product, BMS shall notify Ambit immediately. 9.3 Representations and Warranties of Ambit . - 23 -
9.3.1 Ambit represents, warrants and covenants that (i) all of its activities related to its use of the BMS Patent Rights and BMS KnowHow, and the Development and Commercialization of the Licensed Compounds and Licensed Products, pursuant to this Agreement shall comply with all applicable legal and regulatory requirements, and (ii) it shall not knowingly engage in any activities that use the BMS Patent Rights and/or BMS Know-How in a manner that is outside the scope of the license rights granted to it hereunder or that infringe the intellectual property rights of any Third Party. 9.3.2 Ambit represents and warrants that as of the Effective Date it is not knowingly employing, either as an employee or Affiliate or Third Party contractor or in any other capacity, the services of any Person which has been debarred under Section 306 of the Act, 21 USC Section 335a(a) or (b), or similar local law. In the event Ambit becomes aware or receives notice of any such debarment of any such Person in connection with the conduct of activities relating to the Licensed Compound or Licensed Product,, Ambit shall notify BMS immediately. 9.4 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY PATENT RIGHTS, CONFIDENTIAL INFORMATION OR KNOW-HOW OF SUCH PARTY OR ANY LICENSE GRANTED BY SUCH PARTY HEREUNDER, OR WITH RESPECT TO ANY COMPOUNDS, INCLUDING BUT NOT LIMITED TO ANY TRANSFERRED MATERIALS, OR PRODUCTS. FURTHERMORE, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER MAKES ANY REPRESENTATIONS OR WARRANTIES THAT ANY PATENT, PATENT APPLICATION, OR OTHER PROPRIETARY RIGHTS INCLUDED IN PATENT RIGHTS, CONFIDENTIAL INFORMATION OR KNOW-HOW LICENSED BY SUCH PARTY TO THE OTHER PARTY HEREUNDER ARE VALID OR ENFORCEABLE OR THAT USE OF SUCH PATENT RIGHTS, CONFIDENTIAL INFORMATION OR KNOW-HOW CONTEMPLATED HEREUNDER DOES NOT INFRINGE ANY PATENT RIGHTS OR OTHER INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY. 9.5 Limitation of Liability . NOTWITHSTANDING ANYTHING IN THIS AGREEMENT OR OTHERWISE, NEITHER PARTY SHALL BE LIABLE TO THE OTHER WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT, WHETHER UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY, FOR ANY INCIDENTAL, INDIRECT, SPECIAL, EXEMPLARY, PUNITIVE, MULTIPLE, OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, CONSEQUENTIAL DAMAGES CONSISTING OF LOST PROFITS, LOSS OF USE, DAMAGE TO GOODWILL, OR LOSS OF BUSINESS); PROVIDED, HOWEVER, THAT THE FOREGOING SHALL NOT APPLY TO ANY INTENTIONAL BREACH BY A PARTY OF THE LICENSES GRANTED TO IT UNDER THIS AGREEMENT THAT IS AN INFRINGEMENT OF ANY PATENT RIGHTS NOT INCLUDED IN THE PATENT RIGHTS LICENSED TO SUCH PARTY HEREUNDER, OR ANY BREACH BY EITHER PARTY OF ARTICLE 11 HEREOF. ARTICLE 10 PATENT MAINTENANCE; INFRINGEMENT; EXTENSIONS 10.1 Ownership of Inventions . Inventorship of inventions conceived or reduced to practice in the course of activities performed under or contemplated by this Agreement shall be determined by application of United States patent Laws pertaining to inventorship. If such inventions are jointly invented by one or more employees, consultants or contractors of each Party, such inventions shall be - 24 -
jointly owned (Joint Invention), and if one or more claims included in an issued patent or pending patent application which is filed in a patent office in the Territory claim such Joint Invention, such claims shall be jointly owned ( Joint Patent Rights). If such an invention is solely invented by an employee, consultant or contractor of a Party, such invention shall be owned by such Party, and any patent filed claiming such solely owned invention shall also be owned by such Party. Subject to Section 5.6 with respect to contractors, each Party shall enter into binding agreements obligating all employees, consultants and contractors performing activities under or contemplated by this Agreement, including activities related to the BMS Patent Rights, Licensed Compounds or Licensed Products, to assign his/her interest in any invention conceived or reduced to practice in the course of such activities to the Party for which such employee, consultant or contractor is providing its services. This Agreement shall be understood to be a joint research agreement in accordance with 35 U.S.C. 103(c)(3) to develop the Licensed Compounds and Licensed Products. The filing, prosecution, maintenance and enforcement of Joint Patent Rights which are BMS Core Patent Rights shall be handled in accordance with this Article 10. 10.2 Filing, Prosecution and Maintenance of BMS Core Patent Rights . Ambit shall be responsible, using its in-house patent counsel or outside patent counsel selected by Ambit (such selection to be subject to BMSs approval, such approval not to be unreasonably withheld), for the preparation, prosecution (including, without limitation, any interferences, reissue proceedings and reexaminations) and maintenance of BMS Core Patent Rights. Ambit shall be responsible for all costs incurred by Ambit with respect to such preparation, prosecution and maintenance of BMS Core Patent Rights so long as Ambit remains responsible for such preparation, prosecution and maintenance. Upon reasonable request by Ambit, BMS shall provide reasonable assistance and cooperation (including, without limitation, making available to Ambit documents possessed by BMS that are reasonably required by Ambit and making available personnel for interviews and testimony) in any actions reasonably undertaken by Ambit under this Section 10.2. Upon request by BMS, Ambit shall provide BMS with a general update of the filing, prosecution and maintenance status for each of the BMS Core Patent Rights, but shall not be obligated to disclose to BMS any Ambit Confidential Information. Ambit shall reasonably consult with and cooperate with BMS with respect to the preparation, prosecution and maintenance of the BMS Core Patent Rights reasonably prior to any deadline or action with the U.S. Patent & Trademark Office or any foreign patent office, and shall furnish to BMS copies of all relevant documents reasonably in advance of such consultation. Ambit shall provide to BMS copies of any papers relating to the filing, prosecution or maintenance of the BMS Core Patent Rights promptly upon their being filed or received. Ambit shall not knowingly take any action during prosecution and maintenance of the BMS Core Patent Rights that would materially adversely affect them (including any reduction in claim scope), without BMSs prior consent, which consent shall not be unreasonably withheld or delayed. 10.3 Patent Abandonment . 10.3.1 Generally. In no event will Ambit knowingly permit any of the BMS Core Patent Rights to be abandoned in any country in the Territory, or elect not to file a new patent application claiming priority to a patent application within the BMS Core Patent Rights either before such patent applications issuance or within the time period required for the filing of an international (i.e., Patent Cooperation Treaty), regional (including European Patent Office) or national application, without BMS first being given an opportunity to assume full responsibility for the continued prosecution and maintenance of such BMS Core Patent Rights, or the filing of such new patent application. Accordingly, Ambit shall provide BMS with notice of the allowance and expected issuance date of any patent within the BMS Core Patent Rights, or any of the aforementioned filing deadlines, and BMS shall provide Ambit with prompt notice as to whether BMS desires Ambit to file such new patent application. In the event that Ambit decides either (i) not to continue the prosecution or maintenance of a patent application or patent within BMS Core Patent Rights in any country or (ii) not to file such new patent application - 25 -
requested to be filed by BMS, Ambit shall provide BMS with notice of this decision at least sixty (60) days prior to any pending lapse or abandonment thereof. 10.3.2 BMS Option to Assume Responsibility . BMS shall, upon Ambits notice as described in Section 10.3.1, have the right, but not the obligation, to assume responsibility for all reasonably documented external costs associated with the filing and/or further prosecution and maintenance of such patents and patent applications, on a patent-by-patent and country-by-country basis. Ambit shall proceed with such filing and/or further prosecution and maintenance promptly upon receipt of written notice from BMS of its election to assume such responsibility, with such filing to occur prior to the issuance of the patent to which the application claims priority or expiration of the applicable filing deadline, as set forth above. In the event that BMS assumes such responsibility for such filing, prosecution and maintenance costs, Ambit shall have the right, but not the obligation, to transfer the responsibility for such filing, prosecution and maintenance of such patent applications and patents to BMSs in-house patent counsel or outside patent counsel selected by BMS and reasonably acceptable to Ambit, provided that Ambit shall (i) provide sufficient written notice to BMS of any such election such that the relevant transfer shall not prejudice the filing, prosecution and/or maintenance of patent rights (where possible, such notice shall be provided at least sixty (60) days prior to any pending lapse or abandonment thereof); (ii) transfer or cause to be transferred to BMS or its patent counsel the complete prosecution file for the relevant patents and patent applications, including all correspondence and filings with patent authorities with respect thereto; and (iii) at the reasonable request of BMS and without demanding any further consideration therefore, do all things necessary, proper or advisable, including without limitation the execution, acknowledgment and recordation of specific assignments, oaths, declarations and other documents on a country-by-country basis, to assist BMS in obtaining, perfecting, sustaining and/or enforcing such patent(s). In such case, Section 10.3.1 shall apply to such patent applications and patents except that the role of Ambit and BMS shall be reversed. Such patent applications and patents shall otherwise continue to be subject to all of the terms and conditions of the Agreement in the same way as the other BMS Core Patent Rights, as applicable. 10.4 Enforcement of BMS Core Patent Rights Against Infringers . 10.4.1 Enforcement by Ambit . (a) In the event that BMS or Ambit becomes aware of a suspected infringement of any BMS Core Patent Right exclusively licensed to Ambit under this Agreement, such Party shall notify the other Party promptly, and following such notification, the Parties shall confer. Ambit shall have the right, but shall not be obligated, to bring an infringement action with respect to such infringement at its own expense, in its own name and entirely under its own direction and control, subject to the following. BMS shall reasonably assist Ambit (at Ambits expense) in any action or proceeding being prosecuted if so requested, and shall lend its name to and join as a nominal party in such actions or proceedings if reasonably requested by Ambit or required by applicable Laws. BMS shall have the right to participate and be represented in any such suit by its own counsel at its own expense. No settlement of any such action or proceeding which restricts the scope, or adversely affects the enforceability, of a BMS Core Patent Right may be entered into by Ambit without the prior written consent of BMS, which consent shall not be unreasonably withheld, delayed or conditioned. (b) BMS shall have the right at its discretion to grant to Ambit such rights (including assignment of the applicable BMS Core Patent Rights) as may be necessary for Ambit to exercise its rights under this Section 10.4 (including defending or enforcing any BMS Core Patent Rights) without BMS involvement. In the event of such grant of rights (including assignment) with respect to any BMS Core Patent Rights, such BMS Core Patent Rights shall continue to be treated as BMS Core Patent Rights and shall otherwise continue to be subject to all of the terms and conditions of the - 26 -
Agreement in the same way as the other applicable BMS Core Patent Rights. For purposes of clarity, election or non-election by BMS to grant or assign rights to Ambit under this Section 10.4.1(b) shall not limit BMS obligations under Section 10.4.1(a) to reasonably assist Ambit in any action or proceeding, or to join in such action or proceeding upon request by Ambit if such joinder is necessary under applicable Laws for Ambit to exercise its rights under this Section 10.4. 10.4.2 Enforcement by BMS. If Ambit elects not to bring any action for infringement described in Section 10.4.1 and so notifies BMS, then BMS may bring such action at its own expense, in its own name and entirely under its own direction and control, subject to the following. Ambit shall reasonably assist BMS (at BMS expense) in any action or proceeding being prosecuted if so requested, and shall lend its name to such actions or proceedings if requested by BMS or required by applicable Laws. Ambit shall have the right to participate and be represented in any such suit by its own counsel at its own expense. No settlement of any such action or proceeding which restricts the scope, or adversely affects the enforceability, of a BMS Core Patent Right may be entered into by BMS without the prior written consent of Ambit, which consent shall not be unreasonably withheld, delayed or conditioned. 10.4.3 Withdrawal. If either Party brings an action or proceeding under this Section 10.4 and subsequently ceases to pursue or withdraws from such action or proceeding, it shall promptly notify the other Party and the other Party may substitute itself for the withdrawing Party under the terms of this Section 10.4. 10.4.4 Damages. In the event that either Party exercises the rights conferred in this Section 10.4 and recovers any damages or other sums in such action, suit or proceeding or in settlement thereof, such damages or other sums recovered shall first be applied to all out-of-pocket costs and expenses incurred by the Parties in connection therewith, including, without limitation, attorneys fees. If such recovery is insufficient to cover all such costs and expenses of both Parties, it shall be shared in proportion to the total of such costs and expenses incurred by each Party. If after such reimbursement any funds shall remain from such damages or other sums recovered, such funds shall be retained by the Party that controlled the action or proceeding under this Section 10.4; provided, however, that if Ambit is the Party that controlled such action or proceeding, BMS shall receive out of any such remaining recovery received by Ambit an amount as follows: (i) as to ordinary damages, BMS shall receive payment equivalent to payments that would have been due to BMS under this Agreement had the infringing sales that Ambit lost to the infringer been made by Ambit and (ii) as to special or punitive damages, such amount shall be allocated between the Parties in the same proportion as ordinary damages under clause (i), and provided further that the amounts paid under (i) and (ii) shall not [***] of the total recovery of Ambit from such action or proceeding. 10.5 Patent Term Extension. BMS and Ambit shall each cooperate with one another and shall use commercially reasonable efforts in obtaining patent term extension (including without limitation, any pediatric exclusivity extensions as may be available) or supplemental protection certificates or their equivalents in any country with respect to patent rights covering the Licensed Products. If elections with respect to obtaining such patent term extensions are to be made, Ambit shall have the right to make the election to seek patent term extension or supplemental protection, provided that such election will be made so as to maximize the period of marketing exclusivity for the Licensed Product. For such purpose, for all Approvals Ambit shall provide BMS with written notice of any expected Approval at least thirty (30) days prior to the expected date of Approval, as well as notice within five (5) business days of receiving each Approval confirming the date of such Approval. Notification of the receipt of an Approval shall be in accordance with Section 15.2 except that the notification shall be sent to: Bristol-Myers Squibb Company P.O. Box 4000 ***Confidential Treatment Requested - 27 -
Route 206 & Province Line Road Princeton, New Jersey 08543-4000 Attention: Vice President and Chief Intellectual Property Counsel Telephone: 609-252-4825 Facsimile: 609-252-7884 10.6 Data Exclusivity and Orange Book Listings . 10.6.1 With respect to data exclusivity periods (such as those periods listed in the FDAs Orange Book (including without limitation any available pediatric extensions) or periods under national implementations of Article 10.1(a)(iii) of Directive 2001/EC/83, and all international equivalents), Ambit shall use commercially reasonable efforts consistent with its obligations under applicable Law to seek, maintain and enforce all such data exclusivity periods available for the Licensed Products. With respect to filings in the FDA Orange Book (and foreign equivalents) for issued patents for a Licensed Product, Ambit shall, consistent with its obligations under applicable Law, list in a timely manner and maintain all applicable BMS Core Patent Rights and other patents Controlled by Ambit required to be filed by it, or that it is permitted to file, under applicable Law. At least [***] prior to an anticipated deadline for the filing of patent listing information for BMS Core Patent Rights, Ambit will consult with BMS regarding the content of such filing. In the event of a dispute between the Parties as to whether a BMS Core Patent Right can be filed and/or the content of such filing, the Parties will take expedited steps to resolve the dispute as promptly as possible, including seeking advice of an independent legal counsel to guide their decision. BMS shall use commercially reasonable efforts consistent with its obligations under applicable Law to provide reasonable cooperation to Ambit in filing and maintaining such Orange Book (and foreign equivalent) listings. 10.6.2 Without limiting the foregoing, BMS shall have the right at its discretion to grant to Ambit such rights (including assignment of the applicable BMS Core Patent Rights) as may be necessary for Ambit to exercise its rights under this Section 10.6 (including seeking, maintaining and enforcing all data exclusivity periods) without BMS involvement. In the event of such grant of rights (including assignment) with respect to any BMS Core Patent Rights, such BMS Core Patent Rights shall continue to be treated as BMS Core Patent Rights and shall otherwise continue to be subject to all of the terms and conditions of the Agreement in the same way as the other applicable BMS Core Patent Rights. For purposes of clarity, election by BMS to grant or assign rights to Ambit under this Section 10.6.2 shall not limit BMS obligation under Section 10.6.1 to provide reasonable cooperation to Ambit to the extent such cooperation is reasonably necessary for Ambit in filing and maintaining such Orange Book (and foreign equivalent) listings. 10.7 Notification of Patent Certification . Each Party shall notify and provide the other Party with copies of any allegations of alleged patent invalidity, unenforceability or non- infringement of a BMS Core Patent Right pursuant to a Paragraph IV Patent Certification by a Third Party filing an Abbreviated New Drug Application, an application under 505(b)(2) or other similar patent certification by a Third Party, and any foreign equivalent thereof. Such notification and copies shall be provided to the other Party within seven (7) days after such Party receives such certification, and shall be sent to the address set forth in Section 10.5 in the case of notifications to BMS or the address set forth in Section 15.2 in the case of notifications to Ambit. In addition, upon request by BMS, Ambit shall provide reasonable assistance and cooperation (including, without limitation, making available to BMS documents possessed by Ambit that are reasonably required by BMS and making available personnel for interviews and testimony) in any actions reasonably undertaken by BMS to contest any such patent certification. 10.8 Limitation on Patent Actions . Neither party shall be required to take any action pursuant to Sections 10.4, 10.5, 10.6 or 10.7 that such Party reasonably determines in its sole judgment and ***Confidential Treatment Requested - 28 -
discretion conflicts with or violates any court or government order or decree that such Party is then subject to or otherwise may create legal liability on the part of such Party. ARTICLE 11 NONDISCLOSURE OF CONFIDENTIAL INFORMATION 11.1 Nondisclosure. Each Party agrees that, for so long as this Agreement is in effect and for a period of [***] thereafter, a Party (the Receiving Party) receiving or possessing Confidential Information of the other Party (the Disclosing Party) (or that has received any such Confidential Information from the other Party prior to the Effective Date) shall (i) maintain in confidence such Confidential Information using not less than the efforts such Receiving Party uses to maintain in confidence its own proprietary industrial information of similar kind and value, (ii) not disclose such Confidential Information to any Third Party without the prior written consent of the Disclosing Party, except for disclosures expressly permitted below, and (iii) not use such Confidential Information for any purpose except those permitted by this Agreement (it being understood that this clause (iii) shall not create or imply any rights or licenses not expressly granted under Article 2 hereof). 11.1.1 Confidentiality of Know-How for Disclosure Purposes . During such time as the license to the BMS Know-How granted under Section 2.1.1 is in effect, solely for disclosure purposes to Third Parties, the BMS Know-How shall be deemed to be Confidential Information of both BMS and Ambit under Article 11, both BMS and Ambit shall be deemed to be a Disclosing Party of the BMS Know-How under Article 11, and BMS and its Affiliates shall be deemed not to have known such BMS Know-How prior to disclosure for the purposes of Section 11.1.2(b). Other than for disclosure purposes to Third Parties, the BMS Know-How shall solely be the Confidential Information of BMS. 11.1.2 Exceptions. The obligations in Section 11.1 shall not apply with respect to any portion of the Confidential Information that the Receiving Party can show by competent proof: (a) is publicly disclosed by the Disclosing Party, either before or after it is disclosed to the Receiving Party hereunder; or (b) was known to the Receiving Party or any of its Affiliates, without any obligation to keep it confidential or any restriction on its use, prior to disclosure by the Disclosing Party; or (c) is subsequently disclosed to the Receiving Party or any of its Affiliates by a Third Party lawfully in possession thereof and without any obligation to keep it confidential or any restriction on its use; or (d) is published by a Third Party or otherwise becomes publicly available or enters the public domain, either before or after it is disclosed to the Receiving Party; or (e) has been independently developed after disclosure by the Disclosing Party by employees or contractors of the Receiving Party or any of its Affiliates without the aid, application or use of Confidential Information of the Disclosing Party. 11.2 Authorized Disclosure. The Receiving Party may disclose Confidential Information belonging to the Disclosing Party to the extent (and only to the extent) such disclosure is reasonably necessary in the following instances: ***Confidential Treatment Requested - 29 -
(a) filing or prosecuting patents; (b) regulatory filings; (c) prosecuting or defending litigation; (d) subject to Section 11.4, complying with applicable governmental Laws and regulations (including, without limitation, the rules and regulations of the Securities and Exchange Commission or any national securities exchange) and with judicial process, if in the reasonable opinion of the Receiving Partys counsel, such disclosure is necessary for such compliance; and (e) disclosure (i) in connection with the performance of this Agreement and solely on a need to know basis, to Affiliates; potential or actual collaborators (including potential Sublicensees); or employees, contractors, or agents; or (ii) solely on a need to know basis to potential or actual investment bankers, investors, lenders, or acquirers; each of whom in the case of clause (i) or (ii) prior to disclosure must be bound by written obligations of confidentiality and non-use no less restrictive than the obligations set forth in this Article 11; provided, however, that the Receiving Party shall remain responsible for any failure by any Person who receives Confidential Information pursuant to this Article 11 to treat such Confidential Information as required under this Article 11. If and whenever any Confidential Information is disclosed in accordance with this Section 11.2, such disclosure shall not cause any such information to cease to be Confidential Information except to the extent that such disclosure results in a public disclosure of such information (otherwise than by breach of this Agreement). Where reasonably possible and subject to Section 11.4, the Receiving Party shall notify the Disclosing Party of the Receiving Partys intent to make such disclosure pursuant to paragraphs (a) through (d) of this Section 11.2 sufficiently prior to making such disclosure so as to allow the Disclosing Party adequate time to take whatever action it may deem appropriate to protect the confidentiality of the information. 11.3 Terms of this Agreement . The Parties acknowledge that the terms of this Agreement shall be treated as Confidential Information of both Parties. 11.4 Securities Filings. In the event either Party proposes to file with the Securities and Exchange Commission or the securities regulators of any state or other jurisdiction a registration statement or any other disclosure document which describes or refers to this Agreement under the Securities Act of 1933, as amended, the Securities Exchange Act, of 1934, as amended, or any other applicable Laws, the Party shall notify the other Party of such intention and shall provide such other Party with a copy of relevant portions of the proposed filing not less than five (5) business days prior to such filing (and any revisions to such portions of the proposed filing a reasonable time prior to the filing thereof), including any exhibits thereto relating to this Agreement, and shall use reasonable efforts to obtain confidential treatment of any information concerning this Agreement that such other Party requests be kept confidential, and shall only disclose Confidential Information which it is advised by counsel is legally required to be disclosed. No such notice shall be required under this Section 11.4 if the substance of the description of or reference to this Agreement contained in the proposed filing has been included in any previous filing made by the other Party hereunder or otherwise approved by the other Party. 11.5 Publication. 11.5.1 Publication by BMS. BMS may publish or present data and/or results relating to a Licensed Compound or Licensed Product in scientific journals and/or at scientific conferences, subject to the prior review and approval by Ambit as follows. BMS shall provide Ambit with the opportunity to - 30 -
review any proposed abstract, manuscript or presentation which discloses information relating to a Licensed Compound or Licensed Product by delivering a copy thereof to Ambit no less than thirty (30) days before its intended submission for publication or presentation. Ambit shall have thirty (30) days from its receipt of any such abstract, manuscript or presentation in which to notify BMS in writing of any specific objections to the disclosure. In the event Ambit objects to the disclosure in writing within such thirty (30) days period, BMS agrees not to submit the publication or abstract or make the presentation containing the objected-to information until the Parties have agreed to the content of the proposed disclosure, and BMS shall delete from the proposed disclosure any Ambit Confidential Information or BMS Know-How or the identity of any Licensed Compound or Licensed Product, upon reasonable request by Ambit. Once any such abstract or manuscript is approved by Ambit and accepted for publication, BMS will provide Ambit with a copy of the final version of the manuscript or abstract. For clarification, this Section 11.5.1 shall not limit or restrict BMS ability to publish or present publicly information on compounds which are not Licensed Compounds or Licensed Products, provided such publication or presentation does not contain Ambit Confidential Information (including BMS Know-How) or identify any Licensed Compound or Licensed Product or in any way intentionally adversely affect the Development or Commercialization of a Licensed Compound or Licensed Product or intentionally adversely affect any efforts by Ambit to sublicense a Licensed Compound or Licensed Product under Section 3.1.2. 11.5.2 Publication by Ambit . Ambit may publish or present data and/or results relating to a Licensed Compound or Licensed Product in scientific journals and/or at scientific conferences, subject to the prior review by the Reviewer designated by BMS as set forth below. Ambit shall provide the Reviewer with the opportunity to review any proposed abstract, manuscript or presentation which discloses information relating to a Licensed Compound or Licensed Product by delivering a copy thereof to the Reviewer no less than thirty (30) days before its intended submission for publication or presentation. The Reviewer shall have thirty (30) days from its receipt of any such abstract, manuscript or presentation in which to notify Ambit in writing of any specific objections to the disclosure. In the event the Reviewer objects to the disclosure in writing within such thirty (30) days period, which objection shall only be based upon the inclusion of BMS Confidential Information, Ambit agrees not to submit the publication or abstract or make the presentation containing the objected-to information until Ambit and the Reviewer have agreed to the content of the proposed disclosure, and Ambit shall delete from the proposed disclosure any BMS Confidential Information upon the instructions of the Reviewer. Once any such abstract or manuscript is accepted for publication, Ambit will provide the Reviewer with a copy of the final version of the manuscript or abstract. As used herein, Reviewer means a BMS patent attorney who is not then working on a program targeting any of the [***] targets targeted by the Licensed Compound. Such Reviewer will not disclose the Ambit Confidential Information contained in the proposed abstract, manuscript or presentation being reviewed to others or use such Ambit Confidential Information for any purpose other than the review under this Section 11.5.2 until such Ambit Confidential Information is subject to the exceptions set forth in Section 11.1.2. ARTICLE 12 INDEMNITY 12.1 Ambit Indemnity. Ambit shall indemnify, defend and hold harmless BMS and its Affiliates, and their respective officers, directors, employees, agents, licensors, and their respective successors, heirs and assigns and representatives, from and against any and all claims, threatened claims, damages, losses, suits, proceedings, liabilities, costs (including, without limitation, reasonable legal expenses, costs of litigation and reasonable attorneys fees) or judgments, whether for money or equitable relief, of any kind, arising out of any claim, action, lawsuit or other proceeding brought by a Third Party (Losses and Claims) arising out of or relating, directly or indirectly, (i) to the research, Development, ***Confidential Treatment Requested - 31 -
Commercialization (including, without limitation, promotion, advertising, offering for sale, sale or other disposition), transfer, importation or exportation, manufacture, labeling, handling or storage, or use of, or exposure to, any Licensed Compound and/or any Licensed Product by or for Ambit or any of its Affiliates, Sublicensees, agents and/or contractors, (ii) to Ambits (or its Affiliates and/or Sublicensees) use and practice otherwise of the BMS Patent Rights and/or BMS Know-How, including, without limitation, claims and threatened claims based on (A) product liability, bodily injury, risk of bodily injury, death or property damage, (B) infringement or misappropriation of Third Party patents, copyrights, trademarks or other intellectual property rights, or (C) the failure to comply with applicable Laws related to the matters referred to in the foregoing clauses (i) and (ii) with respect to any Licensed Compound and/or any Licensed Product, or (iii) Ambits gross negligence, recklessness or willful misconduct or Ambits material breach of any representation or warranty set forth in this Agreement; except in any such case for Losses and Claims to the extent reasonably attributable to (x) BMS having committed an act or acts of gross negligence, recklessness or willful misconduct or having materially breached any representation or warranty set forth in this Agreement or (y) any act or omission of BMS or any of its Affiliates or any of their respective officers, directors, employees, agents, or licensors prior to the Effective Date, including but not limited to infringement or misappropriation of Third Party patents, copyrights, trademarks or other intellectual property rights, or the research, Development, use or manufacture of any Licensed Compound or Licensed Product prior to the Effective Date. 12.2 BMS Indemnity. BMS shall indemnify, defend and hold harmless Ambit and its Affiliates, and their respective officers, directors, employees, agents, licensors, and their respective successors, heirs and assigns and representatives, from and against any and all Losses and Claims arising out of or relating, directly or indirectly to (i) BMS gross negligence, recklessness or willful misconduct or (ii) BMS material breach of any representation or warranty set forth in this Agreement; except in any such case for Losses and Claims to the extent reasonably attributable to (x) Ambit having committed an act or acts of gross negligence, recklessness or willful misconduct or having materially breached any representation or warranty set forth in this Agreement or (y) any act or omission of Ambit or any of its Affiliates or any of their respective officers, directors, employees, agents or licensors prior to the Effective Date. 12.3 Indemnification Procedure. A claim to which indemnification applies under Section 12.1 or Section 12.2 shall be referred to herein as an Indemnification Claim. If any Person or Persons (collectively, the Indemnitee) intends to claim indemnification under this Article 12, the Indemnitee shall notify the other Party (the Indemnitor) in writing promptly upon becoming aware of any claim that may be an Indemnification Claim (it being understood and agreed, however, that the failure by an Indemnitee to give such notice shall not relieve the Indemnitor of its indemnification obligation under this Agreement except and only to the extent that the Indemnitor is actually prejudiced as a result of such failure to give notice). The Indemnitor shall have the right to assume and control the defense of the Indemnification Claim at its own expense with counsel selected by the Indemnitor and reasonably acceptable to the Indemnitee, provided, however, that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitee, if representation of such Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between such Indemnitee and any other party represented by such counsel in such proceedings. If the Indemnitor does not assume the defense of the Indemnification Claim as aforesaid, the Indemnitee may defend the Indemnification Claim but shall have no obligation to do so. The Indemnitee shall not settle or compromise the Indemnification Claim without the prior written consent of the Indemnitor, and the Indemnitor shall not settle or compromise the Indemnification Claim in any manner which would have an adverse effect on the Indemnitees interests (including without limitation any rights under this Agreement or the scope or enforceability of the BMS Patents Rights or BMS Know-How), without the prior written consent of the Indemnitee, which consent, in each case, shall not be unreasonably withheld or delayed. The Indemnitee shall reasonably cooperate with the Indemnitor at the Indemnitors expense and shall - 32 -
make available to the Indemnitor all pertinent information under the control of the Indemnitee, which information shall be subject to Article 11. 12.4 Insurance. Ambit shall, beginning with the initiation of the first clinical trial for a Licensed Product, maintain at all times thereafter during the term of the Agreement, and until the later of (i) six (6) years after termination or expiration of the Agreement or (ii) the date that all statutes of limitation covering claims or suits that may be brought for personal injury based on the sale or use of a Licensed Product have expired in all states in the U.S., comprehensive general liability insurance from a recognized, creditworthy insurance company, on a claims-made basis, with endorsements for contractual liability and product liability, and with coverage limits of not less than $10 million per occurrence, and which shall name BMS as an additional insured thereunder. The minimum level of insurance set forth herein shall not be construed to create a limit on Ambits liability hereunder. Within ten (10) days following written request from BMS, Ambit shall furnish to BMS a certificate of insurance evidencing such coverage as of the date. Ambit shall use commercially reasonable efforts to cause such certificate of insurance, as well as any certificates evidencing new coverages of Ambit, to include a provision whereby thirty (30) days written notice must be received by BMS prior to coverage cancellation by either Ambit or the insurer and of any new coverage. In the case of a cancellation of such coverage, Ambit shall promptly provide BMS with a new certificate of insurance evidencing that Ambits coverage meets the requirements in the first sentence of this Section. ARTICLE 13 TERM AND TERMINATION 13.1 Term. This Agreement shall commence as of the Effective Date and, unless sooner terminated in accordance with the terms hereof or by mutual written consent, shall continue until neither party has any obligation under this Agreement to make payments to the other Party. 13.2 Termination By BMS. BMS shall have the right to terminate this Agreement, at BMS sole discretion, as follows. 13.2.1 Insolvency. BMS shall have the right to terminate this Agreement with respect to any or all licenses granted to Ambit pursuant to Article 2 of this Agreement and any or all rights granted under Section 2.1.3, at BMS sole discretion, upon delivery of written notice to Ambit upon the filing by Ambit in any court or agency pursuant to any statute or regulation of the United States or any other jurisdiction a petition in bankruptcy or insolvency or for reorganization or similar arrangement for the benefit of creditors or for the appointment of a receiver or trustee of Ambit or its assets, or if Ambit is served with an involuntary petition against it in any insolvency proceeding, upon the ninety-first (91st) day after such service if such involuntary petition has not previously been stayed or dismissed, or upon the making by Ambit of an assignment of substantially all of its assets for the benefit of its creditors; provided that the insolvency adversely affects or could in BMSs reasonable judgment adversely affect BMS rights under this Agreement. 13.2.2 Breach. Subject to Section 13.2.5 below, BMS shall have the right to terminate this Agreement with respect to any or all licenses granted to Ambit pursuant to Article 2 of this Agreement and any or all rights granted under Section 2.1.3, at BMS sole discretion, upon delivery of written notice to Ambit in the event of any material breach by Ambit of any terms and conditions of this Agreement (other than failure to use Commercially Reasonable Efforts to Develop or Commercialize the Licensed Compounds and a Licensed Product, which breach is covered under Section 13.2.3), provided that such breach has not been cured within [***] after written notice thereof is given by BMS to Ambit specifying the nature of the alleged breach, provided, however, that to the extent such material ***Confidential Treatment Requested - 33 -
breach involves the failure to make a payment when due, such breach must be cured within [***] after written notice thereof is given by BMS to Ambit. In the case where the material breach (other than a breach that involves the failure to make a payment when due) cannot reasonably be cured within the [***] period after written notice thereof is given by BMS to Ambit, the Agreement shall continue and shall not be terminated for a period reasonably required (as determined by BMS) by Ambit to cure such breach, so long as Ambit is undertaking the steps and following the timelines specified in writing by BMS to reasonably cure said breach. 13.2.3 Failure to Use Commercially Reasonable Efforts . Subject to Section 13.2.5 below, BMS shall have the right to terminate this Agreement with respect to any or all licenses granted to Ambit pursuant to Article 2 of this Agreement and any or all rights granted under Section 2.1.3 on a country-by-country basis (except as otherwise set forth in this Section 13.2.3), at BMS sole discretion, in the event that Ambit fails to use Commercially Reasonable Efforts (by itself or through its Affiliates or Sublicensees) to Develop and Commercialize at least one Licensed Product, provided that Ambit has not exercised such Commercially Reasonable Efforts in the applicable country or countries within [***] following written notice by BMS. (a) Termination under this Section 13.2.3 shall apply to all Licensed Compounds and Licensed Products, but only for the affected country or countries, provided however, that (i) if the applicable termination event relates to a breach of Section 5.1(a) or Section 6.1 in a country, then BMS shall not have the right to terminate this Agreement with respect to such country if Ambit is in compliance with such provisions with respect to the United States and four other Major Market Countries, and (ii) if the applicable termination event relates to a breach of Section 5.1(a) or Section 6.1 in a country in the EU, then BMS shall not have the right to terminate this Agreement with respect to such country if Ambit is in compliance with such provisions with respect to three Major Market Countries in the EU. (b) For clarity, it is understood and acknowledged that to the extent Ambit uses Commercially Reasonable Efforts (by itself or through its Affiliates or Sublicensees) to Develop at least one Licensed Product through an MAA Filing, Ambit shall be in compliance with Section 5.1(a) with respect to all countries in the EU. For further clarity, it is understood and acknowledged that Commercially Reasonable Efforts in the Development of a Licensed Product in a particular country may include sequential implementation of clinical trials and/or intervals between clinical trials for data interpretation and clinical program planning, to the extent such implementation is consistent with the scientific, technical and commercial factors relevant to Development of such Licensed Product in such country. Accordingly, and for further clarity, it is understood and acknowledged that Commercially Reasonable Efforts may include the sequential Commercialization of the Licensed Product in the Major Market Countries. 13.2.4 Termination of License and Profiling Services Agreement . In the event that BMS terminates the License and Profiling Services Agreement for an uncured material breach by Ambit (or, as applicable, a successor to its obligations under the License and Profiling Services Agreement), BMS may terminate this Agreement with respect to any or all licenses granted to Ambit pursuant to Article 2 of this Agreement and any or all rights granted under Section 2.1.3 upon written notice to Ambit. 13.2.5 Disputed Breach. If Ambit disputes in good faith the existence or materiality of a breach specified in a notice provided by BMS pursuant to Section 13.2.2, or a failure to use Commercially Reasonable Efforts specified in a notice Provided by BMS pursuant to Section 13.2.3, and Ambit provides notice to BMS of such dispute within the applicable [***] period, BMS shall not have the right to terminate this Agreement unless and until the existence of such material breach or failure by Ambit has been determined in accordance with Section 14.2 and Ambit fails ***Confidential Treatment Requested - 34 -
to cure such breach within [***] days following such determination (except to the extent such breach involves the failure to make a payment when due, which breach must be cured within [***] following such determination). It is understood and acknowledged that during the pendency of such a dispute, all of the terms and conditions of this Agreement shall remain in effect and the Parties shall continue to perform all of their respective obligations hereunder. The Parties further agree that any payments that are made by one Party to the other Party pursuant to this Agreement pending resolution of the dispute shall be promptly refunded if an arbitrator or court determines pursuant to Section 14.2 that such payments are to be refunded by one Party to the other Party. 13.2.6 Scope of Termination. Except as otherwise expressly provided herein, termination of this Agreement shall be as to all countries in the Territory and all Licensed Compounds and Licensed Products. 13.3 Termination by Ambit. Ambit shall have the right to terminate this Agreement, at Ambits sole discretion, as follows. At Ambits discretion, on a country-by-country and product-by-product basis, effective upon [***] prior written notice in the case where NDA Approval has not been obtained for the applicable Licensed Product or upon six (6) months prior written notice in the case where NDA Approval has been obtained for the applicable Licensed Product, Ambit may terminate this Agreement for any reason; provided, however, that (i) no such termination right may be exercised as to a Major Market Country in the EU unless all countries in Europe are so terminated and (ii) no such termination right may be exercised as to all of the Major Market Countries unless all countries in the Territory are so terminated. 13.4 Effect of Termination Under Section 13.2.1, 13.2.2, 13.2.3, 13.2.4 or 13.3 . Upon termination of this Agreement or any right or license pursuant to Section 13.2.1, 13.2.2, 13.2.3, 13.2.4 or 13.3, the rights and obligations of the Parties shall be as set forth in this Section 13.4. 13.4.1 Upon termination of this Agreement, either in its entirety or with respect to one or more applicable Licensed Compounds or Licensed Products in one or more applicable countries (each, a Terminated Country) pursuant to Section 13.2.1, 13.2.2, 13.2.3, 13.2.4 or 13.3 hereof (the rights and obligations of the Parties as to the remaining countries of the Territory in which termination under Section 13.2.3 or 13.3 has not occurred, being unaffected by such termination), the following shall apply: (a) All rights and licenses granted to Ambit in Article 2 and all rights granted under Section 2.1.3 shall terminate with respect to each applicable Licensed Product in each Terminated Country (subject to Section 2.2(b)(vi)), all rights of Ambit under the BMS Patent Rights and BMS Know-How with respect to each applicable Licensed Product in each Terminated Country shall revert to BMS, and Ambit shall cease all use of the BMS Patent Rights and BMS Know-How with respect to each applicable Licensed Product in each Terminated Country. To the extent that there remain any countries in the Territory that are not Terminated Countries (Remaining Countries), all such rights and licenses shall remain in place with respect to the Remaining Countries. (b)All regulatory filings (including, without limitation, all INDs and NDAs) and Approvals and other documents relating to or necessary to further develop and commercialize Licensed Compounds and Licensed Products, as they exist as of the date of such termination, and all of Ambits right, title and interest therein and thereto, in each Terminated Country shall be assigned to BMS, and Ambit shall provide to BMS one (1) copy of the foregoing documents and filings and all documents and filings contained in or referenced in any such filings, together with the raw and summarized data for any preclinical and clinical studies of the Licensed Compounds and such Licensed Products (and where reasonably available, electronic copies thereof); provided, however, this Section 13.4.1(b) shall not apply to any regulatory filings and Approvals and other documents relating to or necessary for the further ***Confidential Treatment Requested - 35 -
Development and Commercialization of any Licensed Compound or Licensed Product, the Development and/or Commercialization of which was terminated by Ambit or one of its Affiliates or Sublicensees for Safety Reasons. Upon such termination pursuant to Section 13.2.1, 13.2.2, 13.2.3, 13.2.4 or 13.3 hereof, Ambit shall notify BMS in writing as to those Licensed Compounds and Licensed Products the Development and/or Commercialization of which was terminated by Ambit or one of its Affiliates or Sublicensees for Safety Reasons and the nature of such Safety Reasons. Ambit agrees to make available for BMS inspection, relevant data, materials and reports that support such Safety Reasons, provided that BMS enters into an agreement with Ambit or the relevant Affiliate or Sublicensee of Ambit to maintain the confidentiality of such data, materials and reports. If BMS disputes that the Development and/or Commercialization of a Licensed Compound or Licensed Product was terminated for Safety Reasons, the dispute will be subject to the dispute resolution provisions of Article 14. BMS shall have the right to obtain specific performance of Ambits obligations referenced in this Section 13.4.1(b) and/or in the event of failure to obtain assignment, Ambit hereby consents and grants to BMS the right to access and reference (without any further action required on the part of Ambit, whose authorization to file this consent with any Regulatory Authority is hereby granted) any and all such regulatory filings for any regulatory or other use or purpose. In addition, upon request by BMS, Ambit shall grant to BMS the right to access and reference any other documents (including but not limited to regulatory filings) that are available to Ambit and reasonably necessary for BMS to further Develop, manufacture and Commercialize the Licensed Compounds and Licensed Products in each Terminated Country. Without limiting the foregoing in this paragraph, to the extent applicable, Ambits obligations under Section 10.6 shall continue. (c) All amounts due or payable to BMS that were accrued, or that arise out of acts or events occurring, prior to the effective date of termination shall remain due and payable; but (except as otherwise expressly provided herein) no additional amounts shall be payable based on events occurring after the effective date of termination. (d) Should Ambit have any inventory of any applicable Licensed Compound allocated for use in clinical trials in a Terminated Country, Ambit shall offer to sell such Licensed Compounds to BMS at Ambits out-of-pocket cost (but BMS shall be under no obligation to purchase same unless it agrees to do so in writing at such time). (e) Should Ambit have any inventory of any applicable Licensed Product approved and allocated prior to termination in a Terminated Country, Ambit shall have six (6) months thereafter in which to dispose of such inventory (subject to the payment to BMS of any royalties due hereunder thereon), provided however, that (i) such right shall terminate at such time that BMS or a Third Party has taken over responsibility for the sale of such Licensed Product in such country and (ii) such Licensed Product shall not be sold at a discount to a purchaser that is greater than the average discount provided to such purchaser for the Licensed Product in such country during the 12 month period preceding such termination and, in addition, such sales shall not result in the applicable wholesaler inventory levels for such Licensed Product exceeding the average levels for the 12 month period preceding such termination. (f) Ambit shall provide to BMS all Ambit Termination Know-How (as defined below) in existence as of the date of such termination, including but not limited to Ambits manufacturing processes, techniques and trade secrets for making such Licensed Compounds and Licensed Products and all know-how relating to any composition, formulation, method of use or manufacture of such Licensed Compounds and such Licensed Products, and BMS shall automatically have an exclusive, perpetual, worldwide, transferable, sublicensable right and license under the Ambit Termination Know-How solely for (i) using (including in activities directed at the research and Development of Licensed Compounds), importing, exporting, selling and offering for sale the Licensed - 36 -
Compounds and Licensed Products in each Terminated Country and (ii) making and having made the Licensed Compounds and Licensed Products anywhere in the Territory solely for importation, exportation, sale and offer for sale in each Terminated Country. Ambit shall, at no charge, provide such training and assistance as is necessary to enable BMS to use the Ambit Termination Know-How to make the Licensed Compounds and Licensed Products in existence as of the date of such termination. For the purposes of the foregoing, Ambit Termination Know-How means all processes, techniques and know-how Controlled by Ambit and/or its Affiliates as of the date of termination that are reasonably necessary for the research, manufacture, Development and/or Commercialization of the Licensed Compounds and/or the Licensed Products. Ambit Termination Know-How shall not include information and know-how that is acquired or developed by Ambit after the date of termination. (g) If Ambit has the capability as of the date of termination for Ambit to commercially manufacture and supply Licensed Compounds and/or Licensed Products, upon request by BMS, Ambit shall supply to BMS Licensed Compounds and/or Licensed Products for use and sale in the Terminated Countries, at a price equal to one hundred fifteen percent (115%) of Ambits documented fully-burdened manufacturing cost (determined in accordance with GAAP) for such Licensed Compounds and/or Licensed Products, under terms and conditions as may be mutually agreed between the Parties. In such event, Ambit shall manufacture and supply such Licensed Compounds and/or Licensed Products to BMS until the earlier of (i) such time as BMS assumes responsibility for its own manufacture and supply of such Licensed Compounds and/or Licensed Products for the Terminated Countries, or (ii) twelve (12) months after the date of such termination. (h) Ambit shall assign (or, if applicable, use its best efforts to cause its Affiliate to assign) to BMS all of Ambits (and such Affiliates) right, title and interest in and to any registered or unregistered trademark, trademark application, trade name or internet domain name that is specific to a Licensed Product (it being understood that the foregoing shall not include any trademarks or trade names that contain the name Ambit) in each Terminated Country. (i) Ambit shall provide to BMS all data generated during the term of this Agreement relating to the Licensed Compounds and the Licensed Products and assign (or, if applicable, use its best efforts to cause its Affiliate to assign) to BMS all of Ambits (and such Affiliates) entire right, title and interest in and to all such data in each Terminated Country. (j) Ambit shall grant to BMS (i) an exclusive license with respect to the applicable Licensed Product for each Terminated Country, with the right to grant sublicenses, under the Ambit Termination Patent Rights (as defined below) Covering Licensed Compounds as a composition of matter, and (ii) a non-exclusive license with respect to each Terminated Country, with the right to grant sublicenses, under all other Ambit Termination Patent Rights, solely for (x) using (including in activities directed at the research and Development of Licensed Compounds), selling, having sold, offering for sale, exporting, and importing the Licensed Compounds and Licensed Products in the Field in each Terminated Country, and (y) making and having made the Licensed Compounds and Licensed Products anywhere in the Territory solely for importation, exportation, sale and offer for sale in the Field in each Terminated Country, which licenses and rights shall be subject to the prosecution and enforcement rights and obligations set forth in Article 10 with the roles of BMS and Ambit switched thereunder. In consideration for the licenses and other rights granted to BMS under this Section 13.4.1(j), BMS will pay to Ambit a [***] royalty on Net Sales of each particular Licensed Product by BMS, its Affiliates and Sublicensees in a Terminated Country until the expiration of the last to expire patent in such country within the Ambit Termination Patent Rights (including extensions thereof under applicable Laws, including patent term extensions, pediatric exclusivity extensions or supplemental protection certificates or their equivalents in any country) with a Valid Claim Covering as a composition of matter ***Confidential Treatment Requested - 37 -
the applicable Licensed Compound that is contained in that particular Licensed Product. For clarification, no royalty shall be payable by BMS based on any Ambit Termination Patent Rights that do not Cover the applicable Licensed Compound as a composition of matter, any BMS Patent Rights and/or any Joint Patent Rights. For the purposes of the foregoing, Ambit Termination Patent Rights means (i) those patents and patent applications Controlled by Ambit and/or its Affiliates as of the date of termination that are reasonably necessary for the research, manufacture, Development and/or Commercialization of the Licensed Compounds and/or the Licensed Products; (ii) any patent application that claims priority to any of the patents and patent applications included in clause (i) above (including any divisional, continuation, or continuation-in-part patent application), and foreign counterparts thereof (but in each case, only with respect to claims in such application or foreign counterparts thereof that cover subject matter within the scope of the claims in the patents and patent applications included in clause (i) above), and (iii) all patents issuing on any of the foregoing patent applications which are included in clauses (i) and (ii) above, together with all registrations, reissues, re-examinations, supplemental protection certificates, or extensions thereof, and any foreign counterparts thereof (but in each case, only with respect to claims in such patents or foreign counterparts thereof that cover subject matter within the scope of the claims in the patents and patent applications included in clause (i) above). (k) Neither Party shall be relieved of any obligation that accrued prior to the effective date of such termination or expiration. (l) Each Party shall have the right to retain all amounts previously paid to it by the other Party, subject to any applicable determination of an arbitrator or court pursuant to Section 14.2. (m) BMS shall indemnify, defend and hold harmless Ambit and its Affiliates, and their respective officers, directors, employees, agents, licensors, and their respective successors, heirs and assigns and representatives, from and against any and all Losses and Claims arising out of or relating, directly or indirectly, (i) to the research, Development, Commercialization (including, without limitation, promotion, advertising, offering for sale, sale or other disposition), transfer, importation or exportation, manufacture, labeling, handling or storage, or use of, or exposure to, any Licensed Compound or Licensed Product by or for BMS or any of its Affiliates, Sublicensees, agents and/or contractors or (ii) to BMS (or its Affiliates and/or Sublicensees) use and practice otherwise of the Ambit Termination Know-How and the Ambit Termination Patent Rights licensed to BMS under this Section 13.4.1, including, without limitation, claims and threatened claims based on (A) product liability, bodily injury, risk of bodily injury, death or property damage, (B) infringement or misappropriation of Third Party patents, copyrights, trademarks or other intellectual property rights, or (C) the failure to comply with applicable Laws related to the matters referred to in the foregoing clauses (i) and (ii) with respect to any Licensed Compound or Licensed Product. (n) The provisions of Section 12.3 shall be applied to claims for indemnification under Section 13.4.1(m) in the same manner as they apply to Indemnification Claims under Article 12. (o) BMS shall maintain, commencing no later than initiation of the first clinical trial of a Licensed Product if at the time of such termination there is no Licensed Product subject to such termination in clinical trials or being Commercialized or commencing immediately upon such termination in the event that there is at the time of such termination a Licensed Product subject to such termination in clinical trials or being Commercialized and at all times thereafter during the term of this Agreement, and until the later of (i) six (6) years after termination or expiration of this Agreement or (ii) the date that all statutes of limitation covering claims or suits that may be brought for personal injury - 38 -
based on the sale or use of a Licensed Product have expired in all states in the U.S., comprehensive general liability insurance from a recognized, creditworthy insurance company, on a claims-made basis, with endorsements for contractual liability and product liability, and with coverage limits of not less than $10 million per occurrence, and which shall name Ambit as an additional insured thereunder. The minimum level of insurance set forth herein shall not be construed to create a limit on BMS liability hereunder. Within ten (10) days following written request from Ambit, BMS shall furnish to Ambit a certificate of insurance evidencing such coverage as of the date. BMS shall use commercially reasonable efforts to cause such certificate of insurance, as well as any certificates evidencing new coverages of BMS, to include a provision whereby thirty (30) days written notice must be received by Ambit prior to coverage cancellation by either BMS or the insurer and of any new coverage. In the case of a cancellation of such coverage, BMS shall promptly provide Ambit with a new certificate of insurance evidencing that BMS coverage meets the requirements in the first sentence of this Section 13.4.1(o). As an alternative to the foregoing, BMS may self-insure against all such risks and provide Ambit, upon request, with reasonable information concerning BMS self-insurance program. Such insurance information shall be kept in confidence in the same manner as any other Confidential Information disclosed by BMS to Ambit. (p) Any rights and obligations contained in any sublicense or the like entered into with any Third Party pursuant to Section 3.1.2 prior to the effective date of such termination shall remain in full force and effect, subject to and to the extent as set forth in Section 2.2(b)(vi). 13.4.2 It is understood and agreed that BMS shall be entitled to specific performance as a remedy to enforce the provisions of this Section 13.4, in addition to any other remedy to which it may be entitled by applicable Law. 13.5 [intentionally left blank] 13.6 Effect of Expiration of this Agreement . Upon expiration of this Agreement: (a) All amounts due or payable to a Party that were accrued, or that arise out of acts or events occurring, prior to the effective date of expiration shall remain due and payable; but (except as otherwise expressly provided herein) no additional amounts shall be payable based on events occurring after the effective date of expiration. (b) Each Party shall have the right to retain all amounts previously paid to such Party by the other Party. (c) Neither Party shall be relieved of any obligation that accrued prior to the effective date of such termination. (d) The license with respect to BMS Know-How granted under Section 2.1 shall remain in effect and shall be fully paid up. 13.7 Survival. The following provisions shall survive termination or expiration of this Agreement, as well as any other provision which by its terms or by the context thereof, is intended to survive such termination: Article 1 (as applicable), Section 2.2(b)(vi), Article 5 (with respect to obligations arising prior to expiration or termination of this Agreement), Article 8 (with respect to obligations arising prior to expiration or termination of this Agreement), Section 9.4, Section 9.5, Section 10.1, Section 10.4.4 (with respect to an action, suit or proceeding commenced prior to termination), Section 10.7, Article 11, Article 12 (with respect to Losses and Claims arising from activities and breaches that take place prior to expiration or termination of this Agreement), this Section 13.7, Section - 39 -
13.8, Article 14 and Article 15. Termination or expiration of this Agreement shall not relieve the Parties of any liability or obligation which accrued hereunder prior to the effective date of such termination or expiration nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity, subject to Section 14.2, with respect to any breach of this Agreement nor prejudice either Partys right to obtain performance of any obligation. All other obligations shall terminate upon expiration of this Agreement. 13.8 Bankruptcy. The Parties agree that in the event a Party becomes a debtor under Title 11 of the U.S. Code ( Title 11), this Agreement shall be deemed to be, for purposes of Section 365(n) of Title 11, a license to rights to intellectual property as defined therein. Each Party as a licensee hereunder shall have the rights and elections as specified in Title 11. Any agreements supplemental hereto shall be deemed to be agreements supplementary to this Agreement for purposes of Section 365(n) of Title 11. ARTICLE 14 DISPUTE RESOLUTION; ARBITRATION 14.1 Resolution by Senior Executives. Other than (i) determinations made by Independent Evaluators and certified accountants as provided in Sections 3.1 and 8.7, respectively; (ii) pursuit of equitable relief as provided in Section 14.2(g); and (iii) a dispute governed by expedited arbitration in accordance with Section 14.3 below, in the event of any dispute between the Parties in connection with this Agreement, the construction hereof, or the rights, duties or liabilities of either Party hereunder, the Parties shall first attempt in good faith to resolve such dispute by negotiation and consultation between themselves. In the event that such dispute is not resolved on an informal basis within ten (10) Business Days, either Party may, by written notice to the other Party, refer the dispute to the Chief Executive Officer of Ambit and the President, Pharmaceutical Research Institute of BMS or other designated officer of BMS for attempted resolution by good faith negotiation within thirty (30) days after such notice is received. 14.2 Arbitration. Other than (i) determinations made by Independent Evaluators and certified accountants, as provided in Sections 3.1 and 8.7, respectively; (ii) pursuit of equitable relief as provided in Section 14.2(g); (iii) disputes regarding the validity, scope or enforceability of intellectual property rights or regarding confidentiality obligations and (iv) expedited arbitration in accordance with Section 14.3 below, if any dispute between the Parties relating to or arising out this Agreement cannot be resolved in accordance with Section 14.1, either Party may submit such dispute for resolution through binding arbitration as follows: (a) A Party may submit such dispute to arbitration by notifying the other Party, in writing, of such dispute. Within thirty (30) days after receipt of such notice, the Parties shall designate in writing a single arbitrator to resolve the dispute; provided, however, that if the Parties cannot agree on an arbitrator within such thirty (30) day period, the arbitrator shall be selected by the New York, NY office of the American Arbitration Association (the AAA) or, if such office does not exist or is unable to make a selection, by the office of the AAA nearest to New York City. The arbitrator for any disputed breach under Section 13.2.5 related to an alleged failure to use Commercially Reasonable Efforts as described in Section 13.2.3 shall be an individual with experience and expertise in the worldwide Development and Commercialization of pharmaceuticals and the business, legal and scientific considerations related thereto. Otherwise, the arbitrator shall be a lawyer knowledgeable and experienced in the applicable Laws concerning the subject matter of the dispute. In any case the arbitrator shall not be an Affiliate, employee, consultant, officer, director or stockholder of either Party, or otherwise have any current - 40 -
or previous relationship with either Party or their respective Affiliates. The governing law in Section 15.7 shall govern any such proceedings. The language of the arbitration shall be English. (b) Within thirty (30) days after the designation of the arbitrator, the arbitrator and the Parties shall meet, and each Party shall provide to the arbitrator a written summary of all disputed issues, such Partys position on such disputed issues and such Partys proposed ruling on the merits of each such issue. (c) The arbitrator shall set a date for a hearing, which shall be no later than thirty (30) days after the submission of written proposals pursuant to Section 14.2(b), for the presentation of evidence and legal argument concerning each of the issues identified by the Parties. The Parties shall have the right to be represented by counsel. Except as provided herein, the arbitration shall be governed by the Commercial Arbitration Rules of the AAA applicable at the time of the notice of arbitration pursuant to Section 14.2(a); provided, however, that the Federal Rules of Evidence shall apply with regard to the admissibility of evidence in such hearing. (d) The arbitrator shall use his or her best efforts to rule on each disputed issue within thirty (30) days after completion of the hearing described in Section 14.2(c). The determination of the arbitrator as to the resolution of any dispute shall be binding and conclusive upon all Parties. All rulings of the arbitrator shall be in writing and shall be delivered to the Parties except to the extent that the Commercial Arbitration Rules of the AAA provide otherwise. Nothing contained herein shall be construed to permit the arbitrator to award punitive, exemplary or any similar damages. (e) The (i) attorneys fees of the Parties in any arbitration, (ii) fees of the arbitrator and (iii) costs and expenses of the arbitration shall be borne by the Parties in a proportion determined by the arbitrator. (f) Any arbitration pursuant to this Section 14.2 shall be conducted in Denver, Colorado. Any arbitration award may be entered in and enforced by a court in accordance with Section 15.8. (g) Notwithstanding anything in this Article 14, each Party shall have the right to seek injunctive or other equitable relief from a court of competent jurisdiction pursuant to Section 15.8 that may be necessary to avoid irreparable harm, maintain the status quo or preserve the subject matter of the arbitration, including any breach or threatened breach of Section 11.1 or 13.4. 14.3 Expedited Arbitration . The Parties agree that it is important to be able to clarify any disputes regarding Section 2.2 or Article 3 quickly. Accordingly, if: (i) BMS disputes Ambits right to enter into a License agreement based on (A) Ambits compliance with Article 3 or (B) whether a License agreement complies with Section 2.2; and such dispute is not expressly made subject to resolution by the Independent Evaluator by the terms of Section 3.1; (ii) there is an alleged breach of Article 3 by either Party; (iii) a Party alleges that the other Party has failed to act in good faith with respect to its performance under Article 3; or (iv) either Party disputes the finding of the Independent Evaluator pursuant to Section 3.1.2, provided that such Party holds a good faith belief that the other Party acted in bad faith or engaged in - 41 -
willful misconduct in the independent evaluation process or that the Independent Evaluator did not act in good faith, breached a fiduciary duty or engaged in willful misconduct; then the Parties shall resolve such dispute in accordance with this Section 14.3. Arbitration under this Section 14.3 shall be conducted in the same manner and subject to the same terms and conditions as arbitration under Section 14.2, provided that: (a) the Parties shall designate in writing a single arbitrator within fifteen (15) days of written notice of the dispute; (b) the arbitrator and the Parties shall meet, and each Party shall provide to the arbitrator a written summary of all disputed issues, such Partys position on such disputed issues and such Partys proposed ruling on the merits of each such issue within fifteen (15) days after the designation of the arbitrator; (c) the arbitrator shall use his or her best efforts to rule on each disputed issue within fifteen (15) days after completion of the hearing described in Section 14.2(c); (d) the arbitrator shall select one of the requested positions as his decision, and shall not have the authority to render any substantive decision other than to so select the position of either BMS or Ambit; and (e) the Parties shall use good faith efforts to complete arbitration under this Section 14.3 within sixty (60) days following a request by any Party for such arbitration. 14.4 In an arbitration procedure under Section 14.3, in the event that the arbitrator determines that BMS has failed to act in good faith with respect to its performance under Section 3.1, the following shall apply: (a) the provisions of Section 3.1 shall terminate and (b) all other provisions of this Agreement shall remain in full force and effect. For purposes of clarity, the foregoing shall be in addition to and shall in no way limit any ruling of the arbitrator in accordance with Section 14.3. ARTICLE 15 MISCELLANEOUS 15.1 Severability. If any one or more of the provisions of this Agreement is held to be invalid or unenforceable, the provision shall be considered severed from this Agreement and shall not serve to invalidate any remaining provisions hereof. The Parties shall make a good faith effort to replace any invalid or unenforceable provision with a valid and enforceable one such that the objectives contemplated by the Parties when entering this Agreement may be realized. 15.2 Notices. Any notice required or permitted to be given by this Agreement shall be in writing and shall be delivered by hand or overnight courier with tracking capabilities or mailed postage prepaid by first class, registered or certified mail addressed as set forth below unless changed by notice so given: If to Ambit: Ambit Biosciences Corporation 4215 Sorrento Valley Boulevard San Diego, California 92121 Attention: Stephen Keane, Senior Vice President, Corporate Development - 42 -
Telephone: 858-334-2147 Facsimile: 858-334-2198 With a copy to: Ambit Biosciences Corporation 4215 Sorrento Valley Boulevard San Diego, California 92121 Attention: Kerry Kelly, Vice President, General Counsel Telephone: 858-334-2153 Facsimile: 858-334-2198 If to BMS: Bristol-Myers Squibb Company P.O. Box 4000 Route 206 & Province Line Road Princeton, New Jersey 08543-4000 Attention: Vice President, External Science, Technology and Licensing With a copy to: Bristol-Myers Squibb Company P.O. Box 4000 Route 206 & Province Line Road Princeton, New Jersey 08543-4000 Attention: Vice President and Senior Counsel, Corporate and Business Development Any such notice shall be deemed given on the date received. A Party may add, delete, or change the person or address to whom notices should be sent at any time upon written notice delivered to the Partys notices in accordance with this Section 15.2. 15.3 Force Majeure. Neither Party shall be liable for delay or failure in the performance of any of its obligations hereunder if such delay or failure is due to causes beyond its reasonable control, including, without limitation, acts of God, fires, earthquakes, strikes and labor disputes, acts of war, terrorism, civil unrest or intervention of any governmental authority ( Force Majeure); provided, however, that the affected Party promptly notifies the other Party and further provided that the affected Party shall use its commercially reasonable efforts to avoid or remove such causes of non-performance and to mitigate the effect of such occurrence, and shall continue performance with the utmost dispatch whenever such causes are removed. When such circumstances arise, the Parties shall negotiate in good faith any modifications of the terms of this Agreement that may be necessary or appropriate in order to arrive at an equitable solution. 15.4 Assignment. 15.4.1 BMS may, without Ambits consent, assign or transfer all of its rights and obligations hereunder, in connection with any transfer of all of the BMS Patent Rights and BMS Know-How, to any Affiliate of BMS or to any Third Party (including, without limitation, a successor in interest); provided, however, that such assignee or transferee agrees in a writing provided to Ambit to be bound by the terms of this Agreement. - 43 -
15.4.2 Upon thirty (30) days advance written notice to BMS and subject to BMS approval, such approval not to be unreasonably withheld, delayed or conditioned, Ambit may assign or transfer all of its rights and obligations hereunder to any Third Party, provided however, that, (i) Ambits rights and obligations under this Agreement shall be assumed by the Third Party assignee, (ii) such assignment includes, without limitation, all Approvals and all rights and obligations under this Agreement, (iii) such Third Party shall have agreed prior to such assignment or transfer to be bound by the terms of this Agreement in a writing provided to BMS, and (iv) Ambit remains responsible for the performance of this Agreement. 15.4.3 Notwithstanding the provisions of Section 15.4.2 above, Ambit may assign or transfer all of its rights and obligations hereunder without such consent to an Affiliate of Ambit or to a successor in interest by reason of merger, consolidation or sale of all or substantially all of the assets of Ambit, provided however, that (i) Ambits rights and obligations under this Agreement shall be assumed by its successor in interest and shall not be transferred separate from all or substantially all of its other pharmaceutical related business assets (as distinct from Ambits contract profiling services business), (ii) such assignment includes, without limitation, all Approvals and all rights and obligations under this Agreement, (iii) such successor in interest or Affiliate shall have agreed prior to such assignment or transfer to be bound by the terms of this Agreement in a writing provided to BMS, and (iv) where this Agreement is assigned or transferred to an Affiliate, Ambit remains responsible for the performance of this Agreement. 15.4.4 Subject to the foregoing, this Agreement shall inure to the benefit of and be binding on the Parties successors and assigns. Any assignment or transfer in violation of the foregoing shall be null and void and wholly invalid, the assignee or transferee in any such assignment or transfer shall acquire no rights whatsoever, and the non-assigning non-transferring Party shall not recognize, nor shall it be required to recognize, such assignment or transfer. 15.5 Further Assurances . Each Party agrees to do and perform all such further acts and things and shall execute and deliver such other agreements, certificates, instruments and documents necessary or that the other Party may deem advisable in order to carry out the intent and accomplish the purposes of this Agreement and to evidence, perfect or otherwise confirm its rights hereunder. 15.6 Waivers and Modifications. The failure of any Party to insist on the performance of any obligation hereunder shall not be deemed to be a waiver of such obligation. Waiver of any breach of any provision hereof shall not be deemed to be a waiver of any other breach of such provision or any other provision on such occasion or any succeeding occasion. No waiver, modification, release or amendment of any obligation under or provision of this Agreement shall be valid or effective unless in writing and signed by all Parties hereto. 15.7 Choice of Law . This Agreement shall be governed by, enforced, and shall be construed in accordance with the laws of the State of Delaware without regard to its conflicts of law provisions. 15.8 Jurisdiction. 15.8.1 Any suit, action or other proceeding relating to a dispute regarding the validity, scope or enforceability of intellectual property rights or regarding confidentiality obligations shall not be subject to the provisions of this Section 15.8.1 and Section 15.8.2. Unless the Parties otherwise agree in writing, each Party, for the purpose of enforcing an award under Section 14.2 or for seeking injunctive or other equitable relief as permitted under Section 14.2(g), hereby irrevocably submits to the exclusive jurisdiction of (i) the Supreme Court of the State of New York, New York County or the Supreme Court or Chancery Court of the State of Delaware (each a State Court), and (ii) the United States District - 44 -
Court for the Southern District of New York or the U.S. District Court for the District of Delaware (each a District Court), for the purposes of any suit, action or other proceeding arising out of this Agreement or out of any transaction contemplated hereby. Each party agrees to commence any such action, suit or proceeding either in a District Court or if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in a State Court. Each party further agrees that service of any process, summons, notice or document by personal delivery, by registered mail, or by a recognized international express delivery service to such Partys respective address set forth above shall be effective service of process for any action, suit or proceeding in the applicable District Court or State Court with respect to any matters to which it has submitted to jurisdiction in this Section. Each party irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in the applicable District Court or State Court, and hereby and thereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 15.8.2 Each Party hereto hereby waives to the fullest extent permitted by applicable Laws, any right it may have to a trial by jury in respect to any litigation directly or indirectly arising out of, under or in connection with this Agreement. Each Party hereto (i) certifies that no representative, agent or attorney of the other Party has represented, expressly or otherwise, that such other Party would not, in the event of litigation, seek to enforce that foregoing waiver and (ii) acknowledges that it and the other Party hereto have been induced to enter into this Agreement, as applicable, by, among other things, the mutual waivers and certifications in this Section 15.8. 15.9 Publicity. Ambit shall have the right to issue a press release, and BMS will have the right to make a separate public disclosure, regarding the execution of this Agreement, the License and Profiling Services Agreement and the Amended and Restated License Agreement in substantially the form of the press release attached to the License and Profiling Services Agreement. Each Party agrees not to issue any other press release or public statement disclosing the existence of this Agreement or any other information relating to this Agreement or the transactions contemplated hereby without the prior written consent of the other Party, provided, however, that any disclosure which is required by applicable Laws or the rules of a securities exchange, as reasonably advised by the disclosing Partys counsel, may be made subject to the following. The Parties agree that any such required disclosure will not contain confidential business or technical information and, if disclosure of confidential business or technical information is required by applicable Laws, the Parties will use appropriate diligent efforts to minimize such disclosure and obtain confidential treatment for any such information which is disclosed to a governmental agency. Each Party agrees to provide to the other Party a copy of any public announcement regarding this Agreement or the subject matter thereof as soon as reasonably practicable under the circumstances prior to its scheduled release. Except under extraordinary circumstances, each Party shall provide the other with an advance copy of any such announcement at least five (5) business days prior to its scheduled release. Each Party shall have the right to expeditiously review and recommend changes to any such announcement and, except as otherwise required by applicable Laws, the Party whose announcement has been reviewed shall remove any Confidential Information of the reviewing Party that the reviewing Party reasonably deems to be inappropriate for disclosure. The contents of any announcement or similar publicity which has been reviewed and approved by the reviewing Party, including the press release attached to the Collaboration and Profiling Services Agreement, can be re-released by either Party without a requirement for re-approval. Nothing in this Section 15.9 shall be construed to prohibit Ambit or its Affiliates or Sublicensees from making a public announcement or disclosure regarding the stage of development of Licensed Products in Ambits (or its Affiliates or Sublicensees) product pipeline or disclosing clinical trial results regarding such License Products, or as may be required by applicable Laws - 45 -
or the rules of a securities exchange as reasonably advised by Ambits (or its Affiliates or Sublicensees) counsel. 15.10 Relationship of the Parties . Each Party is an independent contractor under this Agreement. Nothing contained herein is intended or is to be construed so as to constitute BMS and Ambit as partners, agents or joint venturers. Neither Party shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other Party or to bind the other Party to any contract, agreement or undertaking with any Third Party. 15.11 Headings. Headings and captions are for convenience only and are not be used in the interpretation of this Agreement. 15.12 Entire Agreement. This Agreement (including all Appendices attached hereto, which are incorporated herein by reference), together with the License and Profiling Services Agreement and the Amended and Restated License Agreement (i) sets forth all of the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto, (ii) constitutes and contains the complete, final and exclusive understanding and agreement of the Parties with respect to the subject matter herein and (iii) cancels, supersedes and terminates all prior agreements and understanding between the Parties with respect to the subject matter hereof. For the avoidance of doubt, the confidentiality agreement entered into by BMS and Ambit on [***] (the Confidentiality Agreement ) shall remain in effect with respect to all Confidential Information (as that term is defined in the Confidentiality Agreement) disclosed by the Parties that does not pertain to the subject matter of this Agreement. All Confidential Information (as that term is defined in the Confidentiality Agreement) pertaining to the subject matter of this Agreement disclosed to BMS by Ambit under the Confidentiality Agreement shall be considered Confidential Information (as that term is defined in this Agreement) of Ambit disclosed under this Agreement and shall be subject to the terms and conditions of this Agreement; and all Confidential Information (as that term is defined in the Confidentiality Agreement) pertaining to the subject matter of this Agreement disclosed to Ambit by BMS under the Confidentiality Agreement shall be considered Confidential Information (as that term is defined in this Agreement) of BMS disclosed under this Agreement and shall be subject to the terms and conditions of this Agreement. There are no covenants, promises, agreements, warranties, representations, conditions or understandings, whether oral or written, between the Parties other than as set forth herein, or in the License and Profiling Services Agreement and the Amended and Restated License 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. For clarification, the Collaboration and Profiling Services Agreement entered into December 9, 2005 between the Parties remains in full force and effect and is not amended or modified by, or subject to, this Agreement. 15.13 Counterparts. This Agreement may be executed in counter-parts with the same effect as if both 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. 15.14 Nonsolicitation. During the [***] period following the Effective Date, each Party agrees that neither it nor any of its Affiliates shall knowingly recruit, solicit or induce, directly or indirectly, any employee of the other Party or any of its Affiliates directly involved in the research or Development activities with respect to Licensed Compounds to terminate his or her employment with the other Party or such Affiliate and become employed by or consult for such Party or any of its Affiliates. For purposes of the foregoing, recruit, solicit or induce shall not be deemed to mean (i) circumstances where an employee of a Party or any of its Affiliates initiates contact with the other Party or any of its Affiliates with regard to possible employment, or (ii) general solicitations of employment not ***Confidential Treatment Requested - 46 -
specifically targeted at employees of the other Party or any of its Affiliates, including responses to general advertisements. 15.15 Exports. Ambit agrees not to export or re-export, directly or indirectly, any information, technical data, the direct product of such data, samples or equipment received or generated under this Agreement in violation of any applicable export control Laws. 15.16 Interpretation. 15.16.1 Each of the Parties acknowledges and agrees that this Agreement has been diligently reviewed by and negotiated by and between them, that in such negotiations each of them has been represented by competent counsel and that the final agreement contained herein, including the language whereby it has been expressed, represents the joint efforts of the Parties hereto and their counsel. Accordingly, in interpreting this Agreement or any provision hereof, no presumption shall apply against any Party hereto as being responsible for the wording or drafting of this Agreement or any such provision, and ambiguities, if any, in this Agreement shall not be construed against any Party, irrespective of which Party may be deemed to have authored the ambiguous provision. 15.16.2 The definitions of the terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words include, includes and including shall be deemed to be followed by the phrase without limitation. The word will shall be construed to have the same meaning and effect as the word shall. The word any shall mean any and all unless otherwise clearly indicated by context. 15.16.3 Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or therein), (b) any reference to any Laws herein shall be construed as referring to such Laws as from time to time enacted, repealed or amended, (c) any reference herein to any person shall be construed to include the persons successors and assigns, (d) the words herein, hereof and hereunder, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, and (e) all references herein to Articles, Sections or Appendices, unless otherwise specifically provided, shall be construed to refer to Articles, Sections (including any sub-Sections as applicable) and Appendices of this Agreement. *** [signature page follows] - 47 -
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective duly authorized officers. AMBIT BIOSCIENCES CORPORATION By: /s/ Scott Salka (Signature)
Name: Scott Salka Title: BRISTOL-MYERS SQUIBB COMPANY By: /s/ Graham R. Brazier (Signature)
Name: Graham R. Brazier Title: Vice President & Head of Business Development - 48 -
Appendix 1 Part I BMS Core Patent Rights

COUNTRY STATUS FILING DATE FILING NUMBER GRANT DATE GRANT NUMBER
DOCKET NO
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Part II BMS Other Patent Rights

COUNTRY STATUS FILING DATE FILING NUMBER GRANT DATE GRANT NUMBER
DOCKET NO
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***Confidential Treatment Requested - 50 -
Appendix 2 Outline of Development Plan as of Effective Date [***] ***Confidential Treatment Requested - 51 -
Exhibit 10.29 ***Text Omitted and Filed Separately with the Securities and Exchange Commission. Confidential Treatment Requested Under 17 C.F.R. Sections 200.80(b)(4) and Rule 406 of the Securities Act of 1933, as amended. EXECUTION COPY
LICENSE AND PROFILING SERVICES AGREEMENT between AMBIT BIOSCIENCES CORPORATION and BRISTOL-MYERS SQUIBB COMPANY
LICENSE AND PROFILING SERVICES AGREEMENT THIS LICENSE AND PROFILING SERVICES AGREEMENT is made and entered into as of October 2, 2007 (the Effective Date), by and between Bristol-Myers Squibb Company, a Delaware corporation headquartered at 345 Park Avenue, New York, New York 10154 (BMS), and Ambit Biosciences Corporation , a Delaware corporation, having its principal office at 4215 Sorrento Valley Boulevard, San Diego, CA 92121 ( Ambit). BMS and Ambit are sometimes referred to herein individually as a Party and collectively as the Parties. RECITALS WHEREAS, BMS and Ambit have entered into a Collaboration and Profiling Services Agreement effective December 9, 2005 (the Services Agreement) for Ambit to provide BMS with certain services for determining the kinase binding activity of certain BMS compounds against a panel of human kinases (i.e., the kinase profiling of such compounds) using Ambits proprietary kinase profiling assay; and WHEREAS, BMS and Ambit are entering into an Amended and Restated License Agreement (as defined below) concurrently with this Agreement; and WHEREAS, BMS and Ambit are entering into a License Agreement (as defined below) concurrently with this Agreement; and WHEREAS, BMS and Ambit desire for Ambit to continue to provide BMS with such kinase profiling services and to provide BMS with continued access to Ambits proprietary kinase profiling assay under the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound hereby, do hereby agree as follows. Article 1 DEFINITIONS The terms in this Agreement with initial letters capitalized, whether used in the singular or the plural, shall have the meaning set forth below or, if not listed below, the meaning designated in places throughout this Agreement. 1.1 Active Compound shall be defined on an Ambit Proposed Target-by-Ambit Proposed Target basis (and, as applicable, an Ambit Target-byAmbit Target basis) and (i) with respect to each Ambit Proposed Target, has the meaning set forth in Exhibit D hereto, as such Exhibit D may be amended in accordance with Section 3.4 to include additional Ambit Proposed Targets and (ii) with respect to any Ambit Target, has the same meaning as for the corresponding Ambit Proposed Target. As of the Effective Date, [***] Ambit Proposed Targets and the corresponding definitions of Active Compounds have been agreed to by the Parties and these [***] Ambit Proposed Targets and the corresponding definitions of Active Compounds are set forth in Exhibit D hereto. ***Confidential Treatment Requested -1-
1.2 Affiliate of a Person means any other Person that (directly or indirectly) is controlled by, controls or is under common control with such Person. For the purposes of this definition, the term control (including, with correlative meanings, the terms controlled by and under common control with) as used with respect to a Person means (i) in the case of a corporate entity, direct or indirect ownership of voting securities entitled to cast at least fifty percent (50%) of the votes in the election of directors or (ii) in the case of a non-corporate entity, direct or indirect ownership of at least fifty percent (50%) of the voting securities with the power to direct the management and policies of such entity. 1.3 Agreement means this License and Profiling Services Agreement, together with all Exhibits attached hereto, as the same may be amended or supplemented from time to time. 1.4 Ambit Change of Control means: (1) a sale of all or substantially all of Ambits assets or business to which this Agreement relates to a Major Pharmaceutical Company; (2) a merger, reorganization or consolidation involving Ambit and a Major Pharmaceutical Company in which the stockholders of Ambit immediately prior to such transaction cease to own collectively fifty percent (50%) or more of the voting equity securities of a successor entity; or (3) the acquisition of fifty percent (50%) or more of the voting equity securities of Ambit by a Major Pharmaceutical Company. 1.5 Ambit Kinase Assay means [***] for determining the kinase binding activity of compounds against a panel of human protein kinases [***]. As of the Effective Date the Standard Panel of the Ambit Kinase Assay comprises [***]. 1.6 Ambit Target has the same definition as the corresponding Ambit Proposed Target which is designated as such by Ambit in accordance with Section 3.4.3. 1.7 Ambit Proposed Target means each of the human kinase targets which are defined in Exhibit D hereto, as such Exhibit D may be amended in accordance with Section 3.4 to include additional Ambit Proposed Targets. As of the Effective Date, [***] Ambit Proposed Targets have been agreed to by the Parties and these [***] Ambit Proposed Targets are defined in Exhibit D hereto. 1.8 Ambit Technology means any know-how, materials, trade secrets and intellectual property (including patent rights) Controlled by Ambit as of the Effective Date and thereafter during the term of this Agreement (including Ambit Confidential Information) and useful for the performance of the Services by Ambit in accordance with this Agreement, provided however, that with respect to such know-how, materials, trade secrets and intellectual property (including patent rights) in-licensed by Ambit from a Third Party after the Effective Date (the In-Licensed Technology), Ambit shall only be deemed to Control (and Ambit Technology shall only include) such In-Licensed Technology to the extent that Ambit can sublicense or extend rights to such In-Licensed Technology to BMS without incurring any payment obligation to said Third Party, unless and only to the extent that BMS agrees in writing to fully reimburse Ambit for any such payment obligation to such Third Party incurred by Ambit based on such sublicense or extension of rights to BMS. For clarification, the Ambit Technology includes the Ambit Kinase Assay. For clarification, the Ambit Technology shall exclude the Results. 1.9 Amended and Restated License Agreement means the agreement entitled Amended and Restated License Agreement relating to certain Aurora kinase inhibitor compounds which is entered into by Ambit and BMS concurrently with this Agreement. ***Confidential Treatment Requested -2-
1.10 BMS Compound Information means the information provided by BMS to Ambit relating to the BMS Compounds. The BMS Compound Information shall be BMS Confidential Information. BMS Compound Information shall also include the additional information with respect to the BMS Compounds provided by BMS to Ambit under Section 3.4.3 and Section 3.4.4. 1.11 BMS Compounds means individually and collectively [***], that BMS transfers or provides to Ambit pursuant to this Agreement for use by Ambit for the performance of the Services. The total number of BMS Compounds to be provided by BMS under this Agreement, and the total number of BMS Compounds for which Ambit shall be obligated under this Agreement to perform the Services shall be approximately [***] and shall not exceed [***]. 1.12 BMS Core Claims shall have the meaning set forth in Section 3.4.3. As set forth in Section 3.4.3, the BMS Core Claims shall be defined for each Ambit Target and Target License Agreement. 1.13 BMS Inventions has the meaning set forth in Section 5.1. 1.14 Calendar Quarter means the respective periods of three consecutive calendar months ending on March 31, June 30, September 30 and December 31. 1.15 Calendar Year means each successive period of 12 months commencing on January 1 and ending on December 31. 1.16 Collaboration and Profiling Services Agreement means the agreement entitled Collaboration and Profiling Services Agreement entered into on December 9, 2005 between the Parties. 1.17 Confidential Information means all non-public information and materials received by either Party from the other Party pursuant to this Agreement and all information and materials developed in the course of the Services activities including, without limitation, know-how of each Party. Confidential Information disclosed in tangible form shall be marked Confidential, Proprietary, or in some other manner to indicate its confidential nature. If disclosed orally, Confidential Information shall be designated as confidential at the time of disclosure and reduced to a written summary by the disclosing Party and shall be marked in a manner to indicate its confidential nature and delivered to the receiving Party within thirty (30) days after disclosure. Ambit Confidential Information means Confidential Information disclosed by Ambit to BMS pursuant to this Agreement, provided that all Results shall be owned by BMS and shall be BMS Confidential Information. BMS Confidential Information means Confidential Information disclosed by BMS to Ambit pursuant to this Agreement, including but not limited to the BMS Compound Information. BMS Confidential Information shall also include the Results. 1.18 Control or Controlled means, with respect to any know-how, patent right or other intellectual property right, the possession by a Party of the ability to grant to the other Party access, ownership, a license and/or a sublicense as provided herein without violating the terms of any agreement or other arrangement with any Third Party as of the time such Party would first be required hereunder to grant the other Party such access, ownership, license or sublicense. 1.19 Data means any and all data or results, or both, generated in the performance of Services by Ambit for BMS pursuant to this Agreement. 1.20 Default has the meaning set forth in Section 7.3. ***Confidential Treatment Requested -3-
1.21 Defaulting Party has the meaning set forth in Section 7.3. 1.22 Equity Agreements means the Equity Agreements as defined in the Collaboration and Profiling Services Agreement entered into on December 9, 2005 between the Parties. 1.23 Field means [***]. 1.24 Force Majeure means any occurrence beyond the reasonable control of a Party that prevents or substantially interferes with the performance by the Party of any of its obligations hereunder, if such occurs by reason of any act of God, flood, fire, explosion, breakdown of plant, earthquake, strike, lockout, labor dispute, casualty or accident, or war, revolution, civil commotion, acts of public enemies or terrorism, blockage or embargo, or any injunction, law order, proclamation, regulation, ordinance, demand or requirement of any government or of any subdivision, authority or representative or any such government, inability to procure or use materials, labor, equipment, transportation or energy sufficient to meet manufacturing needs without the necessity of allocation, or any other cause whatsoever, whether similar or dissimilar to those above enumerated, beyond the reasonable control of such Party. 1.25 Hit means [***] for the applicable Ambit Proposed Target, provided that BMS at its sole discretion may elect to exclude from being a Hit any such BMS Compound that (i) [***] or (ii) [***] or (iii) [***], and provided further that (x) BMS may at its sole discretion expand the definition of Hit with respect to a particular Ambit Proposed Target to include BMS Compounds that [***] and (y) BMS may at its sole discretion limit the total number of Hits with respect to a given Ambit Proposed Target to [***]. The selection of Hits is further described in Section 3.4.3. 1.26 Interaction means with regard to the Services performed herein, [***]. 1.27 Invention means any discovery or invention conceived or reduced to practice in the performance of the Services, including but not limited to a new use, a new process, a new composition of matter, or a modification or a combination thereof, whether patentable or not. 1.28 Kd means [***]. 1.29 License Agreement means the agreement entitled License Agreement related to certain [***] inhibitor compounds which is entered into by Ambit and BMS concurrently with this Agreement. 1.30 Listed Compounds shall be defined for each Target License Agreement with respect to each Ambit Target, and shall have the meaning as set forth in the applicable Target License Agreement. The Listed Compounds shall comprise the Hits identified for the applicable Ambit Target as set forth in Section 3.4. ***Confidential Treatment Requested -4-
1.31 Losses and Claims has the meaning set forth in Section 6.6. 1.32 Major Pharmaceutical Company means a pharmaceutical company, other than BMS, with annual sales of non-generic pharmaceutical products in its most recently completed fiscal year for which such information is available of more than $ [***]. 1.33 Non-Defaulting Party has the meaning set forth in Section 7.3. 1.34 Non-Hit Analog means, with respect to a particular Ambit Target, [***], provided that BMS at its sole discretion may elect to exclude from being a Non-Hit Analog any such BMS Compound that (i) [***] or (ii) [***] or (iii) [***]; and provided further that BMS may at its sole discretion limit the total number of Non-Hit Analogs with respect to a given Ambit Target to [***]. 1.35 Notice of Default has the meaning set forth in Section 7.3. 1.36 Person means an individual, partnership, limited liability company, joint venture, corporation, trust, estate, unincorporated organization, or any other entity, or any government or any department or agency thereof, whether acting in an individual, fiduciary or representative capacity. 1.37 Profiling Term means the period of time commencing on the Effective Date and continuing so long as Ambit is performing the Services for BMS. The Services are expected to be completed during the period of 2 years following the Effective Date. 1.38 Report has the meaning set forth in Section 2.9. 1.39 Results means the Data and Service Products, and all intellectual property rights (including patent rights) derived from, based upon or appurtenant to the Data and Service Products or otherwise related to the BMS Compounds generated in the performance of the Services by Ambit. The Results shall be owned by BMS and shall be BMS Confidential Information. 1.40 Services means the kinase profiling services to be performed by Ambit using the Ambit Technology for the testing of BMS Compounds in the Ambit Kinase Assay, as requested by BMS from time-to-time during the term of this Agreement, in accordance with the terms and conditions of this Agreement. The Services are also generally described in Exhibit A hereof, which is a part of this Agreement. Services shall also include the performance by Ambit of the Kd determinations for BMS Compounds as set forth in Section 3.4.2(d), provided that Ambits obligation to carry out such Kd determinations will only be as set forth in Section 3.4.2(d). 1.41 Service Products means the Reports and other products generated through the performance by Ambit of its obligations under this Agreement. 1.42 Standard Panel has the meaning set forth in Section 2.2. 1.43 Target License Agreement means the license agreement entered into by the Parties with respect to a particular Ambit Target in accordance with Section 3.4, which Target License Agreement ***Confidential Treatment Requested -5-
shall be in the form and shall have the terms and conditions as set forth in Exhibit E hereto (unless the Parties otherwise agree in writing). Accordingly, each Target License Agreement shall be entered into on an Ambit Target-by-Ambit Target basis, with up to [***] such Target License Agreements being entered into (i.e., for up to [***] Ambit Targets). 1.44 Technology Transfer has the meaning set forth in the Collaboration and Profiling Services Agreement. 1.45 Third Party means any Person other than Ambit or BMS and their respective Affiliates. Article 2 TRANSFER OF BMS COMPOUNDS AND PERFORMANCE OF SERVICES 2.1 Transfer of BMS Compounds . During the Profiling Term BMS shall transfer to Ambit the BMS Compounds and BMS Compound Information necessary for Ambit to perform the Services under this Agreement. Compounds provided by BMS to Ambit hereunder as BMS Compounds shall be delivered as [***] or as otherwise mutually agreed by the Parties. BMS shall also transfer the BMS Compounds according to the schedule set forth in Exhibit A to allow a reasonable period of time for the performance of the Services for all of the BMS Compounds over a 2 year period. Ambit may reasonably request up to an additional [***] of selected BMS Compounds for additional evaluation that Ambit may propose in writing, which BMS at its sole discretion may provide. Any transfer of any such BMS Compound shall be subject to a separate material transfer agreement between the Parties. 2.2 Kinase Panel. A standard kinase panel shall be established for general profiling use hereunder (the Standard Panel). As of the Effective Date, the Standard Panel comprises 353 individual human protein kinases. Ambit shall add to the Standard Panel any additional human kinases (including any variants thereof) that Ambit has commercially available and has a right to provide BMS access to for use in the Ambit Kinase Assay. Ambit shall give BMS prompt written notice of all kinases which are or become so available for use as and when they first become available. The Standard Panel shall be modified from time-to-time during the Profiling Term by Ambit [***] to include such additional human kinases that become available to Ambit for use in the Ambit Kinase Assay only for those BMS Compounds that have not yet been profiled under this Agreement. In any transaction with any Third Party pursuant to which Ambit gains a right to use kinases in providing any research services to any other Third Party, Ambit shall use commercially reasonable efforts to secure the right to provide BMS access to such kinases through the Services provided hereunder. 2.3 Performance by Ambit . Following its receipt of a given set of BMS Compounds and the applicable BMS Compound Information as transferred by BMS to Ambit from time-to-time during the Profiling Term, Ambit shall perform and complete the Services in accordance with this Agreement and BMSs written instructions (to the extent consistent with the terms of this Agreement). The Services shall be performed by Ambit in accordance with Exhibit A, provided that the Services to be performed for any given set of BMS Compounds transferred to Ambit shall be subject to and in accordance with the specific written request by BMS at the time of the transfer of such set of BMS Compounds but only to the extent such written request does not expand the scope of the Services. Except as expressly set forth herein, Ambit shall provide all materials, equipment and personnel required to perform the Services for BMS in accordance with this Agreement. Ambit agrees that its obligations shall be performed in a professional manner, by competent personnel, and in accordance with standard industry practice and all applicable laws and regulations. Ambit shall keep available sufficient profiling capacity to complete the Services for ***Confidential Treatment Requested -6-
all of the BMS Compounds within the 2 year period following the Effective Date. Without limiting the foregoing or being limited thereby, in order to complete the Services for all of the BMS Compounds within the 2 year period following the Effective Date, Ambit agrees that at all times during the Profiling Term that it shall keep available sufficient profiling capacity to conduct the numbers of Interactions per month for BMS Compounds as set forth in Table 1 below. Table 1
time period minimum monthly capacity of Interactions
through the end of Calendar Year 2007 Calendar Year 2008 Calendar Year 2009
[***] [***] [***]
In addition to the minimum monthly capacity of Interactions set forth in Table 1 above, in the event BMS gives Ambit 30 days advance notice of a good faith forecast of BMS requesting a greater number of Interactions for any given month than set forth above, then Ambit shall use commercially reasonable efforts to provide such additional number of Interactions to BMS hereunder, but such additional number of Interactions shall not affect the applicable minimum capacity for such month as set forth in Table 1 above. For clarification, the minimum monthly capacity of Interactions referred to in this Section 2.3 shall only apply to the Services under this Agreement, and shall, for example and without limitation, be in addition to the minimum monthly capacity of Interactions as required under the Collaboration and Profiling Services Agreement. 2.4 Title to BMS Compounds and BMS Compound Information . BMS shall retain all right, title and interest in and to the BMS Compounds and BMS Compound Information that BMS discloses or transfers to Ambit. Ambit shall not imply or represent to any Third Party that Ambit is the owner of the BMS Compounds and/or BMS Compound Information. 2.5 Use of BMS Compounds and BMS Compound Information by Ambit . Subject to the terms and conditions of this Agreement, including the rights granted to Ambit under and pursuant to Section 3.4, BMS hereby grants Ambit a limited, non-exclusive license to use BMS Compounds and BMS Compound Information that are transferred by BMS to Ambit from time-to-time during the Profiling Term for the sole purpose of performing Services only and not for any other use. For the avoidance of doubt, Ambit shall (i) use the BMS Compounds and BMS Compound Information in compliance with all applicable federal, state and local laws and regulations, (ii) not transfer the BMS Compounds and BMS Compound Information to any Third Party nor use the BMS Compounds and BMS Compound Information for any purpose unrelated to this Agreement without BMSs prior written consent, (iii) not use the BMS Compounds in humans or in contact with any cells or other material to be infused into humans, and (iv) not perform testing or any activities to determine the structure or identity of the BMS Compounds. Upon request by BMS, Ambit shall promptly return to BMS any unused or reusable BMS Compounds to BMS, at BMS expense. 2.6 Title to Data and Results. BMS shall own all right, title and interest in any Results generated by Ambits performance of the Services pursuant to this Agreement. BMS shall have the unrestricted fully paid-up right to use the Results for any purpose including without limitation the right to publish or otherwise disclose the Results, provided such disclosure does not include Ambit Confidential Information except to the extent permitted under Article 4. The name of Ambit shall be given proper recognition in any publications disclosing the Results as appropriate in BMSs sole discretion. ***Confidential Treatment Requested -7-
2.7 Right to Review Original Records for Data . BMS shall have the right upon reasonable advance written request to review at Ambits premises during normal business hours the original records for all Data generated by Ambit during the performance of this Agreement. 2.8 Storage and Maintenance of Data . Upon completion of the Services, Ambit shall store and maintain all Data in accordance with all applicable laws and regulations and provide a copy of such Data to BMS. All records of the Data and Research Products shall be kept in appropriately secure and segregated confidential files in order for Ambit to fully comply with its obligations under Section 2.6. 2.9 Reports. Ambit shall keep BMS fully informed of the progress of the Services. During the Profiling Term, Ambit shall make appropriate personnel available, as reasonably requested by BMS, for discussions with BMS concerning the Services and the Reports or for discussions that are reasonably necessary for BMS to interpret such Reports. As services requested by BMS are completed, Ambit will provide BMS with a written final report (in electronic form) (such reports individually and collectively being the Reports) that documents the completion, results (including all Data) and conclusions of the Services completed since the previous Report. BMS shall own all right, title, and interest in and to such Reports. For the avoidance of doubt, such Reports shall be regarded at all times as the Confidential Information of BMS. 2.10 Publication by Ambit . In accordance with the terms and conditions of this Agreement, Ambit shall not be permitted to publish any Results generated by Ambits performance of the Services pursuant to this Agreement. Article 3 PAYMENTS; AMBIT TARGETS AND GRANT OF LICENSES FOR AMBIT TARGETS 3.1 Signing Payment. As partial consideration for Ambits performance under this Agreement, BMS shall pay Ambit a one-time, up-front payment of $6 million within 10 business days after the Effective Date. 3.2 Payment for Services Rendered . The Services shall be performed by Ambit in accordance with the terms and conditions of this Agreement on a fully paid-up basis. Other than the payment under Section 3.1, there shall be no other or further payment under this Agreement by BMS to Ambit in consideration of the Services to be performed by Ambit for BMS under this Agreement. 3.3 Costs. Ambit shall be responsible for any and all costs and expenses related to the provision of the Services hereunder, including obtaining and properly disposing of all materials required in connection with the provision of the Services. 3.4 Rights of Ambit With Respect to Ambit Proposed Targets and Ambit Targets .
3.4.1 Overview. Ambit shall have the right to designate up to a maximum total of [***] Ambit Proposed Targets as being Ambit Targets, and BMS shall then provide to Ambit the chemical structures of the Hits (identified from the performance of the Services for the BMS Compounds) for such Ambit Targets. Upon the election of Ambit, the Parties shall then complete and enter into a Target License Agreement with respect to such Ambit Target, which sets forth the terms and conditions of the licenses and rights granted between the Parties based on the Hits with respect to such Ambit Target. This Section 3.4.1 is subject to the other sub-Sections of this Section 3.4. ***Confidential Treatment Requested -8-
3.4.2 Ambit Proposed Targets and Kd Determination for BMS Compounds Against Ambit Proposed Targets . (a) The description of the [***] Ambit Proposed Targets as of the Effective Date is set forth in Exhibit D hereto. As of the Effective Date, Exhibit D identifies [***] Ambit Proposed Targets and sets forth the Active Compound definition applicable with respect to [***] Ambit Proposed Targets. (b) During the Profiling Term and for a period of [***] thereafter, Ambit may propose to BMS in writing that [***] Ambit Proposed Targets set forth in Section 3.4.2(a) be substituted and replaced with a new human kinase target to be included as an Ambit Proposed Target (such human kinase target proposed by Ambit to be an Ambit Proposed Target being a Candidate Target), subject to the following: (i) BMS shall have the right at its sole discretion to reject [***] such Candidate Targets as being an Ambit Proposed Target, (ii) thereafter (i.e., at any time after BMS has [***] such Candidate Targets as being an Ambit Proposed Target), BMS shall have the right to reject any such Candidate Target as being an Ambit Proposed Target in the case where at the time such Candidate Target is proposed by Ambit, BMS then has an active research and/or development program with respect to such target, as shown by notebook or other written or electronic records, (iii) in proposing such Candidate Targets, Ambit shall propose such Candidate Targets in a group of [***] Candidate Targets, and (iv) the total number of new substituted Ambit Proposed Targets shall not [***]. In the case where a Candidate Target becomes an Ambit Proposed Target in accordance with the foregoing, the Parties shall amend Exhibit D to identify such new target as an Ambit Proposed Target and set forth the Active Compound definition applicable with respect to such new Ambit Proposed Target. In accordance with the foregoing, unless the Parties otherwise agree in writing, the total number of Ambit Proposed Targets at any time shall not [***]. (c) As set forth in Section 3.4.3, Ambit shall have the right, at its sole discretion, to designate up to [***] Ambit Proposed Targets as being Ambit Targets. (d) Ambit shall have the right to review the Data and Results provided to BMS to determine which BMS Compounds are potential Hits, without the chemical structures of such BMS Compounds being disclosed to Ambit. At any time prior to [***] following the end of the Profiling Term, for purposes of determining whether BMS Compounds will meet the Kd requirement to qualify as a Hit with respect to an Ambit Proposed Target, Ambit shall have the right to determine the Kd for BMS Compounds exhibiting a [***] in the Ambit Kinase Assay with respect to the Ambit Proposed Target. Such Kd determination undertaken by Ambit shall be deemed to be included as part of the Services. The results of such Kd determination will be provided to BMS promptly after they are obtained by Ambit. 3.4.3 Selection of Ambit Targets From Ambit Proposed Targets . At any time prior to the earlier of [***] following the end of the Profiling Term or an Ambit Change of Control, Ambit shall have the right at its sole discretion to designate by written notice to BMS an Ambit Proposed Target as being an Ambit Target, provided that Ambit shall only have the right under this Agreement to so designate up to a maximum total of 4 such Ambit Proposed Targets as being Ambit Targets. For such purpose, without disclosing the structure of the BMS Compounds, BMS shall assign those BMS Compounds that might be eligible to be Hits (based on the criteria set forth in Section 1.25) with respect to an Ambit Proposed Target to a numbered compound series based on the chemical scaffold class of such BMS Compounds, which information shall be provided to Ambit and may be used by Ambit to guide the selection of an Ambit Proposed Target as being an Ambit Target and as a guide in understanding the selection of the Hits by BMS for any such Ambit Target. BMS shall disclose to Ambit the chemical ***Confidential Treatment Requested -9-
structures of the Hits with respect to such Ambit Targets within [***] of such written notice designating such Ambit Target. BMS may at its sole discretion limit the total number of Hits [***] with respect to a particular Ambit Target, as set forth in Section 1.25. In selecting [***] Hits (meeting the criteria set forth in Section 1.25) with respect to a given Ambit Proposed Target, BMS shall at the direction of Ambit select compounds within a range of Kd values specified by Ambit and based on structural diversity considerations. At the time of such disclosure by BMS to Ambit of the chemical structures of the Hits with respect to an Ambit Target, BMS shall also provide Ambit with the BMS Core Claims. The BMS Core Claims means the composition of matter claims that (i) cover the Hits and (ii) are or would be the claims of any BMS Core Patent Rights that have been or may be filed in a U.S. or foreign patent application. The scope of the BMS Core Claims with respect to a Target License Agreement for an Ambit Target shall be inclusive of the Listed Compounds but shall otherwise be determined by BMS in its sole discretion. By way of example, and without limitation, the scope of the BMS Core Claims may be limited to a list of the Hit compounds as species or may include one or more genus claims covering one or more of the Hit compounds. 3.4.4 Non-Hit Analogs. At the time that Ambit designates an Ambit Proposed Target as an Ambit Target, Ambit may also request in writing that BMS determine whether any BMS Compounds are Non-Hit Analogs. BMS shall disclose to Ambit the chemical structures of the Non-Hit Analogs with respect to such Ambit Target within [***] following such written request by Ambit. For clarification, BMS shall disclose only the structure of such Non-Hit Analogs, and shall not be required to disclose to Ambit the Ambit Kinase Assay activity profile for such Non-Hit Analogs, and shall not be required to provide samples of any such Non-Hit Analogs. 3.4.5 Target License Agreement for Ambit Targets. At the election of Ambit, which election must be made in writing within 30 days following written notice from BMS that it has completed the disclosure of the Hits and the BMS Core Claims in accordance with Section 3.4.3, the Parties shall proceed to finalize and execute a Target License Agreement with respect to the Ambit Target. The Listed Compounds, as such term is used in the Target License Agreement with respect to an Ambit Target shall comprise the Hits identified with respect to such Ambit Target. For avoidance of doubt, if Ambit and BMS do not enter into a Target License Agreement with respect to an Ambit Target, Ambit shall have no right to use the chemical structural information, kinase inhibition activity and any other information disclosed by BMS to Ambit for the Hits and Non-Hit Analogs (the Structure Information) with respect to the Ambit Target for any purpose. In particular, unless and until the Parties enter into a Target License Agreement with respect to an Ambit Target, Ambit shall have no right to use in any way the Structure Information with respect to such Ambit Target in support of or in connection with Ambits other research programs. To help protect the confidentiality of the Structure Information, prior to executing a Target License Agreement with respect to a particular Ambit Target, the Structure Information with respect to such Ambit Target shall only be disclosed to specifically identified personnel of Ambit (the Designated Recipients) and shall not be disclosed further to other persons, and in the event that the Parties do not enter into a Target License Agreement all copies of the Structure Information shall be promptly destroyed by Ambit, and Ambit and the Designated Recipients shall certify to BMS in writing that all copies of such Structure Information have been destroyed. Article 4 CONFIDENTIALITY 4.1 Nondisclosure. During the Profiling Term, and for a period of [***] thereafter, each Party will maintain all Confidential Information of the other Party as confidential and will not disclose any such Confidential Information to any Third Party or use any Confidential Information for any purpose except (a) as expressly authorized by this Agreement, or (b) to its Affiliate(s), employees, agents, ***Confidential Treatment Requested -10-
consultants and other representatives, who have a need to know such Confidential Information and who are bound by obligations of confidentiality at least as restrictive as set forth herein. Each Party may use such Confidential Information only to the extent required to accomplish the purposes of this Agreement. Each Party will use at least the same standard of care as it uses to protect proprietary or confidential information of its own (which shall be in no event less than a reasonable standard of care for the protection of confidential information) to ensure that its Affiliate(s), employees, agents, consultants and other representatives do not disclose or make any unauthorized use of such Confidential Information. The Results (including but not limited to the characteristics of the kinase profiles for any BMS Compounds) (i) shall be Confidential Information of BMS (and shall not be subject to the exceptions under Section 4.2(b) and (d)); (ii) shall not be disclosed or made accessible to any Third Party and (iii) shall be disclosed and made accessible only to Ambit personnel having a need-to-know such Results for the purpose of performing Ambits obligations under this Agreement and solely to the extent necessary to enable Ambit to perform its obligations under this Agreement. Without limiting the foregoing, but subject to the rights of Ambit under and pursuant to Section 3.4, in no event will the Results (including but not limited to the characteristics of the kinase profiles for any BMS Compounds) be used by Ambit in support of or in connection with Ambits independent research programs including but not limited to those relating to protein kinase inhibitors. In the event Ambit is acquired by or merged with a Major Pharmaceutical Company, Ambit shall use commercially reasonable efforts to assure that the Results (including but not limited to the characteristics of the kinase profiles for any BMS Compounds) shall not be disclosed or made accessible to such Major Pharmaceutical Company, except to personnel of such Major Pharmaceutical Company that are actually performing the Services under this Agreement and then solely to the extent necessary to enable such personnel to perform the Services under and in compliance with this Agreement. 4.2 Exceptions. Confidential Information of the other Party shall not include any information that the obligated Party can prove by competent evidence is: (a) now, or hereafter becomes, through no act or failure to act on the part of the obligated Party, generally known or available; or (b) except with respect to Ambits obligations regarding Results, known by the obligated Party at the time of receiving such information, as evidenced by its records; or (c) hereafter furnished to the obligated Party by a Third Party, as a matter of right and without restriction on disclosure; or (d) except with respect to Ambits obligations regarding Results, independently developed by the obligated Party without the aid, application or use of Confidential Information. 4.3 Authorized Disclosures. Each Party shall be permitted to disclose Confidential Information of the other Party to the extent that, such Confidential Information is required to be disclosed to comply with applicable laws or regulations (such as disclosure to the United States Securities and Exchange Commission) or with a court or administrative order; provided however, that such Party shall make commercially reasonable efforts to first have given written notice of such required disclosure to the other Party; have taken reasonable steps to allow the other Party to seek to protect the confidentiality of such Confidential Information required to be disclosed and in the event disclosure is required have made reasonable efforts to narrow the scope of Confidential Information required to be disclosed and to obtain a protective order requiring that such Confidential Information to be disclosed be used only for the purposes for which disclosure is required; or to establish rights or enforce obligations under this Agreement, but only to the extent such disclosure is -11-
necessary and provided that such Party seeks confidential treatment of such Confidential Information to be disclosed. Subject to Ambits prior written consent, such consent not to be unreasonably withheld, BMS may disclose Ambit Confidential Information to the extent, and only to the extent, that it is reasonably necessary or appropriate for the following purposes: (a) filing or prosecuting patent applications pursuant to Section 5.1; (b) regulatory filings related to the BMS Compounds or (c) prosecuting or defending litigation. 4.4 Terms of Agreement . The existence and the terms and conditions of the Agreement that the Parties have not specifically agreed to disclose pursuant to Section 4.6 shall be considered Confidential Information of both Parties. Either Party may disclose such terms to a bona fide potential investor, investment banker, acquiror, merger partner or other potential financial partner, and their attorneys and agents, provided that each such Person to whom such information is to be disclosed is informed of the confidential nature of such information and has agreed to maintain the confidentiality of such information. 4.5 Injunctive Relief . The Parties hereto understand and agree that remedies at law may be inadequate to protect against any breach of any of the provisions of this Article 4 by either Party or their employees, agents, officers or directors or any other person acting in concert with it or on its behalf. Accordingly, each Party shall be entitled to the granting of injunctive relief by a court of competent jurisdiction against any action that constitutes any such breach of this Article 4. 4.6 Publicity. Following execution of this Agreement, Ambit may issue a press release announcing the existence of this Agreement in the form and substance previously agreed to in writing by the Parties. Each Party agrees not to issue any other press release or other public statement disclosing other information relating to this Agreement or the transactions contemplated hereby without the prior written consent of the other Party, provided however, that any disclosure which is required by law or the rules of a securities exchange, as reasonably advised by the disclosing Partys counsel, may be made subject to the following. The Parties agree that any such announcement will not contain confidential business or technical information and, if disclosure of confidential business or technical information is required by law, the Parties will use reasonable efforts to minimize such disclosure and obtain confidential treatment for any such information which is disclosed to a governmental agency in accordance with Section 4.3. Each Party agrees to provide to the other Party a copy of any public announcement regarding this Agreement or the subject matter thereof as soon as reasonably practicable under the circumstances prior to its scheduled release. Except under extraordinary circumstances, each Party shall provide the other with an advance copy of any such announcement at least 5 business days prior to its scheduled release. Each Party shall have the right to expeditiously review and recommend changes to any such announcement and, except as otherwise required by law, the Party whose announcement has been reviewed shall remove any information the reviewing Party reasonably deems to be inappropriate for disclosure. The contents of any announcement or similar publicity which has been reviewed and approved by the reviewing Party can be re-released by either Party without a requirement for re-approval. Article 5 INVENTIONS 5.1 Inventions. Except as provided in this Agreement, neither Party shall obtain any right or license to the Confidential Information and materials of the other Party. BMS shall own all intellectual property rights (including but not limited to all patent rights) with respect to (i) the Results and (ii) all Inventions related to the BMS Compounds based upon or derived from the use of the BMS Compounds and/or the -12-
Results pursuant to this Agreement (the BMS Inventions). Ambit hereby assigns to BMS all right, title and interest in such BMS Inventions. Ambit shall cooperate fully with BMS in the preparation, filing and prosecution of any patent applications covering such BMS Inventions and the maintenance and enforcement of patents covering such BMS Inventions, including but not limited to executing all documents reasonably required by BMS for such purpose. BMS shall reimburse Ambit for the reasonable documented out-of-pocket costs incurred by Ambit in providing such cooperation requested in writing by BMS. Ambit shall own all Inventions related to the Ambit Technology which are not BMS Inventions and do not otherwise specifically relate to or require the use of the BMS Compounds. Article 6 REPRESENTATIONS, WARRANTIES AND INDEMNITY 6.1 Mutual Representations and Warranties. Each Party represents and warrants to the other that it has the full right and authority to enter into this Agreement, and that it is not aware of any impediment which would inhibit its ability to perform the terms and conditions imposed on it by this Agreement. Each Party warrants and represents to the other that it has the legal right and power to extend the rights and licenses granted to the other in this Agreement, and to fully perform its obligations hereunder, and that it has not made nor will it make any commitments to others in conflict with or in derogation of such rights or this Agreement. Except as otherwise disclosed, each Party further represents to the other that it is not aware of any legal obstacles, including patent rights of others, which are likely to prevent it from carrying out the provisions of this Agreement. Each Party warrants that it has enforceable written agreements with all of its employees and consultants who receive Confidential Information under this Agreement assigning to such Party ownership of all intellectual property rights (including but not limited to patent rights) created in the course of their employment. Ambit and BMS each represent and warrant that they have the full legal right and power and are duly authorized to act on behalf of and to fully bind their respective Affiliates under this Agreement. 6.2 Further Representations and Warranties of Ambit . Ambit represents and warrants that: (a) as of the Effective Date, it is entitled to grant the rights and licenses granted to BMS under this Agreement, and is not currently subject to any agreement between Ambit and any Third Party or to any outstanding order, judgment or decree of any court or administrative agency that restricts it in any way from granting to BMS the rights and license as set forth in this Agreement; (b) as of the Effective Date, Ambit has received no written notice of any threatened or pending actions, suits, judgments, settlements, or claims against Ambit that, if determined adversely to Ambit, would have an adverse effect upon its ability to perform its obligations under this Agreement; (c) as of the Effective Date, it has not granted, and will not grant during the term of this Agreement, any right, option, license or interest in or to any of the Ambit Technology that is in conflict with the rights or licenses granted to BMS under this Agreement; (d) as of the Effective Date, it has not granted, or permitted to be attached, and it will not grant or permit to be attached during the term of the Agreement, any lien, security interest or other encumbrance with respect to the Ambit Technology that would adversely effect Ambits ability to perform its obligations under this Agreement, other than publicly recorded liens; -13-
(e) to Ambits knowledge, the Ambit Technology does not include any trade secrets that have been misappropriated from any Third Party or obtained in breach of any contractual obligation of Ambit or its employees to a Third Party; (f) to Ambits knowledge as of the Effective Date, the use of the Ambit Kinase Assay does not infringe any Patent Rights owned or controlled by a Third Party; and (g) it will maintain in effect during the term of this Agreement all of its licenses with Third Parties that are in effect as of the Effective Date and that relate to the use of the Ambit Kinase Assay and/or the Technology Transfer as contemplated under this Agreement. 6.3 Further Representations and Warranties of BMS . BMS represents and warrants to Ambit that BMS is entitled to provide the BMS Compounds and BMS Compound Information to Ambit for use in performance of the Services under this Agreement. 6.4 Third Party Obligations. Except as may be agreed in writing by the Parties, each Party shall be responsible for all payment obligations, costs and expenses with respect to any agreements between such Party and any Third Party, including but not limited to, any upfront payments, license maintenance fees, milestone payments, royalty payments and legal fees and disbursements. Without limiting the foregoing, Ambit shall be responsible for all payment obligations to the Third Parties identified in Exhibit B based upon or arising from Ambits performance of the Services for BMS and/or the Technology Transfer to BMS hereunder based upon intellectual property rights (including but not limited to patent rights) and/or contractual obligations of Ambit existing as of the Effective Date. Without limiting the foregoing (including Ambits obligations under the preceding sentence), BMS shall be responsible for all payment obligations to Third Parties based upon or arising from the use of BMS Compounds and/or BMS Compound Information hereunder based upon intellectual property rights (including but not limited to patent rights) and/or contractual obligations of BMS existing as of the Effective Date. 6.5 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE BMS MATERIALS AND BMS COMPOUND INFORMATION ARE PROVIDED TO AMBIT AND THE SERVICE PRODUCTS AND TECHNOLOGY TRANSFER (IF ANY) ARE PROVIDED TO BMS WITHOUT WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF NON-INFRINGEMENT OF ANY THIRD PARTY INTELLECTUAL PROPERTY RIGHT. 6.6 Indemnification by BMS. BMS shall indemnify, defend and hold harmless Ambit and its Affiliates, and their respective officers, directors, employees, agents, licensors, and their respective successors, heirs and assigns and representatives, from and against any and all claims, threatened claims, damages, losses, suits, proceedings, liabilities, costs (including, without limitation, reasonable legal expenses, costs of litigation and reasonable attorneys fees) or judgments, whether for money or equitable relief, of any kind, arising out of any claim, action, lawsuit or other proceeding brought by a Third Party (Losses and Claims) arising out of or relating to (i) a breach by BMS of its representations, warranties, covenants or obligations pursuant to this Agreement or (ii) the use by BMS of any Service Products; except in any such case for Losses and Claims to the extent reasonably attributable to (x) any breach by Ambit of its representations, warranties, covenants or obligations pursuant to this Agreement or (y) Ambit having committed an act or acts of gross negligence, recklessness or willful misconduct. 6.7 Indemnification by Ambit . Ambit shall indemnify, defend and hold harmless BMS and its Affiliates, and their respective officers, directors, employees, agents, licensors, and their respective successors, heirs and assigns and representatives, from and against any and all Losses and Claims arising out of or relating to a breach by Ambit of its representations, warranties, covenants or obligations pursuant to this Agreement; except in any such case for Losses and Claims to the extent reasonably attributable to (x) any breach by BMS of its representations, warranties, covenants or obligations pursuant -14-
to this Agreement or (y) BMS having committed an act or acts of gross negligence, recklessness or willful misconduct. 6.8 Indemnification Procedure. A claim to which indemnification applies under Section 6.6 or Section 6.7 shall be referred to herein as an Indemnification Claim. If any Person or Persons (collectively, the Indemnitee) intends to claim indemnification under this Article 6, the Indemnitee shall notify the other Party (the Indemnitor) in writing promptly upon becoming aware of any claim that may be an Indemnification Claim (it being understood and agreed, however, that the failure by an Indemnitee to give such notice shall not relieve the Indemnitor of its indemnification obligation under this Agreement except and only to the extent that the Indemnitor is actually prejudiced as a result of such failure to give notice). The Indemnitor shall have the right to assume and control the defense of the Indemnification Claim at its own expense with counsel selected by the Indemnitor and reasonably acceptable to the Indemnitee, provided, however, that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitee, if representation of such Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between such Indemnitee and any other party represented by such counsel in such proceedings. If the Indemnitor does not assume the defense of the Indemnification Claim as aforesaid, the Indemnitee may defend the Indemnification Claim but shall have no obligation to do so. The Indemnitee shall not settle or compromise the Indemnification Claim without the prior written consent of the Indemnitor, and the Indemnitor shall not settle or compromise the Indemnification Claim in any manner which would have an adverse effect on the Indemnitees interests, without the prior written consent of the Indemnitee, which consent, in each case, shall not be unreasonably withheld or delayed. The Indemnitee shall reasonably cooperate with the Indemnitor at the Indemnitors expense and shall make available to the Indemnitor all pertinent information under the control of the Indemnitee, which information shall be subject to Article 4. 6.9 No Incidental or Consequential Damages . Notwithstanding anything to the contrary contained in this Agreement, in no event shall either Party be responsible for any incidental or consequential damages including, without limitation, lost profits or opportunities, incurred by the other Party or any Indemnitee hereunder. Article 7 TERM AND TERMINATION 7.1 Term. The Agreement shall be effective on the Effective Date and continue in effect in accordance with its terms unless terminated by BMS or Ambit as set forth in this Article 7. 7.2 Termination Without Cause by BMS. (a) BMS may terminate this Agreement at any time after the first anniversary of the Effective Date, without cause upon giving Ambit 6 months prior written notice. (b) In addition, BMS may terminate this Agreement at any time following an Ambit Change of Control upon written notice. 7.3 Default. In addition to any other remedies which may be available at law or equity, in the event that any contractual obligation made hereunder has been materially breached or any warranty or representation made by either Party under Article 6 shall have been untrue in any material respect ( Default), the Party not in default (Non-Defaulting Party) shall have the right to give the other Party ( Defaulting Party) written notice thereof (Notice of Default ), which notice must state the nature of the default in reasonable detail and request that the Defaulting Party cure such default within [***]. If the Defaulting Party shall dispute the existence, extent or nature of any default set forth in the Notice of Default, the Parties shall use good faith efforts to resolve the dispute. In the event such Default is not cured within the period set forth herein after receipt of Notice of Default by the Defaulting Party, or the ***Confidential Treatment Requested -15-
Defaulting Party shall have failed to commence substantial remedial actions to cure the Default within such period and to diligently pursue the same, then the Non-Defaulting Party, at its option, in addition to any other remedy available to such Party at law or in equity, may terminate this Agreement. In addition, in the event the Non-Defaulting Party is BMS, BMS at its option, in addition to any other remedy available to BMS at law or in equity, may elect to exercise it rights under Section 7.5 of the Collaboration and Profiling Services Agreement. 7.4 Effect of Termination. 7.4.1 Termination by BMS Under Section 7.2 or by Ambit Under Section 7.3 . Upon termination of this Agreement by BMS under Section 7.2 or by Ambit under Section 7.3, BMS shall dispose of all tangible embodiments, and render inaccessible or useless all electronic embodiments, of Ambit Confidential Information provided to BMS by Ambit hereunder, except that BMS may retain one (1) copy thereof for legal archival purposes, provided that in the case where BMS has obtained the Technology Transfer pursuant to Section 7.5 of the Collaboration and Profiling Services Agreement, BMS shall not be obligated to dispose of or render inaccessible or useless any such Ambit Confidential Information to the extent that the use of such Ambit Confidential Information is necessary to enable BMS to use the Ambit Kinase Assay and other Ambit Technology in accordance with such Technology Transfer. Upon termination of this Agreement by BMS under Section 7.2(a), if any Hits have been identified by Ambit under Sections 3.4.2 and 3.4.3, but for which: (i) designation of an Ambit Target under Section 3.4.3 has not yet been made, or (ii) BMS has not yet disclosed to Ambit the chemical structure of the Hits under Section 3.4.3, or (iii) Ambits election to enter into a Target License Agreement under Section 3.4.5 has not yet been made or (iv) the Target License Agreement has not yet been executed under Section 3.4.5, then (x) Ambit may designate the Ambit Target for such Hits in the event Ambit has not already done so and (y) BMS shall disclose the chemical structures for such Hits and (z) BMS and Ambit shall at Ambits election finalize and execute a Target License Agreement with respect to such Hits in accordance with Section 3.5.5. Termination of this Agreement by BMS under Section 7.2 or by Ambit under Section 7.3 will not affect any Target License Agreement entered into by the Parties prior to such termination. 7.4.2 Termination by BMS Under Section 7.3. Upon termination of this Agreement by BMS under Section 7.3, Ambits rights and BMSs obligations under Section 3.4 shall terminate. Termination of this Agreement by BMS under Section 7.3 shall also terminate any Target License Agreement entered into by the Parties prior to such termination, in the event the termination is due to (i) Ambits failure to cure a material breach where such cure is within Ambits reasonable control or (ii) Ambits failure to perform and complete the Services or (iii) Ambits intentional, willful, reckless or grossly negligent breach of a material term of this Agreement, including by way of example, the intentional, willful, reckless or grossly negligent disclosure by Ambit of BMS Confidential Information. 7.4.3 BMS Confidential Information . Subject to the terms and conditions of any applicable Target License Agreement, upon termination of this Agreement, Ambit shall dispose of all tangible embodiments, and render inaccessible or useless all electronic embodiments, of BMS Confidential Information and BMS Compound Information provided to Ambit by BMS hereunder, except that Ambit may retain one (1) copy thereof for legal archival purposes. 7.4.4 BMS Compounds. Subject to the terms and conditions of any applicable Target License Agreement, upon termination of this Agreement, Ambit shall destroy or otherwise dispose in a manner to render inaccessible, or upon request by BMS shall return to BMS, all unused or usable BMS Compounds provided to Ambit by BMS hereunder. -16-
7.4.5 Termination of the Profiling Term. The Profiling Term shall be terminated upon termination of this Agreement. Termination of the Profiling Term shall terminate Ambits obligations to perform further Services after the effective date of such termination of the Profiling Term. 7.5 Accrued Obligations and Survival . Termination of the Agreement will not affect any rights or obligations of either Party which have accrued prior to termination and are intended by the Parties to survive termination. Without limiting the foregoing, upon termination of this Agreement, such rights and obligations of the Parties under Sections 2.4, 2.5, 2.6, 2.7, 2.8 and Articles 4, 5, 6, 8 and 9 shall survive such termination. Article 8 DISPUTE RESOLUTION 8.1 Resolution by Senior Executives. The Parties shall seek to settle amicably any and all disputes or differences arising out of or in connection with this Agreement. Any dispute between the Parties relating to this Agreement shall be promptly presented to the Chief Executive Officer of Ambit and the President, Pharmaceutical Research Institute of BMS, or their respective designees, for resolution. Such officers, or their designees, shall attempt in good faith to promptly resolve such dispute. 8.2 Arbitration. If a dispute between the Parties arising out of or relating to the validity or interpretation of, compliance with, breach or alleged breach of or termination of this Agreement cannot be resolved within 60 days of presentation to the Chief Executive Officer of Ambit and the President, Research and Development of BMS, or their respective designees, for resolution, either Party may refer such dispute to binding arbitration to be conducted as set forth below in this Section 8.2. (a) A Party may submit such dispute to arbitration by notifying the other Party, in writing, of such dispute. Within 30 days after receipt of such notice, the Parties shall designate in writing a single arbitrator to resolve the dispute; provided, however, that if the Parties cannot agree on an arbitrator within such 30 day period, the arbitrator shall be selected by the New York, NY office of the American Arbitration Association (the AAA) or, if such office does not exist or is unable to make a selection, by the office of the AAA nearest to Denver, Colorado. The arbitrator shall be a lawyer knowledgeable and experienced in the applicable laws concerning the subject matter of the dispute. In any case the arbitrator shall not be an Affiliate, employee, consultant, officer, director or stockholder of either Party, or otherwise have any current or previous relationship with either Party or their respective Affiliates. The governing law in Section 9.17 shall govern any such proceedings. The language of the arbitration shall be English. (b) Within 60 days after the designation of the arbitrator, the arbitrator and the Parties shall meet, and each Party shall provide to the arbitrator a written summary of all disputed issues, such Partys position on such disputed issues and such Partys proposed ruling on the merits of each such issue. (c) The arbitrator shall set a date for a hearing, which shall be no later than 30 days after the submission of written proposals pursuant to Section 8.2(b), for the presentation of evidence and legal argument concerning each of the issues identified by the Parties. The Parties shall have the right to be represented by counsel. Except as provided herein, the arbitration shall be governed by the Commercial Arbitration Rules of the AAA applicable at the time of the notice of arbitration pursuant to Section 8.2(a); provided, however, that the Federal Rules of Evidence shall apply with regard to the admissibility of evidence in such hearing. In any such arbitration proceeding, the Parties shall be entitled to all remedies to which they would be entitled in a United States District Court and to full discovery to the same degree permitted under the Federal Rules of Civil Procedure. -17-
(d) The arbitrator shall use his or her best efforts to rule on each disputed issue within 30 days after completion of the hearing described in Section 8.2(c). The determination of the arbitrator as to the resolution of any dispute shall be binding and conclusive upon all Parties. All rulings of the arbitrator shall be in writing and shall be delivered to the Parties except to the extent that the Commercial Arbitration Rules of the AAA provide otherwise. Nothing contained herein shall be construed to permit the arbitrator to award punitive, exemplary or any similar damages. The arbitrator shall render a reasoned decision within the meaning of the Commercial Arbitration Rules which shall include findings of fact and conclusions of law. (e) The (i) attorneys fees of the Parties in any arbitration, (ii) fees of the arbitrator and (iii) costs and expenses of the arbitration shall be borne by the Parties in a proportion determined by the arbitrator. (f) Any arbitration pursuant to this Article 8 shall be conducted in Denver, Colorado. Any arbitration award may be entered in and enforced by a court in accordance with Section 9.18. (g) Notwithstanding anything in this Article 8, each Party shall have the right to seek injunctive or other equitable relief from a court of competent jurisdiction pursuant to Section 9.18 that may be necessary to avoid irreparable harm, maintain the status quo or preserve the subject matter of the arbitration. (h) Disputes regarding the validity, scope or enforceability of intellectual property rights shall not be subject to arbitration pursuant to this Article 10 but instead shall be submitted to a court of competent jurisdiction. Article 9 MISCELLANEOUS 9.1 Advice of Counsel . Ambit and BMS have each consulted counsel of its choice regarding this Agreement and each Party acknowledges and agrees that this Agreement shall not be deemed to have been drafted by one Party or the other Party; and is intended to be construed accordingly. 9.2 Assignment; Ambit Change of Control . Neither Party has the right to assign its rights or obligations under this Agreement without the prior written consent of the other Party; provided however, that, subject to the provisions of Article 7 of this Agreement with respect to an Ambit Change of Control, either Party may assign this Agreement and all of its rights and obligations hereunder, without such consent, to an entity that acquires all or substantially all of the business or assets of such Party (or the business or assets to which this Agreement pertains) whether by merger, consolidation, reorganization, acquisition, sale, license or otherwise; and BMS may assign this Agreement and all of its rights and obligations hereunder, without such consent, to an Affiliate if BMS remains liable and responsible for the performance and observance of all of the Affiliates duties and obligations hereunder. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the Parties to the extent necessary to carry out the intent of this Agreement. Any assignment not in accordance with this Section 9.2 shall be void. Ambit shall give BMS written notice of any Ambit Change of Control on the day of the first public announcement of such Ambit Change of Control. Such notices shall specify the nature of transactions giving rise to such Ambit Change of Control and Ambit shall also promptly provide BMS with any additional non-confidential information in Ambits possession requested by BMS relating to such transaction as may be reasonably relevant to BMSs determination as to whether to exercise its rights under Section 7.5.3 of the Collaboration and Profiling Services Agreement or to terminate the Agreement under Section 7.2 or to continue to have Ambit perform the Services hereunder. -18-
9.3 Compliance with Governmental Obligations . Each Party shall comply, upon reasonable notice from the other Party, with all governmental requests directed to either Party regarding the subject matter of this Agreement and provide all information and assistance necessary to comply with such governmental requests. 9.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, and may be executed through the exchange of facsimiles or pdf copies by email. 9.5 Entire Agreement. This Agreement (including all Exhibits attached hereto, which are incorporated herein by reference), together with the Equity Agreements, the Collaboration and Profiling Services Agreement, the Amended and Restated License Agreement, and the License Agreement (i) sets forth all of the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto and (ii) constitutes and contains the complete, final and exclusive understanding and agreement of the Parties with respect to the subject matter herein. There are no covenants, promises, agreements, warranties, representations, conditions or understandings, whether oral or written, between the Parties other than as set forth herein, or in the Equity Agreements, the Collaboration and Profiling Services Agreement, the Amended and Restated License Agreement, and the License 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. For clarification, the Collaboration and Profiling Services Agreement shall continue in full force and effect in accordance with its terms. 9.6 Force Majeure. Neither Party shall lose any rights hereunder or be liable to the other Party for damages or losses or shall have any right to terminate this Agreement for any default or delay attributable to any Force Majeure, if the Party affected shall give prompt notice of any such cause to the other Party. The Party giving such notice shall thereupon be excused from such of its obligations hereunder as it is thereby disabled from performing for so long as it is so disabled; provided however, that such affected Party commences and continues to take reasonable and diligent actions to cure such cause. 9.7 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 the Agreement. 9.8 Independent Contractors. It is expressly agreed that the relationship between Ambit and BMS created by this Agreement shall be one of independent contractors, and neither Party shall have the power or authority to bind or obligate the other Party except as expressly set forth in this Agreement. 9.9 Headings. Article, Section, and other descriptive headings used in this Agreement are for reference purposes only and shall not constitute a part hereof or affect the meaning or interpretation of this Agreement. 9.10 Further Agreement . Except as specifically set forth in this Agreement, neither Party shall have any obligation to enter into any other license or agreement with the other Party. 9.11 Notices. Any notices and other communications provided for in this Agreement to be made by either of the Parties to the other Party shall be in writing and shall be deemed given if delivered personally or sent by United States mail, registered or certified, postage paid, by overnight delivery service or express courier service or by facsimile, with confirmation of receipt, at the following addresses (or at such other address for a Party as shall be specified by like notice; provided however, that notices of a change of address shall be effective only upon receipt thereof): -19-
If to Ambit: Ambit Biosciences Corporation 4215 Sorrento Valley Boulevard San Diego, California 92121 Attention: Senior Vice President, Corporate Development Telephone: 858-334-2147 Facsimile: 858-334-2198 with a copy to: Ambit Biosciences Corporation 4215 Sorrento Valley Boulevard San Diego, California 92121 Attention: VP and General Counsel Telephone: 858-334-2100 Facsimile: 858-334-2198 If to BMS: Bristol-Myers Squibb Company P.O. Box 4000 Route 206 & Province Line Road Princeton, New Jersey 08543-4000 Attention: Vice President, External Science Technology & Licensing with copy to: Bristol-Myers Squibb Company P.O. Box 4000 Route 206 & Province Line Road Princeton, New Jersey 08543-4000 Attention: Vice President and Senior Counsel, Corporate & Business Development 9.12 Parties in Interest. This Agreement shall be binding upon and inure solely to the benefit of BMS and Ambit (and their permitted successors and assigns) and nothing in this Agreement (express or implied) is intended to or shall confer upon any other person or persons any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. 9.13 Severability. If any term, covenant or condition of this Agreement or the application thereof to any Party or circumstance shall, to any extent, be held to be invalid or unenforceable, then the remainder of this Agreement, or the application of such term, covenant or condition to Parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term, covenant or condition of this Agreement shall be valid and be enforced to the fullest extent permitted by law; and the Parties hereto covenant and agree to renegotiate any such term, covenant or application thereof in good faith in order to provide a reasonably acceptable alternative to the term, covenant or -20-
condition of this Agreement or the application thereof that is invalid or unenforceable, it being the intent of the Parties that the basic purposes of this Agreement are to be effectuated. 9.14 Use of Name . Neither Party will, without prior written consent of the other Party, use the name or any trademark or trade name owned by the other Party, or owned by an affiliate or parent corporation of the other Party, in any publication, publicity, advertising, or otherwise, except as expressly permitted by Article 4. 9.15 Rights in Bankruptcy. All rights and licenses granted under or pursuant to this Agreement by Ambit are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code (i.e., Title 11 of the U.S. Code) or analogous provisions of applicable law outside the United States, licenses of rights to intellectual property as defined under Section 101 of the U.S. Bankruptcy Code or analogous provisions of applicable law outside the United States. The Parties agree that BMS, as licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the U.S. Bankruptcy Code or any other provisions of applicable law outside the United States that provide similar protection for intellectual property. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against Ambit under the U.S. Bankruptcy Code or analogous provisions of applicable law outside the United States, BMS shall be entitled to a complete duplicate of (or complete access to, as appropriate) any Ambit Technology and all embodiments of such Ambit Technology, which, if not already in BMSs possession, shall be promptly delivered to it upon BMSs written request therefor. Any agreements supplemental hereto shall be deemed to be agreements supplementary to this Agreement for purposes of Section 365(n) of the U.S. Bankruptcy Code. 9.16 Expenses. Except as expressly set forth in this Agreement or as may be specifically agreed to in writing by Ambit and BMS, each Party shall be responsible for all costs and expenses it incurs in connection with this Agreement. 9.17 Applicable Law. This Agreement shall be governed by, enforced, and shall be construed in accordance with the laws of the State of Delaware without regard to its conflicts of law provisions. 9.18 Jurisdiction. Each Party, for the purpose of enforcing an award under Section 8.2 or for seeking injunctive or other equitable relief as permitted under Section 4.5, hereby irrevocably submits to the exclusive jurisdiction of (i) the Supreme Court of the State of New York, New York County, and (ii) the United States District Court for the Southern District of New York, for the purposes of any suit, action or other proceeding arising out of this Agreement or out of any transaction contemplated hereby. Each Party agrees to commence any such action, suit or proceeding either in the United States District Court for the Southern District of New York or if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in the Supreme Court of the State of New York, New York County. Each Party further agrees that service of any process, summons, notice or document by personal delivery, by registered mail, or by a recognized international express delivery service to such Partys respective address set forth above shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which it has submitted to jurisdiction in this Section. Each Party irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the Supreme Court of the State of New York, New York County or (ii) the United States District Court for the Southern District of New York, and hereby and thereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 9.19 Interpretation. -21-
(a) Each of the Parties acknowledges and agrees that this Agreement has been diligently reviewed by and negotiated by and between them, that in such negotiations each of them has been represented by competent counsel and that the final agreement contained herein, including the language whereby it has been expressed, represents the joint efforts of the Parties hereto and their counsel. Accordingly, in the event an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement. (b) The definitions of the terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words include, includes and including shall be deemed to be followed by the phrase without limitation. The word will shall be construed to have the same meaning and effect as the word shall. The word any shall mean any and all unless otherwise clearly indicated by context. $ as used in this Agreement means the lawful currency of the United States. (c) Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or therein), (ii) any reference to any laws herein shall be construed as referring to such laws as from time to time enacted, repealed or amended, (iii) any reference herein to any person shall be construed to include the persons successors and assigns, (iv) the words herein, hereof and hereunder, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, and (v) all references herein to Articles, Sections or Appendices, unless otherwise specifically provided, shall be construed to refer to Articles, Sections (and sub-Sections thereof as applicable) and Appendices of this Agreement. (d) References to sections of the Code of Federal Regulations and to the United States Code shall mean the cited sections, as these may be amended from time to time. * * * signature page follows * * * -22-
IN WITNESS WHEREOF, the Parties, having read the terms of this Agreement and intending to be legally bound hereby, do hereby execute this Agreement. AMBIT BIOSCIENCES CORPORATION By: Name: Title: BRISTOL-MYERS SQUIBB COMPANY By: /s/ Graham R. Brazier /s/ Scott Salka
Name: Graham R. Brazier Title: Vice President & Head of Business Development -23-
Exhibit A Services [***] ***Confidential Treatment Requested -24-
Exhibit B Ambit Third Party Obligations [***] ***Confidential Treatment Requested -25-
Exhibit C [intentionally left blank] -26-
Exhibit D Description of Ambit Proposed Targets As of the Effective Date [***] ***Confidential Treatment Requested -27-
Exhibit E Target License Agreement -29-
Exhibit 10.30 C ONFIDENTIAL ***Text Omitted and Filed Separately with the Securities and Exchange Commission. Confidential Treatment Requested Under 17 C.F.R. Sections 200.80(b)(4) and Rule 406 of the Securities Act of 1933, as amended. EXCLUSIVE LICENSE AND COLLABORATIVE RESEARCH, CO-DEVELOPMENT AND COMMERCIALIZATION AGREEMENT by and among ASTELLAS PHARMA INC. and ASTELLAS US LLC and AMBIT BIOSCIENCES CORPORATION December 18, 2009 CONFIDENTIAL
C ONFIDENTIAL TABLE OF CONTENTS 1 DEFINITIONS 2 RESEARCH AND DEVELOPMENT 2.1 Joint Steering Committee 2.2 Termination of Committee Membership 2.3 General Committee Provisions 2.4 Appointment of Alliance Managers 2.5 Regulatory Matters 2.6 Research Program and Development Programs 2.7 Sharing of Research Costs and Development Costs 2.8 Development Outside Joint Development Territory; Commercialization Ex-U.S 2.9 Safety Agreement 2.10 Product Withdrawals and Recalls 2.11 Clinical Trial Information 3 LICENSE; OPTION; DEVELOPMENT AND COMMERCIALIZATION 3.1 License Grant to Astellas 3.2 Distributorships and Co-Promotion Rights 3.3 License Grants to Ambit and Sublicensing Rights 3.4 Reservation of Rights 3.5 Exclusivity 3.6 Commercialization and Medical Affairs Activities 3.7 Subcontracts; Contract Sales Forces 3.8 Co-Promotion Option 3.9 Joint Commercialization Committee 4 FEES, MILESTONES, ROYALTIES AND PROFIT SHARE 4.1 License Fee 4.2 Milestone Events and Payments 4.3 Royalties and Sales Milestones 4.4 Payment of Co-Promotion Profit Share 4.5 Other Amounts Payable 4.6 Audits 4.7 Payment Exchange Rate 4.8 Income Tax Withholding 5 REPRESENTATIONS, WARRANTIES AND COVENANTS 5.1 Mutual Representations and Warranties 5.2 Representations, Warranties and Covenants of Ambit 5.3 Covenants by Ambit 5.4 Disclaimer 6 CONFIDENTIALITY 6.1 Restricted Information 6.2 Nondisclosure and Non-Use Obligations 6.3 Publication 6.4 Publicity/Use of Names/Disclosure of Terms 7 INDEMNIFICATION; INSURANCE; LIMITATION OF LIABILITY i 1 19 19 21 21 22 22 25 29 33 34 34 35 35 35 36 37 37 37 38 40 40 42 44 44 44 47 50 51 51 52 53 53 53 54 58 59 59 59 60 61 62 63
C ONFIDENTIAL 7.1 7.2 7.3 7.4 7.5 7.6 8 Indemnification by Ambit Indemnification by Astellas Notification of Claims; Conditions to Indemnification Obligations Certain Third Party Claims Insurance Limitation of Liability 63 64 64 65 66 66 67 67 68 69 72 75 75 75 76 76 76 76 77 79 79 79 83 83 84 84 84 85 85 88 88 89 89 90 91 91 91 91 91 91 91 92 92 ii
INTELLECTUAL PROPERTY AND PATENT PROVISIONS 8.1 Ownership 8.2 Rights to Newly-Acquired IP 8.3 Patent Filing, Prosecution and Maintenance 8.4 Infringement Actions 8.5 Patent Term Restoration 8.6 Orange Book Listing 8.7 Registration of Licenses 8.8 Trademarks TERM AND TERMINATION 9.1 Term and Expiration 9.2 Termination by Astellas 9.3 Termination by Either Party for Cause 9.4 Termination for Corporate Events 9.5 Effect of Expiration of Agreement 9.6 Effect of Termination 9.7 Unauthorized Sales 9.8 Rights in Bankruptcy 9.9 Survival
10 MISCELLANEOUS 10.1 HSR Filing 10.2 Force Majeure 10.3 Assignment/ Change of Control 10.4 Severability 10.5 Notices 10.6 Applicable Law 10.7 Dispute Resolution 10.8 Entire Agreement 10.9 Amendment 10.10 Headings 10.11 Construction 10.12 Independent Contractors 10.13 Waiver 10.14 Cumulative Remedies 10.15 Interpretation 10.16 Further Assurance 10.17 Counterparts
C ONFIDENTIAL EXCLUSIVE LICENSE AND COLLABORATIVE RESEARCH, CO-DEVELOPMENT AND COMMERCIALIZATION AGREEMENT This EXCLUSIVE LICENSE AND COLLABORATIVE RESEARCH, CO-DEVELOPMENT AND COMMERCIALIZATION AGREEMENT (this Agreement) is made effective as of December 18, 2009, (the Effective Date), by and among ASTELLAS PHARMA INC. , a Japanese corporation (API) and its indirect wholly owned subsidiary ASTELLAS US LLC, a Delaware limited liability company ( AUS; collectively with API, Astellas), and AMBIT BIOSCIENCES CORPORATION, a Delaware corporation (Ambit). RECITALS WHEREAS, Ambit is engaged in the research and development of small molecule compounds that inhibit human kinase enzymes, and it has identified a compound known as AC220 that may be useful in treating cancer, and Ambit has obtained or filed for patents with respect to AC220 (and certain related compounds) and their use in human therapeutic applications. WHEREAS, Astellas is engaged in the research, development, marketing, manufacture and sale of pharmaceutical products and desires to obtain an exclusive license to AC220, and certain related Ambit compounds, to develop and commercialize one or more pharmaceutical products containing such compounds for use in treating cancer and other diseases, and Ambit is willing to grant such a license upon the terms and conditions of this Agreement. WHEREAS, Astellas and Ambit also desire to enter into a research collaboration to conduct further research on one or more compounds, and to grant Ambit certain option rights to co-develop and co-promote pharmaceutical products based on Ambits compounds licensed hereunder, upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, Astellas and Ambit hereby agree as follows: AGREEMENT 1. DEFINITIONS The following capitalized terms, whether used in the singular or plural, shall have the meaning set forth below: 1.1 AC220 means the compound having the chemical structure set forth in Part 1 of Exhibit A. 1.2 AC886 means the compound having the chemical structure set forth in Part 2 of Exhibit A. 1.3 Act means the United States Federal Food, Drug and Cosmetic Act, 21 U.S.C. 301 et seq. as such may be amended from time to time. 1.4 Affiliate means, with respect to a Party (or, if applicable, an other entity), any other entity that, directly or indirectly, controls, is controlled by or is under common control with such 1
C ONFIDENTIAL Party (or other entity). As used in this definition of Affiliate, the term control (with correlative meanings for the terms controlled by and under common control with) means: (a) the direct or indirect ownership of fifty percent (50%) or more of the voting stock or other ownership interests with ordinary voting power, or (b) the actual ability to otherwise control the management of the applicable entity, whether through the ownership of voting securities, by contract, or otherwise. 1.5 Ambit Compound means (a) AC220; (b) AC886; or (c) any salt, human metabolite, human prodrug (including ester prodrugs), free-base, hydrate, solvate, polymorph, isomer or enantiomer of AC220 or AC886. 1.6 Ambit Follow-On Compounds means (a) those compounds and their derivatives having the chemical structures set forth in Part 3 of Exhibit A of this Agreement, and (b) any salt, human metabolite, human prodrug (including ester prodrugs), free-base, hydrate, solvate, polymorph, isomer or enantiomer of any such compound. 1.7 Ambit Know-How means all Information that (a) is Controlled by Ambit or any of its Affiliates as of the Effective Date or during the Term, and (b) is necessary or reasonably useful for the Exploitation of any Licensed Compound or Product, but excluding all Program Know-How, Ambit Materials and any Know-How that is excluded pursuant to Section 8.2.2. 1.8 Ambit Licensed Patents means: (a) the Patent Rights listed in Exhibit B of this Agreement as such exhibit may be amended from time to time by the Parties and any Patent Rights based on any of the foregoing, (b) any other Patent Rights that at any time during the Term are owned or Controlled by Ambit or any of its Affiliates and claim or cover a Licensed Compound or Product as a composition of matter, or the method of use of or the manufacture of a Licensed Compound or Product, and (c) any other Patent Rights that at any time during the Term are Controlled by Ambit or any of its Affiliates and claim or cover an invention that is reasonably useful for Exploiting any Licensed Compound or Product, but excluding all Program Patents and any Patent Rights that are excluded pursuant to Section 8.2.2. 1.9 Ambit Materials means: (a) any physical materials, but excluding all Licensed Compounds and Products, that (i) are provided to Astellas by Ambit under the Research Program or any Development Program and (ii) are Controlled by Ambit or any of its Affiliates as of the Effective Date or during the Term, including materials resulting from the Research Program developed or invented solely by employees of Ambit or other Persons not employed by Astellas or its Affiliates acting on behalf of Ambit; and (b) any Information that (i) relates directly to such physical materials, and (ii) is Controlled by Ambit, and (iii) is provided to Astellas by Ambit under this Agreement. 1.10 Ambit Program Technology means (a) any and all Information conceived, discovered, developed or otherwise made solely by or on behalf of Ambit or its Affiliates during the Term in connection with activities conducted under a Research Plan, Development Plan or otherwise under this Agreement, whether or not patented or patentable, but excluding any Joint Program Technology (collectively, Ambit Program Know-How), and (b) all Patent Rights and other intellectual property rights that are Controlled by Ambit or any of its Affiliates and claim or cover or otherwise are appurtenant to the Information described in clause (a) above (collectively, Ambit Program Patents). 1.11 Ambit Technology means the Ambit Licensed Patents, Ambit Know-How and Ambit Materials (subject to Section 8.2). 2
C ONFIDENTIAL 1.12 AML means Acute Myeloid Leukemia. 1.13 Annual U.S. Profit/Loss means, with respect to a particular Co-Promoted Product during any part or full Calendar Year during the applicable Co-Promotion Term: (a) the total Net Sales from the sales of such Co-Promoted Product in the U.S. during such year (or, as applicable, the part of such Calendar Year within the Co-Promotion Term), less (b) the amount equal to the sum of the following costs and expenses incurred in connection with and reasonably allocable to the Exploitation of such Co-Promoted Product in or for the benefit of the United States during its CoPromotion Term during a Calendar Year (such amounts, Allowed Expenses): (a) Direct Marketing/Promotion Expenses; (b) Indirect Marketing Expenses; (c) distribution/wholesaler costs in amounts reasonable and customary, and comparable to the distribution and wholesaler costs incurred by Astellas in its distribution of its other comparable products; (d) amounts paid to Third Party licensors on the sales of Co-Promoted Products permitted to be deducted pursuant to Section 4.3.4; (e) Manufacturing Costs; (f) Medical Affairs Costs; (g) Post-Approval U.S. Development Costs; (h) reasonable actual (internal and out-of-pocket) expenses incurred by the Parties to train both Parties sales forces for Co-Promotion of the Co-Promoted Product; (i) costs of recalls of the Co-Promoted Product in the U.S. to the extent included in Allowed Expenses pursuant to Section 2.10; (j) Losses from Third Party Claims to the extent included in Allowed Expenses pursuant to Section 7.4; and (k) costs of prosecuting Ambit Licensed Patents, and prosecuting, maintaining and enforcing trademarks, for the Co-Promoted Products in the U.S. pursuant to Sections 8.3 and 8.8. For the avoidance of doubt, Allowed Expenses shall exclude costs required to build, maintain and operate either Partys sales force and for each Party to use such sales force to fulfill its Co-Promotion obligations. 1.14 Applicable Law means all applicable laws, rules and regulations, including any rules, regulations, guidelines or other requirements of the Governmental Authorities, that are applicable to the specific situation or circumstance and as they may be in effect at the particular time. 3
C ONFIDENTIAL 1.15 Astellas Know-How means all Information that (a) is Controlled by Astellas or its Affiliates at any time during the Term, and (b) either (i) is incorporated in or used by Astellas or any of its Affiliates in the Exploitation of Licensed Compound or Product, or (ii) is otherwise necessary to Ambit solely for the performance of Ambits obligations (but not the exercise of Ambits rights) under this Agreement, but excluding all Astellas Program Know-How. 1.16 Astellas Patents means all Patent Rights (a) that are Controlled by Astellas or its Affiliates at any time during the Term, and (b) that claim or cover Licensed Compounds or Products or their manufacture or use, and (c) in the case of any Reversion Product, solely to the extent such Patent Rights claim or cover an invention that is incorporated or used in such Reversion Product (or its Exploitation) as it exists and is made as of the applicable date of termination of this Agreement with respect to such Reversion Product, but excluding all Astellas Program Patents and Joint Program Patents. 1.17 Astellas Program Technology means (a) any and all Information conceived, discovered, developed or otherwise made, solely by or on behalf of Astellas or its Affiliates during the Term in connection with activities conducted under a Research Plan, Development Plan or otherwise under this Agreement, whether or not patented or patentable, but excluding any Joint Program Technology (collectively, Astellas Program KnowHow), and (b) all Patent Rights and other intellectual property rights Controlled by Astellas or any of its Affiliates that claim, cover or otherwise are appurtenant to the Information described in clause (a) above (collectively, Astellas Program Patents). 1.18 Astellas Technology means Astellas Patents and Astellas Know-How. 1.19 Business Day means a day other than (a) a Saturday or a Sunday, (b) a bank or other public holiday in San Diego, California, or (c) a bank or other public holiday in Tokyo, Japan. 1.20 Calendar Quarter means the respective periods of three (3) consecutive calendar months ending on March 31, June 30, September 30 and December 31. 1.21 Calendar Year means each successive period of twelve (12) months commencing on January 1 and ending on December 31. 1.22 Change of Control of a Party shall be deemed to occur if any of the following occurs after the Effective Date: (a) such Party is involved in a merger, acquisition, consolidation or similar transaction (or series of related transactions) with a Third Party (whether or not the Party is the surviving entity) pursuant to which either: (i) the members of the Supervisory Board (as defined below) of such Party immediately prior to such transaction or series of related transactions constitute less than a majority of the members of the Supervisory Board of such Party or the surviving entity immediately following such transaction or series of related transactions, or the beneficial owners (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934 (as amended) and Rule 13d-3 under said Act) of all the outstanding shares of capital stock (or other similar interests, such as partnership or limited liability company interests) of such Party that are normally entitled (without 4
(ii)
C ONFIDENTIAL regard to any contingency) to vote in the election of members of the Partys Supervisory Board ( Voting Stock) immediately prior to such transaction or series of related transactions, are not the beneficial owners immediately after such transaction of at least a majority of the Voting Stock of (A) such Party or (B) if such Party does not survive such transaction, the entity surviving such transaction or (C) if the entity surviving such transaction is a wholly owned subsidiary, such surviving entitys parent; (b) such Party sells, assigns or otherwise transfers control to a Third Party (in one transaction or a series of related transactions) of all or substantially all of such Partys assets (which must include the assets relating to this Agreement) or of all or substantially all of such Partys assets relating to this Agreement; or pursuant to one transaction or a series of related transactions, any person or group (where the terms person, group and beneficial owner have the meanings given in Section 13(d) of the Securities Exchange Act of 1934 (as amended) and Rules 13d-3 and 13d-5(b)(1) under said Act); (i) becomes the beneficial owner of Voting Stock of such Party representing fifty percent (50%) or more of the total voting power of all outstanding Voting Stock of such Party as of just after such transaction (other than pursuant to a new issuance of Voting Stock by the Party in connection with a bona fide equity financing in the form of a public offering made to the general public or a private financing in which no person that is not primarily a financial investor becomes the beneficial owner of fifty percent (50%) or more of the total voting power of all outstanding Voting Stock of such Party), or (ii) acquires the actual power and ability (direct or indirect) to elect a majority of the members of the Partys Supervisory Board (other than as a result of an equity financing as provided in subclause (i) above). The Supervisory Board (as used in this Section) of a Party means the board of directors of such Party, or (if there is no such board of directors of such Party) the similar supervisory body or group with the legal authority to appoint the management of the Party and control its business. 1.23 Clinical Trial Authorization means all approvals, licenses, registrations or authorizations from the relevant Regulatory Authority necessary to conduct a human clinical trial on a Product in a country, such as authorization from the Regulatory Authority under the IND filed in the country with respect to such Product (including authorization deemed to exist under Applicable Law due to passage of the necessary amount of time from filing of the IND). 1.24 Clinical Trial means a human clinical study of a Product involving the dispensing, administration or delivery of Product to patients or subjects. 1.25 Combination Product means a Product that combines a Licensed Compound with one or more other clinically and pharmacologically active ingredients (which term excludes, for clarity, excipients, controlled-release compositions, materials to increase bioavailability, solubility, and/or stability, and delivery means) in a single formulation or final package presentation for sale as a single unit. 1.26 Commercially Reasonable Efforts means, with respect to the efforts to be expended by a Party to accomplish a particular objective or to conduct specific research, development or commercialization tasks with respect to a Product, the efforts as are substantially equivalent to those efforts and resources commonly used by such Party for accomplishing such objective or 5
(c)
C ONFIDENTIAL performing such tasks with respect to a comparable product that is at a similar stage of development or commercialization, taking into account all commercially relevant factors, including (as applicable) reasonably expected or actual time and cost to develop, product life, market potential, profitability and rate of return, likelihood of regulatory approval and regulatory issues, pricing, reimbursement and formulary status, competitiveness and market exclusivity and other similar commercially relevant factors (if any). Notwithstanding the foregoing, Commercially Reasonable Efforts shall not require the performance of any task or activity in any country or region which task or activity would not be commercially reasonable for the Party to perform, given the applicable circumstances at the time. Commercially Reasonable Efforts shall (i) be determined on a market-bymarket basis for a particular Product, and it is anticipated that the level of effort will be different for different markets, and will change over time, reflecting changes in the status of the Product and the market(s) involved, and (ii) permit the consideration of the reasonably expected or actual impact of activities or factors with respect to one market on other markets. For the avoidance of doubt, it shall be consistent with the obligations of a Party under this Agreement to use Commercially Reasonable Efforts, with respect to any particular Licensed Compound or Product, for such Party either (a) not to conduct specific efforts or to delay conducting specific efforts, or (b) to suspend or discontinue specific efforts, with respect to the Licensed Compound or Product, provided that such Partys actions and efforts with respect to the Licensed Compound or Product are in the aggregate consistent with the overall obligations of such Party under the Agreement to use Commercially Reasonable Efforts with respect to such Licensed Compound or Product. 1.27 Committee means the Joint Steering Committee or Joint Commercialization Committee, or any other subcommittee established under Section 2.3.1, as applicable. 1.28 Competing Product means [***]. 1.29 Competitive Indication means, with respect to any pharmaceutical product, any indication for which a Product is being clinically developed pursuant to any Development Plan or for which a Product has been labeled by Regulatory Authorities for use anywhere in the Territory. 1.30 Confidential Information means, with respect to a Party, all Information that either (x) such Party or its Affiliates disclose to the other Party or its Affiliates pursuant to this Agreement, or (y) that such Party or its Affiliates disclosed to the other Party pursuant to the Non-Disclosure Agreement entered into by API and Ambit [***], whether disclosed orally, visually, in writing or in any tangible or electronic form or media. Confidential Information may, but will not necessarily, be marked CONFIDENTIAL or the equivalent. For clarity, the Ambit Know-How, the Ambit Program Know-How and Ambit Materials are the Confidential Information of Ambit and the Astellas Know-How and the Astellas Program Know-How are the Confidential Information of Astellas. The Joint Program Know-How shall be deemed the Confidential Information of both ***Confidential Treatment Requested 6
C ONFIDENTIAL Parties. However, specific Information shall not be considered Confidential Information to the extent that the Party receiving such Information can demonstrate that such Information: (a) Is publicly disclosed or in the public domain, through no fault of the receiving Party or its Affiliates, either before or after it becomes known to the receiving Party or its Affiliates; or (b) Except in the case of Joint Program Know-How, was known to the receiving Party or its Affiliates prior to disclosure by the disclosing Party, which knowledge was acquired independently and not from the disclosing Party or its Affiliates hereto, as evidenced by the written records of the receiving Party or its Affiliates; or (c) Is subsequently disclosed to the receiving Party in good faith by a Third Party who has a right to make such disclosure; or (d) Except in the case of Joint Program Know-How, was developed by receiving Party or its Affiliates independently of and without access to the disclosing Partys and its Affiliates Confidential Information, as evidenced by the receiving Partys or its Affiliates written records. 1.31 Controlled means, with respect to any item of Information or intellectual property right, that the applicable Party or its Affiliates own or has a license to such Information or intellectual property right and has the ability to grant access to, and a license or sublicense (as applicable) under, such item or right, in each case without violating the terms of a written agreement with a Third Party. 1.32 Co-Promote or Co-Promotion means use of the respective sales forces of the Parties or their Affiliates to promote, following exercise of the Co-Promotion Option by Ambit, a Co-Promoted Product in the U.S., where promote means the process of direct contact between the respective sales forces and medical professionals (as further defined in the applicable Co-Promotion Agreement) who are able to purchase or influence the purchase of the Co-Promoted Product, in accordance with and as further defined in Exhibit D and the Co-Promotion Agreement. 1.33 Co-Promoted Product means a Product for which Ambit has exercised the Co-Promotion Option, as provided in Section 3.8, provided that such Product shall constitute a Co-Promoted Product solely with respect to Exploitation in the U.S. during the applicable Co-Promotion Term. 1.34 Co-Promotion Plan means, for a particular Co-Promoted Product and in a particular period, the specific written plan, created by the JCC, that sets forth (a) the specific Co-Promotion activities to be conducted by each of the Parties in order to promote such Co-Promoted Product in the U.S. during such period, (b) a budget and timelines (including Gantt charts) for such Co-Promotion activities during such period, including for sales force training, and for Medical Affairs Activities, and (c) a budget for the Direct Marketing/Promotion Expenses and Indirect Marketing Expenses anticipated to be incurred by or on behalf of Astellas or its Affiliates in connection with such Co-Promoted Product during such period. For clarity, the budgets included in such plan shall not include the costs for each Party to build, maintain and operate its respective sales force or to use such sales force to fulfill its Co-Promotion obligations. 7
C ONFIDENTIAL 1.35 Co-Promotion Option means, with respect to a particular Product, the option of Ambit to engage in Co-Promotion of such Product as granted under the terms in Section 3.8.1. 1.36 Co-Promotion Term means, with respect to a particular Co-Promoted Product, the period commencing on the date on which Ambit exercises its Co-Promotion Option with respect to such Product pursuant to Section 3.8 and ending on the last date on which Ambit is eligible to CoPromote such Product under this Agreement or the applicable Co-Promotion Agreement (which date, in applicable circumstances, will be the effective date of an event of termination of such Co-Promotion rights under the applicable Co-Promotion Agreement). 1.37 Development Program means, with respect to a particular Product (and the Licensed Compound contained therein), all development activities (including non-clinical studies and Clinical Trials and regulatory activities) conducted by the Parties in support of (a) obtaining, maintaining or expanding Regulatory Approval of a Product for one or more indications in the Joint Development Territory, and/or (b) commercialization or Medical Affairs Activities of or for such Product in the Joint Development Territory. The Development Program shall include research, clinical development (including Phase IV Clinical Trials, pharmacovigilance programs and outcome studies), manufacturing process development, and regulatory and registration activities, all as required for or directly in support of the foregoing activities for the benefit of any country in the Joint Development Territory. For clarity, the Development Program commences (i) in the case of the Lead Product, on the Effective Date, and (ii) in the case of any other Product, on the date that such Product becomes the subject of an IND, and continues in each case ((i) and (ii)) through Regulatory Approval and commercialization of such Product (or termination of all development activities with respect to such Product). 1.38 Development Plan means, with respect to a particular Product (and the Licensed Compound contained therein), the specific written development plan developed and agreed to by the JSC that establishes the tasks to be conducted under the Development Program for such Product in or for the benefit of any country in the Joint Development Territory. Each Development Plan shall set forth all the specific development activities to be conducted by the Parties in the Development Program for such Product, shall allocate such activities between the Parties, and shall include the specific budget and timeline (including Gantt charts) for such program of activities. 1.39 Direct Marketing/Promotion Expenses means, with respect to a particular Co-Promoted Product, the following costs incurred by Astellas or its Affiliates in the marketing and promotion of such Co-Promoted Product in the U.S. during a particular period in accordance with the applicable Co-Promotion Plan and budget for such Co-Promoted Product: (a) the actual cost (on a full-time equivalent basis) of the personnel in Astellass or its Affiliates U.S. operation serving on the marketing team for the Co-Promoted Product, and the allocated cost of personnel who spend time assigned to the Co-Promoted Product in support areas such as market research, managed care, contracting, pricing and product hotlines, (b) the actual cost associated with market development activities and other similar pre-launch activities for Co-Promoted Product in the U.S., and (c) the actual cost of advertising, market research, promotional materials, promotional programs, scientific programs and manufacturing of samples for Co-Promoted Product. For the avoidance of doubt, Direct Marketing/Promotion Expenses shall not include costs required to build, maintain and operate a Partys sales force and/or to fulfill its Co-Promotion obligations or sales force training expenses. 1.40 EMEA means the European Medicines Agency, or (if applicable) the European governmental agency that is successor thereto. 8
C ONFIDENTIAL 1.41 European Union or EU means the countries that are members of the European Union as of the applicable time during the Term. 1.42 Executive Officer means (a) in the case of Astellas, a senior executive of Astellas or any of its Affiliates, which senior executive reports to the chief executive officer of Astellas and is not a member of the JSC and is specifically designated by Astellas to perform the duties of an Astellas Executive Officer under this Agreement; and (b) in the case of Ambit, Ambits chief executive officer (who shall not be a member of the JSC). 1.43 Exploit means, solely with regard to a Product or Licensed Compound, to make, have made, import, use, sell, or offer for sale, including to research, develop, register, modify, enhance, improve, manufacture, have manufactured, hold/keep (whether for disposal or otherwise), formulate, optimize, have used, export, transport, distribute, promote, market or have sold or otherwise dispose or offer to dispose of, a Product or Licensed Compound. Exploitation means the act of Exploiting. 1.44 FDA means the United States Food and Drug Administration or its successor. 1.45 Field means [***]. 1.46 First Commercial Sale means, with respect to a particular Product in a country, the first sale for end use or consumption of such Product in the country after a Regulatory Approval for such Product has been obtained or granted in such country. 1.47 GAAP means generally accepted accounting principles in the United States for the purpose of Section 1.57 or in each other country in the Territory for the purpose of Section 1.73. 1.48 Generic Version means, with respect to a Product being sold in a country, a pharmaceutical product that: (a) contains as the active ingredient the Licensed Compound in such Product (or any salt, hydrate, solvate or ester of such Licensed Compound), and (b) is authorized for sale and use in the country on the basis of a marketing authorization that relies, in whole or in part, on safety and efficacy data in the NDA submitted to obtain Regulatory Approval for such Product in the country, without a right of reference or other authorization from Astellas or any of its Related Parties, such marketing authorization being: (i) in the U.S. pursuant to Section 505(b)(2) or Section 505(j) of the Act, as amended (21 U.S.C. 355(b)(2) and 21 U.S.C. 355(j), respectively), (ii) in the EU pursuant to a provision of Articles 10(1), 10(2), 10(3), 10(4) or 10a of Directive 2001/83/EC of the European Parliament and of the Council of 6 November 2001 on the Community code relating to medicinal products for human use, each as amended (including an application under Article 6.1 of Parliament and Council Regulation (EC) No 726/2004 that relies for its content on any such provision), and (iii) in any other country or jurisdiction pursuant to Applicable Law that is equivalent to such provisions, but excluding for clarity any authorized generic that is authorized or permitted by Astellas or a Related Party. 1.49 Go/No Go Decision means [***]. ***Confidential Treatment Requested 9
C ONFIDENTIAL 1.50 Good Laboratory Practices or GLPs means the good laboratory practices applicable from time to time to the development of pharmaceutical products pursuant to Applicable Law. 1.51 Governmental Authority means any multi-national, federal, state, local, municipal or other government or quasi-government authority of any nature (including any governmental division, subdivision, department, agency, bureau, branch, office, commission, council, court or other tribunal). 1.52 IND means an Investigational New Drug application, clinical study application, Clinical Trial Authorization or exemption, or similar application or submission for approval to conduct human clinical investigations on a Product, that is filed with or submitted to a Regulatory Authority in conformance with the requirements of such Regulatory Authority. 1.53 Indemnified Persons means the Ambit Indemnified Parties or the Astellas Indemnified Parties, as applicable. 1.54 IND-Enabling GLP Toxicology Studies means, as applicable, [***], that meet the standard necessary for submission as part of an IND filing with a Regulatory Authority. 1.55 Independent Development Data means all research and clinical data and other development data made, created or generated pursuant to the development of Product by or on behalf of Astellas or its Related Party other than pursuant to a Research Program or Development Program. 1.56 Indication means a separate and distinct disease or medical condition in humans that a Product is intended to treat, cure or prevent. The Parties agree that: (a) prevention of a disease or medical condition shall not be a separate Indication from treatment of the same disease or medical condition; and (b) the treatment and prevention of separate stages or forms of the same disease or medical condition shall not be a separate Indication. 1.57 Indirect Marketing Expenses means, with respect to a particular Co-Promoted Product during its Co-Promotion Term during a Calendar Year, an allocated share as agreed by the Parties (which agreement shall not be unreasonably withheld or delayed) of all actual indirect marketing, promotion and marketing operational expenses incurred by Astellas or its Affiliates for their marketing of all its products, including such CoPromoted Product, in the U.S. during such year, to the extent such expenses are reasonably allocable to such U.S. marketing of such Co-Promoted Product by Astellas or its Affiliates (and not, for example, more properly allocated to other activities not related directly to such U.S. marketing of the Co-Promoted Product) and are consistent with the budget for such indirect expenses in the Co-Promotion Plan for such Co-Promoted Product, but excluding for clarity any costs that are, or are allocated to, Direct Marketing/Promotion Expenses or Medical Affairs Costs. Examples of Indirect Marketing Expenses include costs directly incurred for order management center, sample fulfillment costs (other than manufacturing), indirect managed care support, e-business strategies and solutions, office of legal, public affairs and finance, all solely to the extent such costs are incurred with respect to activities directly involving marketing of Co-Promoted Product in the U.S. and are appropriate to allocate to the total marketing costs of such marketing efforts, ***Confidential Treatment Requested 10
C ONFIDENTIAL calculated in accordance with GAAP and Astellass then-current standard cost methodology that is applied consistently to pharmaceutical products sold by Astellas in the U.S. 1.58 Information means all technical, scientific, business and other know-how and information, inventions, trade secrets, knowledge, technology, means, methods, processes, practices, formulae, instructions, skills, techniques, procedures, experiences, ideas, technical assistance, designs, drawings, apparatuses, specifications, data, results, laboratory notes and notebooks, and other material, including: high-throughput screening, gene expression, genomics, proteomics and other drug discovery and development technology; formulation; biological, chemical, pharmacological, toxicological, pharmaceutical, physical and analytical, pre-clinical, clinical, safety, manufacturing and quality control data and information, including study designs and protocols; assays and biological methodology; manufacturing and quality control procedures and data, including test procedures; and synthesis, purification and isolation techniques, (whether or not confidential, proprietary, patented or patentable) in written, electronic or any other form now known or hereafter developed, and any compounds, products, apparatuses, cultures, biological materials and other materials and compositions, but excluding in each case the Regulatory Materials and Regulatory Approvals. 1.59 Initiation means, with respect to a Clinical Trial, the administration of the first dose (whether active or placebo) to the first patient or subject in such Clinical Trial. 1.60 Joint Commercialization Committee or JCC means the Joint Commercialization Committee formed by the Parties, as described in Section 3.9, promptly but not less than fifteen (15) Business Days after Ambit has first exercised the Co-Promotion Option. 1.61 Joint Development Territory means [***]. 1.62 Joint Program Technology means any and all (a) Information that is jointly conceived, discovered, developed or otherwise made by or on behalf of (i) Ambit or its Affiliates, on the one hand, and (ii) Astellas or its Affiliates, on the other hand, in connection with work conducted under or in connection with this Agreement, whether or not patented or patentable (collectively, Joint Program Know-How), and (b) any and all Patent Rights and other intellectual property rights owned jointly by Astellas or its Affiliates on the one hand and Ambit or its Affiliates on the other hand claiming, covering or otherwise appurtenant to the Information described in clause (a) above (collectively, Joint Program Patents). 1.63 Knowledge means facts and information that are known, or reasonably should be known, by: (a) the corporate officers of Ambit or its Affiliates, and (b) the Ambit employees who report directly to such officers (excluding for clarity any administrative assistants of such employees). 1.64 Lead Product means the Product containing AC220 being developed by Ambit as of the Effective Date as the candidate for initial approval of an NDA, together with any modifications thereto that may be approved pursuant to Article 2. 1.65 Licensed Compound means any Ambit Compound or Ambit Follow-On Compound. 1.66 Major EU Country means any one of the following countries: [***]. ***Confidential Treatment Requested 11
C ONFIDENTIAL 1.67 Medical Affairs Activities means activities designed to ensure or improve appropriate medical use of, conduct medical education of, or further research regarding, a Product sold in the Territory, including by way of example: (a) customary activities of medical science liaisons; (b) grants to support continuing medical education, symposia, or Third Party research related to a Product in the Territory; (c) development, publication and dissemination of publications relating to a Product in the Territory; (d) medical information services provided in response to inquiries communicated via sales representatives or received by letter, phone call or email; (e) conducting advisory board meetings or other consultant programs; and (f) establishment and implementation of risk, evaluation and mitigation and strategies (REMS); provided that, for purposes of cost allocation provisions under this Agreement, Medical Affairs Activities shall not include the conduct of Clinical Trials. 1.68 Medical Affairs Costs means all reasonable costs incurred by Astellas or its Affiliates in connection with and reasonably allocable to Medical Affairs Activities for any Co-Promoted Product in the U.S., whether prior to or after receipt of Regulatory Approvals, such allocation to be consistent with the allocation Astellas uses to allocate such costs to other Astellas products. 1.69 NDA means a New Drug Application covering a Product filed with the FDA pursuant to Section 505(b)(1) of the Act, or any similar application or submission seeking Regulatory Approval of a Product filed with the applicable Regulatory Authority in another country or region, to obtain Regulatory Approval for the Product, together with any amendments thereto. 1.70 NDA Approval means approval by the FDA of an NDA filed in the U.S. 1.71 NDA Filing means the acceptance of an NDA for initial review by the applicable Regulatory Authority: (a) in the U.S., (b) as a centralized filing with the EMEA, or (c) in Japan, as applicable; provided in each case that such acceptance shall be deemed to have occurred (if it has not occurred already) ninety (90) days following submission of such NDA with the applicable Regulatory Authority unless such Regulatory Authority provides any comments to such submission or otherwise indicates in writing that such filing has not been accepted, in which event, such acceptance shall not be deemed to have occurred until such comments or objections have been addressed to the satisfaction of the Regulatory Authority. 1.72 NDA Submission means the submission of an NDA to the applicable Regulatory Authority: (a) in the U.S., (b) as a centralized filing with the EMEA, or (c) in Japan, as applicable; provided in each case that such submission shall be deemed to have occurred when all required components of the NDA have been filed with the Regulatory Authority by (or on behalf of) the filing party. 1.73 Net Sales means the gross amount invoiced or otherwise charged for the sale (or other commercial disposition) of a Product by Astellas or its Related Parties to a Third Party purchaser (including a Distributor) in an arms-length transaction after deducting, if not previously deducted, from the amount invoiced (or, if not invoiced, received), the following to the extent actually incurred or allowed with respect to such sale: (a) trade and/or quantity discounts off of the invoiced price actually granted, but excluding early payment cash discounts; (b) chargebacks in connection with the sale of such Product; 12
C ONFIDENTIAL (c) rebates, reimbursements, fees or similar payments in customary amounts (i) to wholesalers and other distributors, buying groups, health care insurance carriers, pharmacy benefit management companies, health maintenance organizations, governmental authorities, or other institutions or health care organizations or other customers or (ii) arising in connection with any program applicable to a Product under which Astellas or its Related Parties provides to low income, uninsured or other patients the opportunity to purchase such partys pharmaceutical products at discounted prices; (d) retroactive price reductions; (e) allowances or credits to customers actually given, and not in excess of the selling price of such Product, on account of rejection, outdating, recalls or return of such Product; (f) excise taxes, sales taxes, customs duties, customs levies and import fees imposed on the sale, importation, use or distribution of the Products, to the extent included and separately stated in the invoice; (g) any other similar, customary deductions that are consistent with GAAP and Astellass (or its Related Partys) actual practice at the time in calculating and reporting its actual product net sales throughout its businesses (in the particular country, if applicable), provided that no item shall be deducted pursuant to this clause (g) if included in any another deduction provided for under this definition; and (h) as an allowance for transportation costs, distribution expenses, special packaging and related insurance charges, and early payment cash discounts, [***] of the gross amount invoiced or otherwise charged for the sale of such Product. Net Sales will be calculated on an accrual basis, in a manner consistent with Astellass or its Related Parties internal accounting policies, as consistently applied, as adjusted for any of items (a) to (h) above not taken into account in such policies. To the extent any accrued amounts used in the calculation of Net Sales are estimates, such estimates shall be trued-up in accordance with Astellass or its Related Parties internal accounting policies, as consistently applied, and Net Sales and related payments under this Agreement shall be reconciled as appropriate. Net Sales shall be deemed to include all consideration (whether consisting of cash or any other forms of consideration) received by Astellas or its Related Party for the sale (or other commercial disposition) of Product, even if not reflected in an invoice. To the extent that Astellas or its Related Party provides to the purchasing Person discounts or allowances that are applicable to purchases of Product and one or more other products (such as in a bundled sale arrangement), such discounts and allowances shall be allocated between the Product (for purposes of the deductions used in calculating Net Sales as above) and such other products in a commercially reasonable manner that does not unfairly or inappropriately bias the level of discounting against the Product (as compared to the other products), such allocation to be determined in good faith by Astellas or its Related Party. If a Combination Product is developed and commercialized, the Net Sales to be used for the calculation and payment of royalties, royalty tiers, annual sales milestones and payments of Annual U.S. Profit/Loss, as applicable, shall be an adjusted Net Sales ***Confidential Treatment Requested 13
C ONFIDENTIAL figure determined by applying the following formula to the actual Net Sales resulting from the sales of such Combination Product calculated using the above definition. For purposes of calculating the amount of Net Sales generated upon sales of the Combination Product (for purposes of calculating royalties, royalty tiers, annual sales milestones, Annual U.S. Profit/Loss, and other applicable payment calculations with respect to such Combination Product), the Parties shall use the following formula: A/(A +B) x Net Sales of Combination = Product (as calculated using the above definition) adjusted Net Sales
Where: (i) A equals the Standard Sales Price (as defined below) of the Product of the same strength as contained in the Combination Product, where such Product is sold separately ( i.e., not as part of a Combination Product) in the applicable country of sale and during the applicable time period; B equals the Standard Sales Price(s) of the other clinically active ingredients in the Combination Product, at the same strength(s) as contained in the Combination Product, where such other ingredient(s) are sold separately ( i.e., not as part of a Combination Product) in the applicable country of sale and during the applicable time period; and Standard Sales Price shall mean, with respect to a product and a country, the wholesale acquisition cost (in the case of product sold in the United States) or the ex-manufacturing price (in the case of product sold outside the United States), as such terms are commonly understood in the pharmaceutical industry, for such product in such country, where such price is the price at which product is sold to wholesalers or other direct customers in such country before giving effect to any prompt payment or other discounts, allowances or rebates, and reflects the average of such prices over the applicable period.
(ii)
(iii)
In the event that the calculation of Net Sales of a Combination Product is reduced by virtue of the formula set forth above, then any Third Party royalty or other payment obligation based on any other clinically active ingredient (i.e., that is not a Licensed Compound) shall be excluded from the royalty offset of Section 4.3.4 for the purpose of calculating royalties in accordance with this Agreement and/or the computation of Annual U.S. Profit/Loss in accordance with Section 4.4. 1.74 Non-oncology Indication means any Indication in humans other than an Oncology Indication. For clarity, treatment of separate stages or forms of the same Non-oncology Indication would not be separate Non-oncology Indications. 1.75 Oncology Indication means an Indication for cancer in humans, [***]. For clarity, treatment of separate stages or forms of the same cancer would not be separate Oncology Indications. ***Confidential Treatment Requested 14
C ONFIDENTIAL 1.76 Party means Astellas and Ambit, individually, and Parties means Astellas and Ambit, collectively. 1.77 Patent Rights means issued patents and patent applications, including provisional applications, in the Territory (which shall include certificates of invention and applications for certificates of invention) and including any divisions, continuations, continuations-in-part, reissues, reexaminations, registrations, renewals, substitutions, and supplementary protection certificates based thereon and other governmental actions that extend any of the patents and patent applications, and any and all equivalents, U.S. and foreign, to any of the foregoing. 1.78 Person means any individual, sole proprietorship, corporation, joint venture, limited liability company, partnership, limited partnership, limited liability partnership, trust or any other private, public or governmental entity. 1.79 Phase III Clinical Trial means a Clinical Trial in any country that would satisfy the requirements of 21 CFR 312.21(c) or its foreign equivalent. 1.80 Phase IV Clinical Trial means a Clinical Trial conducted after Regulatory Approval of the applicable Product has been obtained from an appropriate Regulatory Authority as a condition to, or for the maintenance of, any Regulatory Approval, including a trial that would satisfy the requirements of 21 C.F.R. 312.85, as may be amended, or the foreign equivalent thereof. 1.81 Post-Approval U.S. Development Costs means, with respect to a particular Co-Promoted Product, the Development Costs incurred by or on behalf of either Party or its Affiliates, after the first NDA Approval in the U.S. of such Co-Promoted Product, in conducting (or having conducted on its behalf) development activities pursuant to the applicable Development Plan, including Clinical Trials (whether initiated before or commencing after the first NDA Approval of such Co-Promoted Product), to the extent necessary or economically justifiable for Exploiting the CoPromoted Product in the U.S. (which may include Phase III Clinical Trials, Phase IV Clinical Trials, pharmacovigilance programs and outcome studies). 1.82 Product means any pharmaceutical or over-the-counter preparation containing a Licensed Compound in any formulation and/or dosage form. For clarity, any Combination Product is a Product for all purposes of this Agreement. 1.83 Program means the Research Program or a Development Program, as applicable. 1.84 Program Development Data means all research and clinical data and other development data made, created or generated by either Party or their respective Affiliates pursuant to a Development Program or the Research Program. 1.85 Program Know-How means the Ambit Program Know-How, Astellas Program Know-How or Joint Program Know-How, as applicable. 1.86 Program Patents means the Ambit Program Patents, Astellas Program Patents or Joint Program Patents, as applicable. 1.87 Program Technology means the Ambit Program Technology, Astellas Program Technology, or Joint Program Technology, as applicable. 15
C ONFIDENTIAL 1.88 Prosecute or Prosecution means to prepare, file and prosecute patent applications with respect to, and to conduct all reissue proceedings, oppositions and re-examinations and other related or similar proceedings relating to, and to maintain, the applicable Patent Rights. 1.89 Regulatory Approval means the receipt of all approvals (such as approval of an NDA), licenses, registrations or authorizations from the relevant Regulatory Authority(ies) in a country (or regulatory jurisdiction) necessary to import for sale, market or sell a Product for an Indication in the country (or jurisdiction), including all applicable pricing and governmental reimbursement approvals to the extent legally required to sell Product in the country or jurisdiction. 1.90 Regulatory Authority means any applicable government or quasi-government regulatory authority involved in granting approvals for investigational clinical trials, the manufacturing, marketing, selling, reimbursement and/or pricing of a Product in the Territory, including, in the U.S., the FDA and, in other countries, any Governmental Authority having substantially the same function. 1.91 Regulatory Materials means all regulatory applications, submissions, notifications, registrations, licenses, authorizations and approvals, all correspondence submitted to or received from Regulatory Authorities (including minutes and official contact reports relating to any communications with any Regulatory Authority), and all supporting documents, relating to any Licensed Compounds or Products, including all data contained in any of the foregoing and all INDs, Clinical Trial Authorizations, Regulatory Approvals, regulatory drug lists, adverse event files and complaint files. 1.92 Related Party means each of Astellas, its Affiliates, and their respective Sublicensees (other than Ambit and its Affiliates). 1.93 Research Plan means the detailed plan of the activities to be conducted by Ambit or any of its Affiliates or Astellas or any of its Affiliates under the Research Program, including a budget and timeline (including Gantt charts with respect to such activities), as agreed to by the JSC pursuant to Section 2.6.2(a). 1.94 Research Program means the research and preclinical development tasks and activities that are undertaken by Ambit or its Affiliates or Astellas or its Affiliates under this Agreement in accordance with and pursuant to the Research Plan. 1.95 Research Term means the term of the Research Program, which term commences on the date of adoption of the Research Plan pursuant to Section 2.6.2(a) and continues until [***] (or such earlier date as established in the Research Plan), provided that if the Research Program is ongoing at the end of the then-current term, the Research Term shall automatically renew and extend for an additional [***], unless a Party has given written notice terminating such extension at least [***] prior to the end of the then-current Research Term. 1.96 Reversion Product means, with respect to any Terminated Country(ies), any Terminated Product that (a) is or has been the subject of development or commercialization under this Agreement and (b) either (i) contains a Licensed Compound as the sole active ingredient, or (ii) contains as its sole active ingredients a Licensed Compound and one or more generic active ingredients. ***Confidential Treatment Requested 16
C ONFIDENTIAL 1.97 Royalty Bearing Territory means all countries and jurisdictions in the Territory; provided, however, that in the event that Ambit exercises the Co-Promotion Option pursuant to Section 3.8 with respect to a Product, the U.S. is excluded from the Royalty Bearing Territory with respect to such Co-Promoted Product during the applicable Co-Promotion Term. 1.98 Royalty Term means, with respect to a particular Product being sold in a country (on a country-by-country basis), the period from the First Commercial Sale of such Product in the country until the last to occur of: (a) [***], or (b) [***] from the date of First Commercial Sale of such Product in such country (or, if such country is in the EU, the First Commercial Sale of such Product in the EU), or (c) [***]. 1.99 Screening Activities means [***]. 1.100 Sublicensee means any sublicensee of Astellass license rights hereunder permitted pursuant to Section 3.1.2. 1.101 Territory means all of the countries in the world, and their territories and possessions. 1.102 Third Party means a Person other than Astellas and its Affiliates, and Ambit and its Affiliates. 1.103 United States or U.S. means the United States of America, and its territories and possessions. 1.104 Valid Patent Claim means, with respect to a particular Product and/or the Licensed Compound contained therein, in a specific country or jurisdiction, a claim of an issued and unexpired patent or a pending patent application included within the Ambit Licensed Patents or Program Patents (other than Astellas Program Patents) in such country or jurisdiction that claims such Licensed Compound or Product as a composition of matter or a method of use of such Product or Licensed Compound for one or more indications for which Regulatory Approval has been received in such country. No claim shall be deemed to be a Valid Patent Claim that: (a) has expired, (b) has been held permanently revoked, unenforceable, or invalid by a decision of a court or other governmental agency of competent jurisdiction, which decision is unappealable or unappealed within the time allowed for appeal, (c) has been abandoned, disclaimed, finally determined to be unallowable or admitted to be invalid or unenforceable through reissue or disclaimer or otherwise, or (d) is included in a pending application that has not been granted within [***] following the priority date for such claim. 1.105 Additional Definitions . Each of the following definitions shall have the meaning defined in the corresponding sections of this Agreement indicated below:
Definitions Section Definitions Section
AAA Acquiring Party
10.7.3 10.3.4
Effective Date Excluded Dispute
Preamble 10.7.6 ***Confidential Treatment Requested
17
C ONFIDENTIAL Adverse Safety/Tox Results Agreement Alleged Infringement Alliance Manager Allowed Expenses Ambit Ambit Indemnified Parties API Astellas Astellas Indemnified Parties Astellas Withholding Tax Action AUS Bankruptcy Code Change of Control Competing Product Collaboration Program Activities Collaboration Program Damages Combination Therapy Conferral Period Co-Promotion Agreement Co-Promotion Payment Counterparty Counterparty Affiliate Decision Notice Declined Activity Declined Development Costs Development Costs Disclaiming Party Dispute Distributor 9.2.2 Preamble 8.4.2(a) 2.4 1.13 Preamble 7.2 Preamble Preamble 7.1 4.8.4 Preamble 9.4 3.5.2 7.4 7.4 4.2.1 2.7.1(b) 3.8.2 4.4.2 3.5.2 3.5.2 2.1.4 2.1.4 2.7.4(a) 2.7.2(b) 8.3.5(b) 10.7.2 3.2.1 18 Exclusivity Period Field Infringement FTE FTE Rate Joint Steering Committee Lead Prosecuting Party Losses Milestone Event Manufacturing Costs Material Regulatory Submissions Newly-Acquired IP Rights Obligated Party Proposed Expense Dispute Relevant Agreement Relevant Third Party Required Exercise Date Research Costs Restricted Information Selected IP and Materials Shared Cost Patents Subject Party Supervisory Board Supporting Documents Term Terminated Country(ies) Terminated Products Third Party Claims Third Party Infringement Transition Agreement US/Japan Tax Treaty 3.5.1 8.4.1(b) 2.7.2(c)(i)(B) 2.7.2(d) 2.1.1 8.3.2 7.1 4.2 Exhibit G 2.5.2(b) 8.2.1 6.2.2 3.9.4 5.2.1(b) 5.2.1(b) 3.8.2 2.7.2(a) 6.1 5.2.1 8.3.1(c) 3.5.2 1.22 9.6.1(f)(ii) 9.1 9.6.1 9.6.1 7.1 8.4.1(a) 9.6.1(f) 5.2.12
C ONFIDENTIAL 2. 2.1 RESEARCH AND DEVELOPMENT Joint Steering Committee
2.1.1 Establishment and Authority of JSC . The Parties hereby establish a Joint Steering Committee ( J S C) to plan, coordinate, monitor and direct the Research Program and each Development Program. The Development Programs shall cover the research and clinical development activities intended to generate the data to be used in seeking, obtaining, maintaining and expanding Regulatory Approvals for Products in the Joint Development Territory or for supporting the marketing and selling of Products in the Joint Development Territory, and such activities shall be determined and overseen by the JSC, under the decision-making provisions of Section 2.1.4 below. All other research, clinical development and regulatory activities for Products that are intended to generate data for use in seeking, obtaining, maintaining and expanding Regulatory Approvals outside the Joint Development Territory shall be discussed and reviewed at a strategic level by the JSC, but Astellas shall have the final decision-making authority at the JSC level over all aspects of such activities as provided in Section 2.1.4 below. The JSCs responsibilities and authority shall be as follows: (a) reviewing Licensed Compounds (including Ambit Follow-on Compounds), and selecting and prioritizing such compounds for research and development under the Agreement; (b) making research and development Go/No Go decisions with respect to Products containing Licensed Compounds for each Oncology Indication and each Non-oncology Indication; (c) preparing and approving the Research Plan, and all amendments and modifications to the Research Plan; (d) selecting Products containing Ambit Follow-On Compounds to enter Development Programs; (e) preparing and approving the Development Plan for each Product that is selected by the JSC to enter clinical development, and amending and modifying each such Development Plan as appropriate (but subject to Astellass final decision-making authority with respect to particular development issues as set forth above and in Section 2.1.4); (f) preparing and approving the initial regulatory plan for the Lead Product pursuant to Section 2.5.1; (g) allocating responsibilities for the tasks to be completed by the Parties under each Development Program; (h) reviewing and discussing, for each Product, the development work on Products for Regulatory Approval outside the U.S., and seeking to achieve coordination between the plans for such work and the Development Plan applicable to such Product; (i) reviewing the results of, and monitoring and directing, the Research Program and the Development Programs; 19
C ONFIDENTIAL (j) creating and directing sub-committees and working teams reporting to the JSC with specific responsibilities and authority for aspects of Product research and development in the Joint Development Territory; (k) monitoring and managing the activities and decisions of any subcommittees established by the JSC, as provided in Section 2.3.1, and discussing and seeking to resolve or decide any issues or matters referred to the JSC for resolution from any such subcommittee; and (l) performing any other activity or role as expressly assigned to the JSC under the terms of this Agreement or by the Parties in writing. The JSC shall remain in effect until the termination of the Research Program and all Development Programs (but subject to Section 2.2). 2.1.2 Composition of JSC . The JSC shall be comprised of an equal number of representatives from Ambit and Astellas. As of the Effective Date, the JSC shall be comprised of two (2) representatives of Astellas and two (2) representatives of Ambit. Chairperson responsibilities for the JSC would be shared between the Parties, and would alternate between the Parties annually with the first chairperson designated by Ambit. 2.1.3 JSC Meetings. The JSC shall meet [***] per year, or more or less frequently as agreed by the Parties. The first meeting of the JSC shall be held within twenty (20) calendar days of the Effective Date. The JSC may meet in person, or by teleconference, videoconference or other similar means as requested by a Party (but provided that at least one (1) meeting will be in person each Calendar Year). Information exchanged at JSC meetings and decisions reached by the JSC shall be recorded in minutes of the meetings. The chairperson of the JSC shall be responsible for preparing and circulating to the JSC members a draft of the minutes, for review and comment. The chairperson shall seek to include in the minutes all accurate comments. Such minutes shall become final when approved by both Parties. Each Party shall bear its own expenses and the expenses of its representatives related to the attendance at JSC meetings, none of which expenses shall be Development Costs. 2.1.4 Decision Making. Decisions of the JSC shall be made by unanimous consent, with each of Astellas and Ambit having one (1) vote. The members of the JSC will attempt in good faith to reach consensus on all matters before the JSC. In the event that the JSC cannot, after such good-faith efforts, reach agreement on an issue related to the Research Program or a Development Program within ten (10) Business Days, the issue shall be elevated to the Executive Officers of each of Ambit and Astellas, to seek in good faith to reach agreement on the issue. In the event such Executive Officers cannot resolve the issue after good-faith efforts within thirty (30) days of the dispute being submitted to them in writing, the issue shall be decided by Astellas, in its reasonable discretion but taking into account the legitimate business issues of Ambit with respect to the issue, and such decision, the date of the decision and activities effected by such decision shall be communicated to Ambit in writing (the Decision Notice), which decision shall be final and binding on the Parties. If the subject of the Decision Notice is whether or not to adopt an initial Development Plan for a Product, or to amend or update a previously adopted Development Plan for a Product by including in such plan, amendment or update additional development activities, and in any such case, such ***Confidential Treatment Requested 20
C ONFIDENTIAL plan, amendment and update represents a material expansion of the development activities previously agreed to date by the Parties, including by providing for the conduct of addition Clinical Trials, then within fifteen (15) Business Days of receipt of the Decision Notice, and subject to Section 2.7.4, Ambit may elect not to fund its share of the Development Costs incurred prior to the First Commercial Sale of the Product in a country in the Joint Development Territory solely for those additional development activities listed in the Decision Notice (the Declined Activities ), and notify Astellas in writing of its decision. 2.2 Termination of Committee Membership.
2.2.1 Election to Terminate. Ambits membership on the JSC, JCC (if any), any subcommittee established by the JSC, or any other Committee established by the Parties hereunder shall be at its sole discretion, as a matter of right and not obligation. Ambit shall have the right to withdraw from membership in any or all of such Committees at any time upon thirty (30) days prior written notice to Astellas, which notice shall be effective as to the relevant Committee upon the expiration of such thirty (30) day period (and for the avoidance of doubt, following such withdrawal, Ambit and Astellas shall each continue to be required to perform its respective obligations pursuant to this Agreement). Following the issuance of such notice for a given Committee, (a) Ambits membership in such Committee shall be terminated (and Astellas may disband such Committee), (b) Ambit shall not have the right to resume participation therein without Astellass prior written consent, and (c) Ambit shall have the right to continue to receive directly all Information it would otherwise be entitled to receive under the Agreement (including all Information that would otherwise have been provided to such Committee by Astellas under the terms of this Agreement, which Information shall thereafter be provided by Astellas directly to Ambit). 2.2.2 Decision-Making after Committee Termination. If a Committee is terminated pursuant to Section 2.2.1, then any dispute between the Parties that would have been elevated from a Committee to Executive Officers for resolution shall be elevated directly to the Executive Officers of the Parties for resolution, and if such Executive Officers are unable to resolve the dispute Astellass Executive Officer shall have the right to make the final decision with regard to any and all such disputed matters; provided, however, that Astellass Executive Officer shall make such decision in good faith after reasonably considering Ambits comments on such matter and in a manner consistent with the applicable then-current Development Plan or then-current Co-Promotion Plan, as applicable. 2.3 General Committee Provisions.
2.3.1 Sub-committees. Each Committee may create such subcommittees or project teams as the Committee deems necessary to carry out its responsibilities. Each such subcommittee and project team shall report recommendations and proposed actions to such Committee, which shall approve or reject such recommendations or actions proposed in accordance with the terms of this Agreement. Each Committee shall have the responsibility to manage and oversee the operation and decisions of each such subcommittee and project team, and to establish and enforce operating rules and decision-making authority for each. 21
C ONFIDENTIAL 2.3.2 Membership; Participation. Each Party may change its representatives to a Committee from time to time, effective upon prior written notice to the other Party, in its sole discretion but taking into account the mutual desire of the Parties to have stability and continuity of membership in each Committee. The representatives shall have the expertise, experience and knowledge appropriate to the management and supervision of the conduct of the activities within the applicable Committees authority. Additional non-voting representatives or consultants may from time to time, by mutual consent of the Parties, be invited to attend Committee meetings, subject to such representatives or consultants written agreement to comply with the confidentiality requirements of this Agreement. 2.3.3 Committee Authority . The JSC shall have solely the powers expressly assigned to it in Section 2.1 and the JCC (if any) shall have solely the powers expressly assigned to it in Section 3.9, in each case unless otherwise agreed in writing by the Parties. Notwithstanding any other provision of this Agreement, no Committee shall have the decision-making power or any other authority: (a) to impose additional economic or resource burdens on either Party beyond those specifically contemplated by this Agreement or any mutually agreed Research Plan or Development Plan without the consent of the Party on which such burden is imposed; (b) to amend or modify the terms of this Agreement, or to interpret the terms of or waive application of any provision of the Agreement. Further, notwithstanding any other provision of this Agreement, with respect to each Committee, Astellas as the Party with final decision-making authority (except as otherwise expressly provided), or any arbitrator or other dispute-resolution authority, shall none of them make any decision that is inconsistent with the express terms of the Agreement, without the prior written consent of each Party. 2.4 Appointment of Alliance Managers . Each Party shall appoint an appropriately qualified individual to serve as an alliance manager (an Alliance Manager) for such Party under this Agreement. The Alliance Managers shall endeavor to assure clear and responsive communication between the Parties and the effective exchange of information, and may serve as a single point of contact for any matters arising under this Agreement. The Alliance Managers may attend meetings of all Committees and subcommittees under this Agreement. The Alliance Managers shall not have any authority under this Agreement and shall not be a member of any Committee. 2.5 Regulatory Matters.
2.5.1 Lead Product Regulatory Plan. Within [***] after the Effective Date, the JSC shall develop and agree on an initial regulatory plan for the regulatory activities to be conducted by the Parties in support of an NDA Filing for the Lead Product in the U.S., which plan shall be developed in a manner that reflects that a key objective of the Parties in adopting and implementing such a plan is to submit the first NDA for the Lead Product in the U.S. as soon as reasonably practicable, taking in consideration all relevant circumstances, including: (i) maintaining continuity on ongoing Clinical Trials and minimizing any impact on principal investigators and Clinical Trial sites, (ii) the impact on inventories and the manufacture of Lead Product for use in Clinical Trials, and (iii) the timely availability of commercial supplies of Lead Product in the appropriate trade dress. This initial regulatory plan, as adopted by the JSC, and as may be amended by the JSC, will automatically be deemed to be incorporated into the Development Plan and ***Confidential Treatment Requested 22
C ONFIDENTIAL the activities undertaken by the Parties as agreed to in the regulatory plan shall be activities under such Development Plan. The initial regulatory plan for the Lead Product adopted to by the JSC shall establish: (a) [***]; (b) [***]; (c) [***]; and (d) [***]. 2.5.2 Rights and Obligations. (a) Subject to the other terms of this Section 2.5, Astellas or its Affiliates shall have the sole right and option, at Astellass cost, to prepare and submit or cause to be prepared and submitted all Regulatory Materials, including applications for Regulatory Approval for Products in the Territory; provided, however, that if the initial regulatory plan adopted for the Lead Product by the JSC assigns responsibility for preparing or submitting any Regulatory Materials to Ambit, then Ambit shall have the right, at Ambits cost and subject to this Section 2.5.2, to prepare and submit such Regulatory Materials. Irrespective of which Party has primary responsibility for preparing and submitting any Regulatory Materials, Astellas shall have sole discretion as to the content of such applications, subject to Astellass obligation to use Commercially Reasonable Efforts in accordance with Section 2.6.4(b). The Party with primary responsibility for preparing submissions of Regulatory Materials shall keep the other Party reasonably informed of submissions of Regulatory Materials, including applications for Regulatory Approval in the Joint Development Territory and the status and progress of such submissions or applications. In the event that Astellas retains responsibility for preparing any Regulatory Materials, Astellas shall (a) provide Ambit with an opportunity to review and comment upon any Material Regulatory Submissions in the Joint Development Territory, in each case a reasonable period prior to the anticipated date of such submissions and (b) reasonably consider Ambits comments with respect to such submissions or applications in good faith. In the event that Ambit is assigned responsibility for preparing any Regulatory Materials pursuant to the initial regulatory plan, Ambit, in consultation with Astellas, shall prepare all such submissions and, unless the Parties otherwise agree in writing, shall submit all such proposed submissions which are Material Regulatory Submissions to Astellas for its review and approval. Each Party shall provide a copy of any non-Material Regulatory Submissions to the other Party (in the case of Astellas, ***Confidential Treatment Requested 23
C ONFIDENTIAL solely within the Joint Development Territory) promptly following submission of such materials to the applicable Regulatory Authority. Each Party shall promptly provide the other Party with copies of all material written or electronic communications received by it or its Affiliates from, or forwarded or submitted by it or its Affiliates to, the Regulatory Authorities, in the case of Astellas, solely within the Joint Development Territory, with respect to any Product. Such material communications shall be provided by the receiving Party to the other Party within ten (10) Business Days of such receipt or forwarding. (b) For purposes of this Section 2.5.2, Material Regulatory Submissions means any material submission to, or any material agreement with or material commitment made to, a Regulatory Authority with respect to a Product, including any application for Regulatory Approval, meeting request, protocol amendment, response to information requests, response to validation or review questions for a Regulatory Authority, and any submissions, agreements or commitments with or to a Regulatory Authority relating to Product labeling, risk management plans, Phase IV Clinical Trials that are conducted due to a request or requirement of a Regulatory Authority or other postapproval commitment for such Product. Unless otherwise agreed by the Parties, Material Regulatory Submissions shall not include: IND investigator updates, 7-day or 10-day SAE reports, annual reports, CMC amendments to IND or country-specific CTAs or informal procedural discussions. 2.5.3 Ownership of Regulatory Materials and Regulatory Approvals; Rights of Reference. (a) Disclosure. Ambit shall, and shall cause its Affiliates to, without additional compensation, disclose and make available to Astellas, in whatever form Astellas may reasonably request (i) all clinical data (including all non-clinical study data, Clinical Trial results and resultant data analyses), with respect to the Products in the Field generated by or on behalf of Ambit, its Affiliates or any of its licensees existing as of the Effective Date, (ii) all Regulatory Materials generated or obtained by or on behalf of Ambit or its Affiliates prior to the Effective Date, including any drug master files in respect of the Products in the Territory, and (iii) protocols for any then-ongoing Clinical Trials and proposed designs for any Clinical Trials with respect to any Product in the Field anticipated as of the Effective Date. Thereafter, to the extent not disclosed pursuant to Section 2.6.4(b), Ambit shall and shall cause its Affiliates to, without additional compensation, disclose and make available to Astellas any Regulatory Materials, Ambit Know-How, Ambit Program Know-How or Joint Program Know-How promptly upon the earlier of the development, making, conception or reduction to practice thereof. (b) Ownership. (i) All Regulatory Materials and Regulatory Approvals relating to any Licensed Compounds or to any Products shall be owned by, and shall be the sole property of, Astellas or its designated Affiliate, Sublicensee or designee. Subject to Section 2.5.3(b)(iii), Ambit hereby assigns to Astellas all of its rights, title and interests in and to all Regulatory Materials and Regulatory Approvals owned or Controlled by Ambit as of the Effective Date or at any time during the Term. 24
C ONFIDENTIAL (ii) (iii) After the Effective Date, all Regulatory Materials and Regulatory Approvals in the Territory shall be filed and held in the name of Astellas or its designated Affiliate or designee, except as provided in Section 2.5.3(b)(iii). Ambit may file and hold (or continue to hold, as applicable) certain Regulatory Materials and Regulatory Approvals for the Lead Product in its name to the extent provided in the initial regulatory plan, solely for the period designated in the initial regulatory plan or until such earlier date as Astellas may designate in writing. The initial regulatory plan shall set forth the schedule pursuant to which it is anticipated that Ambit shall transfer such Regulatory Materials or Regulatory Approvals for the Lead Product held in Ambits name to Astellas in order to effect fully, and to better assure and confirm, the ownership structure set forth in Section 2.5.3(b)(i). As of the applicable date(s) set forth in the initial regulatory plan, or such earlier date as Astellas may designate in writing, Ambit shall automatically be deemed to assign to Astellas all of its rights, title and interests in and to the applicable Regulatory Materials and Regulatory Approvals held in Ambits name. In the event that Astellas designates a date for transfer of the applicable Regulatory Materials and Regulatory Approvals held in Ambits name that is earlier than the date set forth in the initial regulatory plan, then, at Ambits request, the Parties shall promptly meet and discuss in good faith Astellass rationale for such transfer and any of Ambits concerns about such transfer. Astellas shall take into account any such concerns (but, for clarity, shall retain discretion with respect to the designation of such date).
(c) Right of Reference . Each Party shall have the right to cross-reference, file or incorporate by reference any Regulatory Materials and any Regulatory Approval and all data and other Information included or referenced therein or filed in support of any such Regulatory Materials or Regulatory Approvals, including any drug master file (and any data and other Information therein) for any Product in any country in the Territory, which Regulatory Materials or Regulatory Approval is Controlled by the other Party or any of its Affiliates or sublicensees, including Sublicensees (and in the case of a drug master file, any of its subcontractors), (i) in the case of Astellas as the referencing Party, in order to support regulatory submissions that Astellas (or any of its Related Parties) may make for any Product in connection with the Exploitation of Products as contemplated in this Agreement and (ii) in the case of Ambit as the referencing Party, solely to conduct any and all activities assigned to Ambit under any Research Plan or Development Plan, as applicable. (d) Cooperation. Each Party shall duly execute and deliver, or cause to be duly executed and delivered, such instruments and shall do and cause to be done such reasonable acts and things, as may be necessary under, or as the other Party may reasonably request, to effectuate, or to better assure and confirm, the transfers, assignments and rights of reference contemplated in this Section 2.5.3. 2.6 Research Program and Development Programs.
2.6.1 Scope. (a) The Research Program shall cover all research and pre-clinical development activities conducted, during the Research Term, with respect to Ambit Follow-On 25
C ONFIDENTIAL Compounds, as selected by the JSC for research, that the JSC believes will be required [***]. In the event the JSC determines not to adopt an initial Research Plan pursuant to Section 2.6.2(a) the Parties shall not be obligated to fund or conduct any activities under the Research Program, and all rights granted to Astellas under this Agreement with respect to Ambit Follow-On Compounds shall immediately terminate. Ambit and Astellas each shall use Commercially Reasonable Efforts to conduct such activities as are assigned by the JSC to the applicable Party as set forth in the Research Plan, with the goal of making such decisions and enabling such submissions, as to any Ambit Follow-On Compounds selected by the JSC for research in accordance with this Agreement, promptly in accordance with the timelines set forth in the Research Plan. (b) The initial Development Program under this Agreement shall cover the Lead Product. For any other Licensed Compounds selected by the JSC to be the subject of an IND submission, the JSC shall create separate Development Programs which shall cover the clinical and regulatory activities to be conducted for a Product containing such Licensed Compound in order to achieve and support Regulatory Approvals of such Product in the countries in the Joint Development Territory and as may be necessary or economically justifiable to support commercialization of such Product in the Joint Development Territory. Each such Development Program shall be conducted pursuant to and governed by a Development Plan specific to such Development Program, as established by the JSC under Section 2.6.2(c) below. Except as otherwise provided in Section 2.1.4 (with regard to Declined Activities), the Parties are obligated to jointly participate in, fund and conduct each Development Program, as discussed below and in accordance with this Agreement. 2.6.2 Research Plan and Development Plans . (a) Within [***], the JSC shall develop and adopt an initial Research Plan with respect to any Ambit Follow-On Compounds selected by the JSC for research under this Agreement or shall determine not to establish such a Research Plan (in which case Astellas shall have no further rights to Ambit Follow-On Compounds, as provided in Section 2.6.1). (b) Set forth on Exhibit C is the initial Development Plan for the Development Program for AC220 as of the Effective Date. The JSC will periodically review, consider and approve such revisions and amendments to the Research Plan and such initial Development Plan pursuant to Section 2.6.2(d). The Parties agree that within [***], the JSC will meet to review and, if necessary, revise such initial Development Plan as set forth in Exhibit C. (c) In the event and at such time as the JSC selects any additional Licensed Compound to be the subject of an IND submission, the JSC shall discuss and agree on a Development Plan setting forth the details for all the tasks and activities of the Development Program covering the Product containing such Licensed Compound, and the budget and timeline (including Gantt charts) therefor. Each such Product-specific Development Plan shall include the specific details for: (i) any additional formal pre***Confidential Treatment Requested 26
C ONFIDENTIAL clinical research efforts required to be conducted for the Product; (ii) all Clinical Trials and other clinical activities or studies to be conducted with respect to each Product to generate the data necessary for obtaining, maintaining or expanding Regulatory Approvals; (iii) all Phase IV Clinical Trials that are necessary or economically justifiable for marketing the Product; (iv) all manufacturing process-development and scale-up activities with respect to the Product; and (v) the regulatory plan for seeking, obtaining, maintaining or expanding Regulatory Approvals for such Product; in each case under (i) through (v) above, in or for the benefit of the Exploitation of Products in the Joint Development Territory. Each such Development Plan shall also allocate between the Parties all tasks and activities covered by such plan. (d) As necessary or appropriate throughout the term of this Agreement, but no less frequently than annually [***], the JSC shall review and update and amend the Research Plan and each Development Plan as appropriate to achieve the goals of (i) completing all required research and development activities and obtaining Regulatory Approvals in Joint Development Territory for the applicable Products as soon as reasonably practicable and (ii) providing for any ongoing development (including additional Clinical Trials) determined to be necessary or reasonably useful in support of marketing any Product for which Regulatory Approval has been obtained in the Joint Development Territory. 2.6.3 Ambits Research and Development Rights and Obligations . (a) Ambit shall use Commercially Reasonable Efforts to perform the tasks and activities assigned to Ambit under each Development Plan, in collaboration with Astellas and with the goal of completing each Development Program as required for completing each NDA Submission in the Joint Development Territory for the Product covered by the Development Program as soon as reasonably practicable. (b) Ambit shall use Commercially Reasonable Efforts to perform the tasks and activities set forth in the Research Plan in order to research and evaluate the Ambit Follow-on Compounds selected by the JSC for research under this Agreement, under the direction of the JSC from the Effective Date. In accordance with the foregoing, Ambit shall: (i) allocate sufficient time, effort, equipment, personnel and facilities to the Research Program to meet the timelines specified in the Research Plan; (ii) use personnel with sufficient skills and experience as are required to accomplish the Research Program; and (iii) promptly share with Astellas all data and results generated by Ambit in its conduct of Research Program activities. Astellas shall cooperate with Ambit in its conduct of the Research Program and shall use Commercially Reasonable Efforts to perform the tasks and activities allocated to Astellas in the Research Plan in order to further achievement of the goals of the Research Program. (c) As provided in and subject to the provisions of the initial Development Plan, and in accordance with the other terms of this Agreement, Ambit shall use Commercially Reasonable Efforts to conduct [***]. Each of these studies shall be included in the Development Program for the Lead Product and be under the direction of the JSC from the Effective Date, and all of Ambits Development Costs incurred in conducting such studies shall be jointly funded by the Parties as provided in Section 2.7.1 below. (d) ***Confidential Treatment Requested 27
C ONFIDENTIAL Ambit agrees to perform its development obligations for each Product that is selected by the JSC to be the subject of an IND in accordance with the Development Plan for such Product and the other applicable terms of this Agreement, and under the direction of the JSC, which may include, to the extent required by the applicable Development Plan, as follows: (i) conduct of all monotherapy trials in all Oncology Indications that are required for or initiated prior to the first NDA Submission covering the Product in the Joint Development Territory; and (ii) conduct the first clinical proof-of-concept study in a Non-Oncology Indication initiated prior to the first NDA Submission in the Joint Development Territory. (e) Ambit shall have the right to elect, by exercising its Co-Promotion Option for the applicable Product, to Co-promote in the U.S. each Product that has completed clinical development for U.S. registration, in accordance Section 3.8. 2.6.4 Conduct of Development Programs (a) General. Ambit and Astellas and/or its Affiliates shall cooperatively engage in each Development Program in accordance with the terms and conditions set forth in this Agreement (but subject to Section 2.1.4, to the extent applicable). (b) Development Program Performance. With respect to each Development Program initiated under this Agreement, each Party shall use Commercially Reasonable Efforts to perform its respective activities assigned to such Party under the Development Plan covering such Development Program. Each Party shall: (i) allocate sufficient time, effort, equipment, personnel and facilities to conduct such tasks under the Development Program; (ii) use personnel with sufficient skills and experience as are required to accomplish the Development Program; and (iii) promptly share with the other Party all Program Development Data made, created, or generated by or on behalf of such Party. In addition, Astellas shall disclose to Ambit, through the JSC, all Independent Development Data as Astellas reasonably believes is necessary or useful in order to enable Ambit to perform its responsibilities under a Development Program, and Ambit shall disclose and provide to Astellas such Ambit Materials as Ambit reasonably believes are necessary in order to enable Astellas to perform its responsibilities under a Development Program. 2.6.5 Compliance. Each Party shall conduct each Development Program and the Research Program in compliance with all Applicable Laws and applicable industry codes of conduct. Ambit and Astellas each agree that it will not employ or otherwise use in any capacity, to the best of its knowledge, the services of any person debarred under United States law, including but not limited to Section 21 USC 335a, in performing any portion of each Development Program and Research Program. 2.6.6 Third Party Contractors. Each of the Parties shall be entitled to utilize the services of Third Parties to perform specific of its obligations under a Development Program or the Research Program, to the extent determined in advance by the JSC, provided that: (a) such services are conducted in a manner that is consistent with and preserves the rights of the Parties under this Agreement; (b) the subcontractor or consultant undertakes in writing commercially reasonable obligations of confidentiality and non-use regarding Confidential Information and Restricted Information, that are substantially the same as those undertaken by the Parties with respect to Confidential Information pursuant to Article 6 hereof, subject to Section 6.2.2(b); and (c) the subcontractor or consultant 28
C ONFIDENTIAL agrees in writing to assign or license back (with the right to sublicense) all rights in all data, results and other Information with respect to Licensed Compounds or Products made, generated or discovered in performing such services (and all intellectual property rights in or covering such Information) to the Party retaining such subcontractor or consultant (except that such Party shall have the right to agree to commercially reasonable terms permitting the subcontractor or consultant to retain intellectual property generally applicable to its business or the manufacture of products). Each Party shall remain at all times liable for its respective responsibilities under the Development Programs and the Research Program and the activities of any Third Parties utilized by such Party in connection therewith. 2.6.7 Records. Ambit and Astellas shall each prepare and maintain complete and accurate records of all activities under each Development Program and the Research Program and of all Program Development Data generated, in sufficient detail and in good scientific manner appropriate for all patent, intellectual property and regulatory purposes, which shall reflect all the work done and results achieved. Upon request, in furtherance of a patent or regulatory filing being performed by a Party or its designee, or as needed to perform its obligations or exercise its rights under the Agreement, each Party shall make available for review and copying by the other in a timely manner copies of such records maintained by that Party. 2.7 Sharing of Research Costs and Development Costs.
2.7.1 Cost Sharing. Except as provided in Section 2.7.4(a) with respect to Declined Activities, fifty percent (50%) of all Research Costs and Development Costs (other than Post-Approval U.S. Development Costs and Medical Affairs Costs for Co-Promoted Products, which shall be included in the calculation of the Annual U.S. Profit/Loss) shall be borne by Astellas, and fifty percent (50%) of such costs shall be borne by Ambit. (a) In order to facilitate booking accruals and for financial reporting purposes, on a monthly basis each Party shall provide the other Party with an estimated amount of its Development Costs incurred during the immediately preceding month. Each Party shall use good faith efforts to provide such estimate on or before the [***] Business Day of each month and in any event shall provide such estimate no later than the [***] Business Day of such month. (b) Within [***] of each Calendar Quarter, each Party shall provide the other a report listing in detail all Development Costs incurred by such Party. Within [***], the Parties respective designated finance officers shall confer and agree in writing on whether a reconciliation payment is due from Ambit to Astellas or Astellas to Ambit, and if so, the amount of such reconciliation payment, so that Ambit and Astellas share Research Costs and Development Costs in accordance with this Agreement (the Conferral Period). Ambit or Astellas, as applicable, if required to pay such reconciliation payment, shall submit such payment to Astellas or Ambit, respectively, as applicable, [***] of such Conferral Period; provided, however, that in the event of any disagreement with respect to the calculation of such reconciliation payment, any undisputed portion of such reconciliation payment shall be paid in accordance with the foregoing timetable. [***]. In the case of any such dispute, the Parties shall promptly meet (by ***Confidential Treatment Requested 29
C ONFIDENTIAL telephone or otherwise as appropriate) and discuss the issue in the invoice and seek to agree on whether the disputed amount (or what proportion thereof) is properly included in Development Costs or Research Costs, as applicable, incurred by the Parties during such Calendar Quarter. If the Parties cannot agree on any such dispute as to Development Costs or Research Costs reported by one or the other Party [***], then the dispute shall be elevated to the Executive Officers of Astellas and Ambit. Prior to escalating the dispute to the Executive Officer, the Parties shall exchange a written description of the issue in dispute. If the Executives cannot resolve the issue after good-faith efforts [***], then such dispute (as to such aspects of costs) shall be resolved by expedited arbitration pursuant to Exhibit E, with each Party providing access to all invoices, receipts and other documents required to establish the Development Costs or Research Cost, as applicable, actually incurred by the Party during such quarter that are in dispute, as needed to determine the actual total amounts of payments to be made by each Party hereunder. 2.7.2 Research Costs and Development Costs . Subject to Section 2.7.3: (a) The term Research Costs means all costs and expenses incurred by or on behalf of a Party or any of its Affiliates after the Effective Date in conducting the research of a Licensed Compound under the Research Program, solely to the extent such costs and expenses are in accordance with the budget for the applicable tasks and obligations allocated to such Party under the Research Plan as authorized and approved by the JSC (and as such budget may be amended or modified by the JSC, including as provided in Section 2.7.5 below). (b) The term Development Costs means all costs and expenses incurred by or on behalf of a Party or any of its Affiliates after the Effective Date that are reasonably allocable to the conduct of research or development of a Licensed Compound or Product under a Development Program as set forth in Section 2.7.2(c). (c) In the case of each of clause (a) and (b) above, such costs shall include: (i) the following costs and expenses solely to the extent in accordance with the budget for the applicable tasks and obligations allocated to the Party under the Research Plan or a Development Plan, as applicable (as such budget may be amended or updated by the JSC, including as provided in Section 2.7.5 below): (A) costs and expenses invoiced by a Third Party with respect to materials or services actually provided by the Third Party to the applicable Party or any of its Affiliates in connection with its conduct of the applicable Program; (B) for the employees of Ambit or Astellas or their respective Affiliates working on the Program, an amount equal to the amount of such employees work on such programs, converted to a full time equivalent ( FTE) basis (as provided below), multiplied by the FTE Rate agreed by the Parties as set forth below; (C) Manufacturing Costs incurred by a Party or any of its Affiliates for the manufacture of Product (including any intermediate thereof of any Licensed ***Confidential Treatment Requested 30
C ONFIDENTIAL Compound or other material contained therein) for use in the Program or other costs and expenses reasonably allocable to manufacturing process development and manufacturing activities and regulatory activities designed to support preparation of the Chemistry, Manufacturing and Controls sections of any Regulatory Materials or Regulatory Approval, and to obtain drug product or comparator drug for use in activities conducted pursuant to the Program; and (D) other costs and expenses incurred by a Party or any of its Affiliates and reasonably allocable to the research and development of a Product pursuant to the applicable Program, including activities with respect to obtaining, maintaining or expanding Regulatory Approvals in or for the benefit of the Joint Development Territory or the conduct of any nonclinical studies or Clinical Trials (including Phase IV Clinical Trials and support for investigator initiated trials) in or for the benefit of the Joint Development Territory and conducted pursuant to the Program; (ii) (iii) (iv) Product recall and withdrawal costs and expenses that are treated as Development Costs pursuant to Section 2.10; costs and expenses incurred in connection with the transfer of manufacturing technology and responsibilities that are included in Development Costs pursuant to Section 3.6.2(f); and Losses from Third Party Claims that are included in Development Costs pursuant to Section 7.4.
Notwithstanding the foregoing, Development Costs shall not include the costs that each Party is required to bear to prepare and file Regulatory Materials pursuant to Section 2.5.2. (d) For the purposes of this Section 2.7.2, the total annual cost of an FTE shall be [***], provided that such amount shall be increased once annually (on or about January 1) by the percentage increase, if any, in the Consumer Price Index for Urban Consumers for San Diego, as published by the U.S. Department of Labor, Bureau of Statistics (the FTE Rate), since the last such adjustment. The total cost attributable to an employee of either Party or any of its Affiliates engaged in research or development activities under a Development Program or Research Program for any Calendar Quarter under this Agreement shall be calculated by multiplying the FTE Rate by a fraction the numerator of which is the number of hours during such Calendar Quarter that a Partys or its Affiliates employees spent dedicated to Development Program and or Research Program activities [***]. 2.7.3 Exclusions from Development Costs; Costs Chargeable Only Once . Notwithstanding anything in this Agreement to the contrary, no cost, expense, amount or sum allocable or chargeable to the Parties activities under this Agreement shall be allocated or charged more than once (whether chargeable as a Development Cost, a Direct Marketing/Promotion Expense, as a deduction for purposes of calculating Net Sales or the Co-Promotion Payment, or otherwise). Unless otherwise specifically ***Confidential Treatment Requested 31
C ONFIDENTIAL authorized by the Parties or this Agreement, all costs, expenses, amounts or sums to be charged or allocated by one Party to the other Party under this Agreement shall not be so chargeable or allocable unless they are reasonably allocable to the activities to be performed under this Agreement. In addition, the Parties agree that the JSC shall establish, in the Research Plan and each Development Plan, a commercially reasonable budget for the costs and expenses to be incurred by each Party in conducting its respective tasks under such plan. 2.7.4 Development Costs for Declined Activities . (a) Suspension of Development Cost Sharing . If Ambit decides not to fund its share of the Development Costs to be incurred prior to the First Commercial Sale of the applicable Product in a country in the Joint Development Territory with respect to Declined Activities as set forth in Section 2.1.4, then, to the extent that Astellas elects in its sole discretion to perform the Declined Activities and for so long as Astellas pursues such activities, Astellas shall bear one hundred percent (100%) of the Development Costs for the Declined Activities incurred during the period from the decision date stated in the Decision Notice through to the date of First Commercial Sale of the Product that is the subject of the Development Program to which such Declined Development Activities relate (the aggregate Development Costs with respect to such Declined Activity, the Declined Development Costs). (b) Following First Commercial Sale. From and after the First Commercial Sale in any country in the Joint Development Territory of the Product to which the Declined Activities relate, such development activities shall cease to be Declined Activities and (i) to the extent that such activities relate to a Co-Promoted Product, Development Costs reasonably allocable such activities shall be treated as PostApproval U.S. Development Costs and included in the calculation of Annual U.S. Profit/Loss and (ii) to the extent that such activities relate to a Product in the Joint Development Territory other than a Co-Promoted Product, Development Costs reasonably allocable to such Product shall be shared equally in accordance with Section 2.7.1. (c) Resumption of Development Cost Sharing . At any time prior to the First Commercial Sale in the Joint Development Territory of the Product to which Declined Activities relate, Ambit may at its sole discretion reverse its decision not to fund its share of the Development Costs with respect to a Declined Activity and shall promptly notify Astellas in writing of such decision. Astellas shall provide to Ambit a written detailed description and accounting of the Declined Development Costs borne solely by Astellas and incurred prior to the date of such written notice or the remaining balance if repayments have been made under Section 2.7.4(d) and Ambit shall promptly pay to Astellas an amount equal to [***] of such aggregate costs and as of the date of such notice such activity shall no longer be a Declined Activity and the Parties shall share Development Costs with respect to such activity as set forth in Section 2.7.1. (d) Repayment of Development Costs for Declined Activities . Starting from the date of the First Commercial Sale in any country in the Joint Development Territory of a Product to which Declined Development Activities relate, [***], Astellas shall reduce the total amount due to Ambit hereunder with respect to sales of such Product during the applicable Calendar Year (whether in the form of Ambits portion of the U.S. Profit/Loss or royalty payments), by [***]. If the portion of ***Confidential Treatment Requested 32
C ONFIDENTIAL the Declined Development Costs to be repaid in a given Calendar Year exceed the total U.S. Profit/Loss and royalty payments due to Ambit for such Calendar Year, then the unreimbursed portion of such Declined Development Costs shall carry forward into the next Calendar Year, and, as necessary, subsequent Calendar Years, until repaid. In connection with the calculation of amounts due to Ambit under Sections 4.3.6 and 4.4.2, Astellas shall provide to Ambit a detailed written description and accounting of such costs and the adjustments made to Annual U.S. Profit/Loss and/or royalty payments due to Ambit under this Agreement. 2.7.5 Cost Overruns and Discretionary Funding. If a Party believes that it shall need to incur Development Costs or Research Costs, to complete a particular task assigned to such Party in the Research Program or a Development Program, in excess of the budget allocated to such Party for such task in the Research Program or a Development Program (as applicable), such Party shall raise such cost-overrun issue with the JSC as soon as practicable, including the cause of such cost-overrun. The JSC shall discuss such issue promptly and determine if the cost-overrun would be caused by a matter outside such Partys control, in which case the JSC shall amend the applicable budget to cover a reasonable amount of additional Development Cost or Research Cost to be incurred by such Party in completing such task. If the JSC determines in good faith that such cost-overrun would not be caused by a matter outside the Partys control (that is, results or will result from such Partys fault), then such Party shall be required to bear at its sole expense the extent of such cost-overrun (that is, the amount of costs beyond the established budget that are required to complete such task), and such cost-overrun costs shall not be included in the shared Development Costs or shared Research Costs. Further, a Party may, at its reasonable discretion, elect to incur and expend costs or expenses in conducting its activities under the Research Program or a Development Program that are in excess of the budget set forth therein, provided that such Party bears all such additional discretionary costs or expenses at its sole expense and does not include them in the shared Development Costs or Research Costs (unless otherwise agreed by the JSC or the other Party in writing). For clarity, the issue of costoverruns, and the adjustment of any budget to address cost-overruns, shall be resolved by arbitration pursuant to Section 10.7 and shall not be subject to Astellass final decision-making at the JSC under Section 2.1.4. 2.8 Development Outside Joint Development Territory; Commercialization Ex-U.S.
2.8.1 Development Oversight by Astellas . Astellas shall have sole responsibility for planning, coordinating, monitoring, and regulating all aspects of the research and development of Licensed Compounds and Products for the benefit of countries other than those in the Joint Development Territory; provided that the JSC shall review such development activities and coordinate to the extent practicable the Development Plan activities applicable to such Product. Astellas shall be responsible for all costs associated with such independent development activities conducted outside the Research Plan and Development Plan. Astellas shall use Commercially Reasonable Efforts to develop each Product that is the subject of a Development Program in the Joint Development Territory through Regulatory Approvals in the countries outside the Joint Development Territory. 2.8.2 Commercialization of Products. Astellas shall have sole responsibility for planning, coordinating, monitoring, and regulating all aspects of the promotion, marketing, distribution, sales and other commercialization activities of each Product in all countries 33
C ONFIDENTIAL in the Territory, except that, solely with respect to promotion of each Co-Promoted Product in the U.S. during the applicable Co-Promotion Term, each Party shall have the responsibility set forth herein and in the Co-Promotion Agreement. Astellas shall be responsible for all costs associated with the activities for which it is solely responsible, except to the extent they relate to a Co-Promoted Product and constitute Allowed Expenses. 2.8.3 Reports By Astellas . Astellas shall keep Ambit reasonably informed about the status of the activities performed with respect to Astellass development and commercialization of Products as provided in Section 2.8.1 and 2.8.2 above, including of the status of Regulatory Approvals for Products outside the Joint Development Territory. Astellas shall provide Ambit with reports on such activities and the results thereof no less frequently than once each Calendar Quarter, with such additional reports as necessary to inform Ambit of significant developments or results. 2.8.4 Meetings. [***] each Calendar Year, on dates and times mutually agreed by the Parties, Ambit may, at its option, send at least one Ambit representative to meet (in person or by telephone, at Ambits option) with one or more members of the Astellas product team(s) responsible for the development and commercialization of any Product to discuss the conduct and progress of, and plans for, the development of such Product outside the Joint Development Territory and the commercialization activities with respect to such Product in countries , provided that this obligation shall not apply to Co-Promoted Products in the U.S. during the applicable Co-Promotion Term. 2.9 Safety Agreement. Promptly after the Effective Date, but in any event no later than the date of initiation of a Clinical Trial by Astellas in the Territory, the Parties shall enter into a safety agreement governing the Parties respective obligations with respect to allocation of responsibilities for reporting to the other Party and appropriate Regulatory Authorities adverse events, complaints, and other safety-related matters. Astellas shall be responsible for creation and maintenance of the global safety database for Products following the date agreed by the JSC. 2.10 Product Withdrawals and Recalls. If (a) any Regulatory Authority threatens, initiates or advises any action to remove any Product from the market in the Territory or requires or advises Ambit, Astellas, or any of their respective Affiliates or Sublicensees to distribute a Dear Doctor letter or its equivalent regarding use of such Product in any country in the Territory, or (b) either Party determines that an event, incident or circumstance has occurred that may result in the need for a recall or market withdrawal in any country in the Territory, then in each case ((a) or (b)) Ambit or Astellas, as applicable, shall notify the other Party of such event or determination immediately, and in any event within three (3) Business Days (or sooner if required by law) after such Party becomes aware of the event or makes such determination. Astellas shall, to the extent practicable, endeavor to discuss and, in the case of any Co-Promoted Product in the U.S. during the applicable CoPromotion Term, agree with Ambit upon whether to recall or withdraw the Product in the applicable country(ies); provided, however, that if such discussion is not practicable or if the Parties fail to so agree within an appropriate time period (recognizing the exigencies of the situation), then Astellas shall decide whether to recall or withdraw any such Product (including any Co-Promoted Product) in such country(ies). Any recall or withdrawal expenses or expenses for taking other related ***Confidential Treatment Requested 34
C ONFIDENTIAL remedial action (i) with respect to any Clinical Trial supplies of Product used or intended to be used in carrying out activities under the Development Program in or for the benefit of the Joint Development Territory (except to the extent covered by clause (ii)) shall be included in Development Costs; (ii) with respect to Co-Promoted Products within the U.S. shall be included in Allowed Expenses, and (iii) with respect to any Products outside the U.S. or Products other than Co-Promoted Products in the U.S., unless otherwise agreed in an applicable form of supply agreement, shall be at Astellass sole expense, except that in the case of subsections (i) and (ii) above, to the extent that the recall or withdrawal is caused by the negligence, breach or intentional misconduct of a particular Party or any of its Affiliates or subcontractors, such Party shall bear the costs of such recall or withdrawal to the extent of its or its Affiliates or subcontractors responsibility. 2.11 Clinical Trial Information. Each Party agrees that (a) each Clinical Trial conducted pursuant to a Development Plan that is required by Applicable Law to be posted on www.clinicaltrials.gov or any other similar registry shall be so posted, and (b) all results of such Clinical Trials that are necessary for obtaining a Regulatory Approval for a Product in a Territory shall be posted on www.clinicaltrials.gov and on any other registry with requirements consistent with registration and publication guidelines of the International Committee of Medical Journal Editors, to the extent required. Each Party is responsible for such posting (and subsequent updates and disclosure obligations) when designated Sponsor pursuant to the allocation of development activities set forth in the applicable Development Program. All Information posted on www.clinicaltrials.gov, www.clinicalstudyresults.org or any other registry pursuant to this Section 2.11 shall be subject to prior review and authorization pursuant to Section 6.3. LICENSE; OPTION; DEVELOPMENT AND COMMERCIALIZATION License Grant to Astellas
3. 3.1
3.1.1 Product License. Subject to the terms and conditions of this Agreement, Ambit hereby grants to API an exclusive right and license (even as to Ambit and its Affiliates) under the Ambit Technology, Ambit Program Technology and Ambits interest in the Joint Program Technology, with a right to sublicense through multiple tiers of sublicenses as provided in Section 3.1.2, solely to Exploit Licensed Compounds and Products in the Field in the Territory. Without limitation of the right of API to grant sublicenses to any Affiliate pursuant to Section 3.1.2 (including APIs right to grant further sublicenses to AUS), it is understood and agreed that API intends to grant to AUS an exclusive, royaltybearing, revocable, sublicensable (with rights for AUS to grant further sublicenses solely in accordance with Section 3.1.2) sublicense to sell and have sold Products in the Field in the U.S. 3.1.2 Sublicense Rights. Subject to the terms and conditions of this Agreement, Astellas shall have the right to grant sublicenses of the rights granted to it under Section 3.1.1 and 2.5.3(c) through multiple tiers to its Affiliates, provided that Astellas shall be and remain responsible for performance of all its obligations under this Agreement, and any action by an Affiliate shall be deemed an action by Astellas for which it is responsible. Astellas and its Affiliates may grant sublicenses through multiple tiers to Third Parties (a) whose primary business is contract manufacturing, solely for manufacturing and supplying Licensed Compound or Product to Astellas or any Related Party or (b) to a 35
C ONFIDENTIAL subcontractor to perform Astellass assigned responsibilities under this Agreement or any Research Plan, Development Plan or Co-Promotion Plan. All other sublicenses to be granted by Astellas or any Astellas Affiliate in the Joint Development Territory prior to [***] will require prior written approval from Ambit, which shall not be unreasonably withheld or delayed, provided that in the event such sublicense is to all of Astellass rights in the U.S. or the Joint Development Territory to a Person who is not an Astellas Affiliate such approval shall be at Ambits sole discretion. In the case of sublicenses pursuant to the immediately preceding sentence above, Astellas shall provide to Ambit, upon Ambit written request, a copy of all executed agreements in which rights granted by Ambit under this Agreement are sublicensed (and Astellas shall have the right to make reasonable redactions prior to providing such agreements(s)). Ambit shall treat all such sublicense agreements as Astellass Confidential Information. Astellas or its Affiliates may grant sublicenses (i) in the Joint Development Territory at any time after the first NDA Submission in the Joint Development Territory, provided that, with respect to each applicable Product in the U.S., the Required Exercise Date has occurred and Ambit has not exercised the Co-Promotion Option or the Co-Promotion Term has expired or terminated and (ii) outside the Joint Development Territory, in each case ((i) and (ii)) through multiple tiers of Sublicensees without Ambits approval. Each sublicense granted by Astellas pursuant to this Section 3.1.2 shall be subject and subordinate to the terms and conditions of this Agreement. Any sublicense granted by Astellas shall impose on the Sublicensee obligations consistent with the terms and conditions of this Agreement, with each Sublicensee being required to comply with the obligations under this Agreement applicable to Sublicensees, and also to comply with the generally-applicable obligations of this Agreement that are appropriate for application to Sublicensees. Astellas shall ensure that all Persons to which it (or its Affiliate) grants sublicenses comply with all applicable terms and conditions of this Agreement, and Astellas shall be responsible for any failure of any such Sublicensee to comply with such terms or conditions, with the further understanding that any action or omission by any such Sublicensee that, if committed by Astellas would be a breach of this Agreement (with respect to those country(ies)) in which such Sublicensee is sublicensed), will be deemed a breach by Astellas of this Agreement (with respect to those country(ies) in which such Sublicensee is sublicensed) for which Astellas is responsible. Without limiting the foregoing, no sublicense shall modify Ambits rights or obligations under this Agreement (including Ambits CoPromotion rights). Without limiting the foregoing, any sublicense agreement shall contain the following provisions, as applicable: (i) a requirement that such Sublicensee submit applicable Net Sales or other reports consistent with those required hereunder; (ii) audit requirements similar to those set forth in this Agreement; and (iii) a requirement that such Sublicensee comply with the confidentiality provisions of Article 6 with respect to Ambits Confidential Information. 3.2 Distributorships and Co-Promotion Rights.
3.2.1 Distributorships. Astellas shall have the right to appoint its Affiliates, and Astellas and its Affiliates shall have the right, in their sole discretion, to appoint any other Persons, in any country(ies) (a) in the Territory outside of the U.S., to distribute, market, promote and sell Products, with or without packaging rights; (b) in the U.S., solely with respect to any Product for which the Required Exercise Date has occurred and Ambit has not exercised the Co-promotion Option or the applicable Co-promotion Term has expired, to ***Confidential Treatment Requested 36
C ONFIDENTIAL distribute, market and sell such Products with or without packaging rights; (c) in the U.S. with respect to a Co-Promoted Product solely to distribute and sell such Co-Promoted Product. If Astellas or its Affiliates appoints such a Person and such Person is not an Affiliate of Astellas, that Person shall be a Distributor for purposes of this Agreement. 3.2.2 Promotion Rights. For the avoidance of doubt, Astellas and its Affiliates shall have the right to co-promote the Products with any other Person(s) (in addition to Ambit), or to appoint one or more Third Parties to promote the Products without Astellas, (a) in all or any part of the Territory outside the U.S., or (b) in the U.S. with respect to any Product for which the Required Exercise Date has occurred and Ambit has not exercised the Co-Promotion Option or the applicable Co-Promotion Term has expired or terminated. 3.3 License Grants to Ambit and Sublicensing Rights.
3.3.1 License Grant. Subject to the terms and conditions of this Agreement, Astellas hereby grants to Ambit a royalty-free, non-exclusive, sublicensable (as set forth in Section 3.3.2) right and (a) license in the Territory under the Astellas Technology, Astellas Program Technology and Astellass interest in the Joint Program Technology and (b) sublicense under the Ambit Program Technology, Ambit Technology and Ambits interest in the Joint Program Technology licensed to Astellas under Section 3.1.1, (i) in each case ((a) and (b)), solely to conduct any and all activities assigned to Ambit under any Research Plan, Development Plan or Co-Promotion Plan, as applicable and (ii) in the case of the sublicense rights granted in clause (b) only, to make, have made and use Licensed Compounds in connection with the conduct of its Screening Activities. 3.3.2 Sublicensing by Ambit . The license granted by Astellas to Ambit in Section 3.3.1 may be sublicensed by Ambit to a subcontractor solely to perform Ambits assigned responsibilities under this Agreement or any Development Plan or Research Plan. 3.4 Reservation of Rights
3.4.1 No Implied Licenses. No right or license under any intellectual property rights of Ambit or Astellas is or shall be granted, by implication or otherwise, to the other Party except as expressly set forth in Section 2.5.3(c), 3.1, 3.2 or in Article 9. All such rights or licenses are or shall be granted only as expressly provided in and subject to the terms of this Agreement. 3.4.2 Retained Rights. Each Party retains all rights not explicitly granted to the other Party under the terms of this Agreement, including, in the case of rights retained by Ambit, all its rights under the Ambit Technology for all purposes other than the Exploitation of Licensed Compound(s) and Product(s) in the Field in the Territory, provided that, for clarity, each Party in exercising such retained rights shall comply with Section 3.5 and Article 6. 3.5 Exclusivity
3.5.1 Each Party covenants that it and its Affiliates shall not, without the prior written consent of the other Party: (a) market, sell or otherwise commercialize any Competing Product for any Competitive Indication during the Exclusivity Period; 37
C ONFIDENTIAL (b) commercialize any Competing Product for a Competitive Indication, in each case, with, for the benefit of, or sponsored by, any Third Party during the Exclusivity Period; or (c) knowingly grant any license or other rights to any Third Party to utilize any intellectual property Controlled by such Party or its Affiliates (including any Ambit Technology, Program Technology or Astellas Technology) for the express purpose of enabling such Third Party to market, sell or otherwise commercialize any Competing Product for a Competitive Indication during the Exclusivity Period. For purposes of this Section 3.5.1, Exclusivity Period means the period from the Effective Date until the earlier of (a) the [***] anniversary of the First Commercial Sale of the first Product in the Joint Development Territory or (b) in the case of a Terminated Country, the effective date of termination of such period with respect to such Terminated Country. 3.5.2 Notwithstanding the foregoing Section 3.5.1, if a Party (the Subject Party) merges or consolidates with, or acquires or is acquired by, a Third Party that is researching, developing, or commercializing a Competing Product in any country(ies), or acquires assets (which assets represent substantially all of the assets of a Third Party) that include the business of researching, developing, or commercializing a Competing Product in any country (but not including, for clarity, an in-license arrangement or asset acquisition limited to intellectual property rights), (a) the counterparty in such transaction (the Counterparty) (the Counterpartys Affiliate, which Affiliate is not an Affiliate of the Subject Party immediately prior to the closing of such transaction(s) ( Counterparty Affiliate )) and Counterparty Affiliates shall not become subject to the covenants in this Section 3.5 and (b) the covenants in Section 3.5 shall not apply to the Subject Party or its Affiliates, in each case ((a) and (b)), with respect to any Change of Control Competing Product (as defined below) that the Subject Party or its Affiliates own or Control as a result of such transaction; provided, however, that the Subject Party and its Affiliates (other than the Counterparty and any Counterparty Affiliate), and its and their successors, shall remain subject to such covenants with respect to any Competing Products other than the Change of Control Competing Product. For purposes of this Section 3.5.2 a Change of Control Competing Product means Competing Product that the Counterparty or Counterparty Affiliates own or Control immediately prior to the closing of the transaction at issue. 3.6 Commercialization and Medical Affairs Activities
3.6.1 Astellass Responsibilities. Astellas shall be solely responsible and shall bear all costs for (a) commercializing each Product in the Territory, including controlling all marketing, pricing and reimbursement, distribution, managed care and sales activity, and booking sales, and (b) conducting Medical Affairs Activities for each Product in the Territory, provided that (i) each of Ambit and Astellas shall continue to share Research Costs and Development Costs with respect to each Product in the Joint Development Territory, (ii) with respect to each CoPromoted Product commercialized in the U.S. during the Co-Promotion Term, each of Ambit and Astellas (A) shall have those obligations with respect to Co-Promotion as are set forth for each Party in the applicable Co-Promotion Agreement and (B) shall pay to the other CoPromotion Payments, as applicable, pursuant to Sections 3.8.5 and 4.4. Astellas shall use Commercially Reasonable Efforts to commercialize each Product that is the subject of a Development Program in ***Confidential Treatment Requested 38
C ONFIDENTIAL countries in which Regulatory Approval is obtained so as to maximize the value of each such Product. 3.6.2 Manufacturing and Supply (a) For a period to be established by the JSC and agreed to by Ambit, such agreement not to be unreasonably withheld, which period is intended to support the orderly completion of the manufacturing technology transfer to Astellas to enable the First Commercial Sale in the Territory, Ambit shall continue to have primary operational responsibility for manufacturing and supply to Astellas of Clinical Trial supplies of the Lead Product (including manufacturing any intermediary or any Licensed Compound or other material contained therein for purpose of such supply), and all other activities in support of preparation of the Chemistry, Manufacturing and Controls sections of any Regulatory Materials or Regulatory Approval necessary to support receipt of Regulatory Approval of the Lead Product in the Joint Development Territory. At and after the end of the foregoing period, Astellas shall have sole responsibility and decision making authority on (i) all manufacturing activities and regulatory activities designed to support preparation of the Chemistry, Manufacturing and Controls sections of any Regulatory Materials or Regulatory Approval, pharmaceutical process development ( provided that such process development activities shall be overseen by the JSC), and (ii) manufacturing of Clinical Trial supplies and commercial manufacturing for the Lead Product and each other Product developed or commercialized under this Agreement (including any intermediate of any Licensed Compound or other material contained therein) in the Territory. For clarity, nothing in this Section 3.6.2 or any other term or condition of this Agreement is intended to or shall be construed to limit Astellass right and license, as provided in Section 3.1, to make and have made any Product (including any intermediary or any Licensed Compound or other material contained therein) at any time during the Term. (b) Each Party shall have the following obligations with respect to costs and expenses incurred in connection with the manufacturing activities described in clause (a): (i) costs incurred by either Party in pharmaceutical development and the Manufacturing Costs of any quantities of Clinical Trial supplies required to carry out the Development Program shall constitute Development Costs; (ii) the Manufacturing Costs with respect to the commercialization of Co-Promoted Products to be commercialized in the U.S. shall be included in the Annual U.S. Profit/Loss calculation; and (iii) all other Manufacturing Costs with respect to Products (including any intermediate or any Licensed Compound or other material contained therein) incurred by Astellas in support of commercialization of Products for sale in the Territory by or on behalf of Astellas or its Related Parties shall be borne solely by Astellas. (c) Subject to the terms and conditions of this Agreement, until the completion of the manufacturing technology transfer and the occurrence of the date selected by the JSC, promptly upon request of Astellas, Ambit shall use Commercially Reasonable Efforts to supply to Astellas clinical supplies of the Lead Product and placebos (if applicable), in such form and in such quantities as may be required for any activities conducted by Astellas or its Related Parties pursuant to the Development Program for the Lead Product. Such supply shall be pursuant to reasonable forecasting and ordering procedures agreed to by the Parties, consistent with industry standards and intended to cover amounts sufficient for clinical purposes. For clarity, in the event that Astellas procures supplies of the Lead Product that exceed its need for clinical supplies, nothing 39
C ONFIDENTIAL herein shall prohibit Astellas from using supply secured under this Section 3.6.2(c) for commercial purposes, provided that Astellas complies with all Applicable Law in such use. (d) In the event that Astellas desires Ambit to supply Lead Product specifically intended for commercial use, the Parties shall negotiate in good faith and (if they reach agreement) enter into an appropriate supply agreement (which would include appropriate warranties and indemnities and other commercially reasonable terms typical for such supply agreements). (e) Within a reasonable period to be agreed following the Effective Date, Ambit and Astellas shall cooperate to execute a reasonable quality agreement in a form to be agreed, which shall govern the Parties respective responsibilities with respect to quality-related matters applicable to clinical supplies of the Lead Product and placebos (if applicable). (f) On a schedule to be agreed by the JSC as set forth below, Ambit shall, and shall cause its Affiliates to, disclose and make available to Astellas or any of its Related Parties or one or more Third Party manufacturers designated by Astellas all Ambit Know-How and all Ambit Program Know-How and Joint Program Know-How Controlled by Ambit or its Affiliates as of the Effective Date and during the Term that is reasonably necessary for Astellas, its Related Parties or such Third Party manufacturers (as appropriate) to manufacture the Lead Product and the Ambit Compound contained in the Lead Product. The JSC shall determine and agree a schedule to transfer such information from Ambit to Astellas in a smooth transition that minimizes any disruption or delay to the Development Program. Ambit shall provide such reasonable assistance and cooperation to Astellas or its designee(s) to permit Astellas or the designee(s), as applicable, to be qualified by all required Regulatory Authorities as a manufacturer(s) of the Lead Product and the Licensed Compound contained in the Lead Product as soon as practicable. In addition, Ambit shall perform or renew this technology transfer and qualification with respect to any Product at Astellass request, and from time to time to the extent that Ambit acquires or develops new data, processes, know-how, or other Information relevant to the manufacture of a Product. The reasonable costs and expenses incurred by Ambit, including without limitation any internal personnel costs, in carrying out such transfer shall be shared as a Development Costs. 3.7 Subcontracts; Contract Sales Forces . (a) Astellas may subcontract the performance of commercialization activities allocated to it hereunder with respect to Products other than Co-Promoted Products in the U.S. during the Co-Promotion Term, and (b) except as set forth in Exhibit D, either Party may subcontract the performance of Co-Promotion activities allocated to it with respect to Co-Promoted Products under any Co-Promotion Agreement, including to a contract sales force, in each case ((a) and (b)) provided that such Party complies with the subcontracting requirements set forth in Section 2.6.6, mutatis mutandis. 3.8 Co-Promotion Option
3.8.1 Option Grant. Subject to the terms of this Agreement, Ambit shall have the right and option, as to each Product to elect to Co-Promote any such Product in the U.S., each under a trademark or trademarks owned by Astellas and used by Astellas in the 40
C ONFIDENTIAL promotion of such Product, in each case under the terms set forth in this Section 3.8 (the Co-Promotion Option). 3.8.2 Option Procedure. With respect to each Product in clinical development in the U.S., Astellas shall determine in good faith the projected date of the NDA Filing for the first NDA covering such Product in the U.S., and shall inform Ambit of such date and shall keep Ambit fully apprised at JSC meetings of any changes in such projected date, so that Ambit has reasonable advance notice of the estimated date that NDA Filing will occur with respect to the Product. To exercise the Co-Promotion Option with respect to a particular Product, Ambit shall notify Astellas in writing of such exercise, which notice may be given at any time provided that such notice must be given no later than [***] for such Product (such date, the Required Exercise Date). If Ambit exercises the Co-Promotion Option for a particular Product, such Product shall then be a Co-Promoted Product during the applicable Co-Promotion Term, and Astellas and Ambit will expeditiously negotiate in good faith and execute a definitive co-promotion agreement governing the Parties Co-Promotion activities for such Co-Promoted Product [***] (the Co-Promotion Agreement ). Such Co-Promotion Agreement shall include terms consistent with the terms set forth in Exhibit D of this Agreement and such other commercially reasonable terms as are typical for similar co-promotion agreements. If the Parties are not able to complete and enter into such Co-Promotion Agreement within such period, then either Party may compel the Co-Promotion Agreement to be established by baseball arbitration under the provisions of Exhibit E of this Agreement. 3.8.3 Lapse of Co-Promotion Option . Ambits Co-Promotion Option, with respect to each particular Product, shall lapse if: (a) Ambit does not notify Astellas in writing of its exercise of the Co-Promotion Option on or before the Required Exercise Date; or (b) this Agreement is terminated pursuant to Article 9. 3.8.4 Co-Promotion Process. For each Co-Promoted Product, the applicable Co-Promotion Agreement shall provide (in addition to the other material terms covered in Exhibit D): (a) that Ambit shall provide at Ambits upfront cost a sales force to Co-Promote each Co-Promoted Product. With respect to a CoPromoted Product, the number of details (to be further defined in the Co-Promotion Agreement) performed by sales representatives in the Ambit sales force as a proportion of the total number of details performed in the U.S. by both Parties shall equal fifty percent (50%). (b) Astellas shall provide all marketing materials, sales training materials and samples to Ambit sales representatives in a manner and quantity consistent with its provision of marketing materials, sales training materials and samples to Astellas or its Affiliates own sales representatives. The Parties shall, whenever practicable, conduct joint training of their respective sales forces, the cost of which shall be a sales training expense for the purposes of Section 1.13. 3.8.5 Co-Promotion Profit Share. For each Co-Promoted Product, each of Ambit and AUS shall be entitled to receive from the other Party CoPromotion Payments as provided in ***Confidential Treatment Requested 41
C ONFIDENTIAL Section 4.4. In the case of Ambit, Co-Promotion Payments shall be in lieu of Ambits right to receive royalties based on sales of the CoPromoted Product in the U.S. 3.8.6 Co-Promotion Plan. If Ambit elects to exercise the Co-Promotion Option with respect to a Product, then promptly after such election the JCC shall discuss and agree on a Co-Promotion Plan setting forth, on an annual basis, the Co-Promotion activities to be conducted by the Parties with respect to the Co-Promoted Product and a budget for the Direct Marketing/Promotion Expenses and Indirect Marketing Expenses that Astellas proposes to incur in support of the commercialization of such Co-Promoted Product in the U.S. As necessary or appropriate throughout the applicable Co-Promotion Term, but no less frequently than annually and prior to October 31 of each Calendar Year, the JCC shall review and update and amend the Co-Promotion Plan as appropriate to commercialize the Co-Promoted Product in the U.S. 3.9 Joint Commercialization Committee.
3.9.1 Establishment and Authority of JCC. If Ambit elects to exercise the Co-promotion Option with respect to a Product, then promptly after such election the Parties shall form a Joint Commercialization Committee (the J C C) to plan and oversee the Co-Promotion activities by both Parties in the U.S. with respect to Co-Promoted Products and to approve Co-Promotion Plans. The JCCs responsibilities and authority shall be as follows: (a) for each Co-Promoted Product, preparing and approving the Co-Promotion Plan for such Product, and all amendments and updates to such Co-Promotion Plan, with each such Co-Promotion Plan being consistent with the Co-Promotion Agreement applicable to the particular Co-Promoted Product (but subject to Astellass final decision-making authority with respect to any components of the CoPromotion Plan other than the budgets included in such Co-Promotion Plan); (b) allocating responsibilities for the Co-Promotion tasks and activities to be completed by each of the Parties in accordance with each CoPromotion Plan and the applicable Co-Promotion Agreement; (c) monitoring, managing and directing (in accordance with the terms of the applicable Co-Promotion Agreement), and reviewing and discussing the results and progress of, the Co-Promotion of each Co-Promoted Product; and (d) performing any other activity or role as expressly assigned to the JCC under the terms of this Agreement, the applicable Co-Promotion Agreement, or otherwise by the Parties in writing. For clarity, Astellas shall remain solely responsible in accordance with Section 3.6.1, without JCC oversight, for all aspects of the commercialization of the Co-Promoted Products other than the Co-Promotion activities, including pricing and reimbursement, distribution, managed care and booking sales. The JCC shall remain in effect until the termination of the Co-Promotion Term with respect to all Products for which Ambit has exercised its Co-Promotion Option (but subject to Sections 2.2 and 9.2). 3.9.2 Composition of JCC; Chairperson . The JCC shall be composed of an equal number of representatives from each Party (initially to be set at three (3) representatives of 42
C ONFIDENTIAL Astellas and three (3) representatives of Ambit, or such other number as agreed by the parties from time-to-time). Chairperson responsibilities for the JCC shall be shared between the Parties, and shall alternate between the Parties annually with the first chairperson designated by Astellas. 3.9.3 JCC Meetings. The JCC shall meet [***] per year, or more or less frequently as agreed by the Parties. The first meeting of the JCC shall be held within twenty (20) calendar days of the later of (a) the NDA Filing date for the first NDA for the Co-Promoted Product to which Ambit as previously exercised its Co-promotion Option or (b) the effective date agreed to by the Parties for the Co-Promotion Agreement. The JCC may meet in person, or by teleconference, videoconference or other similar means as requested by a Party (but provided that at least one meeting will be in person each Calendar Year). Information exchanged at JCC meetings and decisions reached by the JCC shall be recorded in minutes of the meetings. The chairperson of the JCC shall be responsible for preparing and circulating to the JCC members a draft of the minutes, for review and comment. The chairperson shall seek to include in the minutes all accurate comments. Such minutes shall become final when approved by both Parties. Each Party shall bear its own expenses and the expenses of its representatives related to the attendance at JCC meetings, none of which expenses shall be deemed included in the Annual U.S. Profit/Loss. 3.9.4 Decision Making. All decisions of the JCC require unanimous agreement of the Parties, with each Party having one (1) vote on all matters presented to the JCC for resolution or decision. The members of the JCC will attempt in good faith to reach consensus on all matters before the JCC. In the event that the JCC cannot, after such good-faith efforts, reach agreement on a matter within the jurisdiction of the JCC, including any adoption, amendment or update to a Co-Promotion Plan within [***], the issue shall be elevated to a Executive Officer of each of Ambit and Astellas, to seek in good faith to reach agreement on the issue. Solely in the case of a dispute regarding the Direct Marketing/Promotion Expenses or the Indirect Marketing Expenses proposed to be included in the Co-Promotion Plan budget (or any proposed amendment or update thereto) (in each case, a Proposed Expense Dispute), the Parties shall exchange written proposals regarding the portion of the budget in dispute in advance of elevating such dispute to the Executive Officers. In the event such executives cannot resolve the issue after good-faith efforts within [***], then (a) if the dispute is a Proposed Expense Dispute, either Party shall have the right to cause the Dispute to be resolved by expedited arbitration pursuant to Exhibit E, and (b) if the dispute concerns any other issue the issue shall be decided by Astellas, in its reasonable discretion but subject to Astellass obligation to use Commercially Reasonable Efforts as set forth in Section 3.6.1 and taking into account the legitimate business issues of Ambit with respect to the issue. Astellas shall provide Ambit with a Decision Notice with respect to such decision, which decision shall be final and binding on the Parties. For clarity, in the event of a dispute concerning the Co-Promotion Plan budget which is resolved by expedited arbitration, Astellas may, but shall not be required to, perform the activities contemplated in its proposed Co-Promotion Plan budget, but the Direct Marketing/Promotion Expenses and Indirect Marketing Expenses incurred by Astellas during the Calendar Year covered by the disputed budget shall only be included in the calculation of the Annual U.S. Profit/Loss up to the amount of the Arbitrator-Determined Marketing Budget (as defined in Exhibit E), and such additional amounts shall be borne solely by Astellas. ***Confidential Treatment Requested 43
C ONFIDENTIAL 4. 4.1 FEES, MILESTONES, ROYALTIES AND PROFIT SHARE License Fee In partial consideration for the license rights granted pursuant to Section 3.1, no later than three (3) Business Days after the Effective Date, Astellas shall pay to Ambit a non-refundable, non-creditable, one-time, initial license fee payment of Forty Million Dollars (US $40,000,000). 4.2 Milestone Events and Payments Upon the first achievement by Astellas (or its Related Party) of any milestone event set forth in any table in Section 4.2.1, 4.2.2, 4.2.3 or 4.2.4 (each, a Milestone Event), Astellas shall notify Ambit thereof in writing not later than ten (10) Business Days after such Milestone Event is achieved, and Astellas shall pay to Ambit the applicable non-refundable, non-creditable, one-time milestone payment within [***] following the achievement of the Milestone Event. For the avoidance of doubt, following the achievement of any Milestone Event with respect to a particular Indication, if a second Product achieves the same Milestone Event for the same Indication, no additional milestone payment shall be payable with respect to such Milestone Event. Milestone payments for the achievement of Milestone Events with respect to the EU shall be payable following the achievement of the applicable Milestone Event in any Major EU Country or, in the case of a centralized EU filing or approval, with respect to the EMEA. [Remainder of page intentionally blank.] ***Confidential Treatment Requested 44
C ONFIDENTIAL AML Indication. Each milestone payment in the table below shall be payable following the achievement of the applicable Milestone Event by Astellas or any of its Related Parties with respect to the applicable region for the AML Indication. Milestone Event for the AML Indication U.S. Milestone Payments
EU (Major EU Country or EMEA)
Japan
[...***...]
US$[...***...] (in either U.S. or EU whichever occurs first) (as used in the descriptions of the Milestone Events, the convention US$__M means the applicable amount in millions of U.S. dollars.) Monotherapy Combination Therapy 1 st NDA (Monotherapy or Combination Therapy) US$[...***...] 1 st Approval $[...***...]
US$[...***...]
[...***...]
1 st NDA (Monotherapy or Combination Therapy) US$[...***...] 1 st Approval $[...***...]
US$[...***...] [...***...] Monotherapy US$[...***...] if Ambit exercises the Co-Promotion Option for the Product. US$[...***...] if Ambit does not exercise the CoPromotion Option for the Product.
US$[...***...] Combination Therapy US$[...***...]
Notwithstanding the foregoing, in the event that [***], the milestone payment due for receipt of a Regulatory Approval from the FDA shall automatically be increased from [***] as listed in the above table, to [***]. As used in the chart above, Combination Therapy means, with respect to a Product, ***Confidential Treatment Requested 45
C ONFIDENTIAL that such Product is labeled for use in combination with another product. 4.2.1 First Oncology Indication Other Than AML Indication. Each milestone payment in the table below shall be payable following the achievement by Astellas or any of its Related Parties of the applicable Milestone Event with respect to the applicable region for the first Oncology Indication other than the AML Indication. Milestone Event for First Oncology Indication Other Than AML Indication U.S. Milestone Payments
[...***...] [...***...] [...***...]
EU (Major EU Country or EMEA) US$[...***...] (in either U.S. or EU whichever occurs first) US$[...***...] US$[...***...] US$[...***...] US$[...***...]
Japan US$[...***...] US$[...***...] US$[...***...]
4.2.2 Second Oncology Indication Other Than AML Indication. Each milestone payment in the table below shall be payable following the achievement by Astellas or any of its Related Parties of the applicable Milestone Event with respect to the applicable region for the second Oncology Indication other than the AML Indication. Milestone Event for Second Oncology Indication Other Than AML Indication U.S. Milestone Payments
[...***...] [...***...] [...***...]
EU (Major EU Country or EMEA) US$[...***...] (in either U.S. or EU whichever occurs first) US$[...***...] US$[...***...] US$[...***...] US$[...***...]
Japan US$[...***...] US$[...***...] US$[...***...]
***Confidential Treatment Requested 46
C ONFIDENTIAL First Non-Oncology Indication. Each milestone payment in the table below shall be payable following the achievement by Astellas or its Related Parties of the applicable Milestone Event with respect to the applicable region for the first Non-Oncology Indication. Milestone Event for First Non-Oncology Indication U.S. [...***...] [...***...] [...***...] [...***...] US$[...***...] US$[...***...] if Ambit exercises the CoPromotion Option for the Product. US$[...***...] if Ambit does not exercise the CoPromotion Option for the Product. 4.2.3 Skipped Milestones. In the event that a Product is not required to undergo the testing associated with a particular Milestone Event, the Milestone Payment associated with such Milestone Event shall become due and payable with the next occurring Milestone Payment owed for such Product. For the avoidance of doubt, no Milestone Payment shall be payable twice as a result of this Section 4.2.5, including if a Milestone Payment for the Milestone Event for the initiation of a Phase III Clinical Trial was previously paid with respect to another country or region that is combined with the applicable region. 4.3 Royalties and Sales Milestones Milestone Payments
EU (Major EU Country or EMEA) US$[...***...] (in U.S., EU or Japan whichever occurs first) US$[...***...] (in U.S., EU or Japan whichever occurs first) US$[...***...] US$[...***...]
Japan
US$[...***...] US$[...***...]
4.3.1 Royalties. For each Product being sold by or on behalf of Astellas or any Related Party in a country in the Royalty Bearing Territory during the Royalty Term applicable to such Product in such country, Astellas shall pay royalties to Ambit based on the aggregate amount of the Net Sales of all Products in the Royalty Bearing Territory in each Calendar ***Confidential Treatment Requested 47
C ONFIDENTIAL Year (or partial Calendar Year) as calculated using the royalty rates set forth in the table below. Net Sales of Products in the Royalty Bearing Territory Portion less than or equal to US$[...***...] Portion greater than US$[...***...] and less than or equal to US$[...***...] Portion greater than US$[...***...] Royalty Rate [...***...]% [...***...]% [...***...]%
4.3.2 Annual Sales Milestone. In any Calendar Year where aggregate Net Sales of all Products in the Royalty Bearing Territory exceed [***], an additional payment of [***] shall be paid to Ambit by Astellas (in addition to the royalty payments payable pursuant to Section 4.3.1). Such payment shall be made no later than the sixtieth (60th) day following the end of the Calendar Quarter in which aggregate Net Sales for the Calendar Year of all Products in the Royalty Bearing Territory exceeded [***]. 4.3.3 Additional Royalty Provisions. The royalty obligations of this Section 4.3 are subject to the following additional terms: (a) only one royalty shall be due to Ambit with respect to the same unit of Product sold; (b) no royalties shall be due upon the sale or other transfer of Product among Astellas or its Related Parties, provided that such Product is subsequently resold to a Third Party purchaser (including a Distributor) in a transaction for which royalty shall be due and calculated upon Astellass or its Related Partys Net Sales to such Third Party; (c) no royalty shall accrue on the transfer of Product by Astellas or its Related Parties for use in a Clinical Trial, for free or nominal cost not to exceed the fully burdened cost of manufacturing the Product; and (d) no royalties shall accrue on the disposition of Product by Astellas or its Related Parties as samples (promotion or otherwise) or as donations by Astellas or its Related Parties (for example, to non-profit institutions or government agencies for a non-commercial purpose). (e) no royalties shall be due with respect to Net Sales of Co-Promoted Products made in the U.S. during its Co-Promotion Term, and such Net Sales shall be excluded from aggregate worldwide Net Sales for the purpose of calculating annual sales milestones and the royalty tiers in the table in Section 4.3.1. 4.3.4 Third Party Royalties. Royalty payments payable under this Article 4 are inclusive of any amounts payable by Ambit or any of its Affiliates to any Third Party licensor (including amounts payable in ***Confidential Treatment Requested 48
C ONFIDENTIAL respect of license fees, royalties, milestone payments and sales milestone payments) under any relevant agreement which has been entered into by and between Ambit and such Third Party on or before the Effective Date. No amounts shall be due from Astellas hereunder in respect of any such obligations. Subject to Section 8.2, all amounts payable by either Party or any of their respective Affiliates to any Third Party licensor (including amounts payable in respect of royalties, milestone payments and sales milestone payments) under any relevant agreement which has been entered into by Astellas after the Effective Date, or by Ambit after the Effective Date, which is not declined by Astellas pursuant to Section 8.2.2, shall be shared by the Parties equally (fifty percent (50%) borne by Astellas and fifty percent (50%) borne by Ambit). In the event that Ambit exercises the Co-Promotion Option as to a Product, any such amounts due on sales of such CoPromoted Product in the U.S. will constitute Allowed Expenses in the determination of Annual U.S. Profit/Loss. 4.3.5 Royalty Step-Downs. (a) Compulsory Licenses. In the event that a court or a governmental agency of competent jurisdiction requires Ambit or any of its Affiliates or Astellas or any of its Related Parties to grant a compulsory license to a Third Party permitting such Third Party to make or sell a Product in a country in the Royalty Bearing Territory, then for the purposes of calculating the royalties due under Section 4.3 with respect to such Product in such country, the royalty rate on Net Sales of such Product in such country in the Royalty Bearing Territory in the applicable Calendar Year shall be the lesser of the rate under Section 4.3 and the rate at which such Third Party is obligated to pay royalties pursuant to such compulsory license (in either case, which rate shall be subject to other applicable adjustments under this Section 4.3.5). (b) Generic Competition. (i) (ii) If there is commercial sale in a country in the Royalty Bearing Territory of any Generic Version of a Product being sold in such country, such commercial sale by any unauthorized Person other than Astellas or one of Astellass Related Parties, then [***]. With regard to Section 4.3.5(b)(i), in the applicable country with respect to the applicable Product, [***] shall not apply or be available with respect to such country for any period during which there is an issued Valid Patent Claim in such country that claims or covers (A) the Generic Version (and/or the active ingredient therein) as a composition of matter, and the sale of such Generic Version in the country would infringe such Valid Patent Claim, or (B) a method of use of such Generic Version that would be infringed by use of the Generic Version in accordance with the approved label for such Generic Version in such country.
4.3.6 Payment of Royalties . During the term of this Agreement following the First Commercial Sale of a Product, Astellas shall furnish to Ambit a written report for each ***Confidential Treatment Requested 49
C ONFIDENTIAL Calendar Quarter showing the Net Sales of all Products subject to royalty payments sold by Astellas and its Related Parties in the Territory (on a Product-by-Product and country-by-country basis) during the reporting period and the calculation of the royalties payable under this Agreement based on such sales. [***]. Astellas and its Related Parties shall keep complete and accurate records in sufficient detail to enable the royalties payable hereunder to be determined. 4.4 Payment of Co-Promotion Profit Share
4.4.1 Co-Promotion Payment Reports. For each Co-Promoted Product, within [***] of each Calendar Year during the applicable CoPromotion Term, Ambit shall report to AUS in reasonable detail any Allowed Expenses incurred by or on behalf of Ambit or any of its Affiliates in such Calendar Year (or, as applicable, any part thereof) for the Co-Promoted Product during its Co-Promotion Term, and promptly shall provide any invoices or other supporting documentation for such expenses that AUS reasonably requests. Within [***] receiving such report, AUS shall report to Ambit in reasonable detail (a) the Net Sales in the U.S. made for such Co-Promoted Product during the Calendar Year (or, as applicable, any part thereof) during the Co-promotion Term, (b) the Allowed Expenses incurred by or on behalf of each Party with respect to such Co-Promoted Product during the Calendar Year (or, as applicable, any part thereof) during the Co-Promotion Term (and AUS promptly shall provide to Ambit any invoices or other supporting documentation for such expenses incurred by or on behalf of Astellas that Ambit reasonably requests), (c) the Annual U.S. Profit/Loss recognized with respect to the Co-Promoted Product in the U.S. during the Calendar Year and (d) the Co-Promotion Payment payable by the applicable Party to the other Party under this Section 4.4. 4.4.2 Co-Promotion Payment. With respect to a Co-Promoted Product, the Co-Promotion Payment shall be such payment to be made by Ambit or AUS, as applicable, such that each Party receives (if a profit) or bears (if a loss) fifty percent (50%) of the Annual U.S. Profit/Loss for the Co-Promoted Product during the Co-Promotion Term in the applicable Calendar Year (or, as applicable, any part thereof). Ambit or AUS, as applicable, shall make the Co-Promotion Payment with respect to any Calendar Year (or, as applicable, any part thereof) within [***] following delivery or receipt of the applicable Co-Promotion Payment report described in Section 4.4.1, as applicable. Except as set forth in Section 4.4.3, all such Co-Promotion Payments are non-refundable. 4.4.3 Dispute Resolution. Notwithstanding the foregoing, if Ambit or AUS have a dispute about determining the amount of the Co-Promotion Payment for a particular Calendar Year, then despite the existence of such dispute, Ambit and AUS shall establish a preliminary reconciliation calculation of Annual U.S. Profit/Loss based on the Net Sales during such Calendar Year in the U.S. with respect to the Co-Promoted Product and all Allowed Expenses incurred by AUS or Ambit, in each case, on which the Parties agree and AUS or Ambit, as applicable, shall make the Co-Promotion Payment with respect to such agreed preliminary calculation as provided above. Promptly after such dispute is resolved, Ambit and AUS shall recalculate the Co-Promotion Payment (based on the total Net Sales and Allowed Expenses that are determined to have been incurred by AUS and Ambit during the subject Calendar Year, and taking into account the preliminary Co-Promotion Payment made by the applicable Party as above) and Ambit ***Confidential Treatment Requested 50
C ONFIDENTIAL or AUS, as applicable, shall [***] of such recalculation the needed final reconciliation payment for such Calendar Year so that Ambit and AUS will have received (or borne, as applicable), after both such payments, its fifty percent (50%) share of the total U.S. Annual Profit/Loss for the Co-Promoted Product for the Calendar Year (or, as applicable, any part thereof) during the Co-Promotion Term. 4.4.4 Recordkeeping. With respect to each Co-Promoted Product, each Party and its Related Parties shall keep complete and accurate records and documentation with respect to all Allowed Expenses, and, in the case if AUS, all Net Sales of the Co-Promoted Product during its applicable Co-Promotion Period, in each case in sufficient detail to enable the other Party to verify the accuracy of the Co-Promotion Payment for the applicable Calendar Year. 4.5 Other Amounts Payable. Certain payments due under this Agreement are accounted for outside this Article 4, including payments between the Parties with respect to Research Costs and Development Costs, which are governed by Section 2.7.1, repayment of Development Costs relating to Declined Development Activities, which are governed by Section 2.7.4(d), payments in respect of recall expenses which are governed by Section 2.10, and amounts to be shared in connection with suits by Third Parties for intellectual property infringement which are governed to Section 8.4.2(c). Unless otherwise indicated with respect to the applicable payment term, [***] after the end of each Calendar Quarter, each Party shall invoice the other Party for any amounts owed by the other Party under this Agreement that are not otherwise accounted for in this Article 4. The invoicing Party shall have the right to offset part or all of such invoiced amount or any other payments due under this Agreement, including amounts due under this Section 4.5, against payments owed to the other Party by the invoicing Party pursuant to this Article 4 (including payments in respect of milestones, royalties, but excluding payments in respect of the Annual U.S. Profit/Loss). The owing Party shall pay any undisputed amounts that have not been so offset [***], and any disputed amounts owed by a Party shall be paid (or offset) [***] of resolution of the dispute. 4.6 Audits
4.6.1 Recordkeeping and Audits . Each Party and its Affiliates shall prepare and maintain, and shall require all their sublicensees (including Sublicensees) to prepare and maintain, complete and accurate records of pertaining to the determination of the Research Costs, Development Costs, Net Sales of Products and all Allowed Expenses as needed to verify the accuracy of reports and payments due hereunder. Such records shall be maintained at least until the date that is five (5) years after the Calendar Quarter in which the applicable sales occurred or such costs and expenses where invoiced. Upon the written request of the other Party, and not more than once in each Calendar Year, each Party shall permit an independent certified public accounting firm of nationally recognized standing selected by the other Party and reasonably acceptable to the audited Party, at the auditing Partys expense, to have access during normal business hours to such of the records of the audited Party as may be reasonably necessary to examine and verify the accuracy of the reports and payments due hereunder. Such examinations shall not occur more than thirty-six (36) months after the Calendar Quarter in which the applicable sales occurred or such costs and expenses were invoiced. The ***Confidential Treatment Requested 51
C ONFIDENTIAL accounting firm shall disclose to the auditing Party only whether the reports are correct or incorrect and the amount of any discrepancy. No other information shall be provided to the auditing Party. In the case of a reported discrepancy, the Audited Party shall continue to retain the relevant records until the discrepancy is resolved between the Parties. 4.6.2 Discrepancies. If such accounting firm identifies a discrepancy in any report made during the period audited leading to a discrepancy in payments required to be made under this Agreement, the appropriate Party shall pay the other Party the amount of the discrepancy within sixty (60) days of the date such accounting firms written report so concluding is delivered to the audited Party, plus interest thereon at the rate of the Prime Rate (as published by Reuters or, if not available, by Bloomberg, L.P.) plus one percent (1%) per annum calculated based on the number of days elapsed from the date payment was originally due until the date payment is made. The fees charged by such accounting firm shall be paid by the auditing Party, provided, however, that if such audit requires a payment by the audited Party that exceeds one hundred thousand dollars (US$100,000), then the fees of such accounting firm shall be paid by the audited Party. 4.6.3 Sublicensee Reports. Each Party shall include in each sublicense granted by it pursuant to this Agreement a provision requiring the sublicensee to make reports to such Party, to keep and maintain records of sales made and expenses incurred pursuant to such sublicense and to grant access to such records by the other Partys independent accountant to the same extent required of the Party under this Agreement. 4.6.4 Date Reports Deemed Conclusive. Upon the expiration of each Partys obligations to retain records under Section 4.6.1, any reports or invoices detailing amounts that one Party may owe to the other Party hereunder shall be binding and conclusive upon the Parties, and the Parties and their respective Related Parties shall be released from any liability or accountability with respect to payments that would otherwise be required pursuant to Section 4.6 for the period covered by such report, except to the extent that fraud can be proven. 4.6.5 Audit Confidentiality. Each Party shall treat all financial information subject to review under Section 4.6.1 or under any sublicense agreement in accordance with the confidentiality and non-use provisions of this Agreement, and shall cause its accounting firm to enter into a reasonably acceptable confidentiality agreement with the other Party and/or its Affiliates, or in the case of Astellas, its other Related Parties obligating it to retain such information in confidence and to refrain from using such information for any other purpose, in each case pursuant to such confidentiality agreement. 4.7 Payment Exchange Rate All payments to be made by one Party to the other Party under this Agreement shall be made in United States Dollars and may be paid by bank wire transfer in immediately available funds to such bank account in the United States as may be designated in writing by the payee Party from time to time. In the case of sales or expenses outside the United States, the rate of exchange to be used in computing the amount of currency equivalent in United States Dollars shall be made at the monthly rate of exchange utilized by Astellas in its worldwide accounting system that are independently audited on an annual basis and are consistently applied to its products. 52
C ONFIDENTIAL 4.8 Income Tax Withholding
4.8.1 Taxes on Income. Each Party shall be solely responsible for the payment of all taxes imposed on its share of income arising directly or indirectly from the collaborative efforts of the Parties under this Agreement. 4.8.2 Tax Cooperation. The Parties agree to cooperate with one another and use reasonable efforts to avoid or reduce tax withholding or similar obligations in respect of royalties, milestone payments, and other payments made by Astellas to Ambit under this Agreement. Without limiting the generality of the foregoing, Ambit shall provide Astellas any tax forms and other information that may be reasonably necessary in order for Astellas to not withhold tax or to withhold tax at a reduced rate under an applicable bilateral income tax treaty. Ambit shall provide any such tax forms to Astellas at least thirty (30) days prior to the due date for any payment for which Ambit desires that Astellas apply a reduced withholding rate. Each Party shall provide the other with reasonable assistance to enable the recovery, as permitted by Applicable Law, of withholding taxes, value added taxes, or similar obligations resulting from payments made under this Agreement, such recovery to be for the benefit of the Party bearing such withholding tax or value added tax. 4.8.3 Payment of Tax. To the extent Astellas is required by Applicable Law to deduct and withhold taxes on any payment to Ambit, Astellas shall pay the amounts of such taxes to the proper Governmental Authority in a timely manner and promptly transmit to Ambit an official tax certificate or other evidence of such withholding sufficient to enable Ambit to claim such payment of taxes. 4.8.4 Treatment of Certain Withholding Taxes. If Astellas is required to deduct and withhold taxes on any payment to Ambit and such withholding obligation arises as a result of any action by Astellas that has the effect of modifying the tax treatment of the Parties hereto (including any assignment or sublicense, or any failure on the part of Astellas to comply with Applicable Law or filing or record retention requirements) (an Astellas Withholding Tax Action), then the sum payable by Astellas (in respect of which such deduction or withholding is required to be made) shall be increased to the extent necessary to ensure that Ambit actually receives the sum that it would have received had no such Astellas Withholding Tax Action occurred; provided, however, that no such increase shall apply to the extent such increase would have resulted (a) from a change in Applicable Law increasing the applicable withholding tax rate, which change occurs after the Effective Date, (b) in circumstances where actions or inactions of Ambit or any of its Affiliates cause a change in the applicable withholding tax rate, for example, the failure of Ambit to timely provide to Astellas the appropriate treaty forms and the certificate of residence necessary for Astellas to withhold at a more favorable rate or the assignment by Ambit to an Affiliate or Third Party of the right to receive any payments hereunder or (c) from the failure of Ambit to meet a limitation of benefits provision of the US/Japan Tax Treaty. 5. 5.1 REPRESENTATIONS, WARRANTIES AND COVENANTS Mutual Representations and Warranties. Each Party hereby represents and warrants to the other Party as of the Effective Date, and covenants (as applicable) to the other Party as follows: 53
C ONFIDENTIAL 5.1.1 Corporate Existence and Power. It is a company or corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction in which it is incorporated, and has full corporate power and authority and the legal right to own and operate its property and assets and to carry on its business as it is now being conducted and as contemplated in this Agreement, including, without limitation, the right to grant the licenses, rights of reference and other similar rights granted by it hereunder. 5.1.2 Authority and Binding Agreement. (a) It has the corporate power and authority and the legal right to enter into this Agreement and perform its obligations hereunder; (b) it has taken all necessary corporate action on its part required to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder; and (c) this Agreement has been duly executed and delivered on behalf of such Party, and constitutes a legal, valid, and binding obligation of such Party that is enforceable against it in accordance with its terms. 5.1.3 No Conflict. It is not a party to and will not enter into any agreement that would prevent it from granting the rights or exclusivity granted or intended to be granted to the other Party under this Agreement or performing its obligations under this Agreement. 5.1.4 Rights to Resulting Technology. It shall obtain from each of its Affiliates, sublicensees, employees and agents, and from the employees and agents of its Affiliates, sublicensees and agents, who are performing activities under the Research Plan or a Development Program or are otherwise participating in the Exploitation of the Licensed Compounds or Products or who otherwise have access to any Ambit Know-How or Program Know-How or other Confidential Information of the other Party, rights to any and all Information that relates to the Licensed Compound or Products, such that the Parties shall, by virtue of this Agreement, receive from, without payments beyond those required by under this Agreement, the licenses and other rights granted hereunder. 5.2 Representations, Warranties and Covenants of Ambit . Ambit represents and warrants to Astellas as of the Effective Date of this Agreement, and covenants to Astellas as follows: 5.2.1 Title. (a) Ambit is the sole and exclusive owner of the entire right, title and interest in (i) the Regulatory Materials and Regulatory Approvals existing as of the Effective Date, (ii) the Patent Rights listed on Exhibit B as of the Effective Date, and (iii) Information consisting of nonclinical data and clinical data relating to the Lead Product that has been generated in connection with activities conducted or sponsored by or on behalf of Ambit or any of its Affiliates as of the Effective Date, and (iv) without limitation of clause (iii), clinical data relating to the Lead Product that is otherwise in the possession of Ambit or its Affiliates or subcontractors as of the Effective Date, which Information in the case of clause (iii) and (iv), for clarity, constitutes Ambit Know-How (collectively, (i), (ii), (iii) and (iv), the Selected IP and Materials). Ambit is the owner or licensee of any and all Ambit Know-How, other than the Ambit Know-How covered by the immediately foregoing sentence. Ambit is entitled to grant the licenses and rights of reference to Astellas specified in Article 3. Exhibit B lists all of the Patent Rights that exist as of the Effective Date and are within Ambits or its Affiliates ownership or Control that would be reasonably necessary for the Exploitation of Licensed Compounds and 54
C ONFIDENTIAL Products. To Ambits Knowledge, each of the Ambit Licensed Patents listed on Exhibit B properly identifies each and every inventor of the claims thereof as determined in accordance with the laws of the jurisdiction in which such Ambit Licensed Patent is issued or such application is pending. (b) The Selected IP and Materials are not subject to any encumbrance, lien or claim of ownership by any Third Party, and, except as disclosed in Schedule 5.2.1 (by reference to the applicable Third Party and the applicable agreement, if any), neither Ambit nor any of its Affiliates has entered into any agreement granting any right, interest or claim in or to any Ambit Compound or Selected IP and Materials to any Third Party (including any license, option, right of reference, or covenant not to sue). For purposes of this Section 5.2.1, each Third Party identified in Schedule 5.2.1 shall be referred to as a Relevant Third Party, and each agreement listed in Schedule 5.2.1 shall be referred to as a Relevant Agreement. For purposes of this Section 5.2.1, in the event that Ambit has failed to disclose in Schedule 5.2.1 any Third Party or related agreement that should have been disclosed in order to make the first sentence of this Section 5.2.1(b) true, correct and complete, Ambit shall notify Astellas thereof immediately upon such discovery or determination by Ambit and, whether or not such notice is provided, each such Third Party and each applicable agreement shall automatically be deemed to constitute a Relevant Third Party and a Relevant Agreement, respectively, as of the Effective Date. To Ambits Knowledge, except as specifically described on Schedule 5.2.1, none of any Relevant Third Party or any of its employees, agents, or representatives, or any Person to which any such Relevant Third Party has disclosed or otherwise granted access to any Ambit Compound, Ambit Technology, Regulatory Materials or Regulatory Approvals, or other proprietary materials or information of Ambit, has conceived, discovered, developed, generated or otherwise made any invention or other intellectual property in connection with activities under or permitted pursuant to the Relevant Agreement, and Ambit has not received notice of the conception, discovery, development, generation or making of any such invention or intellectual property. Neither Ambit nor any of its Affiliates is currently using, and neither Ambit nor any of its Affiliates will, without Astellas prior consent, use in any research or development activities concerning any Ambit Compound, including any activities under this Agreement. any data or other results disclosed or otherwise provided to Ambit or any of its Affiliates by or on behalf of any Relevant Third Party, and no such data or results have been included by Ambit or any of its Affiliates in any Regulatory Materials or Regulatory Approvals. No option or other similar right provided to Ambit to obtain a license under any Relevant Agreement has expired or terminated without Ambit having exercised such option or other similar rights with respect to any inventions, intellectual property or other results disclosed to it under the Relevant Agreement or of which it is aware, and Ambit shall obtain Astellass prior written consent prior to declining to exercise or allowing to lapse any such option or similar rights and prior to terminating or amending (or allowing to be terminated) any license granted to Ambit under any Relevant Agreement. As of the Effective Date, Ambit has not been granted a license by any Relevant Third Party with respect to any inventions, intellectual property or other results arising under such agreement or otherwise relating to any Ambit Compound, Ambit Technology, Regulatory Materials or Regulatory Approvals, or the exploitation thereof, or otherwise been granted any license as a result of activities under any Relevant Agreement, except as expressly provided in the Relevant Agreements actually listed on Schedule 5.2.1. Ambit has not materially breached, and will not materially breach, any Relevant Agreement. At the request of Astellas, Ambit will terminate any and all Relevant Agreements with respect to which Ambit has the right to terminate the 55
C ONFIDENTIAL Relevant Agreement promptly after request by Astellas, or if there is no such right of termination as of the Effective Date, as of the earliest date following such request by Astellas as Ambit is permitted to terminate such Relevant Agreement(s). At the request of Astellas, Ambit shall use its best efforts to confirm promptly in writing with any and all Relevant Third Party(ies) whether any of the foregoing described inventions, intellectual property or other results have been conceived, discovered, developed, generated or otherwise made under the Relevant Agreement, and, to obtain meaningful disclosures with respect thereto to the full extent permitted by the Relevant Agreement. 5.2.2 No Proceedings. There are no claims, judgments or settlements against or owed by Ambit with respect to, and there are no pending or, to Ambits Knowledge, overtly threatened, claims or litigation relating directly to the Ambit Technology, any Licensed Compound or Product or to the transactions contemplated by this Agreement. Further, no Third Party has challenged the extent, validity or enforceability of any Patent Rights encompassed within the Ambit Licensed Patents (a) through the institution of legal proceedings, in a court or of interference, nullity, opposition or similar invalidity proceedings before the U.S. Patent and Trademark Office or any analogous foreign entity or (b) to the Knowledge of Ambit following reasonably diligent inquiry, by written threat of institution of such proceedings. 5.2.3 Third-Party Activities . As of the Effective Date, to Ambits Knowledge, there is no actual infringement or overtly threatened infringement of the Ambit Licensed Patents by any Third Party (in the case of pending claims, evaluating them as if issued) or misappropriation of the Ambit Know-How. 5.2.4 No Third Party Payments. Other than as disclosed to Astellas in writing, to Ambits Knowledge, it does not owe to any Third Party any royalty or other payments based on the development or commercialization of Licensed Compounds or Products as licensed herein. 5.2.5 No Knowledge of Invalidity . After performance of an investigation, Ambit is not aware of any prior art or other facts based on which it has concluded that the Ambit Licensed Patents existing as of the Effective Date are likely, or in the case of any pending claims of Ambit Licensed Patents, if issued, would likely be, invalid or unenforceable, in whole or in part. In respect of United States Patent applications included in the Ambit Licensed Patents, to its Knowledge, Ambit has presented all relevant prior art of which it and the inventors are aware to the United States Patent and Trademark Office. 5.2.6 Non-infringement of Third Party Rights. To Ambits Knowledge, the conception, development and reduction to practice of any inventions and the use or development of any other Information within the Ambit Technology, and any and all Regulatory Materials and Regulatory Approvals submitted to or filed with a Regulatory Authority by Ambit or any of its Affiliates, have not constituted or involved the misappropriation of trade secrets or other rights or property of any Third Party. To Ambits Knowledge, the Exploitation by Astellas or any Related Parties after the Effective Date of AC220 and the Lead Product throughout the Territory or the use or practice the Ambit Technology and the Regulatory Materials as contemplated in this Agreement will not infringe any patent applications or patents owned or controlled by a Third Party (in the case of pending claims, evaluating them as if issued). Ambit has not received any written notice from a Third Party asserting or alleging any of the foregoing. 56
C ONFIDENTIAL 5.2.7 Disclosure. Ambit has heretofore disclosed or made available to Astellas (a) all material scientific and technical information known to Ambit or its Affiliates relating to (i) the safety, toxicity and efficacy of AC220 and the Lead Product, including the results of all material nonclinical studies (which include all nonclinical ADME (absorption, distribution, metabolism, and excretion) studies, safety pharmacology studies and toxicology studies) conducted by or on behalf of Ambit or any of its Affiliates, and of all Clinical Trials with respect to the foregoing, and (ii) the drug quality, including stability, variability, impurities and delivery performance, of AC220 and the Lead Product and (b) all material Regulatory Materials and Regulatory Approvals submitted to, or filed with, or listed by a Regulatory Authority and the status of all material discussions with Regulatory Authorities, in each case, in respect of AC220 or the Lead Product. 5.2.8 Adverse Information. No serious adverse event information resulting from Clinical Trials has come to the attention of Ambit or any of its Affiliates with respect to AC220 or the Lead Product that is materially different with respect to the incidence, severity or nature of such serious adverse events than the information that was filed as safety updates to any Regulatory Materials or Regulatory Approvals, and all written data summaries that were included in any Regulatory Materials or Regulatory Approvals based on Clinical Trials conducted or sponsored by Ambit or any of its Affiliates accurately summarize in all material respects the raw data underlying such summaries. 5.2.9 INDs in Good Standing. Ambit has not received any written notice that indicates that any of the INDs for AC220 or the Lead Product are not currently in good standing with the FDA or other Regulatory Authority. 5.2.10 Disclosures and Submissions to Regulatory Authorities. As of the Effective Date, Ambit has prepared, maintained and retained all Regulatory Materials that are required to be maintained or reported pursuant to and in accordance with Applicable Law, and to Ambits Knowledge all such information is true, complete and correct and what it purports to be. Neither Ambit nor any of its Affiliates, nor any of its or their respective officers, employees, or agents has made an untrue statement of material fact or fraudulent statement to the FDA or any other Regulatory Authority with respect to the development of AC220 or the Lead Product, failed to disclose a material fact required to be disclosed to the FDA or any other Regulatory Authority with respect to the development of AC220 or the Lead Product, or committed an act, made a statement, or failed to make a statement to the FDA or any other Regulatory Authority with respect to the development of AC220 or the Lead Product that could reasonably be expected to provide a basis for the FDA to invoke its policy respecting Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities, set forth in 56 Fed. Reg. 46191 (September 10, 1991) and any amendments thereto. Ambit is not aware of any facts or other information that is likely to adversely affect the acceptance, or the subsequent approval, by any Regulatory Authority of any filing, application or request for Regulatory Approval, or that would otherwise materially adversely affect the scientific or therapeutic potential of AC220 or the Lead Product, provided that the representation and warranty contained in this sentence is not intended and shall not be construed to cover facts and information that Ambit can demonstrate were disclosed to Astellas in writing prior to the Effective Date. 5.2.11 Conduct of Development. Ambit has conducted, or has caused its contractors and consultants to conduct, any and all preclinical and clinical studies related to the 57
C ONFIDENTIAL Compounds and Licensed Products in accordance with good laboratory and clinical practice as and where appropriate, and Applicable Law. 5.2.12 US/Japan Tax Treaty. Ambit satisfies the limitation on benefits provision of the Convention between The Government of the United States of America and The Government of Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (US/Japan Tax Treaty). 5.2.13 No Government Funding. The Exploitation prior to the Effective Date of AC220 and the Lead Product has occurred and been conducted outside of any government-funded project, and none of AC220, the Lead Product, or any Ambit Technology is or will be subject to 37 C.F.R. Parts 401 and 404 or any foreign equivalent. 5.2.14 HSR. With reference to the Hart-Scott-Rodino Antitrust Improvements Act, 15 U.S.C. 18a, and the Coverage Rules promulgated thereunder, 16 C.F.R. 801, according to Ambits last regularly prepared balance sheet, [***]. In addition, according to Ambits last regularly prepared annual statement of income and expenses, which included the income and expenses of Ambit and of all entities included within Ambit, the total income earned by Ambit and by all entities included within Ambit did not [***]. Further, Ambit is not a person engaged in manufacturing as that term is defined in the Coverage Rules, 16 C.F.R. 801.1(j). 5.3 Covenants by Ambit. Ambit covenants and agrees as follows:
5.3.1 Ongoing Covenants. From the Effective Date until the expiration of the Term: (a) Neither Ambit nor its Affiliates shall enter into any agreement with any Third Party, whether written or oral, with respect to, or otherwise assign, transfer, license, or convey its right, title or interest in or to, the Ambit Technology, Ambits interest in and to any Program Technology, Regulatory Materials, Regulatory Approvals or any Licensed Compound or Product, in each case, that is in conflict with the rights thereunder granted by Ambit to Astellas under this Agreement or that would prevent Ambit from performing its obligations under this Agreement; and (b) Ambit shall not grant any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance or imposition with respect to the Ambit Technology, Ambits interest in and to any Program Technology, Regulatory Materials, Regulatory Approvals or any Licensed Compound or Product that would prevent it from performing its obligations under this Agreement. 5.3.2 Product Warranty. Ambit covenants and warrants that all Lead Product supplied to Astellas by or on behalf of Ambit in accordance with Section 3.6.2(c) hereunder and used in Clinical Trials or other development under the Development Program therefor: (a) will be in conformity with the applicable specifications therefor at the time of delivery; (b) will have been manufactured in compliance with cGMP, if required, and Applicable Law; (c) to the Knowledge of Ambit, will have been manufactured in facilities that are in compliance with Applicable Law at the time of such manufacture (including applicable inspection requirements of the FDA and other Regulatory Authorities); (d) will not be adulterated or misbranded under the Act; (e) may be introduced into interstate commerce pursuant to the Act (subject to Astellas or Ambit obtaining or having obtained all Regulatory Approvals needed for such introduction); and (f) unless otherwise agreed ***Confidential Treatment Requested 58
C ONFIDENTIAL by the Parties, will have an expiration date no earlier than [***] after the date of delivery thereof; provided that Ambits liability to Astellas for breach of the foregoing covenant and warranty shall not exceed the greater of (i) [***] or (ii) the maximum aggregate amount that Ambit actually recovers pursuant to any and all agreements between Ambit and any Third Party(ies) that performed any contract manufacturing activities with respect to the Product (including any intermediate of any Licensed Compound or other material contained therein) that gave rise to such breach, based on such Third Partys breach of such agreement (or other basis for recovery under such agreement) resulting from the failure of such Product or Licensed Compound to comply with the requirements of this Section 5.3.2. Ambit shall use commercially reasonable efforts to obtain such recoveries. 5.4 Disclaimer EXCEPT AS EXPRESSLY PROVIDED IN SECTION 5.1, 5.2 or 5.3, NEITHER PARTY MAKES ANY, AND HEREBY DISCLAIMS ALL, REPRESENTATIONS OR WARRANTIES (EITHER EXPRESS OR IMPLIED), INCLUDING ANY EXPRESS OR IMPLIED WARRANTY CONCERNING THE MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT, OR NONMISAPPROPRIATION OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS. 6. 6.1 CONFIDENTIALITY Restricted Information. Ambit recognizes that by reason of Astellass status as an exclusive licensee pursuant to the grants under Section 3.1, Astellas has an interest in Ambits retention in confidence of Ambit Know-How, Ambit Program Know-How and Joint Program Know-How that relates directly to the Licensed Compounds or Products. Accordingly, until the expiration of Astellass exclusive license in all countries with respect to each Licensed Compound and Product under Section 3.3.1, Ambit shall, and shall cause its Affiliates and their respective officers, directors, employees and agents to, keep completely confidential, and not publish or otherwise disclose to any Third Party (except as expressly permitted under this Agreement), and not use for any purpose other than as permitted or contemplated in this Agreement, any specific Ambit Know-How, Ambit Program Know-How or Joint Program Know-How that comprises or relates directly to any Licensed Compound or Product, or the Exploitation thereof, including data and results of Clinical Trials and nonclinical studies with respect to any Licensed Compound or Product (whether conducted prior to or during the Term), or any Regulatory Materials and Regulatory Approvals with respect thereto (the Restricted Information); provided, however, that the Restricted Information shall not include any Information to the extent (a) such Information is in the public domain through no fault of Ambit, its Affiliates or any of their respective officers, directors, employees or agents, (b) such Information relates broadly to Ambits technology and/or other compounds or products that are not Licensed Compounds (or the discovery, research, characterization, manufacture, or use thereof) and has substantial utility for purposes outside of the exclusive rights licensed to Astellas under this Agreement; (c) disclosure or use of the Information by Ambit would be expressly permitted under Section 6.2.2; or (d) disclosure or use of the Information by Ambit is otherwise expressly permitted by the terms of this Agreement. For clarification, the disclosure by Ambit to Astellas of Restricted Information shall not cause such information to cease to be subject to the provisions of this Section 6.1. In the event this Agreement is terminated in its entirety by Astellas ***Confidential Treatment Requested 59
C ONFIDENTIAL pursuant to Section 9.2, 9.3 or 9.4 or by Ambit pursuant to Section 9.3 or 9.4, this Section 6.1 (other than this final sentence) shall terminate and have no continuing force or effect and the Restricted Information (other than (i) the Joint Program Know-How included therein and (ii) the Regulatory Materials and Regulatory Approvals included therein to the extent that such Regulatory Materials and Regulatory Materials are not assigned to Ambit pursuant to Section 9.6.1(f) or 9.6.2(c)) shall thereafter be deemed solely to be Confidential Information of Ambit, for purposes of the surviving provisions of this Agreement. 6.2 Nondisclosure and Non-Use Obligations
6.2.1 General Nondisclosure and Non-Use Requirements . All Confidential Information of a Party shall be maintained in confidence by the receiving Party, and shall not be disclosed to any Third Party or Related Party, or used for any purpose except as expressly permitted under the terms of this Agreement, without the prior written consent of the disclosing Party. 6.2.2 Exceptions. Each Party (and its Affiliates) may disclose Confidential Information of the other Party, and Ambit may disclose the Restricted Information (each such Party, the Obligated Party), to the extent that such Confidential Information or Restricted Information, as applicable: (a) is disclosed by the Obligated Party as reasonably necessary for the filing, prosecution or maintenance of Patent Rights that are the subject of this Agreement as permitted in accordance with Section 8.3, or, for obtaining, maintaining or expanding Regulatory Approvals as permitted pursuant to this Agreement; (b) is (i) licensed to Astellas under this Agreement and is necessary or reasonably needed to be disclosed by Astellas to its Related Parties, agents, consultants, and/or other Third Parties in order to conduct, development, manufacturing or marketing of the Product in accordance with this Agreement (or for such entities to determine their interest in performing such activities) or (ii) licensed to Ambit under this Agreement and is necessary or reasonably needed to be disclosed by Ambit to its Affiliates, agents, consultants, permitted sublicensees or other Third Parties in order to conduct the research, development, manufacturing or marketing of any Licensed Compound or Product in accordance with this Agreement (or for such entities to determine their interest in performing such activities), provided that in all cases parties receiving the disclosure shall have agreed in writing to be bound by the confidentiality and non-use obligations at least as equivalent in scope as those set forth in Section 6.1 and 6.2, except the term of such obligations may be for as long a duration as can reasonably be negotiated, but in any case such term shall have a duration that is commercially reasonable under the circumstances; (c) is reasonably necessary to be disclosed to the Obligated Partys attorneys or independent accountants for the purpose of enabling such attorneys or independent accountants to provide needed professional advice to the Obligated Party, and on the condition that such Third Parties are bound by confidentiality and non-use obligations customary for the type of professional and are advised that the information being disclosed is confidential; 60
C ONFIDENTIAL (d) is reasonably necessary to be disclosed to the Obligated Partys financial advisors for the purpose of enabling such financial advisors to provide needed advice to the Obligated Party, and on the condition that such Third Parties are bound by confidentiality and non-use obligations customary for the type of recipient and are advised that the information being disclosed is confidential; or (e) is disclosed by the Obligated Party to accredited investors, lenders or bona fide potential acquirers, merger candidates, Sublicensees (or licensees or sublicensees, in the case of Ambit or its Affiliate, and in each case, to the extent Ambits grant of a license or sublicense to such Person would be consistent with the terms of this Agreement) or collaborators (and their respective professional advisors), in the context of due diligence investigations of such Party (or its Affiliate) solely for the purpose of evaluating a potential business transaction or relationship with the Party (or its Affiliate), and/or in negotiating and completing such transaction or relationship, and/or in performing such transaction or relationship, and on the condition that such Third Parties are bound by confidentiality and non-use obligations customary for the type of recipient and are advised that the information being disclosed is confidential. 6.2.3 Compelled Disclosure. Notwithstanding the obligations of Section 6.2.1, an Obligated Party shall be permitted to disclose specific Confidential Information of the other Party (or Restricted Information, in the case of Ambit as the Obligated Party) to the extent such disclosure is required by judicial or administrative process, provided that such Party promptly informs the other Party of the disclosure requirement, reasonably cooperates with any efforts by the other Party to challenge or limit the disclosure obligations, and discloses only such Confidential Information or Restricted Information as is (after any such efforts) required to be disclosed. Any such Confidential Information or Restricted Information that is disclosed pursuant to such judicial or administrative process shall remain otherwise subject to the confidentiality and non-use provisions of this Section 6.2, and the Party disclosing Confidential Information or Restricted Information pursuant to law or court order shall take all steps reasonably necessary, including without limitation seeking an order of confidentiality, to ensure the continued confidential treatment of such information. 6.3 Publication Astellas and Ambit each acknowledge the other Partys interest in publishing and presenting the results of its research in order to obtain recognition within the scientific community and to advance the state of scientific knowledge. However, any publication or presentation of Confidential Information (of the other Party), Joint Program Know-How, and/or any information arising from the Development Program or Research Program shall be solely by written agreement of the Parties. Each Party also recognizes the mutual interest in obtaining valid patent protection and in protecting business interests and trade secret information. Consequently, except for disclosures permitted pursuant to Section 6.2.2, either Party, its employees or consultants wishing to make a publication or presentation containing Confidential Information (of the other Party), Joint Program Know-How, and/or any information arising from the Development Program or Research Program shall deliver to the other Party a copy of the proposed written publication or an outline of an oral disclosure at least [***] prior to submission for publication or presentation. The reviewing Party shall have the right (a) to propose modifications to the publication or presentation for patent reasons, trade secret reasons or business reasons and/or (b) to request a reasonable delay in ***Confidential Treatment Requested 61
C ONFIDENTIAL publication or presentation in order to protect patentable information. If the reviewing Party requests a delay, the publishing Party shall delay submission or presentation for a period of [***] to enable patent applications protecting each Partys rights in such Confidential Information to be filed in accordance with Article 8 below. Upon expiration of such [***], the publishing Party shall be free to proceed with the publication or presentation provided the publishing Party has obtained written confirmation from the reviewing Party that such patent applications have been filed. If the reviewing Party requests modifications to the publication or presentation, the publishing Party shall edit such publication or presentation to prevent disclosure of trade secret or proprietary business information of the reviewing Party prior to submission of the publication or presentation. If a publication or presentation by Astellas or an Astellas Affiliate results from work performed by Ambit or relating to the Ambit Technology or the Development Program or the Research Program, Astellas and/or its Affiliates agrees to acknowledge Ambit and give credit to Ambits scientists, as scientifically appropriate, based on any contribution they may have made to the work, subject to the approval of Ambit. Likewise, if a publication or presentation by Ambit results from work performed by Astellas and/or its Affiliates or the Development Program or the Research Program, Ambit agrees to acknowledge Astellas and/or its Affiliates and give credit to Astellass or Astellas Affiliates scientists, as scientifically appropriate, based on any contribution they may have made to the work, subject to the approval of Astellas. Further, Astellas would have a right to publish the results and summaries of the Clinical Trials, observational or meta-analysis studies relating to the Product on a clinical trial register maintained by Astellas, clinical trial agreements, and the protocols of Clinical Trials relating to Product on www.ClinicalTrials.gov (or similar forum) (or as otherwise required by Astellass policies). Without any limitation of any other term or condition of this Agreement, Ambit would co-operate with Astellas in such effort, including reasonable efforts to provide Astellas with the protocols, results, data and other information relating all Clinical Trials conducted by Ambit on a Product. 6.4 Publicity/Use of Names/Disclosure of Terms
6.4.1 Terms of Agreement; Initial Press Release . The Parties agree that the material terms of this Agreement are the Confidential Information of both Parties (and shall not constitute Restricted Information), subject to the special authorized disclosure provisions set forth in Section 6.4. The Parties have agreed to make a joint public announcement of the execution of this Agreement substantially in the form of the press release attached as Exhibit F on or within two (2) trading days after the Effective Date. 6.4.2 Use of Names . Neither Party shall use the name, trademark, trade name or logo of the other Party, its Affiliates or Related Parties or their respective employees in any publicity, promotion, news release or disclosure relating to this Agreement or its subject matter, without the prior express written permission of the other Party, except as may be required by law. Each Party hereby consents to the use of its name and logo by the other Party in making reference to the existence of the Agreement including on each Partys website only to the extent permitted in this Section 6. 6.4.3 Other Disclosures. Except as otherwise provided below, neither Party shall make any public disclosure of the terms of this Agreement or any activities conducted under this Agreement beyond those otherwise described in the press release contemplated by Section 6.4.1, or as permitted under Section 6.1, or otherwise previously publicly disclosed without the prior written approval of the other Party, such approval not to be ***Confidential Treatment Requested 62
C ONFIDENTIAL unreasonably withheld. Notwithstanding the foregoing, each Party shall be permitted to make public disclosure of the terms of the Agreement or of Information relating to the Agreement to the extent such disclosure is required by Applicable Law (including securities laws or regulations) or by the Securities and Exchange Commission and/or any other governmental or regulatory agencies, or by the rules of the national securities exchange on which such Partys shares are listed (including disclosures in connection with securities filings made in connection with a Partys public offering of its securities or in satisfaction of related disclosure requirements), provided that such Party shall use reasonable efforts to obtain confidential treatment of confidential financial and technical Information to the extent such treatment is possible under Applicable Law. Each Party agrees that it shall reasonably cooperate in a timely manner with the other Party with respect to all such disclosures to the Securities and Exchange Commission and any other governmental or regulatory agencies, including requests for confidential treatment of Confidential Information of either Party included in any such disclosure. Such cooperation shall include at a minimum that the Party required to make a disclosure provides a draft of any filing to the other Party in due time before the filing. 7. 7.1 INDEMNIFICATION; INSURANCE; LIMITATION OF LIABILITY Indemnification by Ambit Ambit hereby agrees to indemnify, defend and hold harmless Astellas, its Related Parties, subcontractors and Distributors, and its and their respective directors, officers, employees and agents (collectively, Astellas Indemnified Parties) from and against any and all liabilities, judgments, losses, damages, costs and expenses (including reasonable attorneys fees and costs) (collectively, Losses) resulting from any Third Party allegations, proceedings, demands, actions, suits or claims ( Third Party Claims) against an Astellas Indemnified Party to the extent arising from or based on: 7.1.1 (a) the breach of Ambits representations and warranties contained in Section 5.1, 5.2 or 5.3 or any of its covenants or other obligations under this Agreement; or (b) the Exploitation of any Licensed Compounds or Products by or on behalf of Ambit or any of its Affiliates, (sub)contractors, or sublicensees (excluding Astellas or any of its Related Parties as licensees or sublicensees of Ambit hereunder), including any such Exploitation prior to the Effective Date, but excluding any Collaboration Program Activities (as defined below); or (c) the use or practice by Ambit or any of its Affiliates, (sub)contractors or sublicensees (excluding Astellas or any of its Related Parties as licensees or sublicensees of Ambit hereunder) of Astellas Technology or Astellas Program Technology outside the scope of the licenses granted in Section 3.3; or (d) the negligent or willfully wrongful actions or omissions of Ambit, its Affiliates, subcontractors or sublicensees (excluding Astellas or any of its Related Parties as licensees or sublicensees of Ambit hereunder), or the officers, directors, employees, or agents of Ambit or its Affiliates, subcontractors, or such sublicensees; or (e) any violation of Applicable Law by Ambit, its Affiliates, subcontractors or sublicensees (excluding Astellas or any of its Related Parties as licensees or sublicensees of Ambit hereunder), or the officers, directors, employees, or agents of Ambit or its Affiliates, (sub)contractors or such sublicensees; provided that such indemnification and defense obligation shall not apply to any Losses to the extent that such Losses either (i) are the subject of an indemnification obligation by Astellas under Section 7.2(a), (c), (d) or (e), or (ii) result from or were caused by the negligent or willfully wrongful actions or omissions of an 63
C ONFIDENTIAL Astellas Indemnified Party, as to which Losses with respect to each of clauses (a), (c), (d) and (e) of this Section 7.1.1 each Party shall indemnify the other to the extent of their respective liability for such damages or amounts; and 7.1.2 (a) the Exploitation by or on behalf of Ambit or its Affiliates, (sub)contractors, distributors or sublicensees (excluding such conduct by or on behalf of Astellas or any of its Related Parties as licensees or sublicensees of Ambit hereunder) of any Licensed Compound or Product (or the Licensed Compound contained therein) for the benefit of any Terminated Country(ies) following the applicable effective date of termination; (b) the exercise or use by or on behalf of Ambit, its Affiliates, (sub)contractors, distributors, licensees, or sublicensees (excluding such exercise by Astellas or any of its Related Parties as licensees and sublicensees of Ambit hereunder) of rights under any license or right of reference, or in or to any Regulatory Materials, Regulatory Approvals, and other Supporting Documents and trademarks, in each case granted, transferred or made available by or on behalf of Astellas or any of its Affiliates to Ambit following or in connection with termination of this Agreement with respect to any Terminated Country(ies), including pursuant to any post-termination Transition Agreement. 7.2 Indemnification by Astellas Astellas agrees to defend, indemnify and hold harmless Ambit and its Affiliates, sublicensees and subcontractors, and its and each of their respective directors, officers, employees, and agents (collectively the Ambit Indemnified Parties) from and against any and all Losses resulting from all Third Party Claims against any Ambit Indemnified Party arising from or based on: (a) a breach of Astellass representations and warranties contained in Section 5.1 or any of its covenants or other obligations under this Agreement; or (b) the Exploitation of any Licensed Compound or Product by or on behalf of Astellas or any of its Related Parties or subcontractors, but excluding any Collaboration Program Activities; or (c) the use or practice by Astellas or its Related Parties or subcontractors of Ambit Technology or Ambit Program Technology outside the scope of the licenses granted in Section 3.1.1; or (d) the negligent or willfully wrongful actions or omissions of Astellas, any of its Related Parties or subcontractors (excluding Ambit, its Affiliates, and sublicensees as licensees or sublicensees of Ambit hereunder), or the officers, directors, employees, or agents of Astellas or any of its Related Parties or subcontractors; or (e) any violation of Applicable Law by Astellas or any of its Related Parties or subcontractors (excluding Ambit, its Affiliates and sublicensees as licensees or sublicensees of Astellas hereunder), or the officers, directors, employees, or agents of Astellas or any of its Related Parties or subcontractors; provided that such indemnification and defense obligation shall not apply to the extent that such Losses either (i) are the subject of an indemnification obligation by Ambit under Section 7.1(a), (c), (d), or (e) or Section 7.1.2, or (ii) result from or were caused by the negligent or willfully wrongful actions or omissions of an Ambit Indemnified Party, as to which Losses with respect to each of clauses (a), (c), (d) and (e) of this Section 7.2 each Party shall indemnify the other to the extent of their respective liability for such Losses. 7.3 Notification of Claims; Conditions to Indemnification Obligations The Parties shall promptly notify each other of any Third Party Claims with respect to which indemnification under Section 7.1 or 7.2 of this Agreement is or (to the knowledge of the Party) likely could be sought. The Party requesting indemnification shall permit the indemnifying Party to assume the defense of such claims or suits giving rise to the 64
C ONFIDENTIAL request, at the indemnifying Partys sole expense. The Party requesting indemnification shall cooperate with the indemnifying Party in such defense when reasonably requested to do so. In no event shall the indemnifying Party compromise or settle any claim or suit in a manner that admits fault or negligence on the part of the indemnified Party, or that would otherwise adversely affect any rights of the indemnified Party, without the prior written consent of the indemnified Party (such consent not to be unreasonably withheld). The indemnifying Party shall have no liability under Section 7.1 or 7.2 of this Article 7 with respect to any Third Party Claims to the extent settled or compromised without the indemnifying Partys prior knowledge and express written consent. 7.4 Certain Third Party Claims. The Parties shall share equally any Collaboration Program Damages (as defined below). With respect to any Collaboration Program Damages incurred by a Party (or any of its Indemnified Persons) during the Term, such Collaboration Program Damages shall be deemed to constitute (and shall be included in) Research Costs, Development Costs or Allowed Expenses, as applicable (and the Parties shall cooperate in good faith to allocate such amount(s) to the appropriate cost category). After the Term, each Party shall reimburse the other Party for fifty percent (50%) of any Collaboration Program Damages incurred by such Party (or any of its Indemnified Persons) no later than sixty (60) days after receipt of reasonable documentation evidencing such amounts. If either Party receives notice of a Third Party Claim that arises from or is based on any Collaboration Program Activities, such party shall inform the other Party in writing as soon as reasonably practicable, and the Parties shall discuss and agree upon a strategy on how to defend against such Third Party Claim. For purposes of this Article 7, Collaboration Program Activities means any activities with respect to a Licensed Compound or Product conducted by either Party or any of its Affiliates, sublicensees or subcontractors at any time on or after the Effective Date during the Term consisting of (a) research or development for the purpose of, or in support of, (i) obtaining, maintaining or expanding Regulatory Approval in the U.S. or EU or (ii) commercialization of any Product in the U.S. or EU, in each case ((i) and (ii)) pursuant to any Research Plan or Development Plan, (b) commercialization of any Co-Promoted Product in the Co-Promotion Territory during the Co-Promotion Term, (c) Medical Affairs Activities with respect to any Co-Promoted Product in the Co-Promotion Territory during the Co-Promotion Term or (d) for clarity, the manufacture of any Product (including any intermediate thereof or any Licensed Compound or other material contained therein) for use in any activities under clause (a), (b) or (c). For purposes of this Section 7.4, Collaboration Program Damages means Losses payable by either Party (or any of its Indemnified Persons) to any Third Party claimant arising from or based on Collaboration Program Activities, including such damages and other amounts (and attorneys fees) from claims of infringement of a Third Partys Patent Rights or other intellectual property rights; provided, however, that Collaboration Program Damages shall exclude any and all damages and other amounts (including attorneys fees) for which a Party has an obligation to indemnify pursuant to Section 7.1 or 7.2. 65
C ONFIDENTIAL 7.5 Insurance Each Party shall, and shall cause its sublicensees (including Sublicensees) and its and their respective Affiliates to, have and maintain liability insurance, which in Astellass case may be in the form of self-insurance, covering the manufacture, use and sale of the Products in a manner consistent with industry standards, but in any event including product liability insurance with respect to the Products. Ambit shall maintain the following limits of such coverage: (a) not less than [***] in coverage in the aggregate as of the Effective Date; (b) subject to clause (c), not less than [***] in coverage in the aggregate as of the date of First Commercial Sale of the first Product in the Territory; and (c) not less than [***] in coverage in the aggregate as of the date of First Commercial Sale of the first Product in the Co-Promotion Territory with respect to which Ambit has exercised the Co-Promotion Option. Ambit shall upon request provide Astellas with a copy of such policies of insurance, along with any amendments and revisions thereto. Ambit shall list Astellas as an additional insured and loss payee on such policies of Ambit and ensure that such policies provide that Astellas shall be given thirty (30) days advance written notice of the termination thereof. Such policies or programs of self-insurance shall remain in effect throughout the Term and for a period of [***] thereafter (with the limits required to be in effect as of the last day of the Term maintained during such [***] period) and shall not be cancelled or subject to a reduction of coverage without the prior written authorization of the other Party. Maintenance of such insurance coverage shall not relieve a Party of any responsibility under this Agreement for damages in excess of insurance limits or otherwise. 7.6 Limitation of Liability IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, SPECIAL, PUNITIVE, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING, WITHOUT LIMITATION, ANY LOSS OF PROFITS, LOSS OF ROYALTIES AND MILESTONE PAYMENTS, LOSS OF BUSINESS, LOSS OF USE, LOSS OR INACCESSIBILITY OF DATA, OR INTERRUPTION OF BUSINESS, ARISING UNDER OR RELATING TO THIS AGREEMENT OR THE SUBJECT MATTER HEREOF, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, EXCEPT THAT THE FOREGOING LIMITATION SHALL NOT APPLY TO DAMAGES RESULTING FROM THE GROSS NEGLIGENCE OR INTENTIONAL MISCONDUCT BY A PARTY OR ITS AFFILIATES, A PARTYS BREACH OF ARTICLE 6, OR TO THE INDEMNIFICATION OBLIGATIONS UNDER SECTIONS 7.1 AND 7.2. ***Confidential Treatment Requested 66
C ONFIDENTIAL 8. 8.1 INTELLECTUAL PROPERTY AND PATENT PROVISIONS Ownership
8.1.1 Ambit Technology. Subject to the licenses and rights granted to Astellas in this Agreement, all right, title and interest in and to Ambit Technology shall be and remain owned solely by Ambit and/or its Affiliates. 8.1.2 Astellas Technology. Subject to the licenses and rights granted to Ambit in this Agreement, all right, title and interest in and to Astellas Technology shall be and remain owned solely by Astellas and/or its Affiliates. 8.1.3 Ownership of Program Technology. (a) In General. As between the Parties, each Party shall own all inventions, improvements, and other Information conceived, discovered, developed or otherwise made, as necessary to establish authorship, inventorship or ownership under Applicable Law, solely by or on behalf of such Party (or its Affiliates, independent contractors or sublicensees (including Sublicensees) or its or their respective directors, officers, employees or agents) during the Term in connection with activities conducted under a Research Plan, Development Plan or otherwise under this Agreement, whether or not patentable, and any and all Patent Rights and other intellectual property rights appurtenant thereto. As between the Parties, each Party shall own an equal, undivided interest in all inventions, improvements and other Information that are conceived, discovered, developed or otherwise made, as necessary to establish authorship, inventorship or ownership under Applicable Law, jointly by or on behalf of each Party (or their respective Affiliates, independent contractors or sublicensees (including Sublicensees) or its or their respective directors, officers, employees or agents) during the Term in connection with activities conducted under a Research Plan, Development Plan or otherwise under this Agreement, whether or not patentable, and any and all Patent Rights and other intellectual property rights appurtenant thereto. (b) Program Technology. Subject to the licenses and other rights granted by each Party to the other Party in this Agreement, and without limitation to Section 8.1.3(a), (i) Ambit shall own all right, title and interest in and to any Ambit Program Technology, (ii) Astellas shall own all right, title and interest in and to any Astellas Program Technology, and (iii) each Party shall own an equal, undivided interest in and to all Joint Program Technology. Except for such rights in Joint Program Technology as are exclusively licensed to Astellas pursuant to Section 3.1 under this Agreement, each Party shall have the right to use, commercialize and otherwise make, have made, import, sell or offer for sale or otherwise exploit (including by researching, developing or registering, or by granting licenses to) the Joint Program Technology for all purposes (other than as exclusively licensed to the other Party under the licenses granted in this Agreement), without any consent of or accounting to the other Party. (c) Disclosure of Program Technology. Each Party shall promptly notify and disclose to the other Party any and all inventions constituting Program Technology that are conceived, made, created, discovered, developed, and/or reduced to practice solely by the Party or jointly by the Parties under a Development Program or the Research Program. In such notices, the disclosing Party shall identify any such inventions that the Party believes may be a patentable invention. 67
C ONFIDENTIAL (d) Ownership of Regulatory Materials and Regulatory Approvals . Notwithstanding the foregoing or any other term or condition of this Agreement to the contrary, ownership of Regulatory Materials and Regulatory Approvals shall be governed by Section 2.5.3. 8.1.4 Inventorship. Inventorship for patentable inventions conceived or reduced to practice during the course of the performance of activities pursuant to this Agreement shall be determined in accordance with United States patent laws for determining inventorship. 8.2 Rights to Newly-Acquired IP.
8.2.1 Disclosure. If after the Effective Date, Ambit (or its Affiliate) desires to acquire or in-license from a Third Party specific Patent Rights or proprietary Information that Ambit believes would fall within the scope of the definition of Ambit Licensed Patents or Ambit Know-How, as applicable, and for which Ambit will owe such Third Party consideration for such acquisition or in-license, and/or will owe such Third Party consideration based on use or practice of such Patent Rights or proprietary Information with respect to one or more Products (collectively, Newly-Acquired IP Rights ), then Ambit shall (a) inform Astellas in writing of the proposed terms of such in-license or acquisition and the costs of which Ambit proposes to share pursuant to this Section 8.2, (b) keep Astellas reasonably informed of the negotiations with such Third Party and (c) consider in good faith Astellass reasonable comments on such terms and negotiations to the extent relating to rights that could be sublicensed to Astellas hereunder. If Ambit (or its Affiliate) acquires or in-licenses from such Third Party any Newly-Acquired IP Rights then such Newly-Acquired IP Rights shall automatically be included in the Ambit Technology (absent a rejection as provided in Section 8.2.2 below). Ambit shall promptly disclose to Astellas: (i) such Newly-Acquired IP Rights, (ii) the reasonable allocation of any upfront consideration paid by Ambit (or its Affiliate) to such Third Party for the acquisition or in-license (as applicable) of such NewlyAcquired IP Rights, to the use or practice thereof with respect to Products, and (iii) the actual consideration that Ambit will be required to pay such Third Party if Ambit licenses (or sublicenses, as applicable) such Newly-Acquired IP Rights to Astellas under this Agreement and such Newly-Acquired IP Rights are used or practiced with respect to the development, manufacture, use, import, offer for sale or sale of Product(s) by Astellas or its Related Parties. 8.2.2 Rejection. Within [***] of such disclosure, Astellas shall elect in writing to Ambit either (a) to agree to pay to Ambit the amounts described in subclauses (ii) and (iii) of Section 8.2.1 above, as incurred and invoiced by Ambit within [***] after receipt of such an invoice, with respect to the license (or sublicense, as applicable) to Astellas of the applicable Newly-Acquired IP Rights disclosed by Ambit, or (b) to reject any such Newly-Acquired IP Rights disclosed by Ambit (with Astellas being deemed to have so rejected if Astellas does not make any such election by the end of such [***] period, in which case such rejected Patent Rights or Know-How shall be excluded from the definition of Ambit Licensed Patents or Ambit Know-How, as applicable, and in such case this Agreement shall not apply to such rejected Newly-Acquired IP Rights. Notwithstanding anything set forth in this Section 8.2, the payment obligation set forth in clause (a) shall not include any obligation to pay for any Newly-Acquired IP Rights acquired by Ambit without consultation with and agreement of Astellas as provided above. Any amounts that Astellas is obligated to pay with respect to such Newly-Acquired IP Rights shall be subject to the cost sharing contemplated under Section 4.3.4 with respect to such rights. ***Confidential Treatment Requested 68
C ONFIDENTIAL 8.3 Patent Filing, Prosecution and Maintenance.
8.3.1 Control Over Prosecution. (a) Ambit Licensed Patents. Subject to the remainder of this Section 8.3, Astellas shall, at its cost and expense (except as otherwise provided below), either itself or through the use of outside counsel selected by Astellas and reasonably acceptable to Ambit, direct and control the Prosecution of all Ambit Licensed Patents, in collaboration and consultation with Ambit as provided below. If Ambit exercises the Co-Promotion Option as to a particular Product, then with respect to any Ambit Licensed Patents in the United States that claim such Co-Promoted Product or a method of use or manufacture of such Co-Promoted Product, the Parties shall after such election share equally the costs and expenses of Astellass Prosecution of such Ambit Licensed Patents in the U.S., by such costs and expenses being treated as Allowed Expenses. In addition, any such Ambit Licensed Patents that are treated as Allowed Expenses shall be deemed Shared Cost Patents for purposes of Section 8.3.5. (b) Astellas Program Patents. Subject to the remainder of this Section 8.3, Astellas shall, at its cost and expense, either itself or through the use of outside counsel selected by Astellas and reasonably acceptable to Ambit, direct and control the Prosecution of all Astellas Program Patents, in collaboration and consultation with Ambit as provided below. (c) Ambit Program Patents and Joint Program Patents . Subject to the remainder of this Section 8.3, Ambit shall, either itself or through the use of outside counsel selected by Ambit and reasonably acceptable to Astellas, direct and control the Prosecution of all Ambit Program Patents, in collaboration and consultation with Astellas as provided below. Promptly after the Parties identify a potentially patentable invention within the Joint Program Know-How, the Parties shall discuss whether to file a Joint Program Patent claiming such invention, and if so which Party shall take the lead in directing and controlling the Prosecution of such Joint Program Patent. Astellas shall generally have the first right to control Prosecution of Joint Program Patents; provided, however, that Astellas shall consider in good faith any request by Ambit to control Prosecution, taking into account the subject matter of the Joint Program Patent at issue and its similarity or difference from the Ambit Licensed Patents and each Partys respective Program Patents. For each Joint Program Patent that the Parties agree to file, the Lead Prosecuting Party (as defined below) therefor shall direct and control the Prosecution of the Joint Program Patent (in all countries where the Parties agree to file such applications), using outside patent counsel mutually agreeable to the Parties, and in collaboration and consultation with the other Party. Subject to the opt-out provisions below, the Parties shall bear equally all reasonable costs and expenses of obtaining and maintaining the Joint Program Patents and the Ambit Program Patents (the Shared Cost Patents) during the Term, including reasonable fees and expenses paid to outside legal counsel and experts. Within thirty (30) days following the end of a Calendar Quarter, the Lead Prosecuting Party for any of the Shared Cost Patents shall provide to the other Party an invoice setting forth the costs and expenses (with detail showing the basis for all such charges) of the Prosecution it conducts on such Patents, and the other Party shall reimburse the Lead Prosecuting Party for one-half of such costs and expenses, within sixty (60) days of the invoice. 69
C ONFIDENTIAL 8.3.2 Prosecution Activities. With respect to the Ambit Licensed Patents and the Program Patents, the Party with the first right to control Prosecution of Patent Rights as set forth in Section 8.3.1(a) through (c) (the Lead Prosecuting Party) shall direct and control the Prosecution of such Patent Rights, including the preparation, filing and prosecution of all U.S. and foreign patent applications within such Patent Rights, and the conduct of any interferences, reexaminations, reissues and foreign oppositions relating to such Patent Rights (as further discussed in Section 8.3.7 below). 8.3.3 Cooperation. During Prosecution of the Ambit Licensed Patents or Program Patents, as applicable, the non-Lead Prosecuting Party shall cooperate fully with the Lead Prosecuting Party and provide reasonable assistance to such efforts, at the Lead Prosecuting Partys request, including signing any necessary or appropriate documents; providing written and testimonial evidence; and providing the Lead Prosecuting Party with other reasonable assistance as appropriate. 8.3.4 Right to Participate. Throughout the Prosecution of Ambit Licensed Patents and Program Patents, the Lead Prosecuting Party shall consult with the other Party and seek such other Partys input regarding such Prosecution efforts. Such consultation shall include the Lead Prosecuting Party providing the other Party a reasonable opportunity to review and comment on such Prosecution efforts regarding the applicable Ambit Licensed Patents or Program Patents, including by providing to such other Party copies of all material communications from any patent authority in the Territory regarding such patent applications, and by providing drafts of any responses and any material filings to be made to such patent authorities reasonably in advance of submitting such responses or filings, and reasonably discussing any comments made by such non-Lead Prosecuting Party regarding such Prosecution efforts and in good faith seeking to accommodate all reasonable comments made by such non-Lead Prosecuting Party. For the avoidance of doubt, the Lead Prosecuting Party will remain responsible for final decisions regarding such Prosecution, after such consultation with such other Party. 8.3.5 Option to Step-in to Prosecute and Maintain Patent Rights. (a) If the Lead Prosecuting Party, at any time, determines that it shall cease Prosecution of any particular Patent Rights as to which it is the Lead Prosecuting Party pursuant to Section 8.3.1 (on a country-by-country basis in the Territory), including as to any particular claims in such Patent Rights, then such Party shall give written notice to the other Party of such determination (such notice to be given at least sixty (60) days prior to any deadline for filing or providing a response which would cause such Patent Rights to lapse or be abandoned), and, in such case, shall permit the other Party, at its sole discretion, to continue Prosecution of such Patent Rights at its sole expense (unless the Lead Prosecuting Party is ceasing such Prosecution in favor of other Patent Rights for strategic reasons that will likely benefit the over all patent protection for a Product). If the other Party so elects to continue Prosecution of the applicable patent, it shall become the Lead Prosecuting Party with respect thereto, and the Party that is declining such Prosecution efforts shall execute such documents and perform such acts as reasonably necessary to permit the undertaking Party to continue such Prosecution on the Parties behalf, in a timely manner. In addition, either Party may, at any time, give notice to the other Party of its election to cease sharing costs with respect to the Prosecution and maintenance of a Shared Cost Patent and, in such case, the costs incurred with respect to such patent after the date of such disclaimer shall thereafter be borne exclusively by the other Party, without reimbursement or credit. 70
C ONFIDENTIAL (b) If the Lead Prosecuting Party elects to discontinue Prosecution of Patent Rights or, with respect to the Shared Cost Patents, either Party elects to cease sharing the costs of Prosecution (such Party, the Disclaiming Party) then upon the other Partys request, the Disclaiming Party shall assign all of its rights, title and interest in any such Patent Rights (for clarity, in which the Disclaiming Party has an ownership interest) at no cost to the non-disclaiming Party. If Astellas elects to cease funding a Shared Cost Patent or elects to cease funding the cost of Prosecution of an Ambit Licensed Patent that is not a Shared Cost Patent, then such Patent Rights shall thereafter be excluded from the license grants to Astellas in Section 3.1.1; provided, however, that upon written notice to Ambit at any time during the Term, Astellas may elect to include such disclaimed Shared Cost Patents or disclaimed Ambit Licensed Patent in the license grants hereunder by paying Ambit [***] of the total cost of Prosecuting and maintaining such Patent Rights that were solely borne by Ambit. (c) Notwithstanding the foregoing clause (b), in the case of a Shared Cost Patent or Ambit Licensed Patent, if the Lead Prosecuting Party elects to cease Prosecution of such patent, but is still willing, in the case of the Shared Cost Patents, to continue to share the cost of Prosecuting and maintaining such Patent Rights, or in the case of the Ambit Licensed Patents that are not Shared Cost Patents, to continue to bear the cost of Prosecuting and maintaining such Patent Rights, then such Party shall permit the other Party, in its sole discretion, to continue Prosecution of such Patent Rights. The Parties shall continue to treat such Patent Rights as Shared Cost Patents or Ambit Licensed Patents, as applicable, under this Agreement and the consequences in Section 8.3.5(b) shall not apply. 8.3.6 Review of Patent Estate . From time to time as reasonably requested by either Party, Ambit and Astellas shall jointly review the entire patent estate comprising the Ambit Technology and the Program Technology including the current status of the estate and plans for the estate in the then foreseeable future, and shall discuss in good faith the patent strategy for such estate with the goal of efficiently maximizing the patent protection for Products. 8.3.7 Interference, Opposition, Reexamination and Reissue (a) Either Party shall, within ten (10) days of learning of such event, inform the other Party of any request for, or filing or declaration of, any interference, opposition or reexamination relating to Ambit Licensed Patents, Ambit Program Patents or Joint Program Patents. The Lead Prosecution Party for such patent shall determine a reasonable course of action with respect to any such proceeding, provided that such Party shall consider in good faith the views of the other Party with respect to such proceeding. All responses to or defense against any such request or filing shall be included within the Prosecution efforts above. (b) Astellas shall not initiate any reexamination, interference or reissue proceeding relating to the Ambit Licensed Patents, Ambit Program Patents or Joint Program Patents without first consulting with Ambit and considering its views on the matter. Ambit shall not initiate any reexamination, interference or reissue proceeding relating to Ambit Licensed Patents, Ambit Program Patents or Joint Program Patents without the prior written consent of Astellas, which consent shall not be unreasonably withheld. ***Confidential Treatment Requested 71
C ONFIDENTIAL (c) In connection with any interference, opposition, reissue or reexamination proceeding relating to Ambit Licensed Patents, Ambit Program Patents or Joint Program Patents, Astellas and Ambit will cooperate fully and will provide each other with any information or assistance that either may reasonably request. The Parties shall keep each other informed of developments in any such action or proceeding, including, to the extent permissible by law, consultation and approval of any settlement, the status of any settlement negotiations and the terms of any offer related thereto. (d) Expenses with respect to any interference, opposition, reexamination or reissue proceeding relating to the Ambit Licensed Patents, Ambit Program Patents or Joint Program Patents shall be borne in the same manner as expenses for the Prosecution efforts with respect to such patents, as set forth above. 8.3.8 Invalidity or Unenforceability Defenses or Actions . In the event that a Third Party or Sublicensee asserts, as a defense or as a counterclaim in any infringement action under Section 8.4.1, that any Ambit Licensed Patent or Program Patent is invalid or unenforceable, then the Party pursuing such infringement action shall promptly give written notice to the other Party. Where such allegation is made in an opposition, reexamination, interference or other patent office proceeding, the provisions of Section 8.3.7 shall apply. Where such allegation is made in a counterclaim to a suit or other action brought under Section 8.4.1, the Party with the first right to enforce the Patent Rights at issue shall have the first right to respond to such defense or defend against such counterclaim (as applicable) and the provisions of Section 8.4.1 (including step-in rights and control over settlement) shall apply. In all other cases, including any declaratory judgment action or similar action or claim filed by a Third Party asserting that any Ambit Licensed Patent or Program Patent is invalid or unenforceable, Astellas shall have the first right to defend such action, at Astellass expense, and Ambit will cooperate with Astellas, at Astellass expense in such defense. In the event Astellas does not so elect to defend an action with respect to any Ambit Licensed Patent or Program Patent under this Section 8.3.8, it shall so notify Ambit in writing, and Ambit shall have the right to so defend such action, at Ambits expense; provided, however, that Ambit shall obtain the written consent of Astellas prior to ceasing to defend, settling or otherwise compromising such defense or counterclaim if such action is likely to materially adversely affect Astellass interests in the applicable Ambit Licensed Patent or Program Patent or rights under this Agreement. Each Party shall provide to the Party defending any such rights under this Section 8.3.8 all reasonable assistance in such enforcement, at such defending Partys request and expense. The defending Party shall keep the other Party regularly informed of the status and progress of such efforts, and shall reasonably consider the other Partys comments on any such efforts. 8.4 Infringement Actions
8.4.1 Prosecution of Infringement (a) The Parties shall promptly notify one another in writing of any and all (i) actual or threatened infringements by Third Parties of the Ambit Licensed Patents or Program Patents (in each case, a Third Party Infringement) known to either of them, and in any event within thirty (30) days of learning of such infringement or (ii) any misappropriation or misuse of any Ambit Know-How, Joint Program Know-How or Ambit Program Know-How known to them. 72
C ONFIDENTIAL (b) With respect to actual or threatened Third Party Infringement of the Ambit Licensed Patents, or the Program Patents (a Field Infringement), Astellas shall have the first right, but not the obligation, to file suit or take other appropriate action to cause the cessation of such Field Infringement of any such Patent Rights. To the extent Astellas takes such action, Astellas shall control such action, at Astellass sole expense, but shall not enter into settlements, stipulated judgments or other arrangements respecting such infringement without Ambits prior consent, not to be unreasonably withheld. If Astellas takes such action against a Field Infringement, Astellas shall indemnify, defend and hold Ambit harmless from all related costs, expenses and liabilities respecting any such actions against claimed infringement in accordance with and to the extent required pursuant to its indemnification obligations in Article 7. Ambit shall permit an action to be brought by Astellas in Ambits name if required by law and shall join such action as a party plaintiff if required to perfect or maintain jurisdiction to pursue such action. Ambit agrees to provide, at Astellass expense, all reasonable assistance that Astellas may reasonably require in any such action, including providing written evidence, deposition and trial testimony, for which Astellas shall pay to Ambit a reasonable hourly rate of compensation. (c) Astellas shall notify Ambit in writing of its intention with regard to any such Third Party Infringement promptly after it has notice of such infringement. In the event that Astellas does not within one hundred twenty (120) days of notice of such Third Party Infringement initiate, and thereafter continue to diligently pursue, appropriate actions to cause the cessation of such Third Party Infringement (or earlier notifies Ambit in writing of its intent not to take such actions), then as of the expiration of such one hundred twenty (120) day period or earlier notice, Ambit shall have the right to take all actions it deems appropriate against such Third Party Infringement, in which case Ambit shall pay any and all costs and expenses incurred in such action. Astellas agrees to provide all reasonable assistance that Ambit may reasonably require in any such action or litigation, including providing written evidence, deposition and trial testimony, for which Ambit shall pay to Astellas a reasonable hourly rate of compensation. (d) Any recovery obtained by either or both Astellas and Ambit in connection with or as a result of any action contemplated by this Section 8.4.1, whether by settlement or otherwise, shall be shared in order as follows: (i) (ii) (iii) The Party which initiated and prosecuted the action shall recoup all of its reasonable out-of-pocket costs and expenses incurred in connection with the action; The other Party shall then, to the extent possible, recover its reasonable out-of-pocket costs and expenses incurred in connection with the action (to the extent not already reimbursed); and [***]. ***Confidential Treatment Requested 73
C ONFIDENTIAL Ambit shall inform Astellas of any certification regarding any Ambit Licensed Patents or Program Patents it has received pursuant to either 21 U.S.C. 355(b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) or its successor provisions or any similar provisions in a country in the Territory other than the United States and shall provide Astellas with a copy of such certification within two (2) days or receipt. Ambits and Astellass rights with respect to the initiation and prosecution of any legal action as a result of such certification or any recovery obtained as a result of such legal action shall be as defined in Sections 8.4.1 (a)-(d) hereof, provided that within thirty (30) days of receiving notice of such certification Astellas shall advise Ambit as to whether or not Astellas expects to prosecute such infringement. 8.4.2 Defense of Infringement Claims (a) If a Third Party makes or threatens against Astellas, its Related Parties and/or Ambit and its Affiliates any claim of infringement of a Patent Right owned or controlled by such Third Party based upon the manufacture, use, offer for sale or sale of a Licensed Compound or Product (each, an Alleged Infringement), Astellas shall have the right to respond to and/or defend any and all such Alleged Infringements at its own cost and expense, and in its sole discretion, subject to the other provisions of this Section 8.4.2. Ambit agrees to provide any necessary assistance that Astellas may reasonably require in any such defense action for which Astellas shall pay to Ambit a reasonable hourly rate of compensation for such assistance. To the extent that any such Alleged Infringement is against Ambit or its Affiliates, if Astellas elects to respond to or defend such Alleged Infringement claim against Ambit, it must do so in a timely manner so as not to prejudice Ambits ability to defend itself and avoid suffering any default judgments, and such Infringement Claim shall constitute a Third Party Claim for which Astellas has the obligation to defend, indemnify and hold harmless in accordance with and to the extent required pursuant to its indemnification obligations in Article 7. Ambit shall have the right, at its own expense, to retain counsel of its choice (but subject to Astellass right to control the defense if it has elected to do so as above). (b) Astellas shall promptly notify Ambit in writing and provide a copy of (i) any claim of Alleged Infringement filed with a court or Governmental Authority or (ii) any written notice of an Alleged Infringement. Within a reasonable period of time in advance of any responsive deadline required by law or otherwise set forth in the claim or notice, Astellas shall notify Ambit in writing as to whether or not Astellas intends to respond to and defend each such Alleged Infringement. In the event that Astellas does not provide such notice of its intent to respond to and defend any such claim or notice of an Alleged Infringement against Ambit or any of its Affiliates (or fails to provide such response and defense in good faith) Ambit shall have the right, in its sole discretion, to respond to such Alleged Infringement, in which case Ambit shall pay any and all costs and expenses incurred by Ambit in such action (except as is otherwise provided in Section 7.2) to date. (c) Costs and Expenses. If Astellas responds to and defends any Alleged Infringement under this Section 8.4.2, the following amounts may be offset against the milestone payments payable under Section 4.2, royalties payable under Section 4.3 or Annual U.S. Profit/Loss payments pursuant to Section 4.4: (i) fifty percent (50%) of all reasonable costs and expenses incurred by Astellas in responding to or defending against such suit in which Astellas or its Affiliates or Sublicensees are found liable for infringement; 74
C ONFIDENTIAL (ii) (iii) fifty percent (50%) of all damages or costs awarded against Astellas under Section 8.4.2 based on the finding of infringement such suit; and fifty percent (50%) of all royalties and other payments that Astellas is ordered to or agrees to pay to a Third Party in order to secure the license rights under Third Party Patent Rights at issue in the litigation to continue the Exploitation of a Licensed Compound or Product; provided, that any amounts offset or credited pursuant to this subsection 8.4.2(c)(iii) shall not also be used in reducing or adjusting royalties pursuant to Section 4.3.4.
Any payments or offsets made under this Section 8.4.2(c) shall be without prejudice to any other remedies Astellas may have under this Agreement or otherwise. Any amounts recovered by Astellas in connection with any action, claim or suit under Section 8.4.2 shall be allocated between the Parties as provided in Section 8.4.1(d). 8.5 Patent Term Restoration The Parties hereto shall cooperate with each other in obtaining, and shall discuss reasonably and in good faith, patent term restoration or supplemental protection certificates or their equivalents in any country in the Territory where applicable to the Ambit Licensed Patents or Program Patents. In the event that elections with respect to obtaining such patent term restoration are to be made, Astellas shall have the right to make the election and Ambit agrees to abide by such election. 8.6 Orange Book Listing The Parties hereto shall cooperate with each other and discuss in good faith, as to any particular Product, what Patent Rights should be listed in the Orange Book and other similar national (or supranational) equivalents thereto. Astellas shall have the sole right, after good faith reasonable discussion with Ambit, to make all filings with the Regulatory Authorities with respect to Ambit Licensed Patents and Program Patents and Astellas Patents in connection with required regulatory activities for Products, including as required or allowed in connection with: (i) in the United States, the FDAs Orange Book and (ii) outside the United States, under the national implementations of Article 10.1(a)(iii) of Directive 2001/EC/83 or other international equivalents. Ambit shall, at Astellass expense, (A) provide to Astellas all Information in Ambits Control, including a correct and complete list of Ambit Licensed Patents and Ambit Program Patents covering any Product or otherwise necessary or reasonably useful to enable Astellas to make such filings with Regulatory Authorities with respect to the Products, and (B) cooperate with Astellass reasonable requests in connection therewith, including meeting any submission deadlines, in each case, to extent required or permitted by Applicable Law. Astellas shall notify Ambit in writing of any such filings with the Regulatory Authorities with respect to the Ambit Licensed Patents or the Program Patents. 8.7 Registration of Licenses . Astellas may, at its sole discretion and at its own expense, register the exclusive and other licenses granted to it under this Agreement with the patent office or any other competent authorities in any country of the Territory in accordance with the Applicable Laws in such country, and Ambit shall, promptly upon Astellass request, provide Astellas with assistance necessary for such registration, including applying for such 75
C ONFIDENTIAL registration for Astellas and signing all necessary documents. Astellas will provide Ambit with a list and description, updated as appropriate, of the licenses it registers pursuant to this Section 8.7. 8.8 Trademarks Astellas shall be responsible for the selection, registration, maintenance and defense of all trademarks for use in connection with the sale or marketing of any Product in the Territory and Astellas shall own all such trademarks. Astellass registration, maintenance and defense of any trademarks for Product in the Royalty Bearing Territory shall be at Astellass own cost and expense. Astellass costs and expenses incurred in connection with registering, maintaining and defending any trademarks for the Co-Promoted Products in the U.S. shall be Allowed Expenses. Astellas will provide Ambit with a list and description, updated as appropriate, of the trademarks it registers pursuant to this Section 8.8. 9. 9.1 TERM AND TERMINATION Term and Expiration This Agreement shall be effective as of the Effective Date and, unless terminated earlier in its entirety pursuant to Sections 9.2, 9.3 or 9.4 below, shall continue until expiration, which shall occur automatically upon the expiry of all royalty, Co-Promotion Payment and other payment obligations under this Agreement with respect to all Products (the Term). 9.2 Termination by Astellas
9.2.1 For Convenience. Notwithstanding anything contained herein to the contrary, Astellas shall have the right to terminate this Agreement on a country-by-country (provided that if such termination is with respect to any country in the EU, it shall be with respect to all of the EU) and Product-by-Product basis (provided that for purposes of the termination rights in this Section 9.2, each Product containing the same Licensed Compound shall be deemed the same Product) at any time in its sole discretion by giving one hundred and eighty (180) days advance written notice to Ambit. After any such notice of termination, unless within such period, Astellas is entitled to terminate this Agreement on a shorter notice period pursuant to Sections 9.2.2 or 9.2.3, the Agreement shall continue in full force and effect with respect to such Product or country(ies), and all obligations (including the payment of Development Costs incurred) remain applicable, notwithstanding such notice, until date of termination of the Agreement with respect to such Product or country(ies). 9.2.2 For Safety or Regulatory Concerns. Astellas may terminate this Agreement on a Product-by-Product basis effective upon thirty (30) days prior written notice to Ambit at any time referencing this Section 9.2.2 and providing Ambit with all clinical data supporting such termination together with a detailed written explanation of why Astellas believes that the Adverse Safety/Tox Results (as defined below) justify discontinuing all development and Commercialization hereunder. For purposes of the foregoing, Adverse Safety/Tox Results means, with respect to a particular Product, results from activities hereunder that provide a reasonable basis for the discontinuance by Astellas of all further development or Commercialization of such Products for use in the Field 76
C ONFIDENTIAL because the risk profile of such Product makes it unlikely that Regulatory Approval within the Field can be obtained or maintained for such Product in any of the U.S., EU or Japan. In the event that Ambit disputes Astellass decision to terminate in accordance with this Section 9.2.2, the Parties shall promptly refer such dispute for resolution pursuant to Section 10.7 and, if Astellas desires to terminate this Agreement for convenience regardless of the outcome of the dispute resolution procedure, Astellas shall provide Ambit with written notice of such intent, in which case Astellas shall be deemed to have provided Ambit with notice of termination pursuant to Section 9.2.1 as of the date that Astellas provided notice of its intent to terminate pursuant to this Section 9.2.2. Termination of this Agreement shall be effective upon the earlier to occur of (A) the expiration of the notice period provided in Section 9.2.1 and (B) conclusion of the dispute resolution process in Astellass favor. Without limitation of the foregoing, in the event that Astellas terminates this Agreement pursuant to this Section 9.2.2 with respect to the Lead Product, it shall have the right to terminate this Agreement simultaneously with respect to all Products by so specifying in writing to Ambit. 9.2.3 For Third Party Infringement. Astellas may terminate this Agreement effective upon thirty (30) days written notice to Ambit on a Product-by-Product basis and/or with respect to any country(ies) ( provided that if such termination is with respect to any country in the European Union, it shall be with respect to all of the European Union and if such termination is with respect to the U.S., the Agreement may, at Astellass election, be terminated in its entirety) if (a) Astellas concludes, reasonably and in good faith, that there is a substantial likelihood that it and its Affiliates, Distributors, and Sublicensees cannot Exploit such Product (or the Licensed Compound contained therein) in a country without infringing or misappropriating the Patent Rights or other intellectual property of a Third Party or (b) a Third Party institutes or threatens suit against Ambit or its Affiliates or Astellas or its Affiliates, Sublicensees or Distributors alleging that the Exploitation of such Product (or the Licensed Compound contained therein) with respect to a country by or on behalf of Astellas, its Affiliates, Distributors or Sublicensees under this Agreement infringes or misappropriates its Patent Rights or other intellectual property rights, and Astellas concludes, reasonably and in good faith, that there is a substantial likelihood that such suit will be successful. In the event that Ambit disputes Astellass decision to terminate in accordance with this Section 9.2.3, the Parties shall promptly refer such dispute for resolution pursuant to Section 10.7 and, if Astellas desires to terminate this Agreement for convenience regardless of the outcome of the dispute resolution procedure, Astellas shall provide Ambit with written notice of such intent, in which case Astellas shall be deemed to have provided Ambit with notice of termination pursuant to Section 9.2.1 as of the date that Astellas provided notice of its intent to terminate pursuant to this Section 9.2.3. Termination of this Agreement shall be effective upon the earlier to occur of (A) the expiration of the notice period provided in Section 9.2.1 and (B) conclusion of the dispute resolution process in Astellass favor. Without limitation of the foregoing, in the event that Astellas terminates this Agreement pursuant to this Section 9.2.3 with respect to the Lead Product, it shall have the right to terminate this Agreement simultaneously with respect to all Products by so specifying in writing to Ambit. 9.3 Termination by Either Party for Cause
9.3.1 Material Breach. Subject to Section 9.3.2, in the event that a Party believes that the other Party is in material breach of, or has materially breached, this Agreement with respect to a Product or one or more country(ies) or in its entirety, then the first Party shall provide written notice to such Party providing a detailed explanation of the asserted 77
C ONFIDENTIAL material breach. The allegedly breaching Party shall then have the right either: (a) to cure such asserted material breach within [***] (provided that such cure period shall be [***] for a breach of a payment obligation) after actual receipt of such written notice (or such longer period as may be agreed by the Parties) or (b) if the Party receiving notice disagrees that it is in material breach of the Agreement with respect to a Product and one or more country(ies) or in its entirety, to initiate dispute resolution pursuant to Section 10.7, whereupon the applicable cure period as set forth above shall be tolled until the dispute is resolved pursuant to such procedure. 9.3.2 Safe Harbor. (a) Notwithstanding anything to the contrary herein, Ambit may not assert that Astellas is in material breach of its diligence obligations under this Agreement for failure to perform or discontinuance of (a) any development activity that Astellas proposed to the JSC for inclusion in the Development Program, but which Ambit opposed during JSC discussions or opted pursuant to Section 2.1.4 not to co-fund, (b) any marketing or promotional activity that Astellas proposed to include in the Co-Promotion Plan budget of Direct Marketing/Promotional Expenses and Indirect Marketing Expenses for a Co-Promoted Product, but which Ambit opposed in JCC discussions or objected to pursuant to Section 3.9.4 or (c) any activity reasonably dependant on the performance of an activity in clause (a) or (b). (b) Further, with respect to development of Products in the Joint Development Territory, if Astellas includes in the then-current Development Plan a program of development for a given Product in a country or jurisdiction in the Joint Development Territory and Ambits representatives on the JSC do not object, in a manner requiring Astellas to cast its final say over such objection, on the ground that such program would not be sufficient to achieve a Regulatory Approval for the applicable Indication in the applicable country or other jurisdiction or would not otherwise be sufficient for Astellas to satisfy its obligations herein to use Commercially Reasonable Efforts with respect to such Product, then for so long as Astellas is using Commercially Reasonable Efforts to conduct such Development Program, Astellas shall be deemed to have fulfilled its development diligence obligation under Section 2.6.4(b) with respect to such country or other jurisdiction unless Ambit demonstrates that following the adoption or update of the Development Plan, circumstances changed in a manner so that Astellas, in order to act in a Commercially Reasonable manner, should have expanded or modified such Development Program and it failed to do so. 9.3.3 Termination for Uncured Material Breach. If a Party has given notice of a material breach under Section 9.3.1 above, and the other Party agrees or admits that it materially breached (or otherwise does not dispute that such breach occurred), or is held under the dispute resolution provisions to have materially breached, the Agreement, and such other Party does not cure such breach, if potentially curable, within the time period for cure as provided in Section 9.3.1 (or, if such breach cannot be rectified within such period, if such Party does not commence actions to rectify such breach within such period and thereafter diligently pursue such actions), then the non-breaching Party may terminate this Agreement solely with respect to the Product or country or countries to which such material breach relates ( provided that if such termination is with respect to any country in the EU, it shall be with respect to all of the EU). ***Confidential Treatment Requested 78
C ONFIDENTIAL 9.4 Termination for Corporate Events A Party shall have the right to terminate this Agreement upon [***] prior written notice to the other Party if, at any time during the term of this Agreement (a) a case of business dissolution/liquidation is commenced by or against such other Party under Title 11, United States Code, as amended, or analogous provisions of Applicable Law outside the United States (the Bankruptcy Code) and, in the event of an involuntary dissolution case under the Bankruptcy Code, such case is not dismissed within [***] after the commencement thereof, (b) such other Party files for or is subject to liquidation or similar receivership proceedings (other than a case under the Bankruptcy Code), (c) such other Party assigns all or a substantial portion of its assets for the benefit of creditors, (d) a receiver or custodian is appointed for such other Partys business in connection with a liquidation or similar proceeding, or (e) a substantial portion of such other Partys business is subject to attachment or similar process in connection with a liquidation or similar proceeding. 9.5 Effect of Expiration of Agreement . Following the expiration of this Agreement in its entirety under Section 9.1 (excluding for clarity any termination prior to such expiration), Astellass licenses pursuant to Section 3.1 shall become fully paid-up, perpetual, non-exclusive licenses. Other than rights intended to survive expiration, neither Party shall have any further rights or obligations upon such expiration of this Agreement. No later than [***] after the effective date of expiration of this Agreement in its entirety, each Party shall return or cause to be returned to the other Party all Confidential Information in tangible form received from the other Party and all copies thereof; provided, however, that each Party may retain any Confidential Information reasonably necessary for such Partys continued practice under any licenses which do not terminate pursuant to this Section, and may keep one copy of Confidential Information received from the other Party in its confidential files for record purposes. 9.6 Effect of Termination
9.6.1 In General. Upon termination of this Agreement by Astellas in accordance with Section 9.2.1, 9.2.2 (solely to the extent agreed in writing pursuant to Section 9.6.3) or 9.2.3, or by Ambit in accordance with Section 9.3 or Section 9.4 with respect to one or more Products or one or more country(ies) or in its entirety (the Terminated Products and Terminated Countries; with all Products being Terminated Products and the entire Territory being the Terminated Countries in the event of termination of this Agreement in its entirety), the following shall apply with respect to the Terminated Products and Terminated Countries (in addition to any other rights and obligations under Section 9.2 and Section 9.7 or otherwise under this Agreement with respect to such termination): (a) Termination of Astellas. The licenses granted in Article 3 and the rights of reference granted in Section 2.5.3(c) shall terminate with respect to the Terminated Products and/or Terminated Countries, except that limited license rights shall remain in effect ( unless the Agreement is terminated in its entirety) in the Terminated Country(ies) solely for the limited purpose of allowing Astellas to manufacture the Terminated Product(s) (including any intermediate thereof or any Licensed Compounds or other material contained therein) in the Terminated Country(ies) for sale or distribution thereof in any country which has not been terminated. ***Confidential Treatment Requested 79
C ONFIDENTIAL (b) License Grant to Ambit . Effective upon the effective date of termination of this Agreement with respect to any Reversion Product and the applicable Terminated Country, Astellas shall automatically be deemed to grant to Ambit a non-exclusive, fully-paid, perpetual, irrevocable license, with the right to sublicense through multiple tiers of sublicensees, under the Astellas Technology, Astellas Program Technology (including under all Program Development Data and Independent Development Data) and Astellass interest in the Joint Program Technology as such Patent Rights, Know-How and interests in Patent Rights and Know-How existed as of the effective date of termination (or, in the case of Patent Rights that consist of pending patent applications as of the effective date of termination, Patent Rights issuing thereon) solely to the extent that such Know-How is incorporated into or used in Exploiting (including only such Program Development Data and Independent Development Data generated in relation thereto), or such Patent Rights cover or claim an invention incorporated into or used in, such Reversion Product in the Terminated Country, as it exists and is made as of the effective date of any such termination, to research, develop, make, have made, use, import, export, offer for sale, and sell the applicable Reversion Products and/or any improvements thereto made by Ambit or its Affiliates or (sub)licensees in the Field in the Terminated Country(ies); provided, however, that such grant with respect to the Astellas Technology shall not include any rights to Exploit any Reversion Product that has not, as of the effective date of termination, entered into clinical development. In the event that any Astellas Technology licensed to Ambit in this Section 9.6.1(b) is in-licensed by Astellas from any Third Party, Ambit shall use commercially reasonable efforts to secure directly from such Third Party a license to such Astellas Technology for the applicable Reversion Product on commercially reasonable terms (which terms need not be equivalent to, or as favorable as, those that apply to the Astellas in-license), within one hundred and eighty (180) days of the effective date of such termination event or such longer date as the Parties may agree. In the event that Ambit is unable, despite the exercise of such commercially reasonable efforts, to secure a license to such Astellas Technology from such Third Party(ies) for the applicable Reversion Product, the license granted by Astellas in this Section 9.6.1(b) with respect thereto shall continue. In the event that Ambit secures a license from such Third Parties with respect to such Astellas Technology for the applicable Reversion Product, such Astellas Technology shall automatically be deemed to be excluded from this Section 9.6.1(b) as of the effective date of the Third Party agreement providing such license rights to Ambit. (c) Trademarks. Astellas shall assign to Ambit all right, title and interest in and to those trademarks used exclusively with the Terminated Products and used exclusively in the Terminated Country(ies) (excluding any trademark that is used by Astellas or any of its Affiliates in connection with a Combination Product). (d) Remaining Inventories. Astellas shall be entitled to sell all Products remaining in its inventory upon termination of this Agreement with respect to any Terminated Country(ies), provided that Astellas pays Ambit the royalties and/or Co-Promotion Payments (if any) owed under Article 4 for such sales (as if they had occurred during the Term with respect to any Terminated Country(ies)), and that, of applicable, Astellas has conducted and continues to conduct the transition contemplated in 9.6.1(f)(i) in good faith, and provided further that such sales of remaining inventory shall cease no later than the date [***] after termination. (e) Third-Party Agreements. Ambit shall (i) pay such amounts to Astellas that Astellas is obligated to pay to any Third Parties (including royalties, milestones and other ***Confidential Treatment Requested 80
C ONFIDENTIAL amounts) under any Third Party agreements that are applicable to the grant to Ambit of any (sub)license or other right provided in this Section 9.6.1 or the Transition Agreement, or that are applicable to the exercise by Ambit or any of its Affiliates or sublicensees of any sublicense or other right with respect thereto, and in each instance Ambit shall make the requisite payments to Astellas and provide the necessary reporting information to Astellas in sufficient time to enable Astellas to comply with its obligations under the applicable Third Party agreements, and (ii) comply with any other obligations included in the Third Party agreements that are applicable to the grant to Ambit of such (sub)license or other right, and any exercise of such (sub)license or other right by Ambit or any of its Affiliates or sublicensees shall be subject to the terms and conditions of such Third Party agreements. (f) Transition Agreement. In connection with the termination of this Agreement in its entirety or with respect to one or more Products or Terminated Countries by Astellas in accordance with Section 9.2.1, 9.2.2 (solely to the extent agreed in writing pursuant to Section 9.6.3) or 9.2.3, or as or by Ambit in accordance with Section 9.3 or Section 9.4, the Parties shall enter into a written agreement (the Transition Agreement) that would effectuate the terms and conditions of this Section 9.6.1(f) and would include other reasonable terms and conditions, describing the Parties indemnification obligations, setting forth the Parties obligations with respect to unauthorized sales, and setting forth other coordination obligations. If, despite such efforts, the Parties are unable to agree upon such terms and conditions within thirty (30) days from the effective date of the termination, either Party may refer the dispute for resolution by arbitration in accordance with Section 10.7.3. (i) Transition Assistance. If the applicable termination occurs after First Commercial Sale of the terminated Product in the Terminated Country(ies), then the Transition Agreement shall require the Parties to effectuate and coordinate a smooth and efficient transition for a period of no more than [***] for the purpose of disclosing and providing to Ambit, all Astellas Know-How not already in Ambits possession that is relevant to the Reversion Products and the applicable Terminated Country(ies), and, at Ambits request, assign to Ambit all then-existing commercial agreements to the extent relating solely and specifically to the Reversion Products and the applicable Terminated Country(ies) that Astellas is able, using reasonable commercial efforts, to disclose and assign to Ambit, in each case, to the extent reasonably necessary or useful for Ambit to commence or continue (itself or through a licensee) researching, Developing, manufacturing, or commercializing the Reversion Products with respect to the applicable Terminated Country(ies). Regulatory Materials and Documents . Astellas shall assign to Ambit in the Transition Agreement all right, title and interest in and to all Regulatory Materials and Regulatory Approvals in the Terminated Country(ies) solely relating to Reversion Products, which Regulatory Materials and Regulatory Approvals are owned by Astellas or its Affiliates (collectively, Supporting Documents), provided that all Supporting Documents will be supplied by Astellas on an as-is basis only and Astellas shall have no liability whatsoever with respect to such Supporting Documents. Unless terminated by Ambit pursuant to Section 9.3.3, in which case Astellas shall bear all such costs each Party shall bear one-half (1/2) of the out of pocket costs relating to such transfer of Supporting Documents. The Transition Agreement shall contain ***Confidential Treatment Requested 81
(ii)
C ONFIDENTIAL terms governing the coordination of the Parties respective regulatory responsibilities with respect to Licensed Compounds and Products. (g) Other Remedies. Termination or expiration of this Agreement for any reason shall not constitute a waiver or release of, or otherwise be deemed to prejudice or adversely affect, any rights, remedies or claims, whether for damages or otherwise, that a Party may have hereunder or that may arise out of or in connection with such termination or expiration. Confidential Information. Each Party shall return to the other Party, or destroy at the other Partys option, the other Partys Confidential Information belonging to the other Party or its Affiliates that are not subject to a continuing ownership interest or license hereunder; provided, that, each Party may retain one copy of such Confidential Information of the other Party in its archives solely for the purpose of establishing the contents thereof and ensuring compliance with its obligations hereunder. Joint Program Know-How. Each Party shall have the right to retain any Joint Program Know-How under its possession or Control.
(h)
(i)
9.6.2 Certain Termination under Section 9.3 or Section 9.4. Upon a termination by Astellas in accordance with Section 9.3 or Section 9.4: (a) All rights and licenses granted by Ambit to Astellas under this Agreement shall terminate and revert exclusively to Ambit; (b) All rights and licenses granted by Astellas to Ambit under this Agreement shall terminate and revert to Astellas; (c) Upon request by Ambit, Astellas shall transfer and assign back to Ambit, pursuant to a reasonable form of assignment agreement entered into by the Parties as soon as practicable after the termination, those Regulatory Materials and Regulatory Approvals that were assigned to Astellas by Ambit pursuant to Section 2.5.3(b)(i) (which assignment in the case of Regulatory Materials shall, unless otherwise agreed by the Parties, cover such materials solely as they existed at the time of assignment to Astellas hereunder and not any further improvement, additions or expansions to such materials after the date of such assignment to Astellas); (d) Each Party shall return to the other Party, or destroy at the other Partys option, the other Partys Confidential Information belonging to the other Party or its Affiliates that are not subject to a continuing ownership interest or license hereunder; provided, that, each Party may retain one copy of such Confidential Information of the other Party in its archives solely for the purpose of establishing the contents thereof and ensuring compliance with its obligations hereunder; (e) Each Party shall have the right to retain any Joint Program Know-How under its possession or Control. 9.6.3 Termination under Section 9.2.2. In the event that Astellas terminates this Agreement pursuant to Section 9.2.2, and Ambit desires to continue the development and commercialization of the Terminated Product following such termination event, Ambit shall so advise Astellas in writing within a reasonable time following such termination 82
C ONFIDENTIAL event and the Parties shall discuss in good faith whether Astellas would be willing to agree (such agreement not to be unreasonably withheld) to amend this Agreement to provide with respect to the applicable Terminated Product (a) a license under Section 9.6.1(b) and (b) the transition assistance contemplated under Section 9.6.1(f). Astellas shall give full and fair consideration to Ambits request, taking into consideration Ambits interests in the Terminated Product and the best interests of patients. In the event that Astellas is inclined against agreeing to such an amendment, Astellas shall so advise Ambit and at Ambits request the matter shall be elevated to the Executive Officers of each of Ambit and Astellas, who shall seek in good faith to reach agreement on the issue. In the event Ambit disagrees with any decision by Astellas to not amend this Agreement pursuant to this Section 9.6.3 with respect to a Terminated Product, Ambit may cause the matter to be submitted to an arbitrator for resolution pursuant to Section 10.7 and the arbitrator shall determine whether Astellas unreasonably withheld its agreement. It shall not be unreasonable for Astellas to refuse to amend the Agreement pursuant to this Section 9.6.3 in the event that Astellas reasonably concludes, after consultation with its safety experts and consideration of Ambits positions on the relevant issues, that further development or commercialization of such Terminated Product would create unreasonable safety risks for patients or subjects. 9.7 Unauthorized Sales. If this Agreement has not been terminated in its entirety, if either Party has the right to Exploit Products in one or more countries, to the extent permitted by Applicable Law, such Party: (a) shall not, and shall not permit its Affiliates and shall use reasonable endeavors to not permit sublicensees or distributors to, distribute, market, promote, offer for sale or sell Products directly or indirectly (other than pursuant to the rights granted pursuant to Section 9.6.1(a)) (i) to any Person outside such countries or (ii) to any Person inside such countries if such Party or its Affiliates, sublicensees or distributors, as applicable, is aware that such Person (A) is reasonably likely to directly or indirectly distribute, market, promote, offer for sale or sell Products outside such countries (and into one or more countries with respect to which the other Party has the right to Commercialize Products) or assist another Person to do so, or (B) has a demonstrated pattern of directly or indirectly distributing, marketing, promoting, offering for sale or selling Products outside such countries (and into one or more countries with respect to which the other Party has the right to Commercialize the Products) or assisting one or more other Third Parties to do so. 9.8 Rights in Bankruptcy. All rights and licenses granted under or pursuant to this Agreement by Ambit are, and will otherwise be deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to intellectual property as defined under Section 101 of the U.S. Bankruptcy Code. The Parties agree that Astellas, as licensee of such rights under this Agreement, will retain and may fully exercise all of its rights and elections under the U.S. Bankruptcy Code. The Parties further agree that, in the event of the commencement of a bankruptcy proceeding by or against Ambit under the U.S. Bankruptcy Code, Astellas will be entitled, to the extent necessary to exercise its rights under this Agreement, to a complete duplicate of (or complete access to, as appropriate) any such intellectual property and all embodiments of such intellectual property, and same, if not already in its possession, will be promptly delivered to it (a) upon any such commencement of a bankruptcy proceeding upon its written request therefore, unless Ambit elects to 83
C ONFIDENTIAL continue to perform all of its obligations under this Agreement, or (b) if not delivered under (a) above, following the rejection of this Agreement by or on behalf of Ambit upon written request therefore by Astellas. 9.9 Survival. Expiration or termination of this Agreement shall not relieve the Parties of any obligation accruing prior to such expiration or termination. Any expiration or termination of this Agreement shall be without prejudice to the rights of either Party against the other accrued or accruing under this Agreement prior to expiration or termination, including, without limitation, the obligation to pay royalties or CoPromotion Payments for Product(s) sold prior to such expiration or termination. Except as otherwise expressly provided in Article 6, the provisions of Article 6 (other than Section 6.3) shall survive the expiration or termination of this Agreement and shall continue in effect for [***]. In addition, except as set forth below or elsewhere in this Agreement, the obligations and rights of the Parties under the following provisions of this Agreement shall survive expiration or termination: 2.5.3, 2.6.7 (for a period of [***] after termination or such longer period required by Applicable Law), 2.10 (last sentence), 4.4.4, 4.6, 5.4, 8.1, 8.3 (other than 8.3.8 and solely with respect to the prosecution of Joint Program Patents), 8.3.8 (solely to the extent that 8.4.1 survives), 8.4.1 (solely with respect to infringing activities occurring prior to termination of this Agreement), 8.4.2 (solely with respect to alleged infringement arising from Exploitation of Products in the Field in the Territory prior to termination of this Agreement), 9.3,2, 9.5, 9.6, 9.8, 9.9, 10.3.1, 10.3.2, 10.3.3 (solely with respect to the first sentence), 10.4, 10.5, 10.6, 10.7 (other than 10.7.2), 10.8, 10.9, 10.10, 10.11, 10.12, 10.13, 10.14, 10.15, 10.16 and Article 7. In addition, the other applicable provisions of Section 2.7 and Article 4 shall survive such expiration or termination of this Agreement in its entirety to the extent required to make final reimbursement, reconciliations or other payment incurred or accrued prior to the date of termination or expiration. If this Agreement is terminated with respect to one or more Products or Terminated Countries but not in its entirety, then following such termination the provisions identified above in this Section 9.9, to the extent they would survive and apply in the event the Agreement expires or is terminated in its entirety, and Section 9.7, shall remain in effect with respect to the Terminated Product or Terminated Country(ies), and all provisions not surviving in accordance with the foregoing shall terminate upon termination of this Agreement with respect to the applicable Product or country(ies) and be of no further force and effect (and for the avoidance of doubt all provisions of this Agreement shall remain in effect with respect to any Products or country(ies) that are not terminated). If this Agreement is terminated with respect to any or all Products with respect to one or more Terminated Country(ies) in the Joint Development Territory, but not in its entirety, such Terminated Country(ies) shall be deemed to be excluded from the Joint Development Territory with respect to the applicable Product(s) from and after the effective date of such termination event. 10. 10.1 MISCELLANEOUS HSR Filing In the event that Astellas notifies Ambit in writing at any time after the Effective Date during the Term that a filing is required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with respect to any transactions contemplated ***Confidential Treatment Requested 84
C ONFIDENTIAL hereby, the Parties shall coordinate in good faith with respect to, and file with the U.S. Federal Trade Commission and the U.S. Department of Justice, any such filings. Such filings shall be made promptly, and in no event later than fifteen (15) Business Days after the receipt by Ambit of such notice from Astellas. Each Party shall use its reasonable best efforts to respond promptly to any requests for additional information made by such agencies, and to cause the waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, to terminate or expire at the earliest possible date after the date of filing. Each Party is responsible for the costs associated with its filings (including the expenses of its own legal and other advice in preparing and conducting any such filings). 10.2 Force Majeure Neither Party shall be held liable to the other Party nor be deemed to have defaulted under or breached this Agreement for failure or delay in performing any obligation under this Agreement to the extent that such failure or delay is caused by or results from causes beyond the reasonable control of the affected Party, potentially including, but not limited to, embargoes, war, acts of war (whether war be declared or not), acts of terrorism, insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, fire, floods, or other acts of God, or acts, omissions or delays in acting by any Governmental Authority or the other Party. The affected Party shall notify the other Party of such force majeure circumstances as soon as reasonably practical, and shall promptly undertake all reasonable efforts necessary to cure such force majeure circumstances. 10.3 Assignment/ Change of Control
10.3.1 Except as provided in this Section 10.3, this Agreement may not be assigned or otherwise transferred, nor may any right or obligation hereunder be assigned or transferred, by either Party without the consent of the other Party, such consent not be unreasonably withheld. Any permitted assignee under this Agreement shall assume in writing all assigned obligations of its assignor under this Agreement. All validly assigned rights of a Party shall inure to the benefit of and be enforceable by, and all validly assigned obligations of such Party shall be binding on and enforceable against, each permitted assignee of such Party; provided that such Party shall remain jointly and severally liable for the performance of the assigned obligations under this Agreement. Any attempted assignment not in accordance with this Section 10.3 shall be void. 10.3.2 Astellas may, without Ambits consent, assign this Agreement and all its rights and obligations hereunder in whole (but not in part) to an Astellas Affiliate, or to Astellass successor in interest (whether by acquisition, merger, reorganization, restructuring, asset purchase or otherwise) to all or substantially all the business or assets to which this Agreement relates. In addition, Astellas may, without Ambits consent, perform any or all of its obligations and exercise any or all of its rights under this Agreement through any of Astellass Affiliates. 10.3.3 Ambit may, without Astellass consent, assign this Agreement and all its rights and obligations hereunder in whole (but not in part) to Ambits successor in interest (whether by acquisition, merger, reorganization, restructuring, asset purchase or otherwise) to all or substantially all the business or assets to which this Agreement relates; provided, however, that Ambit shall notify Astellas promptly upon the completion of any such 85
C ONFIDENTIAL transaction. Further, upon any Change of Control of Ambit, Astellas shall have the right, at its sole discretion upon thirty (30) days prior written notice at any time within three (3) months after completion of such a Change of Control of Ambit, to exercise one or more of the following options: (a) Terminate any existing Co-Promotion Option that has not been exercised prior to the date of such Astellas termination; (b) Terminate any existing Co-Promotion Agreement, provided however that in the event of a termination of any applicable Co-Promotion Agreement existing as of the date of Astellass termination in accordance with this Section 10.3.3 based on a Change of Control of Ambit, the following shall apply from and after the effective date of such termination event(s): (i) The applicable Product(s) shall no longer constitute a Co-Promoted Product(s) under this Agreement, except that (A) the Parties shall be required to pay to one another Co-Promotion Payments in accordance with Section 3.8.5 with the applicable financial terms and conditions of this Agreement applied for purposes of calculating such payments as if such Product(s) were a Co-Promoted Product(s) hereunder; and (B) such Product(s) shall continue to be treated as a Co-Promoted Product(s) for purposes of Article 7 (including for purposes of applying defined terms used in Article 7 to give effect to the provisions thereof); Notwithstanding any other term or condition of this Agreement to the contrary, Allowed Expenses for purposes of determining such Co-Promotion Payments shall be deemed to include any and all costs (internal and out-of-pocket), whether direct or indirect, incurred to build, maintain and operate Astellass, its Related Partys or subcontractorss sales force(s) in the U.S. for the Product(s) that was the subject of the Co-Promotion Agreement, and to use such sales force(s) to Promote the Product(s) in the U.S., including any such amounts incurred to provide, support and maintain sales force managers for such sales force(s); Without limitation to the foregoing, for purposes of calculating Co-Promotion Payments, (A) any requirement that Allowed Expenses be incurred in accordance with any budget shall not apply, (B) Sections 3.8 and 3.9 shall have no further force or effect, and, for clarity, (x) Astellas shall not be under any obligations to prepare or present for Ambits review any Co-Promotion Plan, (y) the JCC shall be terminated, and (z) Astellas shall have no obligations to continue providing to Ambit information with respect to commercialization activities for the U.S., and (C) Astellas shall have sole control over all commercialization matters in the U.S., except that Astellas shall provide to Ambit summary reports each Calendar Quarter with respect to its commercialization activities in the U.S; For clarity, nothing contained herein is intended or shall be construed to be in derogation of Astellass obligations to use Commercially Reasonable Efforts to commercialize the applicable Product(s) in the U.S. as required pursuant to Section 3.6.1, or Ambits right to conduct audits pursuant to Section 4.6; 86
(ii)
(iii)
(iv)
C ONFIDENTIAL (v) Notwithstanding the foregoing, Astellas shall retain under the applicable Co-Promotion Agreement the right to terminate such Agreement with respect to any Co-Promoted Product (including a Co-Promoted Product subject to this Section 10.3.3) on grounds other than a Change of Control of Ambit, in which event Astellas may exercise rights under any applicable termination provision of the Co-Promotion Agreement (as if the agreement had not previously been terminated on account of a Change of Control of Ambit) and in such event, as of the effective date of such termination event in accordance with the terms and conditions of such CoPromotion Agreement, clauses (b)(i) through (b)(iv) of this Section 10.3.3 shall no longer have any force or effect with respect to the applicable Product(s);
(c) Terminate the involvement of Ambit in the co-development of Products, in which case Ambit would nonetheless continue to be obligated to pay Ambits share of any remaining Development Costs, subject to Ambits rights pursuant to Section 2.1.4; (d) Terminate Ambits role in all collaborative activities (including all joint committees), in which case clause (c) of Section 2.2.1, Section 2.2.2 and the provisions of the Agreement providing for the participation of Ambit in decision-making shall have no further force or effect, provided that Ambit continues to receive periodic (at least once every six (6) months) reports and updates of Astellass development and commercialization activities with respect to all Products. 10.3.4 If a Party assigns this Agreement to a successor in interest (whether by acquisition, merger, reorganization, restructuring, asset purchase or otherwise) to all or substantially all the business or assets of such Party to which this Agreement relates (the Acquiring Party), then the intellectual property of such Acquiring Party (a) that is held by such Acquiring Party (or its Affiliate) as of immediately prior the closing of such transaction, or (b) that is developed, discovered, invented, made, acquired or in-licensed by such Acquiring Party (or its Affiliates other than such Party), excluding any Derived IP (as defined below), shall be excluded from the Ambit Technology (in the case such Party is Ambit) or the Astellas Technology (in the case that such Party is Astellas), as applicable, and from the rights licensed to the other Party under this Agreement. The term Derived IP shall mean any intellectual property that the Acquiring Party (or its Affiliates) develops, discovers, invents, or makes after the closing of such transaction based upon use of (a) in the case of Astellas as the Party involved in such transaction, any Confidential Information of Ambit relating to a Licensed Compound or Product, and (b) in the case of Ambit as the Party involved in such transaction, any Confidential Information of Astellas or any Restricted Information relating to a Licensed Compound or Product. In the event that intellectual property is developed, discovered, invented or made after the closing of such transaction by employees or agents of the Acquiring Party (or its Affiliates) (i) who are engaged in the research and development of a Competing Product and (ii) to which any such Confidential Information or Restricted Information, as applicable, has been disclosed, such intellectual property shall be presumed to be Derived IP unless the Acquiring Party can demonstrate by a preponderance of written evidence that such intellectual property was developed, discovered or invented independently without use of any such Confidential Information or Restricted Information, as applicable. 87
C ONFIDENTIAL 10.4 Severability If any one or more of the provisions contained in this Agreement is held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, unless the absence of the invalidated provision(s) adversely affects the substantive rights of the Parties. The Parties shall in such an instance use their best efforts to replace the invalid, illegal or unenforceable provision(s) with valid, legal and enforceable provision(s) which, insofar as practical, implement the purposes of this Agreement. 10.5 Notices All notices which are required or permitted hereunder shall be in writing and sufficient if delivered personally, sent by facsimile (and promptly confirmed by personal delivery, registered or certified mail or overnight courier), sent by nationally-recognized overnight courier or sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows: If to Ambit, to: Ambit Biosciences Corporation. 4215 Sorrento Valley Boulevard San Diego, California 92121 United States Attention: CEO Copy: General Counsel Facsimile No.: (858) 430 4542 Astellas Pharma Inc. 3-11, Nihonbashi-Honcho 2-chome Chuo-ku, Tokyo, 103-8411 Japan Attention: Vice President, Licensing & Alliances Vice President, Legal Facsimile No. Licensing & Alliances: 81 (3) 5203 7164 Facsimile No. Legal: 81 (3) 3244 5811 Astellas US LLC Three Parkway North Deerfield, Illinois 60015 United States Attention: General Counsel Facsimile No.: 847-317-7288
If to Astellas, to:
with a copy to:
or to such other address(es) as the Party to whom notice is to be given may have furnished to the other Party in writing in accordance herewith. Any such notice shall be deemed to have been given: (a) when delivered, if personally delivered or sent by facsimile on a Business Day (or if delivered or sent on a non-Business Day, then on the next Business Day); (b) on the Business Day after dispatch, if sent by a reputable 88
C ONFIDENTIAL international expedited delivery service; or (c) on the fifth (5 th) Business Day following the date of mailing, if sent by mail. 10.6 Applicable Law This Agreement shall be governed by and construed in accordance with the laws of the State of New York and the patent laws of the United States, without reference to any rules of conflict of laws. 10.7 Dispute Resolution
10.7.1 Objective. The Parties recognize that disputes as to certain matters may from time to time arise which relate to either Partys rights and obligations hereunder. It is the objective of the Parties to establish procedures to facilitate the resolution of such disputes in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Section 10.7 if and when such a dispute arises between the Parties. 10.7.2 Informal Resolution. The Parties shall negotiate in good faith and use reasonable efforts to settle any claim, dispute, or controversy from or related to this Agreement or a breach thereof (each, a Dispute). If the Parties do not fully settle a Dispute, and a Party wishes to pursue the matter, each Dispute that is not an Excluded Dispute (as defined in Section 10.7.6) shall be finally resolved by binding arbitration in accordance with this Section 10.7. 10.7.3 Arbitration. Final and binding arbitration in accordance with this Section 10.7 shall be in accordance with the Commercial Arbitration Rules and Supplementary Procedures for Large Complex Disputes of the American Arbitration Association ( AAA) by a single arbitrator. Either Party may, following the end of the good faith negotiation period referenced in Section 10.7.2, refer any Dispute (other than an Excluded Dispute) to arbitration by submitting written notice to the other Party. Within fifteen (15) Business Days of delivery of such notice, the Parties shall meet and discuss in good faith and agree on (a) an arbitrator to resolve the issue, which arbitrator shall be neutral and independent of both Parties and all of their respective Affiliates, shall have significant experience and expertise in licensing and partnering agreements in the pharmaceutical industry and other relevant experience and (b) any changes in these arbitration provisions or the rules of arbitration which are herein adopted, in an effort to expedite the process and otherwise ensure that the process is appropriate given the nature of the dispute and the values at risk. If the Parties cannot agree on such arbitrator within fifteen (15) days of request by a Party for arbitration, then such arbitrator shall be appointed by AAA, which arbitrator must meet the foregoing criteria. The arbitration shall be held in New York, New York, and the proceedings shall be conducted in the English language. The arbitrators may proceed to an award, notwithstanding the failure of either Party to participate in the proceedings. The arbitrator shall be instructed that time is of the essence in the arbitration proceeding. The arbitrator shall, within forty-five (45) calendar days after the conclusion of the arbitration hearing, issue a written award and statement of decision describing the essential findings and conclusions on which the award is based, including the calculation of any damages awarded. The arbitrator shall be authorized to award compensatory damages, but shall not be authorized to (i) award non-economic or punitive damages to the extent expressly excluded under this Agreement, or (ii) reform, modify or materially change this Agreement or any other 89
C ONFIDENTIAL agreements contemplated hereunder; provided, however, that the damage limitations described in part (i) of this sentence will not apply if such damages are statutorily imposed. Judgment on the award rendered by the arbitrator may be enforced in any court having competent jurisdiction thereof, or application may be made to the court for a judicial recognition of the award or an order of enforcement as the case may be, subject only to revocation on grounds of fraud or clear bias on the part of the arbitrator. Notwithstanding anything contained in this Section 10.7.3 to the contrary, either Party shall have the right to seek equitable relief or interim or provisional relief from a court of competent jurisdiction, including a temporary restraining order, preliminary injunction or other interim equitable relief, concerning a dispute either prior to or during any arbitration if necessary to protect the interests of such Party or to preserve the status quo pending the arbitration proceeding. The Parties agree that the arbitration shall be kept confidential and that the existence of the proceeding and any element of its (including any pleadings, briefs or other documents submitted or exchanged, any testimony or other oral submissions and any awards) shall not be disclosed beyond the arbitrator, the Parties, their counsel and any Person necessary to the conduct of the proceeding, except as may lawfully be required in judicial proceedings relating to the arbitration or otherwise. 10.7.4 Administration. Each Party shall bear its own attorneys fees, costs, and disbursements arising out of the arbitration, and shall pay an equal share of the fees and costs of the arbitrators. In no event may an arbitration be initiated after the date when commencement of a legal or equitable proceeding based on the Dispute would be barred by the applicable New York statute of limitations. 10.7.5 Waivers. By agreeing to the binding arbitration provisions of Section 10.7, the Parties are waiving certain rights and protections which may otherwise be available if a Dispute between the Parties were determined by litigation in court, including, without limitation, the right to seek or obtain certain types of damages precluded by this provision, the right to a jury trial, certain rights of appeal, and a right to invoke formal rules of procedure and evidence. 10.7.6 Non-Arbitrable Disputes. As used in this Section 10.7, the term Excluded Dispute means a Dispute that concerns (A) a matter for which this Agreement assigns decision-making to the Parties or a Committee or requires the consent of one or both of the Parties, (B) the validity, enforceability or infringement of a Patent, trademark or copyright, which issues shall be submitted to a court of competent jurisdiction in the country in which such patent, trademark rights or copyright rights were granted or arose; or (C) any antitrust, antimonopoly or competition law or regulation, whether or not statutory. 10.8 Entire Agreement This Agreement, including Schedule 5.2.1 and the exhibits hereto, contains the entire understanding of the Parties with respect to the subject matter hereof. In the event of any inconsistency between any plan hereunder (including the Research Plan, Development Plan (including the initial Development Plan) or Co-Promotion Plan) and this Agreement, the terms of this Agreement shall prevail. This Agreement supersedes any other express or implied agreements and understandings between the Parties, either oral or written, with respect to the subject matter hereof, including, without 90
C ONFIDENTIAL limitation, the Non-Disclosure Agreement entered into by API and Ambit dated [***]. 10.9 Amendment This Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by authorized representatives of both Parties hereto. 10.10 Headings The captions to the several Articles and Sections hereof are not a part of this Agreement, but are merely for convenience to assist in locating and reading the several Articles and Sections hereof. 10.11 Construction Except where the context requires otherwise, whenever used the singular includes the plural, the plural includes the singular, the use of any gender is applicable to all genders and the word or has the inclusive meaning represented by the phrase and/or (and no implication is intended to be drawn from the actual use of the phrase and/or in some instances but not others). Whenever this Agreement refers to a number of days, unless otherwise specified, such number refers to calendar days. The term including or includes as used in this Agreement means including without limitation and shall not be interpreted to limit the generality of any description preceding such term. 10.12 Independent Contractors It is expressly agreed that Ambit and Astellas shall be independent contractors and that the relationship between the Parties shall not constitute a partnership, joint venture or agency. Neither Ambit nor Astellas shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other Party, without the prior written consent of the other Party. 10.13 Waiver The waiver by either Party hereto of any right hereunder, or of any failure of the other Party to perform, or of any breach by the other Party, shall not be deemed a waiver of any other right hereunder or of any other breach by or failure of such other Party, whether of a similar nature or otherwise. 10.14 Cumulative Remedies No remedy referred to in this Agreement is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to in this Agreement or otherwise available under law. 10.15 Interpretation Each Party has had the opportunity to consult with counsel in connection with the review, drafting and negotiation of this Agreement. Accordingly, the rule of construction ***Confidential Treatment Requested 91
C ONFIDENTIAL that any ambiguity in this Agreement shall be construed against the drafting Party shall not apply. 10.16 Further Assurance Each Party shall perform all reasonable further acts and things and execute and deliver such further documents as may be necessary or as the other Party may reasonably require to implement or give effect to this Agreement. 10.17 Counterparts This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. ************************************************* 92
C ONFIDENTIAL IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first set forth above. ASTELLAS PHARMA INC. BY: /s/ M. Nogimori Masafumi Nogimori President and CEO AMBIT BIOSCIENCES CORPORATION BY: /s/ M. Scott Salka
DATE: December 18, 2009 ASTELLAS US LLC BY: /s/ [Illegible] President & CEO
DATE: 5 Jan 10
DATE: December 18, 2009 [Signature Page]
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EXHIBIT A [***] ***Confidential Treatment Requested Exhibit A page 1
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EXHIBIT B Ambit Licensed Patents

Docket No. Country Serial No. Filing Date Patent No (Pub No) Issue Date (Pub Date) Priority Status
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***Confidential Treatment Requested Exhibit B page 1
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EXHIBIT C [***] ***Confidential Treatment Requested Exhibit C page 1
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EXHIBIT D TERMS FOR CO-PROMOTION AGREEMENT The Co-Promotion Agreement to be negotiated pursuant to Section 3.8.2 of the Agreement shall contain terms and conditions that are consistent with the following: a. b. Tax Considerations. The Co-Promotion Agreement shall, where mutually agreeable, take into account the respective tax considerations of the Parties. General Obligations. Each Party will agree to be responsible for ensuring that its sales representatives Co-Promote each Co-Promoted Product in a manner consistent with the Co-Promotion Plan for such Co-Promoted Product. Notwithstanding the foregoing, in performing their respective Co-Promotion obligations hereunder, each of the Parties will agree to (i) provide the detailing effort required pursuant to Section 3.8.4(a) using sales representatives with an experience profile appropriate for the target audience and Co-Promotion role as described in the Co-Promotion Plan; (ii) provide its own sales management organization and infrastructure for its sales representatives and (iii) detail the Co-Promoted Product in the position as determined in the Co-Promotion Plan. In the event that either Party fails in a particular Calendar Quarter to provide a number of sales representatives sufficient to satisfy its Co-Promotion detailing target as set forth in the applicable CoPromotion Plan (a Detailing Shortfall), the other Party can choose to provide additional sales representatives to cover the Detailing Shortfall in the subsequent Calendar Quarter, in which case the defaulting Party will agree to reimburse the other Party for the cost to that Party of all details delivered by that Party to cover the Detailing Shortfall in amounts to be set forth in the Co-Promotion Agreement. Sales Force Expense. Both Parties will agree to be responsible for the costs of their respective sales representatives and sales infrastructure expenses. Further, each Party will agree to be responsible for the compensation and performance review functions related to its own sales representatives, to be performed by representatives of such Partys management. The Parties intend that the Ambit and Astellas sales representatives present as a seamless organization with respect to the Target Prescribers and that the Target Prescribers will receive a comparable level of information and customer service from both the Ambit and Astellas sales representatives. Target Prescriber will mean a prescriber identified as a member of the target audience to whom the Parties shall Co-Promote the Co-Promoted Product as defined in the applicable Co-Promotion Plan. Sales Information System Integration . The Parties will agree to strive to establish a transparent and compatible sales reporting system for Co-Promoted Product to facilitate call planning and field sales activities, and the Parties will agree to share equally in all costs related to such integration. Recruitment. All Ambit sales representatives will have been recruited by Ambit at Ambits sole expense, and all Astellas sales representatives will have been recruited by Astellas at Astellass sole expense. At Ambits request, Astellas will agree to provide Exhibit D page 1
c.
d.
e.
C ONFIDENTIAL Ambit with assistance in defining the desired profile of the Ambit sales representatives. f. Training. Astellas will agree to, (i) develop a training program for each Co-Promoted Product, and (ii) train, at the Astellas training facility prior to the estimated launch date, all sales representatives of both Parties that will be used to Co-Promote the Co-Promoted Products; provided, that, Ambit agrees to make its sales representatives available for such training not less than [***] prior to the Co-Promoted Product estimated launch date. Astellas will agree to provide Ambit with not less than [***] advance written notice of the proposed sales representative training date as determined by Astellas in consultation with Ambit and in light of Astellass training schedule. Thereafter, Astellas will agree to ensure that adequate training programs are developed and provided for all personnel involved in the commercialization of CoPromoted Products. The Parties will agree to utilize such training programs on an ongoing basis to assure a consistent, focused promotional strategy. No sales representative of either Party will be permitted to detail a Co-Promoted Product unless such sales representative successfully completes the training program described in this paragraph. For the Co-Promoted Product specific training, the internal costs and the out-ofpocket costs of such training programs (including without limitation the out-of-pocket costs of the development, production, printing of such training materials) will be treated as a sales training expense under Section 3.8.5, but excluding for clarity costs relating to housing or transportation of either Partys sales representatives in attending such training programs. Promotional Materials and Standards . In Co-promoting the Co-Promoted Product, the Parties will agree to maintain and adhere strictly to the approved labeling of the Co-Promoted Product, the approved marketing materials for the Co-Promoted Product and the Co-Promotion Agreement. Only marketing materials and programs developed by the Astellas marketing team and approved via the Astellas medical-legal review process in accordance with FDA regulations for the Co-Promoted Product shall be used. All promotional materials used by the Parties and all promotional activities relating to Co-Promoted Product will comply with applicable laws and the Code of International Federation Pharmaceutical Manufacturer Association (IFPMA) as well as FDA regulations regarding pharmaceutical marketing practices in the U.S. In addition, each Party shall insure that its representatives detail Co-Promoted Product in a fair and balanced manner consistent with all applicable legal, regulatory, professional and policy requirements including the PhRMA Code on Interactions with Health Care Professionals and all applicable Astellas policies, as they may exist from time to time upon presentation to and review by the JCC. Ambit and Astellas sales representatives will not engage in any pre-marketing activities for the Co-Promoted Product prohibited by Applicable Law. All promotional materials for Co-Promoted Products shall include, in equal prominence, as appropriate and as determined by the JCC, the names of both Astellas and Ambit. Performance Criteria. The Parties will agree on criteria for measuring each Partys performance under the Co-Promotion Agreement. Product Trademarks. The Astellas marketing team for a Co-Promoted Product will select and review with the JCC the trademark under which such Co-Promoted Product will be exclusively marketed. Astellas will agree to register each such Co-Promoted Product trademark and take all such actions as are required to continue and maintain in full force and effect in the U.S. the trademarks and the registrations thereof, and such ***Confidential Treatment Requested Exhibit D page 2
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h. i.
C ONFIDENTIAL expenses incurred in connection therewith shall be treated as Allowed Expenses. Astellas will be the exclusive owner of the trademarks. In connection with Ambits use of the Co-Promoted Product trademark in the U.S. in accordance with a license to be granted by Astellas in the Co-Promotion Agreement, Ambit will not represent that it has any ownership interest in the trademarks or registrations thereof, and Ambit shall acknowledge that its use of the trademark shall not create in its favor any rights therein (except as may be otherwise provided in the Agreement). Ambits use of any such trademark shall also be subject to additional terms and conditions to protect Astellass interest therein as set forth in the Co-Promotion Agreement. j. Other Terms. (i) The Co-Promoted Product will be included in each Partys respective sales incentive bonus program for the corresponding representatives, with specified links to sales performance, as appropriate and consistent with such Partys other bonus programs for products of comparable opportunity. Astellas will provide Ambit sales representatives equal access to all promotional materials.
(ii)
(iii) Astellas will be responsible for providing appropriate health science associates (HSAs) in accordance with the Co-Promotion Plan, and the costs associated with such HSAs shall be included as a Medical Affairs Costs. (iv) Each Party will be responsible for the maintenance of accurate records of the activities of its sales representatives engaged in CoPromotion, including an accurate monthly record of the number of details, by position. The other Party will have the right to review and audit all such records. From time to time the Parties can, at their own expense and using reputable, independent Third Party data sources to audit its own and the other Partys detailing activity to ascertain whether Co-Promotion obligations under the Co-Promotion Agreement have been fulfilled. (v) Neither Party may utilize Third Party contracted sales representatives for Co-Promoted Products in the U.S. without the express written consent of the other Party, provided, however, either Party may, without such consent, engage contracted sales representatives (A) for periods of not more than [***], (B) if the agreement between the subcontracting Party and its contracted sales representatives is primarily intended to provide an opportunity for such Party to hire the contracted sales representatives engaged in Co-Promotion of the applicable Product or (C) as may be reasonably necessary from time to time to supplement such Partys sales force on a temporary basis (measured in accordance with a timeline reasonable in light of the circumstances) in order to respond to changes in market conditions or to other events materially affecting the Commercialization of the Co-Promoted Product in the U.S. (including changes in the number of details performed by the other Party). ***Confidential Treatment Requested Exhibit D page 3
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EXHIBIT E TERMS FOR CERTAIN TYPES OF ARBITRATION Expedited Arbitration . For any Dispute under this Agreement that is expressly designated under Section 2.7.1 or 3.9.4 of this Agreement to be submitted for expedited arbitration pursuant to this Exhibit E, the provisions of Section 10.7.3 shall apply, except as follows: Each Party shall prepare and submit a written summary of such Partys position and any relevant evidence in support thereof to the arbitrator and to the other Party within thirty (30) days of the selection of the arbitrator, which, in the case of any Disputes arising under Section 2.7.1 or 3.9.4, shall be consistent with the written position submitted to the Executive Officers. Within fifteen (15) days of the delivery of such summaries by the Parties, each Party shall submit a written rebuttal to the other Partys summary. At a hearing lasting no more than three (3) days and to commence no later than ten (10) days after delivery of the written rebuttals, each Party shall have an opportunity to submit evidence and argue for its position before the arbitrator, subject to reasonable time limitations to be determined by the arbitrator. The arbitrator shall issue a reasoned award with respect to the matter in dispute within thirty (30) days following conclusion of the hearing. In the case of a Proposed Expense Dispute arising under Section 3.9.4, the arbitrator shall determine as an initial matter whether the budget proposed by Astellas represents Commercially Reasonable Efforts with respect to commercialization of the Co-Promoted Product in the U.S. If the arbitrator determines that such budget does not represent Commercially Reasonable Efforts, then the arbitrator may determine a proper level of expenditure that the arbitrator determines will represent Commercially Reasonable Efforts (but may not require or preclude the conduct of specific activities) of Direct Marketing/Promotion Expenses and Indirect Marketing Expenses, which level of expenditure shall be within the range of the budgets proposed by the Parties (such level of expenditure, the Arbitrator-Determined Marketing Budget ). Baseball Arbitration . For any dispute under Section 3.8.2 of this Agreement to be submitted for arbitration pursuant to this Exhibit E, the provisions of Section 10.7.3 shall apply, except as follows: (a) The Party invoking baseball-style arbitration under this Exhibit E shall so notify the other Party in writing. The notice shall contain a list of all issues (of those that are expressly designated under this Agreement to be submitted to arbitration pursuant to this Exhibit E) the Party proposes to submit to arbitration. Within twenty (20) days after receipt of any such notice, the Party receiving the notice shall promptly notify the initiating Party of any additional issues within the scope of issues that may be submitted to arbitration pursuant to this Exhibit E that the receiving Party intends to include in the arbitration. The issues listed in the notice and in such reply will be the only issues submitted to such arbitration. (b) If the Parties are not able to agree on an arbitrator within five (5) days after submission to arbitration, then either or both Parties may immediately request AAA to select an arbitrator. (c) Within fifteen (15) days after the designation of the arbitrator, the Parties shall each simultaneously submit to the arbitrator and one another in writing a proposal that contains that Partys final best offer as to the matter that is the subject of the Dispute, which, with respect to establishing the Co-Promotion Agreement, shall be the agreement in the form acceptable to the Exhibit E page 1
C ONFIDENTIAL submitting Party. If a Party fails to submit a proposal within such timeframe, then the proposal of the submitting Party shall prevail. Each Party shall have five (5) days from receipt of the other Partys submission to submit a written response to such summary and at a hearing to take place on no more than three (3) business days and to commence no later than ten (10) days after submission of the written, responses, each Party shall have a reasonable period of time to be determined by the arbitrator (which period of time shall be sufficient for the arbitrator to fully understand the proposals and the relative merits thereof) to argue for its proposal before the arbitrator. To the extent permitted by the AAAs Commercial Arbitration Rules the arbitrator shall have the right to meet with the Parties, either alone or together, as necessary to make a determination. (d) The arbitrator shall, within ten (10) days after the submission of the responses, or such longer period as the Parties may agree, select the single proposal of a Party that, in the determination of the arbitrator, as a whole is the most consistent with the requirements of this Agreement and is the most fair and reasonable to the Parties in light of the totality of the circumstances and the terms of this Agreement. At any time prior to the determination, either Party may accept the other Partys position on any unresolved issue. The Parties shall inform the arbitrator of such accepted position and in such event such position will be deemed part of the final agreement and no longer subject to arbitration. For clarity, the arbitrator can only select one proposal in its entirety, and cannot blend the proposals or modify any proposal. Exhibit E page 2
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Exhibit F Form of Joint Press Release
AMBIT BIOSCIENCES AND ASTELLAS ENTER STRATEGIC PARTNERSHIP TO RESEARCH, DEVELOP AND COMMERCIALIZE FLT3 KINASE INHIBITORS IN MULTIPLE INDICATIONS Ambit to Receive a $40 Million Upfront Cash Payment; Up to $350 Million in Pre-Commercialization Milestones, Double-Digit Royalties with Option to Co-promote and Share Profits in U.S. San Diego, CA, and Tokyo, December XX, 2009 Ambit Biosciences Corporation and Astellas Pharma Inc. today announced that they have entered into a worldwide agreement to jointly develop and commercialize FLT3 kinase inhibitors in oncology and non-oncology indications. This partnership includes AC220, Ambits lead clinical-stage investigational drug that entered into a Phase 2 clinical trial earlier this month in relapsed/refractory acute myeloid leukemia (AML), and other undisclosed FLT3 kinase inhibitors. AC220 is a novel, orally available, potent and highly selective small molecule that was specifically designed as a second generation FMS-like tyrosine kinase-3 (FLT3) inhibitor using Ambits proprietary drug discovery engine, KINOME scan . The companies will collaborate to develop AC220 for AML and other indications. The parties will also collaborate on a research and development program for a series of novel FLT3 inhibitors for a variety of oncology and non-oncology indications. The companies will share equally in the responsibilities and expenses for the development of AC220 and any additional products in the U.S. and Europe, while Astellas will have sole responsibility to fund development in all other territories. Under the terms of the agreement, Ambit will receive an up-front cash payment of $40 million and will be eligible to receive pre-commercialization payments of up to $350 million. Astellas will have sole responsibility for funding and implementing the commercialization of all products, and Ambit will be entitled to post-approval milestone payments upon the achievement of certain sales thresholds, as well as tiered double-digit royalties on net sales. In the U.S., Ambit will also have the option to co-promote AC220 and other products under a profit sharing arrangement where Astellas and Ambit share equally in profits and losses generated from U.S. sales. We are pleased to have entered into a great partnership with Ambit, stated Masafumi Nogimori, president and chief executive officer of Astellas. We believe that AC220, as the most selective and advanced FLT3 kinase inhibitor, has the potential to provide a new treatment option for AML where high unmet medical needs exist. Astellas is strongly committed to focus on oncology and this partnership is a significant milestone to establish our franchise in oncology. With their strategic commitment to the development and commercialization of innovative oncology products, Astellas is an ideal partner for Ambit, said Scott Salka, Chief Executive Officer of Ambit Biosciences. This collaboration establishes a comprehensive and global leadership position in the Exhibit F page 1
C ONFIDENTIAL discovery and development of FLT3 kinase inhibitors, and we look forward to working closely with Astellas to explore the clinical utility of AC220 in AML and other indications. About AC220 AC220, Ambits lead product candidate, is being developed in collaboration with Astellas Pharma Inc. and is a novel, potent, highly selective, orally bioavailable second-generation FLT3 inhibitor. AC220 is currently under evaluation in a Phase 2 clinical trial designed to support potential registration of AC220 as monotherapy treatment in adult and elderly patients with relapsed/refractory AML that have the internal tandem duplication (ITD) mutation in the FLT3 kinase. AML is one of the most common types of blood cancers in adults, and the FLT3 kinase is mutated and constitutively activated in 25-40 percent of such patients. FLT3 ITD mutations predict poor prognosis and decreased response to existing treatments, including chemotherapy and hematopoietic stem cell transplant. Ambit leveraged KINOMEscan, the companys proprietary, highthroughput method for screening small molecule compounds against a large number of human kinases, to advance AC220 from initial chemistry to clinical candidate selection for IND-enabling studies in only 18 months. About Acute Myeloid Leukemia (AML) Acute myeloid leukemia is a form of blood cancer. According to the American Cancer Society, approximately 13,000 new cases of AML will be diagnosed in the United States in 2008. The median age of a patient with AML is about 67 years. Standard treatment for patients 60 years or older with AML includes systemic combination chemotherapy. The median survival for patients receiving induction chemotherapy, which is associated with high mortality, is 6-11 months, with shorter survival for patients over the age of 60 years. The five-year survival rate for AML is less than 15 percent. According to a report from Decision Resources, the U.S. AML market is expected to more than double by 2015. About Ambit Biosciences Ambit Biosciences is a privately-held biopharmaceutical company engaged in the discovery and development of small molecule kinase inhibitors for the treatment of cancer, inflammatory disease, and other indications. Ambit employs a novel and proprietary kinase profiling technology, KINOMEscan, to screen compounds against 442 human kinases. Ambits lead compound, AC220, is in clinical development for the treatment of AML and other indications. Ambit has initiated a Phase 2 pivotal trial in patients with relapsed or refractory AML and plans to commence several other clinical studies with AC220 in 2010. Ambits clinical pipeline also includes AC480, an oral pan-HER inhibitor that was in-licensed from BMS. Ambit is conducting Phase 2 studies with AC480 in patients with solid tumor cancers. Additionally, Ambit has an advancing pool of preclinical candidates targeting BRAF (in collaboration with Cephalon), JAK2, Aurora, and CSF1R. Through its KINOMEscan Division, Ambit markets its technology as a profiling service. For more information, visit www.ambitbio.com. About Astellas Astellas Pharma Inc., located in Tokyo, Japan, is a pharmaceutical company dedicated to improving the health of people around the world through the provision of innovative and reliable pharmaceuticals. Astellas has approximately 15,000 employees worldwide. The organization is committed to becoming a global category leader in urology, immunology & infectious diseases, neuroscience, DM complications & metabolic diseases and oncology. For more information on Astellas Pharma Inc., please visit our website at http://www.astellas.com/en. Contact: Ambit Biosciences: M. Scott Salka (858) 334-2101 Exhibit F page 2 Astellas Pharma: Corporate Communications +81-(0)3-3244-3201
C ONFIDENTIAL http://www.astellas.com/en/ Christopher Morl (Corporate Development) (858) 334-2134 Scott Lerman (media) The Ruth Group (646) 536-7013 slerman@theruthgroup.com Sara Pellegrino (investors) The Ruth Group (646) 536-7002 spellegrino@theruthgroup.com Exhibit F page 3
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Exhibit G Manufacturing Cost means, with respect to a Product (including any intermediate thereof or any Licensed Compound or other material contained therein), all costs and expenses incurred or accrued by a Party or its Affiliates reasonably allocable to the manufacture of such product for commercial sale, as calculated and reported by such Party in accordance with its then-current standard cost methodology including the calculation and allocation of depreciation that is applied consistently to pharmaceutical products manufactured or sold by such Party. If the Product is manufactured in whole or part using a Third Party manufacturer, Manufacturing Costs shall include (a) [***]. If the Product is manufactured in whole or part by a Party or its Affiliates directly, Manufacturing Costs shall include (i) [***]. ***Confidential Treatment Requested Exhibit G page 1
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Schedule 5.2.1 [***] ***Confidential Treatment Requested Schedule 5.2.1 page 1
EXHIBIT 10.31 ***Text Omitted and Filed Separately with the Securities and Exchange Commission. Confidential Treatment Requested Under 17 C.F.R. Sections 200.80(b)(4) and Rule 406 of the Securities Act of 1933, as amended. Execution Version COLLABORATION AGREEMENT This Collaboration Agreement (the Agreement) is entered into as of September 14, 2010 (the Effective Date) by and between AMBIT B IOSCIENCES CORPORATION, a Delaware corporation with its principal place of business located at 4215 Sorrento Valley Blvd., San Diego, California 92121 (Ambit), and G ENOPTIX , IN C., a Delaware corporation with its principal place of business located at 1811 Aston Avenue, Carlsbad, California 92008 (Genoptix). Ambit and Genoptix are also herein designated individually as Party and collectively as Parties. RECITALS W HEREAS, Ambit is engaged in the research and development of a small molecule FLT3 kinase inhibitor known as AC220 for the treatment of cancer; W HEREAS, Genoptix is engaged in the development and commercialization of medical laboratory tests and performance of medical laboratory testing services; W HEREAS, the submission and approval of a PMA for a companion diagnostic test for AC220 is a regulatory requirement for the approval of the NDA for AC220; and W HEREAS, Ambit has already separately engaged Genoptix pursuant to the Master Service Agreement between the Parties effective on May 25, 2009 (the MSA) to provide genotyping services to support patient selection in certain clinical trials of AC220, and now wishes to engage Genoptix to develop, validate, and seek PMA approval for a companion diagnostic test for AC220 on the terms and conditions set forth herein. NOW , THEREFORE , in consideration of the foregoing premises and the mutual promises, covenants and conditions contained in this Agreement, the receipt and sufficiency of which are hereby expressly acknowledged, the Parties agree as follows: ARTICLE 1 DEFINITIONS As used in this Agreement, the following initially capitalized terms, whether used in the singular or plural form, shall have the meanings set forth in this Article 1. 1.1 AC220 means the small molecule FLT3 kinase inhibitor discovered by Ambit that is currently in clinical development for AML. 1.2 AC220-002 and AC220-003 Clinical Trials mean the clinical trials with AC220 in ITD-Positive and ITD-Negative patients, respectively, which are being conducted by Ambit to support a NDA filing for AC220. 1.3 Affiliate means, with respect to a particular Party, a person, corporation, partnership, or other entity that controls, is controlled by or is under common control with such Party. For the purposes of this definition, the word control (including, with correlative meaning, the terms controlled by or under the common control with) means the actual 1
power, either directly or indirectly through one or more intermediaries, to direct or cause the direction of the management and policies of such entity, whether by the ownership of more than fifty percent (50%) of the voting securities of such entity, or by contract or otherwise. 1.4 Ambit Indemnitees shall have the meaning set forth in Section 11.3. 1.5 AML means acute myeloid leukemia. 1.6 Assay means [***]. 1.7 Base Royalty Amount shall have the meaning set forth in Section 6.2(b). 1.8 BioPharm Services means the full-service hematology/oncology laboratory services provided by Genoptix to support research and development activities for biopharmaceutical companies, including support of clinical trials. 1.9 CDER means the FDAs Center for Drug Evaluation and Research or any successor thereto that is responsible for overseeing the NDA review and approval process. 1.10 CDRH means the FDAs Center for Devices and Radiological Health or any successor thereto that is responsible for overseeing the PMA review and approval process. 1.11 Commercially Reasonable Efforts means, with respect to a Partys obligations under this Agreement to develop (including conducting regulatory activities) and/or commercialize the Companion Diagnostic, the carrying out of such obligations or tasks with a level of efforts and resources consistent with the commercially reasonable practices of a similarly situated company for the active development or commercialization of a clinical diagnostic product with similar market potential at a similar stage of development or commercialization, including, without limitation, the following: (a) promptly assigning responsibility for such obligations to specific employee(s) who are held accountable for the progress and monitor such progress on an on-going basis, (b) setting and consistently seeking to achieve specific and meaningful objectives for carrying out such obligations, and (c) consistently making and implementing decisions and allocating resources designed to advance progress with respect to such objectives. 1.12 Companion Diagnostic means a laboratory developed test that uses the Assay and is intended to be marketed as an FDA-approved test (subject to FDA approval) to assist healthcare professionals in making treatment decisions for their AML patients based on the presence ( ITDPositive), or absence (ITD-Negative), of the internal tandem duplication ( ITD) mutation in the FLT3 sequence of such patient. For clarification, Companion Diagnostic shall exclude any test described in Section 4.4. 1.13 Companion Diagnostic Activities means those activities associated with creating and executing the Companion Diagnostic Validation Plan and conducting regulatory activities involved in preparing and filing a PMA for the Companion Diagnostic, including any ***Confidential Treatment Requested 2
and all such activities performed prior to the Effective Date. The Companion Diagnostic Activities shall conclude upon PMA Approval. 1.14 Companion Diagnostic Expenses means those expenses that are included in the budget (including any amendment thereto) authorized by this Agreement or the JCDC under Section 6.1(a) for Companion Diagnostic Activities, that are incurred prior to PMA Approval and that are: (a) invoiced by a Third Party for Companion Diagnostic Activities (including, without limitation, fees paid to FDA to submit the PMA, consultant fees, and reagent suppliers); (b) incurred by a Party, as calculated based upon certain pre-defined FTE rates in such budget, for the number of hours of such Party spent on Companion Diagnostic Activities; (c) depreciation as recorded under GAAP by a Party on capital equipment used in the Companion Diagnostic Activities recognized over the Regulatory Phase; (d) [***]; or (e) reasonable travel expenses incurred in connection with attending meetings outside of San Diego County, California with the FDA or other Regulatory Authorities. 1.15 Companion Diagnostic Validation Plan means the protocol agreed upon by the JCDC as meeting the requirements and criteria set forth by the FDA for validating the Companion Diagnostic, as may be amended by agreement of the JCDC. 1.16 Confidential Information means, with respect to a Party, all information of such Party that is disclosed or made available to the other Party in connection with this Agreement, which may include, without limitation, specifications, know-how, trade secrets, technical information, drawings, models, business information, inventions, discoveries, methods, procedures, formulae, protocols, techniques, data, and unpublished patent applications, whether disclosed in oral, written, graphic, or electronic form, and shall include, without limitation, all information of a Party with respect to the subject matter of this Agreement disclosed or made available pursuant to the Non-Disclosure Agreement. Notwithstanding the foregoing, the material terms of this Agreement and all information generated pursuant to this Agreement with respect to the Companion Diagnostic, whether generated by one or both Parties, shall be deemed the Confidential Information of both Parties. 1.17 Designated Party means a Third Party of Ambits choosing, identified in writing to Genoptix in the written notice provided by Ambit under Section 5.1, to which Ambit wishes to have the Companion Diagnostic transferred pursuant to the provisions of Article 5. 1.18 Developed IP shall have the meaning set forth in Section 7.1. ***Confidential Treatment Requested 3
1.19 Dispute shall have the meaning set forth in Section 13.1. 1.20 Dollars or $ means United States dollars. 1.21 FDA means the United States Food and Drug Administration, or any successor thereof. 1.22 Field shall have the meaning set forth in Section 5.3(a). 1.23 FTE means the equivalent of the work of one (1) full time employee or consultant of a Party for one (1) year (consisting of a total of eighteen hundred eighty (1,880) hours per year). 1.24 GAAP shall mean United States generally accepted accounting principles consistently applied and shall mean the international financial reporting standards (IFRS) at such time as IFRS becomes the generally accepted accounting standard and applicable laws require that a party use IFRS. 1.25 Genoptix Background IP shall have the meaning set forth in Section 5.3(b). 1.26 Genoptix Indemnitees shall have the meaning set forth in Section 11.2. 1.27 Genoptix Marks shall have the meaning set forth in Section 7.6. 1.28 Genoptix Retained Rights shall have the meaning set forth in Section 5.3(a). 1.29 IFRS shall have the meaning set forth in Section 1.24. 1.30 Indemnitees shall have the meaning set forth in Section 11.4. 1.31 Initial Commercialization Phase shall have the meaning set forth in Section 4.1(b). 1.32 ITD shall have the meaning set forth in Section 1.12. 1.33 ITD-Negative shall have the meaning set forth in Section 1.12. 1.34 ITD-Positive shall have the meaning set forth in Section 1.12. 1.35 JCDC shall have the meaning set forth in Section 2.2(a). 1.36 Laws means all relevant laws, statutes, rules, regulations, guidelines, ordinances and other pronouncements having the effect of law of any federal, national, multinational, state, provincial, county, city or other political subdivision, domestic or foreign. 1.37 Losses shall have the meaning set forth in Section 11.1. 1.38 MSA shall have the meaning set forth in the recitals of this Agreement. 4
1.39 NDA means a New Drug Application, filed with the FDA pursuant to 21 C.F.R. 314 and Section 505(b)(1) of the United States Federal Food, Drug and Cosmetic Act, and as such may be amended from time to time. 1.40 Net Sales means the gross amount invoiced by Genoptix, its Affiliates or their respective licensees for sales or provision of the Companion Diagnostic to a Third Party less the following deductions: (a) volume, quantity or other customary trade discounts, rebates, and allowances, to the extent actually allowed and taken by such Third Party and not otherwise recovered by or reimbursed to Genoptix, its Affiliates or their respective licensees including, without limitation, discounts, credits and rebates made or given with respect to Federal, state or foreign governmental programs (including Medicaid and Medicare or similar or successor programs), public or private hospitals and managed care entities or patient care organizations; (b) credits, refunds and allowances actually given to customers on account of rejection or returns; (c) sales and excise taxes, or import and export duties, tariffs or taxes or other governmental charges, imposed on and actually paid by Genoptix or its Affiliates or their respective licensees and included in the invoiced amount; (d) actual bad debt for which Genoptix can document that it was reasonable and diligent in its efforts to collect payment (for the avoidance of doubt, any subsequent recovery on any such bad debt deducted from the Net Sales calculation will be reflected as an increase to Net Sales in the period of recovery); and (e) transportation costs, including insurance and shipping, freight, and handling charges, to the extent included in the invoiced amount. Sales between Genoptix, its Affiliates and their respective licensees shall be disregarded for purposes of calculating Net Sales except if such purchaser is an end user. With respect to any sale of any Companion Diagnostic in a given country for any substantive consideration other than monetary consideration on arms length terms (which has the effect of reducing the invoiced amount below what it would have been in the absence of such non-monetary consideration), for purposes of calculating the Net Sales under this Agreement, such Companion Diagnostic shall be deemed to be sold exclusively for money at the average Net Sales price charged to Third Parties for cash sales in such country during the applicable reporting period. Net Sales shall be determined in accordance with those generally accepted accounting principles regularly employed by Genoptix, its Affiliates and their respective licensees, as applicable, with respect to the transactions in question. 1.41 Non-Disclosure Agreement means the Mutual Non-Disclosure Agreement between the Parties effective on January 27, 2009. 5
1.42 Other Party Indemnitees shall have the meaning set forth in Section 11.1. 1.43 Owed Expenses means [***] of the total of all Companion Diagnostic Expenses paid by Ambit to Genoptix pursuant to Section 6.1(c) or (d). 1.44 PMA means either (i) a Premarket Approval application for a class III medical device, filed with the FDA pursuant to 21 C.F.R. 814 and Section 515 of the United States Federal Food, Drug and Cosmetic Act (FDCA), or (ii) a Premarket Notification filed with the FDA pursuant to Section 510(k) of the FDCA, each as such may be amended from time to time. 1.45 PMA Approval means approval by FDA of a PMA for the Companion Diagnostic. 1.46 Regulatory Authority means any national, supra-national, regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity that governs the approval of the NDA, PMA, or their foreign equivalent. 1.47 Regulatory Phase means the time period between the Effective Date and the PMA Approval. 1.48 [***] Third Party License means [***]. 1.49 Term shall have the meaning set forth in Section 12.1. 1.50 Third Party means any person or entity other than Ambit or Genoptix or an Affiliate of either of them. 1.51 Third Party [***] means [***]. 1.52 Transfer Notice shall have the meaning set forth in Section 5.2. ARTICLE 2 COLLABORATION; GOVERNANCE 2.1 Collaboration Overview. The Parties desire and intend to collaborate with respect to the development, validation and PMA Approval of the Companion Diagnostic on the terms and conditions set forth in this Agreement. It is intended that the Parties will utilize Genoptixs expertise in developing medical laboratory tests, as well as the genotyping data generated by Genoptix or supplied by Ambit and patient samples collected by or on behalf of Ambit during the AC220-002 and AC220-003 Clinical Trials, to further develop and validate the ***Confidential Treatment Requested 6
Assay as a Companion Diagnostic and to seek PMA Approval for the Companion Diagnostic to support the approval of the NDA for AC220. 2.2 Joint Companion Diagnostic Committee. (a) Purpose; Formation. Within thirty (30) days after the Effective Date, the Parties shall establish a Joint Companion Diagnostic Committee (the JCDC) to plan, direct, manage and coordinate all aspects of the Parties activities under this Agreement during the Regulatory Phase. Following the Regulatory Phase, Ambit will not have any role in planning, directing, managing or coordinating any aspect of Genoptixs commercialization, provision or use of the Companion Diagnostic. The JCDC shall have only the powers assigned expressly to it under this Section 2.2 and elsewhere in this Agreement, and shall not have any power to amend, modify or waive compliance with this Agreement. (b) Composition. Each Party shall appoint [***] representatives, to the JCDC, each of whom shall be an employee of such Party with sufficient authority within such Party to make decisions within the scope of the JCDCs responsibilities [***]. Each Party may replace its JCDC representatives at any time upon written notice to the other Party. The JCDC may invite non-members (including consultants and advisors of a Party who are under an obligation of confidentiality consistent with this Agreement) to participate in the discussions and meetings of the JCDC, provided that such participants shall have no voting authority at the JCDC. The JCDC shall have a chairperson who shall be a JCDC representative designated by Ambit. The role of the chairperson shall be to convene and preside at meetings of the JCDC, but the chairperson shall have no additional powers or rights beyond those held by the other JCDC members. (c) Specific Responsibilities. The JCDC shall be responsible for all decisions with respect to regulatory strategy, technical specifications, development timelines and budgets for the Companion Diagnostic. In particular, the JCDC shall: (i) oversee the Companion Diagnostic Activities of the Parties under this Agreement, including reviewing and discussing the monthly updates provided by each Party pursuant to Section 2.2(e); (ii) develop, review and approve the Companion Diagnostic Validation Plan and any amendment thereto; (iii) review and approve any amendment to the budget for Companion Diagnostic Activities and any future budget with respect to Companion Diagnostic Activities; (iv) discuss the requirements for PMA Approval, review and approve the PMA for the Companion Diagnostic and decide whether to file the PMA for the Companion Diagnostic, and coordinate regulatory matters with respect to the Companion Diagnostic; (v) [***]; ***Confidential Treatment Requested 7
(vi) [***]; (vii) [***]; and (viii) perform those other functions that are appropriate to further the purposes of this Agreement and are allocated to it in writing by the Parties. (d) Meetings. The JCDC shall meet at least [***] during the Regulatory Phase unless the Parties mutually agree in writing to a different frequency for such meetings. Either Party may also call a special meeting of the JCDC with at least seven (7) days prior written notice to the other Party in the event such Party reasonably believes that a significant matter must be addressed prior to the next regularly scheduled JCDC meeting. The JCDC may either meet in person or by teleconference. Notwithstanding the foregoing, at least [***] shall be in person unless the Parties mutually agree in writing to waive such requirement. In-person JCDC meetings shall be held at locations in San Diego County, California alternately selected by Ambit and by Genoptix, or at other locations agreed by the Parties. Each Party shall bear the expense of its respective JCDC members participation in JCDC meetings. Meetings of the JCDC shall be effective only if at least one (1) JCDC representative of each Party is present or participating in such meeting. The chairperson of the JCDC shall be responsible for preparing reasonably detailed written minutes of all JCDC meetings that reflect, without limitation, material decisions made at such meetings and a summary of the monthly updates provided by the Parties pursuant to Section 2.2(e). The JCDC chairperson shall send draft meeting minutes to each member of the JCDC for review and approval within five (5) business days after each JCDC meeting. Such minutes shall be deemed approved unless one or more members of the JCDC objects to the accuracy of such minutes within ten (10) business days of receipt. (e) Monthly Updates. Each Party shall provide the JCDC with monthly updates on its activities under this Agreement. Ambit shall provide the JCDC with monthly updates on: (i) the AC220 development program timeline; (ii) the status of the AC220-002 and ***Confidential Treatment Requested 8
AC220-003 Clinical Trials and any changes relevant to sample logistics from such trials; and (iii) feedback on interactions with CDER concerning requirements for the Companion Diagnostic. Genoptix shall provide the JCDC with monthly updates on: (1) development and validation of the Companion Diagnostic; (2) status of preparation of the PMA for the Companion Diagnostic; (3) feedback on interactions with the CDRH concerning requirements for the Companion Diagnostic; and (4) any actual variances or expected variances to the approved budget for Companion Diagnostic Activities. (f) Dissolution. The JCDC shall dissolve and cease to exist upon the earlier of: (i) the date mutually agreed by the Parties for such dissolution and cessation or (ii) PMA Approval. 2.3 Decision Making. Subject to this Section 2.3, all decisions of the JCDC shall be made by unanimous consent. The representatives from Ambit shall have, collectively, one (1) vote on behalf of Ambit and the representatives from Genoptix shall have, collectively, one (1) vote on behalf of Genoptix on all matters presented to the JCDC for resolution. The representatives of the JCDC shall attempt in good faith to reach consensus on all matters before the JCDC. In the event that the JCDC cannot, after such good-faith efforts, reach agreement on an issue within fifteen (15) business days, the issue shall be elevated to the chief executive officers (or their appointed representatives, who are not JCDC members) of Ambit and Genoptix, to seek in good faith an agreement on the issue. In the event such executives cannot resolve the issue within fifteen (15) business days of the dispute being submitted to them in writing, then [***], taking into account the legitimate business issues of the matter at hand. ARTICLE 3 DEVELOPMENT 3.1 Overview. The Parties shall collaborate in the development and validation of the Companion Diagnostic under the direction of the JCDC and pursuant to the Companion Diagnostic Validation Plan. 3.2 Genoptix Responsibilities. Genoptix shall use Commercially Reasonable Efforts to perform the activities reasonably required for the development and regulatory submission of a PMA to CDRH for the Companion Diagnostic, including, but not limited to: (a) developing and validating the Assay as a Companion Diagnostic pursuant to the Companion Diagnostic Validation Plan; (b) allocating Genoptix resources to the Companion Diagnostic Activities in accordance with the Companion Diagnostic Validation Plan; (c) sourcing all reagents and materials (other than patient samples and genotyping data provided by Ambit) that are necessary to conduct the Companion Diagnostic Activities in accordance with the Companion Diagnostic Validation Plan; ***Confidential Treatment Requested 9
(d) managing all patient samples and genotyping data provided by Ambit to Genoptix or generated by Genoptix in connection with the Companion Diagnostic Activities in full accordance with the parameters governing informed consent, the MSA, the specifications of the Companion Diagnostic Validation Plan and all applicable Laws; (e) preparing, for timely review by the JCDC, the PMA for the Companion Diagnostic, revising the PMA to take into account reasonable comments provided by the JCDC, and upon JCDC decision to file the PMA, submitting the PMA to CDRH substantially simultaneously with, but not later than ten (10) business days after, the NDA filing for AC220; (f) leading all interactions with the CDRH division at FDA to seek PMA Approval, provided that Genoptix shall promptly provide Ambit with copies of all written communications to and from the CDRH with respect to the Companion Diagnostic, and shall provide Ambit with reasonable advance notice of any scheduled meetings with the CDRH and Ambit shall have the right to be present in any such meeting to the extent permitted by applicable Laws; and (g) granting Ambit and its development and commercialization strategic partner for AC220 (which, as of the Effective Date, is Astellas Pharma Inc. and Astellas US LLC) the authority to cross-reference the PMA for the Companion Diagnostic so that Regulatory Authorities may access data from such PMA, under confidentiality and as required, to support review of the NDA for AC220. 3.3 Ambit Responsibilities . As between the Parties, Ambit shall be responsible for the development and regulatory submission of the NDA for AC220. Ambit shall, itself or in concert with its strategic partner for AC220, use commercially reasonable efforts to undertake the activities reasonably required for the development and regulatory submission of the NDA for AC220, including, but not limited to: (a) leading all interactions with the CDER with respect to AC220 and promptly providing feedback to Genoptix from CDER with respect to AC220 that may influence the development of the Companion Diagnostic; (b) providing to Genoptix, at no cost to Genoptix, all patient samples and genotyping data from the AC220-002 and AC220-003 Clinical Trials that are reasonably available to and controlled by Ambit, which samples and data (whether generated by Ambit or Genoptix) shall remain Ambits sole property or otherwise under Ambits control at all times and shall only be used by Genoptix to validate the Companion Diagnostic and support the filing of the PMA for the Companion Diagnostic; and (c) granting Genoptix the authority to cross-reference the NDA for AC220 so that Regulatory Authorities may access clinical trial data from the NDA, under confidentiality and as required, to support review of the PMA for the Companion Diagnostic. 3.4 Standard of Conduct; Records . Each Party shall perform the Companion Diagnostic Activities for which it is responsible in good scientific manner and in compliance with all applicable Laws. Each Party shall maintain complete, current and accurate records of all work conducted by it under the Companion Diagnostic Validation Plan and all data and other 10
information and know-how resulting from such work in accordance with such Partys records maintenance policies and in accordance with applicable Laws. Such records shall fully and properly reflect all work done and results achieved in sufficient detail and in good scientific manner appropriate for regulatory and patent purposes. Ambit shall have the right to review any such records of Genoptix at reasonable times and upon reasonable prior written request during the Term and for five years thereafter. 3.5 [***] Third Party Licenses. [***]. ARTICLE 4 COMMERCIALIZATION 4.1 Genoptixs Option to Commercialize Companion Diagnostic. ***Confidential Treatment Requested 11
(a) Subject to Section 4.1(b), Genoptix shall have the first right, in its sole discretion, but shall have no obligation, to commercialize the Companion Diagnostic after PMA Approval. Genoptix shall notify Ambit in writing within five (5) business days of such PMA Approval whether or not Genoptix will commercialize the Companion Diagnostic. Failure to provide such notice during such 5-business day period shall constitute a material breach by Genoptix of this Agreement. If (i) the JCDC (or Ambit if the JCDC was disbanded) has approved or is deemed to have approved the commercialization of the Companion Diagnostic by Genoptix and (ii) such notice from Genoptix states that Genoptix will not commercialize the Companion Diagnostic, then Ambit shall have the right to require transfer of the Companion Diagnostic under the terms set forth in Article 5. Nothing in this Section 4.1(a) shall be interpreted as relieving Genoptix of the obligation set forth in Section 4.1(b) to commercialize the Companion Diagnostic under the circumstances described in such section. All references made in this Article 4 to commercialization of the Companion Diagnostic by Genoptix shall mean commercialization of the Companion Diagnostic by Genoptix or its Affiliates or licensees (excluding Ambit or any of its Affiliates or licensees). (b) If (i) Genoptix receives PMA Approval for the Companion Diagnostic, (ii) the JCDC (or Ambit if the JCDC was disbanded) has approved or is deemed to have approved the commercialization of the Companion Diagnostic by Genoptix, and (iii) [***] in accordance with Section 3.5, then Genoptix shall be obligated to commercialize the Companion Diagnostic for a period of [***] following the later of (x) the date of such PMA Approval or (y) the date of NDA approval for AC220 (such period, the Initial Commercialization Phase); provided Genoptix shall be relieved of such obligation and the Initial Commercialization Phase shall immediately end in the event [***], in which case Ambit shall have the right to require transfer of the Companion Diagnostic under the terms set forth in Article 5. In the event that the conditions described in the first sentence of this Section 4.1(b) were satisfied, the Initial Commercialization Phase has not terminated [***] and Genoptix decides not to continue commercializing the Companion Diagnostic beyond the Initial Commercialization Phase, Genoptix shall promptly communicate such decision in writing to Ambit and, [***], Genoptix shall continue to commercialize the Companion Diagnostic until the later of [***] following the date of such notice or the end of the Initial Commercialization Phase, and Ambit shall have the right to require transfer of the Companion Diagnostic under the terms set forth in Article 5. 4.2 Commercialization Standard and Conduct . If Genoptix commercializes the Companion Diagnostic, Genoptix shall: (a) use Commercially Reasonable Efforts to commercialize the Companion Diagnostic, (b) be solely responsible for all such commercialization activities at its sole cost and expense, (c) comply with all applicable Laws with respect to such commercialization activities, and (d) keep Ambit reasonably informed regarding such commercialization activities. ***Confidential Treatment Requested 12
4.3 Product Recalls. If Genoptix commercializes the Companion Diagnostic and any Regulatory Authority (a) threatens or initiates any action to remove the Companion Diagnostic from the market or (b) requires Genoptix to distribute a Dear Doctor letter or its equivalent regarding use of such Companion Diagnostic, then Genoptix shall notify Ambit of such event within three (3) business days (or sooner if required by applicable Laws) after Genoptix becomes aware of such action, threat, or requirement (as applicable). Genoptix shall provide notice to and, to the extent possible but subject to applicable Laws, consult with Ambit prior to initiating a recall or withdrawal of the Companion Diagnostic. The Parties shall discuss and attempt to agree whether to recall or withdraw the Companion Diagnostic; provided, however, the final decision as to whether to recall or withdraw the Companion Diagnostic commercialized by Genoptix and the procedures therefor shall be made solely by Genoptix. Genoptix shall be responsible, at its sole expense, for conducting any recalls or taking such other necessary remedial action with respect to the Companion Diagnostic commercialized by Genoptix. 4.4 Non-FDA Approved Tests. For clarification, nothing in this Agreement will limit or restrict Genoptix or its Affiliates or licensees from developing and commercializing any test that uses the Assay, provided that: a) the test is not marketed by or on behalf of Genoptix or its Affiliates or licensees as an FDA-approved test to assist healthcare professionals in making treatment decisions for their AML patients based on the presence or absence of the ITD mutation in the FLT3 sequence of such patient, and b) all promotional materials and datasheets regarding such test shall include a prominent statement that such test is not an FDA-approved test. For the avoidance of doubt, Genoptix may perform any such test in the FDA-approved manner and may provide Third Parties with information relating to the manner in which such test is performed, including that such test is performed in the FDA-approved manner; provided, however, that Genoptix and its Affiliates and licensees will not market or otherwise claim that any such test is an FDA-approved test. Development and commercialization by Genoptix or its Affiliates or licensees of such a test in accordance with this Section 4.4 shall be without any obligation, including, without limitation, any payment obligation, to Ambit. Notwithstanding the foregoing, [***]. ARTICLE 5 TECHNOLOGY TRANSFER 5.1 Ambits Right to Require Technology Transfer. Ambit shall have the right to require Genoptix, upon written notice from Ambit within sixty (60) days after the effective date of the applicable event set forth in Section 5.1(a), 5.1(b) or 5.1(c), as the case may be, to transfer the Companion Diagnostic to Ambit or a Designated Party in accordance with Section 5.2 if: (a) Genoptix terminates this Agreement at any time prior to the PMA Approval for the Companion Diagnostic, provided that Ambit has satisfied all its payment obligations and is not otherwise in breach of any material term of this Agreement, which breach is not cured within thirty (30) days after Ambits receipt of written notice from Genoptix pursuant to Section 12.4; ***Confidential Treatment Requested 13
(b) Ambit terminates this Agreement at any time under (i) Section 12.2(b) or (ii) Section 12.4 for any uncured material breach by Genoptix of its obligations under Section 3.2, Section 4.1 or Section 4.2, provided that, if there is a good faith dispute about whether Ambit had the right to terminate this Agreement under Section 12.4 and either Party elects to resolve any such dispute under the provisions of Article 13, this provision shall not apply unless and until it is finally determined that Ambit had such right to terminate this Agreement; or (c) Genoptix elects not to commercialize, or not to continue commercializing, the Companion Diagnostic after the PMA Approval has been obtained as provided in Section 4.1(a) or 4.1(b), as applicable. 5.2 Technology Transfer. If Ambit provides timely written notice of its election to cause Genoptix to transfer the Companion Diagnostic under Section 5.1 (the Transfer Notice), then subject to the Genoptix Retained Rights in Section 5.3, Genoptix shall promptly, at its own cost: (a) transfer to Ambit or a Designated Party, within sixty (60) days of the effective date of the Transfer Notice, all documentation, technical information and other know-how within the Developed IP or the Genoptix Background IP that are necessary or reasonably useful for the continued development and commercialization of the Companion Diagnostic in the Field, including without limitation all validation data and analysis thereof and all regulatory materials with respect to the Companion Diagnostic (including the PMA Approval if the approval has been obtained, to the extent permitted by applicable Laws); (b) provide technical support, following the above technology transfer, as reasonably requested by Ambit with respect to the transfer of Companion Diagnostic; provided that (i) Ambit shall pay Genoptix for the number of hours exceeding twenty (20) that were spent on such technical support, at the FTE rates set forth in the most recent budget for Companion Diagnostic Activities, and (ii) in no event shall Genoptix be obligated to spend more than fifty (50) hours in aggregate in connection with providing such technical support. (c) [***]; (d) return or transfer to Ambit all the patient samples and genotyping data generated by Genoptix or provided by Ambit pursuant to Section 3.3(b); and (e) provide Ambit with a complete and accurate copy of each and every license in the Field granted by Genoptix to any Third Party under the Developed IP prior to receipt by Genoptix of the Transfer Notice (each, a Developed IP License) and, upon Ambits written request, assign to Ambit all of Genoptixs rights and obligations under each Developed IP License identified in such written request. ***Confidential Treatment Requested 14
5.3 License. (a) License to Developed IP. Subject to the terms and conditions of this Agreement and any license(s) granted by Genoptix to any Third Party under the Developed IP prior to receipt by Genoptix of the Transfer Notice and in accordance with Section 5.3(c), Genoptix hereby grants to Ambit a fully paid up, royalty free, exclusive, worldwide license, with the right to grant sublicenses through multiple tiers, under the Developed IP, to (i) make, have made, use, import, offer for sale and sell the Companion Diagnostic solely for the specific purpose of selecting patients for treatment with a FLT3 inhibitor and/or monitoring a patients response or clinical status to a FLT3 inhibitor (the Field) and (ii) make, have made, use and import the Assay solely for the specific purpose of obtaining PMA Approval, which license shall be effective only upon the Transfer Notice pursuant to Section 5.1. For clarity, Genoptix shall retain all rights under the Developed IP (1) to develop, make, have made, use, import, offer for sale and sell any test outside the Field and (2) to develop, make, have made, use, import, offer for sale and sell any test in the Field, provided that such test is a laboratory developed test that is marketed as contemplated by Section 4.4 in all cases (collectively, the Genoptix Retained Rights). (b) License to Genoptix Background IP . Subject to the terms and conditions of this Agreement, Genoptix hereby grants to Ambit a non-exclusive, worldwide license, with the right to grant sublicenses through multiple tiers, under the Genoptix Background IP, to (i) make, have made, use, import, offer for sale and sell the Companion Diagnostic in the Field and (ii) make, have made, use and import the Assay solely for the specific purpose of obtaining PMA Approval, which license shall be effective only upon the Transfer Notice pursuant to Section 5.1. The foregoing license is fully paid up and royalty-free, except that Ambit shall be responsible for paying any amounts that are owed by Genoptix to any Third Party licensor of Genoptix Background IP as a result of the practice of the sublicense from Genoptix with respect to such Genoptix Background IP. Further, the license granted under this Section 5.3(b) with respect to any Genoptix Background IP licensed to Genoptix by any Third Party licensor shall be subject to all of the applicable terms of the license agreement between Genoptix and such Third Party licensor. Genoptix will disclose in writing to Ambit, within thirty (30) days of the Transfer Notice, with respect to each Third Party licensor of Genoptix Background IP, (i) the nature and scope of the Genoptix Background IP licensed to Genoptix by such Third Party licensor, and (ii) each and every amount that might be owed by Genoptix as a result of the practice of the sublicense from Genoptix with respect to such Genoptix Background IP, and (iii) the terms of the license agreement between Genoptix and such Third Party licensor to which the sublicense to Ambit shall be subject. Ambit may elect at anytime, upon written notice to Genoptix, to terminate its sublicense to any particular Genoptix Background IP and cease to have any payment obligations hereunder with respect to such Genoptix Background IP. Genoptix Background IP means any patents, patent applications and know-how owned by or licensed to (but only to the extent Genoptix has the right to further sublicense) Genoptix that are not Developed IP and that are necessary for or used by Genoptix for the development or commercialization of the Companion Diagnostic in the Field. (c) Retained Rights. Except as expressly provided in this Section 5.3, Genoptix hereby expressly reserves the right to practice, and to grant licenses under, the Developed IP and the Genoptix Background IP, provided that (i) any such license granted under 15
the Developed IP before the Transfer Notice with respect to a Companion Diagnostic in the Field shall be assignable by Genoptix to Ambit on request by Ambit pursuant to Section 5.2(e), (ii) Genoptix shall not grant any such license under the Developed IP after the Transfer Notice with respect to a Companion Diagnostic in the Field, and (iii) Genoptix shall not grant any license under the Genoptix Background IP with respect to a Companion Diagnostic in the Field that conflicts with the license granted to Ambit in Section 5.3(b). Ambit shall not, and shall not grant any license to or otherwise authorize any sublicensee to, practice any of the Developed IP or Genoptix Background IP except as expressly permitted in Section 5.3(a) and (b). (d) Trademark Licenses. Genoptix hereby grants to Ambit (i) a fully paid up, royalty-free, exclusive, worldwide license, with the right to grant sublicenses through multiple tiers, under the Genoptix Marks, for use solely in connection with the Assay or Companion Diagnostic in the Field, which license shall be effective only upon the Transfer Notice, and (ii) a fully paid up, royalty-free, exclusive, worldwide license, with the right to grant sublicenses through multiple tiers, under the Genoptix Marks, for use solely in referencing the Assay or Companion Diagnostic in the Field in connection with the commercialization of AC220. 5.4 License to Genoptix. Subject to the terms and conditions of this Agreement, Ambit hereby grants to Genoptix, during the term of the Companion Diagnostic Activities, a non-exclusive, fully-paid up license, without the right to sublicense, under intellectual property rights owned by or licensed to (but only to the extent Ambit has the right to further sublicense) Ambit that are necessary for performance of the Companion Diagnostic Activities, solely for Genoptix to perform the Companion Diagnostic Activities. Ambit will work with Genoptix and Ambits strategic partner for AC220 with the goal of developing a mechanism for providing Genoptix with a license to use, solely in connection with Genoptixs commercialization of the Companion Diagnostic pursuant to this Agreement, one or more of the trademarks used by Ambit or its strategic partner in connection with the commercialization of AC220. ARTICLE 6 FINANCIALS 6.1 Companion Diagnostic Expenses . (a) Budget. The Parties have agreed upon an initial Companion Diagnostic Activities budget of [***] for the estimated period of [***] beginning in January 2010; such budget is attached hereto as Exhibit A. The JCDC shall be responsible for approving any modifications to such budget or any future budget with respect to Companion Diagnostic Activities. (b) Obligation. Ambit shall be responsible for all Companion Diagnostic Expenses. For clarity, Ambit is not responsible for any expenses incurred by Genoptix in the course of performing Companion Diagnostic Activities to the extent that they exceed the budget approved by the Parties or the JCDC in accordance with Section 6.1(a) or they are not Companion Diagnostic Expenses. ***Confidential Treatment Requested 16
(c) Advance Payment . Promptly following the Effective Date, Ambit shall make an advance payment of [***] to Genoptix, which shall be held as a retainer against the final reimbursement payment of the Companion Diagnostic Expenses that Ambit is required to reimburse Genoptix for pursuant to Section 6.1(d). (d) Reimbursement. Within [***] of each calendar quarter for which reimbursement of Companion Diagnostic Expenses is due, Genoptix shall provide to Ambit an invoice that itemizes the actual Companion Diagnostic Expenses incurred by Genoptix during such calendar quarter. Notwithstanding the foregoing, Genoptix incurred approximately [***] of Companion Diagnostic Expenses from [***] and such Companion Diagnostic Expenses shall be included in an invoice to be provided by Genoptix to Ambit promptly after the Effective Date. Ambit shall pay Genoptix the amount set forth in each invoice, less any amounts that Ambit disputes in good faith and less, with respect to the final invoice, the advance payment of [***] made by Ambit pursuant to Section 6.1(c), within thirty (30) days after receipt of such invoice. The Parties agree to use good faith efforts to resolve any disputes with respect to the reimbursement of Companion Diagnostic Expenses through the JCDC. 6.2 Repayment of Owed Expenses . (a) Overview. Provided that (i) Ambit has reimbursed Genoptix for the total amount of the Companion Diagnostic Expenses incurred by Genoptix as approved by the JCDC, and (ii) the PMA for the Companion Diagnostic has been approved by the FDA, Genoptix shall pay Ambit [***] through the royalty payments set forth in Section 6.2(b) and/or the BioPharm Services credits set forth in Section 6.2(c). For clarification, if (x) no royalty payments are due pursuant to Section 6.2(b) and (y) Genoptix and Ambit have not entered into any agreement for Genoptix to provide BioPharm Services pursuant to Section 6.2(c), Genoptix shall have no obligation [***]. (b) Royalty Payments. Subject to the conditions set forth in Section 6.2(a), for each calendar year, Genoptix shall pay to Ambit a nonrefundable, non-creditable royalty payment equal to the product of multiplying the total Net Sales during such calendar year by the applicable royalty rate set forth below:
Total Net Sales for Calendar Year Royalty Rate
Less than or equal to $[***] More than $[***] but not more than $[***] More than $[***] but not more than $[***] More than $[***]
$[***]% $[***]% $[***]% $[***]% ***Confidential Treatment Requested 17
By way of example, if the total Net Sales during a calendar year is $ [***], the applicable royalty rate for such calendar year shall be [***]% and the royalty payment for such calendar year shall equal to$ [***]. Notwithstanding the foregoing, [***]. All royalties payable to Ambit pursuant to this Section 6.2 shall be paid in Dollars within [***] of the applicable calendar year. Each payment of royalties due to Ambit shall be accompanied by a report showing the amount of gross sales of Companion Diagnostics during the applicable calendar year, a calculation of Net Sales, including details of the actual deductions from gross amount invoiced as provided for in the definition of Net Sales, the aggregate amount of [***] incurred during such calendar year, and a calculation of the amount of royalty payment due for such calendar year. (c) Credits Towards BioPharm Services. At Genoptixs option, a portion of the Owed Expenses may be repaid in the form of credits toward BioPharm Services commissioned by Ambit, if so requested by Ambit. If Genoptix and Ambit enter into an agreement for Genoptix to provide BioPharm Services at any time after the PMA Approval, any amount of un-repaid Owed Expenses, which amount shall be specified in such agreement, may be applied as a credit toward the costs of such BioPharm Services, which services may include, but are not limited to, conducting genotype testing of clinical samples for genetic biomarkers (e.g., [***],[***],[***], etc.), histology, pathology, and other assays or laboratory services to support clinical trials or other research and development activities at Ambit, provided however, that un-repaid Owed Expenses may not be used as a credit toward the costs of the work to support the development of the Companion Diagnostic and the work underway as of the Effective Date or planned as of the Effective Date to support testing of samples from the AC220-002 and AC220-003 Clinical Trials. The Parties agree to negotiate, at a later date and in good faith, the terms for BioPharm Services to be provided to Ambit, including the amount and timing of any credit that would apply to the provision of such BioPharm Services; [***]. (d) Limit on Total Repayment. In the event that the cumulative annual royalty payments that are actually received by Ambit pursuant to Section 6.2(b), plus all credits towards BioPharm Services commissioned that are actually taken, equal [***], then Genoptix shall not be required to make further payments to Ambit pursuant to this Section 6.2. 6.3 Taxes and Withholding. All payments due from one Party to another under this Agreement shall be made without any deduction or withholding for or on account of any tax ***Confidential Treatment Requested 18
unless such deduction or withholding is required by applicable Laws to be assessed against the receiving Party. If the paying Party is so required to deduct or withhold, the paying Party shall (a) promptly notify the receiving Party of such requirement, (b) pay to the relevant authorities the full amount required to be deducted or withheld promptly upon the earlier of determining that such deduction or withholding is required or receiving notice that such amount has been assessed against the receiving Party, (c) promptly forward to the receiving Party an official receipt (or certified copy) or other documentation reasonably acceptable to the receiving Party evidencing such payment to such authorities, and (d) otherwise reasonably cooperate with the receiving Party in connection with the receiving Partys attempts to obtain favorable tax treatment and credit therefor (where appropriate) in accordance with applicable Laws. 6.4 Late Payments. If a Party does not receive payment of any sum due to it on or before the due date therefor, simple interest shall thereafter accrue on the sum due to such Party from the due date until the date of payment at the prime rate published in the Wall Street Journal for such due date plus [***] percentage points or the maximum rate allowable by applicable Laws, whichever is less. 6.5 Records and Audit s. Genoptix shall maintain complete and accurate records in sufficient detail to permit Ambit to confirm the accuracy of the amount to be reimbursed with respect to Companion Diagnostic Expenses under Section 6.1, and the Net Sales and royalty payments due under Section 6.2(b). Upon reasonable prior notice, such records shall be open during regular business hours for a period of three (3) years from the creation of individual records for examination, and not more often than once each calendar year, by an independent certified public accountant selected by Ambit and reasonably acceptable to Genoptix for the sole purpose of verifying for Ambit the accuracy of the financial reports or payments made under this Agreement. Any such auditor shall not disclose Genoptixs Confidential Information to Ambit, except to the extent such disclosure is necessary to verify the accuracy of the financial reports or payments made under this Agreement. Any amounts shown to be owed but unpaid, or overpaid and in need of refund, shall be paid or refunded (as the case may be) within thirty (30) days after the auditors report, plus interest (as set forth in Section 6.4) from the original due date. Ambit shall bear the full cost of such audit unless such audit reveals an overpayment to, or an underpayment by, Genoptix of more than [***] of the amount that was to be paid to, or paid by, Genoptix, in which case Genoptix shall bear the cost of such audit. 6.6 Failure to Obtain PMA Approval . In the event the FDA does not approve the Companion Diagnostic based on the PMA submission made by Genoptix, neither Party shall be obligated to make any further payments to the other Party pursuant to this Agreement, except for payment rights to which have accrued prior to such event. ARTICLE 7 INTELLECTUAL PROPERTY 7.1 Ownership of Inventions . Inventorship of inventions conceived and reduced to practice in the course of performing the Companion Diagnostic Activities shall be determined in accordance with United States patent laws. Genoptix shall own all inventions, whether patentable or not, discoveries, technology and information of any type invented or generated ***Confidential Treatment Requested 19
solely by employees or agents of Genoptix, or jointly by one or more employees or agents of Ambit and one or more employees or agents of Genoptix, in either case in the course of performing the Companion Diagnostic Activities and all patent applications, patents, know-how and other intellectual property rights in or to any of the foregoing (such intellectual properties and all documentation with respect thereto, the Developed IP). Ambit will ensure that all of its employees and agents who perform the Companion Diagnostic Activities are contractually obligated to assign any Developed IP to Ambit. Ambit hereby assigns to Genoptix all of Ambits right, title and interest in and to all Developed IP. All licenses granted by Genoptix to Third Parties with respect to the Developed IP shall comply with Section 5.3(c). 7.2 Disclosure of Inventions . Each Party shall promptly disclose to the other all inventions conceived or reduced to practice in the course of performing the Companion Diagnostic Activities, including all invention disclosures or other similar documents submitted to such Party by its employees or agents describing such inventions. Such Party shall also respond promptly to reasonable requests from the other Party for more information relating to such inventions. 7.3 Prosecution of Patents . Except as set forth below, as between the Parties, Genoptix shall have the sole right, in its discretion, to prepare, file, prosecute (including any interferences, reissue proceedings and reexaminations) and maintain all patent applications or patents within the Developed IP and shall bear all costs associated therewith. Genoptix shall keep Ambit informed of progress with regard to the preparation, filing, prosecution and maintenance of patent applications and patents within the Developed IP. If Genoptix determines in its sole discretion to abandon, cease prosecution or not maintain any patent application or patent within the Developed IP, then Genoptix shall provide Ambit written notice of such determination at least thirty (30) days before any deadline for taking action to avoid abandonment (or other loss of rights) and shall provide Ambit with the opportunity to prepare, file, prosecute and maintain such patent application or patent. Each Party shall provide the other Party all reasonable assistance and cooperation in the patent prosecution efforts provided above in this Section 7.3, including providing any necessary powers of attorney and executing any other required documents or instruments for such prosecution. 7.4 Enforcement of Patents . Each Party shall promptly notify the other Party of any actual, threatened or alleged infringement of the Developed IP of which it becomes aware. As between the Parties, Genoptix shall have the first right, but not the obligation, to take appropriate action to obtain a discontinuance of such infringement, provided however, if Genoptix has granted to Ambit the exclusive license to the Developed IP set forth in Section 5.3(a), then Ambit shall have the first right, but not the obligation, to take appropriate action to obtain a discontinuance of the infringement in the Field. The Party with the first right to enforce the Developed IP shall have a period of one hundred eighty (180) days after its receipt or delivery of the notice of infringement to elect to so enforce the Developed IP. In the event the Party with the first right to enforce does not so elect (or otherwise obtain a discontinuance of such infringement), it shall so notify the other Party in writing and the other Party shall have the right to take appropriate action to obtain a discontinuance of the infringement. Each Party shall provide the enforcing Party reasonable assistance in such enforcement, at such enforcing Partys request and expense, including joining such action as a party plaintiff if required by applicable Laws to pursue such action. The enforcing Party shall keep the other Party regularly informed of 20
the status and progress of such enforcement efforts, and shall reasonably consider the other Partys comments on any such efforts. The enforcing Party shall be solely responsible for any costs and expenses incurred by such Party in such enforcement action and shall retain all recoveries obtained as a result of such enforcement action, provided however, if the enforcing Party is Genoptix and to the extent that Genoptix has not fulfilled any obligation it may have to repay the Owed Expenses under Section 6.2, any recovery retained by Genoptix shall be treated as Net Sales of the Companion Diagnostic by Genoptix subject to the terms of Section 6.2. 7.5 Infringement of Third Party Rights. Each Party shall promptly notify the other in writing of any allegation by a Third Party that the activity of either Party pursuant to this Agreement infringes or may infringe the intellectual property rights of such Third Party. Subject to Article 11, as applicable, Genoptix shall have the sole right to control any defense of any such claim involving alleged infringement of Third Party rights by Genoptixs activities at its own expense and by counsel of its own choice, and Ambit shall have the sole right to control any defense of any such claim involving alleged infringement of Third Party rights by Ambits activities at its own expense and by counsel of its own choice. Subject to Article 11, as applicable, Neither Party shall have the right to settle any infringement action under this Section 7.5 in a manner that diminishes the rights or interests of the other Party under this Agreement without the written consent of such other Party, which shall not be unreasonably withheld; [***]. 7.6 Trademarks. If Genoptix elects to or is obligated to commercialize the Companion Diagnostic after PMA Approval has been obtained, Genoptix shall be responsible for the selection, registration, maintenance and defense of all trademarks for specific use in the commercialization of the Companion Diagnostic (the Genoptix Marks), as well as all expenses associated therewith. For clarification, Genoptix Marks shall exclude any trademark of Genoptix (a) that was in use by Genoptix prior to the Effective Date or (b) that is or has been used in connection with the commercialization of any Genoptix product other than the Companion Diagnostic. The Genoptix Marks are owned by Genoptix. All uses of the Genoptix Marks shall comply with all applicable Laws. Neither Party shall, without the other Partys prior written consent, use any trademarks or house marks of the other Party (including the other Partys corporate name), or marks confusingly similar thereto, in connection with the commercialization of the Companion Diagnostic or AC220, except as may be expressly authorized in this Agreement and except to the extent required to comply with applicable Laws. ARTICLE 8 REPRESENTATIONS AND WARRANTIES 8.1 Authority; Due Authorization . Each Party represents and warrants as of the Effective Date that (a) it has the corporate power and authority and the legal right to enter into this Agreement and perform its obligations hereunder; (b) it has taken all necessary corporate action on its part required to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder; and (c) this Agreement has been duly executed and ***Confidential Treatment Requested 21
delivered on behalf of such Party, and constitutes a legal, valid, and binding obligation of such Party that is enforceable against it in accordance with its terms. 8.2 No Inconsistent Obligations or Constraints . Each Party represents and warrants as of the Effective Date that the terms of this Agreement are not inconsistent with its other existing contractual arrangements and that it is not constrained by any existing agreement from providing complete disclosures to the other Party concerning work performed or information generated under this Agreement. 8.3 No Impairment; No Conflict . During the Term, each Party covenants that it will not enter into any agreement which would in any way materially impair its ability to perform its obligation under this Agreement. 8.4 No Pending Litigation. As of the Effective Date, each Party represents and warrants that: (a) it is not currently involved in any litigation, and is unaware of any pending litigation proceedings, relating to such Partys role in the conduct of a clinical trial or clinical development for any Third Party; and (b) it has not received any warnings from the FDA or other Regulatory Authority relating to services it has provided to Third Parties during the conduct of a clinical trial or clinical development. 8.5 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY TO THE OTHER PARTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF TITLE, NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 8.6 Limitation of Liability . EXCEPT FOR BREACH OF ARTICLE 10, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY LOST PROFITS, OR ANY OTHER INCIDENTAL, INDIRECT, SPECIAL, EXEMPLARY, OR CONSEQUENTIAL DAMAGES, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT AND NEITHER PARTY SHALL BE LIABLE FOR ANY DAMAGES EXCEEDING THE TOTAL AMOUNT PAID OR PAYABLE UNDER THIS AGREEMENT; provided, however, that this Section 8.6 shall not be construed to limit either Partys indemnification obligations under Article 11. ARTICLE 9 DEBARMENT 9.1 No Debarment. Each Party hereby certifies that it has not been debarred under the provisions of the Generic Drug Enforcement Act of 1992, 21 U.S.C. 335a. In the event that a Party : (a) becomes debarred; or (b) receives notice of action or threat of action with respect to its debarment, during the Term, such Party agrees to notify the other Party in writing immediately. 9.2 No Services of Debarred Persons . Each Party hereby certifies that it has not and will not use in any capacity the services of any individual, corporation, partnership, institution or 22
association which, to its knowledge, has been debarred under 21 U.S.C. 335a. In the event such Party becomes aware of the debarment or threatened debarment of any individual, corporation, partnership, institution or association providing services to such Party which directly or indirectly relate to such Partys activities under this Agreement, such Party shall notify the other Party in writing immediately. ARTICLE 10 CONFIDENTIALITY 10.1 Confidentiality. Except to the extent expressly authorized by this Agreement or otherwise agreed in writing by the Parties, each Party agrees that, for the Term and for five (5) years thereafter, it shall keep confidential and shall not publish or otherwise disclose and shall not use for any purpose other than to accomplish the purposes of this Agreement or any other written agreement between the Parties (which includes the exercise of any rights or the performance of any obligations hereunder or thereunder) any Confidential Information of the other Party except for that portion of such information or materials that the receiving Party can demonstrate by competent written proof: (a) was already known to the receiving Party or its Affiliate, other than under an obligation of confidentiality, at the time of disclosure by the other Party; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving Party; (c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the receiving Party in breach of this Agreement; (d) is subsequently disclosed to the receiving Party or its Affiliate by a Third Party without obligations of confidentiality with respect thereto; or (e) is subsequently independently discovered or developed by the receiving Party or its Affiliate without the aid, application, or use of Confidential Information. 10.2 Authorized Disclosure. Each Party may disclose Confidential Information belonging to the other Party to the extent such disclosure is reasonably necessary in the following situations: (a) regulatory filings and other filings with governmental authorities, including regulatory filings with the FDA with respect to the Companion Diagnostic or AC220; (b) prosecuting or defending litigation and/or arbitration arising out of this Agreement; (c) complying with applicable Laws, including regulations promulgated by governmental agencies or national securities exchanges, court order, and administrative subpoena or order; 23
(d) disclosure to its Affiliates, employees or agents only on a need-to-know basis and solely in connection with the performance of this Agreement, provided that each disclosee must be bound by obligations of confidentiality and non-use at least equivalent in scope to those set forth in this Article 10 prior to any such disclosure; or (e) disclosure of the material terms of this Agreement and/or any results or reports made under this Agreement to any bona fide potential or actual investor, investment banker, acquirer, merger partner, licensee, sublicensee or other potential or actual financial or commercial partner; provided that each disclosee must be bound by obligations of confidentiality and non-use at least equivalent in scope to those set forth in this Article 10 (except with a minimum duration of five (5) years) prior to any such disclosure. Notwithstanding the foregoing, in the event a Party is required to make a disclosure of the other Partys Confidential Information pursuant to Sections 10.2(a), 10.2(b) or 10.2(c), it shall give reasonable advance notice to the other Party of such disclosure and use reasonable efforts to secure confidential treatment of such information. In any event, the Parties agree to take all reasonable actions to avoid disclosure of Confidential Information hereunder, including reasonable measures to ensure that no unauthorized disclosure is made by others to whom access to such information is granted. Each Party will promptly notify the other Party upon discovery of any unauthorized use or disclosure of the Confidential Information of such other Party. 10.3 Publicity; Terms of Agreement . (a) The Parties agree that the material terms of this Agreement are the Confidential Information of both Parties, subject to the disclosure provisions set forth in Section 10.2 and this Section 10.3. (b) If either Party desires to make a public announcement concerning the material terms of this Agreement, such Party shall give reasonable prior advance notice of the proposed text of such announcement to the other Party for its prior review and approval (except as otherwise provided herein), such approval not to be unreasonably withheld. A Party commenting on such a proposed press release shall provide its comments, if any, within five (5) business days after receiving the press release for review. Neither Party shall be required to seek the permission of the other Party to repeat any information regarding the terms of this Agreement that have already been publicly disclosed by such Party, or by the other Party, in accordance with this Section 10.3. (c) The Parties acknowledge that either or both Parties may be obligated to file a copy of this Agreement with the United States Securities and Exchange Commission or other government authorities. Each Party shall be entitled to make such a required filing, provided that it requests confidential treatment of at least the commercial terms and sensitive technical terms hereof to the extent such confidential treatment is reasonably available to such Party. In the event of any such filing, each Party shall provide the other Party with a copy of the Agreement marked to show provisions for which such Party intends to seek confidential treatment and shall incorporate the other Partys reasonable comments thereon to the extent consistent with the legal requirements governing redaction of information from material agreements that must be publicly filed. 24
10.4 Publications. Neither Party shall publicly present or publish any result of research or development regarding the Companion Diagnostic carried out under this Agreement (each such presentation or publication a Publication) without the opportunity for prior review by the other Party, except to the extent otherwise permitted under Section 10.2. The submitting Party shall provide the other Party the opportunity to review any proposed Publication at least [***] prior to the earlier of its presentation or intended submission for publication. The submitting Party shall consider the comments of the other Party in good faith, and shall delete from the proposed Publication any Confidential Information of the other Party upon request. The submitting Party shall provide the other Party a copy of the Publication at the time of the submission or presentation. 10.5 Equitable Relief. Given the nature of the Confidential Information and the competitive damage that would result to a Party upon unauthorized disclosure, use or transfer of its Confidential Information to any Third Party, the Parties agree that monetary damages would not be a sufficient remedy for any breach of this Article 10. In addition to all other remedies, a Party shall be entitled to seek specific performance and injunctive and other equitable relief as a remedy for any breach or threatened breach of this Article 10. ARTICLE 11 INDEMNIFICATION AND INSURANCE 11.1 Mutual Indemnification. Each Party agrees to indemnify, defend and hold harmless the other Party and its Affiliates, and their directors, officers, employees, agents, successors and assigns (collectively, the Other Party Indemnitees) from and against all liabilities, losses, damages and costs (including reasonable attorneys fees) (collectively, Losses) they may suffer as the result of Third Party claims, demands, actions, suits or judgments against them resulting from or arising out of: (a) the negligence, recklessness or willful misconduct on the part of the indemnifying Party; (b) the failure by the indemnifying Party to comply with applicable Laws in connection with the exercise of any of its rights or the performance of any of its obligations hereunder; and/or (c) any breach of this Agreement by the indemnifying Party. The foregoing indemnification obligation shall not apply to Losses to the extent resulting from or arising out of: (i) the negligence, recklessness or willful misconduct on the part of any of the Other Party Indemnitees; (ii) the failure by the other Party to comply with applicable Laws; (iii) any breach of this Agreement by the other Party; (iv) any action or omission of any Genoptix Indemnitee if such Losses are to be indemnified by Ambit pursuant to Section 11.2; and/or (v) any action or omission of any Ambit Indemnitee if such Losses are to be indemnified by Genoptix pursuant to Section 11.3. 11.2 Additional Indemnification by Ambit . Ambit agrees to indemnify, defend and hold harmless Genoptix and its Affiliates, and their respective directors, officers, employees, agents, successors and assigns (collectively, the Genoptix Indemnitees) from and against all Losses they may suffer as the result of Third Party claims, demands, actions, suits or judgments against them resulting from or arising out of [***]. ***Confidential Treatment Requested 25
The foregoing indemnification obligation shall not apply to Losses to the extent resulting from or arising out of: (x) the negligence, recklessness or willful misconduct on the part of any of the Genoptix Indemnitees; (y) the failure of Genoptix to comply with applicable Laws [***]; and/or (z) any breach of this Agreement by Genoptix. If PMA Approval is obtained and Genoptix (itself or through its Affiliates or licensees) elects to commercialize the Companion Diagnostic [***]. 11.3 Additional Indemnification by Genoptix . Genoptix agrees to indemnify, defend and hold harmless Ambit and its Affiliates, and their directors, officers, employees, agents, successors and assigns (collectively, the Ambit Indemnitees) from and against all Losses they may suffer as the result of Third Party claims, demands, actions, suits or judgments against them resulting from or arising out of [***]. The foregoing indemnification obligation shall not apply to Losses to the extent resulting from or arising out of: (w) the negligence, recklessness or willful misconduct on the part of any of the Ambit Indemnitees; (x) the failure by Ambit to comply with applicable Laws [***]; (y) any breach of this Agreement by Ambit; and/or (z) any action or omission of any Genoptix Indemnitee if such Losses are to be indemnified by Ambit pursuant to Section 11.2. 11.4 General Conditions of Indemnification . Each Partys indemnification obligation set forth in Section 11.1, 11.2 or 11.3 is conditioned upon the Other Party Indemnitee, Genoptix Indemnitee or Ambit Indemnitee, as applicable (the Indemnitee): (a) providing written notice to the indemnifying Party of any claim, demand, action or suit for which indemnity is being sought within thirty (30) days after the Indemnitee has knowledge of such claim, demand or action; provided, however, that an Indemnitees delay in providing such notice will not relieve the indemnifying Party of its indemnification obligations if the Indemnitee can demonstrate that the indemnifying Party was not prejudiced due to the delay; (b) permitting the indemnifying Party to assume full responsibility and authority to investigate, prepare for and defend against any such claim, demand, action or suit with counsel reasonably satisfactory to the Indemnitee after the indemnifying Party notifies the ***Confidential Treatment Requested 26
Indemnitee in writing that it acknowledges its obligation to indemnify the Indemnitee pursuant to Section 11.1, 11.2 or 11.3 and, once the indemnifying Party gives such notice to the Indemnitee, the indemnifying Party is not liable to the Indemnitee for the fees of other counsel or any other expenses subsequently incurred by the Indemnitee in connection with such defense, except as provided in Section 11.4(c); provided, however, the Indemnitee will have the right to employ separate counsel and to control the defense of such claim, demand, action or suit at its own expense; (c) once the indemnifying Party gives notice as provided in Section 11.4(b), assisting the indemnifying Party, at the indemnifying Partys request and reasonable expense, in the investigation of, preparation for and defense of any such claim or demand; and (d) not compromising or settling such claim, demand, action or suit without the indemnifying Partys written consent; provided that, if the indemnifying Party has not given notice as provided in Section 11.4(b) and more than sixty (60) days have elapsed since the indemnifying Partys receipt of the Indemnitees original notice pursuant to Section 11.4(a), the Indemnitee may settle such claim, demand, action or suit on such terms as it deems appropriate with the consent of the indemnifying Party (which consent shall not be unreasonably withheld), and the Indemnifying Party will be obligated to indemnify the Indemnitee for such settlement as provided in this Article 11. If an indemnifying Party assumes the defense of a claim, demand, action or suit, no compromise or settlement of such claim, demand, action or suit may be effected by the indemnifying Party without the Indemnitees written consent (which consent will not be unreasonably withheld or delayed), unless: (i) there is no finding or admission of any violation of law or any violation of the rights of any person and no effect on any other claims that may be made against the Indemnitee; (ii) the sole relief provided is monetary damages that are paid in full by the indemnifying Party; and (iii) the Indemnitees rights under this Agreement are not adversely affected. 11.5 Separate Defense of Claims . In the event that a Party that believes itself entitled to indemnification pursuant to Section 11.1, 11.2 or 11.3 provides timely notice pursuant to Section 11.4(a) but the Parties cannot agree as to the application of Section 11.1, 11.2 or 11.3 to any particular loss or claim, the Parties may conduct separate defenses of such claim, in which case such Party reserves the right to claim indemnity from the other in accordance with Section 11.1, 11.2 or 11.3, as applicable, upon resolution of the underlying claim, notwithstanding the provisions of Section 11.4(b), permitting the indemnifying Party to assume full and authority to investigate, prepare for and defend against such claim, demand, action or suit. 11.6 Insurance. During the Term and for a period of [***] years thereafter, each Party shall secure and maintain in full force and effect insurance coverage for: (a) employers liability; (b) general liability; (c) contractual liability; (d) premises liability; and (e) professional indemnity in amounts appropriate to the conduct of such Partys business. Each Party also agrees that it shall maintain adequate medical malpractice and other insurance to cover its obligations hereunder, as well as workers compensation insurance in the amount required by the laws of the jurisdiction in which such Partys employees are located. ***Confidential Treatment Requested 27
ARTICLE 12 TERM AND TERMINATION 12.1 Term. This Agreement shall become effective on the Effective Date and, unless earlier terminated pursuant to this Article 12, shall expire when the last payment obligation of either Party under this Agreement is fulfilled (the Term). 12.2 Termination by Ambit. Ambit shall have the right to terminate this Agreement: (a) upon [***] prior written notice to Genoptix for any reason, provided that Ambit shall, no later than the effective date of such termination, reimburse Genoptix for (i) all Companion Diagnostic Expenses actually incurred by Genoptix prior to Ambits termination notice and (ii) all non-refundable Third Party expenses already committed prior to Ambits termination notice as authorized by the approved budget for Companion Diagnostic Activities for the 90-day period following Ambits termination notice; or (b) immediately upon written notice to Genoptix, if Genoptix or any individual, corporation, partnership, institution providing services to Genoptix which directly or indirectly relate to Companion Diagnostic Activities (i) becomes debarred under 21 U.S.C. 335a or (ii) receives notice of action or threat of action with respect to its debarment during the Term, provided that this Agreement shall terminate automatically without any further action or notice by either Party in the event that Genoptix becomes debarred. 12.3 Termination by Genoptix. Genoptix shall have the right to terminate this Agreement: (a) upon [***] prior written notice to Ambit if Genoptix, in its sole discretion, believes that a [***] Genoptix or the Companion Diagnostic, and Genoptix shall have no obligation to continue any research, development or commercialization activities with respect to the Companion Diagnostic following such written notice to Ambit; or (b) upon [***] prior written notice to Ambit if the total outstanding disputed amount with respect to Companion Diagnostic Expenses at such time exceeds [***] unless the total outstanding disputed amount is finally resolved and settled before the end of such [***] period; or (c) upon written notice in the event Ambit or any of its Affiliates or sublicensees of Developed IP or Genoptix Background IP contest, oppose or challenge, or assist any party in contesting, opposing or challenging, Genoptixs ownership of, or the enforceability or validity of, any patent within the Developed IP or the Genoptix Background IP; provided, however, any such termination of this Agreement based solely on such action by a sublicensee shall not be effective if Ambit terminates the sublicense granted under Developed IP or Genoptix Background IP to any such sublicensee within ten (10) days of receipt of the written notice from Genoptix. ***Confidential Treatment Requested 28
12.4 Termination for Material Breach. Either Party may terminate this Agreement if the other Party materially breaches this Agreement and fails to cure such breach within thirty (30) days after receipt of written notice from the non-breaching Party, specifying in detail the nature of the breach. 12.5 Effect of Termination; Survival. Expiration or termination of this Agreement shall not affect the rights or obligations of the Parties under this Agreement that have accrued prior to the date of termination or expiration. Promptly following any expiration or termination of this Agreement, Genoptix shall return or transfer to Ambit all the patient samples and genotyping data generated by Genoptix or provided by Ambit pursuant to Section 3.3(b). Upon the termination of this Agreement by Genoptix at any time prior to the PMA Approval under the conditions set forth in Section 5.1(a) or by Ambit under the conditions set forth in Section 5.1(b), Ambit shall have the right under Section 5.1(a) or (b) to require Genoptix to transfer the Companion Diagnostic to Ambit or a Designated Party under the terms set forth in Article 5, or upon expiration of this Agreement under circumstances where Ambit has or may in the future have the right under Section 5.1(c) to require Genoptix to transfer the Companion Diagnostic to Ambit or a Designated Party under the terms set forth in Article 5, then Section 5.1 shall survive such termination or expiration until Ambit exercises such right and Section 5.2 shall survive such termination or expiration until completed, and Sections 5.3, 12.1 and 12.4 of this Agreement shall not terminate, but shall remain in full force and effect, until all payment and other obligations of Ambit with respect to any Genoptix Background IP licensed to Genoptix by any Third Party licensor and sublicensed to Ambit under Section 5.3 have been performed, at which time the Term of this Agreement shall expire as to Sections 12.1 and the licenses granted under Section 5.3 shall automatically become irrevocable and perpetual and Section 5.3 shall continue to survive, subject to Genoptixs continued right to terminate such licenses under Section 12.4 if Ambit materially breaches the scope of any such license. Notwithstanding anything to the contrary, the following provisions shall survive the expiration or termination of this Agreement: Sections 3.4 (with respect to maintenance and review of records), 8.5, 8.6, 12.2(a) and 12.5 and Articles 6 (with respect to payments accrued, or Companion Diagnostic Expenses incurred, prior to termination or expiration of this Agreement, with respect to Net Sales made at any time and with respect to BioPharm Services performed at any time), 7 (except that Sections 7.3 and 7.4 shall only survive if, and for so long, the licenses granted under Section 5.3 continue in effect as provided in this Section 12.5), 10, 11, 13 and 14. If this Agreement has expired (but not been earlier terminated) and, prior to such expiration, licenses have been granted to Ambit under Section 5.3 and there are no payment or other obligations to any Third Party licensor of intellectual property included in the Genoptix Background IP with which Ambit must continue to comply, then the licenses granted under Section 5.3 shall automatically become irrevocable and perpetual upon such expiration of this Agreement and Section 5.3 shall survive such expiration of this Agreement, subject to Genoptixs continued right to terminate such licenses under Section 12.4 if Ambit materially breaches the scope of any such license. ARTICLE 13 DISPUTE RESOLUTION 13.1 Disputes. It is the objective of the Parties to establish procedures to facilitate the resolution of disputes arising under this Agreement in an expedient manner by mutual 29
cooperation and without resort to litigation. In the event of any disputes, controversies or differences which may arise between the Parties out of or in relation to or in connection with this Agreement (other than disputes concerning matters within the scope of the JCDCs authority, which disputes shall be resolved in accordance with Section 2.3), including, without limitation, any alleged failure to perform, or breach, of this Agreement, or any issue relating to the interpretation or application of this Agreement (each, a Dispute), then upon the request of either Party by written notice, the Parties agree to meet and discuss in good faith a possible resolution thereof, which good faith efforts shall include at least one in-person meeting between the chief executive officers of each Party. If the matter is not resolved within thirty (30) days following the written request for discussions, either Party may then invoke the provisions of Section 13.2. For the avoidance of doubt, any disputes, controversies or differences concerning matters within the scope of the JCDCs authority shall be resolved solely in accordance with Section 2.3. 13.2 Arbitration. Any Dispute that is not resolved pursuant to Section 13.1, except for a Dispute under Section 13.3, shall be settled by binding arbitration as follows: (a) The place of arbitration shall be San Diego, California. (b) The arbitration shall be conducted by three (3) arbitrators with not less than fifteen (15) years of relevant experience in the subject matter of the dispute, one selected by each of the Parties and the third mutually agreed upon by the arbitrators selected by the Parties. (c) The arbitration shall be made in accordance with the Comprehensive Arbitration Rules and Procedures of JAMS then in effect. (d) Judgment shall be made in writing and the award rendered by such arbitrators shall be binding on the Parties and may be entered by any court or forum having jurisdiction. (e) Either Party may apply to the arbitrators for interim injunctive relief until the arbitration award is rendered or the controversy is otherwise resolved. Further, either Party also may, without waiving any remedy under this Agreement, seek from any court having jurisdiction any injunctive or provisional relief necessary to protect the rights or property of such Party pending the arbitration award. (f) The arbitrators shall have no authority to award punitive or any other type of damages not measured by a Partys compensatory damages. (g) Each Party shall bear its own costs and expenses and attorneys fees and an equal share of the arbitrators and any administrative fees of arbitration. (h) Except to the extent necessary to confirm an award or as may be required by applicable Laws, neither Party nor any arbitrator may disclose the existence, content, or results of an arbitration without the prior written consent of both Parties. 30
(i) In no event shall an arbitration be initiated after the date when commencement of a legal or equitable proceeding based on the dispute, controversy or claim would be barred by the applicable statute of limitations. 13.3 Patent and Trademark Dispute Resolution . Any dispute, controversy or claim relating to the scope, validity, enforceability or infringement of any patent or trademark rights relating to the Companion Diagnostic shall be submitted to a court of competent jurisdiction in the country where such patent or trademark rights were granted or arose. 13.4 Injunctive Relief . Nothing herein may prevent either Party from seeking preliminary injunction or temporary restraint order in order to prevent any Confidential Information from being disclosed without appropriate authorization under this Agreement. 13.5 Survivability. The obligations to arbitrate under this Agreement shall remain in effect and be enforceable after termination or expiration of this Agreement for any reason. ARTICLE 14 MISCELLANEOUS 14.1 Entire Agreement; Amendment . This Agreement, together with all Exhibits attached hereto, constitutes the final, complete and exclusive agreement of the Parties with respect to the subject matter hereof and supersedes all prior understandings and agreements relating to its subject matter, provided however, that (a) the Non-Disclosure Agreement shall remain in full force and effect and shall continue to apply to all exchanges of confidential information that do not pertain to the subject matter of this Agreement, and (b) the MSA together with any task orders thereto shall remain in full force and effect, provided that to the extent the confidentiality and non-use obligations under this Agreement overlap with or are inconsistent with such obligations under the NDA or the MSA, the most stringent obligations shall apply. This Agreement may not be changed, modified, amended or supplemented except by a written instrument signed by both Parties. 14.2 Force Majeure. Each Party shall be excused from the performance of its obligations under this Agreement to the extent that such performance is prevented by force majeure and the nonperforming Party promptly provides notice of the prevention to the other Party. Such excuse shall be continued so long as the condition constituting force majeure continues and the nonperforming Party takes reasonable efforts to remove the condition. For purposes of this Agreement, force majeure shall include conditions beyond the reasonable control of the nonperforming Party, including without limitation, an act of God or terrorism, involuntary compliance with any regulation, law or order of any government, war, civil commotion, epidemic, failure or default of public utilities or common carriers, destruction of production facilities or materials by fire, earthquake, storm or like catastrophe. 14.3 Notices. Any notice required or permitted to be given under this Agreement shall be in writing, shall specifically refer to this Agreement, and shall be addressed to the appropriate Party at the address specified below or such other address as may be specified by such Party in writing in accordance with this Section 14.3, and shall be deemed to have been given for all 31
purposes (a) when received, if hand-delivered or sent by confirmed facsimile or a reputable courier service, or (b) five (5) business days after mailing, if mailed by first class certified or registered airmail, postage prepaid, return receipt requested. If to Ambit: Ambit Biosciences Corporation 4215 Sorrento Valley Blvd. San Diego, CA 92121 Attention: General Counsel Facsimile: 858-334-2198 Cooley LLP Five Palo Alto Square 3000 El Camino Rea Palo Alto, CA 94306 Attention: [***] Facsimile: (650) 849-7400 Genoptix, Inc. 1811 Aston Avenue Carlsbad, CA 92008 Attention: General Counsel Facsimile: 760-930-3781 Genoptix, Inc. 1811 Aston Avenue Carlsbad, CA 92008 Attention: Chief Financial Officer Facsimile: 760-268-6245
With a copy to:
If to Genoptix:
With a copy to:
14.4 No Strict Construction; Headings . This Agreement has been prepared jointly and shall not be strictly construed against either Party. Ambiguities, if any, in this Agreement shall not be construed against any Party, irrespective of which Party may be deemed to have authored the ambiguous provision. The headings of each Article and Section in 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. 14.5 Assignment; Subcontract. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Parties hereto; provided, however, that neither Party shall transfer or assign this Agreement without the prior written consent of the other Party. Any permitted successor or assignee of rights and/or obligations hereunder shall, in writing to the other Party, expressly assume performance of such rights and/or obligations. Notwithstanding the foregoing, each Party may assign this Agreement and its rights and obligations hereunder without such consent to an Affiliate, or to a Third Party in connection with the transfer or sale of all or substantially all of its business to which this Agreement relates, whether by merger, sale of stock, sale of assets or otherwise, provided that in the event of such a transaction with a Third Party, intellectual property rights of such Third Party shall not be included in the intellectual property rights licensed under this Agreement to the extent such ***Confidential Treatment Requested 32
intellectual property rights would not have been licensed under this Agreement in the absence of such transaction. Other than regulatory activities, Genoptix may not subcontract or otherwise delegate its obligations under this Agreement without Ambits prior written consent. Any assignment or attempted assignment by either Party in violation of the terms of this Section 14.5 shall be null, void and of no legal effect. 14.6 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. 14.7 Compliance with Applicable Laws . Each Party shall comply with all applicable Laws in the course of performing its obligations or exercising its rights pursuant to this Agreement. 14.8 Severability. If any one or more of the provisions of this Agreement is held to be invalid or unenforceable by any court of competent jurisdiction from which no appeal can be or is taken, the provision shall be considered severed from this Agreement and shall not serve to invalidate any remaining provisions hereof. The Parties shall make a good faith effort to replace any invalid or unenforceable provision with a valid and enforceable one such that the objectives contemplated by the Parties when entering this Agreement may be realized. 14.9 No Waiver. Any delay in enforcing a Partys rights under this Agreement or any waiver as to a particular default or other matter shall not constitute a waiver of such Partys rights to the future enforcement of its rights under this Agreement, except with respect to an express written and signed waiver relating to a particular matter for a particular period of time. 14.10 Independent Contractors . Each Party shall act solely as an independent contractor, and nothing in this Agreement shall be construed to give either Party the power or authority to act for, bind, or commit the other Party in any way. Nothing herein shall be construed to create the relationship of partners, principal and agent, or joint-venture partners between the Parties. 14.11 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California, excluding those laws that direct the application of the laws of another jurisdiction. Issues concerning the validity and construction of patents, trademarks, and other intellectual property rights shall be determined in accordance with the laws of the country or jurisdiction in which such patents, trademarks, or other intellectual property rights were granted or arose. 14.12 No Implied Licenses. Except as expressly provided in this Agreement, neither Party shall be deemed by estoppel or implication to have granted to the other Party any license or other rights with respect to any intellectual property of such Party. 14.13 Counterparts; Execution . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement may be executed by facsimile or by electronic signature. [Signature Page Follows] 33
IN WITNESS WHEREOF, the Parties have executed this Agreement in duplicate originals by their duly authorized officers as of the Effective Date. AMBIT BIOSCIENCES CORPORATION By: /s/ Christoper J. Morl G ENOPTIX , IN C. By: /s/ Tina S. Nova
Name: Christoper J. Morl Title: Chief Business Officer
Name: Tina S. Nova, Ph.D. Title: President and Chief Executive Officer Signature Page to Collaboration Agreement
Exhibit A Initial Companion Diagnostic Activities Budget Full-Time Equivalents* Capital Depreciation [***] Travel and Supplies [***] [***] Total * Sample FTE hourly rates:
Position Hourly Rate
$[***] $[***] $[***] $[***] $[***] [***] $[***]**
R&D (Ph.D. Level) BioPharma Manager (Regulatory) QA FDA Document & Compliance & Specialist (IT) FDA: System Admin (IT) [***]
$[***] $[***] $[***] $[***] $[***]
***Confidential Treatment Requested
Exhibit 21.1 Subsidiaries of Ambit Biosciences Corporation: Name: Ambit Europe Limited Ambit Biosciences (Canada) Corporation Jurisdiction of Organization: United Kingdom Canada
Exhibit 23.1 Consent of Independent Registered Public Accounting Firm We consent to the reference to our firm under the caption Experts and to the use of our report dated November 4, 2010, in the Registration Statement (Form S-1) and related Prospectus of Ambit Biosciences Corporation for the registration of shares of its common stock. /s/ Ernst & Young LLP San Diego, California November 4, 2010
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

AMBIT BIOSCIENCES CORPORATION

Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

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Subject to completion, dated November 5, 2010

$ $ $ additional shares of common stock to cover over-allotments.

Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

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Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

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Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

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Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

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Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

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Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

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Proposed Nasdaq Global Market symbol

Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

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Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

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$ (44,014) $ (47.30) 930,465

$ (8,072) $ (8.38) 963,390

(31,913) (15.47) 2,063,489 (1.37) 18,828,136

$ (11,593) $ (11.97) 968,123

(19,561) (6.03) 3,242,898 (0.91) 21,139,162

Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

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Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

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Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

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Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

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Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

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Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

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Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

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Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

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Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

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Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

Powered by Morningstar Document Research

Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

Powered by Morningstar Document Research

Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

Powered by Morningstar Document Research

Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

Powered by Morningstar Document Research

Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010

Powered by Morningstar Document Research

Source: AMBIT BIOSCIENCES CORP, S-1, November 05, 2010