-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TpUD6okFTG6xwIpPvYWPenpj9CVT0mKS91qRYRwbxhP+4f5DKhmnheWjTWfpoYVo thcGGw0PQ5b6vjFNdScG+w== 0000891618-98-002627.txt : 19980527 0000891618-98-002627.hdr.sgml : 19980527 ACCESSION NUMBER: 0000891618-98-002627 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19980526 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABGENIX INC CENTRAL INDEX KEY: 0001052837 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 943248826 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-49415 FILM NUMBER: 98631445 BUSINESS ADDRESS: STREET 1: 7601 DUMBARTON CIRCLE CITY: FREMONT STATE: CA ZIP: 94555 MAIL ADDRESS: STREET 1: 7601 DUMBARTON CIRCLE CITY: FREMONT STATE: CA ZIP: 94555 S-1/A 1 AMENDMENT NO.5 TO FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 26, 1998 REGISTRATION NO. 333-49415 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 5 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ABGENIX, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 2836 94-3248826 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) INCORPORATION OR ORGANIZATION)
ABGENIX, INC. 7601 DUMBARTON CIRCLE FREMONT, CALIFORNIA 94555 (510) 608-6500 (ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) R. SCOTT GREER PRESIDENT AND CHIEF EXECUTIVE OFFICER ABGENIX, INC. 7601 DUMBARTON CIRCLE FREMONT, CALIFORNIA 94555 (510) 608-6500 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE OF PROCESS) COPIES TO: MARIO M. ROSATI, ESQ. ALAN C. MENDELSON, ESQ. CHRIS F. FENNELL, ESQ. PATRICK A. POHLEN, ESQ. WILSON SONSINI GOODRICH & ROSATI COOLEY GODWARD LLP PROFESSIONAL CORPORATION FIVE PALO ALTO SQUARE 650 PAGE MILL ROAD 3000 EL CAMINO REAL PALO ALTO, CA 94304 PALO ALTO, CA 94306 (650) 493-9300 (650) 843-5000
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, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
============================================================================================================================== PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED TO BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------------------------ Common Stock, $0.0001 par value 3,450,000 $12.00 $41,400,000 $12,213(3) ==============================================================================================================================
(1) Includes 450,000 shares which the Underwriters have the option to purchase to cover over-allotments, if any. (2) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) of the Securities Act of 1933, as amended. (3) Previously paid. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED MAY 26, 1998 LOGO 3,000,000 SHARES COMMON STOCK ------------------------------ All of the 3,000,000 shares of Common Stock offered hereby are being sold by Abgenix, Inc. ("Abgenix" or the "Company"). Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $10.00 and $12.00 per share. See "Underwriting" for information relating to the method of determining the initial public offering price. The Common Stock has been approved for quotation on the Nasdaq National Market, subject to official notice of issuance, under the symbol "ABGX." ------------------------------ THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6. ------------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
============================================================================================================== UNDERWRITING PRICE DISCOUNTS AND PROCEEDS TO TO PUBLIC COMMISSIONS(1) COMPANY(2) - -------------------------------------------------------------------------------------------------------------- Per Share.......................... $ $ $ - -------------------------------------------------------------------------------------------------------------- Total(3)........................... $ $ $ ==============================================================================================================
(1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company, estimated at $750,000. (3) The Company has granted to the Underwriters a 30-day option to purchase up to an additional 450,000 shares of Common Stock, solely to cover over-allotments, if any. See "Underwriting." If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. ------------------------------ The Common Stock is offered by the Underwriters as stated herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that delivery of such shares will be made through the offices of BancAmerica Robertson Stephens, San Francisco, California, on or about , 1998. BANCAMERICA ROBERTSON STEPHENS LEHMAN BROTHERS THE DATE OF THIS PROSPECTUS IS , 1998 3 [ARTWORK] Antibody products with human protein sequences may be desirable for therapy in humans since they tend to minimize undesirable side effects. Various approaches have evolved to engineer mouse antibodies so that they contain proportionately more human protein sequences and thus appear more human-like to a patient's immune system. The Company's XenoMouse technology has been developed to produce antibodies with 100% human protein sequences. [ARTWORK] Abgenix believes that its XenoMouse technology offers several significant advantages over other approaches. These advantages include generating high affinity antibodies in vivo without the need for further antibody engineering, as well as allowing production of such antibodies for preclinical and clinical trials without the need for recombinant cell line development. As a result, the Company believes that its XenoMouse technology offers the potential to develop antibody therapeutic product candidates over a shorter timeline. All of the Company's product candidates are at early stages of research and development and have not been approved for sale in the United States by the United States Food and Drug Administration ("FDA"), and therefore, no sales have been generated. Approval of the Company's product candidates by the FDA or corresponding European regulatory authorities could take several years and there can be no assurance that such approval will ever be obtained. See "Risk Factors -- Uncertainty Associated with XenoMouse Technology," "-- No Assurance of Successful Product Development" and "-- Uncertainties Related to Clinical Trials." CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING." 2 4 NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ------------------------ TABLE OF CONTENTS
PAGE ---- Summary..................................................... 4 Risk Factors................................................ 6 Special Note Regarding Forward-Looking Statements........... 20 Use of Proceeds............................................. 21 Dividend Policy............................................. 21 The Company................................................. 21 Capitalization.............................................. 22 Dilution.................................................... 23 Selected Financial Data..................................... 24 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 25 Business.................................................... 31 Management.................................................. 50 Certain Transactions........................................ 59 Principal Stockholders...................................... 62 Description of Capital Stock................................ 64 Shares Eligible for Future Sale............................. 67 Underwriting................................................ 69 Legal Matters............................................... 70 Experts..................................................... 71 Additional Information...................................... 71 Index to Financial Statements............................... F-1
------------------------ Abgenix and the Abgenix logo are trademarks of the Company. XenoMouse is a registered trademark of Xenotech, L.P. ("Xenotech"). All other trademarks or service marks appearing in this Prospectus are the property of their respective holders. The Company intends to furnish its stockholders with annual reports containing financial statements audited by an independent public accounting firm and quarterly reports containing unaudited interim financial information for each of the first three fiscal quarters of each fiscal year of the Company. Abgenix has the right to use XenoMouse technology through Xenotech, its joint venture equally owned with a subsidiary of Japan Tobacco Inc. ("Japan Tobacco"). The Company's principal executive offices are located at 7601 Dumbarton Circle, Fremont, California 94555, and its telephone number is (510) 608-6500. 3 5 SUMMARY The following summary is qualified in its entirety by the more detailed information, including "Risk Factors" and the Financial Statements and Notes thereto, appearing elsewhere in this Prospectus. This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" and elsewhere in this Prospectus. Except as otherwise indicated, all information in this Prospectus assumes no exercise of the Underwriters' over-allotment option and gives effect to (i) the automatic conversion of all outstanding shares of the Company's Redeemable Convertible Preferred Stock ("Preferred Stock") into an aggregate of 7,844,352 shares of Common Stock upon the closing of this offering and (ii) the filing, upon the closing of this offering, of a Restated Certificate of Incorporation. THE COMPANY Abgenix, a biopharmaceutical company, develops and intends to commercialize antibody therapeutic products for the prevention and treatment of a variety of disease conditions, including transplant-related diseases, inflammatory and autoimmune disorders, and cancer. The Company has developed a proprietary technology which it believes enables it to quickly generate high affinity, fully human antibody product candidates to essentially any disease target appropriate for antibody therapy ("XenoMouse technology"). Abgenix intends to use its XenoMouse technology to build and commercialize a large and diversified product portfolio through the establishment of corporate collaborations and internal product development programs. The Company has recently established collaborative arrangements with Pfizer Inc. ("Pfizer"), Schering-Plough Research Institute ("Schering-Plough") and Genentech, Inc. ("Genentech"). In addition, the Company has four proprietary antibody product candidates that are under development internally, two of which are in human clinical trials. In certain instances, the Company intends to commercialize select products on its own in niche markets such as graft versus host disease ("GVHD"). Abgenix believes that its XenoMouse technology offers the following advantages: (i) producing antibodies with fully human protein sequences; (ii) generating a diverse antibody response to essentially any disease target appropriate for antibody therapy; (iii) generating high affinity antibodies which do not require further engineering; (iv) enabling more efficient product development; and (v) providing flexibility in choosing manufacturing processes. The Company has established collaborative arrangements with Pfizer, Schering-Plough and Genentech in order to generate fully human antibodies to specific antigens in the fields of cancer, inflammation and growth factor modulation, respectively. Pursuant to their respective collaborative arrangements, Pfizer, Schering-Plough and Genentech are obligated to make payments upon completion of certain research and may make additional payments upon achievement of other milestones. In connection with its collaborative arrangement, Pfizer also made an equity investment of approximately $1.3 million in the Company. Abgenix also has a collaborative arrangement with Cell Genesys, Inc. ("Cell Genesys") based on antibodies generated with XenoMouse technology in the field of gene therapy. In addition, Abgenix intends to form proprietary product collaborations with potential pharmaceutical partners involving antibodies generated against antigen targets sourced by the Company. The Company's lead product candidate, ABX-CBL, is a proprietary in-licensed antibody in Phase II clinical trials. ABX-CBL targets the CBL antigen which is selectively expressed on activated immune cells. Abgenix believes that ABX-CBL has the ability to reverse unwanted immune responses by selectively destroying activated immune cells without adversely affecting the entire immune system. As of March 1, 1998, ABX-CBL had been tested in 90 patients in various transplant-related conditions including GVHD and organ transplant rejection. Based in part on data from these initial clinical trials, the Company commenced a multi-center confirmatory Phase II clinical study in GVHD in January 1998 and anticipates completion of this trial in 1998. In addition, the Company has applied its XenoMouse technology to develop a fully human antibody, ABX-RB2, targeting the CBL antigen for potential use in organ transplant rejection and autoimmune disorders, indications where chronic drug administration may be required. ABX-RB2 is in preclinical development. In April 1998, Abgenix initiated Phase I clinical trials in psoriasis with ABX-IL8, a fully human antibody product candidate generated with XenoMouse technology that binds with high affinity to interleukin-8 ("IL-8"). A number of preclinical studies suggest that excess IL-8 may be associated with certain inflammatory disorders. Additionally, Abgenix is in preclinical development with ABX-EGF, a fully human antibody product candidate that has been shown in mouse models to eradicate certain human tumors. 4 6 THE OFFERING Common Stock to be Offered by the Company............................. 3,000,000 shares Common Stock Outstanding after the Offering............................ 11,137,512 shares(1) Use of Proceeds..................... For research and development, including the performance of preclinical and clinical trials, cross-license and settlement payment, working capital and other general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market Symbol.............................. ABGX SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ----------------------------------------------- ------------------ 1993 1994 1995 1996 1997 1997 1998 ------ ------- ------- ------- -------- -------- ------- STATEMENT OF OPERATIONS DATA(2): Total revenues(2).......................... $6,600 $ 6,200 $ 6,200 $ 4,719 $ 1,954 $ 335 $ 891 Operating expenses: Research and development................. 4,629 7,921 11,879 9,433 11,405 2,078 5,366 General and administrative............... 1,019 1,955 2,603 2,565 3,525 1,004 918 Charge for cross-license and settlement -- amount allocated from Cell Genesys(3)........................ -- -- -- -- 11,250 11,250 -- Equity in losses from the Xenotech joint venture (charge for cross-license and settlement)(3)......................... -- -- -- -- 11,250 3,750 -- ------ ------- ------- ------- -------- -------- ------- Total operating expenses............... 5,648 9,876 14,482 11,998 37,430 18,082 6,284 ------ ------- ------- ------- -------- -------- ------- Operating income (loss).................... 952 (3,676) (8,282) (7,279) (35,476) (17,747) (5,393) Interest income (expense), net............. -- -- -- 179 (404) 47 48 ------ ------- ------- ------- -------- -------- ------- Net income (loss).......................... $ 952 $(3,676) $(8,282) $(7,100) $(35,880) $(17,700) $(5,345) ====== ======= ======= ======= ======== ======== ======= Pro forma net loss per share(4)............ $ (9.22) $ (0.67) ======== ======= Shares used in computing pro forma net loss per share(4)............................. 3,894 7,953
MARCH 31, 1998 -------------------------------------- PRO PRO FORMA AS ACTUAL FORMA(5) ADJUSTED(6) -------- -------- -------------- BALANCE SHEET DATA: Cash, cash equivalents and short-term investments........... $ 13,340 $13,340 $ 39,530 Working capital............................................. 5,145 5,145 35,085 Total assets................................................ 20,197 20,197 46,387 Long-term debt, less current portion........................ 3,559 3,559 3,559 Redeemable convertible preferred stock...................... 35,125 -- -- Accumulated deficit......................................... (57,819) (57,819) (57,819) Total stockholders' equity (net capital deficiency)......... (27,468) 7,657 37,597
- --------------- (1) Based on the number of shares outstanding as of March 31, 1998. Excludes (i) 1,702,904 shares of Common Stock issuable upon exercise of options outstanding as of March 31, 1998, with a weighted average exercise price of $1.98 per share, (ii) 121,667 shares of Preferred Stock issuable upon exercise of warrants outstanding as of March 31, 1998, with an exercise price of $6.00 per share, (iii) 25,000 shares of Common Stock issuable pursuant to the terms of a license agreement and (iv) an aggregate of 1,395,186 shares of Common Stock reserved for future issuance under the Company's 1996 Incentive Stock Plan, 1998 Employee Stock Purchase Plan and 1998 Director Option Plan. See "Capitalization," "Management -- Stock Plans," "Description of Capital Stock" and Note 7 of Notes to the Company's Financial Statements. (2) The statement of operations of the Company includes the revenues and expenses of Abgenix as a business unit within Cell Genesys prior to July 15, 1996. During the years ended December 31, 1993, 1994, 1995 and 1996, the Company's revenues were derived principally from Xenotech for the development of XenoMouse technology, which was essentially completed in 1996. (3) In the year ended December 31, 1997, the Company incurred an aggregate non-recurring charge for cross-license and settlement of $22.5 million, $15.0 million of which was a noncash allocation. The Company recorded the initial settlement amount of $15.0 million in March 1997. The remaining $7.5 million was recorded in December 1997. See Note 6 of Notes to the Company's Financial Statements. (4) See Note 1 of Notes to the Company's Financial Statements for an explanation of shares used in computing pro forma net loss per share. (5) Pro forma information gives effect to the conversion, upon the closing of this offering, of all outstanding shares of Preferred Stock into an aggregate of 7,844,352 shares of Common Stock. (6) Adjusted to give effect to the sale of the 3,000,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $11.00 per share (the midpoint of the range set forth on the front cover of this Prospectus) and the application of the estimated net proceeds therefrom after deducting estimated underwriting discounts and commissions and offering expenses payable by the Company. See "Use of Proceeds" and "Capitalization." 5 7 RISK FACTORS This Prospectus contains forward-looking statements based upon current expectations that involve risks and uncertainties. When used in this Prospectus, the words "anticipate," "believe," "estimate" and "expect" and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in the following risk factors and elsewhere in this Prospectus. An investment in the shares of Common Stock offered in this Prospectus involves a high degree of risk. In addition to the other information in this Prospectus, the following risk factors should be considered carefully in evaluating the Company and its business before purchasing shares of the Common Stock offered hereby. UNCERTAINTY ASSOCIATED WITH XENOMOUSE TECHNOLOGY The Company's XenoMouse technology is a new approach to the generation and development of antibody therapeutic products. To date, the Company has not commercialized any antibody products based on its XenoMouse technology. In addition, the Company is not aware of any commercialized antibody therapeutic product that has been generated or developed from any transgenic technologies. Current antibody product candidates based on, utilizing or derived from XenoMouse technology are at a very early stage of development. To date, the Company has begun clinical trials with respect to only one such antibody product candidate. While to date XenoMouse technology has been able to generate antibodies against the antigens to which it had been exposed, there can be no assurance that it will be able to do so with respect to all future antigens. Failure of the Company's XenoMouse technology to generate antibody product candidates that lead to the successful development and commercialization of products would have a material adverse effect on the Company's business, financial condition and results of operations. Although the Company believes that its XenoMouse technology offers certain advantages, there can be no assurance that these advantages will be realized or, if realized, that XenoMouse technology will result in any meaningful benefits to current or potential collaborative partners or patients. There can be no assurance that the Company's XenoMouse technology will enable the Company or any of its collaborative partners to identify, generate, develop or commercialize antibody therapeutic products or product candidates in an efficient and timely manner, if at all. See "Business -- The Abgenix Solution -- XenoMouse Technology." EARLY STAGE OF DEVELOPMENT; HISTORY OF LOSSES AND UNCERTAINTY OF FUTURE PROFITABILITY The Company is at an early stage of development and must be evaluated in light of the uncertainties and complexities present in an early stage biopharmaceutical company. The product candidates under development by the Company are in the research or preclinical development stage or are in the early stage of clinical trials. Significant investment in additional research and development, preclinical and clinical testing, regulatory and sales and marketing activities will be necessary in order for the Company to commercialize its current and any future product candidates. There can be no assurance that the Company's product candidates under development will be successfully developed or that such product candidates, if successfully developed, will generate sufficient or sustainable revenues to enable the Company to be profitable. Since inception, the Company has funded its research and development activities primarily through contributions from Cell Genesys, revenues from collaborative arrangements, private placements of preferred stock, equipment leaseline financings and loan facilities. The Company has incurred net losses in each of the last three years of operation, including net losses of approximately $8.3 million, $7.1 million, $35.9 million and $5.3 million in 1995, 1996, 1997 and the three months ended March 31, 1998, respectively, and as of March 31, 1998, had an accumulated deficit of approximately $57.8 million. The Company's losses have resulted principally from costs incurred in performing research and development to develop its XenoMouse technology and subsequent antibody product candidates, from the non-recurring cross-license and settlement charge and from general and administrative costs associated with the Company's operations. The Company expects to incur 6 8 additional operating losses until at least the year 2000 as a result of increases in its expenditures for research and product development, including costs associated with conducting preclinical testing and clinical trials. The Company expects that the amount of such losses will fluctuate significantly from quarter to quarter as a result of increases or decreases in the Company's research and development efforts, the execution or termination of collaborative arrangements, or the initiation, success or failure of clinical trials. The Company expects that substantially all of its revenues for the foreseeable future will result from payments under collaborative arrangements, including fees upon signing, reimbursement for research and development and milestone payments. To date, all of the Company's revenues have resulted primarily from research and development funding and milestone payments and may not be indicative of the Company's future performance or of the ability of the Company to continue to achieve such milestones. The Company's ability to generate revenue or achieve profitability depends in part on its ability to enter into further collaborative or licensing arrangements, successfully complete preclinical or clinical trials, obtain regulatory approval for its product candidates and develop the capacity, either alone or through third parties, to manufacture, market and sell its products. Payments under the Company's existing and any future collaborative arrangements will be subject to significant fluctuation in both timing and amount and therefore the Company's revenues and results of operations for any period may not be comparable to the revenues or results of operations for any other period. There can be no assurance that the Company will enter into further collaborative arrangements, successfully complete preclinical or clinical trials, obtain required regulatory approvals, or successfully develop, manufacture and market product candidates. Failure to do so will have a material adverse effect on the Company's business, financial condition, and results of operations. There can be no assurance that the Company will ever achieve product revenues or profitability. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Product Development Programs." NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT All of the Company's product candidates are in the early stages of research and development and only ABX-CBL and ABX-IL8 have been used in human clinical trials. All of the Company's product candidates will require significant additional preclinical or clinical testing prior to obtaining regulatory approval for commercial use. In addition, the Company must file a product approval application with the United States Food and Drug Administration (the "FDA") prior to commercialization of any of the Company's products. The Company currently does not expect to file a product approval application with the FDA or corresponding regulatory filings in Europe for its product candidates at least prior to 1999 and does not expect to have any products commercially available at least prior to 2000, if at all. In addition, the Company's strategy includes building a large and diversified product portfolio, including a mix of out-licensed and internally developed product candidates. There can be no assurance that the Company will be able to implement this strategy or that current or future product candidates will ever result in viable commercial products. In order to develop a single product, the Company must develop and test multiple product candidates. Development of the Company's current and any future product candidates are subject to the risks of failure inherent in the development of new pharmaceutical products and products based on new technologies. These risks include the possibility that the Company will experience delays in development, testing or marketing, that such development, testing or marketing will result in unplanned expenditures or in expenditures above those anticipated by the Company, that the Company's products will not be proven safe or effective, that the Company's product candidates will not be easy to use or cost-effective, that third parties will develop and market superior or equivalent products, that any or all of the Company's product candidates will fail to receive any necessary regulatory approvals, that such product candidates will be difficult or uneconomical to manufacture on a commercial scale, that proprietary rights of third parties will preclude the Company or its collaborative partners from marketing such products and that the Company's products will not achieve market acceptance. As a result of these risks, there can be no 7 9 assurance that research and development efforts conducted by the Company or its collaborative partners will result in any commercially viable products. If a significant portion of the Company's development programs are not successfully completed, required regulatory approvals are not obtained, or any approved products are not commercially successful, there will be a material adverse effect on Company's business, financial condition and results of operations. See "Business -- Product Development Programs." DEPENDENCE ON COLLABORATIVE ARRANGEMENTS The Company's strategy for the development and commercialization of antibody therapeutic products depends, in large part, upon the formation and maintenance of collaborative and licensing arrangements with several corporate partners. In order to successfully develop and commercialize new products and product candidates, the Company must enter into such collaborations, including collaborations with pharmaceutical and biotechnology companies, academic institutions and other entities to access proprietary antigens, to fund and complete its research and development activities, preclinical and clinical testing and manufacturing, to seek and obtain regulatory approvals and to achieve successful commercialization of existing and future product candidates. The Company has recently entered into collaborative arrangements with Pfizer, Schering-Plough and Genentech to generate fully human antibodies to specific antigens in the fields of cancer, inflammation and growth factor modulation, respectively. To date, only a limited number of antibody product candidates have been generated pursuant to such collaborations, and there can be no assurance that any such collaboration will be successful. There can also be no assurance that the Company will be able to establish additional collaborative or licensing arrangements, that any such arrangements or licenses will be on terms favorable to the Company, that any such collaborative arrangements or licenses will result in commercially successful products or that the current or any future collaborative or licensing arrangements will ultimately be successful. Failure of the Company to maintain its significant collaborative arrangements or enter into additional collaborative arrangements would have a material adverse effect on the Company's business, financial condition and results of operations. The Company's dependence on collaborative and licensing arrangements with third parties subjects it to a number of risks. Agreements with collaborative partners typically allow such partners significant discretion in electing whether to pursue any of the planned activities. The Company cannot control the amount and timing of resources its collaborative partners may devote to the product candidates, and there can be no assurance that such partners will perform their obligations as expected. Business combinations or significant changes in a corporate partner's business strategy may adversely affect such partners ability to complete its obligations under the arrangements. If any collaborative partner were to terminate or breach its agreement with the Company, or otherwise fail to complete its obligations in a timely manner, such conduct could have a material adverse effect on the Company's business, financial condition and results of operations. To the extent that the Company is not able to establish further collaborative arrangements or that any or all of the Company's existing collaborative arrangements are terminated, the Company would be required to seek new collaborative arrangements or to undertake product development and commercialization at its own expense, which could significantly increase the Company's capital requirements, place additional strain on its human resource requirements and limit the number of product candidates which the Company would be able to develop and commercialize. In addition, there can be no assurance that existing and future collaborative partners will not pursue alternative technologies or develop alternative products either on their own or in collaboration with others, including the Company's competitors. There can also be no assurance that disputes will not arise in the future with respect to the ownership of rights to any technology or products developed with any future collaborative partner. Lengthy negotiations with potential new collaborative partners or disagreements between established collaborative partners and the Company could lead to delays or termination in the research, development or commercialization of certain product candidates or result in litigation or arbitration, which would be time consuming and expensive. Failure by any collaborative partner to develop or commercialize successfully any product candidate to which it has obtained rights from the Company or the decision by a collaborative partner 8 10 to pursue alternative technologies or develop alternative products, either on their own or in collaboration with others, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company has an option to obtain licenses from Xenotech to commercialize antibody products generated by XenoMouse technology. Such option is for a certain number of targets each year. There can be no assurance that in any year the Company will exercise its rights for the full number of targets subject to such option or that such option will not limit the Company's ability to fully realize the commercial potential of its XenoMouse technology. In addition, disputes with Japan Tobacco could result in the loss of the right to commercialize a product candidate by either party. See "Business--Collaborative Arrangements." UNCERTAINTIES RELATED TO CLINICAL TRIALS Before obtaining regulatory approvals for the commercial sale of any products, the Company must demonstrate through preclinical testing and clinical trials that its product candidates are safe and effective for use in the target disease indication. With the exception of the recently initiated multi-center confirmatory Phase II trial in GVHD, clinical trials of the Company's ABX-CBL product candidate were conducted by third parties prior to the Company obtaining license rights to technologies related to this product candidate. As of March 1, 1998, ABX-CBL had only been administered to a total of 90 patients in GVHD and organ transplant rejection indications, and Phase I clinical trials for ABX-IL8 in psoriasis commenced in April 1998. As a result, patient follow up has been limited and clinical data obtained thus far have been insufficient to demonstrate safety and efficacy under applicable FDA guidelines to support an application for regulatory approval. In addition, the results from preclinical testing and early clinical trials may not be predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising results, even in later stage clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals in advanced clinical trials. There can be no assurance that clinical trials conducted by the Company or by third parties on behalf of the Company will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals for ABX-CBL or ABX-IL8. In addition, the Company's other two product candidates are still in preclinical development. The Company has not submitted investigational new drug applications ("IND") nor begun clinical trials for these two product candidates. No assurance can be given that any of the Company's preclinical or clinical development programs will be successfully completed, that any further IND will be filed or become effective, that additional clinical trials will be allowed by the FDA or other regulatory authorities, or that clinical trials will commence as planned. The commencement and rate of completion of clinical trials conducted by the Company may be delayed by many factors, including inability to manufacture sufficient quantities of materials used for clinical trials, slower than expected rate of patient recruitment, inability to adequately follow patients after treatment, unforeseen safety issues or any other adverse event reported during the clinical trials. The Company has limited experience in conducting or managing clinical trials and relies, and will continue to rely, on third parties to assist the Company in managing and monitoring clinical trials. Dependence on such third parties may result in delays in completing, or failure to complete, such trials if such third parties fail to perform under their agreements with the Company. Completion of trials may take several years or more, and the length of time generally varies substantially with the type, complexity, novelty and intended use of the product candidate. Data obtained from preclinical and clinical activities are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. In addition, delays or rejections by regulatory authorities may be encountered as a result of many factors, including changes in regulatory policy during the period of product development. There can be no assurance that the Company will be permitted by regulatory authorities to undertake any additional clinical trials for its potential products or, if such additional trials are conducted, that any of the Company's product candidates will prove to be safe and efficacious or will receive regulatory approvals. In addition, the Company's clinical trials are often conducted with patients who have failed conventional treatments and, in the case of GVHD, patients are often in the most advanced stages of the disease. During the course of treatment, these patients can die or suffer 9 11 adverse medical effects for reasons that may not be related to the pharmaceutical agent being tested but which can nevertheless adversely affect the interpretation of clinical trial results. Failure of the Company's product candidates to demonstrate safety and efficacy in clinical trials could result in delays in developing other product candidates and conducting related preclinical testing and clinical trials, as well as a potential need for additional financing, any or all of which would have a material adverse effect on the Company's business, financial condition and results of operations. Furthermore, any delays in, or termination of, the Company's clinical trials would also have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that the Company will be permitted by regulatory authorities to undertake any additional clinical trials for its product candidates or, if such additional trials are conducted, that any of the Company's product candidates will prove to be safe and efficacious or will receive regulatory approvals. See "Business -- Product Development Programs" and "-- Government Regulation." UNCERTAINTY OF PATENT POSITION AND DEPENDENCE ON PROPRIETARY RIGHTS The Company's success depends in part on its ability to obtain patents, protect trade secrets, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company. The Company's policy is to seek to protect its proprietary position by, among other methods, filing United States and foreign patent applications related to its proprietary technology, inventions and improvements that are important to the development of its business. Proprietary rights relating to the Company's technologies will be protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are effectively maintained as trade secrets. There can be no assurance that any patents owned by, or licensed to, the Company will afford protection against competitors or that any pending patent applications now or hereafter filed by, or licensed to, the Company will result in patents being issued. In addition, the laws of certain foreign countries do not protect the Company's intellectual property rights to the same extent as do the laws of the United States. The patent position of biopharmaceutical companies involves complex legal and factual questions and, therefore, their enforceability cannot be predicted with certainty. There can be no assurance that any of the Company's patents or patent applications, if issued, will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company against competitors with similar technology. Furthermore, there can be no assurance that others will not independently develop similar technologies or duplicate any technology developed by the Company. While the Company has multiple patent applications pending in the United States, to date, the Company has no United States patents relating to XenoMouse technology. One issued European Patent owned by the Company relating to XenoMouse technology is currently undergoing opposition proceedings within the European Patent Office, and no assurance can be given regarding the outcome of this opposition. The Company intends to continue to file patent applications as appropriate for patents covering both its product candidates and processes. There can be no assurance that patents will issue from any of these applications, that any patent will issue on technology arising from additional research or that patents that may issue from such applications will be sufficient to protect the Company's technologies. Pursuant to the cross-license and settlement agreement with GenPharm International, Inc., a subsidiary of Medarex, Inc., ("GenPharm"), the Company entered into a cross-license agreement with Cell Genesys, Xenotech, Japan Tobacco and GenPharm, whereby the Company has licensed on a non-exclusive basis certain patents, patent applications, third party licenses, and inventions pertaining to the development and use of certain transgenic rodents including mice that produce fully human antibodies that are integral to the Company's products and business. Breach of the cross-license agreement would have a material adverse effect on the Company's business, financial condition and results of operations. Research has been conducted for many years in the antibody field. This has resulted in a substantial number of issued patents and an even larger number of patent applications. Patent 10 12 applications in the United States are, in most cases, maintained in secrecy until patents issue, and publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made. The commercial success of the Company depends significantly on its ability to operate without infringing the patents and other proprietary rights of third parties. There can be no assurance that the Company's technologies do not and will not infringe the patents or violate other proprietary rights of third parties. In the event of such infringement or violation, the Company and its corporate partners may be enjoined from pursuing development or commercialization of their products. Such action would have a material adverse affect on the Company's business, financial condition and results of operations. The biotechnology and pharmaceutical industries have been characterized by extensive litigation regarding patents and other intellectual property rights, and the Company, together with Cell Genesys, Xenotech and Japan Tobacco, recently settled litigation with GenPharm regarding certain patents and other intellectual property rights. See "Business -- Intellectual Property -- Patent Cross-License and Settlement Agreement with GenPharm." The defense and prosecution of intellectual property suits, United States Patent and Trademark Office ("USPTO") interference proceedings and related legal and administrative proceedings in the United States and internationally involve complex legal and factual questions. As a result, such proceedings are costly and time-consuming to pursue and their outcome is uncertain. Litigation may be necessary to enforce patents issued or licensed to the Company, to protect trade secrets or know-how owned by or licensed by the Company or to determine the enforceability, scope and validity of the proprietary rights of others. Any litigation, interference or other administrative proceedings will result in substantial expense to the Company and significant diversion of effort and resources by the Company's technical and management personnel. An adverse determination in such proceedings to which the Company may become a party could subject the Company to significant liabilities to third parties or require the Company to seek licenses which may not be available from third parties or prevent the Company from selling its products in certain markets, if at all. Although patent and intellectual property disputes are often settled through licensing or similar arrangements, costs associated with such arrangements may be substantial and could include ongoing royalties. Furthermore, there can be no assurance that the necessary licenses would be available to the Company on satisfactory terms, if at all. Adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses could restrict or prevent the Company from manufacturing and selling its products, if any, which would have a material adverse effect on the Company's business, financial condition and results of operations. In addition to patents, the Company relies on trade secrets and proprietary know-how, which it seeks to protect, in part, through confidentiality and proprietary information agreements. There can be no assurance that such confidentiality or proprietary information agreements will provide meaningful protection or adequate remedies for the Company's technology in the event of unauthorized use or disclosure of such information, that the parties to such agreements will not breach such agreements or that the Company's trade secrets will not otherwise become known to or be independently developed by competitors. See "Business -- Intellectual Property." INTENSE COMPETITION; RAPID TECHNOLOGICAL CHANGE The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change. The Company is aware of several pharmaceutical and biotechnology companies, which are actively engaged in research and development in areas related to antibody therapy, that have commenced clinical trials of antibody therapeutics products or have successfully commercialized antibody products. Many of these companies are addressing diseases and disease indications which are being targeted by the Company or its collaborative partners. Certain of these competitors have specific expertise or technology related to antibody development, such as Centocor, Inc., Protein Design Labs, Inc., IDEC Pharmaceuticals Corporation, Cambridge Antibody Technology Group, Inc. and GenPharm. Certain of the Company's competitors are developing or testing product candidates that may be directly competitive with the Company's product candidates. For example, the 11 13 Company is aware that several companies, including Genentech, Inc., have potential product candidates that may inhibit the activity of IL-8. Furthermore, the Company is aware that ImClone Systems, Inc. has a potential product candidate in clinical development that may inhibit the activity of EGF. Many of these companies and institutions, either alone or together with their corporate partners, have substantially greater financial resources and larger research and development staffs than the Company. In addition, many of these competitors, either alone or together with their corporate partners, have significantly greater experience than the Company in developing products, undertaking preclinical testing and human clinical trials, obtaining FDA and other regulatory approvals of products and manufacturing and marketing products. Accordingly, the Company's competitors may succeed in obtaining patent protection, receiving FDA approval or commercializing products more rapidly than the Company. If the Company commences commercial sales of products, it will be competing against companies with greater marketing and manufacturing capabilities, areas in which it has limited or no experience. In addition to biotechnology and pharmaceutical companies, the Company faces, and will continue to face, competition from academic institutions, government agencies and research institutions. There are numerous competitors working on products to treat each of the diseases for which the Company is seeking to develop therapeutic products. In addition, any product candidate successfully developed by the Company may compete with existing therapies that have long histories of safe and effective use. Competition may also arise from other drug development technologies and methods of preventing or reducing the incidence of disease and new small molecule or other classes of therapeutic agents. There can be no assurance that developments by others will not render the Company's product candidates or technologies obsolete or noncompetitive. The Company faces and will continue to face intense competition from other companies, including Japan Tobacco, for collaborative arrangements with pharmaceutical and biotechnology companies, for establishing relationships with academic and research institutions, and for licenses to proprietary technology. These competitors, either alone or with their corporate partners, may succeed in developing technologies or products that are more effective than those of the Company. The Company's collaborative partners may elect to develop other antibody products which compete with the Company's products. See "Business -- Competition." SIGNIFICANT GOVERNMENT REGULATIONS; NO ASSURANCE OF REGULATORY APPROVALS All new biopharmaceutical products, including the Company's product candidates under development and anticipated future products, are subject to extensive and rigorous regulation by the federal government, principally the FDA under the Federal Food, Drug and Cosmetic Act (the "FD&C Act") and other laws including the Public Health Service Act, and by state and local governments. Such regulations govern, among other things, the development, testing, manufacture, safety, efficacy, record keeping, labeling, storage, approval, advertising, promotion, sale and distribution of such products. If biopharmaceutical products are marketed abroad, they also are subject to extensive regulation by foreign governments. To date, none of the Company's product candidates has been approved for sale in the United States or any foreign market. The regulatory review and approval process, which includes preclinical studies and clinical trials of each product candidate, is lengthy, expensive and uncertain. Securing FDA approvals requires the submission of extensive preclinical and clinical data and supporting information to the FDA for each indication to establish the product candidates' safety and efficacy. The approval process takes many years, requires the expenditure of substantial resources, involves post-marketing surveillance, and may involve ongoing requirements for post-marketing studies. Delays in obtaining regulatory approvals could adversely affect the successful commercialization of any drugs developed by the Company or its collaborative partners, impose costly procedures upon the Company's or its collaborative partners' activities, diminish any competitive advantages that the Company or its collaborative partners may attain and adversely affect the Company's receipt of revenues or royalties. There can be no assurance that regulatory approval will be obtained for any therapeutic product candidate developed by the Company or its collaborative partners. Furthermore, regulatory approval may entail limitations on the indicated uses of a drug. Product approvals, if 12 14 granted, can be withdrawn for failure to comply with ongoing regulatory requirements or upon the occurrence of unforeseen problems following initial marketing. Certain material changes to an approved product such as manufacturing changes or additional labeling claims are subject to further FDA review and approval. There can be no assurance that any approvals that are required, once obtained, will not be withdrawn or that compliance with other regulatory requirements can be maintained. Further, failure to comply with applicable FDA and other regulatory requirements at any stage during the regulatory process can result in sanctions being imposed on the Company or the manufacturers of its products, including delays, warning letters, fines, product recalls or seizures, injunctions, refusal of the FDA to review pending market approval applications or supplements to approval applications, total or partial suspension of production, civil penalties, withdrawals of previously approved marketing applications and criminal prosecutions. The Company may rely on its collaborative partners to file INDs and generally direct the regulatory approval process. There can be no assurance that the Company's collaborative partners will be able to conduct clinical testing or obtain necessary approvals from the FDA or other regulatory authorities for any product candidates. Failure to obtain required governmental approvals will delay or preclude the Company's collaborative partners from marketing drugs or diagnostic products developed through the Company's research or limit the commercial use of such product candidates and could have a material adverse effect on the Company's business, financial condition and results of operations. Manufacturers of biopharmaceutical products also are required to comply with the applicable FDA current good manufacturing practice ("cGMP") regulations, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Manufacturing facilities are subject to inspection by the FDA, including unannounced inspection, and must be approved before they can be used in commercial manufacturing of the Company's products. There can be no assurance that the Company or its suppliers will be able to comply with the applicable cGMP requirements and other FDA regulatory requirements. Such failure would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Government Regulation." NO ASSURANCE OF MARKET ACCEPTANCE There can be no assurance that the Company's product candidates will gain any significant degree of market acceptance among physicians, patients, healthcare payors and the medical community in general even if clinical trials demonstrate safety and efficacy and necessary regulatory and reimbursement approvals are obtained. The degree of market acceptance of any product candidates developed by the Company will depend on a number of factors, including the establishment and demonstration of the clinical efficacy and safety as well as cost-effectiveness of the product candidates, their potential advantage over alternative treatment methods and reimbursement policies of government and third-party payors. Physicians will not recommend therapies using the Company's products until such time, if at all, as clinical data or other factors demonstrate the efficacy of such procedures as compared to conventional drug and other treatments. Even if the clinical efficacy of therapies using the Company's products were established, physicians may elect not to recommend the therapies for any number of other reasons. The Company's product candidates, if successfully developed, will compete with a number of alternative drugs and therapies manufactured and marketed by major pharmaceutical and other biotechnology companies, and possibly new products currently under development by such companies and others. There can be no assurance that physicians, patients, third-party payors or the medical community in general will accept and utilize any product candidates that may be developed by the Company or its collaborative partners. Failure of the Company's products to achieve significant market acceptance would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Product Development Programs," "-- Competition," and "-- Pharmaceutical Pricing and Reimbursement." 13 15 LIMITED MANUFACTURING EXPERIENCE The Company currently has limited experience in manufacturing its product candidates and lacks the resources or capability to manufacture any of its products on a commercial scale. While the Company currently manufactures limited quantities of antibody products for preclinical testing, the Company relies on contract manufacturers to produce ABX-CBL and ABX-IL8. With respect to products other than ABX-CBL and ABX-IL8, the Company will either be responsible for manufacturing or contract out manufacturing to third parties. The Company's contract manufacturers have limited experience in manufacturing ABX-CBL and ABX-IL8 in quantities sufficient for conducting clinical trials. Contract manufacturers often encounter difficulties in scaling up production, including problems involving production yields, quality control and quality assurance and shortage of qualified personnel. Furthermore, there are only a limited number of other third-party contract manufacturers who have the ability and capacity to produce the Company's product candidates. Failure by any contract manufacturer to deliver the required quantities of the Company's products candidates for either clinical or commercial use on a timely basis and at commercially reasonable prices and failure by the Company to find a replacement manufacturer would have a material adverse affect on the Company's business, financial condition and results of operations. In addition, the Company and its third party manufacturers are required to register their manufacturing facilities with the FDA and foreign regulatory authorities. The facilities will then be subject to inspections confirming compliance with cGMP established by the FDA or corresponding foreign regulations. Failure to maintain compliance with the cGMP requirements would materially adversely effect the Company's business, financial condition and results of operations. See "Business -- Manufacturing." NO MARKETING AND SALES EXPERIENCE The Company has no experience in marketing or selling pharmaceutical products and currently does not have a marketing, sales or distribution capability. The Company intends to enter into arrangements with third parties to market and sell most of its products. For select products, the Company may establish an internal marketing and sales force. There can be no assurance that the Company will be able to enter into marketing and sales arrangements with others on acceptable terms, if at all. To the extent that the Company enters into marketing and sales arrangements with other companies, any revenues to be received by the Company will be dependent on the efforts of others. There can be no assurance that such efforts will be successful. If the Company is unable to enter into such third party arrangements, then the Company must develop a marketing and sales force, which may be substantial in size, in order to achieve commercial success for any product candidate approved by the FDA. There can be no assurance that the Company will successfully develop such experience or have sufficient resources to do so. If the Company develops its own marketing and sales capabilities, it will compete with other companies that have experienced and well-funded marketing and sales operations. The Company's failure to establish successful marketing and sales capabilities or to enter into successful marketing arrangements with third parties would have a material adverse effect on the Company's business, financial condition and results of operations. DEPENDENCE ON KEY PERSONNEL; NEED TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS The Company is highly dependent on the principal members of its scientific and management staff. The loss of any of these persons could have a material adverse effect on the Company's business, financial condition and results of operations. In order to pursue its product development, marketing and commercialization plans, the Company will be required to hire additional qualified scientific personnel to perform research and development, as well as personnel with expertise in clinical testing, government regulation, manufacturing and marketing. Attracting and retaining qualified personnel will be critical to the Company's success. There can be no assurance that the Company will be able to attract and retain personnel on acceptable terms given the competition for such personnel among 14 16 biotechnology, pharmaceutical and healthcare companies, universities and non-profit research institutions. In addition, the Company relies on members of its Scientific and Medical Advisory Boards and other consultants to assist the Company in formulating its research and development strategy. All of the Company's consultants and the members of the Company's Scientific and Medical Advisory Boards are employed by entities other than the Company, and may have commitments to, or advisory or consulting agreements with, other entities that may limit their availability to the Company. The loss of services of any of these personnel could impede the achievement of the Company's development objectives and could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Scientific and Medical Advisory Boards." SIGNIFICANT INFLUENCE BY CELL GENESYS, INC. After the completion of this offering, Cell Genesys will beneficially own 40.3% of the outstanding capital stock. As a result, Cell Genesys will have significant influence over all matters requiring the approval of the Company's stockholders, including the election of the Company's Board of Directors and changes in control of the Company. Cell Genesys and the Company have entered into a governance agreement, as amended (the "Governance Agreement"), which provides that so long as Cell Genesys or a group to which it belongs owns (i) a majority of the outstanding voting stock of the Company, Cell Genesys or the group shall have the right to nominate four out of the seven directors of the Company, (ii) less than a majority but greater than 25% of the outstanding voting stock of the Company, then Cell Genesys or such group shall have the right to nominate three out of the seven directors of the Company, or (iii) less than 25% but greater than 15% of the outstanding voting stock of the Company, then Cell Genesys or such group shall have the right to nominate one out of the seven directors of the Company. The Governance Agreement also provides that Cell Genesys and each officer and director of the Company who owns voting stock shall agree to vote for the persons nominated as set forth above. There can be no assurance that the Company will not be adversely impacted by the significant influence which Cell Genesys will have with respect to matters affecting the Company. See "Certain Transactions" and "Management -- Board Composition." CONTROL BY DIRECTORS, EXECUTIVE OFFICERS, PRINCIPAL STOCKHOLDERS AND AFFILIATED ENTITIES The Company's directors, executive officers, principal stockholders and affiliated entities will, in the aggregate, beneficially own approximately 51.0% of the Company's outstanding Common Stock following the completion of this offering. These stockholders, if acting together, would be able to control substantially all matters requiring approval by the stockholders of the Company, including the election of directors and the approval of mergers or other business combination transactions. There can be no assurance that the Company will not be adversely impacted by the control which such stockholders will have with respect to matters affecting the Company. See "Principal Stockholders." FUTURE CAPITAL REQUIREMENTS The Company plans to continue to expend substantial resources for the expansion of research and development, including costs associated with conducting preclinical testing and clinical trials. The Company may be required to expend greater-than-anticipated funds if unforeseen difficulties arise in the course of completing required additional development of product candidates, performing preclinical testing and clinical trials of such product candidates, obtaining necessary regulatory approvals or other aspects of the Company's business. The Company's future liquidity and capital requirements will depend on many factors, including continued scientific progress in its research and development programs, the size and complexity of these programs, the scope and results of preclinical testing and clinical trials, the time and expense involved in obtaining regulatory approvals, if any, competing technological and market developments, the establishment of further collaborative arrangements, if any, the time and expense of filing and prosecuting patent applications and enforcing patent claims, the cost of establishing manufacturing capabilities, conducting commercialization activities and arrangements, product in-licensing and other factors not within the Company's control. Although the 15 17 Company believes that the proceeds from this offering, together with the Company's current cash balances, cash equivalents, short-term investments and cash generated from collaborative arrangements will be sufficient to meet the Company's operating and capital requirements for at least the next two years, there can be no assurance that the Company will not require additional financing within this timeframe. The Company may be required to raise additional funds through public or private financing, collaborative relationships or other arrangements. There can be no assurance that such additional funding, if needed, will be available on terms attractive to the Company, if at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. Collaborative arrangements, if necessary to raise additional funds, may require the Company to relinquish its rights to certain of its technologies, products or marketing territories. The failure of the Company to raise capital when needed could have a material adverse effect on the Company's business, financial condition and results of operations. UNCERTAINTY RELATING TO REIMBURSEMENT; UNCERTAINTY RELATING TO HEALTHCARE REFORM In both domestic and foreign markets, sales of the Company's potential products will depend in part upon the availability of reimbursement from third-party payors, such as government health administration authorities, managed care providers, private health insurers and other organizations. These third-party payors are increasingly challenging the price and examining the cost effectiveness of medical products and services. In addition, significant uncertainty exists as to the reimbursement status of newly approved healthcare products. The Company may need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of its products. Such studies may require significant amount of resources to be provided by the Company. There can be no assurance that the Company's product candidates will be considered cost effective or that adequate third-party reimbursement will be available to enable the Company to maintain price levels sufficient to realize an appropriate return on its investment in product development. Both federal and state governments in the United States and foreign governments continue to propose and pass legislation designed to reduce the cost of healthcare. Accordingly, legislation and regulations affecting the pricing of pharmaceuticals may change before the Company's proposed products are approved for marketing. Adoption of such legislation could further limit reimbursement for pharmaceuticals. If adequate coverage and reimbursement rates are not provided by the government and third-party payors for the Company's potential products, the market acceptance of these products could be adversely affected, which would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Pharmaceutical Pricing and Reimbursement." POTENTIAL PRODUCT LIABILITY EXPOSURE AND LIMITED INSURANCE COVERAGE The use of any of the Company's product candidates in clinical trials, and the sale of any approved products, may expose the Company to liability claims resulting from such use or sale of its products. These claims might be made directly by consumers, healthcare providers or by pharmaceutical companies or others selling such products. There can be no assurance that the Company will not experience financial losses in the future due to product liability claims. Abgenix has obtained limited product liability insurance coverage for its clinical trials in the amount of $5.0 million per occurrence and $5.0 million in the aggregate. The Company intends to expand its insurance coverage to include the sale of commercial products if marketing approval is obtained for product candidates in development. However, insurance coverage is becoming increasingly expensive and no assurance can be given that the Company will be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect the Company against losses. A successful product liability claim or series of claims brought against the Company for uninsured liabilities or in excess of insured liabilities could have a material adverse effect on its business, financial condition and results of operations. 16 18 HAZARDOUS AND RADIOACTIVE MATERIALS; ENVIRONMENTAL MATTERS The Company's research and development processes involve the controlled use of hazardous and radioactive materials, chemicals and waste products. The Company is subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and waste products. The risk of accidental contamination or injury from these materials and waste products cannot be completely eliminated and the Company does not expect to make material capital expenditures for environmental control facilities in the near-term. There can be no assurance that the Company will not be required to incur significant costs to comply with environmental laws and regulations in the future, or that the operations, business or assets of the Company will not be materially adversely affected by the costs of compliance with current or future environmental laws or regulations. NO PRIOR PUBLIC MARKET FOR COMMON STOCK Prior to this offering, there has been no public market for the Company's Common Stock, and there can be no assurance that a regular trading market will develop and continue after this offering or that the market price of the Common Stock will not decline below the initial public offering price. The initial public offering price will be determined through negotiations between the Company and the representatives of the Underwriters and may not be indicative of the market price of the Common Stock following this offering. Among the factors considered in such negotiations are prevailing market conditions, certain financial information of the Company, market valuations of other companies that the Company and the representatives of the Underwriters believe to be comparable to the Company, estimates of the business potential of the Company, the present state of the Company's development and other factors deemed relevant. See "Underwriting." VOLATILITY OF COMMON STOCK PRICE The market prices for securities of biotechnology and pharmaceutical companies have historically been highly volatile, and the market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. Factors such as fluctuations in the Company's operating results, announcements of technological innovations or new therapeutic products by the Company or others, clinical trial results, developments concerning strategic alliance agreements, government regulation, developments in patent or other proprietary rights, public concern as to the safety of products developed by the Company or others, future sales of substantial amounts of Common Stock by existing stockholders, comments by securities analysts and general market conditions can have an adverse effect on the market price of the Common Stock. In addition, the realization of any of the risks described in these "Risk Factors" could have a dramatic and adverse impact on market price of the Company's Common Stock. BROAD MANAGEMENT DISCRETION OVER USE OF OFFERING PROCEEDS Over the next 12 months, the Company intends to use approximately $15.0 million of the net proceeds of this offering for research and development, including the performance of preclinical and clinical trials, and approximately $3.75 million for the final cross-license and settlement payment reflected as a short-term payable to related party on the Company's balance sheet as of March 31, 1998. The balance of the net proceeds will be used for working capital and for other general purposes over the next 12 months and thereafter. As a consequence, the Company's management will retain broad discretion in the allocation of a significant portion of the net proceeds. There can be no assurance that the net proceeds will be utilized in a manner that the stockholders deem optimal or that the net proceeds can or will be invested to yield a significant return upon the completion of this offering. The Company intends to invest the net proceeds in short-term, interest-bearing, investment grade securities. See "Use of Proceeds." 17 19 SHARES ELIGIBLE FOR FUTURE SALE Sale of Common Stock (including shares issued upon the exercise of outstanding options and warrants) in the public market after this offering could materially adversely affect the market price of the Common Stock. Such sales also might make it more difficult for the Company to sell equity securities or equity-related securities in the future. Upon the completion of this offering, based on the number of shares outstanding as of March 31, 1998, the Company will have 11,137,512 shares of Common Stock outstanding assuming (i) the issuance by the Company of shares of Common Stock offered hereby, (ii) no exercise of outstanding options, warrants or other obligations to issue shares after March 31, 1998 and (iii) no exercise of the Underwriter's over-allotment option to purchase 450,000 shares of Common Stock. Of these shares, the 3,000,000 shares offered hereby will be freely tradable (unless held by affiliates of the Company) and the remaining 8,137,512 shares will be restricted securities within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). Ninety days after the date of this Prospectus, 29,668 shares of Common Stock will be freely tradable without restriction under the Securities Act (unless held by affiliates of the Company). The Company's directors, executive officers and certain stockholders who in the aggregate hold 7,990,025 of the shares of Common Stock outstanding immediately prior to the completion of this offering have entered into lock-up agreements under which they have agreed not to sell, directly or indirectly, any shares owned by them for a period of 180 days after the date of this Prospectus without the prior written consent of BancAmerica Robertson Stephens. Upon expiration of the 180-day lock-up agreements, 4,680,159 shares of Common Stock will become eligible for public resale, subject to volume limitations imposed by Rule 144. The remaining 3,356,020 shares held by existing stockholders will become eligible for public resale at various times over a period of less than one year following the completion of this offering, subject to volume limitations. In addition, a director and a certain stockholder who in the aggregate hold 71,665 of the shares of Common Stock outstanding immediately prior to the completion of this offering have entered into lock-up agreements substantially similar to the 180-day lock-up agreement described above except that the term of the lock-up is 360 days. Upon expiration of the 360-day lock-up agreements, all 71,655 of these shares will become eligible for public resale, subject to volume limitations imposed by Rule 144. Also, as of March 31, 1998, 1,702,904 shares were subject to outstanding options. Approximately 1,592,752 of these shares are subject to the 180-day lockup agreement described above. Of the remaining 110,152 shares subject to outstanding options, approximately 44,101 were vested as of March 31, 1998. After the offering, the holders of 7,844,352 shares of Common Stock will be entitled to certain demand and piggyback rights with respect to registration of such shares under the Securities Act. If such holders, exercising the demand registration rights, causes a large number of securities to be registered and sold in the public market, such shares could have an adverse effect on the market price for the Company's Common Stock. If the Company were to initiate a registration and include shares held by such holders pursuant to the exercise of their piggyback registration rights, such sales may have an adverse effect on the Company's ability to raise capital. Additionally, 121,667 shares issuable pursuant to warrants and subject to the 180-day lock-up agreement will also be entitled to such registration rights. See "Shares Eligible for Future Sale" and "Underwriting." ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS AND DELAWARE LAW Certain provisions of the Company's Certificate of Incorporation and Bylaws may make it more difficult for a third party to acquire, or discourage a third party from attempting to acquire, control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of the Company's Common Stock. Certain of these provisions allow the Company to issue up to 5,000,000 shares of Preferred Stock without any vote or further action by the stockholders, eliminate the right of stockholders to act by written consent without a meeting, specify procedures for director nominations by stockholders and submission of other proposals for consideration at stockholder meetings. In addition, the Company is subject to certain provisions of Delaware law, including Section 203, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years unless certain conditions are met. The possible 18 20 issuance of Preferred Stock, the elimination of the right of stockholders to act by written consent without a meeting, the procedures required for director nominations and stockholder proposals and Delaware law could have the effect of delaying, deferring or preventing a change in control of the Company, including without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block of the Company's Common Stock. These provisions could also limit the price that investors might be willing to pay in the future for shares of the Company's Common Stock. See "Description of Capital Stock -- Preferred Stock" and "-- Certain Charter and Bylaw Provisions and Delaware Law." DILUTION; ABSENCE OF DIVIDENDS The initial public offering price will be substantially higher than the book value per share of Common Stock. Assuming an initial public offering price of $11.00 per share, investors purchasing shares of Common Stock in this offering will incur immediate, substantial dilution of $7.62 per share in the net tangible book value of Common Stock. Additional dilution will occur upon the exercise of outstanding options and warrants. See "Dilution." The Company has never declared or paid any cash dividends and does not anticipate paying cash dividends in the foreseeable future. See "Dividend Policy." 19 21 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this Prospectus including without limitation, statements containing the words "believes," "anticipates," "expects" and words of similar import, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). The safe harbor provided for forward-looking statements by the Reform Act does not apply to statements made in connection with an initial public offering. However, such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others: uncertainty associated with XenoMouse technology; early stage of development; history of losses and uncertainty of future profitability; no assurance of successful product development; dependence on collaborative arrangements; uncertainties related to clinical trials; uncertainty of patent position and dependence on proprietary rights; intense competition and rapid technological change; significant government regulations and no assurance of regulatory approvals; no assurance of market acceptance; limited manufacturing experience; and other factors referenced in this Prospectus. Certain of these factors are discussed in more detail elsewhere in this Prospectus, including, without limitation, under the captions "Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. 20 22 USE OF PROCEEDS The net proceeds to the Company from the sale of the 3,000,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $11.00 are estimated to be $29,940,000 ($34,543,500 if the Underwriters' over-allotment option is exercised in full) after deducting estimated underwriting discounts and commissions and offering expenses payable by the Company. Over the next 12 months, the Company intends to use approximately $15.0 million of the net proceeds of this offering for research and development, including the performance of preclinical and clinical trials, and approximately $3.75 million for the final cross-license and settlement payment reflected as a short-term payable to related party on the Company's balance sheet as of March 31, 1998. The balance of the net proceeds will be used for working capital and for other general corporate purposes over such 12 month period and thereafter. The Company may also use a portion of the net proceeds to acquire or invest in businesses, products or technologies that are complementary to those of the Company. The amounts actually expended for each purpose and the timing of such expenditures may vary significantly depending upon numerous factors, including the results of clinical trials and preclinical testing, the achievement of milestones under collaborative arrangements, the ability of the Company to maintain existing and establish additional collaborative arrangements, the timing and outcome of regulatory actions regarding the Company's potential products, the costs and timing of expansion of marketing, sales and manufacturing activities, the costs involved in preparing, filing, protecting, maintaining and enforcing patent claims and other intellectual property rights and competing technological and market developments. Pending the foregoing uses, the Company intends to invest the net proceeds of this offering in short-term, interest-bearing, investment grade securities. DIVIDEND POLICY The Company has never declared or paid cash dividends on its capital stock. The Company currently expects to retain its future earnings, if any, for use in the operation and expansion of its business and does not anticipate paying any cash dividends in the foreseeable future. The Company's loan and security agreement prohibits the payment of dividends without the consent of the lender. THE COMPANY The Company was incorporated on June 24, 1996 and subsequently on July 15, 1996 was organized pursuant to a Stock Purchase and Transfer Agreement between the Company and Cell Genesys. The business and operations of Abgenix were started in 1989 by Cell Genesys and prior to the organization of Abgenix were conducted within Cell Genesys. In 1991, Cell Genesys and JT Immunotech USA, Inc., the predecessor company to JT America, Inc. ("JT America") and a medical subsidiary of Japan Tobacco, formed Xenotech, an equally owned joint venture, to develop genetically modified strains of mice which can produce fully human monoclonal antibodies (the "XenoMouse") and to commercialize products generated from these mice. Upon the organization of Abgenix, Cell Genesys assigned substantially all of its rights in Xenotech to Abgenix. 21 23 CAPITALIZATION The following table sets forth, as of March 31, 1998, (i) the actual capitalization of the Company, (ii) the actual capitalization of the Company on a pro forma basis to give effect to the conversion of all outstanding Preferred Stock into Common Stock and the authorization of 5,000,000 shares of undesignated Preferred Stock upon the closing of this offering, and (iii) the pro forma capitalization as adjusted to give effect to the sale of the 3,000,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $11.00 per share and the application of the estimated net proceeds therefrom after deducting estimated underwriting discounts and commissions and offering expenses payable by the Company. The capitalization information set forth below should be read in conjunction with the Company's Financial Statements and Notes thereto included elsewhere in this Prospectus.
MARCH 31, 1998 ------------------------------------------- PRO FORMA AS ACTUAL PRO FORMA ADJUSTED ------------ ------------ ------------ (IN THOUSANDS) Short-term payable to related party........... $ 3,750 $ 3,750 $ -- ============ ============ ============ Long-term debt, less current portion.......... $ 3,559 $ 3,559 $ 3,559 Redeemable convertible preferred stock, $0.0001 par value; 20,000,000 shares authorized, 7,844,352 issued and outstanding actual; none authorized, issued and outstanding pro forma and pro forma as adjusted.................................... 35,125 -- -- Stockholders' equity (net capital deficiency): Preferred stock, $0.0001 par value; none authorized, issued and outstanding actual; 5,000,000 shares authorized, none issued and outstanding pro forma and pro forma as adjusted.................................... -- -- -- Common stock, $0.0001 par value; 50,000,000 shares authorized, 293,160 shares issued and outstanding actual; 8,137,512 shares issued and outstanding pro forma; 11,137,512 shares issued and outstanding pro forma as adjusted(1)................................. 397 35,522 65,462 Contributions from parent..................... 29,277 29,277 29,277 Additional paid-in capital.................... 2,296 2,296 2,296 Deferred compensation......................... (1,619) (1,619) (1,619) Accumulated deficit........................... (57,819) (57,819) (57,819) ------------ ------------ ------------ Total stockholders' equity (net capital deficiency).............................. (27,468) 7,657 37,597 ------------ ------------ ------------ Total capitalization................ $ 11,216 $ 11,216 $ 41,156 ============ ============ ============
- --------------- (1) Excludes (i) 1,702,904 shares of Common Stock issuable upon exercise of options outstanding as of March 31, 1998, with a weighted average exercise price of $1.98 per share, (ii) 121,667 shares of Preferred Stock issuable upon exercise of warrants outstanding as of March 31, 1998, with an exercise price of $6.00 per share, (iii) 25,000 shares of Common Stock issuable pursuant to the terms of a license agreement and (iv) an aggregate of 1,395,186 shares of Common Stock reserved for future issuance under the Company's 1996 Incentive Stock Plan, 1998 Employee Stock Purchase Plan and 1998 Director Option Plan. See "Management -- Stock Plans," "Description of Capital Stock" and Note 7 of Notes to the Company's Financial Statements. 22 24 DILUTION The net tangible book value of the Company as of March 31, 1998, was $7,657,000 or $0.94 per share of Common Stock. "Net tangible book value" per share represents the amount of total tangible assets less total liabilities, divided by the number of shares of Common Stock outstanding (assuming the conversion of all then outstanding Preferred Stock into Common Stock). After giving effect to the receipt of the net proceeds from the sale of the 3,000,000 shares of Common Stock offered by the Company hereby (after deducting estimated underwriting discounts and commissions and offering expenses payable by the Company) at an assumed initial public offering price of $11.00 per share, the Company's net tangible book value as of March 31, 1998 would have been $37,597,000 or $3.38 per share of Common Stock. This represents an immediate increase in net tangible book value of $2.44 per share to existing stockholders and an immediate dilution of $7.62 per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price....................... $11.00 Net tangible book value as of March 31, 1998.............. $0.94 Increase in net tangible book value attributable to new investors.............................................. 2.44 ----- Net tangible book value after offering...................... 3.38 ------ Dilution to new investors................................... $ 7.62 ======
The following table sets forth the total consideration paid and the average price per share paid by the existing stockholders and by new investors, before deducting estimated underwriting discounts and commissions and offering expenses payable by the Company at the assumed initial public offering price of $11.00 per share.
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE --------------------- ---------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ----------- ------- --------- Existing stockholders........... 8,137,512 73.1% $37,061,382 52.9% $ 4.55 New investors................... 3,000,000 26.9 33,000,000 47.1 11.00 ---------- ----- ----------- ----- Total...................... 11,137,512 100.0% $70,061,382 100.0% ========== ===== =========== =====
The foregoing computations assume no exercise of stock options or warrants after March 31, 1998. As of March 31, 1998, there were outstanding options to purchase 1,702,904 shares of Common Stock, with a weighted average exercise price of $1.98 per share, outstanding warrants to purchase 121,667 shares of Preferred Stock, with an exercise price of $6.00 per share, and 25,000 shares of Common Stock issuable pursuant to the terms of a license agreement. In addition, 1,395,186 shares of Common Stock are reserved for future issuance under the Company's 1996 Incentive Stock Plan, 1998 Employee Stock Purchase Plan and 1998 Director Option Plan. To the extent that any shares available for issuance upon exercise of outstanding options or warrants, or reserved for future issuance under the terms of a license agreement or pursuant to the Company's stock plans are issued, there will be further dilution to new public investors. See "Management -- Stock Plans" and "Description of Capital Stock." 23 25 SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with the Company's Financial Statements and the Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. The statement of operations data for the years ended December 31, 1995, 1996 and 1997 and the balance sheet data as of December 31, 1996 and 1997 are derived from the Company's Financial Statements that have been audited by Ernst & Young LLP, independent auditors, and are included elsewhere in this Prospectus. The statement of operations data for the years ended December 31, 1993 and 1994 are derived from the Company's Financial Statements audited by Ernst & Young LLP that are not included herein. The statement of operations data for the three months ended March 31, 1997 and 1998 and the balance sheet data as of March 31, 1998 are derived from the Company's unaudited financial statements also included elsewhere in this Prospectus which have been prepared on the same basis as the audited Financial Statements and in the opinion of management include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial position and results of operations of the Company for the unaudited interim periods. The statement of operations data for the interim periods are not necessarily indicative of results that may be expected for any other interim period or for the year as a whole.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ----------------------------------------------- ------------------- 1993 1994 1995 1996 1997 1997 1998 ------ ------- ------- ------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA(1): Revenues: Revenue under collaborative agreements from related parties................................ $6,600 $ 6,200 $ 6,200 $ 4,719 $ 1,343 $ 335 $ 291 Contract revenue................................. -- -- -- -- 611 -- 600 ------ ------- ------- ------- -------- -------- -------- Total revenues(1)......................... 6,600 6,200 6,200 4,719 1,954 335 891 Operating expenses: Research and development......................... 4,629 7,921 11,879 9,433 11,405 2,078 5,366 General and administrative....................... 1,019 1,955 2,603 2,565 3,525 1,004 918 Charge for cross-license and settlement -- amount allocated from Cell Genesys(2)................. -- -- -- -- 11,250 11,250 -- Equity in losses from the Xenotech joint venture (charge for cross-license and settlement)(2)... -- -- -- -- 11,250 3,750 -- ------ ------- ------- ------- -------- -------- -------- Total operating expenses.................. 5,648 9,876 14,482 11,998 37,430 18,082 6,284 ------ ------- ------- ------- -------- -------- -------- Operating income (loss)............................ 952 (3,676) (8,282) (7,279) (35,476) (17,747) (5,393) Interest income (expense), net..................... -- -- -- 179 (404) 47 48 ------ ------- ------- ------- -------- -------- -------- Net income (loss).................................. $ 952 $(3,676) $(8,282) $(7,100) $(35,880) $(17,700) $ (5,345) ====== ======= ======= ======= ======== ======== ======== Pro forma net loss per share(3).................... $ (9.22) $ (0.67) ======== ======== Shares used in computing pro forma net loss per share(3)......................................... 3,894 7,953
DECEMBER 31, ------------------- MARCH 31, 1996 1997 1998 -------- -------- --------- (IN THOUSANDS) BALANCE SHEET DATA: Cash, cash equivalents and short-term investments........... $ 10,172 $ 15,321 $ 13,340 Working capital............................................. 5,564 6,637 5,145 Total assets................................................ 14,357 22,084 20,197 Long-term debt, less current portion........................ 1,757 3,979 3,559 Redeemable convertible preferred stock...................... 10,150 31,189 35,125 Accumulated deficit......................................... (16,594) (52,474) (57,819) Total stockholders' equity (net capital deficiency)......... (2,316) (22,318) (27,468)
- --------------- (1) The statement of operations of the Company include the revenues and expenses of Abgenix as a business unit within Cell Genesys prior to July 15, 1996. During the years ended December 31, 1993, 1994, 1995 and 1996, the Company's revenues were derived principally from Xenotech for the development of XenoMouse technology, which was essentially completed in 1996. (2) In 1997, the Company incurred a non-recurring charge for cross-license and settlement of $22.5 million, $15.0 million of which was a noncash allocation. The Company recorded the initial settlement amount of $15.0 million in March 1997. The remaining $7.5 million was recorded in December 1997. See Note 6 of Notes to the Company's Financial Statements. (3) See Note 1 of Notes to the Company's Financial Statements for an explanation of shares used in computing pro forma net loss per share. 24 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements based upon current expectations that involve risks and uncertainties. The Company's actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" and elsewhere in this Prospectus. BASIS OF FINANCIAL STATEMENT PRESENTATION The business and operations of Abgenix commenced in 1989 and were initially conducted within Cell Genesys. On June 24, 1996, Abgenix was incorporated and subsequently on July 15, 1996 was organized pursuant to a Stock Purchase and Transfer Agreement between the Company and Cell Genesys. The agreement set forth the terms and conditions for the transfer of the antibody business unit within Cell Genesys to Abgenix. The accompanying financial statements include the operations of Abgenix since July 15, 1996, and the revenues and expenses of the Abgenix business unit within Cell Genesys prior to July 15, 1996. The statements of cash flows do not reflect the carve out balances before July 15, 1996, as such information would not be meaningful. Prior to July 15, 1996, specifically identified revenues and expenses such as research and development attributable to the antibody business unit were allocated to Abgenix from Cell Genesys. General and administrative expenses were allocated based on Abgenix research and development expense as a percentage of Cell Genesys' total research and development expenses. From July 16, 1996 to July 31, 1997, Cell Genesys performed certain general and administrative functions on behalf of Abgenix. OVERVIEW Abgenix develops and intends to commercialize antibody therapeutic products for the prevention and treatment of a variety of disease conditions, including transplant-related diseases, inflammatory and autoimmune disorders, and cancer. The Company has developed XenoMouse technology, a proprietary technology which it believes enables it to quickly generate high affinity, fully human antibody product candidates to essentially any disease target appropriate for antibody therapy. Abgenix intends to use its XenoMouse technology to build and commercialize a large and diversified product portfolio through the establishment of corporate collaborations and internal product development programs. The Company has recently established collaborative arrangements with Pfizer, Schering-Plough and Genentech. In addition, the Company has four proprietary antibody product candidates that are under development internally, two of which are in human clinical trials. In certain instances, the Company intends to commercialize select products on its own in niche markets such as GVHD. In 1991, Cell Genesys and JT America formed Xenotech, an equally owned joint venture, to develop genetically modified strains of mice which can produce human monoclonal antibodies and to commercialize products generated from these mice. Upon the organization of Abgenix, Cell Genesys assigned its rights in Xenotech to Abgenix. Xenotech funds its research and development activities through capital contributions from the Company and JT America and the Company is obligated to fund 50% of all Xenotech expenses. Pursuant to contractual arrangements, the Company performs research for the joint venture and receives payments for such research. The Company accounts for its investment in Xenotech under the equity method of accounting. The Company expects that substantially all of its revenues for the foreseeable future will result from payments under collaborative arrangements, including fees upon signing, reimbursement for research and development and milestone payments. The Company has established collaborative arrangements with Pfizer, Schering-Plough and Genentech. Pursuant to the Company's research collaboration with Pfizer, Pfizer may make additional payments to the Company upon completion of certain research milestones. Pfizer has an option to expand the research collaboration to include up to 25 27 two additional antigen targets. If Pfizer chooses to exercise its option, the Company could receive potential license fees and milestone payments of up to approximately $8.0 million per antigen target upon the completion of certain milestones. Additionally, if a product receives marketing approval from the FDA or an equivalent foreign agency, the Company is entitled to receive royalties on future product sales by Pfizer. Pursuant to the Company's research collaboration with Schering-Plough, Schering-Plough will be obligated to make additional payments to the Company upon completion of the research. In addition, the agreement provides Schering-Plough with an option, for a limited time, to enter into a research, option and license agreement. If the option is exercised, the research, option and license agreement may provide the Company with up to approximately $8.0 million in additional research fees and milestone payments upon the completion of certain milestones. Additionally, if a product receives marketing approval from the FDA or an equivalent foreign agency, the Company is entitled to receive royalties on future product sales by Schering-Plough. Pursuant to the Company's research collaboration with Genentech, Genentech is obligated to make payments to the Company for performance of research activities. In addition, the agreement provides Genentech with an option, for a limited time, to enter into a product license agreement. If the option is exercised, the product license agreement specifies license fees and milestone payments to be made upon completion of certain milestones. Additionally, if a product receives marketing approval from the FDA or an equivalent foreign agency, the Company is entitled to receive royalties on future product sales by Genentech. Payments under these collaborative arrangements will be subject to significant fluctuation in both timing and amount and therefore the Company's revenues and results of operations for any period may not be comparable to the revenues or results of operations for any other period. To date, all of the Company's revenues have resulted primarily from research and development funding and milestone payments and may not be indicative of the Company's future performance or of the ability of the Company to continue to achieve such milestones. Since inception, the Company has funded its research and development activities primarily through contributions from Cell Genesys, revenues from collaborative arrangements, private placements of preferred stock and equipment leaseline financings and loan facilities. The Company has incurred operating losses in each of the last three years of operation, including net losses of approximately $8.3 million, $7.1 million, $35.9 million and $5.3 million in 1995, 1996, 1997 and the three months ended March 31, 1998, respectively, and as of March 31, 1998, had an accumulated deficit of approximately $57.8 million. The Company's losses have resulted principally from costs incurred in performing research and development to develop its XenoMouse technology and subsequent antibody product candidates, from the non-recurring cross-license and settlement charge and from general and administrative costs associated with the Company's operations. The Company expects to incur additional operating losses until at least the year 2000 as a result of increases in its expenditures for research and product development, including costs associated with conducting preclinical testing and clinical trials. The Company expects the amount of such losses will fluctuate significantly from quarter to quarter as a result of increases or decreases in the Company's research and development efforts, the execution or termination of collaborative arrangements, or the initiation, success or failure of clinical trials. In 1994, Cell Genesys and GenPharm and, beginning in 1996, Abgenix became involved in litigation primarily related to intellectual property rights associated with a method for inactivating a mouse's antibody genes and technology pertaining to transgenic mice capable of producing human antibodies. On March 27, 1997, Cell Genesys announced, along with Abgenix, Xenotech and Japan Tobacco, that it had signed a comprehensive patent cross-license and settlement agreement with GenPharm that resolved all related litigation and claims between the parties. Under the cross-license and settlement agreement, the Company has licensed on a non-exclusive basis certain patents, patent applications, third party licenses and inventions pertaining to the development and use of certain transgenic rodents including mice that produce fully human antibodies. As initial consideration for the cross-license and settlement agreement, Cell Genesys issued a note to GenPharm due September 30, 1998 for $15.0 million payable by Cell Genesys and convertible into shares of Cell Genesys common stock, currently at $8.62 per share. The note bears interest at a rate of 7% per annum. Of this note, 26 28 approximately $3.8 million satisfied certain of Xenotech's obligations under the agreement. Japan Tobacco also made an initial payment. During 1997, two patent milestones were achieved and Xenotech was obligated to pay $7.5 million for each milestone. Xenotech paid $7.5 million to satisfy the first milestone and has recorded a payable to GenPharm for the remaining $7.5 million. The Company has recorded a liability of approximately $3.8 million in its balance sheet representing its share of the Xenotech obligation. The payable is due on or before November 1998. No additional payments will accrue under this agreement. The Company has recognized, as a non-recurring charge for cross-license and settlement, a total of $22.5 million. See Note 6 of Notes to the Company's Financial Statements. The Company does not have any future financial obligations under the cross-license and settlement agreement. In connection with the grant of stock options since the Company's organization on July 15, 1996, the Company has recorded aggregate deferred compensation of approximately $2.3 million through March 31, 1998, representing the difference between the deemed fair value of the Common Stock for accounting purposes and the option exercise price at the date of grant. These amounts are presented as a reduction of stockholders' equity and are amortized ratably over the vesting period of the applicable options, generally four years. These valuations resulted in charges to operations of $528,000 and $149,000 in 1997 and the three months ended March 31, 1998, respectively. RESULTS OF OPERATIONS Three Months Ended March 31, 1997 and 1998 Revenue under collaborative agreements from related parties consists of revenue derived principally from performing research for Xenotech. See "Years Ended December 31, 1995, 1996 and 1997." Revenues from Xenotech decreased from $335,000 in the three months ended March 31, 1997 to $291,000 in the three months ended March 31, 1998. Contract revenue of $600,000 in the three months ended March 31, 1998 consisted of a nonrefundable signing fee paid in connection with the execution in January 1998 of a collaboration agreement and the achievement of a research milestone under an existing collaboration agreement. Research and development expenses consist primarily of compensation and other expenses related to research and development personnel, costs associated with preclinical testing and planned clinical trials of the Company's product candidates and facilities expenses. Research and development expenses increased from $2.1 million in the three months ended March 31, 1997 to $5.4 million in the three months ended March 31, 1998. The increase in research and development expenses reflected increased expenses primarily for the manufacture of antibody products in connection with the preparation for and the initiation of clinical trials of ABX-CBL and ABX-IL8. General and administrative expenses include compensation and other expenses related to finance and administrative personnel, professional services expenses and facilities expenses. General and administrative expenses decreased slightly from $1.0 million in the three months ended March 31, 1997 to $918,000 in the three months ended March 31, 1998. The slight decrease in general and administrative expenses reflected the nonrecurrence in the three months ended March 31, 1998 of expenses incurred in connection with the Company's relocation to its new facilities in the three months ended March 31, 1997. The aggregate nonrecurring charge for cross-license and settlement of $15.0 million in the three months ended March 31, 1997 relates to the initial payment under the comprehensive patent cross-license and settlement agreement. The Company recorded the initial settlement amount of $15.0 million in March 1997. The remaining $7.5 million was recorded in December 1997. See "Overview" and Note 6 of Notes to the Company's Financial Statements. Other income and expenses consist of interest income from cash, cash equivalents and short term investments and interest expense incurred in connection with equipment lease line financing and loan facilities maintained by the Company. 27 29 Years Ended December 31, 1995, 1996 and 1997 During 1995, 1996 and 1997, the Company derived revenues principally from performing research for Xenotech. Revenues from the joint venture are recognized when earned, net of the Company's cash contributions to Xenotech, under the terms of the related agreements. Research and development funding received in advance under these agreements is recorded as deferred revenue. Revenues from the achievement of milestone events are recognized when the milestones have been achieved. Revenues from Xenotech decreased from $6.2 million in 1995 to $4.7 million in 1996 and to $1.3 million in 1997. Revenues from Xenotech decreased because Xenotech's research related to developing the genetically modified mice was essentially completed during 1996. In addition, until July 1995, the Company did not make capital contributions to the joint venture and, therefore, recorded all proceeds received from Xenotech as revenue. Revenues in 1997 from Xenotech research represent a reduced on-going research effort. Contract revenues of $611,000 in 1997 consisted principally of a nonrefundable signing fee paid in connection with the execution in December 1997 of a collaboration agreement. Research and development expenses decreased from $11.9 million in 1995 to $9.4 million in 1996 and increased to $11.4 million in 1997. The decrease from 1995 to 1996 reflected a decrease of $3.75 million in research activities related to developing the genetically modified mice for Xenotech, partially offset by an increase of $1.25 million in costs associated with preclinical development and testing of the Company's product candidates. The increase in research and development expenses from 1996 to 1997 reflected increased expenses in connection with preparation for the initiation of clinical trials of ABX-CBL and ABX-IL8. Most of the 1997 increase resulted from increased payroll and other personnel expenses, related laboratory supplies, equipment and facilities expansion. The Company anticipates that research and development expenses will increase in future periods as it expands research and development efforts and clinical trials. General and administrative expenses remained relatively unchanged at $2.6 million from 1995 to 1996 and increased to $3.5 million in 1997. The increase in 1997 was primarily attributable to increased personnel levels associated with the expansion of the Company's operations, increased professional services expenses associated with negotiation of the Company's collaborative arrangements and increased costs associated with moving to the Company's current facilities. The Company anticipates that general and administrative expenses will increase in the future as additional personnel are added to support its operations. The aggregate non-recurring charge for cross-license and settlement of $22.5 million in 1997 resulted from the execution of the comprehensive patent cross-license and settlement agreement with GenPharm. See "Overview" and Note 6 of Notes to the Company's Financial Statements. Other income and expenses consist of interest income from cash, cash equivalents and short-term investments and interest expense incurred in connection with equipment leaseline financing and loan facilities maintained by the Company. LIQUIDITY AND CAPITAL RESOURCES Since formation, the Company has financed its operations primarily through capital contributions by, and borrowings from Cell Genesys, revenue from collaborative arrangements, private placements of Preferred Stock and equipment leaseline financings and loan facilities. Through March 31, 1998, the Company has received net cash of $55.7 million from financing activities, consisting principally of approximately $14.3 million from contributions by Cell Genesys, $31.1 million from private placements of Preferred Stock, $4.3 million from construction financing, $2.0 million in lease financing and $4.0 million borrowed from Cell Genesys and converted to Preferred Stock. Cell Genesys is not obligated to provide any future funding to the Company. The Company's net cash used in operating activities was $2.2 million, $10.2 million and $5.4 million in 1996 and 1997 and for the three months ended March 31, 1998, respectively. The cash used for 28 30 operations was primarily to fund research and development expenses and manufacturing costs related to the development of new products. As of March 31, 1998, the Company had cash, cash equivalents and short-term investments of $13.3 million. The Company has an agreement with a financing company under which the Company may finance purchases of up to $3.0 million of its laboratory and office equipment. The lease term is 48 months and bears interest at rates ranging from 12.5% to 13.0%, which are based on the change in the five year U.S. Treasury rate. As of March 31, 1998, the Company had $1.0 million available under the equipment lease. The Company also has a construction financing line with a bank in the amount of $4.3 million that was used to finance construction of leasehold improvements at its current facility. The line matures in January 2001, bears interest at a rate of prime plus one percent (9.5% at December 31, 1997) and, until the closing of a public offering by the Company raising net proceeds of at least $20.0 million, is, with certain exceptions, guaranteed by Cell Genesys. As of March 31, 1998, no further borrowings were available under the construction financing line. Over the next 12 months, the Company intends to use approximately $15.0 million of the net proceeds of this offering for research and development, including the performance of preclinical and clinical trials, and approximately $3.75 million for the final cross-license and settlement payment reflected as a short-term payable to related party on the Company's balance sheet as of December 31, 1998. The balance of the net proceeds will be used for working capital and for other general corporate purposes over such 12 month period and thereafter. The amounts actually expended for each purpose and the timing of such expenditures may vary significantly depending upon numerous factors, including the results of clinical trials and preclinical testing, the achievement of milestones under collaborative arrangements, the ability of the Company to maintain existing and establish additional collaborative arrangements, the timing and outcome of regulatory actions regarding the Company's potential products, the costs and timing of expansion of marketing, sales and manufacturing activities, the costs involved in preparing, filing, protecting, maintaining and enforcing patent claims and other intellectual property rights and competing technological and market developments. Pending the foregoing uses, the Company intends to invest the net proceeds of this offering in short-term, interest-bearing, investment grade securities. The Company plans to continue to expend substantial resources for the expansion of research and development, including costs associated with conducting preclinical testing and clinical trials. The Company may be required to expend greater-than-anticipated funds if unforeseen difficulties arise in the course of completing required additional development of product candidates, performing preclinical testing and clinical trials of such product candidates, obtaining necessary regulatory approvals or other aspects of the Company's business. The Company's future liquidity and capital requirements will depend on many factors, including continued scientific progress in its research and development programs, the size and complexity of these programs, the scope and results of preclinical testing and clinical trials, the time and expense involved in obtaining regulatory approvals, if any, competing technological and market developments, the establishment of further collaborative arrangements, if any, the time and expense of filing and prosecuting patent applications and enforcing patent claims, the cost of establishing manufacturing capabilities, conducting commercialization activities and arrangements, product in-licensing and other factors not within the Company's control. Although the Company believes that the proceeds from this offering, together with the Company's current cash balances, cash equivalents, short-term investments and cash generated from collaborative arrangements will be sufficient to meet the Company's operating and capital requirements for at least the next two years, there can be no assurance that the Company will not require additional financing within this timeframe. The Company may be required to raise additional funds through public or private financing, collaborative relationships or other arrangements. There can be no assurance that such additional funding, if needed, will be available on terms attractive to the Company, if at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. Collaborative arrangements, if necessary to raise additional funds, may require the Company to relinquish its rights to certain of its technologies, products 29 31 or marketing territories. The failure of the Company to raise capital when needed could have a material adverse effect on the Company's business, financial condition and results of operations. As of December 31, 1997, the Company had federal net operating loss carryforwards of approximately $15.4 million. The Company's net operating loss carryforwards exclude losses incurred prior to the organization of Abgenix in July 1996. Further, the amounts associated with the cross-license and settlement have been expensed for financial statement accounting purposes and have been capitalized and amortized over a period of approximately fifteen years for tax purposes. The net operating loss and credit carryforwards will expire in the years 2011 through 2012, if not utilized. Utilization of the net operating losses and credits may be subject to a substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. RECENT ACCOUNTING PRONOUNCEMENT In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), and Statement of Financial Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS 131"), which require additional disclosures to be adopted beginning in the first quarter of 1998 and on December 31, 1998, respectively. Under SFAS 130, the Company is required to display comprehensive income and its components as part of the Company's financial statements. SFAS 131 requires that the Company report financial and descriptive information about its reportable operating segments. The adoption of SFAS 130 and SFAS 131 will not have a material effect on the Company's results of operations or financial condition. The Company is evaluating the impact, if any, of SFAS 130 and SFAS 131 on its future financial statement disclosures. YEAR 2000 The Company relies on computers and computer software in the operation of its business as do its vendors, suppliers and customers. These computers and computer software may not be able to properly recognize the dates commencing in the year 2000. To date, the Company has not found any material impact which may result from the failure of its computers and computer software or that of its vendors, suppliers and customers. The Company believes that its business, financial condition and results of operations will not be materially impacted by the year 2000 date recognition issue. However, the Company plans to further assess this issue during 1998 and, if appropriate, develop an action plan to correct it. 30 32 BUSINESS The following Business section contains certain forward-looking statements which involve risks and uncertainties. Actual results and the timing of certain events could differ materially from those projected in these forward-looking statements due to a number of factors, including those set forth under "Risk Factors" and elsewhere in this Prospectus. OVERVIEW Abgenix, a biopharmaceutical company, develops and intends to commercialize antibody therapeutic products for the prevention and treatment of a variety of disease conditions, including transplant-related diseases, inflammatory and autoimmune disorders, and cancer. The Company has developed XenoMouse technology which it believes enables it to quickly generate high affinity, fully human antibody product candidates to essentially any disease target appropriate for antibody therapy. Abgenix intends to use its XenoMouse technology to build a large and diversified product portfolio through the establishment of a number of corporate collaborations and internal product development. The Company has recently established collaborative arrangements with Pfizer, Schering-Plough and Genentech in order to generate antibody product candidates in the fields of cancer, inflammation and growth factor modulation, respectively. The Company has four antibody product candidates that are under development internally. Its lead product candidate, ABX-CBL, is an in-licensed antibody in a multi-center confirmatory Phase II clinical trial for GVHD. In addition, the Company has initiated a Phase I clinical trial for ABX-IL8 in psoriasis. Abgenix is in preclinical development with two other fully human antibody product candidates, ABX-EGF and ABX-RB2, for use in the treatment and prevention of cancer and chronic immunological disorders, respectively. BACKGROUND The Normal Antibody Response The human immune system protects the body against a variety of infections and other illnesses. Specialized cells, which include B cells and T cells, work in concert with the other components of the immune system to recognize, neutralize and eliminate from the body numerous foreign substances, infectious organisms and malignant cells. In particular, B cells generally produce protein molecules, known as antibodies, which are capable of recognizing substances potentially harmful to the human body. Such substances are called antigens. Upon being bound by an antibody, antigens can be neutralized and blocked from interacting with and causing damage to normal cells. In order to effectively neutralize or eliminate an antigen without harming normal cells, the immune system must be able to generate antibodies that bind tightly (i.e., with high affinity) to one specific antigen (i.e., with specificity). All antibodies have a common core structure composed of four subunits, two identical light (L) chains and two identical heavy (H) chains, named according to their relative size. The heavy and light chains are assembled within the B cell to form an antibody molecule which consists of a constant region and a variable region. As shown in figure one, an antibody molecule may be represented schematically in the form of a "Y" structure. 31 33 [FIGURE ONE] The base of the "Y", together with the part of each arm immediately next to the base, is called the constant region because its structure tends to be very similar across all antibodies. In contrast, the variable regions are at the end of the two arms and are unique to each antibody with respect to their three dimensional structures and protein sequences. Because variable regions define the specific binding sites for a variety of antigens, there is a need for significant structural diversity in this portion of the antibody molecule. Such diversity is achieved in the body primarily through a unique mode of assembly involving a complex series of recombination steps for various gene segments of the variable region, including the V, D and J segments (see figure two shown below). [FIGURE TWO] The human body is repeatedly exposed to a variety of different antigens. Accordingly, the immune system must be able to generate a diverse repertoire of antibodies that are capable of recognizing these multiple antigen structures with a high degree of specificity. The immune system has evolved a two-step mechanism in order to accomplish this objective. The first step, immune surveillance, is achieved through the generation of diverse circulating B cells, each of which assembles different antibody gene segments in a semi-random fashion to produce and display on its surface a specific antibody. As a result, a large number of distinct, albeit lower affinity, antibodies are generated in the circulation so as to recognize essentially any foreign antigen that enters the body. While capable of recognizing the antigens as foreign, these lower affinity antibodies are generally incapable of effectively neutralizing them. 32 34 This limitation of the immune surveillance process is generally overcome by the normal immune system in a second step called affinity maturation. Triggered by the initial binding to a specific antigen, the small fraction of B cells that recognize this antigen is then primed by the immune system to progressively generate antibodies with higher and higher affinity through a process of repeated mutation and selection. As a result, the reactive antibodies develop increasingly higher specificity and affinity with the latter being potentially a hundred to a thousand times higher than those generated in the previous immune surveillance process. These more specific, higher affinity antibodies have a greater likelihood of effectively neutralizing or eliminating the antigen while minimizing the potential of damaging healthy cells. Antibodies as Products Recent advances in the technologies for creating and producing antibody products coupled with a better understanding of how antibodies and the immune system function in key disease states have led to renewed interest in the commercial development of antibodies as therapeutic products. According to a recent survey by the Pharmaceutical Research and Manufacturers of America, antibodies account for over 25% of all biopharmaceutical products in clinical development. The Company estimates that there are up to nine antibody therapeutic product candidates that are in or have completed Phase III clinical trials in the United States. In addition, four products, namely, Orthoclone, ReoPro, Rituxan and Zenapax, are currently being marketed for the treatment of transplant rejection, cardiovascular disease and cancer. The Company believes that as products, antibodies have several potential clinical and commercial advantages over traditional therapies. These include: - accelerating product development timelines; - reducing unwanted side effects as a result of high specificity for the disease target; - achieving greater patient compliance and higher efficacy as a result of favorable pharmacokinetics; - delivering various payloads, including drugs, radiation and toxins, to specific disease sites; and - eliciting a desired immune response. Limitations of Current Approaches to Development of Antibody Products Despite the early recognition of antibodies as promising therapeutic agents, most approaches thus far to develop them as products have been met with a number of commercial and technical limitations. Initial efforts were aimed at the development of hybridoma cells, which are immortalized mouse antibody-secreting B cells. Such hybridoma cells are derived from normal mouse B cells which have been genetically manipulated so that they are capable of reproducing over an indefinite period of time. They are then cloned to produce a homogeneous population of identical cells which produce one single type of mouse antibody capable of recognizing one specific antigen ("monoclonal antibody"). While mouse monoclonal antibodies can be generated to bind to a number of antigens, they contain mouse protein sequences and tend to be recognized as foreign by the human immune system. As a result, they are quickly eliminated by the human body and have to be administered frequently. When patients are repeatedly treated with mouse antibodies, they will begin to produce antibodies that effectively neutralize the mouse antibody, a reaction referred to as a Human Anti-Mouse Antibody ("HAMA") response. In many cases, the HAMA response prevents the mouse antibodies from having the desired therapeutic effect and may cause the patient to have an allergic reaction. The potential use of mouse antibodies is thus best suited to situations where the patient's immune system is compromised or where only short-term therapy is required. In such settings, the patient is often incapable of producing antibodies that neutralize the mouse antibodies or has insufficient time to do so. 33 35 Recognizing the limitations of mouse monoclonal antibodies, researchers have developed a number of approaches to make them appear more human-like to a patient's immune system. For example, improved forms of mouse antibodies, referred to as "chimeric" and "humanized" antibodies, are genetically engineered and assembled from portions of mouse and human antibody gene fragments. While such chimeric and humanized antibodies are more human-like, they still retain a varying amount of the mouse antibody protein sequence, and accordingly may continue to trigger the HAMA response. Additionally, the humanization process can be expensive and time consuming, requiring at least two months and sometimes over a year of secondary manipulation after the initial generation of the mouse antibody. Once the humanization process is complete, the remodeled antibody gene must then be expressed in a recombinant cell line appropriate for antibody manufacturing, adding additional time before the production of preclinical and clinical material can be initiated. Altogether it may take up to two years from the start of the humanization process to manufacture a sufficient amount of an appropriate antibody to initiate clinical trials. In addition, the combination of mouse and human antibody gene fragments can result in a final antibody product which is sufficiently different in structure from the original mouse antibody leading to a decrease in specificity or a loss of affinity. [FIGURE THREE] Human Antibodies The HAMA response can potentially be avoided through the generation of antibody products with fully human protein sequences. Such fully human antibodies may increase the market acceptance and expand the use of antibody therapeutics. Several antibody technologies have been developed to produce antibodies with 100% human protein sequences (see the figure three shown above). One approach to generating human antibodies, called phage display technology, involves the cloning of human antibody genes into bacteriophage, viruses that infect bacteria, in order to display antibody fragments on the surfaces of bacteriophage particles. This approach attempts to mimic in vitro the immune surveillance and affinity maturation processes that occur in the body. Because phage display technology cannot take advantage of the naturally occurring in vivo affinity maturation process, the antibody fragments initially isolated by this approach are typically of moderate affinity. In addition, further genetic engineering is required to convert the antibody fragments into fully assembled antibodies and significant manipulation, taking from several months to a year, may be required to increase their affinities to a level appropriate for human therapy. Before preclinical or clinical material can be produced, the gene encoding the antibody derived from phage display technology must, as with a humanized antibody, be introduced into a recombinant cell line. 34 36 Two additional approaches involving the isolation of human immune cells have been developed to generate human antibodies. One such approach is the utilization of immunodeficient mice which lack both B and T cells. Human B cells and other immune tissue are transplanted into these mice which are then subsequently immunized with target antigens to stimulate the production of human antibodies. However, this process is generally limited to generating antibodies only to nonhuman antigens or antigens to which the human B cell donor had previously responded. Accordingly, this approach may not be suitable for targeting many key diseases such as cancer, and inflammatory and autoimmune disorders where antibodies to human antigens may be required for appropriate therapy. The other approach involves collecting human B cells which have been producing desired antibodies from patients exposed to a specific virus or pathogen. As with the previous approach, this process may not be suitable for targeting diseases where antibodies to human antigens are required, and therefore is generally limited to infectious disease targets which will be recognized as foreign by the human immune system. THE ABGENIX SOLUTION -- XENOMOUSE TECHNOLOGY The Company's approach to generating human antibodies with fully human protein sequences is to use genetically engineered strains of mice in which mouse antibody gene expression is suppressed and functionally replaced with human antibody gene expression, while leaving intact the rest of the mouse immune system. Rather than engineering each antibody product candidate, these transgenic mice capitalize on the natural power of the mouse immune system in surveillance and affinity maturation to produce a broad repertoire of high affinity antibodies. By introducing human antibody genes into the mouse genome, transgenic mice with such traits can be bred indefinitely. Importantly, these transgenic mice are capable of generating human antibodies to human antigens because the only human products expressed in the mice (and therefore recognized as "self") are the antibodies themselves. Any other human tissue or protein is thus recognized as a foreign antigen by the mouse and an immune response will be mounted. Abnormal production of certain human proteins, such as cytokines and growth factors or their receptors have been implicated in various human diseases. Neutralization or elimination of these abnormally produced or regulated human proteins with the use of human antibodies could ameliorate or suppress the target disease. Therefore, the ability of these transgenic mice to generate human antibodies against human antigens could offer an advantage to drug developers compared with some of the other approaches described previously. A challenge with this approach, however, has been to introduce enough of the human antibody genes in appropriate configuration into the mouse genome to ensure that these mice are capable of recognizing the broad diversity of antigens relevant for human therapies. To make its transgenic mice a robust tool capable of consistently generating high affinity antibodies which can recognize a broad range of antigens, the Company equipped its XenoMouse with approximately 80% of the human heavy chain antibody genes and a significant amount of the human light chain genes. The Company believes that the complex assembly of these genes together with their semi-random pairing allows XenoMouse to recognize a diverse repertoire of antigen structures. XenoMouse technology further capitalizes on the natural in vivo affinity maturation process to generate high affinity, fully human antibodies. In addition, the Company has developed multiple strains of XenoMouse, each of which is capable of producing a different class of antibody to perform different therapeutic functions. The Company believes that its various XenoMouse strains will provide maximum flexibility for drug developers in generating antibodies of the specific type best suited for a given disease indication. XENOMOUSE TECHNOLOGY ADVANTAGES The Company believes that its XenoMouse technology offers the following advantages: Producing Antibodies With Fully Human Protein Sequences. The Company's XenoMouse technology, unlike chimeric and humanization technologies, allows the generation of antibodies with 100% human protein sequences. Antibodies created using XenoMouse technology are not expected to cause a HAMA response even when administered repeatedly to immunocompetent patients. For this reason, 35 37 antibodies produced using XenoMouse technology are expected to offer a better safety profile and to be eliminated less quickly from the human body, reducing the frequency of dosing. Generating a Diverse Antibody Response to Essentially Any Disease Target Appropriate for Antibody Therapy. Because a substantial majority of human antibody genes has been introduced into XenoMouse, the technology has the potential to generate high affinity antibodies that recognize more antigen structures than other transgenic technologies. In addition, through immune surveillance, XenoMouse technology is expected to be capable of generating antibodies to almost any medically relevant antigen, human or otherwise. For a given antigen target, having multiple antibodies to choose from could be important in selecting the optimal antibody product. Generating High Affinity Antibodies Which Do Not Require Further Engineering. XenoMouse technology uses the natural in vivo affinity maturation process to generate antibody product candidates usually in two to four months. These antibody product candidates may have affinities as much as a hundred to a thousand times higher than those seen in phage display. In contrast to antibodies generated using humanization and phage display technology, XenoMouse antibodies are produced in one step without the need for any subsequent engineering, a process which at times has proven to be challenging and time consuming. By avoiding the need to further engineer antibodies, the Company reduces the risk that an antibody's structure and therefore functionality will be altered between the initial antibody selected and the final antibody placed into production. Enabling More Efficient Product Development. In contrast to humanization or phage display, which require the cloning of an antibody gene and the generation of a recombinant cell line, the B cells generated in XenoMouse can be turned directly into hybridoma cell lines for human antibody production. Therefore, a supply of monoclonal antibodies can be produced quickly to allow the timely initiation of preclinical and clinical studies. Furthermore, since XenoMouse technology can potentially produce multiple product candidates more quickly than humanization and phage display technology, preclinical testing can be conducted on several antibodies in parallel to identify the one optimal product candidate which will be tested in clinical trials. Providing Flexibility in Choosing Manufacturing Processes. Once an antibody with the desired characteristics has been identified, preclinical material can be produced either directly from hybridomas or from recombinant cell lines. Humanized and phage display antibodies, having been engineered, cannot be produced in hybridomas. In addition to potential time savings, production in hybridomas avoids the need to license certain third party intellectual property rights covering the production of antibodies in recombinant cell lines. ABGENIX STRATEGY The Company's objective is to be a leader in the generation, development and commercialization of novel antibody-based biopharmaceutical products. Key elements of the Company's strategy include: Building a Large and Diversified Product Portfolio. Utilizing its XenoMouse technology, the Company intends to build a large and diversified product portfolio, including a mix of out-licensed and internally developed product candidates. This portfolio is expected to target serious medical conditions including: transplant-related disorders, inflammation, autoimmune and cardiovascular disease and cancer. Abgenix intends to collaborate with leading academic researchers and companies involved in the identification and development of novel antigens. The Company believes the speed and cost advantages of its technology will enable it to make cost-effective use of available human and capital resources. Abgenix can thus pursue multiple product candidates in parallel through the preclinical and early clinical stages before entering into a corporate collaboration. As a result, the Company believes it can create, for itself or for marketing to potential corporate partners, a package that includes antigen rights, human antibodies, and preclinical and clinical data. Establishing Multiple Corporate Collaborations. Abgenix intends to generate short and long term revenues by entering into multiple collaborations with pharmaceutical and biotechnology companies. 36 38 For any given product candidate, the terms of the collaboration arrangement are expected to reflect the value the Company adds to the drug development process. The Company intends to form two types of collaborations with corporate partners: technology collaborations and proprietary product collaborations. In the former, including the Company's existing collaborations with Pfizer, Schering-Plough, and Cell Genesys, Abgenix plans to use its XenoMouse technology to make human antibodies to certain antigen targets for each corporate partner. The terms of the Company's technology collaborations could include license fees and milestone payments plus royalties on future product sales. On the other hand, proprietary product collaborations would involve antibodies made to antigen targets sourced by the Company. Antibody candidates for proprietary product collaborations currently include: ABX-IL8, ABX-EGF and ABX-RB2. The terms of the Company's proprietary product collaborations could include license fees upon signing, milestone payments, potential reimbursement for research and development activities performed by the Company plus royalties on future product sales. The Company's mix of technology collaborations and proprietary product collaborations could result in a growing portfolio of product candidates for Abgenix with development and marketing costs borne by the partner, while allowing Abgenix to share in the revenues of successful products. Commercializing Products in Niche Markets. The Company intends to complete all stages of clinical development and commercialization for select products in niche markets. For example, the Company intends to develop and commercialize ABX-CBL on its own, at least in North America. ABX-CBL is an in-licensed monoclonal antibody in Phase II clinical trials for GVHD. Because of the seriousness of GVHD and the lack of alternative treatments, the clinical trials for ABX-CBL are expected to involve a small number of patients to be followed over a short time period. In addition, the GVHD market is largely concentrated in leading bone marrow transplant centers and should, therefore, be adequately addressed by a small direct sales force. Future antibody products with similar market characteristics will also be considered candidates for development and commercialization by the Company on its own. PRODUCT DEVELOPMENT PROGRAMS Abgenix is currently developing antibody therapeutics for a variety of indications. The table below sets forth the development status of the Company's product candidates. - --------------------------------------------------------------------------------
PRODUCT CANDIDATE INDICATION STATUS(1) ----------------------------------------------------------------------------------------------------------------------- ABX-CBL GVHD Phase II ----------------------------------------------------------------------------------------------------------------------- Organ Transplant Rejection Preclinical ABX-RB2 ------------------------------------------------------------------------------------ Autoimmune Disease Preclinical ----------------------------------------------------------------------------------------------------------------------- Psoriasis Phase I ABX-IL8 ------------------------------------------------------------------------------------ Other Inflammatory Diseases Preclinical ----------------------------------------------------------------------------------------------------------------------- ABX-EGF EGF Dependent Cancers Preclinical
- -------------------------------------------------------------------------------- - --------------- (1) "Phase II" indicates efficacy testing in a limited patient population. "Phase I" indicates safety and efficacy testing in a limited patient population and toxicology testing in animal models. "Preclinical" indicates that the product candidate selected for development has met predetermined criteria for potency, specificity, manufacturability and pharmacologic activity in animal and in vitro models. ABX-CBL and ABX-RB2 The CBL antigen is selectively expressed on activated immune cells including T cells, B cells and natural killer cells. To accelerate its commercialization plans, the Company obtained in February 1997 an exclusive license to ABX-CBL, a proprietary mouse monoclonal antibody. Pursuant to the terms of the license, the Company pays annual license fees and certain research and development funding. In addition, the Company will pay royalties on future product sales and is obligated to issue 25,000 shares 37 39 of Common Stock upon the occurrence of certain milestones. The Company is currently conducting a multi-center confirmatory Phase II clinical trial for ABX-CBL in GVHD. A mouse antibody can be utilized to treat GVHD patients because their immune system is either non-functioning or severely suppressed and, therefore, no HAMA responses should be generated. In addition, the Company has developed a fully human monoclonal antibody, ABX-RB2, using its XenoMouse technology to target the same antigen for use in chronic inflammatory disorders. The Company believes both products have the ability to destroy activated immune cells without affecting the entire immune system. Graft Versus Host Disease. The Company is developing ABX-CBL to reverse unwanted immune responses such as occurs in GVHD. GVHD is a life threatening complication that frequently occurs following an allogeneic bone marrow transplant ("BMT"). BMTs are used in the treatment of patients with end stage leukemia and certain other serious cancers and immune system disorders. An allogeneic BMT procedure involves transferring marrow, the graft, from a healthy person into an immunosuppressed patient, the host. The transplant is intended to restore normal circulating immune cells to a patient whose own immune system is either functionally deficient or has been damaged by the treatment of an underlying disease such as cancer and therefore does not have the ability to mount a sufficient immune response. Often a portion of the graft recognizes the host's own cells as foreign, becomes activated and attacks them, resulting in GVHD. GVHD is graded based on clinical symptoms from I, which is the mildest form, to IV, which is the most severe form. It typically involves damage to multiple organ systems, including the skin, liver and intestines. GVHD causes extreme suffering and is the primary cause of death in allogeneic bone marrow transplant patients. It is estimated that approximately 12,000 allogeneic BMTs will be performed worldwide in 1998, and this number has been growing at about 15% per year. GVHD occurs in approximately 50% of allogeneic BMTs and the treatment costs for GVHD in the United States are estimated to be about $80,000 per patient. Based on a published clinical study, it is estimated that roughly 50% of patients with GVHD fail to respond to current treatments, which consist of steroid and other drug treatments to suppress the grafted immune cells. Less than 15% of steroid resistant GVHD sufferers survive for more than one year. The Company believes that a safer and more effective treatment for GVHD could result in increased use of BMTs. In four separate clinical studies conducted prior to the Company obtaining an exclusive license to ABX-CBL, a total of 25 patients with GVHD were treated with the antibody. No safety concerns with ABX-CBL were identified in these studies. One such trial, which has been published, was conducted at St. Jude Hospital in Memphis, Tennessee. In this trial, ten patients with steroid resistant, Grade III to IV GVHD were treated with daily doses of ABX-CBL for up to six weeks. The publication reported that five of ten patients had a complete remission of GVHD, while four of ten had at least a two grade improvement in their GVHD score. Only one patient did not respond to the therapy. Another patient who was treated at St. Jude Hospital after publication of the study experienced a two grade improvement in the patient's GVHD score without adverse side effects. Six additional patients with GVHD were treated at the University of Wisconsin and Cook-Ft. Worth Hospital. The reports from these sites indicated that these patients showed similar results to those described in the published trial conducted at St. Jude Hospital, with four of the six patients showing at least a two grade improvement in their GVHD score. In addition, eight other GVHD patients received treatment at Stanford University and four of the patients were noted to have some improvement in their GVHD score, despite using a dose of less than one-tenth of that employed at the other sites. Immune reaction to the mouse antibody was assessed in several patients and no HAMA response was detected clinically. Furthermore, no adverse clinical responses consistent with an antibody-induced allergic reaction were observed. In addition, a number of patients were followed after the conclusion of the study for as long as one year and no adverse ABX-CBL events were observed. Based in part on the clinical data described above, the Company commenced a multi-center confirmatory Phase II clinical trial in January 1998 with ABX-CBL in GVHD. This dose escalation trial is expected to enroll a total of 48 patients suffering from Grade III or IV GVHD and who have failed to respond to steroid treatment. The Company believes that this trial will be concluded in 1998. 38 40 In certain immunological diseases where chronic administration of a drug targeting the CBL antigen is desirable, it may be important to use a fully human antibody to avoid the risk of a HAMA response. Such diseases include organ transplant rejection, primarily kidney and corneal transplant rejection, as well as autoimmune disorders. Using its XenoMouse technology, the Company has generated ABX-RB2, a fully human antibody which targets the CBL antigen, and is conducting preclinical studies on this product candidate. While no human data is available on ABX-RB2, several clinical trials have been performed using ABX-CBL, the first generation mouse antibody to the CBL antigen, for the treatment of kidney and corneal transplant rejection. Organ Transplant Rejection. Three clinical trials had been conducted for the treatment of kidney transplant rejection using ABX-CBL prior to the Company obtaining an exclusive license to this antibody. In two trials conducted at Sendai Shakai Hoken Hospital in Japan, ABX-CBL was administered intravenously daily for nine days to 41 patients whose kidney transplant rejections were resistant to steroid therapy. In the first trial, organ rejection was reversed in 17 of 19 patients. In the second trial, organ rejection was reversed in a dose dependent fashion in 18 of the 22 patients treated. A third clinical trial was conducted at the University of California at Los Angeles. In this study, 13 of the 18 patients had cadaveric donor transplants. This more refractory population responded to nine days of ABX-CBL treatment with an overall response rate of 50%. Subset analysis indicated that of the patients treated prior to severe renal failure, as many as 75% experienced reversal of the kidney rejections. No serious treatment-related side effects were observed in any of the patients in these three trials. Each year there are approximately 11,000 kidney transplants in the United States. Depending upon a variety of patient risk factors, many of these procedures result in the patient's immune system rejecting the organ. Current therapy for kidney transplant rejection involves administering steroids or other immune system modulators, which may suffer from suboptimal efficacy profiles or dose limiting toxicities. In addition to the use of ABX-RB2 in kidney transplant rejection, the Company is also exploring its potential use in corneal transplantation. In a clinical trial conducted at the University of California at San Diego prior to the Company obtaining an exclusive license to ABX-CBL, six patients were treated with ABX-CBL after the onset of rejection and four showed graft preservation. No serious adverse side effects related to the infusion of ABX-CBL or to an immune response were observed in any of the six patients. Although there can be no assurance that the data observed with ABX-RB2 in these indications will demonstrate the same degree of efficacy as the data observed with ABX-CBL, the Company believes these studies may assist in the design of preclinical and clinical protocols for future development. Autoimmune Disease. In autoimmune disease, a subset of the patient's immune cells, often including both B and T cells, react abnormally to a natural component of the patient's own tissue. Because these immune cells are constantly exposed to the tissue component, they are in a perpetual state of activation. Based on the presumed mechanism of action of ABX-RB2, the Company anticipates that it may be effective in treating autoimmune disease. Before initiating clinical trials, this concept will be tested in preclinical studies in a series of animal models of autoimmune disease, including rheumatoid arthritis, lupus, multiple sclerosis, and diabetes. ABX-IL8 IL-8, an important inflammatory cytokine produced at sites of inflammation, attracts and activates white blood cells that mediate the inflammation process. A number of preclinical studies suggest that excess IL-8 may contribute to the pathology and clinical symptoms associated with certain inflammatory disorders. Clinical studies have demonstrated significantly increased levels of IL-8 in plasma or other bodily fluids of patients with certain inflammatory diseases, including psoriasis, rheumatoid arthritis and inflammatory bowel disease. Antibodies to IL-8 have been shown to block immune cell infiltration and the associated pathology in animal models of several of these diseases as well as in reperfusion injury. Using its XenoMouse technology, the Company has generated ABX-IL8, a proprie- 39 41 tary human monoclonal antibody, that binds to IL-8 with high affinity. Abgenix in-licensed ABX-IL8 from Xenotech in March 1996. In exchange for a license fee and royalty payments on future product sales, the Company received an exclusive license to ABX-IL8 within the United States, its territories and possessions, Canada and Mexico and a co-exclusive license with Japan Tobacco in the rest of the world, excluding Japan, Taiwan and South Korea. Psoriasis. Psoriasis is a chronic disease that results in plaques, a thickening and scaling of the skin accompanied by local inflammation. The disease affects approximately four to five million patients in the United States and can be debilitating in its most severe form. Approximately 500,000 psoriasis patients suffer from a severe enough form of the disease to require systemic therapy with immune suppressants and ultraviolet phototherapy. The risk of serious adverse side effects associated with these therapies often requires the patients to alternate these various therapeutic modalities as a precautionary measure. Scientific studies have shown that IL-8 concentrations can be elevated by a factor of 150 in psoriatic plaques when compared to normal tissue. The Company believes that IL-8 may promote psoriasis by contributing to three distinct disease-associated processes. First, IL-8 is produced by a type of skin cell called keratinocytes, and is a potent growth factor for these skin cells. It may therefore contribute to the abnormal keratinocyte proliferation in psoriatic plaques. Second, IL-8 attracts and activates immune cells which contribute to the inflammation of the psoriatic plaque. Finally, IL-8 promotes angiogenesis which augments the blood supply necessary for growth of the psoriatic plaque. The Company has conducted several studies with ABX-IL8 in animal models relevant to psoriasis. The ability of the antibody to inhibit two processes relevant to psoriasis in vivo were tested individually. In a rabbit model, it was determined that systemic administration of ABX-IL8 inhibits the migration of immune cells from the bloodstream to a site of skin inflammation. Furthermore, the ability of ABX-IL8 to inhibit angiogenesis has been demonstrated both in a rat corneal model as well as in a mouse tumor model. In addition, pharmacokinetic studies in monkeys indicate that ABX-IL8 has a long serum half-life, which should allow relatively infrequent dosing, potentially making it a more attractive option for patients receiving chronic therapy. Finally, in preliminary studies in a mouse model of psoriasis, ABX-IL8 was shown to block the formation of psoriatic plaques. Rheumatoid Arthritis. Elevated levels of IL-8 in the synovial fluid of rheumatoid arthritis patients have been reported to correlate with the number of infiltrating immune cells. Third party published studies have reported that the injection of non-human antibodies to IL-8 into a rabbit model of rheumatoid arthritis blocked immune cell infiltration and synovial membrane damage. Inflammatory Bowel Disease. Elevated levels of IL-8 have been found in the colon of patients with inflammatory bowel disease and the extent of elevation has been shown to correlate with the degree of inflammation. Third party published studies have reported that injection of non-human antibodies to IL-8 in a rabbit model of colitis reduced colon inflammation. The Company has initiated a Phase I clinical trial in psoriasis for ABX-IL8 and intends to follow this with an expansion to a number of other inflammatory indications in Phase II trials. Because of the many common features in the pathogenesis of psoriasis, rheumatoid arthritis and inflammatory bowel disease, data collected in a Phase I trial in psoriasis could support initiation of Phase II trials in the other indications. ABX-EGF Tumor cells that overexpress epidermal growth factor receptors ("EGFr") on their surface often depend on EGFr's activation for growth. EGFr is overexpressed in a variety of cancers including lung, breast, ovarian, bladder, prostate, colorectal, kidney and head and neck. This activation is triggered by the binding to EGFr by EGF or Transforming Growth Factor alpha ("TGF(LOGO)"), both of which are expressed by the tumor or by neighboring cells. The Company believes that blocking the ability of EGF and TGF(LOGO) to bind with EGFr may offer a treatment for certain cancers. ABX-EGF, a fully human 40 42 monoclonal antibody generated using XenoMouse technology, binds to EGFr with high affinity and has been shown to inhibit tumor cell proliferation in vivo and cause eradication of EGF dependent human tumors established in mouse models. Abgenix in-licensed ABX-EGF from Xenotech in November 1997. In exchange for a license fee and royalty payments on future product sales, the Company received an exclusive worldwide license to ABX-EGF. The Company is conducting preclinical studies and assessing which tumor types to pursue as possible targets for treatment with ABX-EGF. Studies have shown that ABX-EGF can inhibit growth of EGF-dependent human tumors cells in mouse models. ABX-EGF has also demonstrated the ability to reverse cancer cell growth and cause eradication of established tumors in mice even when administered after significant tumor growth has occurred. Furthermore, in these models where tumors were eradicated, no relapse of the tumor was observed after discontinuation of the antibody treatment. COLLABORATIVE ARRANGEMENTS Research Collaboration and License Option Agreement with Pfizer In December 1997, Abgenix, established a research collaboration with Pfizer to develop antibody products for up to three undisclosed antigens, the first of which is in the field of cancer. Under the research collaboration agreement, Abgenix is using its XenoMouse technology to generate fully human antibodies to the first antigen target designated by Pfizer. In connection with the execution of the agreement, Pfizer paid the Company a fee upon signing and may make additional payments to Abgenix upon completion of certain research milestones. Additionally, Pfizer has an option to expand the research collaboration to include up to two more undisclosed antigen targets. The research collaboration agreement expires in December 1999. Concurrent with the execution of the research collaboration agreement, Pfizer and Abgenix entered into a license and royalty agreement that grants Pfizer the option to acquire an exclusive, worldwide license to develop, make, use and sell antibody products derived from the research collaboration. If Pfizer chooses to exercise its option for additional antigen targets, Abgenix could receive potential license fees and milestone payments of up to approximately $8.0 million per antigen target upon the completion of certain milestones, including preclinical and clinical trials and receipt of regulatory approval. Additionally, if a product receives marketing approval from the FDA or an equivalent foreign agency, the Company is entitled to receive royalties on future product sales by Pfizer. Pfizer will be responsible for manufacturing, product development and marketing of any product developed through this collaboration. In connection with the execution of the research collaboration agreement and the license and royalty agreement, in January 1998 Pfizer purchased 160,000 shares of the Company's Series C Preferred Stock for approximately $1.3 million. Such shares convert into 160,000 shares of Common Stock upon this offering. Research Collaboration with Schering-Plough In January 1998, Abgenix established a research collaboration with Schering-Plough to develop antibody products for an undisclosed antigen in the field of inflammation. Under the agreement, Abgenix is using its XenoMouse technology to generate fully human antibodies to an antigen target designated by Schering-Plough. In connection with the execution of the agreement, Schering-Plough paid the Company a fee upon signing and will be obligated to make additional payments to Abgenix upon completion of the research. In addition, the agreement provides Schering-Plough with an option, for a limited time, to enter into a research, option and license agreement that provides Schering-Plough with an option to obtain an exclusive worldwide license to develop, make, use and sell antibody products derived from the research collaboration. If the option is exercised, the research, option and license agreement may provide Abgenix with up to approximately $8.0 million in additional research fees and milestone payments upon the completion of certain milestones, including preclinical and clinical trials and receipt of regulatory approval. Additionally, if a product receives marketing approval from the FDA or 41 43 an equivalent foreign agency, the Company is entitled to receive royalties on future product sales by Schering-Plough. Research License and Option Agreement with Genentech In April 1998, Abgenix established a research collaboration with Genentech to develop antibody products for an undisclosed antigen designated by Genentech in the field of growth factor modulation. Under the research license and option agreement, Abgenix will allow Genentech to use XenoMouse technology to generate fully human antibodies to the antigen target. Genentech is obligated to make payments to Abgenix for performance of research activities. In addition, the agreement provides Genentech with an option, for a limited time, to enter into a product license agreement that provides Genentech with an exclusive worldwide license to develop, make, use and sell antibody products derived from the research collaboration. If the option is exercised, the product license agreement specifies license fee and milestone payments to be made upon completion of certain milestones, including clinical trials and receipt of regulatory approvals. Additionally, if a product receives marketing approval from the FDA or an equivalent foreign agency, the Company is entitled to receive royalties on future product sales by Genentech. Genentech will be responsible for manufacturing, product development and marketing of any product developed through this collaboration. Gene Therapy Rights Agreement with Cell Genesys In November 1997, the Company and Cell Genesys entered into the Gene Therapy Rights Agreement (the "GTRA"). The GTRA provides Cell Genesys, a gene therapy company, with certain rights to commercialize products based on antibodies generated with XenoMouse technology in the field of gene therapy. Under the GTRA, Cell Genesys has certain rights to direct the Company to make antibodies to two antigens per year. In addition, Cell Genesys has an option to enter into a license to commercialize antibodies binding to such antigens in the field of gene therapy. Cell Genesys is obligated to make certain payments to the Company for these rights including royalties on future product sales. The GTRA also prohibits the Company from granting any third party licenses for antibody products based on antigens nominated by the Company for its own purposes where the primary field of use is gene therapy. In the case of third party licenses granted by the Company where gene therapy is a secondary field, the Company is obligated to share with Cell Genesys a portion of the cash milestone payments and royalties resulting from any products in the field of gene therapy. JOINT VENTURE WITH JAPAN TOBACCO Xenotech In June 1991, Cell Genesys entered into several agreements with JT America for the purpose of forming an equally owned limited partnership, named Xenotech. In connection with the formation of Xenotech, both Cell Genesys and JT America contributed cash and Cell Genesys contributed the exclusive right to certain of its technology for the research and development of genetically modified strains of mice that can produce fully human antibodies. Cell Genesys assigned its rights in Xenotech to the Company in connection with the formation of the Company. As part of the Xenotech relationship, the Company provides research and development on behalf of Xenotech in exchange for cash payments. As of March 31, 1998, the Company has made capital contributions to Xenotech of approximately $18.3 million and has received approximately $41.6 million in funding for research related to the development of XenoMouse technology, with research and development funding for identified projects committed through 1998. Product Rights Under the Master Research, License and Option Agreement among the Company, Japan Tobacco and Xenotech (the "MRLOA"), the Company and Japan Tobacco have been provided with colonies of 42 44 transgenic mice that have been developed for Xenotech pursuant to the Company's research and development efforts on behalf of Xenotech. Under the MRLOA, the Company and Japan Tobacco have the right to use the transgenic mice for research purposes. The right to commercialize medical products that incorporate antibodies derived through the use of the transgenic mice can be licensed from Xenotech by the Company and/or Japan Tobacco pursuant to a nomination process by which the Company and Japan Tobacco have the right to select a certain number of antigens per year and receive an option to the commercial rights in antibodies that bind to the selected antigens. Both the Company and Japan Tobacco are obligated to make royalty payments to Xenotech on revenues derived from the sale of such antibody products. All of such payments to Xenotech are then equally shared by the Company and JT America. Under the nomination process, if either the Company or Japan Tobacco (but not both) selects an antigen, the selecting party receives an option to an exclusive worldwide license. If both the Company and Japan Tobacco select the same antigen at the same time, each party has an option to an exclusive license in its home territory and a co-exclusive license in the rest of the world. The MRLOA defines the home territory of Japan Tobacco as Japan, Korea and Taiwan and the home territory of the Company as North America. In the former case where one party selects an antigen, the nonselecting party has the opportunity to obtain an option to an exclusive license to the selected antigen in the nonselecting party's home territory by exercising its buy-in right within the allotted time. Each party has a limited number of buy-in rights, and they cannot be exercised by the nonselecting party if the antigen selected is subject to proprietary rights of a third party and the third party is unwilling to license its rights to the antigen to the nonselecting party. INTELLECTUAL PROPERTY The Company's patent position, like that of other biotechnology and pharmaceutical companies, is highly uncertain and involves complex legal and factual questions. Claims made under patent applications may be denied or significantly narrowed. There can be no assurance that any patents which may be issued as a result of the Company's United States and international patent applications will provide any competitive advantage to the Company or that they will not be successfully challenged, invalidated or circumvented in the future. In addition, there can be no assurance that competitors, many of which have substantial resources and have made significant investments in competing technologies, will not seek to apply for and obtain patents that will prevent, limit or interfere with the Company's ability to make, use and sell its potential products either in the United States or in international markets. The Company's success depends in part on its ability to obtain patents, protect trade secrets, operate without infringing the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company. The Company's policy is to seek to protect its proprietary position by, among other methods, filing United States and foreign patent applications related to its proprietary technology, inventions and improvements that are important to the development of its business. Proprietary rights relating to the Company's technologies will be protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are effectively maintained as trade secrets. There can be no assurance that any patents owned by, or licensed to, the Company will afford protection against competitors or that any pending patent applications now or hereafter filed by, or licensed to, the Company will result in patents being issued. In addition, the laws of certain foreign countries do not protect the Company's intellectual property rights to the same extent as do the laws of the United States. The patent position of biopharmaceutical companies involves complex legal and factual questions and, therefore, their enforceability cannot be predicted with certainty. There can be no assurance that any of the Company's patents or patent applications, if issued, will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company against competitors with similar technology. Furthermore, there can be no assurance that others will not independently develop similar technologies or duplicate any technology developed by the Company. 43 45 While the Company has multiple patent applications pending in the United States, to date, the Company has no United States patents relating to XenoMouse technology. One issued European Patent owned by the Company relating to XenoMouse technology is currently undergoing opposition proceedings within the European Patent Office, and no assurance can be given regarding the outcome of this opposition. The Company intends to continue to file patent applications as appropriate for patents covering both its product candidates and processes. There can be no assurance that patents will issue from any of these applications, that any patent will issue on technology arising from additional research or that patents that may issue from such applications will be sufficient to protect the Company's technologies. Research has been conducted for many years in the antibody field. This has resulted in a substantial number of issued patents and an even larger number of patent applications. Patent applications in the United States are, in most cases, maintained in secrecy until patents issue, and publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made. The commercial success of the Company depends significantly on its ability to operate without infringing the patents and other proprietary rights of third parties. There can be no assurance that the Company's technologies do not and will not infringe the patents or violate other proprietary rights of third parties. In the event of such infringement or violation, the Company and its corporate partners may be enjoined from pursuing research, development or commercialization of their products. Such action would have a material adverse effect on the Company's business, financial condition and results of operations. The biotechnology and pharmaceutical industries have been characterized by extensive litigation regarding patents and other intellectual property rights, and the Company, together with Cell Genesys, Xenotech and Japan Tobacco, recently settled ongoing litigation with GenPharm regarding certain patents and other intellectual property rights. See "-- Patent Cross-License and Settlement Agreement with GenPharm." The defense and prosecution of intellectual property suits, USPTO interference proceedings and related legal and administrative proceedings in the United States and internationally involve complex legal and factual questions. As a result, such proceedings are costly and time-consuming to pursue and their outcome is uncertain. Litigation may be necessary to enforce patents issued or licensed to the Company, to protect trade secrets or know-how owned or licensed by the Company or to determine the enforceability, scope and validity of the proprietary rights of others. Any litigation, interference or other administrative proceedings will result in substantial expense to the Company and significant diversion of effort and resources by the Company's technical and management personnel. An adverse determination such proceedings to which the Company may become a party could subject the Company to significant liabilities to third parties or require the Company to seek licenses which may not be available from third parties or prevent the Company from selling its products in certain markets, if at all. Although patent and intellectual property disputes are often settled through licensing or similar arrangements, costs associated with such arrangements may be substantial and could include ongoing royalties. Furthermore, there can be no assurance that the necessary licenses would be available to the Company on satisfactory terms, if at all. Adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses could restrict or prevent the Company from manufacturing and selling its products, if any, which would have a material adverse effect on the Company's business, financial condition and results of operations. In addition to patents, the Company relies on trade secrets and proprietary know-how, which it seeks to protect, in part, through confidentiality and proprietary information agreements. There can be no assurance that such confidentiality or proprietary information agreements will provide meaningful protection or adequate remedies for the Company's technology in the event of unauthorized use or disclosure of such information, that the parties to such agreements will not breach such agreements or that the Company's trade secrets will not otherwise become known to or be independently developed by competitors. 44 46 Patent Cross-License and Settlement Agreement with GenPharm In 1994, Cell Genesys and GenPharm and, beginning in 1996, Abgenix became involved in litigation primarily relating to intellectual property rights associated with a method for inactivating a mouse's antibody genes and technology pertaining to transgenic mice capable of producing human antibodies. On March 27, 1997, Cell Genesys announced, along with Abgenix, Xenotech and Japan Tobacco, that it had signed a comprehensive patent cross-license and settlement agreement with GenPharm that resolved all related litigation and claims between the parties. Under the cross-license and settlement agreement, the Company has licensed on a non-exclusive basis certain patents, patent applications, third party licenses and inventions pertaining to the development and use of certain transgenic rodents including mice that produce fully human antibodies. As initial consideration for the cross-license and settlement agreement, Cell Genesys issued a note to GenPharm due September 30, 1998 for $15.0 million payable by Cell Genesys and convertible into shares of Cell Genesys common stock, currently at $8.62 per share. The note bears interest at a rate of 7% per annum. Of this note, $3.8 million satisfied certain of Xenotech's obligations under the agreement. Japan Tobacco also made an initial payment. During 1997, two patent milestones were achieved and Xenotech was obligated to pay $7.5 million for each milestone. Xenotech paid $7.5 million to satisfy the first milestone and has recorded a payable to GenPharm for the remaining $7.5 million. The Company has recorded a liability of $3.8 million in its balance sheet representing its share of the Xenotech obligation. The payable is due on or before November 1998. No additional payments will accrue under this agreement. The Company has recognized as a non-recurring charge for cross-license and settlement, a total of $22.5 million. See Note 6 of Notes to the Company's Financial Statements. The Company does not have any future financial obligations under the cross-license and settlement agreement. GOVERNMENT REGULATION All new biopharmaceutical products, including the Company's product candidates under development and anticipated future products, are subject to extensive and rigorous regulation by the federal government, principally the FDA under the FD&C Act and other laws including the Public Health Services Act, and by state and local governments. Such regulations govern or influence, among other things, the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of such products. Non-compliance with applicable requirements can result in fines, warning letters, recall or seizure of products, clinical study holds, total or partial suspension of production, refusal of the government to grant approvals, withdrawal of approval and civil and criminal penalties. The Company believes its antibody products will be classified by the FDA as "biologic products" as opposed to "drug products." The steps ordinarily required before a biological product may be marketed in the United States include: (a) preclinical testing; (b) the submission to the FDA of an IND application, which must become effective before clinical trials may commence; (c) adequate and well-controlled clinical trials to establish the safety and efficacy of the biologic; (d) the submission to the FDA of a Biologics License Application ("BLA"); and (e) FDA approval of the application, including approval of all product labeling. Preclinical testing includes laboratory evaluation of product chemistry, formulation and stability, as well as animal studies to assess the potential safety and efficacy of each product. Preclinical safety tests must be conducted by laboratories that comply with FDA regulations regarding Good Laboratory Practices ("GLPs"). The results of the preclinical tests together with manufacturing information and analytical data are submitted to the FDA as part of the IND and are reviewed by the FDA before the commencement of clinical trials. Unless the FDA objects to an IND, the IND will become effective 30 days following its receipt by the FDA. There can be no assurance that submission of an IND will result in FDA authorization to commence clinical trials, that the lack of an objection means that the FDA will ultimately approve an application for marketing approval, or that the Company will not encounter problems in clinical trials that cause it or the FDA to delay, suspend or terminate such trials. 45 47 Clinical trials involve the administration of the investigational product to humans under the supervision of a qualified principal investigator. Clinical trials must be conducted in accordance with Good Clinical Practices ("GCP") under protocols submitted to the FDA as part of the IND. In addition, each clinical trial must be approved and conducted under the auspices of an Institutional Review Board ("IRB") and with patient informed consent. The IRB will consider, among other things, ethical factors, the safety of human subjects and the possibility of liability of the institution conducting the trial. Clinical trials are conducted in three sequential phases but the phases may overlap. Phase I clinical trials may be performed in healthy human subjects or, depending on the disease, in patients. The goal of a Phase I clinical trial is to establish initial data about safety and tolerance of the biologic agent in humans. In Phase II clinical trials, evidence is sought about the desired therapeutic efficacy of a biologic agent in limited studies of patients with the target disease. Efforts are made to evaluate the effects of various dosages and to establish an optimal dosage level and dosage schedule. Additional safety data are also gathered from these studies. The Phase III clinical trial program consists of expanded, large-scale, multi-center studies of persons who are susceptible to or have developed the disease. The goal of these studies is to obtain definitive statistical evidence of the efficacy and safety of the proposed product and dosage regimen. As of March 1, 1998, ABX-CBL had only been administered to a total of 90 patients in GVHD and organ transplant rejection indications, and Phase I clinical trials for ABX-IL8 in psoriasis commenced in April 1998. As a result, patient follow up has been limited and clinical data obtained thus far are very preliminary. In addition, the results of early clinical trials may not be predictive of results obtained in later clinical trials, and there can be no assurance that clinical trials conducted by the Company will demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals or will result in marketable products. If the Company's product candidates are not shown to be safe and effective in clinical trials, the resulting delays in developing other products and conducting related preclinical testing and clinical trials, as well as the potential need for additional financing, would have a material adverse effect on the Company's business, financial condition and results of operations. All data obtained from this comprehensive development program are submitted in a BLA to the FDA for review and approval of the manufacture, marketing and commercial shipment of the product. FDA approval of the BLA is required before marketing may begin in the United States. All product candidates of the Company will be subject to demanding and time consuming regulatory procedures in the countries where the Company intends to market its products. The process of obtaining approvals from the FDA can be costly, time consuming and subject to unanticipated delays. The FDA may refuse to approve an application if it believes that applicable regulatory criteria are not satisfied. The FDA may also require additional testing for safety and efficiency of the biopharmaceutical product. Moreover, if regulatory approval of a biopharmaceutical product is granted, the approval will be limited to specific indications. There can be no assurance that approvals of the Company's product candidates, processes or facilities will be granted on a timely basis, if at all. Any failure to obtain or delay in obtaining such approvals would have a material adverse effect on the Company's business, financial condition and results of operation. Even if regulatory approvals for the Company's product candidates are obtained, the Company, its products and the facilities manufacturing the products are subject to continual review and periodic inspection. Domestic manufacturing establishments are subject to preapproval and biennial inspections by the FDA and must comply with the FDA's cGMP regulations. To supply biopharmaceutical products for use in the United States, foreign manufacturing establishments must comply with the FDA's cGMP regulations and are subject to periodic inspection by the FDA or by regulatory authorities in those countries. In complying with cGMP regulations, manufacturers must spend funds, time and effort in the area of production and quality control to ensure full technical compliance. The FDA stringently applies regulatory standards for manufacturing. 46 48 For clinical investigation and marketing outside the United States, the Company may be subject to the regulatory requirements of other countries, which vary from country to country. The regulatory approval process in other countries includes requirements similar to those associated with FDA approval set forth above. COMPETITION The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change. The Company is aware of several pharmaceutical and biotechnology companies, which are actively engaged in research and development in areas related to antibody therapy, that have commenced clinical trials of antibody therapeutics products or have successfully commercialized antibody products. Many of these companies are addressing diseases and disease indications which are being targeted by the Company or its collaborative partners. Certain of these competitors have specific expertise or technology related to antibody development, such as Centocor, Inc., Protein Design Labs, Inc., IDEC Pharmaceuticals Corporation, Cambridge Antibody Technology Group, Inc. and GenPharm. Certain of the Company's competitors are developing or testing product candidates that may be directly competitive with the Company's product candidates. For example, the Company is aware that several companies, including Genentech, Inc., have potential product candidates that may inhibit the activity of IL-8. Furthermore, the Company is aware that ImClone Systems, Inc. has a potential product candidate in clinical development that may inhibit the activity of EGF. Many of these companies and institutions, either alone or together with their corporate partners, have substantially greater financial resources and larger research and development staffs than the Company. In addition, many of these competitors, either alone or together with their corporate partners, have significantly greater experience than the Company in developing products, undertaking preclinical testing and human clinical trials, obtaining FDA and other regulatory approvals of products and manufacturing and marketing products. Accordingly, the Company's competitors may succeed in obtaining patent protection, receiving FDA approval or commercializing products more rapidly than the Company. If the Company commences commercial sales of products, it will be competing against companies with greater marketing and manufacturing capabilities, areas in which it has limited or no experience. In addition to biotechnology and pharmaceutical companies, the Company faces, and will continue to face, competition from academic institutions, government agencies and research institutions. There are numerous competitors working on products to treat each of the diseases for which the Company is seeking to develop therapeutic products. In addition, any product candidate successfully developed by the Company may compete with existing therapies that have long histories of safe and effective use. Competition may also arise from other drug development technologies and methods of preventing or reducing the incidence of disease and new small molecule or other classes of therapeutic agents. There can be no assurance that developments by others will not render the Company's product candidates or technologies obsolete or noncompetitive. The Company faces and will continue to face intense competition from other companies, including Japan Tobacco, for collaborative arrangements with pharmaceutical and biotechnology companies, for establishing relationships with academic and research institutions, and for licenses to proprietary technology. These competitors, either alone or with their corporate partners, may succeed in developing technologies or products that are more effective than those of the Company. The Company's collaborative partners may elect to develop other antibody products which compete with the Company's products. PHARMACEUTICAL PRICING AND REIMBURSEMENT In both domestic and foreign markets, sales of the Company's potential products will depend in part upon the availability of reimbursement from third-party payors, such as government health administration authorities, managed care providers, private health insurers and other organizations. These third-party payors are increasingly challenging the price and examining the cost effectiveness of medical products and services. In addition, significant uncertainty exists as to the reimbursement status 47 49 of newly approved healthcare products. There can be no assurance that the Company's product candidates will be considered cost effective or that adequate third-party reimbursement will be available to enable the Company to maintain price levels sufficient to realize an appropriate return on its investment in product development. Both federal and state governments in the United States and foreign governments continue to propose and pass legislation designed to reduce the cost of healthcare. Accordingly, legislation and regulations affecting the pricing of pharmaceuticals may change before the Company's proposed products are approved for marketing. Adoption of such legislation could further limit reimbursement for pharmaceuticals. If adequate coverage and reimbursement rates are not provided by the government and third-party payors for the Company's potential products, the market acceptance of these products could be adversely affected, which would have a material adverse effect on the Company's business, financial condition and results of operations. MANUFACTURING The Company currently has limited experience in manufacturing its product candidates and lacks the resources or capability to manufacture any of its products on a commercial scale. While the Company currently manufactures limited quantities of antibody products for preclinical testing, the Company relies on contract manufacturers to produce ABX-CBL and ABX-IL8. With respect to products other than ABX-CBL and ABX-IL8, the Company will either be responsible for manufacturing or contract out manufacturing to third parties. The Company's contract manufacturers have limited experience in manufacturing ABX-CBL and ABX-IL8 in quantities sufficient for conducting clinical trials. Contract manufacturers often encounter difficulties in scaling up production, including problems involving production yields, quality control and quality assurance and shortage of qualified personnel. Furthermore, there are only a limited number of other third-party contract manufacturers who have the ability and capacity to produce the Company's product candidates. Failure by any contract manufacturer to deliver the required quantities of the Company's product candidates for either clinical or commercial use on a timely basis and at commercially reasonable prices and failure by the Company to find a replacement manufacturer would have a material adverse affect on the Company's business, financial condition and results of operations. In addition, the Company and its third party manufacturers are required to register their manufacturing facilities with the FDA and foreign regulatory authorities. The facilities will then be subject to inspections confirming compliance with cGMP established by the FDA or corresponding foreign regulations. Failure to maintain compliance with the cGMP requirements would materially adversely effect the Company's business, financial condition and results of operations. EMPLOYEES As of March 31, 1998, Abgenix employed 57 persons, of whom 17 hold Ph.D. or M.D. degrees and 8 hold other advanced degrees. Approximately 42 employees are engaged in research and development, and 15 support business development, intellectual property, finance and other administrative functions. The Company's success will depend in large part upon its ability to attract and retain employees. Abgenix faces competition in this regard from other companies, research and academic institutions, government entities and other organizations. The Company believes that it maintains good relations with its employees. FACILITIES Abgenix is currently leasing 52,400 square feet of office and laboratory facilities in Fremont, California. During 1997, the Company built out approximately 42,000 square feet of laboratory and office space at the Fremont site. The Company believes this facility, with potential additional build-outs, will meet its space requirements for research and development and administration for the next several years. The Company's lease expires in the year 2007 with options to extend. 48 50 LEGAL PROCEEDINGS The Company is not a party to any legal proceedings. SCIENTIFIC AND MEDICAL ADVISORY BOARDS Abgenix has established Scientific and Medical Advisory Boards to provide specific expertise in areas of research and development relevant to the Company's business. The Scientific and Medical Advisory Boards meet periodically with the Company's scientific and development personnel and management to discuss the Company's present and long-term research and development activities. Scientific and Medical Advisory Board members include: Frederick Applebaum, M.D................. Director, Clinical Research Division, Fred Hutchinson Cancer Research Center Benedict Cosimi, M.D..................... Professor of Surgery, Harvard Medical School and Chief of Transplant Unit, Massachusetts General Hospital Anthony DeFranco, M.D., Ph.D............. Professor, Biochemistry and Biophysics, University of California, San Francisco John Gallin, M.D......................... Director, Warren Grant Magnusen Clinical Center, NIH Raju S. Kucherlapati, Ph.D............... Professor and Chair, Molecular Genetics, Albert Einstein College of Medicine Michele Nussenswieg, M.D., Ph.D.......... Professor, Molecular Immunology The Rockefeller University Matthew Scharff, M.D..................... Professor of Medicine, Albert Einstein College of Medicine Lee Simon, M.D........................... Professor of Medicine, Harvard Medical School David Yocum, M.D......................... Professor of Medicine, University of Arizona
49 51 MANAGEMENT EXECUTIVE OFFICERS, DIRECTORS, AND KEY EMPLOYEES The following table sets forth, as of March 31, 1998, certain information concerning the Company's executive officers, directors and key employees:
NAME AGE POSITION ---- --- -------- Executive Officers and Directors R. Scott Greer......................... 39 President, Chief Executive Officer and Director C. Geoffrey Davis, Ph.D................ 46 Vice President, Research Kurt W. Leutzinger..................... 47 Vice President, Finance and Chief Financial Officer John A. Lipani, M.D.................... 57 Vice President, Clinical Development Raymond M. Withy, Ph.D................. 42 Vice President, Corporate Development Stephen A. Sherwin, M.D.(1)(2)......... 49 Chairman of the Board M. Kathleen Behrens, Ph.D.(1)(2)....... 45 Director Raju S. Kucherlapati, Ph.D............. 55 Director Mark B. Logan(1)(2).................... 59 Director Joseph E. Maroun....................... 68 Director Key Employees Aya Jakobovits, Ph.D................... 45 Principal Scientist, Director of Discovery Research Catherine Maynard...................... 33 Director of Operations Rivka Sherman-Gold, Ph.D............... 49 Director of Business Development John Ward.............................. 38 Director of MIS
- --------------- (1) Member of the Compensation Committee (2) Member of the Audit Committee R. Scott Greer has served as President and Chief Executive Officer and as a director of Abgenix since June 1996. He also serves as a director of Xenotech. From July 1994 to July 1996, Mr. Greer was Senior Vice President of Corporate Development at Cell Genesys. From April 1991 to July 1994, Mr. Greer was Vice President of Corporate Development and from April 1991 to September 1993 was also Chief Financial Officer of Cell Genesys. From 1986 to 1991, Mr. Greer held various positions at Genetics Institute, Inc., a biotechnology company, including Director, Corporate Development. Mr. Greer received a B.A. in economics from Whitman College and an M.B.A. from Harvard University and is a certified public accountant. C. Geoffrey Davis, Ph.D., has served as Vice President, Research of Abgenix since June 1996. From January 1995 to June 1996, Dr. Davis was Director of Immunology at the Xenotech Division of Cell Genesys. From November 1991 to December 1994, he served at Repligen Corporation, a biotechnology company, first as Principal Investigator and then as Director of Immunology. Dr. Davis received a B.A. from Swarthmore College and a Ph.D. in immunology from the University of California, San Francisco. Kurt W. Leutzinger has served as Vice President, Finance and Chief Financial Officer of Abgenix since July 1997. From June 1987 to July 1997, Mr. Leutzinger was a Vice President of General Electric Investments and a portfolio manager of the $27 billion General Electric Pension Fund responsible for private equity investments with a focus on medical technology. He also serves as a director of C3, Inc. Mr. Leutzinger received a B.A. in economics from Fairleigh Dickenson University and an M.B.A. in finance from New York University and is a certified public accountant. John A. Lipani, M.D., has served as Vice President, Clinical Development of Abgenix since April 1997. From 1992 to April 1997, Dr. Lipani was Group Director of Inflammation and Tissue Repair 50 52 at SmithKline Beecham Corporation, a pharmaceutical company. From 1989 to 1992, Dr. Lipani held clinical development positions at various biopharmaceutical companies, including Immunex Corporation, Norwich Eaton Pharmaceuticals, Inc. and Centocor, Inc. He received a B.A. from Villanova University and an M.D. from Tulane Medical School. Raymond M. Withy, Ph.D., has served as Vice President, Corporate Development of Abgenix since June 1996. He also serves as a director of Xenotech. From May 1993 to June 1996, Dr. Withy served in various positions at Cell Genesys, most recently as Director of Business Development. From 1991 to May 1993, Dr. Withy was a private consultant to the biotechnology industry in areas of strategic planning, business development and licensing. From 1984 to 1991, Dr. Withy was an Associate Director and Senior Scientist at Genzyme Corporation, a biotechnology company. Dr. Withy received a B.Sc. in chemistry and biochemistry and a Ph.D. in biochemistry, both from the University of Nottingham. Stephen A. Sherwin, M.D., has served as Chairman of the Board of Abgenix since June 1996. Since March 1990, Dr. Sherwin has served as President, Chief Executive Officer and as a director of Cell Genesys. Since March 1994, he has served as Chairman of the Board of Cell Genesys. From 1983 to 1990, Dr. Sherwin held various positions at Genentech, Inc., a biotechnology company, most recently as Vice President, Clinical Research. Dr. Sherwin currently serves as a Director of the California Healthcare Institute. Dr. Sherwin received a B.A. in biology from Yale University and an M.D. from Harvard Medical School. M. Kathleen Behrens, Ph.D., has served as a director of Abgenix since December 1997. Dr. Behrens joined Robertson Stephens Investment Management Co. in 1983 and became a general partner in 1986 and a managing director in 1993. In 1988, Dr. Behrens joined the venture capital group of Robertson Stephens Investment Management Co. and has helped in the founding of three biotechnology companies: Mercator Genetics, Inc., Protein Design Laboratories, Inc. and COR Therapeutics, Inc. Dr. Behrens is currently president-elect and a director of the National Venture Capital Association. Dr. Behrens received a Ph.D. in microbiology from the University of California, Davis, where she performed genetic research for six years. Raju S. Kucherlapati, Ph.D., has served as a director of Abgenix since June 1996. Dr. Kucherlapati was a founder of Cell Genesys and has served as a director of Cell Genesys since 1988. Since July 1989, he has been the Saul and Lola Kramer Professor and the Chairman of the Department of Molecular Genetics at the Albert Einstein College of Medicine. Dr. Kucherlapati also serves as a director of Megabios Corp. and Millennium Pharmaceuticals, Inc. Dr. Kucherlapati received a B.S. in biology from Andhra University in India and a Ph.D. in genetics from the University of Illinois, Urbana. Mark B. Logan has served as a director of Abgenix since August 1997. Mr. Logan has served as Chairman of the Board, President and Chief Executive Officer of VISX, Incorporated, a medical device company, since November 1994. From January 1992 to October 1994, he was Chairman of the Board and Chief Executive Officer of INSMED Pharmaceuticals, Inc., a pharmaceutical company. Previously, Mr. Logan held several senior management positions at Bausch & Lomb, Inc., a medical products company, including Senior Vice President, Healthcare and Consumer Group and also served as a member of its Board of Directors. Mr. Logan received a B.A. from Hiram College and a PMD from Harvard Business School. Joseph E. Maroun has served as a director of Abgenix since July 1996 and has served as a director of Cell Genesys since June 1995. Mr. Maroun spent 30 years with Bristol-Myers Squibb, a pharmaceuticals company, serving until his retirement in 1990, at which time he was President of the International Group, Senior Vice President of the corporation, and a member of its Policy Committee. He also headed the U.S.-Japan Pharmaceutical Advisory Group. Mr. Maroun received a B.A. from the University of Witwaterrand, Johannesburg. Aya Jakobovits, Ph.D., has served as Principal Scientist and Director of Discovery Research of Abgenix since June 1996. From January 1994 to June 1996, Dr. Jakobovits was Director of Molecular Immunology at Cell Genesys. From October 1989 to January 1994, Dr. Jakobovits served as Scientist 51 53 and then as Senior Scientist at Cell Genesys. Dr. Jakobovits received a B.Sc. from the Hebrew University of Jerusalem, Israel, a M.Sc. in chemistry and a Ph.D. in life sciences, both from the Weizmann Institute of Science, Israel. Catherine Maynard has served as Director of Operations of Abgenix since January 1998. From June 1996 to January 1998, Ms. Maynard was Associate Director, Animal Research Services and Microembryology at the Company. From 1992 to June 1996, Ms. Maynard worked at Cell Genesys in various positions, most recently as Associate Director, Animal Research Services and Microembryology. From 1988 to 1992, Ms. Maynard was Manager of the Core Transgenic Services at Imperial Cancer Research Fund. Ms. Maynard received a B.Sc. from the University of Manchester, U.K. Rivka Sherman-Gold, Ph.D., has served as Director of Business Development of Abgenix since October 1996. From September 1993 to October 1996, Dr. Sherman-Gold was Associate Director of Business Development at Athena Neurosciences, Inc., a biotechnology company. Dr. Sherman-Gold received a B.Sc. in chemistry and an M.Sc. in biophysics and physiology, both from the Technion, Israel Institute of Technology, a Ph.D. in life sciences from the Weizmann Institute of Science, Israel and an M.B.A. from California State University in San Jose. John Ward has served as Director of MIS of Abgenix since November 1996. From January 1996 to November 1996, Mr. Ward was Department Manager, Distributed Computing Department at Bechtel Nevada, a construction and engineering firm. From July 1988 to December 1995, he held various MIS positions at EG&G Energy Measurements, an engineering and management company. Mr. Ward received a B.S. in computer information systems from Arizona State University. COMMITTEES OF THE BOARD OF DIRECTORS The Compensation Committee consists of Dr. Sherwin, Mr. Logan and Dr. Behrens. The Compensation Committee makes recommendations regarding the Company's various incentive compensation and benefit plans and determines salaries for the executive officers and incentive compensation for employees and consultants of the Company. The Audit Committee consists of Dr. Sherwin, Mr. Logan and Dr. Behrens. The Audit Committee makes recommendations to the Board of Directors regarding the selection of independent auditors, reviews the results and scope of the audit and other services provided by the Company's independent auditors and reviews and evaluates the Company's control functions. BOARD COMPOSITION The Company's Bylaws provide that the number of members of the Company's Board of Directors shall be determined by the Board of Directors. The number of directors is currently set at seven. All members of the Company's Board of Directors hold office until the next annual meeting of stockholders or until their successors are duly elected and qualified. There are no family relationships among any of the directors, officers or key employees of the Company. Cell Genesys and the Company have entered into the Governance Agreement which provides that so long as Cell Genesys or a group to which it belongs owns (i) a majority of the outstanding voting stock of the Company, Cell Genesys or the group shall have the right to nominate four out of the seven directors of the Company, (ii) less than a majority but greater than 25% of the outstanding voting stock of the Company, then Cell Genesys or such group shall have the right to nominate three out of the seven directors of the Company, or (iii) less than 25% but greater than 15% of the outstanding voting stock of the Company, then Cell Genesys or such group shall have the right to nominate one out of the seven directors of the Company. The Governance Agreement also provides that Cell Genesys and each officer and director of the Company who owns voting stock shall agree to vote for the persons nominated by Cell Genesys or the group to which it belongs as set forth above. See "Risk Factors -- Significant Influence by Cell Genesys, Inc." 52 54 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of the members of the Compensation Committee was, at any time since the formation of the Company, an officer or employee of the Company. No executive officer of the Company serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Company's Board of Directors or Compensation Committee. See "Certain Transactions" for a description of transactions between the Company and entities affiliated with members of the Compensation Committee. DIRECTOR COMPENSATION Directors do not currently receive any cash compensation from the Company for their service as members of the Board of Directors, although they are reimbursed for certain expenses in connection with attendance at Board and Committee meetings. The Company does not provide additional compensation for Committee participation or special assignments of the Board of Directors. From time to time, certain directors of the Company have received grants of options to purchase shares of the Company's Common Stock pursuant to the 1996 Incentive Stock Plan. On June 4, 1997, R. Scott Greer, Stephen A. Sherwin, Raju S. Kucherlapati and Joseph E. Maroun received options to purchase 67,500, 10,000, 7,500, and 7,500 shares of the Company's Common Stock, respectively, at a per share exercise price of $2.50. On August 8, 1997, Mark B. Logan received an option to purchase 30,000 shares of the Company's Common Stock at a per share exercise price of $4.00. On December 11, 1997, Raju S. Kucherlapati received an option to purchase 20,000 shares of the Company's Common Stock at a per share exercise price of $5.00. There were no other director option grants in 1997. On February 18, 1998, R. Scott Greer, Stephen A. Sherwin, M. Kathleen Behrens, Raju S. Kucherlapati, Mark B. Logan and Joseph E. Maroun received options to purchase 40,000, 5,900, 30,000, 4,400, 3,200 and 4,400 shares of the Company's Common Stock, respectively, at a per share exercise price of $6.00. Beginning after the date of this offering, nonemployee directors of the Company will be eligible to receive nondiscretionary, automatic grants of options to purchase shares of the Company's Common Stock pursuant to the 1998 Director Option Plan. See "-- Stock Plans -- 1998 Director Option Plan" and "Certain Transactions." 53 55 EXECUTIVE COMPENSATION The following table sets forth the compensation paid by the Company during the year ended December 31, 1997 to the President and Chief Executive Officer and to the Company's four other most highly compensated executive officers, each of whose aggregate compensation during the Company's last fiscal year exceeded $100,000 (the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS ------------ ANNUAL COMPENSATION SECURITIES -------------------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION --------------------------- -------- -------- ------------ ------------ R. Scott Greer............................ $252,000 $ 55,200 67,500 $ 4,112(1) President and Chief Executive Officer C. Geoffrey Davis, Ph.D................... 152,250 21,750 25,500 1,974(2) Vice President, Research Kurt W. Leutzinger(3)..................... 81,555 -- 100,000 127,059(4) Vice President, Finance and Chief Financial Officer John A. Lipani, M.D.(5)................... 131,250 -- 100,000 64,585(6) Vice President, Clinical Development Raymond M. Withy, Ph.D.................... 152,250 21,750 25,500 -- Vice President, Corporate Development
- --------------- (1) Consists of imputed interest income on a loan from the Company to Mr. Greer. (2) Consists of imputed interest income on a loan from the Company to Dr. Davis. (3) Mr. Leutzinger has been the Company's Vice President, Finance and Chief Financial Officer since July 1997. His 1997 annualized salary is $175,000. (4) Consists of $126,568 for reimbursement of relocation expenses and $491 for imputed interest income on a loan from the Company to Mr. Leutzinger. (5) Dr. Lipani has been the Company's Vice President, Clinical Development since April 1997. His 1997 annualized salary is $175,000. (6) Consists of $63,232 for reimbursement of relocation expenses and $1,353 for imputed interest income on a loan from the Company to Dr. Lipani. STOCK OPTION GRANTS The following table provides information relating to stock options awarded to each of the Named Executive Officers during the year ended December 31, 1997. All such options were awarded under the Company's 1996 Incentive Stock Plan. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE -------------------------------------------------- VALUE AT ASSUMED NUMBER OF PERCENT OF ANNUAL RATES OF STOCK SECURITIES TOTAL OPTIONS PRICE APPRECIATION UNDERLYING GRANTED FOR OPTIONS TERM(4) OPTIONS IN FISCAL EXERCISE EXPIRATION ----------------------- NAME GRANTED(1) 1997(2) PRICE(3) DATE 5% 10% - ---- ---------- ------------- -------- ---------- ---------- ---------- R. Scott Greer................ 67,500 10.0% $2.50 6/1/07 $1,040,704 $1,757,104 C. Geoffrey Davis, Ph.D....... 25,500 3.8 2.50 6/1/07 393,155 663,795 Kurt W. Leutzinger............ 100,000 14.8 2.50 6/26/07 1,541,784 2,603,117 John A. Lipani, M.D........... 100,000 14.8 0.60 2/12/07 1,731,784 2,793,117 Raymond M. Withy, Ph.D........ 25,500 3.8 2.50 6/1/07 393,155 663,795
- --------------- (1) The options granted to Mr. Greer and Drs. Davis and Withy became exercisable as to 1/48th of the option shares on the date of grant and an additional 1/48th of the option shares become exercisable on the first day of each calendar month thereafter, with full vesting occurring four years after the date of grant. The options granted to Mr. Leutzinger and Dr. Lipani become exercisable as to 25% of the option shares one year from the date of grant and 1/48th of the option shares become exercisable 54 56 on the first day of each calendar month thereafter, with full vesting occurring four years after the date of grant. In each case, vesting is subject to the optionee's continued relationship with the Company. Such options expire ten years from the date of grant, or earlier upon termination of employment. See "Stock Plans." (2) Based on an aggregate of 676,644 options granted by the Company in the year ended December 31, 1997 to employees, non-employee directors of and consultants to the Company, including the Named Executive Officers. (3) Options were granted at an exercise price equal to the fair market value of the Company's Common Stock, as determined by the Board of Directors on the date of grant. (4) The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the Securities and Exchange Commission. There can be no assurance provided to any executive officer or any other holder of the Company's securities that the actual stock price appreciation over the option term will be at the assumed 5% and 10% levels or at any other defined level. Unless the market price of the Common Stock appreciates over the option term, no value will be realized from the option grants made to the executive officers. The potential realizable value is calculated by assuming that the assumed initial public offering price of $11.00 per share appreciates at the indicated rate for the entire term of the option and that the option is exercised at the exercise price and sold on the last day of its term at the appreciated price. The potential realizable value computation is net of the applicable exercise price, but does not take into account applicable federal or state income tax consequences and other expenses of option exercises or sales of appreciated stock. AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets forth for each of the Named Executive Officers the number of shares of Common Stock acquired and the dollar value realized upon exercise of options during the year ended December 31, 1997 and the number and value of securities underlying unexercised options held at December 31, 1997:
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT SHARES DECEMBER 31, 1997 DECEMBER 31, 1997(1) ACQUIRED VALUE --------------------------- --------------------------- NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ----------- ----------- ------------- ----------- ------------- R. Scott Greer............ 107,240 $1,096,592 -- 235,260 -- $2,337,158 C. Geoffrey Davis, Ph.D. .................. -- -- 39,136 86,364 $399,948 856,802 Kurt W. Leutzinger........ -- -- -- 100,000 -- 850,000 John A. Lipani, M.D. ..... -- -- -- 100,000 -- 1,040,000 Raymond M. Withy, Ph.D. .. 10,000 104,000 29,136 86,364 295,948 856,802
- --------------- (1) Value realized and value of unexercised in-the-money options are based on a value of $11.00 per share, the assumed initial public offering price. Amounts reflected are based on the value per share, minus the per share exercise price, multiplied by the number of shares acquired on exercise or underlying the option. STOCK PLANS 1996 Incentive Stock Plan. As of March 31, 1998, a total of 2,891,250 shares of Common Stock have been authorized for issuance under the Company's 1996 Incentive Stock Plan (the "1996 Plan"). Under the 1996 Plan, as of March 31, 1998, options to purchase an aggregate of 1,702,904 shares were outstanding, 293,160 shares of Common Stock had been purchased pursuant to exercises of stock options and stock purchase rights and 895,186 shares were available for future grant. The 1996 Plan provides for the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), nonqualified stock options and stock purchase rights to employees, consultants and nonemployee directors of the Company. Incentive stock options may be granted only to employees. The 1996 Plan is administered by the Board of Directors or a committee appointed by the Board of Directors, which determines the terms of awards granted, including the exercise price and the number of shares subject to the award and the exercisability thereof. The exercise price of incentive stock options granted under the 1996 Plan must be at least equal to the fair market value of the Company's Common Stock on the date of grant. However, for any employee holding more than 10% of the voting power of all classes of the Company's stock, the exercise price will be no less than 110% of the fair market value. The exercise price of nonqualified stock options is set by the administrator of the 1996 Plan. However, for any person holding more than 10% of the voting power of all classes of the Company's stock, the exercise price will be no less than 110% of the fair market value. The maximum term of options granted under the 1996 Plan is ten years. 55 57 An optionee whose relationship with the Company or any related corporation ceases for any reason (other than by death or total and permanent disability) may exercise options in the three-month period following such cessation, or such other period of time as determined by the administrator, unless such options terminate or expire sooner (or for nonstatutory stock options, later), by their terms. The three-month period is extended to twelve months for terminations due to death or total and permanent disability. In the event of a merger of the Company with or into another corporation, any outstanding options may either by assumed or an equivalent option may be substituted by the surviving entity or, if such options are not assumed or substituted, such options shall become exercisable as to all of the shares subject to the options, including shares as to which they would not otherwise be exercisable. In the event that options become exercisable in lieu of assumption or substitution, the Board of Directors shall notify optionees that all options shall be fully exercisable for a period of 30 days, after which such options shall terminate. No employee may be granted, in any fiscal year of the Company, options to purchase more than 750,000 shares (or 1,500,000 shares in the case of a new employee's initial employment with the Company). The 1996 Plan will terminate in June 2006, unless sooner terminated by the Board of Directors. The Board of Directors may also grant stock purchase rights to employees and consultants under the 1996 Plan. Such grants are made pursuant to a restricted stock purchase agreement with the price to be paid for the shares granted thereunder being determined by the administrator. The Company is generally granted a repurchase option exercisable on the voluntary or involuntary termination of the purchaser's employment with the Company for any reason (including death or disability). The repurchase price shall be the original purchase price paid by the purchaser. The repurchase option shall lapse at a rate determined by the administrator. Once the stock purchase right has been exercised, the purchaser shall have the rights equivalent to those of a stockholder. 1998 Employee Stock Purchase Plan. The Company has adopted a 1998 Employee Stock Purchase Plan (the "Purchase Plan"), and has reserved a total of 250,000 shares of Common Stock for issuance thereunder. The Purchase Plan also provides for an annual increase, commencing in 1999, in the number of shares reserved for issuance under the Purchase Plan equal to the lesser of 250,000, 1% of the Company's outstanding capitalization or a lesser amount determined by the Board (such that the maximum number of shares which could be reserved under the Purchase Plan over its term would be 2,500,000 shares). No shares have been issued under the Purchase Plan to date. The Purchase Plan, which is intended to qualify under Section 423 of the Code will be administered by the Board of Directors of the Company or by a committee appointed by the Board of Directors. Under the Purchase Plan, the Company will withhold a specified percentage (not to exceed 15%) of each salary payment to participating employees over certain offering periods. Any employee who is currently employed for at least 20 hours per week and for at least five consecutive months in a calendar year, either by the Company or by a majority-owned subsidiary of the Company, will be eligible to participate in the Purchase Plan. Unless the Board of Directors or the committee determines otherwise, each offering period will run for 24 months and will be divided into consecutive purchase periods of approximately six months. The first offering period and the first purchase period will commence on the date of this Prospectus. Thereafter, new 24 month offering periods will commence every six months on each November 1 and May 1. In the event of a change in control of the Company, including a merger of the Company with or into another corporation, or the sale of all or substantially all of the assets of the Company, the offering and purchase periods then in progress will be shortened. The price of Common Stock purchased under the Purchase Plan will be equal to 85% of the fair market value of the Common Stock on the first day of the applicable offering period or the last day of the applicable purchase period, whichever is lower. Employees may end their participation in the offering at any time during the offering period, and participation ends automatically on termination of employment with the Company. The maximum number of shares that a participant may purchase on the last day of any offering period is determined by dividing the payroll deductions accumulated during the purchase period by the purchase price. However, no person may purchase shares under the Purchase Plan to the 56 58 extent such person would own 5% or more of the total combined value or voting power of all classes of the capital stock of the Company or of any of its subsidiaries, or to the extent that such person's rights to purchase stock under all employee stock purchase plans would exceed $25,000 for any calendar year. The Board of Directors may amend the Purchase Plan at any time. The Purchase Plan will terminate in March 2008, unless terminated earlier in accordance with the provisions of the Purchase Plan. 1998 Director Option Plan. The Company has adopted a 1998 Director Option Plan (the "Director Plan"), and has reserved a total of 250,000 shares of Common Stock for issuance thereunder. Each nonemployee director who becomes a director of the Company after the date of this offering will be automatically granted a nonstatutory option to purchase 30,000 shares of Common Stock on the date on which such person first becomes a director (the "Initial Grant"). At each annual stockholders meeting beginning with the 1999 Annual Stockholders Meeting, each nonemployee director will automatically be granted a nonstatutory option to purchase 7,500 shares of Common Stock (10,000 shares for the Chairman of the Board if a nonemployee director) (the "Subsequent Grant"). The exercise price of options under the Director Plan will be equal to the fair market value of the Common Stock on the date of grant. The maximum term of the options granted under the Director Plan is ten years. Each Initial Grant under the Director Plan will vest as to 25% of the shares subject to the option one year after the date of grant and at a rate of 1/48th of the shares each month thereafter. Each Subsequent Grant will vest as to 1/48th of the shares subject to the option one month after the date of grant and at a rate of 1/48th of the shares on the last day of each month thereafter. In the event of a merger of the Company with or into another corporation, all outstanding options may either by assumed or an equivalent option may be substituted by the surviving entity or, if such options are not assumed or substituted, such options shall become exercisable as to all of the shares subject to the options, including shares as to which they would not otherwise be exercisable. In the event that options become exercisable in lieu of assumption or substitution, the Board of Directors shall notify optionees that all options shall be fully exercisable for a period of 30 days, after which such options shall terminate. In the event that a nonemployee-director is involuntarily terminated following option assumption, such option becomes fully vested and exercisable. The Director Plan will terminate in March 2008, unless terminated earlier in accordance with the provisions of the Director Plan. 401(k) PLAN The Company's employees who are located in the United States and have been employed by the Company for three months or more are covered by Cell Genesys' Retirement Savings and Investment Plan (the "401(k) Plan"). The 401(k) Plan will cover the Company's eligible employees so long as Cell Genesys owns 50% or more of the Company's outstanding Common Stock. Pursuant to the 401(k) Plan, employees may elect to reduce their current compensation by up to the lesser of 15% of their annual compensation or the statutorily prescribed annual limit allowable under Internal Revenue Service Regulations and to have the amount of such reduction contributed to the 401(k) Plan. The 401(k) Plan permits, but does not require, additional matching contributions by the Company on behalf of all participants in the 401(k) Plan. The Company has not made any contributions to the 401(k) Plan. The 401(k) Plan is intended to qualify under Section 401(k) of the Code so that contributions to the 401(k) Plan by employees or by the Company, and the investment earnings thereon, are not taxable to employees until withdrawn from the 401(k) Plan, and that contributions by the Company, if any, will be deductible by the Company when made. At such time as Cell Genesys' equity ownership in the Company drops below 50%, the Company's employees will not be eligible to participate in Cell Genesys' 401(k) Plan and the Company intends to implement its own retirement savings and investment plan. CHANGE IN CONTROL ARRANGEMENTS The Company's Board of Directors has approved a plan which provides that in the event of a change in control of the Company, the options of each employee of the Company whose employment 57 59 is terminated without cause within 24 months of the change in control shall be exercisable in full. For this purpose, a change in control includes: (i) a person becoming the beneficial owner of 50% or more of the Company's outstanding voting securities, (ii) certain changes in the composition of the Board of Directors occurring within a two year period or (iii) a merger or consolidation of the Company in which the stockholders of the Company immediately before the transaction own immediately after the transaction less than a majority of the outstanding voting securities of the surviving entity (or its parent). LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS The Company's Certificate of Incorporation 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 liability for (i) any breach of their duty of loyalty to the corporation or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) unlawful payments of dividends or unlawful stock repurchases or redemptions, or (iv) any transaction from which the director derived an improper personal benefit. Such limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission. The Company's Bylaws provide that the Company shall indemnify its directors and executive officers and may indemnify its other officers and employees and other agents to the fullest extent permitted by law. The Company believes that indemnification under its Bylaws covers at least negligence and gross negligence on the part of indemnified parties. The Company's Bylaws also permit it to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether the Bylaws would permit indemnification. The Company has entered into agreements to indemnify its directors and executive officers, in addition to indemnification provided for in the Company's Bylaws. These agreements, among other things, indemnify the Company's directors and executive officers for certain expenses (including attorneys' fees), judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of the Company arising out of such person's services as a director or executive officer of the Company, any subsidiary of the Company or any other company or enterprise to which the person provides services at the request of the Company. The Company believes that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers. 58 60 CERTAIN TRANSACTIONS Incorporation and Organization of Abgenix. Pursuant to the terms of the Stock Purchase and Transfer Agreement (the "Agreement") between Abgenix and Cell Genesys, Abgenix issued 1,691,667 shares of Series A Senior Convertible Preferred Stock to Cell Genesys in exchange for $10 million, and 2,058,333 shares of Series 1 Subordinated Convertible Preferred Stock to Cell Genesys, and in exchange, Cell Genesys contributed research, development and manufacturing technology, patents and other intellectual property specific to the antibody therapy programs to be pursued by Abgenix, including Cell Genesys' interest in Xenotech, and certain equipment, furniture and fixtures leased by Cell Genesys. Abgenix is responsible for the remaining lease obligations for such capital equipment which total approximately $38,000 per month. Cell Genesys also assigned to the Company two notes receivable totaling $150,000. On July 15, 1996, the Registrant, in exchange for a loan in the principal amount of up to $4,000,000, issued a Convertible Promissory Note to Cell Genesys that subsequently was converted into 666,667 shares of Series A Preferred Stock at a conversion price of $6.00 upon the closing of the Series B Preferred Stock Financing in December 1997 (see "Preferred Stock Financings"). Simultaneously with the execution of the Agreement, Abgenix and Cell Genesys entered into a Governance Agreement, Tax Sharing Agreement, Services Agreement and Patent Assignment Agreement. In addition, Abgenix and Cell Genesys entered into an Immunization Services Agreement, Gene Therapy Agreement and Voting Agreement. The Immunization Services Agreement, Gene Therapy Agreement and Voting Agreement were superseded by the Gene Therapy Rights Agreement. See "Business -- Corporate Arrangements." The Governance Agreement provides that so long as Cell Genesys or a group to which it belongs owns (i) a majority of the outstanding voting stock of Abgenix, Cell Genesys or the group shall have the right to nominate four out of the seven directors of the Company, (ii) less than a majority but greater than 25% of the outstanding voting stock of Abgenix, then Cell Genesys or such group shall have the right to nominate three out of the seven directors of the Company, or (iii) less than 25% but greater than 15% of the outstanding voting stock of Abgenix, then Cell Genesys or such group shall have the right to nominate one out of the seven directors of the Company. The Governance Agreement also provides that Cell Genesys and each officer and director of Abgenix who owns voting stock shall agree to vote for the persons nominated as set forth above. The Tax Sharing Agreement (the "Tax Agreement") provides for the allocation of federal and state tax liabilities between Abgenix and Cell Genesys. Pursuant to the terms of the Tax Agreement, Abgenix will pay to Cell Genesys the federal and state income and franchise tax liability that Abgenix would have owed if it had filed separate returns. If Abgenix realizes a loss or credit that reduces the consolidated tax liability of Cell Genesys, then Cell Genesys shall pay Abgenix the amount of the reduction. The Tax Agreement shall remain in effect with respect to any taxable year for which consolidated or combined returns are filed by Cell Genesys as a common parent corporation and such party is an includable party in such consolidated return. Pursuant to the terms of the Services Agreement, Cell Genesys provided certain administrative services for a quarterly fee. In fiscal 1997, these fees totaled $60,000. Pursuant to the terms of the Patent Assignment Agreement, Cell Genesys assigned to Abgenix all of its rights in and to certain patents and patent applications related to antibody development. Other Transactions with Cell Genesys. On January 23, 1997 and March 27, 1997, the Company issued two warrants to purchase an aggregate of 121,667 shares of Series A Preferred Stock (convertible into 121,667 shares of Common Stock) to Cell Genesys at the exercise price per share of $6.00 in return for providing guarantees for the Loan and Security Agreement with Silicon Valley Bank and the Master Lease Agreement with Transamerica Business Credit Corporation. 59 61 In October 1997, Cell Genesys extended a short-term, convertible line of credit facility (the "LOC") to Abgenix. The LOC terminated in accordance with its terms, without Abgenix drawing upon the LOC, upon the closing of the Series B Preferred Stock financing in December 1997. BancAmerica Robertson Stephens Relationship. M. Kathleen Behrens, Ph.D. a director of the Company, is also a managing director of Robertson Stephens Investment Management Co. BancAmerica Robertson Stephens acted as one of the Company's placement agents in the Series B Preferred Stock financing in December 1997. BancAmerica Robertson Stephens received approximately $759,000 in fees for services provided in the private placement. Also, persons and entities affiliated with BancAmerica Robertson Stephens purchased, in the aggregate, 784,616 shares of the Series B Preferred Stock for an aggregate purchase price of approximately $5.1 million. BancAmerica Robertson Stephens is also serving as one of the underwriters in this offering. Preferred Stock Financings. The holders of Preferred Stock include, among others, the following directors and holders of more than 5% of the Company's outstanding stock:
PREFERRED STOCK --------------------- PREFERRED STOCKHOLDER SERIES A SERIES B --------------------- --------- -------- Cell Genesys, Inc.(1)....................................... 4,538,334 -- Robertson Stephens Investment Management Co. Entities(2).... -- 769,231 S-E Banken Entities(3)...................................... -- 461,532 Stephen A. Sherwin, M.D.(4)................................. 4,538,334 -- M. Kathleen Behrens, Ph.D.(5)............................... -- 784,616 Raju Kucherlapati, Ph.D.(6)................................. 4,538,334 10,000 Joseph E. Maroun(7)......................................... 4,538,334 153,846
- --------------- (1) Includes 121,667 shares issuable pursuant to outstanding warrants to purchase Series A Preferred Stock. (2) Includes 56,280 shares held by Bayview Investors, LTD, 224,145 shares held by Crossover Fund II, L.P., 67,663 shares held by Crossover Fund IIA, L.P., 334,079 shares held by Omega Ventures II, L.P., 87,064 shares held by Omega Ventures II Cayman, L.P. (collectively, the "Robertson Stephens Investment Management Co. Shares"). Each of the above entities is affiliated with Robertson Stephens Investment Management Co. (3) Includes 392,305 shares held by S-E Banken -- Lakemedelsfond and 69,227 shares held by S-E Banken -- Luxembourg S.A. (4) Includes 4,416,667 shares held by Cell Genesys and 121,667 shares issuable pursuant to outstanding warrants to purchase Series A Preferred Stock (collectively, the "Cell Genesys Owned Shares"). Dr. Sherwin is an officer, director and beneficial stockholder of Cell Genesys, Inc. As such, he may be deemed to have voting and dispositive power over the Cell Genesys Owned Shares. However, Dr. Sherwin disclaims beneficial ownership of the Cell Genesys Owned Shares except to the extent of his pro rata pecuniary interest therein. (5) Includes the Robertson Stephens Investment Management Co. Shares. Dr. Behrens, a managing director of Robertson Stephens Investment Management Co., disclaims beneficial ownership of the shares of the Company held by the Robertson Stephens Investment Management Co. Entities except to the extent of her pro rata pecuniary interest therein. (6) Includes the Cell Genesys Owned Shares. Dr. Kucherlapati is a director and beneficial stockholder of Cell Genesys. As such, he may be deemed to have voting power over the Cell Genesys Owned Shares. However, Dr. Kucherlapati disclaims beneficial ownership of the Cell Genesys Owned Shares except to the extent of his pecuniary interest therein. (7) Includes the Cell Genesys Owned Shares. Mr. Maroun is a director and beneficial stockholder of Cell Genesys. As such, he may be deemed to have voting and dispositive power over the Cell Genesys Owned Shares. However, Mr. Maroun disclaims beneficial ownership of the Cell Genesys Owned Shares except to the extent of his pro rata pecuniary interest therein. In connection with, and contemporaneous to, the Series B Preferred Stock financing the shares of Series A Senior Convertible Preferred Stock, the shares of Series 1 Subordinated Convertible Preferred Stock and the Convertible Promissory Note issued to Cell Genesys in July 1996 (see above) were all converted into an aggregate 4,416,667 shares of Series A Preferred Stock. Holders of Preferred Stock are entitled to certain registration rights with respect to the Common Stock issued or issuable upon conversion thereof. See "Description of Capital Stock -- Registration Rights." After the completion of this offering, Cell Genesys will beneficially own approximately 40.3% of the outstanding capital stock. As a result, Cell Genesys will have significant influence over all matters 60 62 requiring the approval of the Company's stockholders, including the election of the Company's Board of Directors. See "Risk Factors -- Significant Influence by Cell Genesys, Inc." Three of the Company's directors, Stephen A. Sherwin, M.D., Raju S. Kucherlapati, Ph.D. and Joseph E. Maroun are also directors of Cell Genesys. Dr. Sherwin is also the Chairman of the Board and Chief Executive Officer of Cell Genesys. See above for a description of transactions with Cell Genesys. Transactions with Employees. On May 27, 1997, John A. Lipani, M.D. the Company's Vice President, Clinical Development, and Abgenix entered into a Relocation Loan Agreement pursuant to which Abgenix loaned $100,000 to Dr. Lipani in exchange for a promissory note secured by a deed of trust. No interest accrues on the loan until May 27, 2002. The outstanding principal balance as of December 31, 1997 was $100,000. In addition, Dr. Lipani received a $35,000 loan from Abgenix to assist with relocation expenses. The $35,000 loan, which is evidenced by a promissory note, will be forgiven in full once Dr. Lipani completes 12 months of employment. On December 2, 1992, R. Scott Greer, the Company's President and Chief Executive Officer, and Cell Genesys entered into a Relocation Loan Agreement pursuant to which Cell Genesys loaned $100,000 to Mr. Greer in exchange for an interest free promissory note secured by shares of Cell Genesys' Common Stock owned by Mr. Greer. In June 1996, Cell Genesys assigned its rights under the promissory note to the Company. Mr. Greer repaid the entire loan to the Company in September 1997. On April 21, 1995, C. Geoffrey Davis, Ph.D. the Company's Vice President, Research, and Cell Genesys entered into a Relocation Loan Agreement pursuant to which Cell Genesys loaned $30,000 to Dr. Davis in exchange for a promissory note secured by a deed of trust. No interest accrues on the loan until January 1, 2000. In June 1996, Cell Genesys assigned its rights under the promissory note to the Company. As of December 31, 1997, the outstanding principal balance was $30,000. On August 26, 1997, Mr. Leutzinger received a $25,000 loan from Abgenix to assist with relocation expenses. The $25,000 loan, which is evidenced by a full recourse promissory note, will be forgiven in full once Mr. Leutzinger completes 12 months of employment. On February 27, 1998, Mr. Leutzinger and Abgenix entered into a Relocation Loan Agreement pursuant to which Abgenix loaned $100,000 to Mr. Leutzinger in exchange for a promissory note secured by a deed of trust. No interest accrues on the loan until June 30, 2003. The Company has entered into indemnification agreements with each of its directors and executive officers. See "Management -- Limitation of Liability and Indemnification Matters." All future transactions, including any loans from Abgenix to its officers, directors, principal stockholders or affiliates, will be approved by a majority of the Board of Directors, including a majority of the independent and disinterested members of the Board of Directors or, if required by law, a majority of disinterested stockholders, and will be on terms no less favorable to Abgenix than could be obtained from unaffiliated third parties. 61 63 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of the Common Stock as of March 31, 1998, and as adjusted to reflect the sale of the Common Stock offered hereby for: (i) each person or entity who is known by the Company to own beneficially more than 5% of the Common Stock, (ii) each of the Company's directors, (iii) each Named Executive Officer and (iv) all directors and executive officers as a group.
PERCENTAGE OF SHARES BENEFICIALLY OWNED(1) SHARES -------------------- BENEFICIALLY PRIOR TO AFTER BENEFICIAL OWNER OWNED OFFERING OFFERING ---------------- ------------ -------- -------- Cell Genesys, Inc.(2)....................................... 4,538,334 55.0% 40.3% 342 Lakeside Drive Foster City, CA 94404 Robertson Stephens Investment Management Co. Entities(3).... 769,231 9.5 6.9 555 California Street, Suite 2600 San Francisco, CA 94104 S-E Banken Entities(4)...................................... 461,532 5.7 4.1 ST-R2, S-106 40 Stockholm, Sweden Joseph E. Maroun(5)......................................... 4,708,107 56.9 41.8 Stephen A. Sherwin, M.D.(6)................................. 4,587,074 55.2 40.6 Raju S. Kucherlapati, Ph.D.(7).............................. 4,566,344 55.2 40.5 M. Kathleen Behrens, Ph.D.(3)............................... 784,616 9.6 7.0 R. Scott Greer(8)........................................... 147,084 1.8 1.3 C. Geoffrey Davis, Ph.D.(9)................................. 53,250 * * Raymond M. Withy, Ph.D.(10)................................. 53,250 * * Kurt W. Leutzinger.......................................... 0 * * John A. Lipani, M.D.(11).................................... 28,411 * * Mark B. Logan............................................... 0 * * All directors and executive officers as a group (10 persons)(12).............................................. 5,851,468 69.1 51.0
- --------------- * Represents beneficial ownership of less than one percent of the Common Stock. (1) Beneficial ownership is determined in accordance with the rules of Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Except as indicated by footnote, and subject to community property laws where applicable, the stockholders named in the table above has sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. Percentage of beneficial ownership is based on 8,137,512 shares of Common Stock outstanding as of March 31, 1998 and 11,137,512 shares of Common Stock outstanding after completion of this offering. (2) Includes 121,667 shares issuable pursuant to warrants exercisable within 60 days of March 31, 1998. (3) Includes 56,280 shares held by Bayview Investors, LTD, 224,145 shares held by Crossover Fund II, L.P., 67,663 shares held by Crossover Fund IIA, L.P., 334,079 shares held by Omega Ventures II, L.P. and 87,064 shares held by Omega Ventures II Cayman, L.P. Each of the above entities is affiliated with Robertson Stephens Investment Management Co. Dr. Behrens, a managing director of Robertson Stephens Investment Management Co., disclaims beneficial ownership of the shares of the Company held by the Robertson Stephens Investment Management Co. Entities except to the extent of her pro rata pecuniary interests therein. (4) Includes 392,305 shares held by S-E Banken -- Lakemedelsfond and 69,227 shares held by S-E Banken -- Luxembourg S.A. (5) Includes the Cell Genesys Owned Shares. Also includes 15,927 shares issuable upon exercise of options exercisable within 60 days of March 31, 1998. Mr. Maroun is a director and beneficial stockholder of Cell Genesys. As such, he may be deemed to have voting and dispositive power over the Cell Genesys Owned Shares. However, Mr. Maroun disclaims beneficial ownership of the Cell Genesys Owned Shares except to the extent of his pro rata pecuniary interest therein based upon his beneficial ownership of the capital stock of Cell Genesys. (6) Includes the Cell Genesys Owned Shares. Also includes, 48,740 shares issuable upon exercise of options exercisable within 60 days of March 31, 1998. Dr. Sherwin is an officer, director and beneficial stockholder of Cell Genesys. As such, he may be deemed to have voting and dispositive power over the Cell Genesys Owned Shares. However, Dr. Sherwin disclaims beneficial ownership of the Cell Genesys Owned Shares except to the extent of his pro rata pecuniary interest therein based upon his beneficial ownership of the capital stock of Cell Genesys. 62 64 (7) Includes the Cell Genesys Owned Shares. Also includes, 18,010 shares issuable upon exercise of options exercisable within 60 days of March 31, 1998. Dr. Kucherlapati is a director and beneficial stockholder of Cell Genesys. As such, he may be deemed to have voting and dispositive power over the Cell Genesys Owned Shares. However, Dr. Kucherlapati disclaims beneficial ownership of the shares of the Cell Genesys Owned Shares except to the extent of his pro rata pecuniary interest therein based upon his beneficial ownership of the capital stock of Cell Genesys. (8) Includes 25,574 shares issuable upon exercise of options exercisable within 60 days of March 31, 1998. (9) Includes 53,250 shares issuable upon exercise of options exercisable within 60 days of March 31, 1998. (10) Includes 17,834 shares issuable upon exercise of options exercisable within 60 days of March 31, 1998. (11) Includes 28,411 shares issuable upon exercise of options exercisable within 60 days of March 31, 1998. (12) Includes 207,746 shares issuable upon exercise of options exercisable within 60 days of March 31, 1998 and 121,667 shares subject to warrants. 63 65 DESCRIPTION OF CAPITAL STOCK GENERAL The Company's Restated Certificate of Incorporation, which will become effective upon the closing of this offering, authorizes the issuance of up to 50,000,000 shares of Common Stock, $0.0001 par value per share and authorizes the issuance of 5,000,000 shares of Preferred Stock, $0.0001 par value per share, the rights and preferences of which may be established from time to time by the Company's Board of Directors. As of March 31, 1998, 293,160 shares of Common Stock were issued and outstanding and held by 59 stockholders and 7,844,352 shares of Preferred Stock were issued and outstanding and held by 31 stockholders. Upon the closing of this offering, all outstanding shares of Preferred Stock will convert into an aggregate of 7,844,352 shares of Common Stock. COMMON STOCK Each holder of Common Stock is entitled to one vote for each share held on all matters to be voted upon by the stockholders and there are no cumulative voting rights. Subject to preferences that may be applicable to any outstanding Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of the Company, holders of Common Stock would be entitled to share in the Company's assets remaining after the payment of liabilities and the satisfaction of any liquidation preference granted to the holders of any outstanding shares of Preferred Stock. Holders of Common Stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are, and the shares of Common Stock offered by the Company in this offering, when issued and paid for, will be, fully paid and nonassessable. 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 Preferred Stock which the Company may designate in the future. PREFERRED STOCK Upon the closing of this offering, the Board of Directors will be authorized, without any further action by the stockholders, subject to any limitations prescribed by law, without stockholder approval, from time to time to issue up to an aggregate of 5,000,000 shares of Preferred Stock, $0.0001 par value per share, in one or more series, each of such series to have such rights and preferences, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be determined by the Board of Directors. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of holders of any Preferred Stock that may be issued in the future. Issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of the outstanding voting stock of the Company. The Company has no present plans to issue any shares of Preferred Stock. WARRANTS AND OTHER OBLIGATIONS TO ISSUE CAPITAL STOCK As of March 31, 1998, the Company has two outstanding warrants to purchase an aggregate of 121,667 shares of Series A Preferred Stock at an exercise price of $6.00 per share. These warrants are currently exercisable. One warrant will expire on January 23, 2000 and the other warrant will expire on March 27, 2000. Also, as of March 31, 1998, the Company is obligated to issue 25,000 shares of the Common Stock upon the occurrence of certain milestones pursuant to the terms of a license agreement. 64 66 REGISTRATION RIGHTS OF CERTAIN HOLDERS After the offering, the holders of 7,844,352 shares of Common Stock and 121,667 shares of Common Stock issuable upon exercise of outstanding warrants (the "Registrable Securities") or their transferees are entitled to certain rights with respect to the registration of such shares under the Securities Act. These rights are provided under the terms of an agreement (the "Amended and Restated Stockholder Rights Agreement") between the Company and the holders of the Registrable Securities. The holders of at least 50% of the Registrable Securities may require, subject to the lock-up agreements described under "Underwriting" and certain limitations in the Amended and Restated Stockholder Rights Agreement, on two occasions, that the Company use its best efforts to register the Registrable Securities for public resale. If the Company registers any of its Common Stock either for its own account or for the account of other security holders, other than in connection with the registration of the shares offered hereby and certain other exceptions, the holders of Registrable Securities are entitled to include their shares of Common Stock in the registration. A holder's right to include shares in an underwritten registration statement is subject to the right of the underwriters to limit the number of shares included in the offering, subject to certain limitations. The holders of Registrable Securities may also require the Company on no more than two occasions during any 12-month period to register all or a portion of their Registrable Securities on Form S-3 when use of such form becomes available to the Company, provided, among other limitations, that the proposed aggregate selling price, net of underwriting discounts and commissions, is at least $500,000. All registration expenses will be borne by the Company (subject to certain limitations) and all selling expenses relating to Registrable Securities must be borne by the holders of the securities being requested. If such holders, by exercising their demand registration rights, cause a large number of securities to be registered and sold in the public market, such sales could have an adverse effect on the market price for the Company's Common Stock. If the Company were to initiate a registration and include Registrable Securities pursuant to the exercise of piggyback registration rights, the sale of such Registrable Securities may have an adverse effect on the Company's ability to raise capital. CERTAIN CHARTER AND BYLAW PROVISIONS AND DELAWARE LAW Certain provisions of the Company's Restated Certificate of Incorporation and Bylaws may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of the Company's Common Stock. Certain of these provisions allow the Company to issue Preferred Stock without any vote or further action by the stockholders, eliminate the right of stockholders to act by written consent without a meeting and eliminate cumulative voting in the election of directors. These provisions may make it more difficult for stockholders to take certain corporate actions an could have the effect of delaying or preventing a change in control of the Company. In addition, the Company is subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder, unless: (i) prior to such date, the Board of Directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of 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 those shares owned by persons who are directors and also officers and 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; of (iii) on or subsequent to such date, the business combination is approved by the Board of Directors 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. 65 67 The Company's Amended and Restated Certificate of Incorporation eliminates the right of stockholders to call special meetings of stockholders to act by written consent without a meeting. The Amended and Restated Certificate of Incorporation and Bylaws do not provide for cumulative voting in the election of directors. The authorization of undesignated Preferred Stock makes it possible for the board of directors to issue Preferred Stock with voting or other rights or preferences that could impede the success of any attempt to change control of the Company. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of the Company. The amendment of any of these provisions would require approval by holders of at least 66 2/3% of the outstanding Common Stock. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is Chase Mellon Shareholder Services. 66 68 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no market for the Common Stock of the Company. Future sales of substantial amounts of Common Stock in the public market could adversely affect market prices prevailing from time to time. Sales of substantial amounts of Common Stock of the Company in the public market after the restrictions lapse could adversely affect the prevailing market price and the ability of the Company to raise equity capital in the future. Upon the completion of this offering, based on the number of shares outstanding as of March 31, 1998, the Company will have 11,137,512 shares of Common Stock outstanding, assuming (i) the issuance by the Company of shares of Common Stock offered hereby, (ii) no exercise of options, warrants or other obligations to issue shares after March 31, 1998 and (iii) no exercise of the Underwriters' over-allotment option to purchase 450,000 shares of Common Stock, except as otherwise noted. Of these shares, the 3,000,000 shares sold in this offering will be freely tradable without restriction under the Securities Act, unless held by "affiliates" of the Company, as that term is defined in Rule 144 under the Securities Act. The remaining 8,137,512 shares of Common Stock held by existing stockholders were issued and sold by the Company in reliance on exemptions from the registration requirements of the Securities Act. These shares may be sold in the public market only if registered, or pursuant to an exemption from registration such as Rule 144, 144(k) or 701 under the Securities Act. Ninety days after the date of this Prospectus, 29,668 shares of Common Stock will be freely tradable without restriction under the Securities Act, unless held by "affiliates" of the Company, as that term is defined in Rule 144 under the Securities Act. The Company's directors, executive officers and certain stockholders, who in the aggregate hold 7,990,025 of the shares of Common Stock of the Company outstanding immediately prior to the completion of this offering, have entered into lock-up agreements under which they have agreed not to offer, sell, contract to sell, grant any option to purchase or otherwise dispose of, or agree to dispose of, directly or indirectly, any shares of Common Stock, options or warrants to acquire shares of Common Stock or securities exchangeable for or convertible into Common Stock owned by them for a period of 180 days after the date of this Prospectus, without the prior written consent of BancAmerica Robertson Stephens. The Company has entered into a similar agreement, except that the Company may grant options and issue stock under its current stock option and stock purchase plans and pursuant to other currently outstanding options, warrants or other obligations to issues shares. Upon expiration of the 180-day lock-up agreement, 4,680,159 shares of Common Stock will become eligible for immediate public resale, subject to volume limitations pursuant to Rule 144. The remaining 3,356,020 shares held by existing stockholders will become eligible for public resale at various times over a period of less than one year following the completion of this offering, subject to volume limitations. In addition, a director and a certain stockholder who in the aggregate hold 71,665 of the shares of Common Stock outstanding immediately prior to the completion of this offering have entered into lock-up agreements substantially similar to the 180-day lock-up agreement described above except that the term of the lock-up is 360 days. Upon expiration of the 360-day lock-up agreements, all 71,655 of these shares will become eligible for public resale, subject to volume limitations imposed by Rule 144. After the offering, the holders of 7,844,352 shares of Common Stock will be entitled to certain demand and piggyback rights with respect to registration of such shares under the Securities Act. If such holders, exercising the demand registration rights, causes a large number of securities to be registered and sold in the public market, such shares could have an adverse effect on the market price for the Company's Common Stock. If the Company were to initiate a registration and include shares held by such holders pursuant to the exercise of their piggyback registration rights, such sales may have an adverse effect on the Company's ability to raise capital. Additionally, 121,667 shares issuable pursuant to warrants and subject to the 180-day lock-up agreement, will also be entitled to such registration rights. The number of shares sold in the public market could increase if such registration rights are exercised. As of March 31, 1998, 1,702,904 shares were subject to outstanding options. Approximately 1,592,752 of these shares are subject to the 180-day lock-up agreement described above. Of the remaining 110,152 shares subject to outstanding options, approximately 44,101 were vested as of 67 69 March 31, 1998. After this offering, the Company intends to file a Registration Statement on Form S-8 covering shares issuable under the Company's 1996 Plan (including shares subject to then outstanding options under such plans), Director Plan and Purchase Plan, thus permitting the resale of such shares in the public market without restriction under the Securities Act after expiration of the applicable lock-up agreements and any vesting restrictions. Also as of March 31, 1998, the Company is obligated to issue 25,000 shares of Common Stock upon the occurrence of certain milestones pursuant to the terms of a license agreement. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned shares for at least one year (including the holding period of any prior owner, except an affiliate) is entitled to sell in "broker's transactions" or to market makers, within any three-month period commencing 180 days or 360 days, as the case may be, after the date of this Prospectus, a number of shares that does not exceed the greater of (i) one percent of the number of shares of Common Stock then outstanding (approximately 111,375 shares immediately after this offering) or (ii) the average weekly trading volume of the Common Stock during the four calendar weeks preceding the required filing of a Form 144 with respect to such sale. Sales under Rule 144 are generally subject to certain manner of sale provisions and notice requirements and to the availability of current public information about the Company. Under Rule 144(k), a person who is not deemed to have been an affiliate of the Company at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell such shares without having to comply with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Under Rule 701 under the Securities Act, persons who purchase shares upon exercise of options granted prior to the effective date of this offering are entitled to sell such shares 180 days after the effective date of this offering in reliance on Rule 144, without having to comply with the holding period requirements of Rule 144 and, in the case of non-affiliates, without having to comply with the public information, volume limitation or notice provisions of Rule 144. 68 70 UNDERWRITING The underwriters named below, acting through their representatives, BancAmerica Robertson Stephens and Lehman Brothers Inc. (the "Representatives"), have severally agreed with the Company, subject to the terms and conditions of the Underwriting Agreement, to purchase the number of shares of Common Stock set forth opposite their respective names below. The Underwriters are committed to purchase and pay for all such shares if any are purchased.
NUMBER UNDERWRITER OF SHARES ----------- --------- BancAmerica Robertson Stephens.............................. Lehman Brothers Inc......................................... --------- Total............................................. 3,000,000 =========
The Representatives have advised the Company that the Underwriters propose to offer the shares of Common Stock to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession of not in excess of $ per share, of which $ may be reallowed to other dealers. After the initial public offering, the public offering price, concession and reallowance to dealers may be reduced by the Representatives. No such reduction shall change the amount of proceeds to be received by the Company as set forth on the cover page of this Prospectus. The Company has granted to the Underwriters an option, exercisable during the 30-Day period after the date of this Prospectus, to purchase up to 450,000 additional shares of Common Stock at the same price per share as the Company will receive for the 3,000,000 shares that the Underwriters have agreed to purchase. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage of such additional shares that the number of shares of Common Stock to be purchased by it shown in the above table represents as a percentage of the 3,000,000 shares offered hereby. If purchased, such additional shares will be sold by the Underwriters on the same terms as those on which the 3,000,000 shares are being sold. The Underwriting Agreement contains covenants of indemnity among the Underwriters and the Company against certain civil liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in the Underwriting Agreement. Each officer, director and certain other stockholders of the Company together holding or having dispositive power over substantially all of the shares of the Company's Common Stock and Redeemable Preferred Stock have agreed with the Representatives for a period of 180 days after the effective date of this Prospectus (the "180-Day Lock-Up Period") subject to certain exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with respect to any shares of Common Stock, any options or warrants to purchase any shares of Common Stock, or any securities convertible into or exchangeable for shares of Common Stock owned as of the date of this Prospectus or thereafter acquired directly by such holders or with respect to which they have or hereafter acquire the power of disposition, without the prior written consent of BancAmerica Robertson Stephens. Approximately 4,680,159 of such shares will be eligible for immediate public sale following expiration of the 180-Day Lock-Up Period, subject to the provisions of Rule 144. The remaining 3,356,020 shares will become eligible for public resale at various times over a period of less than one year following the completion of this offering, subject to volume limitations. In addition, in accordance with Rule 2710(c)(7)(A) of the National Association of Securities Dealers, Inc. Conduct Rules, Mary Kathleen Behrens, a managing director of Robertson Stephens Investment Management Co., and Bayview Investors, LTD., an affiliate 69 71 of Robertson Stephens Investment Management Co., have agreed for a period of 360 days after the effective date of this Prospectus (the "360-Day Lock-Up Period") not to sell, pledge, transfer or hypothecate on terms substantially similar to those described above, an aggregate of 71,665 shares of Common Stock held by them. All of the 71,665 shares will be eligible for immediate public sale following expiration of the 360-Day Lock-Up Period, subject to the provisions of Rule 144. However, BancAmerica Robertson Stephens may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements. In addition, the Company has agreed that during the 180-Day Lock-Up Period, the Company will not, without the prior written consent of BancAmerica Robertson Stephens, subject to certain exceptions, issue, sell, contract to sell, or otherwise dispose of, any shares of Common Stock, any options or warrants to purchase any shares of Common Stock or any securities convertible into, exercisable for or exchangeable for shares of Common Stock other than the Company's sale of shares in this offering, the issuance of Common Stock upon the exercise of outstanding options and the Company's issuance of options and shares under existing employee stock option and stock purchase plans. See "Shares Eligible For Future Sale." The Underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority in excess of 5% of the number of shares of Common Stock offered hereby. In December 1997, certain entities and persons affiliated with BancAmerica Robertson Stephens purchased an aggregate of 784,616 shares of the Company's Preferred Stock at a purchase price of $6.50 per share for an aggregate amount of approximately $5.1 million. Such shares convert into 784,616 shares of Common Stock on the closing of this offering. In addition, M. Kathleen Behrens, Ph.D., a director of the Company, is a managing director of Robertson Stephens Investment Management Co. Prior to this offering, there has been no public market for the Common Stock of the Company. Consequently, the initial public offering price for the Common Stock offered hereby was determined through negotiations among the Company and the Representatives. Among the factors considered in such negotiations were prevailing market conditions, certain financial information of the Company, market valuations of other companies that the Company and the Representatives believe to be comparable to the Company, estimates of the business potential of the Company, the present state of the Company's development and other factors deemed relevant. The Representatives have advised the Company that, pursuant to Regulation M under the Securities Act, certain persons participating in the offering may engage in transactions, including stabilizing bids, syndicate covering transactions or the imposition of penalty bids, which may have the effect of stabilizing or maintaining the market price of the Common Stock at a level above that which might otherwise prevail in the open market. A "stabilizing bid" is a bid for or the purchase of the Common Stock on behalf of the Underwriters for the purpose of fixing or maintaining the price of the Common Stock. A "syndicate covering transaction" is the bid for or the purchase of the Common Stock on behalf of the Underwriters to reduce a short position incurred by the Underwriters in connection with the offering. A "penalty bid" is an arrangement permitting the Representatives to reclaim the selling concession otherwise accruing to an Underwriter or syndicate member in connection with the offering if the Common Stock originally sold by such Underwriter or syndicate member is purchased by the Representatives in a syndicate covering transaction and has therefore not been effectively placed by such Underwriter or syndicate member. The Representatives have advised the Company that such transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. Certain legal matters in connection with this offering will be passed upon for the Underwriters by Cooley Godward LLP, Palo Alto, California. As of March 31, 1998, a certain investment partnership and members of Wilson Sonsini 70 72 Goodrich & Rosati, Professional Corporation, beneficially owned an aggregate of 16,250 shares of Common Stock of the Company. EXPERTS The financial statements of Abgenix, Inc. at December 31, 1996 and 1997, and for each of the three years in the period ended December 31, 1997 appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The financial statements of Xenotech, L.P. at December 31, 1996 and 1997 and for each of the three years in the period ended December 31, 1997 and for the period from inception (June 12, 1991) to December 31, 1997, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 under the Securities Act, with respect to the Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and such Common Stock, reference is made to the Registration Statement and the exhibits and schedules filed as a part thereof. Statements contained in this Prospectus as to the contents of any contract or any other document referred to are not necessarily complete. In each instance, reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, and each such statement is qualified in all respects by such reference. Copies of the Registration Statement, including exhibits and schedules thereto, may be inspected without charge at the Commission's principal office in Washington, D.C., or obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of the site is http://www.sec.gov. 71 73 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Abgenix, Inc., Audited Financial Statements Report of Ernst & Young LLP, Independent Auditors......... F-2 Balance Sheets............................................ F-3 Statements of Operations.................................. F-4 Statement of Changes in Redeemable Convertible Preferred Stock and Stockholders' Equity (Net Capital Deficiency).......... F-5 Statements of Cash Flows.................................. F-6 Notes to Financial Statements............................. F-7 Xenotech, L.P., Audited Financial Statements Report of Ernst & Young LLP, Independent Auditors......... F-22 Balance Sheets............................................ F-23 Statements of Operations.................................. F-24 Statement of Partners' Capital............................ F-25 Statements of Cash Flows.................................. F-26 Notes to Financial Statements............................. F-27
F-1 74 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Abgenix, Inc. We have audited the accompanying balance sheets of Abgenix, Inc. as of December 31, 1996 and 1997, and the related statements of operations, changes in redeemable convertible preferred stock and stockholders' equity (net capital deficiency), and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Abgenix, Inc. at December 31, 1996 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Palo Alto, California January 23, 1998 F-2 75 ABGENIX, INC. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PRO FORMA STOCKHOLDERS' DECEMBER 31, EQUITY AT ------------------- MARCH 31, MARCH 31, 1996 1997 1998 1998 (NOTE 9) -------- -------- --------- -------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents............................ $ 7,190 $ 4,617 $ 971 Short-term investments............................... 2,982 10,704 12,369 Prepaid expenses and other current assets............ 158 550 786 -------- -------- --------- Total current assets................................... 10,330 15,871 14,126 Property and equipment, net............................ 3,648 5,776 5,536 Deposits and other assets.............................. 379 437 535 -------- -------- --------- $ 14,357 $ 22,084 $ 20,197 ======== ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) Current liabilities: Short-term payable to parent......................... $ 2,429 $ 212 $ 68 Payable to Xenotech for cross-license and settlement obligation......................................... -- 3,750 3,750 Accounts payable..................................... -- 426 168 Deferred revenue from related party.................. 376 -- -- Accrued stock issuance costs......................... -- 1,200 -- Other accrued liabilities............................ 1,961 2,000 3,337 Current portion of long-term debt.................... -- 1,646 1,658 -------- -------- --------- Total current liabilities.............................. 4,766 9,234 8,981 Long-term note payable to parent....................... 1,757 -- -- Long-term debt......................................... -- 3,979 3,559 Commitments Redeemable convertible preferred stock, $0.0001 par value; 20,000,000 shares authorized, 3,750,000 and 7,263,209 shares issued and outstanding at December 31, 1996 and 1997, and 7,844,352 shares issued and outstanding at March 31, 1998; (no shares pro forma), at amount paid in; aggregate redemption and liquidation value of approximately $45,003 and $49,020 at December 31, 1997 and March 31, 1998, respectively......................................... 10,150 31,189 35,125 $ -- Redeemable convertible preferred stock subscription receivable........................................... -- (2,737) -- -- Redeemable convertible preferred stock issuable........ -- 2,737 -- -- Stockholders' equity (net capital deficiency): Common stock, $0.0001 par value; 50,000,000 shares authorized, 1,192, 233,542 and 293,160 shares issued and outstanding at December 31, 1996 and 1997 and March 31, 1998, respectively; (8,137,512 shares pro forma), at amount paid in............... 1 351 397 35,522 Contributions from parent............................ 14,277 29,277 29,277 29,277 Additional paid-in capital........................... -- 1,776 2,296 2,296 Deferred compensation................................ -- (1,248) (1,619) (1,619) Accumulated deficit.................................. (16,594) (52,474) (57,819) (57,819) -------- -------- --------- -------- Total stockholders' equity (net capital deficiency).... (2,316) (22,318) (27,468) $ 7,657 -------- -------- --------- ======== $ 14,357 $ 22,084 $ 20,197 ======== ======== =========
See accompanying notes. F-3 76 \ABGENIX, INC. STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------- ------------------ 1995 1996 1997 1997 1998 ------- ------- -------- -------- ------- (UNAUDITED) Revenues: Revenue under collaborative agreements from related parties (net of equity in losses of Xenotech of $1,702, $3,866 and $897 for the years ended December 31, 1995, 1996 and 1997, and $110 and $115 for the three months ended March 31, 1997 and 1998, respectively)........................ $ 6,200 $ 4,719 $ 1,343 $ 335 $ 291 Contract revenue........................ -- -- 611 -- 600 ------- ------- -------- -------- ------- Total revenues............................ 6,200 4,719 1,954 335 891 Operating expenses: Research and development................ 11,879 9,433 11,405 2,078 5,366 General and administrative.............. 2,603 2,565 3,525 1,004 918 Charge for cross-license and settlement- amount allocated from Cell Genesys... -- -- 11,250 11,250 -- Equity in losses from the Xenotech joint venture (charge for cross-license and settlement).......................... -- -- 11,250 3,750 -- ------- ------- -------- -------- ------- Total operating expenses.................. 14,482 11,998 37,430 18,082 6,284 ------- ------- -------- -------- ------- Operating loss............................ (8,282) (7,279) (35,476) (17,747) (5,393) Other income and expenses: Interest income......................... -- 203 307 124 197 Interest expense........................ -- (24) (711) (77) (149) ------- ------- -------- -------- ------- Net loss.................................. $(8,282) $(7,100) $(35,880) $(17,700) $(5,345) ======= ======= ======== ======== ======= Pro forma net loss per share.............. $ (9.22) $ (0.67) ======== ======= Shares used in computing pro forma net loss per share.......................... 3,894 7,953 ======== =======
See accompanying notes. F-4 77 ABGENIX, INC. STATEMENT OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
REDEEMABLE CONVERTIBLE PREFERRED REDEEMABLE REDEEMABLE STOCK CONVERTIBLE CONVERTIBLE SUBSCRIPTION PREFERRED STOCK PREFERRED STOCK RECEIVABLE ISSUABLE --------------- ------------ --------------- Balance at December 31, 1994....... $ -- $ -- $ -- Contributions from parent........ -- -- -- Net loss......................... -- -- -- ------- ------- ------- Balance at December 31, 1995....... -- -- -- Contributions from parent........ -- -- -- Issuance of 3,750,000 shares of Series A redeemable convertible preferred stock to parent for $10,000 cash and assignment of employee notes totalling $150 in July 1996................... 10,150 -- -- Issuance of 1,192 shares of common stock upon exercise of stock options.................. -- -- -- Net loss......................... -- -- -- ------- ------- ------- Balance at December 31, 1996....... 10,150 -- -- Contributions from parent........ -- -- -- Issuance of 2,846,542 shares of Series B redeemable convertible preferred stock in December 1997 for cash at $6.50 per share, net of issuance costs of $1,463......................... 17,039 -- -- Conversion of note payable to parent into 666,667 shares of Series A redeemable convertible preferred stock in December 1997........................... 4,000 -- -- Stock subscription to purchase 421,143 shares of Series B redeemable convertible preferred stock at $6.50 per share in December 1997......... -- (2,737) 2,737 Issuance of 176,756 shares of common stock upon exercise of stock options.................. -- -- -- Issuance of 55,594 shares of common stock upon the exercise of stock purchase rights....... -- -- -- Deferred compensation for stock options issued below deemed fair value..................... -- -- -- Amortization of deferred compensation................... -- -- -- Net loss......................... -- -- -- ------- ------- ------- Balance at December 31, 1997....... 31,189 (2,737) 2,737 Issuance of 160,000 shares of Series C redeemable convertible preferred stock at $8.00 per share (unaudited).............. 1,280 -- -- Issuance of 421,143 shares of Series B redeemable convertible preferred stock, net of issuance costs of $81 (unaudited).................... 2,656 2,737 (2,737) Issuance of 59,618 shares of common stock upon exercise of stock options (unaudited)...... -- -- -- Deferred compensation for stock options issued below deemed fair value (unaudited)......... -- -- -- Amortization of deferred compensation (unaudited)....... -- -- -- Net loss (unaudited)............. -- -- -- ------- ------- ------- Balance at March 31, 1998 (unaudited)...................... $35,125 $ -- $ -- ======= ======= ======= STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY) -------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' CONTRIBUTIONS ADDITIONAL EQUITY (NET COMMON FROM PAID-IN DEFERRED ACCUMULATED CAPITAL STOCK PARENT CAPITAL COMPENSATION DEFICIT DEFICIENCY) ------ ------------- ---------- ------------ ----------- ------------- Balance at December 31, 1994....... $ -- $ 1,212 $ -- $ -- $ (1,212) $ -- Contributions from parent........ -- 8,282 -- -- -- 8,282 Net loss......................... -- -- -- -- (8,282) (8,282) ---- ------- ------ ------- -------- -------- Balance at December 31, 1995....... -- 9,494 -- -- (9,494) -- Contributions from parent........ -- 4,783 -- -- -- 4,783 Issuance of 3,750,000 shares of Series A redeemable convertible preferred stock to parent for $10,000 cash and assignment of employee notes totalling $150 in July 1996................... -- -- -- -- -- -- Issuance of 1,192 shares of common stock upon exercise of stock options.................. 1 -- -- -- -- 1 Net loss......................... -- -- -- -- (7,100) (7,100) ---- ------- ------ ------- -------- -------- Balance at December 31, 1996....... 1 14,277 -- -- (16,594) (2,316) Contributions from parent........ -- 15,000 -- -- -- 15,000 Issuance of 2,846,542 shares of Series B redeemable convertible preferred stock in December 1997 for cash at $6.50 per share, net of issuance costs of $1,463......................... -- -- -- -- -- -- Conversion of note payable to parent into 666,667 shares of Series A redeemable convertible preferred stock in December 1997........................... -- -- -- -- -- -- Stock subscription to purchase 421,143 shares of Series B redeemable convertible preferred stock at $6.50 per share in December 1997......... -- -- -- -- -- -- Issuance of 176,756 shares of common stock upon exercise of stock options.................. 128 -- -- -- -- 128 Issuance of 55,594 shares of common stock upon the exercise of stock purchase rights....... 222 -- -- -- -- 222 Deferred compensation for stock options issued below deemed fair value..................... -- -- 1,776 (1,776) -- -- Amortization of deferred compensation................... -- -- -- 528 -- 528 Net loss......................... -- -- -- -- (35,880) (35,880) ---- ------- ------ ------- -------- -------- Balance at December 31, 1997....... 351 29,277 1,776 (1,248) (52,474) (22,318) Issuance of 160,000 shares of Series C redeemable convertible preferred stock at $8.00 per share (unaudited).............. -- -- -- -- -- -- Issuance of 421,143 shares of Series B redeemable convertible preferred stock, net of issuance costs of $81 (unaudited).................... -- -- -- -- -- -- Issuance of 59,618 shares of common stock upon exercise of stock options (unaudited)...... 46 -- -- -- -- 46 Deferred compensation for stock options issued below deemed fair value (unaudited)......... -- -- 520 (520) -- -- Amortization of deferred compensation (unaudited)....... -- -- -- 149 -- 149 Net loss (unaudited)............. -- -- -- -- (5,345) (5,345) ---- ------- ------ ------- -------- -------- Balance at March 31, 1998 (unaudited)...................... $397 $29,277 $2,296 $(1,619) $(57,819) $(27,468) ==== ======= ====== ======= ======== ========
See accompanying notes. F-5 78 ABGENIX, INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS) INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------- -------------------- 1995 1996 1997 1997 1998 ------- -------- -------- -------- -------- (UNAUDITED) OPERATING ACTIVITIES Net loss....................................... $(8,282) $ (7,100) $(35,880) $(17,700) $ (5,345) Adjustments to reconcile net loss to net cash used by operating activities: Equity in losses of Xenotech (including the charge for cross-license and settlement)... -- 3,866 12,147 3,860 115 Depreciation and amortization................ -- 8 1,489 85 445 Charge for cross-license and settlement...... -- -- 11,250 11,250 -- Changes in certain assets and liabilities: Prepaid expenses and other current assets................................... -- (58) (392) (666) (236) Deposits and other assets.................. -- (337) (78) -- (98) Short-term payable to parent............... -- 730 -- (939) (144) Accounts payable........................... -- -- 426 -- (258) Deferred revenue from related parties...... -- 376 (376) (376) -- Accrued stock issuance costs............... -- -- 1,200 -- (1,200) Other accrued liabilities.................. -- 345 39 (674) 1,337 ------- -------- -------- -------- -------- Net cash used in operating activities.......... (8,282) (2,170) (10,175) (5,160) (5,384) ------- -------- -------- -------- -------- INVESTING ACTIVITIES Purchases of short-term investments............ -- (2,982) (15,505) (4,824) (3,643) Sales of short-term investments at maturity.... -- -- 7,783 2,919 1,978 Capital expenditures........................... -- (334) (1,075) (1,195) (54) Contributions to Xenotech...................... -- (3,864) (4,647) (98) (117) ------- -------- -------- -------- -------- Net cash used in investing activities.......... -- (7,180) (13,444) (3,198) (1,836) ------- -------- -------- -------- -------- FINANCING ACTIVITIES Net proceeds from issuances of redeemable convertible preferred stock.................. -- 10,000 17,039 -- 3,936 Proceeds from issuance of note payable to parent....................................... -- 1,757 -- 819 -- Proceeds from long-term debt................... -- -- 4,300 4,757 -- Contributions from parent...................... 8,282 4,783 -- -- -- Payments under long-term debt.................. -- -- (643) -- (408) Proceeds from issuance of common stock......... -- -- 350 -- 46 ------- -------- -------- -------- -------- Net cash provided by financing activities...... 8,282 16,540 21,046 5,576 3,574 ------- -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents.................................. -- 7,190 (2,573) (2,782) (3,646) Cash and cash equivalents at the beginning of the period................................... -- -- 7,190 7,190 4,617 ------- -------- -------- -------- -------- Cash and cash equivalents at the end of the period....................................... $ -- $ 7,190 $ 4,617 $ 4,408 $ 971 ======= ======== ======== ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for interest......... $ -- $ 10 $ 632 $ -- $ 150 ======= ======== ======== ======== ======== NONCASH INVESTING AND FINANCING ACTIVITIES Allocation of charges related to the cross-license and settlement from parent and Xenotech..................................... $ -- $ -- $ 15,000 $ 15,000 $ -- ======= ======== ======== ======== ======== Conversion of note payable to parent........... -- -- 4,000 -- -- ======= ======== ======== ======== ======== Financed property and equipment acquisitions... -- 3,314 -- -- -- ======= ======== ======== ======== ======== Assignment of note receivable from Xenotech.... -- 30 -- -- -- ======= ======== ======== ======== ======== Assignment of note receivable from parent...... -- 150 -- -- -- ======= ======== ======== ======== ======== Furniture and equipment acquired under capital lease financing.............................. -- -- 1,968 447 -- ======= ======== ======== ======== ======== Deferred compensation related to grant of certain stock options........................ -- -- 1,776 -- 520 ======= ======== ======== ======== ========
See accompanying notes. F-6 79 ABGENIX, INC. NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Basis of Presentation Abgenix, Inc., a Delaware corporation ("Abgenix" or the "Company"), a subsidiary of Cell Genesys, Inc., ("Cell Genesys" or the "Parent") develops and intends to commercialize antibody therapeutic products for the prevention and treatment of a variety of disease conditions, including transplant-related diseases, inflammatory and autoimmune disorders and cancer. The Company has developed a proprietary technology which it believes enables it to quickly generate high affinity, fully human antibody product candidates to essentially any disease target appropriate for antibody therapy. The operations of Abgenix commenced in 1989 and were initially conducted as a research project within Cell Genesys. On June 24, 1996, Abgenix was incorporated and subsequently on July 15, 1996 it was organized pursuant to a Stock Purchase and Transfer Agreement between the Company and Cell Genesys. The agreement sets forth the terms and conditions for the transfer of the antibody business and operations within Cell Genesys to Abgenix. The accompanying financial statements include the operations of Abgenix since July 15, 1996, and the revenues and expenses of Abgenix as a research project within Cell Genesys prior to July 15, 1996. The Company was not a separate business unit or division within Cell Genesys and, therefore, no separate accounting records existed for the Company during the period it was operated as a research project within Cell Genesys. All administrative functions were handled by Cell Genesys and the costs of operations, while part of Cell Genesys, were estimated from project cost records and were recorded as contributions. All assets and liabilities for 1994 and 1995 were combined with Cell Genesys and it was impractical and not meaningful to carve out the balance sheets for such periods. As a result, it is not possible to present a detailed statement of cash flows for the Company for the year ended December 31, 1995. Prior to July 15, 1996, specifically identified revenues and costs such as research and development were allocated to Abgenix from Cell Genesys. General and administrative expenses were allocated based on Abgenix research and development expense as a percentage of Cell Genesys' total research and development expenses. From July 16, 1996 to July 31, 1997, Cell Genesys performed certain general and administrative functions on behalf of Abgenix. The Company estimates that the general and administrative costs would have been $500,000 to $1,000,000 higher (unaudited) for each year of operation on a stand-alone basis. The Company believes the allocation methodology used was reasonable. In 1997, the Company incurred an aggregate non-recurring charge for cross-license and settlement of $22,500,000 which represents an allocation of $11,250,000 from Cell Genesys and an entry to record the equity in the losses of an equally owned joint venture with JT America, Inc., a medical subsidiary of Japan Tobacco Inc. and the Company ("Xenotech") of $11,250,000 (see Note 6). Unaudited Pro Forma Stockholders' Equity (Net Capital Deficiency) If the offering contemplated by this Prospectus is consummated, all of the redeemable convertible preferred shares outstanding as of the closing date will automatically be converted into 7,844,352 shares of common stock based on the shares of redeemable preferred stock outstanding as of March 31, 1998. Unaudited pro forma stockholders' equity at March 31, 1998, as adjusted for the conversion of preferred stock, is disclosed on the balance sheet. Interim Financial Information The financial information at March 31, 1998 and for the three months ended March 31, 1997 and 1998 is unaudited but includes all adjustments (consisting only of normal recurring adjustments) F-7 80 ABGENIX, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) which the Company considers necessary for a fair presentation of the financial position at such date and the operating results and cash flows for those periods. Results for the three months ended March 31, 1998 are not necessarily indicative of results for any other interim period or for the entire year. Revenue Recognition Revenues related to collaborative research agreements with corporate partners are recognized ratably over the related funding periods for each contract. For research funding, the Company is required to perform research activities as specified in each respective agreement on a best efforts basis, and the Company is reimbursed based on the fees stipulated in the respective agreements which approximates cost. Deferred revenue may result when the Company does not incur the required level of effort during a specific period in comparison to funds received under the respective contracts. Milestone payments are recognized pursuant to collaborative agreements upon the achievement of the specified milestone, where no future obligation to perform exists for that milestone. Nonrefundable signing fees, under which no future obligation to perform exists, are recognized when the cash is received. Revenues related to the Xenotech research agreement are recognized net of the Company's related contributions to Xenotech. Research and Development Research and development expenses, including direct and allocated expenses, consist of independent research and development costs and costs associated with sponsored research and development. Net Loss Per Share In 1997, the Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standard No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share is computed using the weighted average number of common shares outstanding and excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. Potentially dilutive securities have been excluded from the computation as their effect is antidilutive. Pro forma net loss per share has been computed to give effect to the automatic conversion of redeemable convertible preferred stock into common stock upon completion of the Company's initial public offering (using the as-if-converted method) from the original date of issuance. F-8 81 ABGENIX, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) A reconciliation of shares used in calculation of basic and diluted and pro forma net loss per share follows:
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31, ------------------------- ---------------------------- 1996 1997 1997 1998 ----------- ----------- ------------- ------------ Net loss............................... $(7,100,000) $(35,880,000) $(17,700,000) $(5,345,000) =========== =========== ============ =========== Basic and diluted: Weighted-average shares of common stock outstanding used in computing basic and diluted net loss per share.................... 152 34,744 1,242 268,692 =========== =========== ============ =========== Basic and diluted net loss per share... $(46,710.53) $ (1,032.69) $ (14,251.21) $ (19.89) =========== =========== ============ =========== Pro forma: Shares used in computing basic and diluted net loss per share (from above)............................ 152 34,744 1,242 268,692 Adjusted to reflect the effect of the assumed conversion of preferred stock from the date of issuance... 3,750,000 3,858,843 3,750,000 7,684,352 ----------- ----------- ------------ ----------- Weighted-average shares used in computing pro forma net loss per share............................. 3,750,152 3,893,587 3,751,242 7,953,044 =========== =========== ============ =========== Pro forma net loss per share........... $ (1.89) $ (9.22) $ (4.72) $ (0.67) =========== =========== ============ ===========
Had the Company been in a net income position, diluted earnings per share would have included the shares used in the computation of pro forma net loss per share as well as an additional 1,168,883, 1,623,630, and 1,825,300 shares related to outstanding options and warrants not included above (determined using the treasury stock method at the estimated average fair value) for the years ended December 31, 1996 and 1997, and for the three months ended March 31, 1998, respectively. Net loss per share has not been presented prior to the Company's organization on July 15, 1996, as there were no outstanding equity securities prior to that period. Cash Equivalents and Short-Term Investments The Company considers all highly-liquid investments purchased with a maturity from the date of purchase of three months or less to be cash equivalents; investments with maturities in excess of three months are considered to be short-term investments. The Company's investment securities are classified as available-for-sale and carried at fair value. The Company determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date. Depreciation and Amortization The Company records property and equipment at cost and provides depreciation using the straight-line method over the estimated useful lives of the assets, generally five years. Furniture and equipment leased under capital leases is amortized over the shorter of the useful lives or the lease F-9 82 ABGENIX, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) term. Amortization of leased assets is included in depreciation and amortization expense and is combined with accumulated depreciation and amortization of the Company's owned assets. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Other Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), and Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"), which require additional disclosures to be adopted beginning in the first quarter of 1998 and on December 31, 1998, respectively. Under SFAS 130, the Company will be required to display comprehensive income and its components as part of the Company's full set of financial statements. SFAS 131 requires that the Company report financial and descriptive information about its reportable operating segments. The Company has determined that the impact of adopting SFAS 130 and SFAS 131 on its future financial statement disclosures is not material. 2. COLLABORATION AGREEMENT WITH XENOTECH Xenotech In 1991, Cell Genesys and JT America, Inc. formed Xenotech to develop genetically modified strains of mice which can produce human monoclonal antibodies and to commercialize products generated from these mice. Upon the creation of Abgenix, Cell Genesys' rights in the joint venture were assigned to the Company. Xenotech funds its research, which is generally conducted by Abgenix, through capital contributions from the partners. The Company paid and expensed as research and development $350,000, $172,500 and $195,000 related to licensing the rights to this technology from Xenotech for the years ended December 31, 1996 and 1997 and the three months ended March 31, 1998, respectively. F-10 83 ABGENIX, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 2. COLLABORATION AGREEMENT WITH XENOTECH -- (CONTINUED) The Company is obligated to pay 50% of all Xenotech's funding requirements. The Company accounts for its investment in Xenotech under the equity method; 50% of Xenotech's research and development expenses up to the Company's investment amount. Details are as follows:
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------- ------------------- 1995 1996 1997 1997 1998 ------ ------ -------- ------ --------- (IN THOUSANDS) Abgenix's share of Xenotech losses...... $2,315 $3,306 $ 12,347 $3,836 $ 117 Losses associated with cross-license and settlement........... -- -- (11,250) (3,750) -- Unabsorbed losses...... -- -- -- -- (2) Difference due to timing and change in deferred revenue..... (613) 560 (200) 24 -- ------ ------ -------- ------ --------- Equity in losses of Xenotech............. $1,702 $3,866 $ 897 $ 110 $ 115 ====== ====== ======== ====== =========
The Company recognized revenue of $6,200,000, $4,719,000, $1,343,000, $335,000 and $291,000 for the years ended 1995, 1996 and 1997, and for the three months ended March 31, 1997 and 1998, respectively, net of its own payments to the joint venture related to this revenue. Summary financial information for Xenotech is as follows:
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------- ------------------ 1995 1996 1997 1997 1998 -------- ------- -------- ------- ------- (IN THOUSANDS) Total assets......... $ 1,357 $ 492 $ 7,569 $ 7,985 $ 7,643 Total liabilities.... 601 59 7,556 7,494 7,566 Total revenues....... 4,747 1,912 272 25 210 Total operating expenses........... (11,926) (8,547) (24,964) (7,700) (445) Net loss............. (7,129) (6,614) (24,680) (7,672) (235)
3. COLLABORATION AND LICENSE AGREEMENTS CBL License Agreement On February 1, 1997, the Company entered into a license agreement for exclusive worldwide rights to commercialize ABX-CBL. The Company paid an initial license fee and is further obligated to pay annual fees and royalties on potential product sales. The Company is also obligated to issue 25,000 shares of its common stock upon the submission of a Product License Application for the first indication of the product. Research Collaboration and License Option Agreement with Pfizer In December 1997, Abgenix established a research collaboration with Pfizer Inc. ("Pfizer"). In connection with the execution of the agreement, Pfizer paid the Company a fee upon signing and may F-11 84 ABGENIX, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 3. COLLABORATION AND LICENSE AGREEMENTS -- (CONTINUED) make additional payments to Abgenix upon completion of certain research milestones. Additionally, Pfizer has an option to expand the research collaboration. The agreement expires in December 1999. Concurrent with the execution of the research collaboration agreement, Pfizer and Abgenix entered into a license and royalty agreement that grants Pfizer the option to acquire an exclusive, worldwide license to develop, make, use and sell antibody products derived from the research collaboration. If Pfizer chooses to exercise its option to expand the research collaboration, Abgenix could receive potential license fees and milestone payments of up to approximately $8,000,000 per antigen upon the completion of certain milestones, including preclinical and clinical trials and receipt of regulatory approval. Additionally, if a product receives marketing approval from the FDA or an equivalent foreign agency, the Company is entitled to receive royalties on future product sales by Pfizer. Pfizer will be responsible for manufacturing, product development and marketing of any products developed through this collaboration. In January 1998, the Company also entered into a stock purchase agreement with Pfizer to purchase 160,000 shares of the Company's Series C redeemable convertible preferred stock at $8.00 per share. The holder of each share of Series C redeemable convertible preferred stock is entitled to voting rights equivalent to the number of shares of common stock for which each share can be converted into and is convertible, at the option of the holder, into one share of common stock, subject to certain antidilution adjustments. Conversion is automatic upon the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933 at a per share price of $11.00 and an aggregate offering price of not less than $15,000,000. The holders of Series A and Series B preferred stock have priority over the holders of Series C preferred stock in any dividends declared and in liquidation preferences in the event of a winding up of the Company. The liquidation preference for Series C preferred stock is $8.00 per share. Noncumulative dividends on Series C preferred stock are payable at a rate of $0.64 per share per annum out of available earnings if and when declared by the board of directors. Research Collaboration with Schering-Plough In January 1998, Abgenix established a research collaboration with Schering-Plough Research Institute ("Schering-Plough"). In connection with the execution of the agreement, Schering-Plough paid the Company a fee upon signing and will be obligated to make additional payments to Abgenix upon completion of the research. In addition, the agreement provides Schering-Plough with an option, for a limited time, to enter into a research, option and license agreement that provides Schering-Plough an option to obtain with an exclusive worldwide license to develop, make, use and sell antibody products derived from the research collaboration. If the option is exercised, the research, option and license agreement may provide Abgenix with up to approximately $8,000,000 in additional research fees and milestone payments upon the completion of certain milestones, including preclinical and clinical trials and receipt of regulatory approval. Additionally, if a product receives marketing approval from the FDA or an equivalent foreign agency, the Company is entitled to receive royalties on future product sales by Schering-Plough. 4. AVAILABLE-FOR-SALE SECURITIES All of the Company's available-for-sale securities consist of commercial paper and U.S. government obligations and are classified as short-term investments. All investments mature within one year. F-12 85 ABGENIX, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 4. AVAILABLE-FOR-SALE SECURITIES -- (CONTINUED) These investments are carried at market, which approximates cost. There were no significant unrealized gains or losses related to these investments. The following is a summary of available-for-sale securities at fair value, which approximates amortized cost:
DECEMBER 31, ------------------ 1996 1997 ------- ------- (IN THOUSANDS) Commercial paper....................................... $10,093 $12,038 U.S. government obligations............................ -- 2,881 ------- ------- Total.................................................. $10,093 $14,919 ======= =======
Included in cash and cash equivalents at December 31, 1996 and 1997 are available-for-sale securities of $7,111,000 and $4,215,000, respectively. Included in short-term investments at December 31, 1996 and 1997 are available-for-sale securities of $2,982,000 and $10,704,000, respectively. At December 31, 1997, the average remaining maturity of the portfolio is less than 12 months. 5. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, ------------------ 1996 1997 ------- ------- (IN THOUSANDS) Furniture, machinery and equipment..................... $ 611 $ 2,188 Leasehold improvements................................. 3,037 4,503 ------- ------- 3,648 6,691 Less accumulated depreciation and amortization......... -- (915) ------- ------- $ 3,648 $ 5,776 ======= =======
The Company did not record any depreciation on assets in 1996 as such assets were all purchased in the last month of the year. Property and equipment financed under capital leases was $1,968,000 at December 31, 1997. Accumulated amortization related to this equipment totaled $383,000 at December 31, 1997. 6. COMMITMENTS Long-Term Note Payable to Cell Genesys In July 1996, the Company issued a $4,000,000 Convertible Promissory Note (the "Note") to Cell Genesys which the Company could draw against in order to pay for services provided by Cell Genesys. As of December 31, 1996, the Company had drawn $1,757,000 against the Note. Interest accrued at the rate of 6.82% per annum on the outstanding principal until July 15, 1997, whereupon the accrued interest was added to the outstanding principal of the Note. The entire principal and accrued interest amount was due on or before July 14, 2000. In December 1997, the Company had drawn $4,000,000 against the Note and Cell Genesys exercised its option to convert the Note into 666,667 shares of Series A convertible preferred stock at a conversion price of $6.00 per share. F-13 86 ABGENIX, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 6. COMMITMENTS -- (CONTINUED) Short-Term Payable to Cell Genesys Until June 30, 1997, the Company reimbursed Cell Genesys for payments made to third parties on behalf of the Company. At December 31, 1997 and March 31, 1998, the Company owed $212,000 and $68,000 to Cell Genesys for this reimbursement. Loan On January 24, 1997, the Company secured a loan with a bank in the amount of $4,300,000 in order to finance tenant improvements on its facility in Fremont, California. The loan matures in January 2001 and bears an annual interest rate of prime plus 1.0% (9.5% for the year ended December 31, 1997). The loan is guaranteed by Cell Genesys until the Company completes an initial public offering of its common stock which raises net proceeds of at least $20,000,000, and the loan is secured by substantially all tangible and intangible assets of the Company. Capital Lease On March 28, 1997, the Company entered into a lease agreement with a financing company under which the Company may finance up to $3,000,000 of its laboratory and office equipment. The lease term is 48 months and is guaranteed by Cell Genesys until the Company completes its initial public offering of its common stock which raises net proceeds of at least $20,000,000. Future principal payments under the loan and minimum payments under the capital lease are as follows:
CAPITAL TOTAL LOAN LEASE PAYMENTS ------- ------- -------- (IN THOUSANDS) Year ending December 31, 1998.................................... $ 1,259 $ 594 $ 1,853 1999.................................... 1,259 594 1,853 2000.................................... 1,258 594 1,852 2001.................................... 105 432 537 ------- ------- -------- Total..................................... 3,881 2,214 6,095 Less amount representing interest......... -- (470) (470) ------- ------- -------- Present value of future payments.......... 3,881 1,744 5,625 Less current portion...................... (1,259) (387) (1,646) ------- ------- -------- Noncurrent portion........................ $ 2,622 $ 1,357 $ 3,979 ======= ======= ========
The carrying value of the loan approximates fair value at December 31, 1997. The fair value of the loan was estimated using discounted cash flow analysis, based on the incremental borrowing rates currently available to the Company for borrowings with similar terms and maturity. F-14 87 ABGENIX, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 6. COMMITMENTS -- (CONTINUED) Facility Lease In October 1996, the Company signed an operating lease commencing February 1, 1997, for its facilities in Fremont, California. The lease expires in January 2007, however, the Company has the option to extend the term through 2016. Future minimum payments under the noncancelable operating lease at December 31, 1997 are:
(IN THOUSANDS) Year ending December 31, 1998.............................. $ 862 1999.............................. 891 2000.............................. 923 2001.............................. 955 2002.............................. 987 Thereafter........................ 4,360 ------ Total lease payments................ $8,978 ======
Rent expense was approximately $567,000 for the year ended December 31, 1997. Charge for Cross-License and Settlement On March 27, 1997, Cell Genesys announced, along with Abgenix, Xenotech and Japan Tobacco Inc., that it had signed a comprehensive patent cross-license and settlement agreement with GenPharm that resolved all related litigation and claims between the parties. As initial consideration for the cross-license and settlement agreement, Cell Genesys issued a note to GenPharm due September 30, 1998 for $15,000,000 payable by Cell Genesys and convertible into shares of Cell Genesys common stock, currently at $8.62 per share. Of this note, $3,750,000 satisfied certain of Xenotech's obligations under the agreement. Japan Tobacco also made an initial payment. During 1997, two patent milestones were achieved and Xenotech was obligated to pay $7,500,000 for each milestone. Xenotech paid $7,500,000 to satisfy the first milestone and has recorded a payable to GenPharm for the remaining $7,500,000. The Company has recorded a liability of $3,750,000 in its balance sheet representing its share of the Xenotech obligation since the joint venture partners are equally obligated to fund the cash requirements of Xenotech. The payable is due on or before November 1998. No additional payments will accrue under this agreement. The Company has recognized as a non-recurring charge for cross-license and settlement, a total of $22,500,000 ($15,000,000 through March 31, 1997). The full amount of the cross-license and settlement costs has been recognized in the Company's statement of operations for the year ended December 31, 1997 because the Company has determined that the technology rights obtained do not have alternative future uses in research and development projects or otherwise. Pursuant to Staff Accounting Bulletin 55, Cell Genesys allocated its portion of the settlement obligation, $11,250,000, to Abgenix since the related technology was contributed upon formation of Abgenix. The $15,000,000 note issued by Cell Genesys was recorded as a capital contribution by Abgenix. In accordance with the joint venture agreement, Abgenix has also recorded an expense of $11,250,000 representing 50% of the Xenotech expense. F-15 88 ABGENIX, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 7. STOCKHOLDERS' EQUITY Redeemable Convertible Preferred Stock In December 1997, the Company created a new series of preferred stock, designated as Series A redeemable convertible preferred stock and converted each outstanding share of Series A senior and Series 1 subordinated convertible preferred stock, par value of $0.0001 per share, into one share of Series A redeemable convertible preferred stock, par value of $0.0001 per share. No value was attributed to the conversion as the preferred stock rights given up substantially equalled the new rights received. The financial statements as presented reflect only the Series A redeemable convertible preferred stock as if converted at the date of original issuance. The following table describes information with respect to the various series of redeemable convertible preferred stock as of March 31, 1998:
LIQUIDATION SHARES ISSUANCE PREFERENCES AND DIVIDEND SHARES ISSUED AND PRICE REDEMPTION PRICE RATE DESIGNATED OUTSTANDING PER SHARE PER SHARE PER SHARE ---------- ----------- ----------- ---------------- --------- Series A...................... 5,396,667 4,416,667 $2.71-$6.00 $6.00 $0.48 Series B...................... 3,385,000 3,267,685 $6.50 $6.50 $0.52 Series C...................... 160,000 160,000 $8.00 $8.00 $0.64 --------- --------- 8,941,667 7,844,352 ========= =========
Each share of preferred stock is entitled to voting rights equivalent to the number of shares of common stock for which each share can be converted into and is convertible, at the option of the holder, into one share of common stock, subject to certain antidilution adjustments. Conversion is automatic upon the closing of a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933 at a per share price of not less than $11.00 and an aggregate offering price of not less than $15,000,000. Preferred stockholders have certain rights of first refusal which allow them to participate ratably in any future issuances of stock to maintain their original ownership percentages. This right terminates upon a public offering. Noncumulative dividends on the preferred stock are payable at the above stated rates per share out of available earnings if and when declared by the board of directors. The holders of Series B preferred stock shall have priority over the holders of Series A preferred stock and Series A preferred stock over Series C preferred stock in liquidation preferences in the event of a winding up of the Company. After the fourth anniversary of the respective first issuance of Series B preferred stock (in the case of holders of Series A and Series B preferred stock) and Series C preferred stock (in the case of holders of Series C preferred stock), the preferred stockholders have the right to redeem all or part of their preferred shares if, and only if, at least a majority of the preferred stockholders entitled to redemption agree in writing. The redemption price is initially set at the liquidation preference per share and is adjusted upon the occurrence of certain events. Warrants In connection with the loan guaranteed by Cell Genesys in January 1997, the Company issued a warrant to purchase 71,667 shares of Series A redeemable convertible preferred stock at an exercise price of $6.00 per share to Cell Genesys. The warrants are exercisable immediately and expire three years from issuance. Should all of the Company's preferred stock be redeemed or converted into F-16 89 ABGENIX, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 7. STOCKHOLDERS' EQUITY -- (CONTINUED) common stock, then the warrant becomes exercisable for the number of shares of common stock as if the warrant had been exercised in full for preferred stock. In connection with the loan guaranteed by Cell Genesys in March 1997, the Company issued a second warrant to purchase 50,000 shares of convertible preferred stock at an exercise price of $6.00 per share to Cell Genesys. The terms for exercise and expiration are the same as the January 1997 warrants. The fair value of the above warrants was insignificant for accounting purposes. 1996 Incentive Stock Plan The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of the Company's employee stock option equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The 1996 Incentive Stock Plan (the "Plan") provides for the granting of options to purchase common stock to employees, outside directors and consultants of the Company. Stock purchase rights are granted only to employees or consultants. The Company grants shares of common stock for issuance under the Plan at no less than the fair value of the stock (85% of fair value for nonqualified options and stock purchase rights). Options granted under the Plan generally have a term of ten years and vest over four years at the rate of 25% one year from the grant date and 1/48 monthly thereafter. F-17 90 ABGENIX, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 7. STOCKHOLDERS' EQUITY -- (CONTINUED) Information with respect to the Plan activity is as follows:
WEIGHTED- SHARES NUMBER OF AVERAGE AVAILABLE SHARES EXERCISE PRICE ---------- --------- -------------- Authorized at inception............. 1,600,000 -- -- Options granted below fair value.......................... (1,185,100) 1,185,100 $0.60 Options exercised................. -- (1,192) $0.60 Options canceled.................. 15,025 (15,025) $0.60 ---------- --------- ----- Balances at December 31, 1996....... 429,925 1,168,883 $0.60 Authorized........................ 791,250 -- -- Options granted below fair value.......................... (676,644) 676,644 $2.36 Options exercised................. -- (232,350) $1.51 Options canceled.................. 104,751 (104,751) $1.14 ---------- --------- ----- Balances at December 31, 1997....... 649,282 1,508,426 $1.24 Authorized (unaudited)............ -- -- -- Options granted below fair value (unaudited).................... (260,175) 260,175 $6.00 Options exercised (unaudited)..... -- (59,618) $0.69 Options canceled (unaudited)...... 6,079 (6,079) $3.84 ---------- --------- ----- Balances at March 31, 1998.......... 395,186 1,702,904 $1.98 ========== ========= =====
Exercise prices for options outstanding as of December 31, 1997 ranged from $0.60 to $5.00. The following table summarizes information about options outstanding at December 31, 1997:
OUTSTANDING OPTIONS ------------------------------------------- NUMBER REMAINING OF EXERCISE NUMBER OF CONTRACTUAL OPTIONS PRICES OPTIONS LIFE, IN YEARS EXERCISABLE -------- --------- --------------- ----------- $0.60...................... 1,089,619 8.64 257,697 $1.00...................... 3,800 9.32 -- $2.50...................... 315,416 9.34 19,921 $4.00...................... 74,800 9.65 5,817 $5.00...................... 24,800 9.95 -- --------- ------- 1,508,426 283,435 ========= =======
From inception to December 31, 1997, options to purchase a total of 1,861,744 shares of common stock were granted at prices ranging from $0.60 to $5.00 per share. Deferred compensation of $1,776,000 was recorded for these option grants based on the deemed fair value of common stock (ranging from $1.20 to $6.50 per share). The Company amortized $528,000 of this balance during the year ended December 31, 1997. In the first quarter of 1998, the Company granted options to purchase 260,175 shares of common stock at $6.00 per share for which deferred compensation of approximately $520,000 was recorded based on the deemed fair value of common stock at $8.00 per share. F-18 91 ABGENIX, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 7. STOCKHOLDERS' EQUITY -- (CONTINUED) Pro Forma Information Pro forma information regarding net loss and net loss per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions for 1996 and 1997, respectively: risk-free interest rate of 6.65% and 6.46%; no dividend yield in 1996 or 1997; volatility factor of 0.68 and 0.67; and an expected life of the option of five years in 1996 and 1997. These same assumptions were applied in the determination of the option values related to stock options granted to non-employees, which value has been recorded in the financial statements. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The weighted-average fair value of options granted during the years ended December 31, 1996 and 1997 were $0.87 and $3.00 per share (all options were granted at exercise prices below the deemed fair value of the underlying common stock). The following table illustrates what net loss would have been had the Company accounted for its stock-based awards under the provisions of SFAS 123. Pro forma amounts may not be representative of future years.
1996 1997 ------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net loss: As reported......................................... $(7,100) $(35,880) ------- -------- Pro forma........................................... $(7,190) $(36,103) ------- -------- Net loss per share: As reported......................................... $ (1.89) $ (9.22) ------- -------- Pro forma........................................... $ (1.92) $ (9.27) ------- --------
Stock Plans In March 1998, the board of directors adopted the 1998 Employee Stock Purchase Plan, the 1998 Director Option Plan and approved the amended and restated 1996 Incentive Stock Plan, subject to stockholder approval. An additional 500,000 shares of common stock have been reserved for issuance under the amended and restated 1996 Incentive Stock Plan and 250,000 shares of common stock have been reserved under both the 1998 Employee Stock Purchase Plan and the 1998 Director Option Plan. 8. OTHER RELATED PARTY TRANSACTIONS Through July 31, 1997, pursuant to the terms of the Service Agreement with Cell Genesys, Cell Genesys provided Abgenix certain administrative services. In addition, beginning July 15, 1996, the Company leased equipment from Cell Genesys on a month-to-month basis pursuant to the Stock Purchase and Transfer Agreement. Total fees incurred under the Services Agreement and the Stock F-19 92 ABGENIX, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 8. OTHER RELATED PARTY TRANSACTIONS (CONTINUED) Purchase and Transfer Agreement were approximately $1,816,000, $825,000 and $107,000 in 1996, 1997, and the three months ended March 31, 1998, respectively. The Company chose to draw down on its Promissory Note with Cell Genesys in order to pay for the fees incurred through December 1997. In December 1997, the entire principal amount of the Promissory Note was converted into preferred stock. In addition, the Company had an agreement with Cell Genesys under which the Company provided immunization services as requested by Cell Genesys. Under this agreement, the Company recognized revenue of $100,375 and $111,000 in 1996 and 1997, respectively. On December 31, 1996, the Company purchased Xenotech's remaining laboratory equipment. The Company paid $154,360, which approximated net book value at the time of purchase. In July 1996, the Company assumed from Cell Genesys a $100,000 loan issued to a Director and officer. The loan did not bear interest and was evidenced by a promissory note secured by the common stock of Cell Genesys owned by the Director and officer. The note was repaid in September 1997. In May 1997, the Company granted a 10-year loan for $100,000 to an officer of the Company. Interest is accrued per annum at 6.6% beginning May 2002. The loan is payable in five equal installments beginning June 2003. On February 27, 1998, the Chief Financial Officer and the Company entered into a Relocation Loan Agreement pursuant to which Abgenix loaned $100,000 to the Chief Financial Officer in exchange for a promissory note secured by a deed of trust. No interest accrues on the loan until June 30, 2003. 9. INITIAL PUBLIC OFFERING In March 1998, the board of directors authorized the filing of a registration statement with the Securities and Exchange Commission permitting Abgenix to sell shares of its common stock to the public. If the offering is consummated under the terms presently anticipated, all of the currently outstanding preferred stock will automatically convert into 7,844,352 shares of common stock. Unaudited pro forma stockholders' equity, as adjusted for the conversion of the preferred stock is set forth in the accompanying balance sheets. 10. INCOME TAXES As of December 31, 1997, the Company had federal net operating loss carryforwards of approximately $15,400,000. The Company also had federal research and development tax credit carryforwards of approximately $220,000 as of December 31, 1997. The Company's net operating loss carryforwards exclude losses incurred prior to the organization of Abgenix in July 1996. Further, the amounts associated with the cross-license and settlement have been expensed for financial statement accounting purposes and have been capitalized and will be amortized over a period of approximately fifteen years for tax purposes. The net operating loss and credit carryforwards will expire in the years 2011 through 2012, if not utilized. Utilization of the net operating losses and credits may be subject to a substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. F-20 93 ABGENIX, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Significant components of the Company's deferred tax assets for federal and state income taxes are as follows:
DECEMBER 31, ----------------- 1996 1997 ----- -------- (IN THOUSANDS) Deferred tax assets: Net operating loss carryforwards..................... $ 700 $ 5,400 Research credit carryforwards........................ 100 400 Capitalized research and development................. 100 200 Capitalized cross-license and settlement............. -- 8,000 Other, net........................................... -- 400 ----- -------- Net deferred tax assets................................ 900 14,400 Valuation allowance.................................... (900) (14,400) ----- -------- Total........................................ $ -- $ -- ===== ========
The net valuation allowance increased by $900,000 during the year ended December 31, 1996. Deferred tax assets relate primarily to net operating loss carryforwards and to the capitalization of the cross-license and settlement agreement. 11. SUBSEQUENT EVENT (UNAUDITED) Research License and Option Agreement with Genentech In April 1998, Abgenix established a research collaboration with Genentech to develop antibody products for an undisclosed antigen designated by Genentech in the field of growth factor modulation. Under the research license and option agreement, Abgenix will allow Genentech to use XenoMouse technology to generate fully human antibodies to the antigen target. Genentech is obligated to make payments to Abgenix for performance of research activities. In addition, the agreement provides Genentech with an option, for a limited time, to enter into a product license agreement that provides Genentech with an exclusive worldwide license to develop, make, use and sell antibody products derived from the research collaboration. If the option is exercised, the product license agreement specifies license fee and milestone payments to be made upon completion of certain milestones, including clinical trials and receipt of regulatory approvals. Additionally, if a product receives marketing approval from the FDA or an equivalent foreign agency, the Company is entitled to receive royalties on future product sales by Genentech. Genentech will be responsible for manufacturing, product development and marketing of any product developed through the collaboration. F-21 94 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors Xenotech, L.P. We have audited the accompanying balance sheets of Xenotech, L.P. (a development stage enterprise) as of December 31, 1996 and 1997, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 1997 and for the period from inception (June 12, 1991) to December 31, 1997. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Xenotech, L.P. (a development stage enterprise) at December 31, 1996 and 1997 and the results of its operations and its cash flows for each of the three years ended December 31, 1997 and for the period from inception (June 12, 1991) to December 31, 1997, in conformity with generally accepted accounting principles. /S/ ERNST & YOUNG LLP Palo Alto, California January 23, 1998 F-22 95 XENOTECH, L.P. (A DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, -------------------- MARCH 31, 1996 1997 1998 -------- -------- ----------- (UNAUDITED) ASSETS Cash.................................................... $ 292 $ 58 $ 52 Short-term investments.................................. -- 3,750 3,798 Prepaid expenses and other current assets............... 200 11 10 Receivable from partner................................. -- 3,750 3,783 -------- -------- -------- Total current assets.................................... $ 492 $ 7,569 $ 7,643 ======== ======== ======== LIABILITIES AND PARTNERS' CAPITAL Accrued liabilities..................................... $ 59 $ 56 $ 66 Payable related to cross-license and settlement agreement............................................. -- 7,500 7,500 -------- -------- -------- Total current liabilities............................... 59 7,556 7,566 Partners' capital: Paid-in capital....................................... 36,486 60,746 61,045 Deficit accumulated during the development stage...... (36,053) (60,733) (60,968) -------- -------- -------- Total partners' capital................................. 433 13 77 -------- -------- -------- Total liabilities and partners' capital................. $ 492 $ 7,569 $ 7,643 ======== ======== ========
See accompanying notes. F-23 96 XENOTECH, L.P. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF OPERATIONS (IN THOUSANDS)
PERIOD FROM THREE MONTHS ENDED INCEPTION YEAR ENDED DECEMBER 31, MARCH 31, (JUNE 12, 1991) ---------------------------- ------------------- TO MARCH 31, 1995 1996 1997 1997 1998 1998 ------- ------- -------- -------- -------- --------------- (UNAUDITED) (UNAUDITED) Research and license revenues from partners................................. $ 4,747 $ 1,912 $ 272 $ 25 $ 210 $ 10,514 Expenses: Research and development................. 11,270 8,240 2,396 215 438 47,547 General and administrative............... 656 307 98 15 7 1,646 Cross-license and settlement expense..... -- -- 22,470 7,470 -- 22,470 ------- ------- -------- -------- -------- -------- Total expenses............................. 11,926 8,547 24,964 7,700 445 71,663 Interest income............................ 50 21 12 3 -- 181 ------- ------- -------- -------- -------- -------- Net loss................................... $(7,129) $(6,614) $(24,680) $ (7,672) $ (235) $(60,968) ======= ======= ======== ======== ======== ========
See accompanying notes. F-24 97 XENOTECH, L.P. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENT OF PARTNERS' CAPITAL
LIMITED PARTNERS TOTAL GENERAL ---------------------------------- PARTNERS' PARTNER JAPAN TOBACCO INC. ABGENIX CAPITAL ------- ------------------ ------------ --------- Capital contributed at inception....... $ 60 $ 4,750 $ -- $ 4,810 Capital distribution of interest income.............................. -- -- (34) (34) Net loss............................... (47) (4,705) 32 (4,720) ----- -------- -------- -------- Balance at December 31, 1991............. 13 45 (2) 56 Capital contribution................... 130 5,500 -- 5,630 Capital distribution of interest income.............................. -- -- (1) (1) Net loss............................... (55) (5,481) 4 (5,532) ----- -------- -------- -------- Balance at December 31, 1992............. 88 64 1 153 Capital contribution................... 12 6,800 700 7,512 Net loss............................... (75) (6,770) (607) (7,452) ----- -------- -------- -------- Balance at December 31, 1993............. 25 94 94 213 Capital contribution................... 40 5,000 -- 5,040 Net loss............................... (47) (4,780) 220 (4,607) ----- -------- -------- -------- Balance at December 31, 1994............. 18 314 314 646 Capital contribution................... 72 4,833 2,333 7,238 Net loss............................... (71) (4,779) (2,279) (7,129) ----- -------- -------- -------- Balance at December 31, 1995............. 19 368 368 755 Capital contribution................... 63 3,114 3,115 6,292 Net loss............................... (66) (3,274) (3,274) (6,614) ----- -------- -------- -------- Balance at December 31, 1996............. 16 208 209 433 Capital contribution................... 230 12,015 12,015 24,260 Net loss............................... (246) (12,217) (12,217) (24,680) ----- -------- -------- -------- Balance at December 31, 1997............. -- 6 7 13 Capital contribution (unaudited)....... 2 149 148 299 Net loss (unaudited)................... (2) (117) (116) (235) ----- -------- -------- -------- Balance at March 31, 1998 (unaudited).... $ -- $ 38 $ 39 $ 77 ===== ======== ======== ========
See accompanying notes. F-25 98 XENOTECH, L.P. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PERIOD FROM INCEPTION THREE MONTHS ENDED (JUNE 12, YEAR ENDED DECEMBER 31, MARCH 31, 1991) TO -------------------------------------- -------------------- MARCH 31, 1995 1996 1997 1997 1998 1998 -------- ------- --------------- -------- -------- ----------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net loss.................... $ (7,129) $(6,614) $(24,680) $ (7,672) $ (235) $(60,968) Adjustments to reconcile net loss to net cash used by operating activities: Charge for cross-license and settlement.......... -- -- 3,735 -- -- 3,735 Depreciation and amortization expense.... 71 74 8 8 -- 170 Changes in certain assets and liabilities: Decrease (increase) in prepaid and other current assets.......... (109) 108 181 156 1 145 Decrease (increase) in receivable from partner................. (30) 30 -- -- (33) (33) Increase (decrease) in accrued liabilities..... 292 (298) (3) (35) 10 65 Decrease in deferred revenue................. (1,650) (250) -- -- -- -- Increase in payable for cross-license and settlement.............. -- -- 7,500 7,470 -- 7,500 -------- ------- -------- -------- -------- -------- Net cash used in operating activities................ (8,555) (6,950) (13,259) (73) (256) (49,386) -------- ------- -------- -------- -------- -------- CASH USED BY INVESTING ACTIVITIES Capital expenditures........ (62) -- -- -- -- (325) Purchases of short-term investments............... -- -- (3,750) -- (48) (3,798) -------- ------- -------- -------- -------- -------- Net cash used by investing activities................ (62) -- (3,750) -- (48) (4,123) CASH FLOWS FROM FINANCING ACTIVITIES Capital contributions....... 7,237 6,292 16,775 198 299 53,561 -------- ------- -------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH...................... (1,380) (658) (234) 125 (6) 52 CASH AT BEGINNING OF PERIOD.................... 2,330 950 292 292 58 -- -------- ------- -------- -------- -------- -------- CASH AT END OF PERIOD....... $ 950 $ 292 $ 58 $ 417 $ 52 $ 52 ======== ======= ======== ======== ======== ========
See accompanying notes. F-26 99 XENOTECH, L.P. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND BUSINESS Xenotech, L.P., a California limited partnership and a development stage enterprise (the "Partnership"), was organized on June 12, 1991 pursuant to a Limited Partnership Agreement between Xenotech, Inc. (the "General Partner"), Cell Genesys, Inc. ("Cell Genesys") and JT Immunotech USA, Inc., the predecessor company of JT America, Inc. and a medical subsidiary of Japan Tobacco, Inc. ("JT America"), (the "Limited Partners"), to develop genetically modified strains of mice which can produce human monoclonal antibodies, and to commercialize products generated therefrom. On July 15, 1996, Cell Genesys transferred its partnership interest to its subsidiary, Abgenix Inc. ("Abgenix"). The General Partner must make cash contributions as necessary to maintain a minimum capital balance of 1% of the total positive capital account balances for the Partnership. Since July 1995, net losses are allocated 49.5% to Abgenix, 49.5% to JT America and 1% to the General Partner. Prior to July 1995, operating expenses were allocated 99% to JT America and 1% to the General Partner until JT America had been allocated, on a cumulative basis, partnership losses and deductions in an amount equal to the sum of JT America's total research support capital contributions and 50% of JT America's initial capital contribution. Since 1992, interest income has been allocated 49.5% to Abgenix, 49.5% to JT America and 1% to the General Partner. No allocation of expenses and losses shall create a deficit in the Limited Partners' capital accounts. Such item, to the extent it would increase or create such a deficit, shall be allocated 100% to the General Partner. Cash distributions are generally to be made in accordance with the percentage interests. See related discussion in Note 3 -- Related Party Transactions. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition Research revenues from partners or their affiliates are recorded when earned as defined under the terms of the respective collaboration agreements. Payments received in advance under these agreements are recorded as deferred revenue until earned (see Notes 3 and 4). Depreciation The Partnership depreciates equipment using the straight-line method over the estimated useful lives of the assets, generally four years. Income Taxes The financial statements include no provision for income taxes as Partnership income or loss is reported in the Partners' separate income tax returns. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Interim Financial Information The financial information at March 31, 1998 and for the three months ended March 31, 1997 and 1998 is unaudited but includes all adjustments (consisting only of normal recurring adjustments) which the Partnership considers necessary for a fair presentation of the financial position at such date and the operating results and cash flows for those periods. Results for the three months ended F-27 100 XENOTECH, L.P. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) March 31, 1998 are not necessarily indicative of results for any other interim period or for the entire year. 3. RELATED PARTY TRANSACTIONS Abgenix provides contract research and development services to the Partnership to develop genetically modified strains of mice which can produce human monoclonal antibodies pursuant to a collaboration agreement under which Abgenix receives certain minimum payments. During the years ended 1995, 1996 and 1997 and the quarters ended March 31, 1997 and 1998, the Partnership paid Abgenix $5,300,000, $1,200,000, $2,300,000, $196,000 and $400,000, respectively ($41,600,000 for the period from inception to March 31, 1998) to perform research. In January 1994, the Partnership, Abgenix and JT America executed an agreement creating the Xenotech Division within Abgenix to conduct ongoing preclinical research of human monoclonal antibodies derived from the genetically modified strains of mice. Abgenix and Japan Tobacco Inc. ("JT"), the indirect parent company of JT America, are providing significant funding to the Partnership for research funding and in consideration of the Partnership granting marketing rights for specified products in certain territories to Abgenix and JT (see Note 4). The Partnership reimbursed Abgenix for the costs of the operation of the Xenotech Division. During 1995 and 1996, the Partnership recognized expenses of $5,500,000 and $5,500,000, respectively ($13,300,000 for the period from inception to December 31, 1997) which were paid to Abgenix for the costs of operating the Xenotech Division. Pursuant to an agreement dated June 28, 1996, the Xenotech Division was terminated as of December 31, 1996. In conjunction with this agreement, Xenotech paid Abgenix $1,200,000 to satisfy Xenotech's obligations under the Xenotech Division Research Agreement. In addition, Abgenix purchased Xenotech's capital equipment at net book value, and was assigned Xenotech's note receivable, which was reflected as a reduction of capital contributions. 4. RESEARCH REVENUES The Partnership recorded research and license revenues of $4,700,000, $1,900,000 and $272,000 for the years ended December 31, 1995, 1996 and 1997, respectively. For the quarters ended March 31, 1997 and 1998 the amount recorded was $25,000 and $210,000, respectively. The research revenues were derived from research payments made by JT and Abgenix. Of research payments made by JT and Abgenix, $250,000 was deferred revenue at December 31, 1995. 5. CROSS-LICENSE AND SETTLEMENT AGREEMENT On March 27, 1997, Cell Genesys announced, along with Abgenix, Xenotech and Japan Tobacco, that it had signed a comprehensive patent cross-license and settlement agreement with GenPharm, International, Inc., a subsidiary of Medarex, Inc. ("GenPharm") that resolved all related litigation and claims between the parties. As initial consideration for the cross-license and settlement agreement, Cell Genesys issued a note to GenPharm due September 30, 1998 for $15,000,000 payable by Cell Genesys and convertible into shares of Cell Genesys common stock, currently at $8.62 per share. Of this note, $3,750,000 satisfied certain of Xenotech's obligations under the agreement. Japan Tobacco also made an initial payment. During 1997, two patent milestones were achieved and Xenotech was obligated to pay $7,500,000 for each milestone. Xenotech paid $7,500,000 to satisfy the first milestone and has recorded a payable to GenPharm for the remaining $7,500,000. The payable is due on or before November 1998. No additional payments will accrue under this agreement. Xenotech has recognized as a non-recurring charge for cross-license and settlement, a total of $22,500,000. F-28 101 [ARTWORK] ABX-CBL is an antibody in clinical trials for the treatment of Graft Versus Host Disease (GVHD). ABX-CBL selectively destroys activated immune cells that are involved in GVHD by binding to the CBL antigen. Abgenix believes that ABX-CBL has the ability to destroy activated immune cells without adversely affecting the entire immune system. - -------------------------------------------------------------------------------- All of the Company's product candidates are at early stages of research and development and have not been approved for sale in the United States by the United States Food and Drug Administration ("FDA"), and therefore, no sales have been generated. Approval of the Company's product candidates by the FDA or corresponding European regulatory authorities could take several years and there can be no assurance that such approval will ever be obtained. See "Risk Factors -- Uncertainty Associated with XenoMouse Technology," "-- No Assurance of Successful Product Development" and "-- Uncertainties Related to Clinical Trials." - -------------------------------------------------------------------------------- 102 APPENDIX DESCRIPTION OF GRAPHICS INSIDE FRONT COVER: HEADER "XenoMouse Technology" SUBHEADER 1: "XenoMouse has reached the goal of eliminating mouse protein from antibody therapeutics" This diagram depicts four Y-shaped figures, extending horizontally across the page, which represent antibodies produced by four alternate methods. From left to right, the figures are labeled "Ordinary Mouse," "Chimeric," "Humanized" and "XenoMouse," with arrows connecting the labels. A legend indicates that the color green represents mouse protein, while the color yellow represents human protein. The left-most Y-shaped figure is entirely green and is labeled "100% Mouse Protein." The next figure from the left is yellow with a thick green stripe on each upper arm of the "Y" and is labeled "34% mouse protein." The following figure from the left is yellow with three small green stripes on each upper arm of the "Y" and is labeled "10% mouse protein." The right-most figure is completely yellow and is labeled "Human." SUBHEADER 2: "XenoMouse Enables Faster Product Development" This diagram contains three horizontal, segmented arrows that present comparative timelines of the stages preceeding clinical trials of three approaches to antibody production. A legend below the timelines indicates that the color red represents the "Antibody Generation" period, green represents the "Antibody Engineering" period, blue represents the "Cell Line Development" period, and purple represents the "Manufacturing Scale-up" period. From top to bottom, the three timelines are: 1. The "XenoMouse" timeline has a 3-month red segment followed by a 12-month purple segment; 2. The "Humanization" timeline has a 3-month red segment, a 6-month green segment, a 6-month blue segment and a 12-month purple segment; and 3. The "Phage Display" timeline has a 1-month red period, a 12-month green period, a 6-month blue period and a 12-month purple period. A column on the right side of the timelines labeled "Approximate Time to Clinical Trials" indicates that the total XenoMouse period is 15 months, the total Humanization period is 27 months, and the total Phage Display period is 31 months. PAGE 29: HEADER: "Structure of an Antibody" 103 This illustration shows a Y-shaped antibody structure composed of two "Heavy Chains" and two "Light Chains." The heavy chains form the base and branches of the "Y," while the shorter light chains only run parallel to the arms of the "Y." A legend indicates that shaded areas represent "Constant Domain," and unshaded areas represent "Variable Domain." The top halves of the light chains are unshaded, while the remainder is shaded. The upper tips of the heavy chains are unshaded, while the remainer is shaded. PAGE 29: HEADER: "Source of Antibody Diversity" Four gene segments, represented by numerically labeled squares within rectangles, are labeled "DNA before recombination (heavy chain)." One arrow from a particular section of each of the four segments points toward a combined segment and demonstrates how recombination produces an antibody gene. The "Antibody gene produced by recombination" is represented by a rectangle containing four numerically labeled squares. An arrow leads from this antibody gene to a Y-shaped antibody, labeled "Antibody produced by gene." PAGE 31: This diagram depicts four Y-shaped figures, extending horizontally across the page, which represent antibodies produced by four alternate methods. From left to right, the figures are labeled "Ordinary Mouse," "Chimeric," "Humanized" and "XenoMouse," with arrows connecting the labels. A legend indicates that shaded areas represent mouse protein while unshaded areas represent human protein. The left-most Y-shaped figure is entirely shaded and below is labeled "100% Mouse Protein." The next figure from the left is unshaded with a thick shaded stripe on each upper arm of the "Y" and below is labeled "34% mouse protein." The following figure from the left is unshaded with three small shaded stripes on each upper arm of the "Y" and below is labeled "10% mouse protein." The right-most figure is completely unshaded and below is labeled "Human." INSIDE BACK COVER: SUBHEADER 1: "Grafted Immune Cells Attack the Patient (Host)" A cell labeled "Activated Graft T-Cell" is shown attaching itself to a cell labeled "Host Cell," resulting in a damaged Host Cell. Nearby, a cell labeled "Non-Activated Graft T-Cell" is shown interacting with nothing. SUBHEADER 2: "ABX-CBL Selectively Destroys Immune Cells Involved in GVHD" Antibodies, represented by Y-shaped figures, are shown attacking a cell in a process labeled "Activated Graft T-Cell Killed." In the diagram, the antibodies do not attack another cell, which is next to the caption "Nonactivated Graft T-Cell Not Killed." Nearby, a cell labeled "Host Cell" is shown undamaged. 104 LOGO 105 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth all fees and expenses, other than underwriting discounts and commissions, payable by the Registrant in connection with the issuance and sales of the Common Stock being registered. All of the amounts shown are estimates except for the SEC registration fee, the NASD filing fee and the Nasdaq National Market Listing fee.
AMOUNT TO BE PAID ---------- SEC Registration Fee........................................ $ 12,213 NASD Filing Fee............................................. 4,640 The Nasdaq National Market Listing Fee...................... 82,000 Blue Sky Qualification Fees and Expenses.................... 10,000 Printing and Engraving Expenses............................. 130,000 Legal Fees and Expenses..................................... 350,000 Accounting Fees and Expenses................................ 150,000 Transfer Agent and Registrar Fees and Expenses.............. 10,000 Miscellaneous Expenses...................................... 1,147 -------- TOTAL.................................................. $750,000 ========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law allows for the indemnification of officers, directors and any corporate agents in terms sufficiently broad to indemnify such persons under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Act"). The Registrant's Amended and Restated Certificate of Incorporation to be filed upon the closing of the offering to which this Registration Statement relates (Exhibit 3.3 hereto) and the Registrant's Bylaws (Exhibit 3.4 hereto) provides for indemnification of the Registrant's directors, officers, employees and other agents to the extent and under the circumstances permitted by the Delaware General Corporation Law. The Registrant also intends to enter into agreements with its directors and executive officers that will require the Registrant among other things to indemnify them against certain liabilities that may arise by reason of their status or service as directors and executive officers to the fullest extent not prohibited by Delaware law. The Company has also purchased directors and officers liability insurance, which provides coverage against certain liabilities including liabilities under the Act. The Underwriting Agreement provides for indemnification by the Underwriters of the Registrant, and its directors and officers for certain liabilities, including liabilities arising under the Act, and affords certain rights of contribution with respect thereto. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES (a) Since the Company's incorporation (June 24, 1996), the Registrant has issued and sold the following unregistered securities: (1) On July 15, 1996, the Registrant issued 1,691,667 shares of Series A Senior Convertible Preferred Stock to Cell Genesys in exchange for $10 million. (2) On July 15, 1996, the Registrant issued 2,058,333 shares of Series 1 Subordinated Convertible Preferred Stock to Cell Genesys, and in exchange, Cell Genesys contributed research, development and manufacturing technology, as well as patents and other intellectual property II-1 106 specific to the antibody therapy programs to be pursued by the Company, including Cell Genesys's interest in its joint venture with Japan Tobacco Inc. (3) On July 15, 1996, the Registrant, in exchange for a loan in the principal amount of up to $4,000,000, issued a Convertible Promissory Note to Cell Genesys convertible at an exercise price per share of $6.00 into up to 666,667 shares of Series A Convertible Preferred Stock. (4) From July 15, 1996 to March 31, 1997, the Registrant has granted options to purchase 2,121,919 shares of Common Stock to employees, directors and consultants under the 1996 Plan at exercise prices ranging from $0.60 to $6.00 per share. Of the 2,121,919 shares granted, 1,702,904 remain outstanding, 293,160 shares of Common Stock have been purchased pursuant to exercises of stock options or stock purchase rights under the 1996 Plan and 125,855 shares have been canceled and returned to the 1996 Plan. (5) On January 23, 1997 and March 27, 1997, the Registrant issued two warrants to purchase an aggregate of 121,667 shares of Series A Senior Convertible Preferred Stock (convertible into 121,667 shares of Common Stock) to Cell Genesys with a weighted average exercise price per share of $6.00. (6) On December 23, 1997, the Registrant issued 3,267,685 shares of Series B Preferred Stock to 29 accredited or institutional purchasers at a purchase price per share of $6.50. In connection with and contemporaneous to this transaction the 1,691,667 shares of Series A Senior Convertible Preferred Stock, the 2,058,333 shares of Series 1 Subordinated Convertible Preferred Stock and the $4,000,000 Convertible Promissory Note issued to Cell Genesys, described above, were all converted into an aggregate 4,416,667 shares of Series A Convertible Preferred Stock. (7) On January 12, 1998, the Registrant issued 160,000 shares of Series C Preferred Stock to Pfizer at a per share purchase price of $8.00. This issuance was in connection with a collaborative arrangement entered into between the Registrant and Pfizer. The sales and issuances of securities in the transactions described above were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act, Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions by an issuer not involving any public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in such transactions. All recipients had adequate access, through their relationship with the Company, to information about the Registrant. (b) There were no underwritten offerings employed in connection with any of the transactions set forth in Item 15(a). ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits 1.1 Form of Underwriting Agreement. 3.1 * Certificate of Incorporation of the Registrant, as currently in effect. 3.2 * Certificate of Designations of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock. 3.3 * Form of Amended and Restated Certificate of Incorporation of the Registrant, to be filed immediately following the closing of the offering made under this Registration Statement. 3.4 * Bylaws of the Registrant, as currently in effect ' 3.5 * Form of Amended and Restated Bylaws of the Registrant, to be adopted immediately following the closing of the offering made under this Registration Statement. 4.1 * Specimen Common Stock Certificate.
II-2 107 5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation. 10.1* Form of Indemnification Agreement between the Registrant and each of its directors and officers. 10.2* 1996 Incentive Stock Plan and form of agreement thereunder. 10.3* 1998 Employee Stock Purchase Plan and form of agreement thereunder. 10.4* 1998 Director Option Plan and form of agreement thereunder. 10.5* Warrant dated January 23, 1997 exercisable for shares of Series A Preferred Stock. 10.6* Warrant dated March 27, 1997 exercisable for shares of Series A Preferred Stock. +10.7(1) Joint Venture Agreement dated June 12, 1991 between Cell Genesys and JT Immunotech USA Inc. +10.7A(4) Amendment No. 1 dated January 1, 1994 to Joint Venture Agreement. +10.7B(7) Amendment No. 2 dated June 28, 1996 to Joint Venture Agreement. +10.8(1) Collaboration Agreement dated June 12, 1991 among Cell Genesys, Xenotech, Inc. and JT Immunotech USA Inc. +10.8A(3) Amendment No. 1 dated June 30, 1993 to Collaboration Agreement. 10.8B(11) Amendment No. 2 dated January 1, 1994 to Collaboration Agreement. +10.8C(5) Amendment No. 3 dated July 1, 1995 to Collaboration Agreement. +10.8D(7) Amendment No. 4 dated June 28, 1996 to Collaboration Agreement. +10.8E* Amendment No. 5 dated November 1997 to Collaboration Agreement. +10.9(1) Limited Partnership Agreement dated June 12, 1991 among Cell Genesys, Xenotech, Inc. and JT Immunotech USA Inc. +10.9A(4) Amendment No. 2 dated January 1, 1994 to Limited Partnership Agreement. 10.9B(6) Amendment No. 3 dated July 1, 1995 to Limited Partnership Agreement. 10.9C(8) Amendment No. 4 dated June 28, 1996 to Limited Partnership Agreement. 10.10(2) Field License dated June 12, 1991 among Cell Genesys, JT Immunotech USA Inc. and Xenotech, L.P. 10.10A(8) Amendment No. 1 dated March 22, 1996 to Field License. 10.10B(8) Amendment No. 2 dated June 28, 1996 to Field License. +10.11(1) Expanded Field License dated June 12, 1991 among Cell Genesys, JT Immunotech USA Inc. and Xenotech, L.P. 10.11A(8) Amendment No. 1 dated June 28, 1996 to Expanded Field License. +10.12 Amended and Restated Anti-IL-8 License Agreement dated March 19, 1996 among Xenotech, L.P., Cell Genesys and Japan Tobacco Inc. +10.13(7) Master Research License and Option Agreement dated June 28, 1996 among Cell Genesys, Japan Tobacco Inc. and Xenotech, L.P. +10.13A Amendment No. 1 dated November 1997 to the Master Research License and Option Agreement. +10.14 Stock Purchase and Transfer Agreement dated July 15, 1996 by and between Cell Genesys and the Registrant. 10.15* Governance Agreement dated July 15, 1996 between Cell Genesys and the Registrant. 10.15A* Amendment No. 1 dated October 13, 1997 to the Governance Agreement. 10.15B* Amendment No. 2 dated December 22, 1997 to the Governance Agreement. 10.16* Tax Sharing Agreement dated July 15, 1996 between Cell Genesys and the Registrant. +10.17 Gene Therapy Rights Agreement effective as of November 1, 1997 between the Registrant and Cell Genesys. +10.18* Patent Assignment Agreement dated July 15, 1996 by Cell Genesys in favor of the Registrant.
II-3 108 10.19(9) Lease Agreement dated July 31, 1996 between John Arrillaga, Trustee, or his Successor Trustee, UTA dated 7/20/77 (Arrillaga Family Trust) as amended, and Richard T. Peery, Trustee, or his Successor Trustee, UTA dated 7/20/77 (Richard T. Peery Separate Property Trust) as amended, and the Registrant. 10.20* Loan and Security Agreement dated January 23, 1997 between Silicon Valley Bank and the Registrant. 10.21* Master Lease Agreement dated March 27, 1997 between Transamerica Business Credit Corporation and the Registrant. +10.22 License Agreement dated February 1, 1997 between Ronald J. Billing, Ph.D. and the Registrant. +10.23(10) Release and Settlement Agreement dated March 26, 1997 among Cell Genesys, the Registrant, Xenotech, L.P., Japan Tobacco Inc. and GenPharm International, Inc. +10.24(10) Cross License Agreement effective as of March 26, 1997, among Cell Genesys, the Registrant, Xenotech, L.P., Japan Tobacco Inc. and GenPharm International, Inc. +10.25(10) Interference Settlement Procedure Agreement, effective as of March 26, 1997, among Cell Genesys, the Registrant, Xenotech, L.P., Japan Tobacco Inc. and GenPharm International, Inc. +10.26* Agreement dated March 26, 1997 among Xenotech, L.P., Xenotech, Inc., Cell Genesys, the Registrant, Japan Tobacco Inc. and JT Immunotech USA Inc. +10.27 Collaborative Research Agreement dated December 22, 1997 between Pfizer, Inc. and the Registrant. 10.28* Amended and Restated Stockholder Rights Agreement dated January 12, 1998 among the Registrant and certain holders of the Registrant's capital stock. +10.29 Collaborative Research Agreement effective as of January 28, 1998 between Schering-Plough Research Institute and the Registrant. 10.30* Excerpts from the Minutes of a Meeting of the Board of Directors of the Registrant, dated October 23, 1996. 10.31* Excerpts from the Minutes of a Meeting of the Board of Directors of the Registrant, dated October 22, 1997. +10.32 Exclusive Worldwide Product License dated November 1997 between Xenotech, L.P. and the Registrant. +10.33 Research License and Option Agreement effective as of April 6, 1998 between the Registrant and Genentech, Inc. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 23.2* Consent of Counsel. 24.1* Power of Attorney. 27.1* Financial Data Schedule.
- --------------- * Previously filed. + Confidential treatment requested for portions of these exhibits. Omitted portions have been filed separately with the Commission. (1) Incorporated by reference to the same exhibit filed with Cell Genesys's Registration Statement on Form S-1 (File No. 33-46452), portions of which have been granted confidential treatment. (2) Incorporated by reference to the same exhibit filed with Cell Genesys's Registration Statement on Form S-1 (File No. 33-46452). (3) Incorporated by reference to the same exhibit filed with Cell Genesys's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, portions of which have been granted confidential treatment. (4) Incorporated by reference to the same exhibit filed with Cell Genesys's Annual Report on Form 10-K for the year ended December 31, 1993, portions of which have been granted confidential treatment. II-4 109 (5) Incorporated by reference to the same exhibit filed with Cell Genesys's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, portions of which have been granted confidential treatment. (6) Incorporated by reference to the same exhibit filed with Cell Genesys's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. (7) Incorporated by reference to the same exhibit filed with Cell Genesys's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, portions of which have been granted confidential treatment. (8) Incorporated by reference to the same exhibit filed with Cell Genesys's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. (9) Incorporated by reference to the same exhibit filed with Cell Genesys's Quarterly report on Form 10-Q for the quarter ended September 30, 1996. (10)Incorporated by reference to the same exhibit filed with Cell Genesys's Annual Report on Form 10-K for the year ended December 31, 1996, as amended, portions of which have been granted confidential treatment. (11) Incorporated by reference to the same exhibit filed with Cell Genesys's Annual Report on Form 10-K for the year ended December 31, 1993. (b) Financial Statement Schedules: All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. ITEM 17. UNDERTAKINGS Insofar as indemnification by the Registrant for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the Registrant, 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: (a) It will provide to the Underwriters at the closing as 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. (b) For purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of the registration statement as of the time it was declared effective. (c) For the purpose of determining any liability under the Act, 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-5 110 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment No. 5 to the Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fremont, State of California, on the 26th day of May, 1998. ABGENIX, INC. By: /s/ R. SCOTT GREER ------------------------------------ R. Scott Greer President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 5 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ R. SCOTT GREER President, Chief Executive Officer and May 26, 1998 - --------------------------------------------- Director (Principal Executive Officer) R. Scott Greer /s/ KURT W. LEUTZINGER Vice President, Finance and Chief May 26, 1998 - --------------------------------------------- Financial Officer (Principal Financial Kurt W. Leutzinger and Accounting Officer) *STEPHEN A. SHERWIN, M.D. Chairman of the Board May 26, 1998 - --------------------------------------------- Stephen A. Sherwin, M.D. *M. KATHLEEN BEHRENS, PH.D. Director May 26, 1998 - --------------------------------------------- M. Kathleen Behrens, Ph.D. *RAJU S. KUCHERLAPATI, PH.D. Director May 26, 1998 - --------------------------------------------- Raju S. Kucherlapati, Ph.D. *MARK B. LOGAN Director May 26, 1998 - --------------------------------------------- Mark B. Logan *JOSEPH E. MAROUN Director May 26, 1998 - --------------------------------------------- Joseph E. Maroun *By: /s/ R. SCOTT GREER --------------------------------------- R. Scott Greer (Attorney-In-Fact)
II-6 111 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------------ ----------------------------------------------------------- 1.1 Form of Underwriting Agreement. 3.1 * Certificate of Incorporation of the Registrant, as currently in effect. 3.2 * Certificate of Designations of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock. 3.3 * Form Restated Certificate of Incorporation of the Registrant, to be filed immediately following the closing of the offering made under this Registration Statement. 3.4 * Bylaws of the Registrant, as currently in effect 3.5 * Form of Amended and Restated Bylaws of the Registrant, to be adopted immediately following the closing of the offering made under this Registration Statement. 4.1 * Specimen Common Stock Certificate. 5.1 * Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation. 10.1 * Form of Indemnification Agreement between the Registrant and each of its directors and officers. 10.2 * 1996 Incentive Stock Plan and form of agreement thereunder. 10.3 * 1998 Employee Stock Purchase Plan and form of agreement thereunder. 10.4 * 1998 Director Option Plan and form of agreement thereunder. 10.5 * Warrant dated January 23, 1997 exercisable for shares of Series A Preferred Stock. 10.6 * Warrant dated March 27, 1997 exercisable for shares of Series A Preferred Stock. +10.7(1) Joint Venture Agreement dated June 12, 1991 between Cell Genesys and JT Immunotech USA Inc. +10.7A(4) Amendment No. 1 dated January 1, 1994 to Joint Venture Agreement. +10.7B(7) Amendment No. 2 dated June 28, 1996 to Joint Venture Agreement. +10.8(1) Collaboration Agreement dated June 12, 1991 among Cell Genesys, Xenotech, Inc. and JT Immunotech USA Inc. +10.8A(3) Amendment No. 1 dated June 30, 1993 to Collaboration Agreement. 10.8B(11) Amendment No. 2 dated January 1, 1994 to Collaboration Agreement. +10.8C(5) Amendment No. 3 dated July 1, 1995 to Collaboration Agreement. +10.8D(7) Amendment No. 4 dated June 28, 1996 to Collaboration Agreement. +10.8E * Amendment No. 5 dated November 1997 to Collaboration Agreement.
112
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------------ ----------------------------------------------------------- +10.9(1) Limited Partnership Agreement dated June 12, 1991 among Cell Genesys, Xenotech, Inc. and JT Immunotech USA Inc. +10.9A(4) Amendment No. 2 dated January 1, 1994 to Limited Partnership Agreement. 10.9B(6) Amendment No. 3 dated July 1, 1995 to Limited Partnership Agreement. 10.9C(8) Amendment No. 4 dated June 28, 1996 to Limited Partnership Agreement. 10.10(2) Field License dated June 12, 1991 among Cell Genesys, JT Immunotech USA Inc. and Xenotech, L.P. 10.10A(8) Amendment No. 1 dated March 22, 1996 to Field License. 10.10B(8) Amendment No. 2 dated June 28, 1996 to Field License. +10.11(1) Expanded Field License dated June 12, 1991 among Cell Genesys, JT Immunotech USA Inc. and Xenotech, L.P. 10.11A(8) Amendment No. 1 dated June 28, 1996 to Expanded Field License. +10.12 Amended and Restated Anti-IL-8 License Agreement dated March 19, 1996 among Xenotech, L.P., Cell Genesys and Japan Tobacco Inc. +10.13(7) Master Research License and Option Agreement dated June 28, 1996 among Cell Genesys, Japan Tobacco Inc. and Xenotech, L.P. +10.13A Amendment No. 1 dated November 1997 to the Master Research License and Option Agreement. +10.14 Stock Purchase and Transfer Agreement dated July 15, 1996 by and between Cell Genesys and the Registrant. 10.15 * Governance Agreement dated July 15, 1996 between Cell Genesys and the Registrant. 10.15A * Amendment No. 1 dated October 13, 1997 to the Governance Agreement. 10.15B * Amendment No. 2 dated December 19, 1997 to the Governance Agreement. 10.16 * Tax Sharing Agreement dated July 15, 1996 between Cell Genesys and the Registrant. +10.17 Gene Therapy Rights Agreement effective as of November 1, 1997 between the Registrant and Cell Genesys. +10.18 * Patent Assignment Agreement dated July 15, 1996 by Cell Genesys in favor of the Registrant. 10.19(9) Lease Agreement dated July 31, 1996 between John Arrillaga, Trustee, or his Successor Trustee, UTA dated 7/20/77 (Arrillaga Family Trust) as amended, and Richard T. Peery, Trustee, or his Successor Trustee, UTA dated 7/20/77 (Richard T. Peery Separate Property Trust) as amended, and the Registrant. 10.20 * Loan and Security Agreement dated January 23, 1997 between Silicon Valley Bank and the Registrant.
113
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------------ ----------------------------------------------------------- 10.21 * Master Lease Agreement dated March 27, 1997 between Transamerica Business Credit Corporation and the Registrant. +10.22 License Agreement dated February 1, 1997 between Ronald J. Billing, Ph.D. and the Registrant. +10.23(10) Release and Settlement Agreement dated March 26, 1997 among Cell Genesys, the Registrant, Xenotech, L.P., Japan Tobacco Inc. and GenPharm International, Inc. +10.24(10) Cross License Agreement effective as of March 26, 1997, among Cell Genesys, the Registrant, Xenotech, L.P., Japan Tobacco Inc. and GenPharm International, Inc. +10.25(10) Interference Settlement Procedure Agreement, effective as of March 26, 1997, among Cell Genesys, the Registrant, Xenotech, L.P., Japan Tobacco Inc. and GenPharm International, Inc. +10.26 * Agreement dated March 26, 1997 among Xenotech, L.P., Xenotech, Inc., Cell Genesys, the Registrant, Japan Tobacco Inc. and JT Immunotech USA Inc. +10.27 Collaborative Research Agreement dated December 22, 1997 between Pfizer, Inc. and the Registrant. 10.28 * Amended and Restated Stockholder Rights Agreement dated January 12, 1998 among the Registrant and certain holders of the Registrant's capital stock. +10.29 Collaborative Research Agreement effective as of January 28, 1998 between Schering-Plough Research Institute and the Registrant. 10.30 * Excerpts from the Minutes of a Meeting of the Board of Directors of the Registrant, dated October 23, 1996. 10.31 * Excerpts from the Minutes of a Meeting of the Board of Directors of the Registrant, dated October 22, 1997. +10.32 Exclusive Worldwide Product License dated November 1997 between Xenotech, L.P. and the Registrant. +10.33 Research License and Option Agreement effective as of April 6, 1998 between the Registrant and Genentech, Inc. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 23.2 * Consent of Counsel. 24.1 * Power of Attorney (see page II-6). 27.1 * Financial Data Schedule.
- --------------- * Previously filed. + Confidential treatment requested for portions of these exhibits. Omitted portions have been filed separately with the Commission. (1) Incorporated by reference to the same exhibit filed with Cell Genesys's Registration Statement on Form S-1 (File No. 33-46452), portions of which have been granted confidential treatment. (2) Incorporated by reference to the same exhibit filed with Cell Genesys's Registration Statement on Form S-1 (File No. 33-46452). 114 (3) Incorporated by reference to the same exhibit filed with Cell Genesys's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993, portions of which have been granted confidential treatment. (4) Incorporated by reference to the same exhibit filed with Cell Genesys's Annual Report on Form 10-K for the year ended December 31, 1993, portions of which have been granted confidential treatment. (5) Incorporated by reference to the same exhibit filed with Cell Genesys's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, portions of which have been granted confidential treatment. (6) Incorporated by reference to the same exhibit filed with Cell Genesys's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. (7) Incorporated by reference to the same exhibit filed with Cell Genesys's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, portions of which have been granted confidential treatment. (8) Incorporated by reference to the same exhibit filed with Cell Genesys's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996. (9) Incorporated by reference to the same exhibit filed with Cell Genesys's Quarterly report on Form 10-Q for the quarter ended September 30, 1996. (10) Incorporated by reference to the same exhibit filed with Cell Genesys's Annual Report on Form 10-K for the year ended December 31, 1996, as amended, portions of which have been granted confidential treatment. (11) Incorporated by reference to the same exhibit filed with Cell Genesys's Annual Report on Form 10-K for the year ended December 31, 1993. EX-10.12 2 AMENDED AND RESTATED ANTI-IL8 LICENSE AGREEMENT 1 EXHIBIT 10.12 CONFIDENTIAL TREATMENT REQUESTED BY ABGENIX, INC. AMENDED AND RESTATED ANTI-IL-8 PRODUCT LICENSE AGREEMENT THIS AMENDED AND RESTATED PRODUCT LICENSE AGREEMENT (the "Agreement") to agreement originally made as of March 19, 1996, is made as of the original date by and between Xenotech, L.P., a California limited partnership ("XT"), and each of Cell Genesys, Inc. ("CGI"), a Delaware corporation, and Japan Tobacco Inc., a Japanese corporation ("JTI"). RECITALS A. XT desires to grant JTI an exclusive license in the JTI Territory under the Licensed Technology to commercialize Products, and JTI wishes to acquire such a license, on the terms and conditions herein. B. XT desires to grant CGI an exclusive license in the CGI Territory under the Licensed Technology to commercialize Products, and CGI wishes to acquire such a license, on the terms and conditions herein. C. XT desires to grant to JTI and CGI a co-exclusive license in the Rest of the World under the Licensed Technology to commercialize Products, and JTI and CGI wish to acquire such a license. NOW, THEREFORE, for and in consideration of the covenants, conditions, and undertakings hereinafter set forth, it is agreed by and between the parties as follows: 1. DEFINITIONS Incorporation by Reference. For purposes of this Agreement, the terms set forth in this Article shall have the meanings set forth below. 1.l "Affiliate" shall mean any entity which controls, is controlled by or is under common control with any of CGI, JTI or XT. An entity shall be regarded as in control of another entity if it owns or controls at least fifty percent (50%) of the shares of the subject entity entitled to vote in the election of directors (or, in the case of an entity that is not a corporation, for the election of the corresponding managing authority); provided, however, XT shall not be an Affiliate of CGI or JTI under this Agreement and XT shall not be considered controlled by CGI or JTI for purposes of determining Affiliates of CGI or JTI. 2 1.2 "[***] Technology" shall mean (i) all U.S. patent applications and patents listed on Schedule 1 and patents issuing on such patent applications owned by or licensed to XT which relate to the [***], in each case to the extent XT has the right to license or sublicense the same; (ii) any continuations, divisionals, reexaminations, reissues or extensions of any of (i) above; (iii) any foreign counterparts issued or issuing on any of (i) or (ii) above; and (iv) [***] as set forth in Schedule 1. 1.3 "CGI Territory" shall mean the United States of America and its territories and possessions, Canada and Mexico. 1.4 "Core Technology" shall have the meaning set forth in Section 10.3. 1.5 "Effective Date" shall mean March 19, 1996. 1.6 "IND" shall mean an Investigational New Drug Exemption for a Product, as defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder, or its non-U.S. equivalent. 1.7 "JTI Territory" shall mean Japan, Taiwan, and South Korea (including the territory comprising North Korea if it should be reunited with South Korea). 1.8 "License Date" shall mean, for each of CGI and JTI, the date that such party has executed this Agreement. 1.9 "License Fee" shall have the meaning set forth in Article 3 hereof. 1.10 "Licensed Field" shall mean all human medical uses. 1.11 "Licensed Technology" shall mean the [***] Technology and the [***] Technology. 1.12 "Master Research License and Option Agreement" shall mean that certain Master Research License and Option Agreement entered into by CGI, JTI and XT as of June 28, 1996, as it may be amended. 1.13 "Net Sales" shall mean the [***] by CGI or JTI, as the case may be, or its Affiliates and Sublicensees for sales of Product to non-Affiliate customers, [***], with respect to such sales, and [***], as reflected in [***] of CGI or JTI and its Affiliates or Sublicensees, [***]. -2- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 3 1.14 "Product" shall mean [***] but not limited to any [***]. Product as used herein shall not include a [***]. 1.15 "Product Antigen" shall mean Interleukin 8. 1.16 "Rest of the World" shall mean all parts of the world not included in the CGI Territory or the JTI Territory. 1.17 "Sublicensee" shall mean a third party that is not an Affiliate to whom CGI or JTI, as the case may be, has granted a sublicense under the Licensed Technology to make, use and/or sell Product to the extent of the rights of CGI or JTI, as the case may be, therein. "Sublicensee" shall also include a third party to whom CGI or JTI has granted the right to distribute Product under the Licensed Technology to the extent of the rights of CGI or JTI, as the case may be, therein, provided that such third party is responsible for the marketing and promotion of Product within the applicable country. 1.18 "Territory" shall mean those countries of the world in which CGI or JTI, as the case may be, has exclusive or co-exclusive license rights pursuant to this Agreement, 1.19 "Universal Receptor Product" shall mean a substance that is developed utilizing [***] Universal Receptor Technology. 1.20 "Universal Receptor Technology" shall mean technology for universal receptors [***]. As used herein: (i) "universal receptor" shall mean a receptor [***] -3- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 4 [***]. 1.21 "Valid Claim" shall mean a claim of a pending or issued and unexpired patent included within the Licensed Technology, which has not been held unenforceable, unpatentable or invalid by a court or other governmental agency of competent jurisdiction, and which has not been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise. 1.22 "[***] Technology" shall mean (i) all U.S. patent applications and patents listed on Schedule 2 and patents issuing on such applications; (ii) any continuations, divisionals, reexaminations, reissues or extensions of any of (i) above; (iii) any foreign counterparts issued or issuing on any of (i) or (ii) above; and (iv) the Mice (as such term is defined in the Master Research License and Option Agreement) and [***] as set forth on Schedule 2. 2. LICENSE GRANTS 2.1 Grant to CGI. Subject to the terms and conditions of this Agreement and effective as of the CGI License Date, XT hereby grants to CGI an exclusive license or sublicense, as the case may be, under the Licensed Technology, to make and have made Product anywhere in the world for use, sale, import or other distribution in the CGI Territory in the Licensed Field. Such license or sublicense shall be exclusive even as to XT, and shall include the exclusive right to grant and authorize sublicenses for exploitation within the CGI Territory (excluding any rights to the Mice as defined in the Master Research License and Option Agreement). 2.2 Grant to JTI. Subject to the terms and conditions of this Agreement, and effective as of the JTI License Date, XT hereby grants to JTI an exclusive license or sublicense, as the case may be, under the Licensed Technology, to make and have made Product anywhere in the world for use, sale, import or other distribution in the JTI Territory in the Licensed Field. Such license or sublicense shall be exclusive even as to XT, and shall include the exclusive right to grant and authorize sublicenses for exploitation within the JTI Territory (excluding any rights to the Mice as defined in the Master Research License and Option Agreement). -4- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 5 2.3 Rest of World. Subject to the terms and conditions of this Agreement, effective as of the CGI License Date and the JTI License Date, as the case may be, XT hereby grants to each of CGI and JTI a co-exclusive license or sublicense, as the case may be, under the Licensed Technology, to make and have made Product anywhere in the world for use, sale, import or other distribution in the Rest of the World in the Licensed Field. Such co-exclusive licenses or sublicenses shall be co-exclusive even as to XT and shall include the co-exclusive right to grant and authorize sublicenses for exploitation within the Rest of the world (excluding any rights to the Mice as defined in the Master Research License and Option Agreement) 3. LICENSE FEE Subject to Section 15.1, each of CGI and JTI shall pay to XT a license fee of [***]. 4. ROYALTIES 4.1 Royalty Rates. In consideration for the license and rights granted herein, CGI and JTI each agree to pay to XT royalties of [***] of Net Sales of Product by it and its Affiliates and Sublicensees. 4.2 Royalty Offsets. CGI or JTI, as the case may be, shall have the right to reduce the rate at which any royalties due to XT are payable pursuant to Section 4.1 to offset [***]; provided, however, that the royalty rates paid by such licensee pursuant to Section 4.1 shall not be reduced to less than [***] of the rate set forth in Section 4.1. [***]. 4.3 Single Royalty; Non-Royalty Sales. Only one royalty shall be payable with respect to any Product, regardless of how many claims of patents within the Licensed Technology cover such Product. In addition, no royalty shall be payable under this Article 4 with respect to sales of Product among CGI or JTI, as the case may be, and its Affiliates and/or Sublicensees or for use in research and/or development or clinical trials. -5- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 6 4.4 No Patent Protection. Royalties shall be payable at the rates specified in Section 4.1 or 4.2 above only with respect to sales of a Product that would infringe a Valid Claim in the country in which such Product is sold. In the event that such Product is not covered by a Valid Claim in such country, XT shall be paid a royalty on such sales in accordance with this Article 4, [***]. 4.5 Combination Products. In the event that Product is sold in combination as a single product with another product or component, Net Sales from such combination sales for purposes of calculating the amounts due under this Article 4 shall be [***]. In the event that no such separate sales are made in the same quarter by CGI or JTI, as the case may be, Net Sales for royalty determination shall be [***]. 4.6 Termination of Royalties. Royalties under Section 4.1, 4.2 or 4.4 will be due until the later of (i) ten years from the first commercial sale of Product in any country or (ii) on a country-by-country basis, the expiration of the last-to-expire patent within the Licensed Technology covering the Product in such country, 5. THIRD PARTY ROYALTIES 5.1 Royalties Payable by XT. XT will be responsible for the payment of any royalties, license fees and milestone and/or other payments due to third parties under licenses or similar agreements entered into by XT necessary to allow the manufacture, use or sale of Product. CGI and/or JTI, as the case may be, shall reimburse XT for any royalties paid by XT to third parties under licenses or similar agreements covering Product necessary to allow the manufacture, use, sale or other exploitation of Product in accordance with this Agreement. CGI and/or JTI shall continue any such reimbursement payments to XT until XT's obligation to pay royalties to a third party under any license covering Product expires or terminates. XT agrees not to enter into any license or similar agreement after the Effective Date which would obligate CGI and/or JTI, as they case may be, to make any payments under this Section 5.1 without the prior written consent of CGI and/or JTI, as the case may be. 5.2 Royalties Payable by CGI or JTI. CGI and JTI, as the case may be, will be responsible for the payment of any royalties, license fees and milestone and other payments due to -6- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 7 third parties under licenses or similar agreements entered into by such party to allow the manufacture, use or sale of Product. 6. ACCOUNTING AND RECORDS 6.1 Royalty Reports and Payments. After the first commercial sale of Product on which royalties are required, CGI and JTI each agrees to make quarterly written reports to XT within eighty days after the end of each calendar quarter, stating in each such report the number, description, and aggregate Net Sales of Product sold during the calendar quarter upon which a royalty is payable under Article 4 above. Concurrently with the making of such reports, CGI or JTI, as the case may be, shall pay to XT royalties at the applicable rate specified in Section 4.1, 4.2 or 4.4 above and all royalties payable pursuant to Section 5.1 above, and any adjustment to Net Sales for a prior period in accordance with the definition of Net Sales in Section 1.13 hereof. All payments to XT hereunder shall be made in U.S. Dollars to a bank account designated by XT. 6.2 Early Third Party License Payments. If XT is obligated to pay royalties to a third party prior to ninety days after the end of the calendar quarter, XT shall so notify CGI or JTI, as the case may be, and such licensee shall provide the reports and payments set forth in Section 6.1 above not later than ten (10) days before the date such payments are due to the third party. Up to thirty-five days before such payments are due, XT may provide CGI or JTI with an invoice by facsimile setting forth the royalties XT must pay third parties with respect to such licensee's activities in its Territory in the preceding quarter, and such licensee shall pay such invoices within thirty days of receipt of such invoice. 6.3 Records; Inspection. CGI and JTI shall keep (and cause its Affiliates and Sublicensees to keep) complete, true and accurate books of account and records for the purpose of determining the royalty amounts payable to XT under this Agreement. Such books and records shall be kept at the principal place of business of CGI and JTI or its Affiliates or Sublicensees, as the case may be, for at least three years following the end of the calendar quarter to which they pertain. Such records of each licensee or its Affiliates or Sublicensee will be open for inspection during such three-year period by a representative of XT for the purpose of verifying the royalty statements. CGI and JTI shall each require each of its Sublicensees to maintain similar books and records and to open such records for inspection during the same three-year period by a representative of CGI or JTI, as the case may be, reasonably satisfactory to XT on behalf of, and as required by, XT for the purpose of verifying the royalty statements. All such inspections may be made no more than once each calendar year, at reasonable times mutually agreed by XT and the particular licensee. The XT representative will be obliged to execute a reasonable confidentiality agreement prior to commencing any such -7- 8 inspection. Inspections conducted under this section 6.3 shall be at the expense of XT, unless a variation or error of CGI or JTI, as the case may be, producing an increase exceeding [***] of the amount stated for the period covered by the inspection is established in the course of any such inspection, whereupon all costs relating thereto will be paid by the particular licensee. Upon the expiration of three years following the end of any fiscal year, the calculation of royalties payable with respect to such year shall be binding and conclusive, and CGI and JTI, as the case may be, shall be released from any liability or accountability with respect to royalties for such year. 6.4 Currency Conversion. If any currency conversion shall be required in connection with the calculation of royalties hereunder, such conversion shall be made using the selling exchange rate for conversion of the foreign currency into U.S. Dollars, quoted for current transactions reported in The Wall Street Journal for the last business day of the calendar quarter to which such payment pertains. 6.5 Late Payments. Any payments due from Licensee 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 [***], calculated on the number of days such payment is delinquent. This Section 6.5 shall in no way limit any other remedies available to any party. 6.6 Withholding Taxes. 6.6.1 Unless immediately reimbursable under Section 6.6.2 below, all payments required to be made pursuant to Articles 3, 4 and 5 hereof shall be without deduction or withholding for or on account of any taxes (other than taxes imposed on or measured by net income) or similar governmental charge imposed by a jurisdiction. Such taxes are referred to herein as "Withholding Taxes" and such Withholding Taxes shall be the sole responsibility of the withholding party. The withholding party shall provide a certificate evidencing payment of any Withholding Taxes hereunder. 6.6.2 XT agrees to elect to claim a tax credit for Withholding Taxes with respect to which it is entitled so to elect, and further agrees not to amend such election for the full carry-forward period with respect to such credit. At the time that XT realizes a reduction in U.S. tax liability by actually utilizing the Withholding Taxes as a credit against regular U.S. tax liability (determined on a "first-in-first-out" basis pro rata with other available foreign tax credits), then the amount of such reduction attributable to such credit shall immediately be reimbursed to the withholding party. For these purposes, a reduction in U.S. tax liability shall include both a direct -8- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 9 reduction in XT's own tax liability and a reduction in the U.S. tax liability of any of its partners. 6.7 Tax Indemnity. Except as provided in Section 6.6, each party (the "Tax Indemnitor") shall indemnify and hold harmless the other party hereto (each a "Tax Indemnitee") from and against any tax or similar governmental charge assessed solely because of this Agreement, with respect to and directly attributable to the income or the assets of the Tax Indemnitor. In the event that any governmental agency shall make a claim against a party hereto which could give rise to an indemnity hereunder, such potential Tax Indemnitee shall give reasonably prompt notice to the potential Tax Indemnitor of the assertion of such claim. If the transmission of such notice is unreasonably deferred and has a material, adverse affect on the ability of the potential Tax indemnitor to challenge such claim, such potential Tax Indemnitor shall be released from liability hereunder. The Tax Indemnitor alone shall (at its own expense) control the defense or compromise of any such claim. The Tax Indemnitee shall execute any documents required to enable Tax Indemnitor to defend such claim, provide any information necessary therefor, and cooperate with Tax Indemnitor in such defense. 6.8 XT Tax Indemnity. XT shall indemnify and hold harmless CGI and JTI and their Affiliates from and against any increase to their respective country of incorporation income tax liability directly attributable to a positive adjustment to the amount of gross receipts (an "Adjustment" ) reported or reportable by such party from the income, including the royalty income, received from CGI or JTI on Covered Products. The amount payable hereunder shall be equal to the difference between (a) the product of (i) the amount of the Adjustment, and (ii) the highest combined marginal corporate tax rate in their respective country of incorporation in effect for the taxable year for which such Adjustment is made, and (b) the reduction in the party's foreign tax liability, which for purposes of this Agreement shall be equal to the product of (i) the amount of any correlative adjustment to its foreign taxable income, and (ii) the highest combined marginal foreign corporate tax rate in effect for the taxable year for which the correlative adjustment is made. No indemnification payment shall be required hereunder until comprehensive efforts to obtain a correlative adjustment to CGI's or JTI's, as the case may be, or its Affiliates' taxable income in a foreign state (which may include, for example invoking competent authority provisions under the U.S. Japanese Income Tax Treaty (if applicable)or other applicable bilateral tax treaty) have, to the extent reasonable to do so, been exhausted. 7. RESEARCH DEVELOPMENT 7.1 Funding and Conduct. CGI and JTI shall each independently furnish and be responsible for funding and conducting all of its preclinical and clinical research and development of Product, at its own expense. -9- 10 7.2 Biomaterials. Xenotech shall make available to each of CGI and JTI DNA or cDNA available to Xenotech and appropriate for use in development of the Product, as well as the related data. The DNA or cDNA thus made available will be used only by CGI and JTI and its permitted Affiliates and Sublicensees and manufacturing subcontractors. Xenotech shall also make available as part of the license granted hereunder to CGI and JTI any hybridomas, any reagents used for hybridoma generation and any materials from generated hybridomas including purified antibodies available to Xenotech and appropriate for use in development of Product, as well as the related data. Such hybridomas, reagents and materials, as well as the related data thus made available will be used only by CGI and JTI and their Affiliates and Sublicensees and manufacturing subcontractors. 7.3 Specialized Services. XT shall consider making available, as reasonably requested by CGI and JTI, specialized services of the Xenotech Division of CGI to aid in development of the Product. Such services shall be paid for by the requesting party. 8. SHARING OF CLINICAL DATA CGI and JTI and their respective Affiliates and Sublicensees shall be free to use data prepared by or on behalf of Xenotech under joint funding by them. However, there shall be no obligation for sharing data developed independently, whether through the Xenotech Division as provided in Section 7.3 or otherwise, by or on behalf of CGI or JTI. As long as their development projects remain on similar timelines, CGI and JTI will consider bilateral sharing of relevant Product development information end clinical data. 9. DUE DILIGENCE 9.1 [***]. 9.1.1 CGI and JTI, as the case may be, agree to [***] within [***] from its respective License Date. 9.1.2 In the event that either CGI or JTI believes [***] in its Territory, the [***] set forth in Section 9.1.1 shall be [***]; or, in the event that either CGI or JTI believes [***] in its Territory, the [***] set forth in Section 9.1.1 shall he [***]. -10- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 11 9.1.3 Notwithstanding the foregoing, each of CGI and JTI shall be [***] in the United States or Japan. 9.2 Failure to Meet Due Diligence Obligation. 9.2.1 If the diligence requirements set forth in Section 9.1 are not met by CGI (or its Affiliates or Sublicensees) in the United States or by JTI (or its Affiliates or Sublicensees) in Japan, such licensee's rights in the CGI Territory or the JTI Territory, as the case may be, will become co-exclusive with the other licensee in such territory and all rights to the Product in the Rest of the World will remain or become the exclusive rights of the other licensee, upon written notice by XT to such licensee and subject to Sections 9.3, 9,4 and 14.3 below. 9.2.2. Notwithstanding Section 9.2.1, the license granted hereunder to CGI or JTI, as the case may be, shall not become co-exclusive by reason of a delay in meeting the [***] milestone set forth in Section 9.1.1, to the extent that prudent business judgment, based on circumstances outside of such licensee's reasonable control, reasonably justifies such delay. 9.3 Dispute Resolution. In the event that a dispute arises whether the diligence requirements in Article 9 have been met, or circumstances exist which CGI or JTI, respectively, believes justifies a failure on its part to meet such obligation, the parties will attempt to resolve any dispute by mutual agreement, and, if required, the Chief Executive Officer of CGI and the Vice President of the Pharmaceutical Division of JTI shall meet personally and negotiate in good faith to resolve such dispute during a period of thirty days following licensee's receipt of the notice under Section 9.2.1. 9.4 Arbitration. In the event that the parties are unable to resolve such dispute pursuant to Section 9.3 above, such dispute shall be settled between XT and the other party by binding arbitration as set forth in Section 16.12. If the arbitrator determines that the party acted in good faith, but failed to meet its obligations under Section 9.1 above, the license granted to such party shall not terminate unless the nonperforming party fails to cure such non-performance within a reasonable period of time, as determined by the arbitrator. -11- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 12 10. PATENTS 10.1 [***] Technology. (a) XT or its licensor, as they may agree, shall have responsibility for preparing, filing, prosecuting and maintaining patents and patent applications worldwide relating to the [***] Technology and conducting any interferences, oppositions, reexaminations, or requesting reissues or patent term extensions with respect to the [***] Technology. XT shall keep CGI and JTI each reasonably informed as to the status of such patent matters in its Territory, including without limitation, by providing such licensee the opportunity to review and comment on any documents which will be filed in any patent office, and providing such licensee copies of any documents received by XT from such patent offices including notice of all interferences, reexaminations, oppositions or requests for patent term extensions. CGI and JTI shall cooperate with and assist XT in connection with such activities, at XT's request and expense. (b) In the event that CGI or JTI, as the case may be, becomes aware that any [***] Technology necessary for the practice of the licenses granted herein is infringed or misappropriated by a third party or is subject to a declaratory judgment action arising from such infringement, such party shall promptly notify XT (and the other licensee) and XT shall thereafter promptly notify the owner of such intellectual property. XT or its licensor, as they may agree, shall have the exclusive right to enforce, or defend any declaratory judgment action, at its expense, involving any [***] Technology. In such event, XT shall keep CGI and/or JTI, as the case may be, reasonably informed of the progress of any such claim, suit or proceeding in its Territory. Any recovery received by XT as a result of any such claim, suit or proceeding shall be used first to reimburse XT for all expenses (including attorneys, and professional fees) incurred in connection with such claim, suit or proceeding, [***]. 10.2 [***] Technology. 10.2.1 XT shall have the initial worldwide responsibility for preparing, filing, prosecuting and maintaining patent applications and conducting any interferences, oppositions, reexaminations, or requesting reissues or patent term extensions with respect to [***] Technology. XT shall give CGI and JTI each the opportunity to review the status of all such pending patent applications and actions in its Territory and shall keep CGI and/or JTI, as the case may be, fully informed of the progress of such applications and actions, including, without limitation, by promptly providing CGI and/or JTI with copies of all correspondence sent to and received from patent offices, and providing notice of all interferences, reexaminations, -12- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 13 oppositions or requests for patent term extensions. [***]. In the event that XT declines or fails to prepare, file, prosecute or maintain such patent applications or patents or take such other actions, relating to the Product it shall promptly and in no event later than ninety days prior to any filing deadline, provide notice to CGI and JTI. CGI and JTI shall promptly discuss and agree on who should assume such responsibilities and how the expenses related thereto should be allocated. 10.2.2 In the event that a licensee becomes aware that any [***] Technology necessary for the practice of the license granted herein is infringed or misappropriated by a third party in any country in which CGI or JTI has rights hereunder, or is subject to a declaratory judgment action arising from such infringement in such country, CGI or JTI, as the case may be, shall promptly notify XT and XT shall thereafter promptly notify the owner of such intellectual property. 10.2.3 CGI or JTI, as the case may be, shall have the exclusive right to enforce, or defend any declaratory judgment action, in any country in which it has exclusive rights hereunder, at its expense, involving [***] Technology. In such event, the party involved in such claim, suit or proceeding, shall keep XT and the other of CGI or JTI reasonably informed of the progress of any such claim, suit or proceeding. Any recovery by such party received as a result of any such claim, suit or proceeding shall be used first to reimburse such party for all expenses (including attorneys, and professional fees) incurred in connection with such claim, suit or proceeding, and [***]. 10.2.4 CGI and JTI shall consult and agree whether, and if so, how, to enforce the [***] Technology in a country in which CGI and JTI have co-exclusive rights hereunder. However, [***] (except as otherwise provided below). The party taking such action shall keep XT and the other of CGI or JTI reasonably informed of the progress of any such claim, suit or proceeding. Any recovery by such party received as a result of any such claim, suit or proceeding shall be used first to reimburse such party for all expenses (including attorneys' and professional fees) incurred in connection with such claim, suit or proceeding [***]. -13- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 14 10.3 Infringement Claims. If the production, sale or use of Product pursuant to this Agreement results in any claim, suit or proceeding alleging patent infringement against CGI or JTI (or their respective Affiliates or Sublicensees), CGI or JTI, as the case may be, shall promptly notify XT thereof in writing setting forth the facts of such claim in reasonable detail. [***] CGI, JTI and XT dated March 22, 1996, as it may be amended from time to time, CGI or JTI, as the case may be, 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 choice. Such parties shall keep XT reasonably informed of all material developments in connection with any such claim, suit or proceeding as it relates to Licensed Technology. The other of CGI or JTI may participate in the defense. of any such claim, suit or proceeding at its own expense through counsel of its choice. CGI or JTI, as the case may be, [***] pursuant to this Agreement. Notwithstanding the above, neither CGI nor JTI shall be able to settle any such claim, suit or proceeding that impinges upon the rights of JTI or CGI, as the case may be, including, without limitation, involving any admission of the invalidity of the Licensed Technology or rights to the Product Antigen outside its Territory without the prior approval of XT. 10.4 Patent Marking, CGI and JTI agree to mark and have its Affiliates and Sublicensees mark all Products sold pursuant to this Agreement in accordance with the applicable statute or regulations in the country or countries of manufacture and sale thereof. 11. CONFIDENTIALITY 11.1 Confidential Information. Except as expressly provided herein, the parties agree that, for the term of this Agreement and for five years thereafter, the receiving party shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose any information furnished to it by another party hereto pursuant to this Agreement except to the extent that it can be established by the receiving party by competent proof that such information: (a) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving party; -14- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 15 (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; or (d) was subsequently lawfully disclosed to the receiving party by a person other than a party or developed by the receiving party without reference to any information or materials disclosed by the disclosing party. 11.2 Permitted Disclosures. Notwithstanding Sections 11.1 above and 16.16 below, each party hereto may disclose another party's information to the extent such disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental regulations or otherwise submitting information to tax or other governmental authorities, making a permitted sublicense or other exercise of its rights hereunder or conducting clinical trials, provided that if a party is required to make any such disclosure of the other party's secret or confidential information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the latter party of such disclosure requirement and, save to the extent inappropriate in the case of patent applications, will use efforts consistent with prudent business judgment to secure confidential treatment of such information prior to its disclosure (whether through protective orders or otherwise) Notwithstanding the foregoing, XT shall not disclose to third parties, clinical data or regulatory filings received from CGI or JTI except as agreed in writing by such party. 12. SUBLICENSES Pursuant to Article 2 herein, CGI and JTI shall each have the exclusive right in in the CGI Territory and the JTI Territory, respectively, and the co-exclusive right in the Rest of the World to grant and authorize sublicenses to third parties; provided, however, such party shall remain responsible for any payments due XT for Net Sales of Product by any Sublicensee. [***]. Any sublicense granted by CGI or JTI pursuant to this Agreement shall. provide that the Sublicensee will be subject to the applicable terms of this Agreement. CGI or JTI, as the case may be, shall provide XT with a copy of relevant portions of each sublicense agreement, as reasonably required by XT. 13. INDEMNITY 13.1 CGI. Subject to compliance by XT and/or JTI with its obligations set forth in Section 13.3 below, CGI agrees: (a) to indemnify and hold XT and its directors, officers, employees and agents harmless from and against any -15- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 16 losses, claims, damages, liabilities or actions (including reasonable attorneys' fees and court and other expenses of litigation) (collectively, the "Liabilities") suffered or incurred in connection with third party claims relating to the Core Technology arising from any Product manufactured, used, sold or otherwise distributed by CGI and its Affiliates or Sublicensees; (b) to indemnify and hold XT, JTI, JTI's Affiliates and their directors, officers, employees and agents harmless from and against any Liabilities suffered or incurred in connection with third party claims relating to intellectual property rights (other than Core Technology) arising from any Product manufactured, used, sold or otherwise distributed by CGI and its Affiliates or Sublicensees; and (c) to indemnify and hold XT, JTI, JTI's Affiliates and their directors, officers, employees and agents harmless from and against any Liabilities suffered or incurred in connection with third party claims other than relating to Core Technology or other intellectual property rights arising from any Product manufactured, used, sold or otherwise distributed by CGI and its Affiliates or Sublicensees; provided, however, that CGI shall not be required to provide indemnification under this clause (c) to any party for any Liabilities suffered or incurred in connection with third party claims resulting from the gross negligence, recklessness or intentional misconduct by such party or its Affiliates, or their directors, officers, employees or agent. 13.2 JTI. Subject to compliance by XT and/or CGI with its obligations set forth in Section 13.3 below, JTI agrees: (a) to indemnify and hold XT and its directors, officers, employees and agents harmless from and against any Liabilities suffered or incurred in connection with third party claims relating to the Core Technology arising from any Product manufactured, used, sold or otherwise distributed by JTI and its Affiliates or Sublicensees; (b) to indemnify and hold XT, CGI, CGI's Affiliates and their directors, officers, employees and agents harmless from and against any Liabilities suffered or incurred in connection with third party claims relating to intellectual property rights (other then Core Technology) arising form any Product manufactured, used, sold or otherwise distributed by JTI and its Affiliates or Sublicensees; (c) to indemnify and hold XT, CGI, CGI's Affiliates and their directors, officers, employees and agents harmless from and against any Liabilities suffered or incurred in connection with third party claims other than relating to Core Technology or other intellectual property rights arising from any Product manufactured, used, sold or otherwise distributed by JTI and its Affiliates or Sublicensees; provided, however, that JTI shall not -16- 17 be required to provide indemnification under this clause (c) to any party for any Liabilities resulting from the gross negligence, recklessness or intentional misconduct by such party or its Affiliates, or their directors, officers, employees or agents. 13.3 Procedure. If a party (an "Indemnitee") intends to claim indemnification under this Article 13, it shall promptly notify the indemnifying party (the "Indemnitor") in writing of any loss, claim, damage, liability or action in respect of which the Indemnitee or its directors, officers, employees or agents intend to claim such indemnification, and the Indemnitor shall have the right to participate in, and, to the extent the Indemnitor so desires, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor, 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 proceeding. The indemnity agreement in this Article 13 shall not apply to amounts paid in settlement of any loss, claim, damage, liability or action if such settlement is effected without the consent of the Indemnitor, which consent shall not be withheld or delayed unreasonably. The failure to deliver written notice to the Indemnitor within a reasonable time after the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such Indemnitor of any liability to the Indemnitee under this Article 13, but the omission so to deliver written notice to the Indemnitor shall not relieve it of any liability that it may have to any party claiming indemnification otherwise than under this Article 13. The party claiming indemnification under this Article 13, its employees and agents, shall cooperate fully with the Indemnitor and its legal representatives in the investigation of any action, claim or liability covered by this indemnification. 14. REPRESENTATIONS AND WARRANTIES 14.1 XT. XT represents and warrants that: (i) it has the full right and authority to enter into this Agreement and grant the rights and licenses granted herein; (ii) it has not previously granted and will not grant any rights inconsistent or in conflict with the rights and licenses granted to CGI and JTI herein; (iii) there are no existing or threatened actions, suits or claims pending against XT with respect to the Licensed Technology or the right of XT to enter into and perform its obligations under this Agreement; -17- 18 (iv) it has not previously granted, and will not grant during the term of this Agreement, any right, license or interest in and to the Licensed Technology, or any portion thereof, with respect to the Product, or its manufacture or use; (v) Schedule 1 hereto sets forth the [***] Technology as of the Effective Date and Schedule 2 hereto sets forth The [***] Technology as of the Effective Date; and (vi) Schedule 3 hereto sets forth all royalties, license fees, milestone payments and similar payments due to third parties for which a Grantee would be obligated to reimburse XT under the Product Licenses as of the Effective Date. In the event that XT acquires rights to intellectual property that would become either [***] Technology or [***] Technology, XT will promptly update Schedule 1 or Schedule 2, as the case may be, and provide copies thereof to each Grantee. In the event that XT enters into any agreement which could require a Grantee to reimburse XT for any additional royalties, license fees, milestone payments or similar payments, XT will promptly update Schedule 3 and provide copies thereof to each Grantee. 14.2 CGI and JTI. Each of CGI and JTI represents and warrants that: (i) it has the full right and authority to enter into this Agreement, (ii) to its knowledge, there are no existing or threatened actions, suits or claims pending with respect to the subject matter hereof (except for the pending or threatened litigation with GenPharm International, Inc.) or the right of it to enter into and perform its obligations under this Agreement; and (iii) it has not entered and during the term of this Agreement will not enter any other agreement inconsistent or in conflict with this Agreement. 14.3 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, XT MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF LICENSED TECHNOLOGY CLAIMS, ISSUED OR PENDING. 14.4 Effect of Representations and Warranties. It is understood that if the representations and warranties under this Article 13 are not true and accurate and a party incurs liabilities, costs or other expenses is a result of such falsity, the party at fault shall indemnify, defend and hold the injured party harmless from and against any such liabilities, costs or expenses incurred, provided that the party at fault receives prompt notice of any claim against the injured party resulting from or related to such falsity and the sole right to control the defense or settlement thereof. -18- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 19 15. TERM AND TERMINATION 15.1 Effectiveness. This Agreement shall become effective as of the Effective Date and the license rights granted by XT under Article 2 above shall be in full force and effect as to any licensee who shall have executed this Agreement as of such date. In the event that either CGI or JTI shall not have executed this Agreement as of the Effective Date, such party shall have the option to become a party to this Agreement and to obtain the license rights granted by XT under Article 2 above until September 1, 1996, whereupon such option shall terminate, and, notwithstanding the termination of such option, this Agreement and the license as to XT and the other party (the "Licensed Party") shall continue in full force and effect for the term set forth in Section 15.2 below. The Licensed Party shall thereupon have an option (the "Exclusive License Option") to obtain all of the other worldwide license rights offered hereunder in addition to the rights granted to the Licensed Party under Article 2. The Exclusive License Option shall be exercisable by the Licensed Party until March 1, 1997 at an exercise price equal to the License Fee, which shall be paid within sixty days of exercise of the Exclusive License Option. Upon exercise of the Exclusive License Option, the Licensed Party shall have an exclusive worldwide license or sublicense, as the case may be, under the Licensed Technology to make and have made the Product for use, sale or other distribution in the Licensed Field, subject to the terms and conditions of this Agreement. 15.2 Term. Unless earlier terminated pursuant to the other provisions of this Article 15, this Agreement shall continue in full force and effect until the later of (i) the expiration of the last to expire patent within the Licensed Technology claiming the Product or (ii) the twentieth anniversary of the Effective Date. The licenses granted under Article 2 and, if applicable, Section 15.1 above, and the obligations of CGI and JTI to reimburse XT for payments made pursuant to licenses granted by third parties subject to Section 5 herein, shall survive the expiration (but not an earlier termination) of this Agreement; provided that such licenses shall become nonexclusive. 15.3 Termination for Breach. Any party to this Agreement may terminate this Agreement as to another party hereto in the event such other party shall have materially breached or defaulted in the performance of any of its material obligations hereunder, and such shall have continued for sixty days after written notice thereof was provided to the breaching party by the nonbreaching party that terminates the Agreement as to such party. Any termination shall become effective at the end of such sixty day period unless the breaching party has cured any such breach or default prior to the expiration of the sixty day period. However, if the party alleged to be in breach of this Agreement disputes such breach within such sixty day period, the non-breaching party shall not have the right to terminate this Agreement unless it has been determined by an arbitration -19- 20 proceeding in accordance with Section 16.12 below that this Agreement was materially breached, and the breaching party fails to cure such breach within thirty days following the final decision of the arbitrators or such other time as directed by the arbitrators. 15.4 Other Termination Rights. CGI or JTI may terminate this Agreement and the license granted to such party herein, in its entirety or as to any particular patent within the Licensed Technology in a particular country, at any time, by providing XT ninety-days written notice. In the event of termination as to a particular country, the subject patent in such country shall cease to be within the Licensed Technology for all purposes of this Agreement that apply to the terminating party. 15.5 Effect of Termination. 15.5.1 In the event that this Agreement (i) is terminated under Section 15,3 above, by reason of a breach by CGI or JTI, this Agreement shall terminate with respect to the breaching party only, and shall continue in effect with respect to XT and the non-breaching party; (ii) is terminated by CGI or JTI by reason of a breach by XT, this Agreement shall terminate as to XT and the terminating party, and shall continue in effect with respect to XT and the other of CGI and JTI; or (iii) is terminated by CGI or JTI in its entirety under Section 15.4 above, this Agreement shall terminate with respect to the party exercising its right to terminate thereunder, and shall continue in effect in its entirety with respect to XT and the non-terminating party. In each case, the non-breaching or non-terminating license shall thereupon have the right to obtain an exclusive license or sublicense, as the case may be, under the Licensed Technology, to make and have made Product for use, sale or other distribution in the Licensed Field throughout the world, on the terms and conditions set forth herein that are applicable to it. 15.5.2 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. 15.5.3 In the event this Agreement is terminated with respect to CGI or JTI for any reason, such licensee and its Affiliates and Sublicensees shall have the right to sell or otherwise dispose of the stock of any Product subject to this Agreement then on hand. Upon termination of this Agreement by XT for any reason, any sublicense granted by a licensee hereunder shall survive, provided that upon request by XT, such Sublicensee promptly agrees in writing to be bound by the applicable terms of this Agreement. -20- 21 15.5.4 This Agreement, including, without limitation, any licenses or sublicenses granted pursuant to this Agreement, shall survive any dissolution, liquidation or acquisition of XT. Such licenses shall remain in full force and effect even after any distribution, following dissolution, of the intellectual property owned or licensed to XT, to any entity. Any transfer of such intellectual property prior to or following dissolution shall be subject to the licenses granted herein. 15.5.5 This Agreement, including the licenses granted in Article 2 and, if applicable, Section 15.1, is independent of, and shall not be affected by, any breach or termination of the Master Research License and Option Agreement or any other agreement among the parties or their Affiliates. 15.5.6 Sections 6.3, 6.5, 6.6, 6.7 and 6.8 and Articles 11, 13, 15 and 16 shall survive the expiration and any termination of this Agreement for any reason. 16. MISCELLANEOUS 16.1 Governing Laws. This Agreement shall be interpreted and construed in accordance with the laws of the State of California, without regard to conflicts of law principles. 16.2 Waiver. It is agreed that no waiver by any party hereto of any breach or default of any of the covenants or agreements herein set forth shall be deemed a waiver as to any subsequent and/or similar breach or default. 16.3 Assignment. This Agreement and the licenses granted hereunder may not be assigned by CGI or JTI to any third party without the written consent of XT, and XT may not assign this Agreement to a third party without the consent of both CGI and JTI; except any party may assign this Agreement without such consent to (a) an Affiliate (provided that such Affiliate is two-thirds or greater owned directly or indirectly) or (b) an entity that acquires substantially all of the assets of the monoclonal antibody business segment of the assigning party. The terms and conditions of this Agreement shall be binding on and inure to the benefit of the permitted successors and assigns of the parties. 16.4 Independent Contractors. The relationship of the parties hereto is that of independent contractors. The parties hereto are not deemed to be agents, partners or joint venturers of the others for any purpose as a result of this Agreement or the transactions contemplated thereby. 16.5 Compliance with Laws. In exercising their rights under this license, 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 license. -21- 22 16.6 No Implied Obligations. Except as expressly provided in Article 9 above, nothing in this Agreement shall be deemed to require CGI or JTI to exploit the Licensed Technology nor to prevent CGI or JTI from commercializing products similar to or competitive with any Product, in addition to or in lieu of such Product. 16.7 Notices. Any notice required or permitted to be given to the parties hereto shall be given in writing and shall be deemed to have been properly given if delivered in person or when received if mailed by first class certified mail to the other party at the appropriate address as set forth below or to such other addresses as may be designated in writing by the parties from time to time during the term of this Agreement. Xenotech: Xenotech, L.P. 322 Lakeside Drive Foster City, California 94404 Attn: Chief Financial Officer Japan Tobacco Inc.: Japan Tobacco Inc. JT Building 2-1 Toranomon 2-chome Minato-ku, Tokyo 105 Japan Attn: Vice President, Pharmaceutical Division with a copy to: JT America Inc. 1825 South Grant Street, Suite 220 San Mateo, CA 94402 Attn: President and to: Gilbert, Segall and Young LLP 430 Park Avenue New York, NY 10022 Attn: Neal N. Beaton, Esq. Cell Genesys, Inc.: Cell Genesys, Inc. 322 Lakeside Drive Foster City/ California 94404 Attn: President with a copy to: Heller Ehrman White & McAuliffe 525 University Avenue Palo Alto, California 94301 Attn: Julian N. Stern, Esq. 16.8 Export Laws. Notwithstanding anything to the contrary contained herein, all obligations of XT, CGI and JTI are subject to prior compliance with United States and Japanese export regulations and such other United States and Japanese laws and, regulations as may be applicable, and to obtaining all necessary -22- 23 approvals required by the applicable agencies of the government of the United States and Japan. CGI and JTI each shall use efforts consistent with prudent business judgment to obtain such approvals. XT shall cooperate with CGI and JTI and shall provide assistance to them as reasonably necessary to obtain any required approvals. 16.9 Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision, and the parties shall discuss in good faith appropriate revised arrangements. 16.10 Force Majeure. Nonperformance of any party (except for payment obligations) shall be excused to the extent that performance is rendered impossible by strike, fire, earthquake, flood, governmental acts or orders or restrictions, failure of suppliers, or any other reason where failure to perform, is beyond the reasonable control and not caused by the negligence, intentional conduct or misconduct of the nonperforming party. 16.11 No Consequential Damages. IN NO EVENT SHALL ANY PARTY HERETO BE LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT OR THE EXERCISE OF RIGHTS HEREUNDER. 16.12 Dispute Resolution; Arbitration. The parties will attempt to resolve any dispute under this Agreement by mutual agreement, and, if required, there shall be a face-to-face meeting between senior executives of the parties. Any dispute under this Agreement which is not settled after such meeting, shall be finally settled by binding arbitration, conducted in accordance with the Rules of Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with said rules. The arbitration proceedings and all pleadings and written evidence shall be in the English language. 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 costs of the arbitration, including administrative and arbitrators' fees, shall be shared equally by the parties. Each party shall bear its own costs and attorneys' and witness' foes. The prevailing party in any arbitration, as determined by the arbitration panel, shall be entitled to an award against the other party in the amount of the prevailing party's costs and reasonable attorneys, fees. The arbitration shall be held in San Francisco, California, unless initiated by XT or CGI against JTI in which event it will be held in Tokyo, Japan. A disputed performance or suspended performances pending the resolution of the arbitration must be completed within thirty days following the final decision of the arbitrators. Any arbitration shall be completed within six months from the filing of notice of a request for such arbitration. -23- 24 6.13 Complete Agreement. It is understood and agreed by the parties that this Agreement constitutes the entire agreement, both written and oral, among the parties with respect to the subject matter hereof, and that all prior agreements respecting the subject matter hereof, either written or oral, expressed or implied, shall be abrogated, canceled, and are null and void and of no effect. No amendment or change hereof or addition hereto shall be effective or binding on either of the parties hereto unless reduced to writing and executed by the respective duly authorized representatives of XT, CGI and JTI. 16.14 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and both together shall be deemed to be one and the same agreement. 16.15 Headings. The captions to the several Articles and Sections hereof are not a part of this Agreement, but are included merely for convenience of reference only and shall not affect its meaning or interpretation. 16.16 Nondisclosure. Except as provided in Article 11, each of the parties hereto agrees not to disclose to any third party the terms of this Agreement without the prior written consent of each other party hereto, except to advisors, investors and others on a need to know basis under circumstances that reasonably ensure the confidentiality thereof, or to the extent required by law. Without limitation upon any provision of this Agreement, each of the parties hereto shall be responsible for -24- 25 the observance by its employees, consultants and contractors of the foregoing confidentiality obligations. IN WITNESS WHEREOF, the parties have executed this Agreement, in triplicate originals, their respective originals, hereunto duly authorized, as of the day and year first above written. JAPAN TOBACCO INC. CELGENESYS INC. By:_____________________ By:/s/ Scott Greer R. Scott Greer Name:___________________ Senior Vice President, Corporate Development Title:__________________ Date: 6/19/96 Date:___________________ XENOTECH, INC. (as General Partner of XENOTECH, L.P.) By: /s/ Takahashi Kamiya Takashi Kamiya Chairman Date: 6/19/96 By: /s/ Raymond M. Withy Raymond M. Withy President and Chief Executive Officer Date: 6/19/96 -25- 26 Schedule 1 [***] [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 27 Schedule 2 Patents DOCKET NO.FILING DATE SERIAL NO. TITLE INVENTORS [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 28 Schedule 2 Patents DOCKET NO.FILING DATE SERIAL NO. TITLE INVENTORS [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 29 Schedule 2 [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 30 SCHEDULE 2 [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 31 SCHEDULE 2 [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 32 SCHEDULE 2 [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 33 SCHEDULE 2 [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 34 SCHEDULE 3 ROYALTIES PAYABLE BY XENOTECH (1) [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. EX-10.13A 3 AMENDMENT NO.1 TO MASTER RESEARCH AGREEMENT 1 EXHIBIT 10.13A CONFIDENTIAL TREATMENT REQUESTED BY ABGENIX, INC. AMENDMENT TO MASTER RESEARCH LICENSE AND OPTION AGREEMENT This Amendment of Master Research License and Option Agreement (the "Amendment"), effective as of November __, 1997, (the "Amendment Effective Date"), is made by and between Xenotech, L.P., a California limited partnership ("XT"), Abgenix, Inc. ("ABX"), a Delaware corporation and wholly-owned subsidiary of Cell Genesys, Inc., a Delaware corporation ("CGI"), and Japan Tobacco Inc., a Japanese corporation ("JT"), and amends that certain Master Research License and Option Agreement among JT, ABX, and XT effective as of June 28, 1996 (the "1996 Master Agreement"). RECITALS A. XT is a limited partnership formed in June 1991 by JT Immunotech USA, Inc., a wholly-owned indirect subsidiary of JT, and CGI to research, develop, use, modify, make, have made, sell and otherwise dispose of certain products and hold the rights to certain technology relating to human monoclonal antibodies derived from transgenic mice. B. CGI has assigned all of its rights and any obligations under the 1996 Master Agreement, and various other agreements, to its wholly-owned subsidiary ABX. C. The parties desire to amend the 1996 Master Agreement to (i) provide for the transfer of transgenic mice to third parties under certain circumstances provided herein, (ii) modify the 1996 Master Agreement, and the form Product Licenses attached thereto, in order to facilitate commercialization of the XenoMouse(TM) transgenic mice and related technology, and (iii) clarify the manner in which rights obtained by XT from third parties are incorporated into the licenses granted under the 1996 Master Agreement. NOW THEREFORE, it is agreed by and between the parties to amend the 1996 Master Agreement as follows: 1. All capitalized terms not defined in this Amendment shall have the meanings given to them in the 1996 Master Agreement. 2. Section 1.10 is amended to read in its entirety as follows: 1.10 "Covered Product" shall mean any Antibody Product which incorporates (i) an Antibody which binds to a particular Antigen or (ii) Genetic Material encoding such an Antibody wherein said Genetic Material does not encode multiple Antibodies. -1- 2 3. Section 1.19 is amended to read in its entirety as follows: 1.19 "Licensed Technology" shall mean the [***] Technology, the [***] Technology, and the XT-Controlled Rights. 4. Sections 1.34 and 1.35 are deleted from the 1996 Master Agreement. 5. The following new Sections 1.37, 1.38, 1.39, 1.40, 1.41, 1.42, 1.43, 1.44 and 1.45 are added following Section 1.36 of the 1996 Master Agreement: 1.37 "Antibody" shall mean a composition comprising a whole antibody or a fragment thereof, said antibody or fragment having been derived from the Licensed Technology and/or generated from Mice or Future Generation Mice or having been derived from nucleotide sequences encoding, or amino acid sequences of, an antibody obtained from Mice or Future Generation Mice. 1.38 "Antibody Product" shall mean any product comprising an Antibody or Genetic Material encoding an Antibody wherein, in respect of each Antibody Product, said Genetic Material does not encode multiple Antibodies. 1.39 "Antibody-Secreting Cell" shall mean a cell that secretes an Antibody, except where such cell is part of a mammal. 1.40 "Antigen Invention" shall mean intellectual property rights in and to patentable inventions (including patent and patent applications) which both (i) include claims to the following: (A) [***] (B) [***] (C) [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -2- 3 (D) [***] and (ii) wherein, but for a license thereto, such claims would be infringed by the manufacture, use, sale, offer for sale, or import of Antibody Products to such Antigen. 1.41 "Genetic Material" shall mean a nucleotide sequence, including DNA, RNA, and complementary and reverse complementary nucleotide sequences thereto, whether coding or noncoding and whether intact or a fragment. 1.42 "GenPharm Cross License" shall mean that certain Cross License Agreement, effective as of March 26, 1997, entered into by and among the parties, GenPharm International, Inc. ("GenPharm") and the other parties named therein, as the same may be amended from time to time. 1.43 "Research License" shall have the meaning set forth in Article 3 of this Agreement. 1.44 "Transgenic Product" shall mean any product constituting (i) Mice or Future Generation Mice, (ii) Genetic Material from Mice or Future Generation Mice, or (iii) an Antibody-Secreting Cell. 1.45 "XT-Controlled Rights" shall mean all rights to intellectual property or technology that are licensed to XT pursuant to the agreements listed on Exhibit H or any other license or similar agreement granting XT rights to intellectual property or technology (each such agreement an "XT In-License"), to the extent that XT has the right under the terms of the applicable XT In-License to further license or sublicense such rights during the term of this Agreement. 6. Section 2.3 is amended to read in its entirety as follows: 2.3 The Mice shall only be used by a Grantee pursuant to the Research License set forth in Article 3 hereof for research and development purposes or pursuant to a Product License and shall not be transferred or otherwise made available to any third party, except as provided in Sections 2.7 of this Agreement or as provided under an applicable Product License entered into between the Grantee and XT. 7. The following new Sections 2.7 and 2.8 shall be inserted following Section 2.6 of the 1996 Master Agreement: 2.7 Transfer of Mice: Notwithstanding any provision to the contrary in this Agreement or any Material Transfer Agreement entered into between the parties under Sections 2.1, 2.2 or 2.3 (or any other agreement between parties to this [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -3- 4 Agreement, as such agreements are amended from time to time), Grantees and XT shall have the right to transfer physical possession of one or more sterilized male Mice or sterilized male Future Generation Mice (in each case, sterilized using a method agreed upon by JT and ABX) or Transgenic Products, but not other Mice or Future Generation Mice, to third parties (including Affiliates) for research and development purposes, with the proviso that such research and development purposes shall not exceed the rights conferred in accordance with Section 3 hereof; and further provided that, as to transfers of Mice and Future Generation Mice (but not of other Transgenic Products), Grantees shall only be permitted to make transfers of such Mice and Future Generation Mice to third parties on the following terms and conditions: (a) Mice and Future Generation Mice shall not be transferred to any third party by a Grantee except under a written agreement (the "Third-Party Transfer Agreement") providing, among other things, that: (1) all Mice and Future Generation Mice shall be the property of the respective owners of such Mice and Future Generation Mice prior to their transfer to the third party, and the transfer of physical possession to such third party, and/or possession or use by such third party, of Mice or Future Generation Mice shall not be, nor be construed as, a sale, lease, offer to sell or lease, or other transfer of title to any Mice or Future Generation Mice; (2) all Mice and Future Generation Mice shall remain in the control of such third party and shall not be transferred to any other party (other than the transferring Grantee); (3) the third party shall not attempt to use the Mice or Future Generation Mice, or any others materials derived in whole or part from the Mice or Future Generation Mice (including Genetic Materials) to reproduce the Mice or Future Generation Mice or to generate or produce other transgenic mice or other transgenic animals; (4) if the third party is a for-profit pharmaceutical or for-profit biotechnology company, [***]; provided, however, that this provision shall not restrict or prohibit any authorized manufacture, use, or sale or other commercialization of materials derived from the Mice or Future Generation Mice in accordance with a license or sublicense from XT or a Grantee (or a Sublicensee of XT or a Grantee) under this Agreement, a Product License, or otherwise; [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -4- 5 (5) the third party shall not sell, have sold, lease, offer to sell or lease, otherwise transfer title to any Mice, Future Generation Mice, Antibody-Secreting Cells derived from the Mice or Future Generation Mice, or (except as provided in (6) below) Genetic Materials derived from the Mice or Future Generation Mice; (6) the third party shall not sell, have sold, lease, offer to sell or lease, otherwise transfer title to, or otherwise distribute or commercialize any Antibody or Antibody Product without obtaining a license, sublicense, or other authorization from the transferring Grantee; (7) the third party shall not use the Mice or Future Generation Mice to make or use antibodies to [***]; and (8) XT shall be a third-party beneficiary of the commitments by third parties set forth in items (1) through (7) above. (b) Grantees shall not grant any license, sublicense, or other authorization of the type described in Section 2.7(a)(6) to third parties unless such license, sublicense, or other authorization does not conflict with the applicable terms of this Agreement, any applicable Product License, and the GenPharm Cross-License. (c) Nothing in this Section 2.7 shall be construed as granting Grantees the right to sublicense any third party to sell, have sold, lease, or offer to sell or lease, any Covered Product, other than pursuant to a sublicense under a Product License entered into by Grantee under the terms of this Agreement. 2.8 Transfer of Transgenic Products and Antibody Products: When transferring physical possession of any Transgenic Product or Antibody Product to a third party, the transferring Grantee shall obtain a written agreement from the third party that such transferred materials remain the property of the respective owner of such materials prior to their transfer to the third party, and the transfer of physical possession to such third party, and/or possession or use by such third party, of such materials shall not be, nor be construed as, a sale, lease, offer to sell or lease, or other transfer of title to such transferred materials. If a Grantee has authority to sell or otherwise transfer title to materials pursuant to a Product License, the terms of this Section 2.8 shall not apply to the transfer of such materials by such Grantee. 8. Article 3 ("Grant of Research License") is amended to read in its entirety as follows: 3.1 Grant. XT hereby grants to each Grantee a co-exclusive (with each other and XT), worldwide, royalty-free, fully paid up, perpetual, irrevocable license (or sublicense, as appropriate) under the Licensed Technology to use for research, and to [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -5- 6 develop, make, have made, use, import, export or otherwise transfer physical possession of (but not to sell, lease, offer to sell or lease, or otherwise transfer title to) Transgenic Products and Antibody Products (the "Research License"); provided, however, that (i) the right to transfer physical possession of Mice and Future Generation Mice pursuant to this Research License shall be limited as set forth in Section 2.7 of this Agreement, and (ii) as to all XT-Controlled Rights, the foregoing grant shall be subject in all respects to the applicable XT In-License(s) pursuant to which such XT-Controlled Rights were granted to XT. 3.2 Sublicenses. (a) Each Grantee may grant to third parties non-exclusive sublicenses under the Research License (i) to use Transgenic Products and (ii) to research, develop, make, have made, use, import and export (but not to sell, lease, offer to sell or lease, or otherwise transfer title to) Antibody Products, Antibody-Secreting Cells, and Genetic Materials, solely for research and development purposes; provided, that the transfer of Mice and Future Generation Mice by Grantees shall be subject to the restrictions set forth in Section 2.7 of this Agreement. (b) [***]; provided, however, that this Subsection 3.2(b) shall not restrict or prohibit any authorized manufacture, use, or sale or other commercialization of materials derived from the Mice or Future Generation Mice in accordance with a license or sublicense from XT or a Grantee (or a Sublicensee of XT or a Grantee). (c) Sublicenses under this Section 3.2 shall not include the right to grant further sublicenses to use the Mice or Future Generation Mice, but may include the right to grant further sublicenses as to other rights sublicensed hereunder upon the approval of the Grantee which sublicensed such rights. Except as set forth in this Section 3.2, Grantees shall have no other right to grant sublicenses under the Research License unless otherwise agreed in writing by Xenotech. It is understood that after a Grantee has entered into a Product License under this Agreement for Antibody Products related to a particular Antigen, that Grantee may, among other things, sublicense third parties under such Product License to use any Mice or Future Generation Mice transferred to that third party by the Grantee pursuant to Section 2.7 of this Agreement to research, develop, make, have made, use, import, export, sell, lease, offer to sell or lease, otherwise transfer title, or otherwise distribute or commercialize Antibody Products covered by such Product License. 3.3 Direct Sublicense to CGI. With regard to rights and sublicenses under the GenPharm Cross License sublicensed to ABX under Section 3.1 above ("ABX's [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -6- 7 GenPharm Research Rights"), it is understood and agreed that, in the event that CGI obtains (i) a sublicense of rights from ABX under a Product License and (ii) a corresponding sublicense related to the Product Antigen from XT (a "Direct CGI Sublicense") pursuant to that certain Direct Sublicense to Cell Genesys entered into by and between CGI and XT effective as of October __, 1997, the grant of ABX's GenPharm Research Rights under this Article 3 shall be subject to the Direct CGI Sublicense, and ABX's GenPharm Research Rights shall be subordinate to the rights granted under the Direct CGI Sublicense to the extent, and for so long as, required under the GenPharm Cross License. Upon any termination or expiration of the Direct CGI Sublicense (and all sublicenses, if any, thereunder), ABX's GenPharm Research Rights shall no longer be subject to the grant of rights and sublicenses under the Direct CGI Sublicense. 9. Section 4.2(i)(a) and (b) are amended to read in their entirety as follows: (a) During the term of this Agreement, the Grantees shall meet [***], at such times and locations as they may agree. Each Grantee may select [***] Additional Antigens at [***]. Thereafter, each Grantee may, at such quarterly meetings, select (i) up to three (3) Additional Antigens per calendar six-month period during the time from January 1, 1997 to June 30, 1997, and (ii) up to four (4) Additional Antigens per calendar six-month period thereafter. At the time that a Grantee selects an Antigen [***], it shall also provide to the other Grantee a summary of the scientific background to the selection of such Antigen, [***]. Such disclosure shall be without any warranty regarding, or agreement to license, such rights. The Grantee selecting an Antigen shall also inform the other Grantee of [***]. (b) If a Grantee does not select an Additional Antigen at a particular [***], provided, however, that it may not [***]. Once selected an Additional Antigen shall [***]. The remainder of Section 4.2 shall not be changed by this Amendment. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -7- 8 10. Section 6.1 is amended to read in its entirety as follows: 6.1 Limitations on Product Licenses. Upon execution by XT and a Grantee (and unless and until terminated), each of the Product Licenses shall be deemed to be a "[***] License." [***], the license shall no longer be deemed to be a "[***] License." At no time shall either Grantee have the right to hold [***]. In the event that a Grantee terminates a Product License in its entirety, such license shall no longer be deemed to be held by such Grantee for the purpose of the limitations set forth in this Section 6.1. 11. Section 7.1 is amended to read in its entirety as follows: 7.1 In order to [***]. The right of a Grantee to license or sublicense pursuant to this Section 7.1 shall not require the consent of the other Grantee or of XT, and shall not require any additional obligations to XT other than acceptance by the Grantee of the terms and conditions of the applicable Exclusive Worldwide Product License from XT to such Grantee related to the Antigen. A Grantee selecting an Antigen governed by the terms of this Section 7.1 shall notify the other Grantee, at the time the Antigen is selected, that this Section 7.1 applies. It is understood and agreed that the other Grantee [***]. 12. Section 7.2 is amended to read in its entirety as follows: In the event that [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -8- 9 [***]. XT will confer with CGI and JTI as to how to [***]. 13. Article 8 is amended to read in its entirety as follows: 8. IN-LICENSING OR ACQUISITION; INVENTIONS 8.1 In-Licensing Third Parties Antigen Inventions. (a) If either Grantee is licensing or otherwise acquiring from a third party (or negotiating to license or acquire from a third party) patent rights in an Antigen Invention that were made by a third party without the use of Mice or Future Generation Mice, such Grantee (the "In-Licensing Grantee") [***]. Subject to Section 4.2(iv) above, the Grantee that selects an Antigen pursuant to Section 4.2(i)(a) above shall [***]. If both Grantees have selected the same Antigen pursuant to Section 4.2(iv) above, they shall mutually agree, subject to Section 4.2(iv)(d), on control of in-licensing negotiations. (b) If the In-Licensing Grantee licenses or acquires rights to one or more Antigen Inventions from a third party and secures such rights for the other Grantee pursuant to Section 8.1(a) above, and [***]. 8.2 Inventions By Grantees. (a) Inventions Made Before Selection. Subject to Sections 8.2(c), 8.4 [***] and 8.7 of this Agreement, each Grantee shall, promptly following the selection of an Antigen by either Grantee ("selection" referring to the process [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -9- 10 set forth in Section 4.2 above), disclose to the other all Antigen Inventions related to that Antigen made, conceived and reduced to practice by the disclosing Grantee prior to selection of the Antigen. At such time as the non-disclosing Grantee has [***], the disclosing Grantee shall, [***]. (b) Inventions Made After Selection. Subject to Sections 8.2(c), 8.4 [***] and 8.7, each Grantee shall, after an Antigen has been selected, disclose to the other Grantee within a reasonable time after invention all Antigen Inventions related to that Antigen that are made, conceived and reduced to practice by the disclosing Grantee after the selection of the Antigen; provided, however, that such disclosure shall only be required if the other Grantee, at the time of invention, has [***]. (c) Limitation. Notwithstanding the foregoing Subsections 8.2(a) and (b), neither Grantee shall be obligated to disclose, license to the other Grantee, or negotiate for such licenses, each as set forth in Subsections 8.2(a) and (b), for [***]. The limitations set forth in this Section 8.2(c) shall not limit the obligations set forth in Section 8.3(a). [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -10- 11 8.3 Inventions Where One Grantee Has Worldwide Exclusive Product License. (a) Mandatory License to Inventions of Grantee: If either Grantee (the "Exclusive Grantee") enters into an Exclusive Worldwide Product Sublicense with respect to a particular Antigen, the other Grantee shall grant to the Exclusive Grantee, for so long as such Exclusive Worldwide Product License is in effect, a non-exclusive, worldwide, royalty-free license under all Antigen Inventions specifically related to such Antigen made, conceived and reduced to practice by the other Grantee after the time that the Exclusive Grantee entered into the Exclusive Worldwide Product License. (b) Mandatory License to Inventions of Third Parties: If either Grantee (the "Exclusive Grantee") has in effect an Exclusive Worldwide Product Sublicense with respect to a particular Antigen, the other Grantee (i) shall not transfer to a third party any Transferred Materials for such Antigen without the prior written consent of the Exclusive Grantee and (ii) shall, when negotiating the terms of any material transfer agreement in connection with transferring to a third party Transferred Materials for such Antigen, obtain the right to license on a non-exclusive, worldwide, royalty-free basis, to the other Grantee all Antigen Inventions specifically related to such Antigen which are made by the third party (or jointly by the third party and the Grantee) through use of the Transferred Materials for such Antigen, and shall so license such Antigen Inventions to the Exclusive Grantee for so long as such Exclusive Worldwide Product License is in effect. (c) Transferred Materials for an Antigen. As used in Sections 8.3, 8.4 and 8.5 of this Agreement, "Transferred Materials for X", where "X" is an Antigen, shall include Mice or Future Generation Mice for use with such Antigen, Antibody Products comprising Antibodies that bind to such Antigen, and Antibody-Secreting Cells that secrete such Antibodies and Genetic Materials that encode such Antibodies. 8.4 Third Party Inventions With Mice- [***]. The terms of this Section 8.4 shall apply when (A) an Antigen (i) has not yet been selected by either Grantee (or has been selected and later abandoned so that it is again available for selection) or (ii) has been selected by the transferring Grantee or (iii) has been selected by both Grantees and both Grantees have an option to enter into (and/or have entered into) a Co-Exclusive Worldwide Product License, and (B) a Grantee executes a material transfer agreement in connection with transferring to a third party Transferred Materials for such Antigen. It is understood that if an Antigen has been selected by both Grantees and both Grantees have the option to enter into a Co-Exclusive Worldwide Product License with respect to such Antigen, then the Grantees shall [***]. (a) Disclosure. When negotiating the terms of a material transfer agreement as described in this Section 8.4, [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -11- 12 [***]. It is understood that at such time, if any, as [***]. (b) License Negotiation. When negotiating the terms of a material transfer agreement as described in this Section 8.4, the transferring Grantee shall [***]. (c) Limitation. Notwithstanding (a) and (b) above, it is understood and agreed that neither Grantee shall be obligated to disclose or license to the other any Antigen Inventions that such Grantee is contractually prohibited from disclosing or licensing to the other [***]. 8.5 Third Party Inventions With Mice - Mandatory Disclosure and Licensing. The terms of this Section 8.5 shall apply when a Grantee has selected an Antigen (and has either entered into a Product License with respect to such Antigen or has the right to acquire such a Product License) and the other Grantee (the "Transferring Grantee") is negotiating the terms of a material transfer agreement in connection with transferring to a third party Transferred Materials for such Antigen. Notwithstanding the foregoing, the terms of this Section 8.5 shall not apply where the terms of Section 8.4 apply pursuant to Section 8.4(A)(iii). (a) Mandatory Disclosure. The Transferring Grantee shall obtain the right to disclose to the Grantee that selected the Antigen all Antigen Inventions made by a third party (or jointly by the third party and the Transferring Grantee) through use of the Transferred Materials for such Antigen transferred under a material transfer agreement as described in this Section 8.5, and shall thereafter promptly disclose all such Antigen Inventions to the other Grantee. It is understood that at such time, if any, as the other Grantee no longer has a Product License or option to enter into a Product License with respect to the Antigen, the [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -12- 13 Transferring Grantee shall have no obligation to disclose Antigen Inventions for such Antigen. (b) Mandatory License. The Transferring Grantee shall obtain the right to license to the Grantee that selected the Antigen all Antigen Inventions made by a third party (or jointly by the third party and the Transferring Grantee) through use of the Transferred Materials for such Antigen transferred under a material transfer agreement as described in this Section 8.5. Thereafter, subject to Section 8.3(b), the Transferring Grantee shall, if the other Grantee has in effect at the time a Product License for such Antigen, grant a nonexclusive license to all such Antigen Inventions in the same Territory as set forth in such Product License, and for so long as such Product License is in effect, on commercially reasonable terms. It is understood that at such time, if any, as the other Grantee no longer has a Product License with respect to that Antigen, the Transferring Grantee shall have no further obligation to license such Antigen Inventions for the Antigen to the other Grantee. (c) Prohibition on Transfer of Mice. Neither Grantee shall transfer Mice or Future Generation Mice to a third party for use with an Antigen which has been selected by the other Grantee or with respect to which the other Grantee has entered into a Product License, unless the transferring Grantee first obtains (i) the right to make the disclosure set forth in Subsection (a) above and (ii) the ability to grant any license or sublicense to the other Grantee as required Subsection (b) above. 8.6 Additional Third-Party Inventions Using Mice. The terms of this Section 8.6 shall apply when negotiating the terms of a material transfer agreement in connection with transferring Mice or Future Generation Mice to a third party, if such Mice or Future Generation Mice are [***]. (a) [***]. The transferring Grantee shall [***]; provided, however, that the transferring Grantee shall [***]. (b) [***]. The transferring Grantee shall [***]. It is understood that [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -13- 14 [***]. Except as the Grantees may otherwise agree, it is understood that the transferring Grantee shall [***]. 8.7 Where Inventing Party Has Exclusive Worldwide Product License. If a Grantee has entered into an Exclusive Worldwide Product License with respect to an Antigen, or if a Grantee has an option to enter into such a Product License and the other Grantee has no Buy-In Right with regard to such Antigen, the Grantee that has entered into, or has the option to enter into, the Exclusive Worldwide Product License shall not be subject to the provisions of this Article 8 regarding Antigen Inventions for such Antigen. 8.8 Terminology. For purposes of clarification, (i) to "disclose" an Antigen Invention, as that term is used in this Article 8, shall mean providing the written Disclosure and Record of Invention Form attached hereto as Exhibit G, and (ii) to "license" an Antigen Invention, as that terms is used in this Article 8, shall mean to grant a non-exclusive license under such Antigen Invention to the extent reasonably necessary to make, have made, use, sell, offer to sell, and import Antibody Products to such Antigen pursuant to a Product License entered into by the party receiving such license under such Antigen Invention. 14. The following new Section 17.20 shall be inserted following Section 17.19: 17.20 All rights and licenses granted to Grantees hereunder shall be subject to the GenPharm Cross License, and to the extent that this Agreement (or any license or Product License granted or permitted under this Agreement) purports to grant greater rights to any Grantee than is permitted under the Cross License, such rights shall be granted only to the extent permitted under the Cross License, and the terms of the Cross License shall control. 15. Restated Exhibits A, B, C, and D attached hereto are hereby incorporated into the 1996 Master Agreement as Restated Exhibits A, B, C, and D of the 1996 Master Agreement, in the place of Exhibits A, B, C, and D, respectively. 16. Schedule 1 and Schedule 2 of the 1996 Master Agreement are amended to read in their entirety as set forth in the Schedule 1 and Schedule 2 attached hereto. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -14- 15 17. Exhibit H attached hereto is hereby incorporated into the 1996 Master Agreement as Exhibit H of the 1996 Master Agreement. 18. Except as specifically modified or amended hereby, the Agreement shall remain in full force and effect and, as modified or amended, is hereby ratified, confirmed and approved. No provision of this Amendment may be modified or amended except expressly in a writing signed by the parties nor shall any terms be waived except expressly in a writing signed by the party charged therewith. This Amendment shall be governed in accordance with the laws of the State of California, without regard to the principles of conflicts of laws. IN WITNESS WHEREOF, each of the parties has executed this Amendment as of the date indicated on this Amendment. ABGENIX, INC. JAPAN TOBACCO, INC. By: /s/ R. Scott Greer By: /s/ Masakazu Kakei --------------------------------- ------------------------------------ Name: R. Scott Greer Name: Masakazu Kakei Title: President and CEO Title: Executive Director, Pharmaceuticals Date: Date: XENOTECH, INC. (as General Partner of XENOTECH, L.P.) By: /s/ Noriaki Okubo By: /s/ Raymond Withy --------------------------------- ------------------------------------ Name: Noriaki Okubo Name: Raymond M. Withy Title: President and CEO Title: Chairman Date: Date: -15- 16 Schedule 1 Patent Applications [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 17 Schedule 1 [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 18 Schedule 1 (Continued) [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 19 Schedule 1 (Continued) [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 20 Schedule 2 -- Patents Docket No. Filing Date Serial No. Title Inventors [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 21 Schedule 2 - Patents (Continued) Docket No. Filing Date Serial No. Title Inventors [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 22 Schedule 2 [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 23 Schedule 2 (Continued) [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 24 Schedule 2 (Continued) [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 25 Schedule 2 (Continued) [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 26 RESTATED EXHIBIT A FORM OF EXCLUSIVE WORLDWIDE PRODUCT LICENSE THIS PRODUCT LICENSE AGREEMENT (the "Agreement") effective the ____ day of ____________, _____, is made by and between XENOTECH, L.P., a California limited partnership ("XT"), and [ABGENIX, INC., a Delaware corporation ("ABX")]* [JAPAN TOBACCO INC., a Japanese corporation ("JTI")] ** ("Licensee"). RECITALS XT desires to grant to Licensee and Licensee desires to acquire from XT an exclusive worldwide license or sublicense, as the case may be, under the Licensed Technology to commercialize Products, on the terms and conditions herein. NOW, THEREFORE, for and in consideration of the covenants, conditions, and undertakings hereinafter set forth, it is agreed by and between the parties as follows: 1. DEFINITIONS. For purposes of this Agreement, the terms set forth in this Article shall have the meanings set forth below. 1.1 "ABX" shall mean Abgenix, Inc. 1.2 "Affiliate" shall mean any entity which controls, is controlled by or is under common control with any one of ABX, JTI or XT. An entity shall be regarded as in control of another entity if it owns or controls at least fifty percent (50%) of the shares of the subject entity entitled to vote in the election of directors (or, in the case of an entity that is not a corporation, for the election of the corresponding managing authority); provided, however, XT shall not be an Affiliate of ABX or JTI under this Agreement and XT shall not be considered controlled by ABX or JTI for purposes of determining Affiliates of ABX or JTI. 1.3 "Antibody" shall mean a composition comprising a whole antibody or a fragment thereof, said antibody or fragment having been derived from the Licensed Technology and/or generated from the Mice or the Future Generation Mice or having been derived from nucleotide sequences encoding, or amino acid sequences of, such an antibody or fragment. 1.4 "Antibody Product" shall mean any product comprising an Antibody or Genetic Material encoding an Antibody wherein, in respect of each Antibody Product, said Genetic Material does not encode multiple Antibodies. -1- 27 1.5 "Antibody-Secreting Cell" shall mean a cell that secretes an Antibody, except where such cell is part of a mammal. 1.6 "[***] Technology" shall mean (i) all U.S. patent applications and patents listed on Schedule 1 and patents issuing on such patent applications owned by or licensed to XT which relate to the [***], in each case to the extent XT has the right to license or sublicense the same; (ii) any continuations, divisionals, reexaminations, reissues or extensions of any of (i) above; (iii) any foreign counterparts issued or issuing on any of (i) or (ii) above; and (iv) [***] as set forth in Schedule 1. 1.7 "CGI" shall mean Cell Genesys, Inc. 1.8 "Effective Date" shall mean the date this Agreement is executed by XT and Licensee. 1.9 "Future Generation Mice" shall have the meaning defined in the Master Research License and Option Agreement, as amended. 1.10 "Genetic Material" shall mean a nucleotide sequence, including DNA, RNA, and complementary and reverse complementary nucleotide sequences thereto, whether coding or noncoding and whether intact or a fragment. 1.11 "GenPharm Cross License" shall mean that certain Cross License Agreement, effective as of March 26, 1997, entered into by and among the parties, GenPharm International, Inc. ("GenPharm") and the other parties named therein, as the same may be amended from time to time. 1.12 "IND" shall mean an Investigational New Drug Exemption for a Product, as defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder, or its non-U.S. equivalent. 1.13 "JTI" shall mean Japan Tobacco Inc. 1.14 "License Fee" shall have the meaning set forth in Article 3 hereof. 1.15 "Licensed Field" shall mean [***]. 1.16 "Licensed Technology" shall mean the [***] Technology, the [***] Technology, and XT-Controlled Rights. 1.17 "Master Research License and Option Agreement" shall mean that certain Master Research License and Option Agreement entered into by CGI, JTI and XT as of June 28, 1996 (and subsequently assigned by CGI to ABX), as it may be amended. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -2- 28 1.18 "Mice" shall have the meaning defined in the Master Research License and Option Agreement, as amended. 1.19 "Net Sales" shall mean the [***] charged by Licensee or its Affiliates and Sublicensees for sales of Product to non-Affiliate customers, [***], with respect to such sales, and [***], as reflected in [***] of Licensee and its Affiliates or Sublicensees, to the extent [***]. "Net Sales" for [***] shall mean [***], where [***] shall mean the [***]. Notwithstanding the foregoing, [***] shall include [***], but notwithstanding any of the foregoing, shall not include [***]. Notwithstanding the foregoing, "Net Sales" for [***] shall be [***]. 1.20 "Product" and "Products" shall mean one or more Antibody Products which incorporate (i) an Antibody which binds to the Product Antigen or (ii) Genetic Material encoding such an Antibody wherein said Genetic Material does not encode multiple antibodies. 1.21 "Product Antigen" shall mean ____________________. 1.22 "Sublicensee" shall mean a third party that is not an Affiliate (provided, however, that CGI may be a Sublicensee of ABX, whether or not CGI is an Affiliate of ABX) to whom Licensee has granted a sublicense under the Licensed Technology to make, use and/or sell Products to the extent of the rights of Licensee therein. "Sublicensee" shall also include a third party to whom Licensee has granted the right to distribute Products under the Licensed Technology to the extent of the rights of Licensee therein, provided that such third party is responsible for the marketing and promotion of Products within the applicable country. 1.23 "Territory" shall mean all the countries of the world. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -3- 29 1.24 "Transgenic Product" shall mean any product constituting (i) Mice or Future Generation Mice, (ii) Genetic Material from Mice or Future Generation Mice, or (iii) an Antibody-Secreting Cell. 1.25 "Universal Receptor Product" shall mean a substance that is developed utilizing [***] Universal Receptor Technology. 1.26 "Universal Receptor Technology" shall mean technology for universal receptors [***]. As used herein: (i) "universal receptor" shall mean a receptor [***]. 1.27 "Valid Claim" shall mean a claim of a pending or issued, and unexpired patent included within the Licensed Technology, which has not been held unenforceable, unpatentable or invalid by a court or other governmental agency of competent jurisdiction, and which has not been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise. 1.28 "[***] Technology" shall mean (i) all U.S. patent applications and patents listed on Schedule 2 and patents issuing on such applications; (ii) any continuations, divisionals, reexaminations, reissues or extensions of any of (i) above; (iii) any foreign counterparts issued or issuing on any of (i) or (ii) above; and (iv) the Mice (as such term is defined in the Master Research License and Option Agreement) and [***] as set forth on Schedule 2. 1.29 "XT-Controlled Rights" shall mean all rights to patents or technology that are licensed to XT pursuant to the agreements listed on Schedule 4 or any other license or similar agreement granting XT rights to patents or technology (each such agreement an "XT In-License"), to the extent that XT has the right under the terms of the applicable XT In-License to further license or sublicense such rights during the Term of this Agreement. 1.30 "XT In-License" shall have the meaning set forth in Section 1.29, above. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -4- 30 2. LICENSE GRANT; USE OF MICE BY THIRD PARTIES. 2.1 Subject to the terms and conditions of this Agreement, XT hereby grants to Licensee an exclusive license or sublicense, as the case may be, under the Licensed Technology, to make and have made Products anywhere in the world and to use, sell, lease, offer to sell or lease, import, export, otherwise transfer physical possession of or otherwise transfer title to such Products in the Licensed Field in the Territory. Such license or sublicense shall be exclusive even as to XT, and shall include the exclusive right to grant and authorize sublicenses for exploitation worldwide; provided, however, that Licensee may not, under this license, grant sublicenses to any rights to the Mice except as provided in Section 2.2 of this Agreement. 2.2 In connection with the grant of a sublicense under this Agreement to a third party, and notwithstanding any provision to the contrary in the Master Research License and Option Agreement or any Material Transfer Agreement entered into between the parties under Sections 2.1, 2.2 or 2.3 of the Master Research License and Option Agreement, Licensee shall have the right to grant a sublicense to use Mice and Future Generation Mice transferred to the third party pursuant to the terms of Section 2.7 of the Master Research License and Option Agreement, and Transgenic Products other then Mice or Future Generation Mice, to research, develop, make, have made, use, import, export, sell, lease, offer to sell or lease or otherwise distribute or commercialize Products, with the proviso that the sublicense described in this Section 2.2 shall not exceed the Licensee's rights conferred in accordance with the Master Research License and Option Agreement or this Product License. 2.3 It is understood and agreed that, as to all XT-Controlled Rights, the grant of rights under this Article 2 shall be subject in all respects to the applicable XT In-License(s) pursuant to which such XT-Controlled Rights were granted to XT. 3. LICENSE FEE. Licensee shall pay to XT within thirty days of the Effective Date a license fee of [***]. 4. ROYALTIES. 4.1 Royalty Rates. In consideration for the license and rights granted herein, Licensee agrees to pay to XT royalties of [***] of Net Sales of Products by it and its Affiliates and Sublicensees. 4.2 Royalty Offsets. In the event that (i) Licensee, its Affiliate or Sublicensee is required to pay a [***], or (ii) any reimbursement payments are due to XT pursuant to Section 5.1 below, then Licensee may deduct the aggregate of [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -5- 31 any such amounts from any royalty amount owing to XT for the sale of such Products pursuant to Section 4.1 above; provided, however, that payments from Licensee to a third party that is an Affiliate, or was an Affiliate at any time within two (2) years prior to the Effective Date, may not be offset under this Section 4.2. Notwithstanding the foregoing provisions of this Section 4.2, in no event shall the royalties due to XT pursuant to Section 4.1 above be so reduced to less than [***] of the amount that would otherwise be due to XT thereunder. [***]. 4.3 Single Royalty; Non-Royalty Sales. Only one royalty shall be payable with respect to any Product, regardless of how many claims or patents within the Licensed Technology cover such Product. In addition, no royalty shall be payable under this Article 4 with respect to sales of Products among Licensee and its Affiliates and/or Sublicensees and their Affiliates or for use in research and/or development or clinical trials. 4.4 No Patent Protection. Royalties shall be payable at the rates specified in Section 4.1 or 4.2 above only with respect to sales of Products that would infringe a Valid Claim in the country in which such Products are sold. In the event that such Products are not covered by a Valid Claim in such country, XT shall be paid a royalty on such sales in accordance with this Article 4, [***]. 4.5 Combination Products. In the event that a Product is sold in combination as a single product with another product or component, Net Sales from such combination sales for purposes of calculating the amounts due under this Article 4 shall be [***]. In the event that no such separate sales are made in the same quarter by Licensee, Net Sales for royalty determination shall be [***]. 4.6 Termination of Royalties. Royalties under Section 4.1, 4.2, or 4.4 will be due until the later of (i) ten years from the first commercial sale of Products in any country or (ii) on a country-by-country basis, the expiration of the last-to-expire patent within the Licensed Technology covering the Products in such country. 5. THIRD PARTY ROYALTIES. 5.1 Royalties Payable by XT. XT will be responsible for the payment of any royalties, license fees and milestone and/or other payments due to third parties under licenses or similar agreements entered into by XT necessary to allow the manufacture, use or sale of Products. Licensee shall reimburse XT for any royalties paid by XT to third parties under licenses or similar agreements covering Products necessary to allow the manufacture, use or sale or other exploitation [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -6- 32 of Products anywhere in the world. Licensee shall continue any such reimbursement payments to XT until XT's obligation to pay royalties to a third party under any license covering Products expires or terminates. XT agrees not to enter into any license or similar agreement after the Effective Date which would obligate Licensee to make any payments under this Section 5.1 without the prior written consent of Licensee. 5.2 Royalties Payable by Licensee. Xenotech shall have no responsibility under the terms of this Agreement for the payment of any royalties, license fees or milestone or other payments due to third parties under licenses or similar agreements entered into by Licensee, its Affiliates, or its Sublicensees to allow the manufacture, use or sale of Products. 6. ACCOUNTING AND RECORDS. 6.1 Royalty Reports and Payments. After the first commercial sale of Products on which royalties are required, Licensee agrees to make quarterly written reports to XT within eighty days after the end of each calendar quarter, stating in each such report the number, description, and aggregate Net Sales of Products sold during the calendar quarter upon which a royalty is payable under Article 4 above. Concurrently with the making of such reports, Licensee shall pay to XT royalties at the applicable rate specified in Section 4.1, 4.2 or 4.4 above and all royalties payable pursuant to Section 5.1 above, and any adjustment to Net Sales for a prior period in accordance with the definition of Net Sales in Section 1.11 hereof. All payments to XT hereunder shall be made in U.S. Dollars to a bank account designated by XT. 6.2 Early Third Party License Payments. If XT is obligated to pay royalties to a third party prior to ninety days after the end of the calendar quarter, XT shall so notify Licensee and Licensee shall provide the reports and payments set forth in Section 6.1 above not later than ten days before the date such payments are due to the third party. Up to thirty-five days before such payments are due, XT may provide Licensee with an invoice by facsimile setting forth the royalties XT must pay third parties with respect to Licensee's activities in the Territory in the preceding quarter, and Licensee shall pay such invoices within thirty days of receipt of such invoice. 6.3 Records; Inspection. Licensee shall keep (and cause its Affiliates and Sublicensees to keep) complete, true and accurate books of account and records for the purpose of determining the royalty amounts payable to XT under this Agreement. Such books and records shall be kept at the principal place of business of Licensee or its Affiliates or Sublicensees, as the case may be, for at least three years following the end of the calendar quarter to which they pertain. Such records of Licensee or its Affiliates will be open for inspection during such three-year period by a representative of XT for the purpose of verifying the royalty statements. Licensee shall require each of its Sublicensees to maintain similar books and records and to open such records for inspection during the same three-year period by a representative of Licensee reasonably satisfactory to XT on behalf of, and as required by, XT for the purpose of verifying the royalty statements. All such inspections may be made no more than once each calendar year, at reasonable times mutually agreed by XT and Licensee. The XT representative will be obliged to execute a reasonable confidentiality -7- 33 agreement prior to commencing any such inspection. Inspections conducted under this Section 6.3 shall be at the expense of XT, unless a variation or error producing an increase exceeding [***] of the amount stated for the period covered by the inspection is established in the course of any such inspection, whereupon all costs relating thereto will be paid by Licensee. Upon the expiration of three years following the end of any fiscal year, the calculation of royalties payable with respect to such year shall be binding and conclusive, and Licensee shall be released from any liability or accountability with respect to royalties for such year. 6.4 Currency Conversion. If any currency conversion shall be required in connection with the calculation of royalties hereunder, such conversion shall be made using the selling exchange rate for conversion of the foreign currency into U.S. Dollars, quoted for current transactions reported in The Wall Street Journal for the last business day of the calendar quarter to which such payment pertains. 6.5 Late Payments. Any payments due from Licensee that are not paid on the date such payments are due under this Agreement shall bear interest to the extent permitted by applicable law [***], calculated on the number of days such payment is delinquent. This Section 6.5 shall in no way limit any other remedies available to any party. 6.6 Withholding Taxes. 6.6.1 Unless immediately reimbursable under Section 6.6.2 below, all payments required to be made pursuant to Articles 3, 4 and 5 hereof shall be without deduction or withholding for or on account of any taxes (other than taxes imposed on or measured by net income) or similar governmental charge imposed by a jurisdiction. Such taxes are referred to herein as "Withholding Taxes" and such Withholding Taxes shall be the sole responsibility of the withholding party. The withholding party shall provide a certificate evidencing payment of any Withholding Taxes hereunder. 6.6.2 XT agrees to elect to claim a tax credit for Withholding Taxes with respect to which it is entitled so to elect, and further agrees not to amend such election for the full carry-forward period with respect to such credit. At the time that XT realizes a reduction in U.S. tax liability by actually utilizing the Withholding Taxes as a credit against regular U.S. tax liability (determined on a "first-in-first-out" basis pro rata with other available foreign tax credits) , then the amount of such reduction attributable to such credit shall immediately be reimbursed to the withholding party. For these purposes, a reduction in U.S. tax liability shall include both a direct reduction in XT's own tax liability and a reduction in the U.S. tax liability of any of its partners. 6.7 Tax Indemnity. Except as provided in Section 6.6, each party (the "Tax Indemnitor") shall indemnify and hold harmless the other party hereto (each a "Tax Indemnitee") from and against any tax or similar governmental charge assessed solely because of this Agreement with respect to and directly attributable to the income or the assets of the Tax Indemnitor. In the event that any governmental agency shall make a claim against a party hereto which could give rise [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -8- 34 to an indemnity hereunder, such potential Tax Indemnitee shall give reasonably prompt notice to the potential Tax Indemnitor of the assertion of such claim. If the transmission of such notice is unreasonably deferred and has a material, adverse affect on the ability of the potential Tax Indemnitor to challenge such claim, such potential Tax Indemnitor shall be released from liability hereunder. The Tax Indemnitor alone shall (at its own expense) control the defense or compromise of any such claim. The Tax Indemnitee shall execute any documents required to enable Tax Indemnitor to defend such claim, provide any information necessary therefor, and cooperate with Tax Indemnitor in such defense. 6.8 XT Tax Indemnity. XT shall indemnify and hold harmless Licensee and its Affiliates from and against any increase to its country of incorporation income tax liability directly attributable to a positive adjustment to the amount of gross receipts (an "Adjustment") reported or reportable by such party from the income, including the royalty income, received from Licensee on Covered Products. The amount payable hereunder shall be equal to the difference between (a) the product of (i) the amount of the Adjustment, and (ii) the highest combined marginal corporate tax rate in the country of incorporation in effect for the taxable year for which such Adjustment is made, and (b) the reduction in the party's foreign tax liability, which for purposes of this Agreement shall be equal to the product of (i) the amount of any correlative adjustment to its foreign taxable income, and (ii) the highest combined marginal foreign corporate tax rate in effect for the taxable year for which the correlative adjustment is made. No indemnification payment shall be required hereunder until comprehensive efforts to obtain a correlative adjustment to Licensee's or its Affiliates', as the case may be, taxable income in a foreign state (which may include, for example invoking competent authority provisions under the U.S. Japanese Income Tax Treaty (if applicable) or other applicable bilateral tax treaty) have, to the extent reasonable to do so, been exhausted. 7. RESEARCH AND DEVELOPMENT. 7.1 Funding and Conduct. Licensee shall independently furnish and be responsible for funding and conducting all of its preclinical and clinical research and development of Products, at its own expense. 7.2 Biomaterials. In the case of Previously Selected Antigens as defined in the Master Research License and Option Agreement, at the reasonable request of Licensee, XT shall make available as part of the license granted hereunder to Licensee [***] thus made available will be used only by Licensee and its Affiliates and Sublicensees and manufacturing subcontractors. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -9- 35 8. DUE DILIGENCE. 8.1 [***]. 8.1.1 Licensee agrees to [***] as may be agreed upon by the parties [***] the Effective Date. 8.1.2 Notwithstanding the foregoing, Licensee shall be [***]. After [***], shall be [***] in the United States or Japan. 8.2 Failure to Meet Due Diligence Obligation. 8.2.1 If the diligence requirements set forth in Section 8.1 are not met by Licensee (or its Affiliates or Sublicensees) in the United States or in Japan, Licensee's rights hereunder shall terminate upon written notice by XT to Licensee and subject to Sections 8.3, 8.4 and 13.3 below. 8.2.2 Notwithstanding Section 8.2.1, the license granted hereunder to Licensee shall not terminate by reason of a delay in meeting the [***] milestone set forth in Section 8.1.1, to the extent that prudent business judgment, based on circumstances outside of Licensee's reasonable control, reasonably justifies such delay. 8.3 Dispute Resolution. In the event that a dispute arises whether the diligence requirements in Article 8 have been met or circumstances exist which Licensee believes justifies a failure on its part to meet such obligation, the parties will attempt to resolve any dispute by mutual agreement during a period of 30 days following Licensee's receipt of the notice under Section 8.2.1. 8.4 Arbitration. In the event that the parties are unable to resolve such dispute pursuant to Section 8.3 above, such dispute shall be settled between XT and Licensee by binding arbitration as set forth in Section 14.12. If the arbitrator determines that the party acted in good faith, but failed to meet its obligations under Section 8.1 above, the license granted to such party shall not terminate unless the nonperforming party fails to cure such non-performance within a reasonable period of time, as determined by the arbitrator. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -10- 36 9. PATENTS. 9.1 [***] Technology. (a) XT or its licensor, as they may agree, shall have responsibility for preparing, filing, prosecuting and maintaining patents and patent applications worldwide relating to the [***] Technology and conducting any interferences, oppositions, reexaminations, or requesting reissues or patent term extensions with respect to the [***] Technology. XT shall keep Licensee reasonably informed as to the status of such patent matters, including without limitation, by providing Licensee the opportunity to review and comment on any substantive documents which will be filed in any patent office, and providing Licensee copies of any substantive documents received by XT from such patent offices including notice of all interferences, reexaminations, oppositions or requests for patent term extensions. Licensee shall cooperate with and assist XT in connection with such activities, at XT's request and expense. (b) In the event that Licensee becomes aware that any [***] Technology necessary for the practice of the license granted herein is infringed or misappropriated by a third party or is subject to a declaratory judgment action arising from such infringement, Licensee shall promptly notify XT and XT shall thereafter promptly notify the owner of such intellectual property. XT or its licensor, as they may agree, shall have the exclusive right to enforce, or defend any declaratory judgment action, at its expense, involving any [***] Technology. In such event, XT shall keep Licensee reasonably informed of the progress of any such claim, suit or proceeding. Any recovery received by XT as a result of any such claim, suit or proceeding shall be used first to reimburse XT for all expenses (including attorneys, and professional fees) incurred in connection with such claim, suit or proceeding, [***]. 9.2 [***] Technology. 9.2.1 Licensee shall, at its expense, have the initial worldwide responsibility for preparing, filing, prosecuting and maintaining patent applications and conducting any interferences, oppositions, reexaminations, or requesting reissues or patent term extensions with respect to [***] Technology, except to the extent XT may not have the right to do so. Licensee shall give XT the opportunity to review the status of all such pending patent applications and actions and shall keep XT fully informed of the progress of such applications and actions, including, without limitation, by promptly providing XT with copies of all substantive worldwide correspondence sent to and received from patent offices, and providing notice of all interferences, reexaminations, oppositions or requests for patent term extensions. In the event that Licensee declines or fails to prepare, file, prosecute or maintain such patent applications or patents or take such other actions, relating to the Products in any country, it shall promptly and in no event later than ninety days prior to any filing deadline, provide notice to XT. XT shall have the right to assume such responsibilities at its own expense, using counsel of its choice. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -11- 37 9.2.2 In the event that Licensee becomes aware that any [***] Technology is infringed or misappropriated by a third party in any country of the world, or is subject to a declaratory judgment action arising from such infringement in any country, Licensee shall promptly notify XT and XT shall thereafter promptly notify the owner of such intellectual property. Licensee shall have the exclusive right to enforce, or defend any declaratory judgment action, in any country of the world, at its expense, involving any Antigen Technology. In such event, Licensee shall keep XT reasonably informed of the progress of any such claim, suit or proceeding. Any recovery by Licensee received as a result of any such claim, suit or proceeding shall be used first to reimburse Licensee for all expenses (including attorneys, and professional fees) incurred in connection with such claim, suit or proceeding, [***]. 9.3 Infringement Claims. If the production, sale or use of Products pursuant to this Agreement results in any claim, suit or proceeding alleging patent infringement against Licensee (or its Affiliates or Sublicensees), Licensee shall promptly notify XT thereof in writing setting forth the facts of such claim in reasonable detail. [***], Licensee 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 choice. Licensee shall keep XT reasonably informed of all material developments in connection with any such claim, suit or proceeding as it relates to the Licensed Technology, Licensee shall have the right to deduct any damages and expenses (including attorneys' and professional fees) against any amounts due, or which may become due, to XT pursuant to this Agreement. Notwithstanding the above, Licensee shall not be able to settle any such claim, suit or proceeding that involves any admission of the invalidity of the Licensed Technology. 9.4 Patent Marking. Licensee agrees to mark and have its Affiliates and Sublicensees mark all Products sold pursuant to this Agreement in accordance with the applicable statutes or regulations in the country or countries of manufacture and sale thereof. 10. CONFIDENTIALITY. 10.1 Confidential Information. Except as expressly provided herein, the parties agree that, for the term of this Agreement and for five years thereafter, the receiving party shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose any information furnished to it by another party hereto pursuant to this Agreement except to the extent that it can be established by the receiving party by competent proof that such information: (a) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving party; [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -12- 38 (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; or (d) was subsequently lawfully disclosed to the receiving party by a person other than a party or developed by the receiving party without reference to any information or materials disclosed by the disclosing party. 10.2 Permitted Disclosures. Notwithstanding Sections 10.1 above and 14.16 below, each party hereto may disclose the other party's information to the extent such disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental regulations or otherwise submitting information to tax or other governmental authorities, making a permitted sublicense or other exercise of its rights hereunder or conducting clinical trials, provided that if a party is required to make any such disclosure of the other party's secret or confidential information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the latter party of such disclosure requirement and, save to the extent inappropriate in the case of patent applications, will use efforts consistent with prudent business judgment to secure confidential treatment of such information prior to its disclosure (whether through protective orders or otherwise). Notwithstanding the foregoing, XT shall not disclose to third parties, clinical data or regulatory filings received from Licensee except as agreed in writing by Licensee. 11. SUBLICENSES. Pursuant to Article 2 herein, Licensee will have the right to grant and authorize sublicenses to third parties; provided, however, the Licensee shall remain responsible for any payments due XT for Net Sales of Products by any Sublicensee. [***]. Any sublicense granted by Licensee pursuant to this Agreement shall provide that the Sublicensee will be subject to the applicable terms of this Agreement. Licensee shall provide XT with a copy of relevant portions of each sublicense agreement, as reasonably required by XT. 12. REPRESENTATIONS AND WARRANTIES. 12.1 XT. XT represents and warrants that: (i) it has the full right and authority to enter into this Agreement and grant the rights and licenses granted herein; (ii) it has not previously granted and will not grant any rights inconsistent or in conflict with the rights and licenses granted to Licensee herein; [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -13- 39 (iii) there are no existing or threatened actions, suits or claims pending against XT with respect to the Licensed Technology or the right of XT to enter into and perform its obligations under this Agreement; (iv) it has not previously granted, and will not grant during the term of this Agreement, any right, license or interest in and to the Licensed Technology, or any portion thereof, with respect to the Products, or their manufacture or use; (v) Schedule 3 hereto sets forth all royalties, license fees, milestone payments and similar payments due to third parties for which Licensee is obligated to reimburse XT under Section 5.1 above as of the Effective Date; and (vi) the Licensed Technology is all the technology owned by or licensed to XT as of the Effective Date. 12.2 Licensee. Licensee represents and warrants that: (i) it has the full right and authority to enter into this Agreement, (ii) to its knowledge, there are no existing or threatened actions, suits or claims pending with respect to the subject matter hereof or the right of Licensee to enter into and perform its obligations under this Agreement; and (iii) it has not entered and during the term of this Agreement will not enter any other agreement inconsistent or in conflict with this Agreement. 12.3 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, XT MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF LICENSED TECHNOLOGY CLAIMS, ISSUED OR PENDING. 12.4 Effect of Representations and Warranties. It is understood that if the representations and warranties under this Article 12 are not true and accurate and a party incurs liabilities, costs or other expenses as a result of such falsity, the party at fault shall indemnify, defend and hold the injured party harmless from and against any such liabilities, costs or expenses incurred, provided that the party at fault receives prompt notice of any claim against the injured party resulting from or related to such falsity and the sole right to control the defense or settlement thereof. -14- 40 13. TERM AND TERMINATION. 13.1 Effectiveness. This Agreement shall become effective as of the Effective Date and the license rights granted by XT under Article 2 above shall be in full force and effect as of such date. 13.2 Term. Unless earlier terminated pursuant to the other provisions of this Article 13, this Agreement shall continue in full force and effect until the later of (i) the expiration of the last to expire patent within the Licensed Technology claiming Products; or (ii) the twentieth anniversary of the Effective Date. The licenses granted under Article 2 shall survive the expiration (but not an earlier termination) of this Agreement; provided that such licenses shall in such event become nonexclusive. 13.3 Termination for Breach. Either party to this Agreement may terminate this Agreement in the event the other party shall have materially breached or defaulted in the performance of any of its material obligations hereunder, and such shall have continued for sixty days after written notice thereof was provided to the breaching party by the nonbreaching party that terminates the Agreement as to such party. Any termination shall become effective at the end of such sixty day period unless the breaching party has cured any such breach or default prior to the expiration of the sixty day period. However, if the party alleged to be in breach of this Agreement disputes such breach within such sixty day period, the non-breaching party shall not have the right to terminate this Agreement unless it has been determined by an arbitration proceeding in accordance with Section 14.12 below that this Agreement was materially breached, and the breaching party fails to cure such breach within thirty days following the final decision of the arbitrators or such other time as directed by the arbitrators. 13.4 Other Termination Rights. Licensee may terminate this Agreement and the license granted herein, in its entirety or as to any particular patent within the Licensed Technology in a particular country, at any time, by providing XT ninety-days written notice. In the event of termination as to a particular country, the subject patent in such country shall cease to be within the Licensed Technology for all purposes of this Agreement. 13.5 Effect of Termination. 13.5.1 Termination of this Agreement for any reason shall not release either 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. 13.5.2 In the event this Agreement is terminated for any reason, Licensee and its Affiliates and Sublicensees shall have the right to sell or otherwise dispose of the stock of any -15- 41 Products subject to this Agreement then on hand. Upon termination of this Agreement by XT for any reason, any sublicense granted by Licensee hereunder shall survive, provided that upon request by XT, such Sublicensee promptly agrees in writing to be bound by the applicable terms of this Agreement. 13.5.3 This Agreement, including, without limitation, any licenses or sublicenses granted pursuant to this Agreement, shall survive any dissolution, liquidation or acquisition of XT. Such licenses shall remain in full force and effect even after any distribution, following dissolution, of the intellectual property owned or licensed to XT, to any entity. Any transfer of such intellectual property prior to or following dissolution shall be subject to the licenses granted herein. 13.5.4 This Agreement, including the license granted in Article 2, is independent of, and shall not be affected by, any breach or termination of the Master Research License and Option Agreement or any other agreement between the parties or their Affiliates. In the event of the termination of the Master Research License and Option Agreement, the rights and obligations of the parties hereto under Article 12 thereof shall be deemed to be part of this Agreement. 13.5.5 Sections 6.3, 6.5, 6.6, 6.7 and 6.8 and Articles 10, 12, 13 and 14 shall survive the expiration and any termination of this Agreement for any reason. 14. MISCELLANEOUS. 14.1 Governing Laws. This Agreement shall be interpreted and construed in accordance with the laws of the State of California, without regard to conflicts of law principles. 14.2 Waiver. It is agreed that no waiver by any party hereto of any breach or default of any of the covenants or agreements herein set forth shall be deemed a waiver as to any subsequent and/or similar breach or default. 14.3 Assignment. This Agreement and the license granted hereunder may not be assigned by Licensee to any third party without the written consent of XT, and XT may not assign this Agreement to a third party without the consent of Licensee; except any party may assign this Agreement without such consent to (a) an Affiliate (provided that such Affiliate is two-thirds or greater owned directly or indirectly) or (b) an entity that acquires substantially all of the assets of the monoclonal antibody business segment of the assigning party. The terms and conditions of this Agreement shall be binding on and inure to the benefit of the permitted successors and assigns of the parties. 14.4 Independent Contractors. The relationship of the parties hereto is that of independent contractors. The parties hereto are not deemed to be agents, partners or joint venturers of the others for any purpose as a result of this Agreement or the transactions contemplated thereby. -16- 42 14.5 Compliance with Laws. In exercising their rights under this license, 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 license. 14.6 No Implied Obligations. Except as expressly provided in Article 8 above, nothing in this Agreement shall be deemed to require Licensee to exploit the Licensed Technology nor to prevent Licensee from commercializing products similar to or competitive with any Products, in addition to or in lieu of such Products. 14.7 Notices. Any notice required or permitted to be given to the parties hereto shall be given in writing and shall be deemed to have been properly given if delivered in person or when received if mailed by first class certified mail to the other party at the appropriate address as set forth below or to such other addresses as may be designated in writing by the parties from time to time during the term of this Agreement. XT: Xenotech, L.P. 322 Lakeside Drive Foster City, California 94404 Attn: Chief Financial Officer Japan Tobacco Inc.: Japan Tobacco Inc. JT Building 2-1 Toranomon 2-chome Minato-ku, Tokyo 105 Japan Attn: Vice President Pharmaceutical Division with a copy to: JT America Inc. 1825 South Grant Street, Suite 220 San Mateo, CA 94402 Attn: President and to: Gilbert, Segall and Young LLP 430 Park Avenue New York, NY 10022 Attn: Neal N. Beaton, Esq. Abgenix, Inc.: Abgenix, Inc. 7601 Dumbarton Circle Fremont, California 94555 Attn: President -17- 43 with a copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304 Attn: Kenneth A. Clark, Esq. 14.8 Export Laws. Notwithstanding anything to the contrary contained herein, all obligations of XT and Licensee are subject to prior compliance with United States [and Japanese]** export regulations and such other United States [and Japanese]** laws and regulations as may be applicable, and to obtaining all necessary approvals required by the applicable agencies of the government of the United States [and Japan].** Licensee shall use efforts consistent with prudent business judgment to obtain such approvals. XT shall cooperate with Licensee and shall provide assistance to Licensee as reasonably necessary to obtain any required approvals. 14.9 Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision and the parties shall discuss in good faith appropriate revised arrangements. 14.10 Force Majeure. Nonperformance of any party (except for payment obligations) shall be excused to the extent that performance is rendered impossible by strike, fire, earthquake, flood, governmental acts or orders or restrictions, failure of suppliers, or any other reason where failure to perform, is beyond the reasonable control and not caused by the negligence, intentional conduct or misconduct of the nonperforming party. 14.11 No Consequential Damages. IN NO EVENT SHALL ANY PARTY HERETO BE LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT OR THE EXERCISE OF RIGHTS HEREUNDER. 14.12 Dispute Resolution; Arbitration. The parties will attempt to resolve any dispute under this Agreement by mutual agreement, and, if required, there shall be a face-to-face meeting between senior executives of the parties. Any dispute under this Agreement which is not settled after such meeting, shall be finally settled by binding arbitration, conducted in accordance with the Rules of Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with said rules. The arbitration proceedings and all pleadings and written evidence shall be in the English language. 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 costs of the arbitration, including administrative and arbitrators' fees, shall be shared equally by the parties. Each party shall bear its own costs and attorneys' and witness' fees. The prevailing party in any arbitration, as determined by the arbitration panel, shall be entitled to an award against the other party in the amount of the prevailing party's costs and reasonable attorneys, fees. The arbitration shall be held in [San Francisco, California]* [Tokyo, Japan, if initiated by XT against Licensee and in San Francisco, California, if initiated by Licensee against XT].** A disputed performance or suspended performances pending the resolution of the arbitration must be completed -18- 44 within thirty days following the final decision of the arbitrators. Any arbitration shall be completed within six months from the filing of notice of a request for such arbitration. 14.13 Complete Agreement. It is understood and agreed between XT and Licensee that this Agreement constitutes the entire agreement, both written and oral, between the parties with respect to the subject matter hereof, and that all prior agreements respecting the subject matter hereof, either written or oral, expressed or implied, shall be abrogated, canceled, and are null and void and of no effect. No amendment or change hereof or addition hereto shall be effective or binding on either of the parties hereto unless reduced to writing and executed by the respective duly authorized representatives of XT and Licensee. 14.14 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and both together shall be deemed to be one and the same agreement. 14.15 Headings. The captions to the several Articles and Sections hereof are not a part of this Agreement, but are included merely for convenience of reference only and shall not affect its meaning or interpretation. 14.16 Nondisclosure. Except as provided in Article 10, each of the parties hereto agrees not to disclose to any third party the terms of this Agreement without the prior written consent of each other party hereto, except to advisors, investors, licensees, sublicensees and others on a need to know basis under circumstances that reasonably ensure the confidentiality thereof, or to the extent required by law; provided, however, that the royalty rate specified in Section 4.1 of this executed Product License shall be redacted before the terms of this executed Product License are disclosed to potential licensees and sublicensees. Without limitation upon any provision of this Agreement, each of the parties hereto shall be responsible for the observance by its employees, consultants and contractors of the foregoing confidentiality obligations. 14.17 Conformity with GenPharm Cross-License. The rights and licenses granted to Licensee hereunder shall be subject to the GenPharm Cross License, and to the extent that this Agreement purports to grant greater rights to Licensee than is permitted under the GenPharm Cross License, such rights shall be granted only to the extent permitted under the GenPharm Cross License, and the terms of the GenPharm Cross License shall control. -19- 45 IN WITNESS WHEREOF, the parties have executed this Agreement, through their respective officers hereunto duly authorized, as of the day and year first above written. XENOTECH, INC. (as General LICENSEE Partner of XENOTECH, L.P.) By: By: --------------------------------- ------------------------------------ Name: Name: ------------------------------- ---------------------------------- Title: Title: ------------------------------ --------------------------------- Schedule 1: Patents [***] Technology" Schedule 2: Patents [***] Technology" Schedule 3: Payments Due to Third Parties Schedule 4: XT In-Licenses - ---------- * If ABX is Licensee. ** If JTI is Licensee. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -20- 46 RESTATED EXHIBIT B FORM OF EXCLUSIVE QUALIFIED WORLDWIDE PRODUCT LICENSE THIS PRODUCT LICENSE AGREEMENT (the "Agreement") effective the ____ day of ____________, _____, is made by and between XENOTECH, L.P., a California limited partnership ("XT"), and [ABGENIX, INC., a Delaware corporation ("ABX")]* [JAPAN TOBACCO INC., a Japanese corporation ("JTI")] ** ("Licensee"). RECITALS XT desires to grant to Licensee and Licensee desires to acquire from XT an exclusive license or sublicense, as the case may be, in the [ABX]* [JTI]** Territory and the Rest of the World under the Licensed Technology to commercialize Products, on the terms and conditions herein. NOW, THEREFORE, for and in consideration of the covenants, conditions, and undertakings hereinafter set forth, it is agreed by and between the parties as follows: 1. DEFINITIONS. For purposes of this Agreement, the terms set forth in this Article shall have the meanings set forth below. 1.1 "ABX" shall mean Abgenix, Inc. 1.2 "ABX Territory" shall mean the United States of America and its territories and possessions, Canada and Mexico. 1.3 "Affiliate" shall mean any entity which controls, is controlled by or is under common control with any one of ABX, JTI or XT. An entity shall be regarded as in control of another entity if it owns or controls at least fifty percent (50%) of the shares of the subject entity entitled to vote in the election of directors (or, in the case of an entity that is not a corporation, for the election of the corresponding managing authority); provided, however, XT shall not be an Affiliate of ABX or JTI under this Agreement and XT shall not be considered controlled by ABX or JTI for purposes of determining Affiliates of ABX or JTI. 1.4 "Antibody" shall mean a composition comprising a whole antibody or a fragment thereof, said antibody or fragment having been derived from the Licensed Technology and/or generated from the Mice or the Future Generation Mice or having been derived from nucleotide sequences encoding, or amino acid sequences of, such an antibody or fragment. -1- 47 1.5 "Antibody Product" shall mean any product comprising an Antibody or Genetic Material encoding an Antibody wherein, in respect of each Antibody Product, said Genetic Material does not encode multiple Antibodies. 1.6 "Antibody-Secreting Cell" shall mean a cell that secretes an Antibody, except where such cell is part of a mammal. 1.7 "[***] Technology" shall mean (i) all U.S. patent applications and patents listed on Schedule 1 and patents issuing on such patent applications owned by or licensed to XT which relate to the [***], in each case to the extent XT has the right to license or sublicense the same; (ii) any continuations, divisionals, reexaminations, reissues or extensions of any of (i) above; (iii) any foreign counterparts issued or issuing on any of (i) or (ii) above; and (iv) [***] as set forth in Schedule 1. 1.8 "CGI" shall mean Cell Genesys, Inc. 1.9 "Effective Date" shall mean the date this Agreement is executed by XT and Licensee. 1.10 "Future Generation Mice" shall have the meaning defined in the Master Research License and Option Agreement, as amended. 1.11 "Genetic Material" shall mean a nucleotide sequence, including DNA, RNA, and complementary and reverse complementary nucleotide sequences thereto, whether coding or noncoding and whether intact or a fragment. 1.12 "GenPharm Cross License" shall mean that certain Cross License Agreement, effective as of March 26, 1997, entered into by and among the parties, GenPharm International, Inc. ("GenPharm") and the other parties named therein, as the same may be amended from time to time. 1.13 "IND" shall mean an Investigational New Drug Exemption for a Product, as defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder, or its non-U.S. equivalent. 1.14 "JTI" shall mean Japan Tobacco Inc. 1.15 "JTI Territory" shall mean Japan, Taiwan and South Korea (including the territory comprising North Korea if it should be reunited with South Korea). 1.16 "License Fee" shall have the meaning set forth in Article 3 hereof. 1.17 "Licensed Field" shall mean [***]. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -2- 48 1.18 "Licensed Technology" shall mean the [***] Technology, the [***] Technology, and XT-Controlled Rights. 1.19 "Master Research License and Option Agreement" shall mean that certain Master Research License and Option Agreement entered into by CGI, JTI and XT as of June 28, 1996 (and subsequently assigned by CGI to ABX), as it may be amended. 1.20 "Mice" shall have the meaning defined in the Master Research License and Option Agreement, as amended. 1.21 "Net Sales" shall mean the [***] charged by Licensee or its Affiliates and Sublicensees for sales of Product to non-Affiliate customers, [***], with respect to such sales, and [***], as reflected in [***] of Licensee and its Affiliates or Sublicensees, to the extent [***]. "Net Sales" for [***] shall mean [***], where [***] shall mean the [***]. Notwithstanding the foregoing, [***] shall include [***], but notwithstanding any of the foregoing, shall not include [***]. Notwithstanding the foregoing, "Net Sales" for [***] shall be [***]. 1.22 "Product" and "Products" shall mean one or more Antibody Products which incorporate (i) an Antibody which binds to the Product Antigen or (ii) Genetic Material encoding such an Antibody wherein said Genetic Material does not encode multiple antibodies. 1.23 "Product Antigen" shall mean ____________________. 1.24 "Rest of the World" shall mean all parts of the world not included in ABX Territory or the JTI Territory. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -3- 49 1.25 "Sublicensee" shall mean a third party that is not an Affiliate (provided, however, that CGI may be a Sublicensee of ABX, whether or not CGI is an Affiliate of ABX) to whom Licensee has granted a sublicense under the Licensed Technology to make, use and/or sell Products to the extent of the rights of Licensee therein. "Sublicensee" shall also include a third party to whom Licensee has granted the right to distribute Products under the Licensed Technology to the extent of the rights of Licensee therein, provided that such third party is responsible for the marketing and promotion of Products within the applicable country. 1.26 "Territory" shall mean those countries of the world in which Licensee has license rights pursuant to this Agreement. 1.27 "Transgenic Product" shall mean any product constituting (i) Mice or Future Generation Mice, (ii) Genetic Material from Mice or Future Generation Mice, or (iii) an Antibody-Secreting Cell. 1.28 "Universal Receptor Product" shall mean a substance that is developed utilizing [***] Universal Receptor Technology. 1.29 "Universal Receptor Technology" shall mean technology for universal receptors [***]. As used herein: (i) "universal receptor" shall mean a receptor [***]. 1.30 "Valid Claim" shall mean a claim of a pending or issued, and unexpired patent included within the Licensed Technology, which has not been held unenforceable, unpatentable or invalid by a court or other governmental agency of competent jurisdiction, and which has not been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise. 1.31 "[***] Technology" shall mean (i) all U.S. patent applications and patents listed on Schedule 2 and patents issuing on such applications; (ii) any continuations, divisionals, reexaminations, reissues or extensions of any of (i) above; (iii) any foreign counterparts [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -4- 50 issued or issuing on any of (i) or (ii) above; and (iv) the Mice (as such term is defined in the Master Research License and Option Agreement) and [***] as set forth on Schedule 2. 1.32 "XT-Controlled Rights" shall mean all rights to patents or technology that are licensed to XT pursuant to the agreements listed on Schedule 4 or any other license or similar agreement granting XT rights to patents or technology (each such agreement an "XT In-License"), to the extent that XT has the right under the terms of the applicable XT In-License to further license or sublicense such rights during the Term of this Agreement. 1.33 "XT In-License" shall have the meaning set forth in Section 1.32, above. 2. LICENSE GRANT; USE OF MICE BY THIRD PARTIES. 2.1 Subject to the terms and conditions of this Agreement, XT hereby grants to Licensee an exclusive license or sublicense, as the case may be, under the Licensed Technology, to make and have made Products anywhere in the world and to use, sell, lease, offer to sell or lease, import, export, otherwise transfer physical possession of or otherwise transfer title to such Products in the [ABX]* [JTI]** Territory and the Rest of the World in the Licensed Field. Such license or sublicense shall be exclusive even as to XT, and shall include the exclusive right to grant and authorize sublicenses for exploitation in the Territory; provided, however, that Licensee may not, under this license, grant sublicenses to any rights to the Mice except as provided in Section 2.2 of this Agreement. 2.2 In connection with the grant of a sublicense under this Agreement to a third party, and notwithstanding any provision to the contrary in the Master Research License and Option Agreement or any Material Transfer Agreement entered into between the parties under Sections 2.1, 2.2 or 2.3 of the Master Research License and Option Agreement, Licensee shall have the right to grant a sublicense to use Mice and Future Generation Mice transferred to the third party pursuant to the terms of Section 2.7 of the Master Research License and Option Agreement, and Transgenic Products other then Mice or Future Generation Mice, to research, develop, make, have made, use, import, export, sell, lease, offer to sell or lease or otherwise distribute or commercialize Products, with the proviso that the sublicense described in this Section 2.2 shall not exceed the Licensee's rights conferred in accordance with the Master Research License and Option Agreement or this Product License. 2.3 It is understood and agreed that, as to all XT-Controlled Rights, the grant of rights under this Article 2 shall be subject in all respects to the applicable XT In-License(s) pursuant to which such XT-Controlled Rights were granted to XT. 3. LICENSE FEE. Licensee shall pay to XT within thirty days of the Effective Date a license fee of [***]. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -5- 51 4. ROYALTIES. 4.1 Royalty Rates. In consideration for the license and rights granted herein, Licensee agrees to pay to XT royalties of [***] of Net Sales of Products by it and its Affiliates and Sublicensees. 4.2 Royalty Offsets. In the event that (i) Licensee, its Affiliate or Sublicensee is required to pay [***], or (ii) any reimbursement payments are due to XT pursuant to Section 5.1 below, then Licensee may deduct the aggregate of any such amounts from any royalty amount owing to XT for the sale of such Products pursuant to Section 4.1 above; provided, however, that payments from Licensee to a third party that is an Affiliate, or was an Affiliate at any time within two (2) years prior to the Effective Date, may not be offset under this Section 4.2. Notwithstanding the foregoing provisions of this Section 4.2, in no event shall the royalties due to XT pursuant to Section 4.1 above be so reduced to less than [***] of the amount that would otherwise be due to XT thereunder. [***] 4.3 Single Royalty; Non-Royalty Sales. Only one royalty shall be payable with respect to any Product, regardless of how many claims or patents within the Licensed Technology cover such Product. In addition, no royalty shall be payable under this Article 4 with respect to sales of Products among Licensee and its Affiliates and/or Sublicensees and their Affiliates or for use in research and/or development or clinical trials. 4.4 No Patent Protection. Royalties shall be payable at the rates specified in Section 4.1 or 4.2 above only with respect to sales of Products that would infringe a Valid Claim in the country in which such Products are sold. In the event that such Products are not covered by a Valid Claim in such country, XT shall be paid a royalty on such sales in accordance with this Article 4, [***]. 4.5 Combination Products. In the event that a Product is sold in combination as a single product with another product or component, Net Sales from such combination sales for purposes of calculating the amounts due under this Article 4 shall be [***]. In the event that no such separate sales are made in the same quarter by Licensee, Net Sales for royalty determination shall be [***]. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -6- 52 4.6 Termination of Royalties. Royalties under Section 4.1, 4.2, or 4.4 will be due until the later of (i) ten years from the first commercial sale of Products in any country or (ii) on a country-by-country basis, the expiration of the last-to-expire patent within the Licensed Technology covering the Products in such country. 5. THIRD PARTY ROYALTIES. 5.1 Royalties Payable by XT. XT will be responsible for the payment of any royalties, license fees and milestone and/or other payments due to third parties under licenses or similar agreements entered into by XT necessary to allow the manufacture, use or sale of Products. Licensee shall reimburse XT for any royalties paid by XT to third parties under licenses or similar agreements covering Products necessary to allow the manufacture, use or sale or other exploitation of Products in accordance with this Agreement. Licensee shall continue any such reimbursement payments to XT until XT's obligation to pay royalties to a third party under any license covering Products expires or terminates. XT agrees not to enter into any license or similar agreement after the Effective Date which would obligate Licensee to make any payments under this Section 5.1 without the prior written consent of Licensee. 5.2 Royalties Payable by Licensee. Xenotech shall have no responsibility under the terms of this Agreement for the payment of any royalties, license fees or milestone or other payments due to third parties under licenses or similar agreements entered into by Licensee, its Affiliates, or its Sublicensees to allow the manufacture, use or sale of Products. 6. ACCOUNTING AND RECORDS. 6.1 Royalty Reports and Payments. After the first commercial sale of Products on which royalties are required, Licensee agrees to make quarterly written reports to XT within eighty days after the end of each calendar quarter, stating in each such report the number, description, and aggregate Net Sales of Products sold during the calendar quarter upon which a royalty is payable under Article 4 above. Concurrently with the making of such reports, Licensee shall pay to XT royalties at the applicable rate specified in Section 4.1, 4.2 or 4.4 above and all royalties payable pursuant to Section 5.1 above, and any adjustment to Net Sales for a prior period in accordance with the definition of Net Sales in Section 1.21 hereof. All payments to XT hereunder shall be made in U.S. Dollars to a bank account designated by XT. 6.2 Early Third Party License Payments. If XT is obligated to pay royalties to a third party prior to ninety days after the end of the calendar quarter, XT shall so notify Licensee and Licensee shall provide the reports and payments set forth in Section 6.1 above not later than ten days before the date such payments are due to the third party. Up to thirty-five days before such payments are due, XT may provide Licensee with an invoice by facsimile setting forth the royalties XT must pay third parties with respect to Licensee's activities in the Territory in the preceding quarter, and Licensee shall pay such invoices within thirty days of receipt of such invoice. -7- 53 6.3 Records; Inspection. Licensee shall keep (and cause its Affiliates and Sublicensees to keep) complete, true and accurate books of account and records for the purpose of determining the royalty amounts payable to XT under this Agreement. Such books and records shall be kept at the principal place of business of Licensee or its Affiliates or Sublicensees, as the case may be, for at least three years following the end of the calendar quarter to which they pertain. Such records of Licensee or its Affiliates will be open for inspection during such three-year period by a representative of XT for the purpose of verifying the royalty statements. Licensee shall require each of its Sublicensees to maintain similar books and records and to open such records for inspection during the same three-year period by a representative of Licensee reasonably satisfactory to XT on behalf of, and as required by, XT for the purpose of verifying the royalty statements. All such inspections may be made no more than once each calendar year, at reasonable times mutually agreed by XT and Licensee. The XT representative will be obliged to execute a reasonable confidentiality agreement prior to commencing any such inspection. Inspections conducted under this Section 6.3 shall be at the expense of XT, unless a variation or error producing an increase exceeding [***] of the amount stated for the period covered by the inspection is established in the course of any such inspection, whereupon all costs relating thereto will be paid by Licensee. Upon the expiration of three years following the end of any fiscal year, the calculation of royalties payable with respect to such year shall be binding and conclusive, and Licensee shall be released from any liability or accountability with respect to royalties for such year. 6.4 Currency Conversion. If any currency conversion shall be required in connection with the calculation of royalties hereunder, such conversion shall be made using the selling exchange rate for conversion of the foreign currency into U.S. Dollars, quoted for current transactions reported in The Wall Street Journal for the last business day of the calendar quarter to which such payment pertains. 6.5 Late Payments. Any payments due from Licensee 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 [***], calculated on the number of days such payment is delinquent. This Section 6.5 shall in no way limit any other remedies available to any party. 6.6 Withholding Taxes. 6.6.1 Unless immediately reimbursable under Section 6.6.2 below, all payments required to be made pursuant to Articles 3, 4 and 5 hereof shall be without deduction or withholding for or on account of any taxes (other than taxes imposed on or measured by net income) or similar governmental charge imposed by a jurisdiction. Such taxes are referred to herein as "Withholding Taxes" and such Withholding Taxes shall be the sole responsibility of the withholding party. The withholding party shall provide a certificate evidencing payment of any Withholding Taxes hereunder. 6.6.2 XT agrees to elect to claim a tax credit for Withholding Taxes with respect to which it is entitled so to elect, and further agrees not to amend such election for the full [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -8- 54 carry-forward period with respect to such credit. At the time that XT realizes a reduction in U.S. tax liability by actually utilizing the Withholding Taxes as a credit against regular U.S. tax liability (determined on a "first-in-first-out" basis pro rata with other available foreign tax credits), then the amount of such reduction attributable to such credit shall immediately be reimbursed to the withholding party. For these purposes, a reduction in U.S. tax liability shall include both a direct reduction in XT's own tax liability and a reduction in the U.S. tax liability of any of its partners. 6.7 Tax Indemnity. Except as provided in Section 6.6, each party (the "Tax Indemnitor") shall indemnify and hold harmless the other party hereto (each a "Tax Indemnitee") from and against any tax or similar governmental charge assessed solely because of this Agreement with respect to and directly attributable to the income or the assets of the Tax Indemnitor. In the event that any governmental agency shall make a claim against a party hereto which could give rise to an indemnity hereunder, such potential Tax Indemnitee shall give reasonably prompt notice to the potential Tax Indemnitor of the assertion of such claim. If the transmission of such notice is unreasonably deferred and has a material, adverse affect on the ability of the potential Tax Indemnitor to challenge such claim, such potential Tax Indemnitor shall be released from liability hereunder. The Tax Indemnitor alone shall (at its own expense) control the defense or compromise of any such claim. The Tax Indemnitee shall execute any documents required to enable Tax Indemnitor to defend such claim, provide any information necessary therefor, and cooperate with Tax Indemnitor in such defense. 6.8 XT Tax Indemnity. XT shall indemnify and hold harmless Licensee and its Affiliates from and against any increase to its country of incorporation income tax liability directly attributable to a positive adjustment to the amount of gross receipts (an "Adjustment") reported or reportable by such party from the income, including the royalty income, received from Licensee on Covered Products. The amount payable hereunder shall be equal to the difference between (a) the product of (i) the amount of the Adjustment, and (ii) the highest combined marginal corporate tax rate in the country of incorporation in effect for the taxable year for which such Adjustment is made, and (b) the reduction in the party's foreign tax liability, which for purposes of this Agreement shall be equal to the product of (i) the amount of any correlative adjustment to its foreign taxable income, and (ii) the highest combined marginal foreign corporate tax rate in effect for the taxable year for which the correlative adjustment is made. No indemnification payment shall be required hereunder until comprehensive efforts to obtain a correlative adjustment to Licensee's or its Affiliates', as the case may be, taxable income in a foreign state (which may include, for example invoking competent authority provisions under the U.S. Japanese Income Tax Treaty (if applicable) or other applicable bilateral tax treaty) have, to the extent reasonable to do so, been exhausted. 7. RESEARCH AND DEVELOPMENT. 7.1 Funding and Conduct. Licensee shall independently furnish and be responsible for funding and conducting all of its preclinical and clinical research and development of Products, at its own expense. -9- 55 7.2 Biomaterials. In the case of Previously Selected Antigens as defined in the Master Research License and Option Agreement, at the reasonable request of Licensee, XT shall make available as part of the license granted hereunder to Licensee [***] thus made available will be used only by Licensee and its Affiliates and Sublicensees and manufacturing subcontractors. 8. SHARING OF CLINICAL DATA. As long as their development projects remain on similar timelines, or as otherwise mutually agreed, Licensee will consider bilateral sharing of its and its Sublicensees' relevant Product development information and clinical data with [JTI]* [ABX]**. However, there shall not be, unless otherwise agreed by the parties, any obligation for sharing data developed independently, by or on behalf of either of them. 9. DUE DILIGENCE. 9.1 [***]. 9.1.1 Licensee agrees to [***] as may be agreed upon by the parties [***] from the Effective Date. 9.1.2 Notwithstanding the foregoing, Licensee shall be [***]. After [***], shall be [***] in the United States or Japan. 9.2 Failure to Meet Due Diligence Obligation. 9.2.1 If the diligence requirements set forth in Section 9.1 are not met by Licensee (or its Affiliates or Sublicensees) in [the United States]* [Japan]**, Licensee's rights hereunder shall terminate upon written notice by XT to Licensee and subject to Sections 9.3, 9.4 and 14.3 below. 9.2.2 Notwithstanding Section 9.2.1, the license granted hereunder to Licensee shall not terminate by reason of a delay in meeting the [***] milestone set forth in Section 9.1.1, to the extent that prudent business judgment, based on circumstances outside of Licensee's reasonable control, reasonably justifies such delay. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -10- 56 9.3 Dispute Resolution. In the event that a dispute arises whether the diligence requirements in Article 9 have been met or circumstances exist which Licensee believes justifies a failure on its part to meet such obligation, the parties will attempt to resolve any dispute by mutual agreement during a period of 30 days following Licensee's receipt of the notice under Section 9.2.1. 9.4 Arbitration. In the event that the parties are unable to resolve such dispute pursuant to Section 9.3 above, such dispute shall be settled between XT and Licensee by binding arbitration as set forth in Section 15.12. If the arbitrator determines that the party acted in good faith, but failed to meet its obligations under Section 9.1 above, the license granted to such party shall not terminate unless the nonperforming party fails to cure such non-performance within a reasonable period of time, as determined by the arbitrator. 10. PATENTS. 10.1 [***] Technology. (a) XT or its licensor, as they may agree, shall have responsibility for preparing, filing, prosecuting and maintaining patents and patent applications worldwide relating to the [***] Technology and conducting any interferences, oppositions, reexaminations, or requesting reissues or patent term extensions with respect to the [***] Technology. XT shall keep Licensee reasonably informed as to the status of such patent matters in the Territory, including without limitation, by providing Licensee the opportunity to review and comment on any substantive documents which will be filed in any patent office, and providing Licensee copies of any substantive documents received by XT from such patent offices including notice of all interferences, reexaminations, oppositions or requests for patent term extensions. Licensee shall cooperate with and assist XT in connection with such activities, at XT's request and expense. (b) In the event that Licensee becomes aware that any [***] Technology necessary for the practice of the license granted herein is infringed or misappropriated by a third party or is subject to a declaratory judgment action arising from such infringement, Licensee shall promptly notify XT and XT shall thereafter promptly notify the owner of such intellectual property. XT or its licensor, as they may agree, shall have the exclusive right to enforce, or defend any declaratory judgment action, at its expense, involving any [***] Technology. In such event, XT shall keep Licensee reasonably informed of the progress of any such claim, suit or proceeding in the Territory. Any recovery received by XT as a result of any such claim, suit or proceeding shall be used first to reimburse XT for all expenses (including attorneys, and professional fees) incurred in connection with such claim, suit or proceeding, [***]. 10.2 [***] Technology. 10.2.1 XT shall have the initial worldwide responsibility for preparing, filing, prosecuting and maintaining patent applications and conducting any interferences, oppositions, reexaminations, or requesting reissues or patent term extensions with respect to [***] Technology. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -11- 57 XT shall give Licensee the opportunity to review the status of all such pending patent applications and actions in the Territory and shall keep Licensee fully informed of the progress of such applications and actions, including, without limitation, by promptly providing Licensee with copies of all substantive correspondence sent to and received from patent offices, and providing notice of all interferences, reexaminations, oppositions or requests for patent term extensions. Expenses related to such patent and patent applications shall be divided 66-2/3% -- 33-1/3% on a worldwide basis, between Licensee and XT. In the event that XT declines or fails to prepare, file, prosecute or maintain such patent applications or patents or take such other actions, relating to the Products in the Territory, it shall promptly and in no event later than ninety days prior to any filing deadline, provide notice to Licensee. Licensee shall have the right to assume such responsibilities at its own expense, using counsel of its choice. 10.2.2 In the event that Licensee becomes aware that any [***] Technology is infringed or misappropriated by a third party in the Territory, or is subject to a declaratory judgment action arising from such infringement in such country, Licensee shall promptly notify XT and XT shall thereafter promptly notify the owner of such intellectual property. Licensee shall have the exclusive right to enforce, or defend any declaratory judgment action, in the Territory, at its expense, involving any Antigen Technology. In such event, Licensee shall keep XT reasonably informed of the progress of any such claim, suit or proceeding. Any recovery by Licensee received as a result of any such claim, suit or proceeding shall be used first to reimburse Licensee for all expenses (including attorneys, and professional fees) incurred in connection with such claim, suit or proceeding, [***]. 10.3 Infringement Claims. If the production, sale or use of Products pursuant to this Agreement results in any claim, suit or proceeding alleging patent infringement against Licensee (or its Affiliates or Sublicensees), Licensee shall promptly notify XT thereof in writing setting forth the facts of such claim in reasonable detail. [***], Licensee 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 choice. Licensee shall keep XT reasonably informed of all material developments in connection with any such claim, suit or proceeding as it relates to the Licensed Technology, Licensee shall have the right to deduct any damages and expenses (including attorneys' and professional fees) against any amounts due, or which may become due, to XT pursuant to this Agreement. Notwithstanding the above, Licensee shall not be able to settle any such claim, suit or proceeding that impinges upon the rights of [JTI]* [ABX]**, including without limitation, involving any admission of the invalidity of the Licensed Technology or rights to Product Antigen outside the Territory without the prior approval of XT. 10.4 Patent Marking. Licensee agrees to mark and have its Affiliates and Sublicensees mark all Products sold pursuant to this Agreement in accordance with the applicable statutes or regulations in the country or countries of manufacture and sale thereof. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -12- 58 11. CONFIDENTIALITY. 11.1 Confidential Information. Except as expressly provided herein, the parties agree that, for the term of this Agreement and for five years thereafter, the receiving party shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose any information furnished to it by another party hereto pursuant to this Agreement except to the extent that it can be established by the receiving party by competent proof that such information: (a) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure; (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; or (d) was subsequently lawfully disclosed to the receiving party by a person other than a party or developed by the receiving party without reference to any information or materials disclosed by the disclosing party. 11.2 Permitted Disclosures. Notwithstanding Sections 11.1 above and 15.16 below, each party hereto may disclose the other party's information to the extent such disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental regulations or otherwise submitting information to tax or other governmental authorities, making a permitted sublicense or other exercise of its rights hereunder or conducting clinical trials, provided that if a party is required to make any such disclosure of the other party's secret or confidential information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the latter party of such disclosure requirement and, save to the extent inappropriate in the case of patent applications, will use efforts consistent with prudent business judgment to secure confidential treatment of such information prior to its disclosure (whether through protective orders or otherwise). Notwithstanding the foregoing, XT shall not disclose to third parties, clinical data or regulatory filings received from Licensee except as agreed in writing by Licensee. 12. SUBLICENSES. Pursuant to Article 2 herein, Licensee will have the right to grant and authorize sublicenses to third parties; provided, however, the Licensee shall remain responsible for any payments due XT for Net Sales of Products by any Sublicensee. [***]. Any sublicense granted by Licensee pursuant to this Agreement shall provide that the Sublicensee will be subject to [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -13- 59 the applicable terms of this Agreement. Licensee shall provide XT with a copy of relevant portions of each sublicense agreement, as reasonably required by XT. 13. REPRESENTATIONS AND WARRANTIES. 13.1 XT. XT represents and warrants that: (i) it has the full right and authority to enter into this Agreement and grant the rights and licenses granted herein; (ii) it has not previously granted and will not grant any rights inconsistent or in conflict with the rights and licenses granted to Licensee herein; (iii) there are no existing or threatened actions, suits or claims pending against XT with respect to the Licensed Technology or the right of XT to enter into and perform its obligations under this Agreement; (iv) it has not previously granted, and will not grant during the term of this Agreement, any right, license or interest in and to the Licensed Technology, or any portion thereof, with respect to the Products, or their manufacture or use; (v) Schedule 3 hereto sets forth all royalties, license fees, milestone payments and similar payments due to third parties for which Licensee is obligated to reimburse XT under Section 5.1 above as of the Effective Date; and (vi) the Licensed Technology is all the technology owned by or licensed to XT as of the Effective Date. 13.2 Licensee. Licensee represents and warrants that: (i) it has the full right and authority to enter into this Agreement, (ii) to its knowledge, there are no existing or threatened actions, suits or claims pending with respect to the subject matter hereof or the right of Licensee to enter into and perform its obligations under this Agreement; and (iii) it has not entered and during the term of this Agreement will not enter any other agreement inconsistent or in conflict with this Agreement. 13.3 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, XT MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF LICENSED TECHNOLOGY CLAIMS, ISSUED OR PENDING. -14- 60 13.4 Effect of Representations and Warranties. It is understood that if the representations and warranties under this Article 13 are not true and accurate and a party incurs liabilities, costs or other expenses as a result of such falsity, the party at fault shall indemnify, defend and hold the injured party harmless from and against any such liabilities, costs or expenses incurred, provided that the party at fault receives prompt notice of any claim against the injured party resulting from or related to such falsity and the sole right to control the defense or settlement thereof. 14. TERM AND TERMINATION. 14.1 Effectiveness. This Agreement shall become effective as of the Effective Date and the license rights granted by XT under Article 2 above shall be in full force and effect as of such date. 14.2 Term. Unless earlier terminated pursuant to the other provisions of this Article 14, this Agreement shall continue in full force and effect until the later of (i) the expiration of the last to expire patent within the Licensed Technology claiming Products; or (ii) the twentieth anniversary of the Effective Date. The licenses granted under Article 2 shall survive the expiration (but not an earlier termination) of this Agreement; provided that such licenses shall in such event become nonexclusive. 14.3 Termination for Breach. Either party to this Agreement may terminate this Agreement in the event the other party shall have materially breached or defaulted in the performance of any of its material obligations hereunder, and such shall have continued for sixty days after written notice thereof was provided to the breaching party by the nonbreaching party that terminates the Agreement as to such party. Any termination shall become effective at the end of such sixty day period unless the breaching party has cured any such breach or default prior to the expiration of the sixty day period. However, if the party alleged to be in breach of this Agreement disputes such breach within such sixty day period, the non-breaching party shall not have the right to terminate this Agreement unless it has been determined by an arbitration proceeding in accordance with Section 15.12 below that this Agreement was materially breached, and the breaching party fails to cure such breach within thirty days following the final decision of the arbitrators or such other time as directed by the arbitrators. 14.4 Other Termination Rights. Licensee may terminate this Agreement and the license granted herein, in its entirety or as to any particular patent within the Licensed Technology in a particular country, at any time, by providing XT ninety-days written notice. In the event of termination as to a particular country, the subject patent in such country shall cease to be within the Licensed Technology for all purposes of this Agreement. -15- 61 14.5 Effect of Termination. 14.5.1 Termination of this Agreement for any reason shall not release either 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. 14.5.2 In the event this Agreement is terminated for any reason, Licensee and its Affiliates and Sublicensees shall have the right to sell or otherwise dispose of the stock of any Products subject to this Agreement then on hand. Upon termination of this Agreement by XT for any reason, any sublicense granted by Licensee hereunder shall survive, provided that upon request by XT, such Sublicensee promptly agrees in writing to be bound by the applicable terms of this Agreement. 14.5.3 This Agreement, including, without limitation, any licenses or sublicenses granted pursuant to this Agreement, shall survive any dissolution, liquidation or acquisition of XT. Such licenses shall remain in full force and effect even after any distribution, following dissolution, of the intellectual property owned or licensed to XT, to any entity. Any transfer of such intellectual property prior to or following dissolution shall be subject to the licenses granted herein. 14.5.4 This Agreement, including the license granted in Article 2, is independent of, and shall not be affected by, any breach or termination of the Master Research License and Option Agreement or any other agreement between the parties or their Affiliates. In the event of the termination of the Master Research License and Option Agreement, the rights and obligations of the parties hereto under Article 12 thereof shall be deemed to be part of this Agreement. 14.5.5 Sections 6.3, 6.5, 6.6, 6.7 and 6.8 and Articles 11, 13, 14 and 15 shall survive the expiration and any termination of this Agreement for any reason. 15. MISCELLANEOUS. 15.1 Governing Laws. This Agreement shall be interpreted and construed in accordance with the laws of the State of California, without regard to conflicts of law principles. 15.2 Waiver. It is agreed that no waiver by any party hereto of any breach or default of any of the covenants or agreements herein set forth shall be deemed a waiver as to any subsequent and/or similar breach or default. 15.3 Assignment. This Agreement and the license granted hereunder may not be assigned by Licensee to any third party without the written consent of XT, and XT may not assign this Agreement to a third party without the consent of Licensee; except any party may assign this Agreement without such consent to (a) an Affiliate (provided that such Affiliate is two-thirds or greater owned directly or indirectly) or (b) an entity that acquires substantially all of the assets of the monoclonal antibody business segment of the assigning party. The terms and conditions of this -16- 62 Agreement shall be binding on and inure to the benefit of the permitted successors and assigns of the parties. 15.4 Independent Contractors. The relationship of the parties hereto is that of independent contractors. The parties hereto are not deemed to be agents, partners or joint venturers of the others for any purpose as a result of this Agreement or the transactions contemplated thereby. 15.5 Compliance with Laws. In exercising their rights under this license, 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 license. 15.6 No Implied Obligations. Except as expressly provided in Article 9 above, nothing in this Agreement shall be deemed to require Licensee to exploit the Licensed Technology nor to prevent Licensee from commercializing products similar to or competitive with any Products, in addition to or in lieu of such Products. 15.7 Notices. Any notice required or permitted to be given to the parties hereto shall be given in writing and shall be deemed to have been properly given if delivered in person or when received if mailed by first class certified mail to the other party at the appropriate address as set forth below or to such other addresses as may be designated in writing by the parties from time to time during the term of this Agreement. XT: Xenotech, L.P. 322 Lakeside Drive Foster City, California 94404 Attn: Chief Financial Officer Japan Tobacco Inc.: Japan Tobacco Inc. JT Building 2-1 Toranomon 2-chome Minato-ku, Tokyo 105 Japan Attn: Vice President Pharmaceutical Division with a copy to: JT America Inc. 1825 South Grant Street, Suite 220 San Mateo, CA 94402 Attn: President and to: Gilbert, Segall and Young LLP 430 Park Avenue New York, NY 10022 Attn: Neal N. Beaton, Esq. -17- 63 Abgenix, Inc.: Abgenix, Inc. 7601 Dumbarton Circle Fremont, California 94555 Attn: President with a copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304 Attn: Kenneth A. Clark, Esq. 15.8 Export Laws. Notwithstanding anything to the contrary contained herein, all obligations of XT and Licensee are subject to prior compliance with United States [and Japanese]** export regulations and such other United States [and Japanese]** laws and regulations as may be applicable, and to obtaining all necessary approvals required by the applicable agencies of the government of the United States [and Japan].** Licensee shall use efforts consistent with prudent business judgment to obtain such approvals. XT shall cooperate with Licensee and shall provide assistance to Licensee as reasonably necessary to obtain any required approvals. 15.9 Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision and the parties shall discuss in good faith appropriate revised arrangements. 15.10 Force Majeure. Nonperformance of any party (except for payment obligations) shall be excused to the extent that performance is rendered impossible by strike, fire, earthquake, flood, governmental acts or orders or restrictions, failure of suppliers, or any other reason where failure to perform, is beyond the reasonable control and not caused by the negligence, intentional conduct or misconduct of the nonperforming party. 15.11 No Consequential Damages. IN NO EVENT SHALL ANY PARTY HERETO BE LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT OR THE EXERCISE OF RIGHTS HEREUNDER. 15.12 Dispute Resolution; Arbitration. The parties will attempt to resolve any dispute under this Agreement by mutual agreement, and, if required, there shall be a face-to-face meeting between senior executives of the parties. Any dispute under this Agreement which is not settled after such meeting, shall be finally settled by binding arbitration, conducted in accordance with the Rules of Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with said rules. The arbitration proceedings and all pleadings and written evidence shall be in the English language. 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 costs of the arbitration, including administrative and arbitrators' fees, shall be shared equally by the parties. Each party shall bear its own costs and attorneys' and witness' fees. The prevailing party in any arbitration, as determined by the arbitration panel, shall be entitled to an award against the -18- 64 other party in the amount of the prevailing party's costs and reasonable attorneys, fees. The arbitration shall be held in [San Francisco, California]* [Tokyo, Japan, if initiated by XT against Licensee and in San Francisco, California, if initiated by Licensee against XT].** A disputed performance or suspended performances pending the resolution of the arbitration must be completed within thirty days following the final decision of the arbitrators. Any arbitration shall be completed within six months from the filing of notice of a request for such arbitration. 15.13 Complete Agreement. It is understood and agreed between XT and Licensee that this Agreement constitutes the entire agreement, both written and oral, between the parties with respect to the subject matter hereof, and that all prior agreements respecting the subject matter hereof, either written or oral, expressed or implied, shall be abrogated, canceled, and are null and void and of no effect. No amendment or change hereof or addition hereto shall be effective or binding on either of the parties hereto unless reduced to writing and executed by the respective duly authorized representatives of XT and Licensee. 15.14 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and both together shall be deemed to be one and the same agreement. 15.15 Headings. The captions to the several Articles and Sections hereof are not a part of this Agreement, but are included merely for convenience of reference only and shall not affect its meaning or interpretation. 15.16 Nondisclosure. Except as provided in Article 11, each of the parties hereto agrees not to disclose to any third party the terms of this Agreement without the prior written consent of each other party hereto, except to advisors, investors, licensees, sublicensees and others on a need to know basis under circumstances that reasonably ensure the confidentiality thereof, or to the extent required by law; provided, however, that the royalty rate specified in Section 4.1 of this executed Product License shall be redacted before the terms of this executed Product License are disclosed to potential licensees and sublicensees. Without limitation upon any provision of this Agreement, each of the parties hereto shall be responsible for the observance by its employees, consultants and contractors of the foregoing confidentiality obligations. 15.17 Conformity with GenPharm Cross-License. The rights and licenses granted to Licensee hereunder shall be subject to the GenPharm Cross License, and to the extent that this Agreement purports to grant greater rights to Licensee than is permitted under the GenPharm Cross License, such rights shall be granted only to the extent permitted under the GenPharm Cross License, and the terms of the GenPharm Cross License shall control. -19- 65 IN WITNESS WHEREOF, the parties have executed this Agreement, through their respective officers hereunto duly authorized, as of the day and year first above written. XENOTECH, INC. (as General LICENSEE Partner of XENOTECH, L.P.) By: By: ---------------------------------- ------------------------------------- Name: Name: -------------------------------- ----------------------------------- Title: Title: ------------------------------- ---------------------------------- Schedule 1: Patents [***] Technology" Schedule 2: Patents [***] Technology" Schedule 3: Payments Due to Third Parties Schedule 4: XT In-Licenses - ------------ * If ABX is Licensee. ** If JTI is Licensee. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -20- 66 RESTATED EXHIBIT C FORM OF EXCLUSIVE HOME TERRITORY PRODUCT LICENSE THIS PRODUCT LICENSE AGREEMENT (the "Agreement") effective the ____ day of ____________, _____, is made by and between XENOTECH, L.P., a California limited partnership ("XT"), and [ABGENIX, INC., a Delaware corporation ("ABX")]* [JAPAN TOBACCO INC., a Japanese corporation ("JTI")] ** ("Licensee"). RECITALS XT desires to grant to Licensee and Licensee desires to acquire from XT an exclusive license or sublicense, as the case may be, in the [ABX]* [JTI]** Territory under the Licensed Technology to commercialize Products, on the terms and conditions herein. NOW, THEREFORE, for and in consideration of the covenants, conditions, and undertakings hereinafter set forth, it is agreed by and between the parties as follows: 1. DEFINITIONS. For purposes of this Agreement, the terms set forth in this Article shall have the meanings set forth below. 1.1 "ABX" shall mean Abgenix, Inc. 1.2 "ABX Territory" shall mean the United States of America and its territories and possessions, Canada and Mexico. 1.3 "Affiliate" shall mean any entity which controls, is controlled by or is under common control with any one of ABX, JTI or XT. An entity shall be regarded as in control of another entity if it owns or controls at least fifty percent (50%) of the shares of the subject entity entitled to vote in the election of directors (or, in the case of an entity that is not a corporation, for the election of the corresponding managing authority); provided, however, XT shall not be an Affiliate of ABX or JTI under this Agreement and XT shall not be considered controlled by ABX or JTI for purposes of determining Affiliates of ABX or JTI. 1.4 "Antibody" shall mean a composition comprising a whole antibody or a fragment thereof, said antibody or fragment having been derived from the Licensed Technology and/or generated from the Mice or the Future Generation Mice or having been derived from nucleotide sequences encoding, or amino acid sequences of, such an antibody or fragment. -1- 67 1.5 "Antibody Product" shall mean any product comprising an Antibody or Genetic Material encoding an Antibody wherein, in respect of each Antibody Product, said Genetic Material does not encode multiple Antibodies. 1.6 "Antibody-Secreting Cell" shall mean a cell that secretes an Antibody, except where such cell is part of a mammal. 1.7 "[***] Technology" shall mean (i) all U.S. patent applications and patents listed on Schedule 1 and patents issuing on such patent applications owned by or licensed to XT which relate to the [***], in each case to the extent XT has the right to license or sublicense the same; (ii) any continuations, divisionals, reexaminations, reissues or extensions of any of (i) above; (iii) any foreign counterparts issued or issuing on any of (i) or (ii) above; and (iv) [***] as set forth in Schedule 1. 1.8 "CGI" shall mean Cell Genesys, Inc. 1.9 "Effective Date" shall mean the date this Agreement is executed by XT and Licensee. 1.10 "Future Generation Mice" shall have the meaning defined in the Master Research License and Option Agreement, as amended. 1.11 "Genetic Material" shall mean a nucleotide sequence, including DNA, RNA, and complementary and reverse complementary nucleotide sequences thereto, whether coding or noncoding and whether intact or a fragment. 1.12 "GenPharm Cross License" shall mean that certain Cross License Agreement, effective as of March 26, 1997, entered into by and among the parties, GenPharm International, Inc. ("GenPharm") and the other parties named therein, as the same may be amended from time to time. 1.13 "IND" shall mean an Investigational New Drug Exemption for a Product, as defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder, or its non-U.S. equivalent. 1.14 "JTI" shall mean Japan Tobacco Inc. 1.15 "JTI Territory" shall mean Japan, Taiwan and South Korea (including the territory comprising North Korea if it should be reunited with South Korea). 1.16 "License Fee" shall have the meaning set forth in Article 3 hereof. 1.17 "Licensed Field" shall mean [***]. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -2- 68 1.18 "Licensed Technology" shall mean the [***] Technology, the [***] Technology, and XT-Controlled Rights. 1.19 "Master Research License and Option Agreement" shall mean that certain Master Research License and Option Agreement entered into by CGI, JTI and XT as of June 28, 1996 (and subsequently assigned by CGI to ABX), as it may be amended. 1.20 "Mice" shall have the meaning defined in the Master Research License and Option Agreement, as amended. 1.21 "Net Sales" shall mean the [***] charged by Licensee or its Affiliates and Sublicensees for sales of Product to non-Affiliate customers, [***], with respect to such sales, and [***], as reflected in [***] of Licensee and its Affiliates or Sublicensees, to the extent [***]. "Net Sales" for [***] shall mean [***], where [***] shall mean the [***]. Notwithstanding the foregoing, [***] shall include [***], but notwithstanding any of the foregoing, shall not include [***]. Notwithstanding the foregoing, "Net Sales" for [***] shall be [***]. 1.22 "Product" and "Products" shall mean one or more Antibody Products which incorporate (i) an Antibody which binds to the Product Antigen or (ii) Genetic Material encoding such an Antibody wherein said Genetic Material does not encode multiple antibodies. 1.23 "Product Antigen" shall mean ____________________. 1.24 "Sublicensee" shall mean a third party that is not an Affiliate (provided, however, that CGI may be a Sublicensee of ABX, whether or not CGI is an Affiliate of ABX) to whom Licensee has granted a sublicense under the Licensed Technology to make, use and/or sell Products to the extent of the rights of Licensee therein. "Sublicensee" shall also include a third party [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -3- 69 to whom Licensee has granted the right to distribute Products under the Licensed Technology to the extent of the rights of Licensee therein, provided that such third party is responsible for the marketing and promotion of Products within the applicable country. 1.25 "Territory" shall mean those countries of the world in which Licensee has license rights pursuant to this Agreement. 1.26 "Transgenic Product" shall mean any product constituting (i) Mice or Future Generation Mice, (ii) Genetic Material from Mice or Future Generation Mice, or (iii) an Antibody-Secreting Cell. 1.27 "Universal Receptor Product" shall mean a substance that is developed utilizing [***] Universal Receptor Technology. 1.28 "Universal Receptor Technology" shall mean technology for universal receptors [***]. As used herein: (i) "universal receptor" shall mean a receptor [***]. 1.29 "Valid Claim" shall mean a claim of a pending or issued, and unexpired patent included within the Licensed Technology, which has not been held unenforceable, unpatentable or invalid by a court or other governmental agency of competent jurisdiction, and which has not been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise. 1.30 "[***] Technology" shall mean (i) all U.S. patent applications and patents listed on Schedule 2 and patents issuing on such applications; (ii) any continuations, divisionals, reexaminations, reissues or extensions of any of (i) above; (iii) any foreign counterparts issued or issuing on any of (i) or (ii) above; and (iv) the Mice (as such term is defined in the Master Research License and Option Agreement) and [***] as set forth on Schedule 2. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -4- 70 1.31 "XT-Controlled Rights" shall mean all rights to patents or technology that are licensed to XT pursuant to the agreements listed on Schedule 4 or any other license or similar agreement granting XT rights to patents or technology (each such agreement an "XT In-License"), to the extent that XT has the right under the terms of the applicable XT In-License to further license or sublicense such rights during the Term of this Agreement. 1.32 "XT In-License" shall have the meaning set forth in Section 1.31, above. 2. LICENSE GRANT; USE OF MICE BY THIRD PARTIES. 2.1 Subject to the terms and conditions of this Agreement, XT hereby grants to Licensee an exclusive license or sublicense, as the case may be, under the Licensed Technology, to make and have made Products anywhere in the world and to use, sell, lease, offer to sell or lease, import, export, otherwise transfer physical possession of or otherwise transfer title to such Products in the [ABX]* [JTI]** Territory in the Licensed Field. Such license or sublicense shall be exclusive even as to XT, and shall include the exclusive right to grant and authorize sublicenses for exploitation in the [ABX]* [JTI]** Territory; provided, however, that Licensee may not, under this license, grant sublicenses to any rights to the Mice except as provided in Section 2.2 of this Agreement. 2.2 In connection with the grant of a sublicense under this Agreement to a third party, and notwithstanding any provision to the contrary in the Master Research License and Option Agreement or any Material Transfer Agreement entered into between the parties under Sections 2.1, 2.2 or 2.3 of the Master Research License and Option Agreement, Licensee shall have the right to grant a sublicense to use Mice and Future Generation Mice transferred to the third party pursuant to the terms of Section 2.7 of the Master Research License and Option Agreement, and Transgenic Products other then Mice or Future Generation Mice, to research, develop, make, have made, use, import, export, sell, lease, offer to sell or lease or otherwise distribute or commercialize Products, with the proviso that the sublicense described in this Section 2.2 shall not exceed the Licensee's rights conferred in accordance with the Master Research License and Option Agreement or this Product License. 2.3 It is understood and agreed that, as to all XT-Controlled Rights, the grant of rights under this Article 2 shall be subject in all respects to the applicable XT In-License(s) pursuant to which such XT-Controlled Rights were granted to XT. 3. LICENSE FEE. Licensee shall pay to XT within thirty days of the Effective Date a license fee of [***]. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -5- 71 4. ROYALTIES. 4.1 Royalty Rates. In consideration for the license and rights granted herein, Licensee agrees to pay to XT royalties of [***] of Net Sales of Products by it and its Affiliates and Sublicensees. 4.2 Royalty Offsets. In the event that (i) Licensee, its Affiliate or Sublicensee is required to pay [***], or (ii) any reimbursement payments are due to XT pursuant to Section 5.1 below, then Licensee may deduct the aggregate of any such amounts from any royalty amount owing to XT for the sale of such Products pursuant to Section 4.1 above; provided, however, that payments from Licensee to a third party that is an Affiliate, or was an Affiliate at any time within two (2) years prior to the Effective Date, may not be offset under this Section 4.2. Notwithstanding the foregoing provisions of this Section 4.2, in no event shall the royalties due to XT pursuant to Section 4.1 above be so reduced to less than [***] of the amount that would otherwise be due to XT thereunder. [***]. 4.3 Single Royalty; Non-Royalty Sales. Only one royalty shall be payable with respect to any Product, regardless of how many claims or patents within the Licensed Technology cover such Product. In addition, no royalty shall be payable under this Article 4 with respect to sales of Products among Licensee and its Affiliates and/or Sublicensees and their Affiliates or for use in research and/or development or clinical trials. 4.4 No Patent Protection. Royalties shall be payable at the rates specified in Section 4.1 or 4.2 above only with respect to sales of Products that would infringe a Valid Claim in the country in which such Products are sold. In the event that such Products are not covered by a Valid Claim in such country, XT shall be paid a royalty on such sales in accordance with this Article 4, [***]. 4.5 Combination Products. In the event that a Product is sold in combination as a single product with another product or component, Net Sales from such combination sales for purposes of calculating the amounts due under this Article 4 shall be [***]. In the event that no such separate sales are made in the same quarter by Licensee, Net Sales for royalty determination shall be [***]. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -6- 72 4.6 Termination of Royalties. Royalties under Section 4.1, 4.2, or 4.4 will be due until the later of (i) ten years from the first commercial sale of Products in any country or (ii) on a country-by-country basis, the expiration of the last-to-expire patent within the Licensed Technology covering the Products in such country. 5. THIRD PARTY ROYALTIES. 5.1 Royalties Payable by XT. XT will be responsible for the payment of any royalties, license fees and milestone and/or other payments due to third parties under licenses or similar agreements entered into by XT necessary to allow the manufacture, use or sale of Products. Licensee shall reimburse XT for any royalties paid by XT to third parties under licenses or similar agreements covering Products necessary to allow the manufacture, use or sale or other exploitation of Products in accordance with this Agreement. Licensee shall continue any such reimbursement payments to XT until XT's obligation to pay royalties to a third party under any license covering Products expires or terminates. XT agrees not to enter into any license or similar agreement after the Effective Date which would obligate Licensee to make any payments under this Section 5.1 without the prior written consent of Licensee. 5.2 Royalties Payable by Licensee. Xenotech shall have no responsibility under the terms of this Agreement for the payment of any royalties, license fees or milestone or other payments due to third parties under licenses or similar agreements entered into by Licensee, its Affiliates, or its Sublicensees to allow the manufacture, use or sale of Products. 6. ACCOUNTING AND RECORDS. 6.1 Royalty Reports and Payments. After the first commercial sale of Products on which royalties are required, Licensee agrees to make quarterly written reports to XT within eighty days after the end of each calendar quarter, stating in each such report the number, description, and aggregate Net Sales of Products sold during the calendar quarter upon which a royalty is payable under Article 4 above. Concurrently with the making of such reports, Licensee shall pay to XT royalties at the applicable rate specified in Section 4.1, 4.2 or 4.4 above and all royalties payable pursuant to Section 5.1 above, and any adjustment to Net Sales for a prior period in accordance with the definition of Net Sales in Section 1.21 hereof. All payments to XT hereunder shall be made in U.S. Dollars to a bank account designated by XT. 6.2 Early Third Party License Payments. If XT is obligated to pay royalties to a third party prior to ninety days after the end of the calendar quarter, XT shall so notify Licensee and Licensee shall provide the reports and payments set forth in Section 6.1 above not later than ten days before the date such payments are due to the third party. Up to thirty-five days before such payments are due, XT may provide Licensee with an invoice by facsimile setting forth the royalties XT must pay third parties with respect to Licensee's activities in the Territory in the preceding quarter, and Licensee shall pay such invoices within thirty days of receipt of such invoice. -7- 73 6.3 Records; Inspection. Licensee shall keep (and cause its Affiliates and Sublicensees to keep) complete, true and accurate books of account and records for the purpose of determining the royalty amounts payable to XT under this Agreement. Such books and records shall be kept at the principal place of business of Licensee or its Affiliates or Sublicensees, as the case may be, for at least three years following the end of the calendar quarter to which they pertain. Such records of Licensee or its Affiliates will be open for inspection during such three-year period by a representative of XT for the purpose of verifying the royalty statements. Licensee shall require each of its Sublicensees to maintain similar books and records and to open such records for inspection during the same three-year period by a representative of Licensee reasonably satisfactory to XT on behalf of, and as required by, XT for the purpose of verifying the royalty statements. All such inspections may be made no more than once each calendar year, at reasonable times mutually agreed by XT and Licensee. The XT representative will be obliged to execute a reasonable confidentiality agreement prior to commencing any such inspection. Inspections conducted under this Section 6.3 shall be at the expense of XT, unless a variation or error producing an increase exceeding [***] of the amount stated for the period covered by the inspection is established in the course of any such inspection, whereupon all costs relating thereto will be paid by Licensee. Upon the expiration of three years following the end of any fiscal year, the calculation of royalties payable with respect to such year shall be binding and conclusive, and Licensee shall be released from any liability or accountability with respect to royalties for such year. 6.4 Currency Conversion. If any currency conversion shall be required in connection with the calculation of royalties hereunder, such conversion shall be made using the selling exchange rate for conversion of the foreign currency into U.S. Dollars, quoted for current transactions reported in The Wall Street Journal for the last business day of the calendar quarter to which such payment pertains. 6.5 Late Payments. Any payments due from Licensee 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 [***], calculated on the number of days such payment is delinquent. This Section 6.5 shall in no way limit any other remedies available to any party. 6.6 Withholding Taxes. 6.6.1 Unless immediately reimbursable under Section 6.6.2 below, all payments required to be made pursuant to Articles 3, 4 and 5 hereof shall be without deduction or withholding for or on account of any taxes (other than taxes imposed on or measured by net income) or similar governmental charge imposed by a jurisdiction. Such taxes are referred to herein as "Withholding Taxes" and such Withholding Taxes shall be the sole responsibility of the withholding party. The withholding party shall provide a certificate evidencing payment of any Withholding Taxes hereunder. 6.6.2 XT agrees to elect to claim a tax credit for Withholding Taxes with respect to which it is entitled so to elect, and further agrees not to amend such election for the full [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -8- 74 carry-forward period with respect to such credit. At the time that XT realizes a reduction in U.S. tax liability by actually utilizing the Withholding Taxes as a credit against regular U.S. tax liability (determined on a "first-in- first-out" basis pro rata with other available foreign tax credits), then the amount of such reduction attributable to such credit shall immediately be reimbursed to the withholding party. For these purposes, a reduction in U.S. tax liability shall include both a direct reduction in XT's own tax liability and a reduction in the U.S. tax liability of any of its partners. 6.7 Tax Indemnity. Except as provided in Section 6.6, each party (the "Tax Indemnitor") shall indemnify and hold harmless the other party hereto (each a "Tax Indemnitee") from and against any tax or similar governmental charge assessed solely because of this Agreement with respect to and directly attributable to the income or the assets of the Tax Indemnitor. In the event that any governmental agency shall make a claim against a party hereto which could give rise to an indemnity hereunder, such potential Tax Indemnitee shall give reasonably prompt notice to the potential Tax Indemnitor of the assertion of such claim. If the transmission of such notice is unreasonably deferred and has a material, adverse affect on the ability of the potential Tax Indemnitor to challenge such claim, such potential Tax Indemnitor shall be released from liability hereunder. The Tax Indemnitor alone shall (at its own expense) control the defense or compromise of any such claim. The Tax Indemnitee shall execute any documents required to enable Tax Indemnitor to defend such claim, provide any information necessary therefor, and cooperate with Tax Indemnitor in such defense. 6.8 XT Tax Indemnity. XT shall indemnify and hold harmless Licensee and its Affiliates from and against any increase to its country of incorporation income tax liability directly attributable to a positive adjustment to the amount of gross receipts (an "Adjustment") reported or reportable by such party from the income, including the royalty income, received from Licensee on Covered Products. The amount payable hereunder shall be equal to the difference between (a) the product of (i) the amount of the Adjustment, and (ii) the highest combined marginal corporate tax rate in the country of incorporation in effect for the taxable year for which such Adjustment is made, and (b) the reduction in the party's foreign tax liability, which for purposes of this Agreement shall be equal to the product of (i) the amount of any correlative adjustment to its foreign taxable income, and (ii) the highest combined marginal foreign corporate tax rate in effect for the taxable year for which the correlative adjustment is made. No indemnification payment shall be required hereunder until comprehensive efforts to obtain a correlative adjustment to Licensee's or its Affiliates', as the case may be, taxable income in a foreign state (which may include, for example invoking competent authority provisions under the U.S. Japanese Income Tax Treaty (if applicable) or other applicable bilateral tax treaty) have, to the extent reasonable to do so, been exhausted. 7. RESEARCH AND DEVELOPMENT. 7.1 Funding and Conduct. Licensee shall independently furnish and be responsible for funding and conducting all of its preclinical and clinical research and development of Products, at its own expense. -9- 75 7.2 Biomaterials. In the case of Previously Selected Antigens as defined in the Master Research License and Option Agreement, at the reasonable request of Licensee, XT shall make available as part of the license granted hereunder to Licensee [***] thus made available will be used only by Licensee and its Affiliates and Sublicensees and manufacturing subcontractors. 8. SHARING OF CLINICAL DATA. As long as their development projects remain on similar timelines, or as otherwise mutually agreed, Licensee will consider bilateral sharing of its and its Sublicensees' relevant Product development information and clinical data with [JTI]* [ABX]**. However, there shall not be, unless otherwise agreed by the parties, any obligation for sharing data developed independently, by or on behalf of either of them. 9. DUE DILIGENCE. 9.1 [***]. 9.1.1 Licensee agrees [***] as may be agreed upon by the parties [***] the Effective Date. 9.1.2 Notwithstanding the foregoing, Licensee shall be [***], shall be [***] in the United States or Japan. 9.2 Failure to Meet Due Diligence Obligation. 9.2.1 If the diligence requirements set forth in Section 9.1 are not met by Licensee (or its Affiliates or Sublicensees) [in the United States]* [in Japan]**, Licensee's rights hereunder shall terminate upon written notice by XT to Licensee and subject to Sections 9.3, 9.4 and 14.3 below. 9.2.2 Notwithstanding Section 9.2.1, the license granted hereunder to Licensee shall not terminate by reason of a delay in meeting the [***] milestone set forth in Section 9.1.1, to the extent that prudent business judgment, based on circumstances outside of Licensee's reasonable control, reasonably justifies such delay. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -10- 76 9.3 Dispute Resolution. In the event that a dispute arises whether the diligence requirements in Article 9 have been met or circumstances exist which Licensee believes justifies a failure on its part to meet such obligation, the parties will attempt to resolve any dispute by mutual agreement during a period of 30 days following Licensee's receipt of the notice under Section 9.2.1. 9.4 Arbitration. In the event that the parties are unable to resolve such dispute pursuant to Section 9.3 above, such dispute shall be settled between XT and Licensee by binding arbitration as set forth in Section 15.12. If the arbitrator determines that the party acted in good faith, but failed to meet its obligations under Section 9.1 above, the license granted to such party shall not terminate unless the nonperforming party fails to cure such non-performance within a reasonable period of time, as determined by the arbitrator. 10. PATENTS. 10.1 [***] Technology. (a) XT or its licensor, as they may agree, shall have responsibility for preparing, filing, prosecuting and maintaining patents and patent applications worldwide relating to the [***] Technology and conducting any interferences, oppositions, reexaminations, or requesting reissues or patent term extensions with respect to the [***] Technology. XT shall keep Licensee reasonably informed as to the status of such patent matters in the Territory, including without limitation, by providing Licensee the opportunity to review and comment on any substantive documents which will be filed in any patent office, and providing Licensee copies of any substantive documents received by XT from such patent offices including notice of all interferences, reexaminations, oppositions or requests for patent term extensions. Licensee shall cooperate with and assist XT in connection with such activities, at XT's request and expense. (b) In the event that Licensee becomes aware that any [***] Technology necessary for the practice of the license granted herein is infringed or misappropriated by a third party or is subject to a declaratory judgment action arising from such infringement, Licensee shall promptly notify XT and XT shall thereafter promptly notify the owner of such intellectual property. XT or its licensor, as they may agree, shall have the exclusive right to enforce, or defend any declaratory judgment action, at its expense, involving any [***] Technology. In such event, XT shall keep Licensee reasonably informed of the progress of any such claim, suit or proceeding in the Territory. Any recovery received by XT as a result of any such claim, suit or proceeding shall be used first to reimburse XT for all expenses (including attorneys, and professional fees) incurred in connection with such claim, suit or proceeding, [***]. 10.2 [***] Technology. 10.2.1 XT shall have the initial worldwide responsibility for preparing, filing, prosecuting and maintaining patent applications and conducting any interferences, oppositions, reexaminations, or requesting reissues or patent term extensions with respect to [***] Technology. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -11- 77 XT shall give Licensee the opportunity to review the status of all such pending patent applications and actions in the Territory and shall keep Licensee fully informed of the progress of such applications and actions, including, without limitation, by promptly providing Licensee with copies of all substantive correspondence sent to and received from patent offices, and providing notice of all interferences, reexaminations, oppositions or requests for patent term extensions. [***]. In the event that XT declines or fails to prepare, file, prosecute or maintain such patent applications or patents or take such other actions, relating to the Products in the Territory, it shall promptly and in no event later than ninety days prior to any filing deadline, provide notice to Licensee. Licensee shall have the right to assume such responsibilities at its own expense, using counsel of its choice. 10.2.2 In the event that Licensee becomes aware that any [***] Technology is infringed or misappropriated by a third party in the Territory, or is subject to a declaratory judgment action arising from such infringement in such country, Licensee shall promptly notify XT and XT shall thereafter promptly notify the owner of such intellectual property. Licensee shall have the exclusive right to enforce, or defend any declaratory judgment action, in the Territory, at its expense, involving any [***] Technology. In such event, Licensee shall keep XT reasonably informed of the progress of any such claim, suit or proceeding. Any recovery by Licensee received as a result of any such claim, suit or proceeding shall be used first to reimburse Licensee for all expenses (including attorneys, and professional fees) incurred in connection with such claim, suit or proceeding, [***]. 10.3 Infringement Claims. If the production, sale or use of Products pursuant to this Agreement results in any claim, suit or proceeding alleging patent infringement against Licensee (or its Affiliates or Sublicensees), Licensee shall promptly notify XT thereof in writing setting forth the facts of such claim in reasonable detail. [***], Licensee 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 choice. Licensee shall keep XT reasonably informed of all material developments in connection with any such claim, suit or proceeding as it relates to the Licensed Technology, Licensee shall have the right to deduct any damages and expenses (including attorneys' and professional fees) against any amounts due, or which may become due, to XT pursuant to this Agreement. Notwithstanding the above, Licensee shall not be able to settle any such claim, suit or proceeding that impinges upon the rights of [JTI]* [ABX]**, including without limitation, involving any admission of the invalidity of the Licensed Technology or rights to Product Antigen outside the Territory without the prior approval of XT. 10.4 Patent Marking. Licensee agrees to mark and have its Affiliates and Sublicensees mark all Products sold pursuant to this Agreement in accordance with the applicable statutes or regulations in the country or countries of manufacture and sale thereof. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -12- 78 11. CONFIDENTIALITY. 11.1 Confidential Information. Except as expressly provided herein, the parties agree that, for the term of this Agreement and for five years thereafter, the receiving party shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose any information furnished to it by another party hereto pursuant to this Agreement except to the extent that it can be established by the receiving party by competent proof that such information: (a) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure; (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; or (d) was subsequently lawfully disclosed to the receiving party by a person other than a party or developed by the receiving party without reference to any information or materials disclosed by the disclosing party. 11.2 Permitted Disclosures. Notwithstanding Sections 11.1 above and 15.16 below, each party hereto may disclose the other party's information to the extent such disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental regulations or otherwise submitting information to tax or other governmental authorities, making a permitted sublicense or other exercise of its rights hereunder or conducting clinical trials, provided that if a party is required to make any such disclosure of the other party's secret or confidential information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the latter party of such disclosure requirement and, save to the extent inappropriate in the case of patent applications, will use efforts consistent with prudent business judgment to secure confidential treatment of such information prior to its disclosure (whether through protective orders or otherwise). Notwithstanding the foregoing, XT shall not disclose to third parties, clinical data or regulatory filings received from Licensee except as agreed in writing by Licensee. 12. SUBLICENSES. Pursuant to Article 2 herein, Licensee will have the right to grant and authorize sublicenses to third parties; provided, however, the Licensee shall remain responsible for any payments due XT for Net Sales of Products by any Sublicensee. [***]. Any sublicense granted by Licensee pursuant to this Agreement shall provide that the Sublicensee will be subject to [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -13- 79 the applicable terms of this Agreement. Licensee shall provide XT with a copy of relevant portions of each sublicense agreement, as reasonably required by XT. 13. REPRESENTATIONS AND WARRANTIES. 13.1 XT. XT represents and warrants that: (i) it has the full right and authority to enter into this Agreement and grant the rights and licenses granted herein; (ii) it has not previously granted and will not grant any rights inconsistent or in conflict with the rights and licenses granted to Licensee herein; (iii) there are no existing or threatened actions, suits or claims pending against XT with respect to the Licensed Technology or the right of XT to enter into and perform its obligations under this Agreement; (iv) it has not previously granted, and will not grant during the term of this Agreement, any right, license or interest in and to the Licensed Technology, or any portion thereof, with respect to the Products, or their manufacture or use; (v) Schedule 3 hereto sets forth all royalties, license fees, milestone payments and similar payments due to third parties for which Licensee is obligated to reimburse XT under Section 5.1 above as of the Effective Date; and (vi) the Licensed Technology is all the technology owned by or licensed to XT as of the Effective Date. 13.2 Licensee. Licensee represents and warrants that: (i) it has the full right and authority to enter into this Agreement, (ii) to its knowledge, there are no existing or threatened actions, suits or claims pending with respect to the subject matter hereof or the right of Licensee to enter into and perform its obligations under this Agreement; and (iii) it has not entered and during the term of this Agreement will not enter any other agreement inconsistent or in conflict with this Agreement. 13.3 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, XT MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF LICENSED TECHNOLOGY CLAIMS, ISSUED OR PENDING. -14- 80 13.4 Effect of Representations and Warranties. It is understood that if the representations and warranties under this Article 13 are not true and accurate and a party incurs liabilities, costs or other expenses as a result of such falsity, the party at fault shall indemnify, defend and hold the injured party harmless from and against any such liabilities, costs or expenses incurred, provided that the party at fault receives prompt notice of any claim against the injured party resulting from or related to such falsity and the sole right to control the defense or settlement thereof. 14. TERM AND TERMINATION. 14.1 Effectiveness. This Agreement shall become effective as of the Effective Date and the license rights granted by XT under Article 2 above shall be in full force and effect as of such date. 14.2 Term. Unless earlier terminated pursuant to the other provisions of this Article 14, this Agreement shall continue in full force and effect until the later of (i) the expiration of the last to expire patent within the Licensed Technology claiming Products; or (ii) the twentieth anniversary of the Effective Date. The licenses granted under Article 2 shall survive the expiration (but not an earlier termination) of this Agreement; provided that such licenses shall in such event become nonexclusive. 14.3 Termination for Breach. Either party to this Agreement may terminate this Agreement in the event the other party shall have materially breached or defaulted in the performance of any of its material obligations hereunder, and such shall have continued for sixty days after written notice thereof was provided to the breaching party by the nonbreaching party that terminates the Agreement as to such party. Any termination shall become effective at the end of such sixty day period unless the breaching party has cured any such breach or default prior to the expiration of the sixty day period. However, if the party alleged to be in breach of this Agreement disputes such breach within such sixty day period, the non-breaching party shall not have the right to terminate this Agreement unless it has been determined by an arbitration proceeding in accordance with Section 15.12 below that this Agreement was materially breached, and the breaching party fails to cure such breach within thirty days following the final decision of the arbitrators or such other time as directed by the arbitrators. 14.4 Other Termination Rights. Licensee may terminate this Agreement and the license granted herein, in its entirety or as to any particular patent within the Licensed Technology in a particular country, at any time, by providing XT ninety-days written notice. In the event of termination as to a particular country, the subject patent in such country shall cease to be within the Licensed Technology for all purposes of this Agreement. -15- 81 14.5 Effect of Termination. 14.5.1 Termination of this Agreement for any reason shall not release either 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. 14.5.2 In the event this Agreement is terminated for any reason, Licensee and its Affiliates and Sublicensees shall have the right to sell or otherwise dispose of the stock of any Products subject to this Agreement then on hand. Upon termination of this Agreement by XT for any reason, any sublicense granted by Licensee hereunder shall survive, provided that upon request by XT, such Sublicensee promptly agrees in writing to be bound by the applicable terms of this Agreement. 14.5.3 This Agreement, including, without limitation, any licenses or sublicenses granted pursuant to this Agreement, shall survive any dissolution, liquidation or acquisition of XT. Such licenses shall remain in full force and effect even after any distribution, following dissolution, of the intellectual property owned or licensed to XT, to any entity. Any transfer of such intellectual property prior to or following dissolution shall be subject to the licenses granted herein. 14.5.4 This Agreement, including the license granted in Article 2, is independent of, and shall not be affected by, any breach or termination of the Master Research License and Option Agreement or any other agreement between the parties or their Affiliates. In the event of the termination of the Master Research License and Option Agreement, the rights and obligations of the parties hereto under Article 12 thereof shall be deemed to be part of this Agreement. 14.5.5 Sections 6.3, 6.5, 6.6, 6.7 and 6.8 and Articles 11, 13, 14 and 15 shall survive the expiration and any termination of this Agreement for any reason. 15. MISCELLANEOUS. 15.1 Governing Laws. This Agreement shall be interpreted and construed in accordance with the laws of the State of California, without regard to conflicts of law principles. 15.2 Waiver. It is agreed that no waiver by any party hereto of any breach or default of any of the covenants or agreements herein set forth shall be deemed a waiver as to any subsequent and/or similar breach or default. 15.3 Assignment. This Agreement and the license granted hereunder may not be assigned by Licensee to any third party without the written consent of XT, and XT may not assign this Agreement to a third party without the consent of Licensee; except any party may assign this Agreement without such consent to (a) an Affiliate (provided that such Affiliate is two-thirds or greater owned directly or indirectly) or (b) an entity that acquires substantially all of the assets of the monoclonal antibody business segment of the assigning party. The terms and conditions of this -16- 82 Agreement shall be binding on and inure to the benefit of the permitted successors and assigns of the parties. 15.4 Independent Contractors. The relationship of the parties hereto is that of independent contractors. The parties hereto are not deemed to be agents, partners or joint venturers of the others for any purpose as a result of this Agreement or the transactions contemplated thereby. 15.5 Compliance with Laws. In exercising their rights under this license, 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 license. 15.6 No Implied Obligations. Except as expressly provided in Article 9 above, nothing in this Agreement shall be deemed to require Licensee to exploit the Licensed Technology nor to prevent Licensee from commercializing products similar to or competitive with any Products, in addition to or in lieu of such Products. 15.7 Notices. Any notice required or permitted to be given to the parties hereto shall be given in writing and shall be deemed to have been properly given if delivered in person or when received if mailed by first class certified mail to the other party at the appropriate address as set forth below or to such other addresses as may be designated in writing by the parties from time to time during the term of this Agreement. XT: Xenotech, L.P. 322 Lakeside Drive Foster City, California 94404 Attn: Chief Financial Officer Japan Tobacco Inc.: Japan Tobacco Inc. JT Building 2-1 Toranomon 2-chome Minato-ku, Tokyo 105 Japan Attn: Vice President Pharmaceutical Division with a copy to: JT America Inc. 1825 South Grant Street, Suite 220 San Mateo, CA 94402 Attn: President and to: Gilbert, Segall and Young LLP 430 Park Avenue New York, NY 10022 Attn: Neal N. Beaton, Esq. -17- 83 Abgenix, Inc.: Abgenix, Inc. 7601 Dumbarton Circle Fremont, California 94555 Attn: President with a copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304 Attn: Kenneth A. Clark, Esq. 15.8 Export Laws. Notwithstanding anything to the contrary contained herein, all obligations of XT and Licensee are subject to prior compliance with United States [and Japanese]** export regulations and such other United States [and Japanese]** laws and regulations as may be applicable, and to obtaining all necessary approvals required by the applicable agencies of the government of the United States [and Japan]**. Licensee shall use efforts consistent with prudent business judgment to obtain such approvals. XT shall cooperate with Licensee and shall provide assistance to Licensee as reasonably necessary to obtain any required approvals. 15.9 Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision and the parties shall discuss in good faith appropriate revised arrangements. 15.10 Force Majeure. Nonperformance of any party (except for payment obligations) shall be excused to the extent that performance is rendered impossible by strike, fire, earthquake, flood, governmental acts or orders or restrictions, failure of suppliers, or any other reason where failure to perform, is beyond the reasonable control and not caused by the negligence, intentional conduct or misconduct of the nonperforming party. 15.11 No Consequential Damages. IN NO EVENT SHALL ANY PARTY HERETO BE LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT OR THE EXERCISE OF RIGHTS HEREUNDER. 15.12 Dispute Resolution; Arbitration. The parties will attempt to resolve any dispute under this Agreement by mutual agreement, and, if required, there shall be a face-to-face meeting between senior executives of the parties. Any dispute under this Agreement which is not settled after such meeting, shall be finally settled by binding arbitration, conducted in accordance with the Rules of Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with said rules. The arbitration proceedings and all pleadings and written evidence shall be in the English language. 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 costs of the arbitration, including administrative and arbitrators' fees, shall be shared equally by the parties. Each party shall bear its own costs and attorneys' and witness' fees. The prevailing party in any arbitration, as determined by the arbitration panel, shall be entitled to an award against the -18- 84 other party in the amount of the prevailing party's costs and reasonable attorneys, fees. The arbitration shall be held in [San Francisco, California]* [Tokyo, Japan, if initiated by XT against Licensee and in San Francisco, California, if initiated by Licensee against XT]**. A disputed performance or suspended performances pending the resolution of the arbitration must be completed within thirty days following the final decision of the arbitrators. Any arbitration shall be completed within six months from the filing of notice of a request for such arbitration. 15.13 Complete Agreement. It is understood and agreed between XT and Licensee that this Agreement constitutes the entire agreement, both written and oral, between the parties with respect to the subject matter hereof, and that all prior agreements respecting the subject matter hereof, either written or oral, expressed or implied, shall be abrogated, canceled, and are null and void and of no effect. No amendment or change hereof or addition hereto shall be effective or binding on either of the parties hereto unless reduced to writing and executed by the respective duly authorized representatives of XT and Licensee. 15.14 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and both together shall be deemed to be one and the same agreement. 15.15 Headings. The captions to the several Articles and Sections hereof are not a part of this Agreement, but are included merely for convenience of reference only and shall not affect its meaning or interpretation. 15.16 Nondisclosure. Except as provided in Article 11, each of the parties hereto agrees not to disclose to any third party the terms of this Agreement without the prior written consent of each other party hereto, except to advisors, investors, licensees, sublicensees and others on a need to know basis under circumstances that reasonably ensure the confidentiality thereof, or to the extent required by law; provided, however, that the royalty rate specified in Section 4.1 of this executed Product License shall be redacted before the terms of this executed Product License are disclosed to potential licensees and sublicensees. Without limitation upon any provision of this Agreement, each of the parties hereto shall be responsible for the observance by its employees, consultants and contractors of the foregoing confidentiality obligations. 15.17 Conformity with GenPharm Cross-License. The rights and licenses granted to Licensee hereunder shall be subject to the GenPharm Cross License, and to the extent that this Agreement purports to grant greater rights to Licensee than is permitted under the GenPharm Cross License, such rights shall be granted only to the extent permitted under the GenPharm Cross License, and the terms of the GenPharm Cross License shall control. -19- 85 IN WITNESS WHEREOF, the parties have executed this Agreement, through their respective officers hereunto duly authorized, as of the day and year first above written. XENOTECH, INC. (as General LICENSEE Partner of XENOTECH, L.P.) By: By: ----------------------------------- ------------------------------------- Name: Name: --------------------------------- ----------------------------------- Title: Title: -------------------------------- ---------------------------------- Schedule 1: Patents [***] Technology" Schedule 2: Patents [***] Technology" Schedule 3: Payments Due to Third Parties Schedule 4: XT In-Licenses - ---------- * If ABX is Licensee. ** If JTI is Licensee. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -20- 86 RESTATED EXHIBIT D FORM OF CO-EXCLUSIVE WORLDWIDE PRODUCT LICENSE THIS PRODUCT LICENSE AGREEMENT (the "Agreement") effective the ____ day of ____________, _____, is made by and between XENOTECH, L.P., a California limited partnership ("XT"), and each of ABGENIX, INC., a Delaware corporation ("ABX") and JAPAN TOBACCO INC., a Japanese corporation ("JTI"). RECITALS A. XT desires to grant JTI an exclusive license in the JTI Territory under the Licensed Technology to commercialize Products, and JTI wishes to acquire such a license, on the terms and conditions herein. B. XT desires to grant ABX an exclusive license in the ABX Territory under the Licensed Technology to commercialize Products, and ABX wishes to acquire such a license, on the terms and conditions herein. C. XT desires to grant to JTI and ABX a co-exclusive license in the Rest of the World under the Licensed Technology to commercialize Products, and JTI and ABX wish to acquire such license, on the terms and conditions herein. NOW, THEREFORE, for and in consideration of the covenants, conditions, and undertakings hereinafter set forth, it is agreed by and between the parties as follows: 1. DEFINITIONS. For purposes of this Agreement, the terms set forth in this Article shall have the meanings set forth below. 1.1 "ABX" shall mean Abgenix, Inc. 1.2 "ABX Territory" shall mean the United States of America and its territories and possessions, Canada and Mexico. 1.3 "Affiliate" shall mean any entity which controls, is controlled by or is under common control with any one of ABX, JTI or XT. An entity shall be regarded as in control of another entity if it owns or controls at least fifty percent (50%) of the shares of the subject entity entitled to vote in the election of directors (or, in the case of an entity that is not a corporation, for the election of the corresponding managing authority); provided, however, XT shall not be an Affiliate of ABX or JTI under this Agreement and XT shall not be considered controlled by ABX or JTI for purposes of determining Affiliates of ABX or JTI. -1- 87 1.4 "Antibody" shall mean a composition comprising a whole antibody or a fragment thereof, said antibody or fragment having been derived from the Licensed Technology and/or generated from the Mice or the Future Generation Mice or having been derived from nucleotide sequences encoding, or amino acid sequences of, such an antibody or fragment. 1.5 "Antibody Product" shall mean any product comprising an Antibody or Genetic Material encoding an Antibody wherein, in respect of each Antibody Product, said Genetic Material does not encode multiple Antibodies. 1.6 "Antibody-Secreting Cell" shall mean a cell that secretes an Antibody, except where such cell is part of a mammal. 1.7 "[***] Technology" shall mean (i) all U.S. patent applications and patents listed on Schedule 1 and patents issuing on such patent applications owned by or licensed to XT which relate to the [***], in each case to the extent XT has the right to license or sublicense the same; (ii) any continuations, divisionals, reexaminations, reissues or extensions of any of (i) above; (iii) any foreign counterparts issued or issuing on any of (i) or (ii) above; and (iv) [***] as set forth in Schedule 1. 1.8 "CGI" shall mean Cell Genesys, Inc. 1.9 "Effective Date" shall mean the date this Agreement is executed by XT, CGI and JTI. 1.10 "Future Generation Mice" shall have the meaning defined in the Master Research License and Option Agreement, as amended. 1.11 "Genetic Material" shall mean a nucleotide sequence, including DNA, RNA, and complementary and reverse complementary nucleotide sequences thereto, whether coding or noncoding and whether intact or a fragment. 1.12 "GenPharm Cross License" shall mean that certain Cross License Agreement, effective as of March 26, 1997, entered into by and among the parties, GenPharm International, Inc. ("GenPharm") and the other parties named therein, as the same may be amended from time to time. 1.13 "IND" shall mean an Investigational New Drug Exemption for a Product, as defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder, or its non-U.S. equivalent. 1.14 "JTI" shall mean Japan Tobacco Inc. 1.15 "JTI Territory" shall mean Japan, Taiwan and South Korea (including the territory comprising North Korea if it should be reunited with South Korea). [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -2- 88 1.16 "License Fee" shall have the meaning set forth in Article 3 hereof. 1.17 "Licensed Field" shall mean [***]. 1.18 "Licensed Technology" shall mean the [***] Technology, the [***] Technology, and XT-Controlled Rights. 1.19 "Master Research License and Option Agreement" shall mean that certain Master Research License and Option Agreement entered into by CGI, JTI and XT as of June 28, 1996 (and subsequently assigned by CGI to ABX), as it may be amended. 1.20 "Mice" shall have the meaning defined in the Master Research License and Option Agreement, as amended. 1.21 "Net Sales" shall mean the [***] charged by ABX or JTI, as the case may be, or its Affiliates and Sublicensees for sales of Product to non-Affiliate customers, [***], with respect to such sales, and [***], as reflected in [***] of ABX or JTI and its Affiliates or Sublicensees, to the extent [***]. "Net Sales" for [***] shall mean [***], where [***] shall mean the [***]. Notwithstanding the foregoing, [***] shall include [***]. Notwithstanding the foregoing, "Net Sales" for [***] shall be [***]. 1.22 "Product" and "Products" shall mean one or more Antibody Products which incorporate (i) an Antibody which binds to the Product Antigen or (ii) Genetic Material encoding such an Antibody wherein said Genetic Material does not encode multiple antibodies. 1.23 "Product Antigen" shall mean ____________________. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -3- 89 1.24 "Rest of the World" shall mean all parts of the world not included in ABX Territory or the JTI Territory. 1.25 "Sublicensee" shall mean a third party that is not an Affiliate (provided, however, that CGI may be a Sublicensee of ABX, whether or not CGI is an Affiliate of ABX) to whom ABX or JTI, as the case may be, has granted a sublicense under the Licensed Technology to make, use and/or sell Products to the extent of the rights of ABX or JTI, as the case may be, therein. "Sublicensee" shall also include a third party to whom ABX or JTI has granted the right to distribute Products under the Licensed Technology to the extent of the rights of ABX or JTI, as the case may be, therein, provided that such third party is responsible for the marketing and promotion of Products within the applicable country. 1.26 "Territory" shall mean those countries of the world in which ABX or JTI, as the case may be, has exclusive or co-exclusive license rights pursuant to this Agreement. 1.27 "Transgenic Product" shall mean any product constituting (i) Mice or Future Generation Mice, (ii) Genetic Material from Mice or Future Generation Mice, or (iii) an Antibody-Secreting Cell. 1.28 "Universal Receptor Product" shall mean a substance that is developed utilizing [***] Universal Receptor Technology. 1.29 "Universal Receptor Technology" shall mean technology for universal receptors or [***]. As used herein: (i) "universal receptor" shall mean a receptor [***]. 1.30 "Valid Claim" shall mean a claim of a pending or issued, and unexpired patent included within the Licensed Technology, which has not been held unenforceable, unpatentable or invalid by a court or other governmental agency of competent jurisdiction, and which has not been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -4- 90 1.31 "[***] Technology" shall mean (i) all U.S. patent applications and patents listed on Schedule 2 and patents issuing on such applications; (ii) any continuations, divisionals, reexaminations, reissues or extensions of any of (i) above; (iii) any foreign counterparts issued or issuing on any of (i) or (ii) above; and (iv) the Mice (as such term is defined in the Master Research License and Option Agreement) and [***] as set forth on Schedule 2. 1.32 "XT-Controlled Rights" shall mean all rights to patents or technology that are licensed to XT pursuant to the agreements listed on Schedule 4 or any other license or similar agreement granting XT rights to patents or technology (each such agreement an "XT In-License"), to the extent that XT has the right under the terms of the applicable XT In-License to further license or sublicense such rights during the Term of this Agreement. 1.33 "XT In-License" shall have the meaning set forth in Section 1.32, above. 2. LICENSE GRANT; USE OF MICE BY THIRD PARTIES. 2.1 Grant to ABX. Subject to the terms and conditions of this Agreement, XT hereby grants to ABX an exclusive license or sublicense, as the case may be, under the Licensed Technology, to make and have made Products anywhere in the world and to use, sell, lease, offer to sell or lease, import, export, otherwise transfer physical possession of or otherwise transfer title to such Products in the ABX Territory in the Licensed Field. Such license or sublicense shall be exclusive even as to XT, and shall include the exclusive right to grant and authorize sublicenses for exploitation within the ABX Territory; provided, however, that ABX may not, under this license, grant sublicenses to any rights to the Mice except as provided in Section 2.4 of this Agreement. 2.2 Grant to JTI. Subject to the terms and conditions of this Agreement, XT hereby grants to JTI an exclusive license or sublicense, as the case may be, under the Licensed Technology, to make and have made Products anywhere in the world and to use, sell, lease, offer to sell or lease, import, export, otherwise transfer physical possession of or otherwise transfer title to such Products in the JTI Territory in the Licensed Field. Such license or sublicense shall be exclusive even as to XT, and shall include the exclusive right to grant and authorize sublicenses for exploitation within the JTI Territory; provided, however, that JTI may not, under this license, grant sublicenses to any rights to the Mice except as provided in Section 2.4 of this Agreement. 2.3 Rest of the World. Subject to the terms and conditions of this Agreement, XT hereby grants to each ABX and JTI a co-exclusive license or sublicense, as the case may be, under the Licensed Technology, to make and have made Products anywhere in the world and to use, sell, lease, offer to sell or lease, import, export, otherwise transfer physical possession of or otherwise transfer title to such Products in the Rest of the World in the Licensed Field. Such co-exclusive license or sublicense shall be co-exclusive even as to XT, and shall include the co-exclusive right to grant and authorize sublicenses for exploitation within the Rest of the World; provided, however, that ABX and JTI may not, under this license, grant sublicenses to any rights to the Mice except as provided in Section 2.4 of this Agreement. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -5- 91 2.4 In connection with the grant of a sublicense under this Agreement to a third party, and notwithstanding any provision to the contrary in the Master Research License and Option Agreement or any Material Transfer Agreement entered into between the parties under Sections 2.1, 2.2 or 2.3 of the Master Research License and Option Agreement, ABX or JTI, as the case may be, shall have the right to grant a sublicense to use Mice and Future Generation Mice transferred to the third party pursuant to the terms of Section 2.7 of the Master Research License and Option Agreement, and Transgenic Products other then Mice or Future Generation Mice, to research, develop, make, have made, use, import, export, sell, lease, offer to sell or lease or otherwise distribute or commercialize Products, with the proviso that the sublicense described in this Section 2.4 shall not exceed the Licensee's (ABX or JTI, as the case may be,) rights conferred in accordance with the Master Research License and Option Agreement or this Product License. 2.5 It is understood and agreed that, as to all XT-Controlled Rights, the grant of rights under this Article 2 shall be subject in all respects to the applicable XT In-License(s) pursuant to which such XT-Controlled Rights were granted to XT. 3. LICENSE FEE. ABX and JTI each shall pay to XT within thirty days of the Effective Date a license fee of [***]. 4. ROYALTIES. 4.1 Royalty Rates. In consideration for the license and rights granted herein, ABX and JTI each agree to pay to XT royalties of [***] of Net Sales of Products by it and its Affiliates and Sublicensees. 4.2 Royalty Offsets. In the event that (i) a Licensee (ABX or JTI, as the case may be), its Affiliate or Sublicensee is required to pay [***], or (ii) any reimbursement payments are due to XT pursuant to Section 5.1 below, then ABX or JTI, as the case may be, may deduct the aggregate of any such amounts from any royalty amount owing to XT for the sale of such Products pursuant to Section 4.1 above; provided, however, that payments from ABX or JTI, as the case may be, to a third party that is an Affiliate, or was an Affiliate at any time within two (2) years prior to the Effective Date, may not be offset under this Section 4.2. Notwithstanding the foregoing provisions of this Section 4.2, in no event shall the royalties due to XT pursuant to Section 4.1 above be so reduced to less than [***] of the amount that would otherwise be due to XT thereunder. [***]. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -6- 92 4.3 Single Royalty; Non-Royalty Sales. Only one royalty shall be payable with respect to any Product, regardless of how many claims or patents within the Licensed Technology cover such Product. In addition, no royalty shall be payable under this Article 4 with respect to sales of Products among ABX or JTI, as the case may be, and its Affiliates and/or Sublicensees and their Affiliates or for use in research and/or development or clinical trials. 4.4 No Patent Protection. Royalties shall be payable at the rates specified in Section 4.1 or 4.2 above only with respect to sales of Products that would infringe a Valid Claim in the country in which such Products are sold. In the event that such Products are not covered by a Valid Claim in such country, XT shall be paid a royalty on such sales in accordance with this Article 4, [***]. 4.5 Combination Products. In the event that a Product is sold in combination as a single product with another product or component, Net Sales from such combination sales for purposes of calculating the amounts due under this Article 4 shall be [***]. In the event that no such separate sales are made in the same quarter by ABX or JTI, as the case may be, Net Sales for royalty determination shall be [***]. 4.6 Termination of Royalties. Royalties under Section 4.1, 4.2, or 4.4 will be due until the later of (i) ten years from the first commercial sale of Products in any country or (ii) on a country-by-country basis, the expiration of the last-to-expire patent within the Licensed Technology covering the Products in such country. 5. THIRD PARTY ROYALTIES. 5.1 Royalties Payable by XT. XT will be responsible for the payment of any royalties, license fees and milestone and/or other payments due to third parties under licenses or similar agreements entered into by XT necessary to allow the manufacture, use or sale of Products. ABX and/or JTI, as the case may be, shall reimburse XT for any royalties paid by XT to third parties under licenses or similar agreements covering Products necessary to allow the manufacture, use or sale or other exploitation of Products in accordance with this Agreement. ABX and/or JTI shall continue any such reimbursement payments to XT until XT's obligation to pay royalties to a third party under any license covering Products expires or terminates. XT agrees not to enter into any license or similar agreement after the Effective Date which would obligate ABX and/or JTI, as the case may be, to make any payments under this Section 5.1 without the prior written consent of ABX and/or JTI, as the case may be.. 5.2 Royalties Payable by ABX or JTI. Xenotech shall have no responsibility under the terms of this Agreement for the payment of any royalties, license fees or milestone or other [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -7- 93 payments due to third parties under licenses or similar agreements entered into by ABX or JTI, as the case may be, its Affiliates, or its Sublicensees to allow the manufacture, use or sale of Products. 6. ACCOUNTING AND RECORDS. 6.1 Royalty Reports and Payments. After the first commercial sale of Products on which royalties are required, ABX or JTI each agrees to make quarterly written reports to XT within eighty days after the end of each calendar quarter, stating in each such report the number, description, and aggregate Net Sales of Products sold during the calendar quarter upon which a royalty is payable under Article 4 above. Concurrently with the making of such reports, ABX or JTI, as the case may be, shall pay to XT royalties at the applicable rate specified in Section 4.1, 4.2 or 4.4 above and all royalties payable pursuant to Section 5.1 above, and any adjustment to Net Sales for a prior period in accordance with the definition of Net Sales in Section 1.21 hereof. All payments to XT hereunder shall be made in U.S. Dollars to a bank account designated by XT. 6.2 Early Third Party License Payments. If XT is obligated to pay royalties to a third party prior to ninety days after the end of the calendar quarter, XT shall so notify ABX or JTI as the case may be, and such licensee shall provide the reports and payments set forth in Section 6.1 above not later than ten (10) days before the date such payments are due to the third party. Up to thirty-five days before such payments are due, XT may provide ABX or JTI with an invoice by facsimile setting forth the royalties XT must pay third parties with respect to such licensee's activities in its Territory in the preceding quarter, and such licensee shall pay such invoices within thirty days of receipt of such invoice. 6.3 Records; Inspection. ABX and JTI shall each keep (and cause its Affiliates and Sublicensees to keep) complete, true and accurate books of account and records for the purpose of determining the royalty amounts payable to XT under this Agreement. Such books and records shall be kept at the principal place of business of ABX and JTI or its Affiliates or Sublicensees, as the case may be, for at least three years following the end of the calendar quarter to which they pertain. Such records of each licensee or its Affiliates will be open for inspection during such three-year period by a representative of XT for the purpose of verifying the royalty statements. ABX and JTI shall each require each of its Sublicensees to maintain similar books and records and to open such records for inspection during the same three-year period by a representative of such licensee reasonably satisfactory to XT on behalf of, and as required by, XT for the purpose of verifying the royalty statements. All such inspections may be made no more than once each calendar year, at reasonable times mutually agreed by XT and the particular licensee. The XT representative will be obliged to execute a reasonable confidentiality agreement prior to commencing any such inspection. Inspections conducted under this Section 6.3 shall be at the expense of XT, unless a variation or error of ABX or JTI, as the case may be, producing an increase exceeding [***] of the amount stated for the period covered by the inspection is established in the course of any such inspection, whereupon all costs relating thereto will be paid by such licensee. Upon the expiration of three years following the end of any fiscal year, the calculation of royalties payable with respect to such year shall be binding and conclusive, and ABX and JTI, as the case may be, shall be released from any liability or accountability with respect to royalties for such year. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -8- 94 6.4 Currency Conversion. If any currency conversion shall be required in connection with the calculation of royalties hereunder, such conversion shall be made using the selling exchange rate for conversion of the foreign currency into U.S. Dollars, quoted for current transactions reported in The Wall Street Journal for the last business day of the calendar quarter to which such payment pertains. 6.5 Late Payments. Any payments due from Licensee 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 [***], calculated on the number of days such payment is delinquent. This Section 6.5 shall in no way limit any other remedies available to any party. 6.6 Withholding Taxes. 6.6.1 Unless immediately reimbursable under Section 6.6.2 below, all payments required to be made pursuant to Articles 3, 4 and 5 hereof shall be without deduction or withholding for or on account of any taxes (other than taxes imposed on or measured by net income) or similar governmental charge imposed by a jurisdiction. Such taxes are referred to herein as "Withholding Taxes" and such Withholding Taxes shall be the sole responsibility of the withholding party. The withholding party shall provide a certificate evidencing payment of any Withholding Taxes hereunder. 6.6.2 XT agrees to elect to claim a tax credit for Withholding Taxes with respect to which it is entitled so to elect, and further agrees not to amend such election for the full carry-forward period with respect to such credit. At the time that XT realizes a reduction in U.S. tax liability by actually utilizing the Withholding Taxes as a credit against regular U.S. tax liability (determined on a "first-in-first-out" basis pro rata with other available foreign tax credits), then the amount of such reduction attributable to such credit shall immediately be reimbursed to the withholding party. For these purposes, a reduction in U.S. tax liability shall include both a direct reduction in XT's own tax liability and a reduction in the U.S. tax liability of any of its partners. 6.7 Tax Indemnity. Except as provided in Section 6.6, each party (the "Tax Indemnitor") shall indemnify and hold harmless the other party hereto (each a "Tax Indemnitee") from and against any tax or similar governmental charge assessed solely because of this Agreement with respect to and directly attributable to the income or the assets of the Tax Indemnitor. In the event that any governmental agency shall make a claim against a party hereto which could give rise to an indemnity hereunder, such potential Tax Indemnitee shall give reasonably prompt notice to the potential Tax Indemnitor of the assertion of such claim. If the transmission of such notice is unreasonably deferred and has a material, adverse affect on the ability of the potential Tax Indemnitor to challenge such claim, such potential Tax Indemnitor shall be released from liability hereunder. The Tax Indemnitor alone shall (at its own expense) control the defense or compromise of any such claim. The Tax Indemnitee shall execute any documents required to enable Tax Indemnitor to defend such claim, provide any information necessary therefor, and cooperate with Tax Indemnitor in such defense. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -9- 95 6.8 XT Tax Indemnity. XT shall indemnify and hold harmless ABX and JTI and their Affiliates from and against any increase to their respective country of incorporation income tax liability directly attributable to a positive adjustment to the amount of gross receipts (an "Adjustment") reported or reportable by such party from the income, including the royalty income, received from ABX or JTI on Covered Products. The amount payable hereunder shall be equal to the difference between (a) the product of (i) the amount of the Adjustment, and (ii) the highest combined marginal corporate tax rate in their respective country of incorporation in effect for the taxable year for which such Adjustment is made, and (b) the reduction in the party's foreign tax liability, which for purposes of this Agreement shall be equal to the product of (i) the amount of any correlative adjustment to its foreign taxable income, and (ii) the highest combined marginal foreign corporate tax rate in effect for the taxable year for which the correlative adjustment is made. No indemnification payment shall be required hereunder until comprehensive efforts to obtain a correlative adjustment to ABX's or JTI's, as the case may be, or its Affiliates' taxable income in a foreign state (which may include, for example invoking competent authority provisions under the U.S. Japanese Income Tax Treaty (if applicable) or other applicable bilateral tax treaty) have, to the extent reasonable to do so, been exhausted. 7. RESEARCH AND DEVELOPMENT. 7.1 Funding and Conduct. ABX and JTI shall each independently furnish and be responsible for funding and conducting all of its preclinical and clinical research and development of Products, at its own expense. 8. SHARING OF CLINICAL DATA As long as their development projects remain on similar timelines, or as otherwise mutually agreed, ABX and JTI will consider bilateral sharing of their and their Sublicensees' relevant Product development information and clinical data. However, there shall not be, unless otherwise agreed upon by the parties, any obligation for sharing data developed independently, by or on behalf of either of them. 9. DUE DILIGENCE. 9.1 [***]. 9.1.1 ABX and JTI, as the case may be, agree to [***] as may be agreed upon by the parties [***] the Effective Date. 9.1.2 Notwithstanding the foregoing, each of ABX and JTI shall be [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -10- 96 [***]. After [***], shall each be [***] in the United States or Japan. 9.2 Failure to Meet Due Diligence Obligation. 9.2.1 If the diligence requirements set forth in Section 9.1 are not met by ABX (or its Affiliates or Sublicensees) in the United States or by JTI (or its Affiliates or Sublicensees) in Japan, such licensee's rights hereunder shall terminate upon written notice by XT to such licensee and subject to Sections 9.3, 9.4 and 14.3 below. 9.2.2 Notwithstanding Section 9.2.1, the license granted hereunder to ABX or JTI, as the case may be, shall not terminate by reason of a delay in meeting the [***] milestone set forth in Section 9.1.1, to the extent that prudent business judgment, based on circumstances outside of such licensee's reasonable control, reasonably justifies such delay. 9.3 Dispute Resolution. In the event that a dispute arises whether the diligence requirements in Article 9 have been met or circumstances exist which ABX or JTI, respectively, believes justifies a failure on its part to meet such obligation, the parties will attempt to resolve any dispute by mutual agreement and, if required, the Chief Executive Officer of ABX and the Vice President of the Pharmaceutical Division of JTI shall meet personally and negotiate in good faith to resolve such dispute during a period of thirty days following licensee's receipt of the notice under Section 9.2.1. 9.4 Arbitration. In the event that the parties are unable to resolve such dispute pursuant to Section 9.3 above, such dispute shall be settled between XT and the other party by binding arbitration as set forth in Section 15.12. If the arbitrator determines that the party acted in good faith, but failed to meet its obligations under Section 9.1 above, the license granted to such party shall not terminate unless the nonperforming party fails to cure such non-performance within a reasonable period of time, as determined by the arbitrator. 10. PATENTS. 10.1 [***] Technology. (a) XT or its licensor, as they may agree, shall have responsibility for preparing, filing, prosecuting and maintaining patents and patent applications worldwide relating to the [***] Technology and conducting any interferences, oppositions, reexaminations, or requesting reissues or patent term extensions with respect to the [***] Technology. XT shall keep ABX and JTI each reasonably informed as to the status of such patent matters in its Territory, including without limitation, by providing such licensee the opportunity to review and comment on any substantive documents which will be filed in any patent office, and providing such licensee copies of any substantive documents received by XT from such patent offices including [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -11- 97 notice of all interferences, reexaminations, oppositions or requests for patent term extensions. ABX and JTI shall cooperate with and assist XT in connection with such activities, at XT's request and expense. (b) In the event that either ABX or JTI, as the case may be, becomes aware that any [***] Technology necessary for the practice of the licenses granted herein is infringed or misappropriated by a third party or is subject to a declaratory judgment action arising from such infringement, such party shall promptly notify XT (and the other licensee) and XT shall thereafter promptly notify the owner of such intellectual property. XT or its licensor, as they may agree, shall have the exclusive right to enforce, or defend any declaratory judgment action, at its expense, involving any [***] Technology. In such event, XT shall keep ABX and/or JTI, as the case may be, reasonably informed of the progress of any such claim, suit or proceeding in its Territory. Any recovery received by XT as a result of any such claim, suit or proceeding shall be used first to reimburse XT for all expenses (including attorneys, and professional fees) incurred in connection with such claim, suit or proceeding, [***]. 10.2 [***] Technology. 10.2.1 XT shall have the initial worldwide responsibility for preparing, filing, prosecuting and maintaining patent applications and conducting any interferences, oppositions, reexaminations, or requesting reissues or patent term extensions with respect to [***] Technology. XT shall give ABX and JTI each the opportunity to review the status of all such pending patent applications and actions in its Territory and shall keep ABX and/or JTI, as the case may be, fully informed of the progress of such applications and actions, including, without limitation, by promptly providing ABX and/or JTI with copies of all substantive correspondence sent to and received from patent offices, and providing notice of all interferences, reexaminations, oppositions or requests for patent term extensions. [***]. If only either ABX or JTI should be a licensee under this Agreement, such expenses shall be equally divided between XT and such Licensee on a worldwide basis. In the event that XT declines or fails to prepare, file, prosecute or maintain such patent applications or patents or take such other actions, relating to the Products it shall promptly and in no event later than ninety days prior to any filing deadline, provide notice to ABX and JTI. ABX and JTI shall promptly discuss and agree on who should assume such responsibilities and how the expenses related thereto should be allocated. 10.2.2 In the event that a licensee becomes aware that any [***] Technology necessary for the practice of the license granted herein is infringed or misappropriated by a third party in any country in which ABX or JTI has rights hereunder, or is subject to a declaratory judgment action arising from such infringement in such country, ABX or JTI, as the case may be, shall promptly notify XT and XT shall thereafter promptly notify the owner of such intellectual property. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -12- 98 10.2.3 ABX or JTI, as the case may be, shall have the exclusive right to enforce, or defend any declaratory judgment action, in any country in which it has exclusive rights hereunder, at its expense, involving [***] Technology. In such event, the party involved in such claim , suit or proceeding, shall keep XT and the other of ABX or JTI reasonably informed of the progress of any such claim, suit or proceeding. Any recovery by such party received as a result of any such claim, suit or proceeding shall be used first to reimburse such party for all expenses (including attorneys, and professional fees) incurred in connection with such claim, suit or proceeding, and [***]. 10.2.4 ABX and JTI shall consult and agree whether, and if so, how, to enforce the [***] Technology in a country in which ABX and JTI have co-exclusive rights hereunder. However, [***] (except as otherwise provided below). The party taking such action shall keep XT and the other of ABX or JTI reasonably informed of the progress of any such claim, suit or proceeding. Any recovery by such party received as a result of any such claim, suit or proceeding shall be used first to reimburse such party for all expenses (including attorneys' and professional fees) incurred in connection with such claim, suit or proceeding, [***]. 10.3 Infringement Claims. If the production, sale or use of Products pursuant to this Agreement results in any claim, suit or proceeding alleging patent infringement against ABX or JTI (or their respective Affiliates or Sublicensees), ABX or JTI, as the case may be, shall promptly notify XT thereof in writing setting forth the facts of such claim in reasonable detail. [***], ABX or JTI, as the case may be, 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 choice. Such parties shall keep XT reasonably informed of all material developments in connection with any such claim, suit or proceeding as it relates to the Licensed Technology. The other of ABX or JTI may participate in the defense of any such claim, suit or proceeding at its own expense through counsel of its choice. ABX or JTI, as the case may be, [***] pursuant to this Agreement. Notwithstanding the above, neither ABX nor JTI shall be able to settle any such claim, suit or proceeding that impinges upon the rights of ABX or JTI, as the case may be, including, without limitation, involving any admission of the invalidity of the Licensed Technology or rights to Product Antigen outside its Territory without the prior approval of XT. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -13- 99 10.4 Patent Marking. ABX and JTI agree to mark and have its Affiliates and Sublicensees mark all Products sold pursuant to this Agreement in accordance with the applicable statutes or regulations in the country or countries of manufacture and sale thereof. 11. CONFIDENTIALITY. 11.1 Confidential Information. Except as expressly provided herein, the parties agree that, for the term of this Agreement and for five years thereafter, the receiving party shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose any information furnished to it by another party hereto pursuant to this Agreement except to the extent that it can be established by the receiving party by competent proof that such information: (a) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure; (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; or (d) was subsequently lawfully disclosed to the receiving party by a person other than a party or developed by the receiving party without reference to any information or materials disclosed by the disclosing party. 11.2 Permitted Disclosures. Notwithstanding Sections 11.1 above and 15.16 below, each party hereto may disclose another party's information to the extent such disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental regulations or otherwise submitting information to tax or other governmental authorities, making a permitted sublicense or other exercise of its rights hereunder or conducting clinical trials, provided that if a party is required to make any such disclosure of the other party's secret or confidential information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the latter party of such disclosure requirement and, save to the extent inappropriate in the case of patent applications, will use efforts consistent with prudent business judgment to secure confidential treatment of such information prior to its disclosure (whether through protective orders or otherwise). Notwithstanding the foregoing, XT shall not disclose to third parties, clinical data or regulatory filings received from ABX or JTI except as agreed in writing by such party. 12. SUBLICENSES. Pursuant to Article 2 herein, ABX and JTI shall each have the exclusive right in the ABX Territory and JTI Territory, respectively, and the co-exclusive right in the Rest of the World to -14- 100 grant and authorize sublicenses to third parties; provided, however, such party shall remain responsible for any payments due XT for Net Sales of Products by any Sublicensee. [***]. Any sublicense granted by ABX or JTI pursuant to this Agreement shall provide that the Sublicensee will be subject to the applicable terms of this Agreement. ABX or JTI, as the case may be, shall provide XT with a copy of relevant portions of each sublicense agreement, as reasonably required by XT. 13. REPRESENTATIONS AND WARRANTIES. 13.1 XT. XT represents and warrants that: (i) it has the full right and authority to enter into this Agreement and grant the rights and licenses granted herein; (ii) it has not previously granted and will not grant any rights inconsistent or in conflict with the rights and licenses granted to ABX and JTI herein; (iii) there are no existing or threatened actions, suits or claims pending against XT with respect to the Licensed Technology or the right of XT to enter into and perform its obligations under this Agreement; (iv) it has not previously granted, and will not grant during the term of this Agreement, any right, license or interest in and to the Licensed Technology, or any portion thereof, with respect to the Products, or their manufacture or use; (v) Schedule 3 hereto sets forth all royalties, license fees, milestone payments and similar payments due to third parties for which ABX and/or JTI is obligated to reimburse XT under Section 5.1 above as of the Effective Date; and (vi) the Licensed Technology is all the technology owned by or licensed to XT as of the Effective Date. 13.2 ABX and JTI. Each of ABX and JTI represents and warrants that: (i) it has the full right and authority to enter into this Agreement, (ii) to its knowledge, there are no existing or threatened actions, suits or claims pending with respect to the subject matter hereof or the right of it to enter into and perform its obligations under this Agreement; and (iii) it has not entered and during the term of this Agreement will not enter any other agreement inconsistent or in conflict with this Agreement. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -15- 101 13.3 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, XT MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF LICENSED TECHNOLOGY CLAIMS, ISSUED OR PENDING. 13.4 Effect of Representations and Warranties. It is understood that if the representations and warranties under this Article 13 are not true and accurate and a party incurs liabilities, costs or other expenses as a result of such falsity, the party at fault shall indemnify, defend and hold the injured party harmless from and against any such liabilities, costs or expenses incurred, provided that the party at fault receives prompt notice of any claim against the injured party resulting from or related to such falsity and the sole right to control the defense or settlement thereof. 14. TERM AND TERMINATION. 14.1 Effectiveness. This Agreement shall become effective as of the Effective Date and the license rights granted by XT under Article 2 above shall be in full force and effect as of such date. 14.2 Term. Unless earlier terminated pursuant to the other provisions of this Article 14, this Agreement shall continue in full force and effect until the later of (i) the expiration of the last to expire patent within the Licensed Technology claiming Products; or (ii) the twentieth anniversary of the Effective Date. The licenses granted under Article 2 shall survive the expiration (but not an earlier termination) of this Agreement; provided that such licenses shall in such event become nonexclusive. 14.3 Termination for Breach. Any party to this Agreement may terminate this Agreement as to another party hereto in the event such other party shall have materially breached or defaulted in the performance of any of its material obligations hereunder, and such shall have continued for sixty days after written notice thereof was provided to the breaching party by the nonbreaching party that terminates the Agreement as to such party. Any termination shall become effective at the end of such sixty day period unless the breaching party has cured any such breach or default prior to the expiration of the sixty day period. However, if the party alleged to be in breach of this Agreement disputes such breach within such sixty day period, the non-breaching party shall not have the right to terminate this Agreement unless it has been determined by an arbitration proceeding in accordance with Section 15.12 below that this Agreement was materially breached, and the breaching party fails to cure such breach within thirty days following the final decision of the arbitrators or such other time as directed by the arbitrators. -16- 102 14.4 Other Termination Rights. ABX or JTI may terminate this Agreement and the license granted to such party herein, in its entirety or as to any particular patent within the Licensed Technology in a particular country, at any time, by providing XT ninety-days written notice. In the event of termination as to a particular country, the subject patent in such country shall cease to be within the Licensed Technology for all purposes of this Agreement that apply to the terminating party. 14.5 Effect of Termination. 14.5.1 In the event that this Agreement (i) is terminated under Section 14.3 above, by reason of a breach by ABX or JTI, this Agreement shall terminate with respect to the breaching party only, and shall continue in effect with respect to XT and the non-breaching party; (ii) is terminated by ABX or JTI by reason of a breach by XT, this Agreement shall terminate as to XT and the terminating party, and shall continue in effect with respect to XT and the other of ABX and JTI; or (iii) is terminated by ABX or JTI under Section 14.4 above, this Agreement shall terminate with respect to the party exercising its right to terminate thereunder, and shall continue in effect in its entirety with respect to XT and the non-terminating party. In each case, the non-breaching or non- terminating licensee shall thereupon have the right to obtain an exclusive license or sublicense, as the case may be, under the Licensed Technology, to make and have made Product for use, sale or other distribution in the Licensed Field throughout the world, on the terms and conditions set forth herein that are applicable to it. 14.5.2 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. 14.5.3 In the event this Agreement is terminated with respect to ABX or JTI for any reason, such licensee and its Affiliates and Sublicensees shall have the right to sell or otherwise dispose of the stock of any Products subject to this Agreement then on hand. Upon termination of this Agreement by XT for any reason, any sublicense granted by a licensee hereunder shall survive, provided that upon request by XT, such Sublicensee promptly agrees in writing to be bound by the applicable terms of this Agreement. 14.5.4 This Agreement, including, without limitation, any licenses or sublicenses granted pursuant to this Agreement, shall survive any dissolution, liquidation or acquisition of XT. Such licenses shall remain in full force and effect even after any distribution, following dissolution, of the intellectual property owned or licensed to XT, to any entity. Any transfer of such intellectual property prior to or following dissolution shall be subject to the licenses granted herein. 14.5.5 This Agreement, including the licenses granted in Article 2, is independent of, and shall not be affected by, any breach or termination of the Master Research License and Option Agreement or any other agreement between the parties or their Affiliates. In the event of the termination of the Master Research License and Option Agreement, the rights and obligations of the parties hereto under Article 12 thereof shall be deemed to be part of this Agreement. -17- 103 14.5.6 Sections 6.3, 6.5, 6.6, 6.7 and 6.8 and Articles 11, 13, 14 and 15 shall survive the expiration and any termination of this Agreement for any reason. 15. MISCELLANEOUS. 15.1 Governing Laws. This Agreement shall be interpreted and construed in accordance with the laws of the State of California, without regard to conflicts of law principles. 15.2 Waiver. It is agreed that no waiver by any party hereto of any breach or default of any of the covenants or agreements herein set forth shall be deemed a waiver as to any subsequent and/or similar breach or default. 15.3 Assignment. This Agreement and the licenses granted hereunder may not be assigned by ABX or JTI to any third party without the written consent of XT, and XT may not assign this Agreement to a third party without the consent of both ABX and JTI; except any party may assign this Agreement without such consent to (a) an Affiliate (provided that such Affiliate is two-thirds or greater owned directly or indirectly) or (b) an entity that acquires substantially all of the assets of the monoclonal antibody business segment of the assigning party. The terms and conditions of this Agreement shall be binding on and inure to the benefit of the permitted successors and assigns of the parties. 15.4 Independent Contractors. The relationship of the parties hereto is that of independent contractors. The parties hereto are not deemed to be agents, partners or joint venturers of the others for any purpose as a result of this Agreement or the transactions contemplated thereby. 15.5 Compliance with Laws. In exercising their rights under this license, 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 license. 15.6 No Implied Obligations. Except as expressly provided in Article 9 above, nothing in this Agreement shall be deemed to require ABX or JTI to exploit the Licensed Technology nor to prevent ABX or JTI from commercializing products similar to or competitive with any Products, in addition to or in lieu of such Products. 15.7 Notices. Any notice required or permitted to be given to the parties hereto shall be given in writing and shall be deemed to have been properly given if delivered in person or when received if mailed by first class certified mail to the other party at the appropriate address as set forth below or to such other addresses as may be designated in writing by the parties from time to time during the term of this Agreement. XT: Xenotech, L.P. 322 Lakeside Drive Foster City, California 94404 Attn: Chief Financial Officer -18- 104 Japan Tobacco Inc.: Japan Tobacco Inc. JT Building 2-1 Toranomon 2-chome Minato-ku, Tokyo 105 Japan Attn: Vice President Pharmaceutical Division with a copy to: JT America Inc. 1825 South Grant Street, Suite 220 San Mateo, CA 94402 Attn: President and to: Gilbert, Segall and Young LLP 430 Park Avenue New York, NY 10022 Attn: Neal N. Beaton, Esq. Abgenix, Inc.: Abgenix, Inc. 7601 Dumbarton Circle Fremont, California 94555 Attn: President with a copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304 Attn: Kenneth A. Clark, Esq. 15.8 Export Laws. Notwithstanding anything to the contrary contained herein, all obligations of XT, ABX and JTI are subject to prior compliance with United States and Japanese export regulations and such other United States and Japanese laws and regulations as may be applicable, and to obtaining all necessary approvals required by the applicable agencies of the government of the United States and Japan. ABX and JTI each shall use efforts consistent with prudent business judgment to obtain such approvals. XT shall cooperate with ABX and JTI and shall provide assistance to them as reasonably necessary to obtain any required approvals. 15.9 Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision and the parties shall discuss in good faith appropriate revised arrangements. 15.10 Force Majeure. Nonperformance of any party (except for payment obligations) shall be excused to the extent that performance is rendered impossible by strike, fire, earthquake, flood, governmental acts or orders or restrictions, failure of suppliers, or any other -19- 105 reason where failure to perform, is beyond the reasonable control and not caused by the negligence, intentional conduct or misconduct of the nonperforming party. 15.11 No Consequential Damages. IN NO EVENT SHALL ANY PARTY HERETO BE LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT OR THE EXERCISE OF RIGHTS HEREUNDER. 15.12 Dispute Resolution; Arbitration. The parties will attempt to resolve any dispute under this Agreement by mutual agreement, and, if required, there shall be a face-to-face meeting between senior executives of the parties. Any dispute under this Agreement which is not settled after such meeting, shall be finally settled by binding arbitration, conducted in accordance with the Rules of Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with said rules. The arbitration proceedings and all pleadings and written evidence shall be in the English language. 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 costs of the arbitration, including administrative and arbitrators' fees, shall be shared equally by the parties. Each party shall bear its own costs and attorneys' and witness' fees. The prevailing party in any arbitration, as determined by the arbitration panel, shall be entitled to an award against the other party in the amount of the prevailing party's costs and reasonable attorneys, fees. The arbitration shall be held in San Francisco, California unless initiated by XT or ABX against JTI, in which event it will be held in Tokyo, Japan. A disputed performance or suspended performances pending the resolution of the arbitration must be completed within thirty days following the final decision of the arbitrators. Any arbitration shall be completed within six months from the filing of notice of a request for such arbitration. 15.13 Complete Agreement. It is understood and agreed by the parties that this Agreement constitutes the entire agreement, both written and oral, among the parties with respect to the subject matter hereof, and that all prior agreements respecting the subject matter hereof, either written or oral, expressed or implied, shall be abrogated, canceled, and are null and void and of no effect. No amendment or change hereof or addition hereto shall be effective or binding on either of the parties hereto unless reduced to writing and executed by the respective duly authorized representatives of XT, ABX and JTI. 15.14 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and both together shall be deemed to be one and the same agreement. 15.15 Headings. The captions to the several Articles and Sections hereof are not a part of this Agreement, but are included merely for convenience of reference only and shall not affect its meaning or interpretation. 15.16 Nondisclosure. Except as provided in Article 11, each of the parties hereto agrees not to disclose to any third party the terms of this Agreement without the prior written consent of each other party hereto, except to advisors, investors, licensees, sublicensees and others on a need -20- 106 to know basis under circumstances that reasonably ensure the confidentiality thereof, or to the extent required by law; provided, however, that the royalty rate specified in Section 4.1 of this executed Product License shall be redacted before the terms of this executed Product License are disclosed to potential licensees and sublicensees. Without limitation upon any provision of this Agreement, each of the parties hereto shall be responsible for the observance by its employees, consultants and contractors of the foregoing confidentiality obligations. 15.17 Conformity with GenPharm Cross-License. The rights and licenses granted to Licensee hereunder shall be subject to the GenPharm Cross License, and to the extent that this Agreement purports to grant greater rights to Licensee than is permitted under the GenPharm Cross License, such rights shall be granted only to the extent permitted under the GenPharm Cross License, and the terms of the GenPharm Cross License shall control. IN WITNESS WHEREOF, the parties have executed this Agreement in triplicate originals, through their respective officers hereunto duly authorized, as of the day and year first above written. JAPAN TOBACCO INC. ABGENIX, INC. By: By: ---------------------------------- ------------------------------------- Name: Name: -------------------------------- ----------------------------------- Title: Title: ------------------------------- ---------------------------------- XENOTECH, INC. (as General Partner of XENOTECH, L.P.) By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- Schedule 1: Patents [***] Technology" Schedule 2: Patents [***] Technology" Schedule 3: Payments Due to Third Parties Schedule 4: XT In-Licenses [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -21- 107 EXHIBIT H XENOTECH CONTROLLED RIGHTS [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. EX-10.14 4 STOCK PURCHASE AND TRANSFER-AGREEMENT 1 EXHIBIT 10.14 CONFIDENTIAL TREATMENT REQUESTED BY ABGENIX, INC. STOCK PURCHASE and TRANSFER-AGREEMENT THIS AGREEMENT is made and entered into this 15th day of July, 1996, by and between CELL GENESYS, INC. ("CG") and ABGENIX, INC. ("ABGENIX") . CG is engaged, among other activities, in the Antibody Business as defined in Article 1. CG's Board of Directors has determined that CG will (a) transfer to ABGENIX the assets of the Antibody Business and other specified assets and liabilities related to the Antibody Business as set forth herein, (b) provide $10,000,000 in cash to ABGENIX to fund its operations, (c) cause ABGENIX to issue to CG shares of ABGENIX's Series A Senior and Series 1 Subordinated Convertible Preferred Stock as set forth in Article 2, and (d) lend ABGENIX up to $4,000,000 in exchange for a convertible promissory note. The parties hereto have determined that it is necessary and desirable to set forth in this Agreement and in the Transaction Agreements (as defined in Section 3(h)) the principal corporate transactions determined by CG and ABGENIX to be appropriate to effect the transfer of the Antibody Business to ABGENIX and to set forth other agreements and undertakings by and between CG and ABGENIX. Simultaneously with the execution of this Stock Purchase and Transfer Agreement, CG and ABGENIX are entering into the Transaction Agreements. 2 NOW, THEREFORE, in consideration of the promises and the mutual representations, warranties, covenants and agreements, and upon the terms and subject to the conditions hereinafter set forth, the parties do hereby agree as follows: 1. Definitions. "Antibody Business" shall mean the discovery, research, development, manufacturing, marketing and use for any purpose of all products that contain antibodies (excluding any Universal Receptor Product and any Gene Therapy Product), from any source, and the discovery, creation, development and use of transgenic mouse strains that make antibodies containing human variable regions. "ABGENIX Biological Materials" shall mean, without limitation, all cell lines, hybridomas, antibodies, YACs, vectors, mice and all other materials that relate to the Antibody Business as set forth on Exhibit A-1 hereto (which such Exhibit shall be updated and completed by mutual agreement of the parties no later than September 15, 1996). "CG Biological Materials" shall mean, without limitation, the materials as set forth on Exhibit A-2 hereto (which such Exhibit shall be updated and completed by mutual agreement of the parties no later than September 15, 1996). "Closing" shall have the meaning given in Section 5.1. "Collaboration Agreement" shall mean the Collaboration Agreement among CG, JT Immunotech USA Inc. and Xenotech, L.P. effective June 12, 1991, as amended. "Gene Therapy Product" shall mean a product based on the transfer or use of DNA, RNA, or hybrids thereof to treat or -2- 3 prevent disease by means of ex vivo or in vivo gene delivery, including without limitation the use of both viral and non-viral gene transfer systems. "Joint Biological Materials" shall mean, without limitation, the materials as set forth on Exhibit A-3 hereto (which such Exhibit shall be updated and completed by mutual agreement of the parties no later than September 15, 1996). "Know-How" shall mean, without limitation, all methods, prototypes, techniques, processes, technical and other information, unpatented inventions, trade secrets, concepts, ideas, data, experimental methods and results, sequences, assays, descriptions, protocols, business or scientific plans, correspondence, competitor information, depictions, supplier lists and any other information that relates to or is useful in the Antibody Business. "MRLOA" shall mean the Master Research License and Option Agreement effective June 28, 1996, by and among CG, Japan Tobacco Inc., and Xenotech, L.P. "Patent Rights" shall mean (i) all U.S. patents and patent applications listed on Exhibit B hereto and patents issuing on such applications; (ii) any continuations, continuations-in-part, divisionals, reexaminations, reissues or extensions of any of (i) above and (iii) any foreign counterparts issued or issuing on any of (i) or (ii) above. "Note" shall mean the Convertible Promissory Note in the form of Exhibit I. "Preferred Stock" shall have the meaning given in Section 2.1. -3- 4 "Transaction Agreements" shall mean the Services Agreement, the Immunization Services Agreement, the Governance Agreement, the Tax Sharing Agreement, the Gene Therapy Rights Agreement, the Voting Agreement, the Note, and the Patent Assignment Agreement, each by and between CG and ABGENIX and of even date herewith, attached hereto respectively, as Exhibits C, D, E, F, G, H, I and J. "Universal Receptor Product" shall have the meaning set forth in the MRLOA. 2. Purchase and Sale of Shares of Preferred Stock; Loan. 2.1 Subject to the terms and conditions hereof and in reliance upon the representations, warranties, covenants and agreements hereinafter set forth, ABGENIX shall issue and sell to CG, and CG shall subscribe for and purchase from ABGENIX 1,691,667 shares of Series A Senior Convertible Preferred Stock and 2,058,333 shares of Series 1 Subordinated Convertible Preferred Stock of ABGENIX (collectively, the "Preferred Stock"), having the designations, powers, preferences and voting, conversion and other special rights and qualifications, limitations and restrictions set forth in Exhibit K hereto for the consideration specified in Section 5 hereof. 2.2 Subject to the terms and conditions hereof, CG agrees to make a loan to ABGENIX in the principal amount of up to $4,000,000 in exchange for which ABGENIX will execute the Note. -4- 5 3. Representations and Warranties of ABGENIX. ABGENIX represents and warrants to CG that: (a) Organization, Good Standing, Power, Etc. ABGENIX (i) is a corporation duly incorporated; validly existing and in good standing under the laws of Delaware; (ii) has not yet commenced to do business in any other jurisdiction; and (iii) has all requisite corporate power and authority to (x) own or lease and operate its properties and carry on its business as presently being conducted and (y) execute, deliver and perform this Agreement and consummate the transactions contemplated hereby. (b) Articles of Incorporation and By-Laws. ABGENIX's Certificate of Incorporation and By-Laws, copies of which are attached hereto as Exhibits L and M, are in full force and effect and ABGENIX is not in violation of any of the provisions thereof. (c) Capitalization. The authorized capital stock of ABGENIX consists as of the date hereof of 20,000,000 shares of Preferred Stock, par value $0.0001 per share, of which on the date hereof no shares are issued and outstanding, and 50,000,000 shares of Common Stock, par value $0.0001 per share, of which on the date hereof, no shares are issued and outstanding. (d) Outstanding Rights to Purchase Securities. ABGENIX does not have outstanding any options, warrants, or other rights to purchase or to convert any security or obligation into, any shares of its capital stock, nor has ABGENIX agreed to issue or sell any shares of its capital stock; however, ABGENIX has committed to adopt a stock plan covering 1,600,000 shares of its Common Stock for grants of stock options and restricted stock to employees, consultants and directors. -5- 6 (e) Valid Issuance. The Preferred Stock, when issued, paid for and delivered as contemplated by this Agreement, will be validly issued and fully paid. (f) Authorization of Agreement. This Agreement and the Transaction Agreements have been duly and validly authorized, executed and delivered by ABGENIX (and assuming due authorization, execution and delivery by CG) constitute valid and binding obligations of ABGENIX. (g) Effect of Agreement, Etc. The execution, delivery and performance of this Agreement and consummation of the transactions contemplated hereby in the manner contemplated herein will not, to the reasonable best knowledge of ABGENIX, violate any material provisions of law, statute, rule or regulation to which ABGENIX is subject. (h) Government Consents. To the reasonable best knowledge of ABGENIX, no consent; authorization, license, permit, registration or approval of, or exemption or other action by, any governmental or public body or authority except the Commissioner of Corporations of the State of California is required in connection with (i) the execution, delivery, and performance by ABGENIX of this Agreement; (ii) the issuance, sale and delivery of the Preferred Stock; and (iii) the execution, delivery and performance in substantially the forms attached hereto of the Transaction Agreements. 4. Representations and Warranties of CG. CG represents and warrants to ABGENIX that: (a) Organization, Good Standing, Power, Etc. CG (i) is a corporation duly incorporated, validly existing and in -6- 7 good standing under the laws of the State of Delaware; (ii) is duly qualified to do business and is in good standing in each United States jurisdiction in which failure to do so would have a material adverse effect on its business; and (iii) has all requisite power and authority to (x) own or lease and operate its properties and carry on its business as presently being conducted and (y) execute, deliver and perform this Agreement and consummate the transactions contemplated hereby and thereby. (b) Authorization of Agreements. This Agreement and the Transaction Agreements have been duly and validly authorized, executed and delivered by CG and (and assuming due authorization, execution and delivery by ABGENIX) constitute the valid and binding obligations of CG; (c) Government Consents. To the reasonable best knowledge of CG; no consent, authorization, license, permit, registration or approval of, or exemption or other action by, any governmental or public body or authority except the Commissioner of Corporations of the State of California is required in connection with (i) the execution, delivery and performance by CG of this Agreement and (ii) the execution, delivery and performance of the Transaction Agreements. (d) Effect of Agreements, Etc. The execution, delivery and performance of this Agreement, and the Transaction Agreements and consummation of the transactions contemplated hereby and thereby in the manner contemplated herein and therein will not, with or without the giving of notice or the lapse of time or both, to the reasonable best knowledge of CG (i) violate any material provisions of law, statute, rule or regulation to -7- 8 which CG is subject; (ii) violate any judgment, order, writ, injunction or decree of any court applicable to CG; or (iii) result in the breach of, or conflict with any material term, covenant, condition or provision of, require the modification or termination of, constitute a default under, or result in the creation or imposition of any material lien, pledge, mortgage, claim, charge or any encumbrance whatsoever upon any of the properties or assets of CG pursuant to any corporate charter, by-law, commitment, contract or other agreement or instrument to which CG is a party or by which any of its assets or properties is or may be bound or affected or from which CG derives material benefit. (e) Investment Purposes. It is acquiring the Preferred Stock and Note for its account as principal, for investment purposes only, and not with a view to, or for, resale, distribution or fractionalization thereof, in whole or in part, and no other person has a direct or indirect beneficial interest in the Preferred Stock or Note. (f) Private Placement. It acknowledges that the offering and sale of the Preferred Stock and the Note are intended to be exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), by virtue of Section 4(2) of the Securities Act and the provisions of Regulation D promulgated thereunder. (g) Accredited Investor. It is capable of evaluating the merits and risks of its investment in ABGENIX and has the capacity to protect its own interests. -8- 9 5. Closing; Purchase Price. 5.1 Subject to the terms and conditions of this Agreement, the issuance and sale of the Preferred Stock and consummation of the other transactions contemplated hereby (the "Closing") shall take place at 3:0O P.M, on July 19, 1996 or such other time or date as the parties may agree at the offices of CG at 322 Lakeside Drive, Foster City, California. 5.2 Subject to the terms and condition of this Agreement, ABGENIX will deliver to CG at the Closing: 5.2.1 Certificates for the shares of Preferred Stock registered in the name of CG against payment therefor as set forth in Section 5.3 hereof; 5.2.2 duly executed copies of the Transaction Agreements; and 5.2.3 the Note; provided that if at the Closing a permit has not been received from the California Department of Corporations for issuance of the Note, the parties shall use good faith efforts to obtain such permit and the Note shall be delivered upon its receipt. 5.3 Subject to the terms and conditions of this Agreement, CG will: 5.3.1 In exchange for the shares of Series A Senior Convertible Preferred Stock, (a) deliver or transfer to the account of ABGENIX the sum of $10 million in readily available funds and (b) assign the employee notes in the aggregate principal amount of $150,000 listed on Exhibit N hereto; -9- 10 5.3.2 In exchange for the shares of Series 1 Subordinated Preferred Stock, assign to ABGENIX all of its right, title and interest in and to the assets of the Antibody Business including but not limited to (a) the Patent Rights, (b) all Know-How that relates exclusively to the Antibody Business and all Know-How as defined in the Collaboration Agreement (c) the ABGENIX Biological Materials, (d) the equipment, furniture and fixtures leased by CG and used in the Antibody Business as listed on Exhibit O hereto (which such Exhibit shall be updated and completed by mutual agreement of the parties no later than September 15, 1996), subject to the assumption by ABGENIX of the remaining lease obligations for such capital equipment, (e) existing agreements that relate to the Antibody Business including but not limited to the agreements listed on Exhibit P hereto (which such Exhibit shall be updated and completed by mutual agreement of the parties no later than September 15, 1996), subject to the assumption by ABGENIX of and its agreement to perform any obligation thereunder and the indemnification agreement of ABGENIX as set forth in Section 8.3, (f) CG's partnership interest in Xenotech, L.P., (g) all shares of capital stock owned by CG in Xenotech, Inc., and (h) the Mice or rights to the Mice as such term is defined in the MRLOA; 5.3.3 Grant to ABGENIX as further consideration (and CG hereby makes such grant effective at the Closing) a worldwide, royalty-free, fully paid up, perpetual, irrevocable license, with the right to sublicense, to use the Joint Biological Materials and to practice any Know-How owned or controlled by CG that relates both to the Antibody Business and -10- 11 to other businesses of CG, and to make, have made, sell or otherwise distribute products incorporating the Joint Biological Materials and such Know-How, which license shall be for use solely in the Antibody Business and the Expanded Field (as such term is defined in the Collaboration Agreement), and which shall be exclusive within such field of use; 5.3.4 Grant to ABGENIX as further consideration (and CG hereby makes such grant effective at the Closing) a worldwide, royalty-free, fully paid up, perpetual, irrevocable license, with the right to sublicense, to use the CG Biological Materials, and to make, have made, sell or otherwise distribute products incorporating the CG Biological Materials, which license shall be for use solely in the Antibody Business, and which shall be exclusive within such field of use; 5.3.5 Grant to ABGENIX as further consideration (And CG hereby makes such grant effective at the Closing) a nonexclusive, worldwide, royalty-free, fully paid up, perpetual, irrevocable license, with the right to sublicense, to practice any Know-How and to use any reagents and other materials owned or controlled by CG that may be unrelated to the Antibody Business, and to make, have made, sell or otherwise distribute products incorporating such Know-How and materials, to the extent required to practice the Patent Rights and the Know-How assigned to ABGENIX pursuant to Section 5.3.2 or licensed under Sections 5.3.3 or 5.3.4; 5.3.6 Deliver to ABGENIX duly executed copies of the Transaction Agreements. -11- 12 5.4 Subject to the terms and conditions of this Agreement, ABGENIX will grant to CG (and ABGENIX hereby makes such grant effective at the Closing), a worldwide, royalty-free, fully paid up, perpetual, irrevocable license, with the right to sublicense, under Patent Rights arising under patent docket number Cell 22 (as set forth on Exhibit B), to make, have made, use, sell or otherwise distribute products covered by such patent outside of the Antibody Business, which license shall be exclusive in such field of use except for any rights of JT Immunotech USA Inc., in the Expanded Field. 5.5 Notwithstanding the provisions of Section 5.3.2, no agreement shall be assigned hereunder if such assignment would constitute a breach thereof. If any agreement set forth above cannot be assigned by CG to ABGENIX because, despite its reasonable best efforts, CG is unable to secure the required consent of a third party to such assignment, CG, if intellectual property is involved, will grant to ABGENIX an exclusive, worldwide, royalty-free license with right of sublicense to the applicable intellectual property rights to the extent it is legally permitted to do so and subject to ABGENIX's agreement to be bound by and perform all the obligations of CG under any such agreement. 6. Registration Rights; Legend. 6.1 Registration Rights. 6.1.1 Request for Registration. (a) If ABGENIX shall receive, at any time after six months following the initial public offering of Common Stock of ABGENIX (other than pursuant to a registration statement -12- 13 relating either to the sale of securities to employees of ABGENIX pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145 transaction), a written request from CG, that ABGENIX file an underwritten registration statement under the Securities Act covering the registration of at least five percent of the Registrable Securities held by CG (a "Demand Registration"), ABGENIX shall, subject to the limitations set forth below, as soon as practicable, use its reasonable best efforts to effect such registration under the Securities Act. "Registrable Securities" shall mean all Common Stock of ABGENIX issued or issuable upon conversion of the Series A Senior Convertible Preferred Stock, Series 1 Subordinated Convertible Preferred Stock and the Note, including Common Stock issued pursuant to stock splits, stock dividends and similar distributions with respect to such shares. (b) The underwriter shall be selected by CG but shall be reasonably acceptable to ABGENIX. CG (together with ABGENIX) shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. (c) In addition, ABGENIX shall not be obligated to effect, or to take any action to effect, any registration: (1) Within 90 days after the effective date of any registration statement effected by ABGENIX, whether for its own Account or for the account of others; or (2) On Form S-1 (or any comparable or successor form to such form) after ABGENIX has effected one -13- 14 Demand Registration and such registration has been declared or ordered effective. CG shall nevertheless have the continuing right to additional registrations on Form S-3 (or any comparable successor form to such form) even though it has already had an effective Demand Registration so long as the gross proceeds of the offering are expected to be at least $500,000. Registrations on Form S-3 need not be underwritten. (d) ABGENIX shall use its reasonable best efforts to register and qualify the securities covered by any such registration statement under such other securities or Blue Sky laws of such jurisdictions in the United States as shall be reasonably requested by CG; provided that ABGENIX shall not be required in connection therewith or as a condition thereto to qualify to-do business or to file a general consent to services of process in any such states or jurisdictions, unless ABGENIX is already subject to service in such jurisdiction and except as may be required by the Securities Act. (e) ABGENIX shall cause all such securities registered pursuant to any such registration to be listed on each U.S. securities exchange or quotation system on which similar securities issued by ABGENIX are then listed. 6.1.2 Piggyback Registration. (a) In the event ABGENIX decides to register any of its Common Stock (either for its own account or the account of a security holder or holders exercising their respective demand registration rights) on a form that would be suitable for a registration involving solely Common Stock held by CG, ABGENIX will promptly give CG written notice thereof (which -14- 15 shall include a list of the jurisdictions in which ABGENIX intends to attempt to qualify such securities under the applicable Blue Sky or other state securities laws). Upon the written request of CG delivered to ABGENIX within 14 days after delivery of such written notice from ABGENIX, ABGENIX shall, subject to the limitations set forth below, include in such registration, all Registrable Securities (as defined above) that CG has requested to be so registered. (b) If the registration of which ABGENIX gives notice is for a registered public offering involving an underwriting, ABGENIX shall so advise CG as a part of the written notice given pursuant to Section 6.1.2(a) above. In such event the right of CG to registration shall be conditioned upon such underwriting and the inclusion of the Registrable Securities in such underwriting to the extent provided in this section. CG shall (together with ABGENIX and the other holders distributing their securities through such underwriting) enter into an underwriting agreement with the underwriter's representative for such offering. CG shall have no right to participate in the selection of the underwriters for an offering pursuant to this section. (c) In the event the underwriter's representative advises CG in writing that market factors (including, without limitation, the aggregate number of shares of Common Stock requested to be registered, the general condition of the market, and the status of the persons proposing to sell securities pursuant to the registration require a limitation of -15- 16 the number of shares to be underwritten, the underwriter's representative may: (1) in the case of ABGENIX's initial public offering, exclude some or all Registrable Securities from such registration and underwriting; and (2) in the case of any registered public offering subsequent to ABGENIX's initial public offering, limit the number of shares of Registrable Securities to be included in such registration and underwriting; provided, however, that the total number of shares of Registrable Securities CG to be included in such registration shall not be less than one-third of the total number of shares included in such registration. In such event, the underwriter's representative shall so advise CG and the number of shares of Registrable Securities that may be included in the registration and underwriting (if any) shall be allocated (consistent with the preceding sentence) as follows: among CG and holders of other securities requesting and legally entitled to include shares of Common Stock in such registrations, in proportion, as nearly as practicable, to the respective amounts of securities (including Registrable Securities) requesting and entitled to inclusion in such registration held by CG and such other holders at the time of filing of the registration statement. No Registrable Securities or other securities excluded from the underwriting by reason of this section shall be included in such registration statement. (3) If CG disapproves of the terms of any such underwriting, CG may elect to withdraw therefrom by -16- 17 written notice to ABGENIX and the underwriter delivered at least seven days prior to the effective date of the registration statement. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. (d) In the event of any registration of Registrable Securities pursuant to this Section 6.1.2, ABGENIX will exercise its best efforts to register and qualify the securities covered by the registration statement under such other securities or Blue Sky laws of such jurisdictions as CG shall reasonably request and as shall be reasonably appropriate for the distribution of such securities; provided, however, that ABGENIX shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 6.1.3 Expenses. All expenses incurred by ABGENIX in complying with Section 6 of this Agreement (including, without limitation, all federal and state registration, qualification, and filing fees, printing expenses, fees and disbursements of counsel for ABGENIX and one special counsel for CG (if different from counsel for ABGENIX), blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration) shall be borne by ABGENIX; provided, nonetheless, that all such expenses incurred in connection with any registration that is solely for the benefit of CG shall be paid by CG. Notwithstanding the above, ABGENIX shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 6 if the registration request is subsequently -17- 18 withdrawn at the request of CG; provided, however, that if at the time of such withdrawal, CG shall have learned of a material adverse event with respect to the condition, business, or prospects of ABGENIX not known to CG at the time of its request, then ABGENIX shall be required to pay such expenses. All underwriting discounts and selling commissions applicable to the sale of Registrable Securities pursuant to this Agreement shall be borne by the holders of the securities registered pro rata on the basis of the number of shares registered. 6.1.4 Indemnification. (a) To the extent permitted by law, ABGENIX will indemnify CG, each of its officers, directors and each person controlling CG, and each underwriter, if any, and each person who controls any underwriter against all claims, losses, damages or liabilities (or actions in respect thereof) to the extent such claims, losses, damages or liabilities arise out of or are based upon any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus or other document (including any related Registration Statement) incident to any such registration, qualification or compliance, or are based on any omission (or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by ABGENIX of the Securities Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), or any state securities law, or any rule or regulation promulgated under the Securities Act, the 1934 Act or any state securities law, applicable to ABGENIX and relating to action or inaction required -18- 19 of ABGENIX in connection with any such registration, qualification or compliance; and ABGENIX will reimburse CG, each of its officers, directors, and legal counsel, each such underwriter, and each person who controls CG or such underwriter, for any legal and any other expenses reasonably incurred, as incurred, in connection with investigating or defending any such claim, loss, damage, liability or action; provided, however, that the indemnity contained in this section shall not apply to amounts paid in settlement of any such claim, loss, damage, liability or action if settlement is effected without the consent of ABGENIX (which consent shall not unreasonably be withheld); and provided, further, that ABGENIX will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based upon any untrue statement or omission based upon written information furnished to ABGENIX by CG, its officers, directors, or legal counsel, underwriter, or controlling person and stated to be specifically for use in connection with the offering of securities of ABGENIX. (b) To the extent permitted by law, CG will, if Registrable Securities are included in the securities as to which such registration, qualification or compliance is being effected pursuant to this Agreement, indemnify ABGENIX, each of its directors and officers, each underwriter, if any, of ABGENIX's securities covered by such a registration statement, each person who controls ABGENIX or such underwriter within the meaning of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based upon any untrue statement (or alleged untrue -19- 20 statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document (including any related registration statement) incident to any such registration, qualification or compliance, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by CG of the Securities Act, the 1934 Act or any state securities law, or any rule or regulation promulgated under the Securities Act, the 1934 Act or any state securities law, applicable to CG and relating to action or inaction required of CG in connection with any such registration, qualification or compliance; and will reimburse ABGENIX, such directors, officers, partners, persons, law and accounting firms, underwriters or control persons for any legal and any other expenses reasonably incurred, as incurred, in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to ABGENIX by CG and stated to be specifically for use in connection with the offering of securities of ABGENIX, provided, however, that CG's liability under this section shall not exceed CG's proceeds from the offering of securities made in connection with such registration; and provided, further, that the indemnity contained in this section shall not apply to amounts paid in settlement of any such claim, loss, damage, -20- 21 liability or action if settlement is effected without the consent of CG (which consent shall not unreasonably be withheld). (c) Promptly after receipt by an indemnified party under this section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this section, notify the indemnifying party in writing of the commencement thereof and generally summarize such action. The indemnifying party shall have the right to participate in and to assume the defense of such claim, jointly with any other indemnifying party similarly noticed; provided, however, that the indemnifying party shall be entitled to select counsel for the defense of such claim with the approval of any parties entitled to indemnification, which approval shall not be unreasonably withheld; provided further, however, that if either party reasonably determines that there may be a conflict between the position of ABGENIX and CG in conducting the defense of such action, suit or proceeding by reason of recognized claims for indemnity under this section, then counsel for such party shall be entitled to conduct the defense to the extent reasonably determined by such counsel to be necessary to protect the interest of such party. The failure to notify an indemnifying party promptly of the commencement of any such action, if prejudicial to the ability of the indemnifying party to defend such action, shall relieve such indemnifying party, to the extent so prejudiced, of any liability to the indemnified party under this section, but the omission so to notify the indemnifying party will not relieve such party of any liability that such -21- 22 party may have to any indemnified party otherwise other than under this Section 6.1.4. 6.1.5 Limitations on Registration Rights Granted to Other Security Holders. ABGENIX shall not enter into any; agreement with any holder or prospective holder of any securities of ABGENIX providing for the granting to such holder of any registration rights, except that, with the consent of ABGENIX, additional holders of ABGENIX securities may be granted registration rights on a pari passu basis with CG with regard to any or all securities of ABGENIX held by them. 6.1.6 Transfer of Rights. The registration rights granted by ABGENIX to CG under this Agreement may be assigned to a transferee or assignee of at least 250,000 shares of Common Stock, Series A Senior Convertible Preferred Stock or Series 1 Subordinated Convertible Preferred Stock of ABGENIX held by CG, including shares issued pursuant to stock splits, stock dividends and similar distributions with respect to such shares, other than shares that are sold to the public; provided that (a) ABGENIX is given written notice of such transfer or assignment, stating the name and address of the transferee or assignee and identifying the securities with respect to which such registration rights are being assigned, and (b) the transferee or assignee of such rights is not a person deemed by the Board of Directors of ABGENIX, in its best judgment, to be a competitor of ABGENIX. 6.2 Legend. Each certificate representing (i) the Preferred Stock and (ii) any other securities issued in respect of the Preferred Stock or upon any stock split, stock dividend, -22- 23 recapitalization, merger, conversion, consolidation or similar event relating to the Preferred Stock, shall be stamped or otherwise imprinted with a legend in the following form (in addition to any legend or legends required under applicable state securities laws): "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT." 7. Inventions. It is contemplated that the parties may continue to share facilities for a period of six months after the Closing, and possibly longer by mutual agreement. During such time employees of CG and ABGENIX may continue to exchange ideas and concepts. Accordingly, the parties agree that: (a) Any inventions made solely by CG employees shall be the property of CG and any inventions made solely by employees of ABGENIX shall be the property of ABGENIX, and the respective owner shall be responsible for filing, prosecuting, maintaining, enforcing and defending any patent applications or issued patents with respect thereto. (b) Any inventions made jointly by employees of CG and employees of ABGENIX shall be jointly owned by the parties, and the parties shall mutually agree on how to share the responsibility and expense of filing, prosecuting, maintaining, -23- 24 enforcing and defending any patent applications or issued patents with respect thereto. (c) Notwithstanding the foregoing, CG hereby agrees to grant to ABGENIX an exclusive, worldwide, royalty-free license with right to sublicense to practice in the Antibody Business CG's rights to any such jointly-owned invention, whether or not patented, that is made during the period that the parties jointly share facilities under the Services Agreement and for six months thereafter, and ABGENIX hereby agrees to grant to CG an exclusive, worldwide, royalty-free license with right of sublicense to practice outside the Antibody Business ABGENIX's rights to any such jointly owned invention, whether or not patented, that is made during the period of joint sharing of facilities under the Services Agreement and for six months thereafter. 8. Certain Particular Agreements of CG and ABGENIX. 8.1 Except as expressly provided herein, ABGENIX and CG agree that thereafter, the receiving party shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose any information furnished to it by the other party pursuant to this Agreement (including, without limitation, know-how), except to the extent that it can be established by the receiving party by competent proof that such information: (a) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure; provided, however, that this exception shall not -24- 25 apply to information assigned or licensed exclusively by it to the other hereunder; (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) was subsequently lawfully disclosed to the receiving party by a person other than the disclosing party; or (e) was developed by the receiving party without reference to any information or materials disclosed by the disclosing party. Notwithstanding the foregoing, a party hereto may nevertheless disclose the other party's information to the extent such disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental regulations or otherwise submitting information to tax or other governmental authorities, making a permitted sublicense or other exercise of its rights hereunder or conducting clinical trials, provided that if a party is required to make any such disclosure of another party's secret or confidential information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the other party of such disclosure requirement and, save to the extent inappropriate in the case of patent applications, will use efforts consistent with prudent business judgment to secure -25- 26 confidential treatment of such information prior to its disclosure (whether through protective orders or confidentiality agreements or otherwise). 8.2 Effective at the Closing, ABGENIX assumes and agrees to discharge when due all obligations of the Business, including without limitation all obligations of CG under the agreements, contracts and other obligations transferred under this Agreement. In addition, effective at the Closing, ABGENIX agrees to assume liability for the accrued vacation time of those CG employees transferred to ABGENIX. 8.3 To the extent permitted by law, ABGENIX shall indemnify CG, each of its officers, directors, agents, and each person controlling CG, if any, against all claims, losses, damages or liabilities (or actions in respect thereof) to the extent such claims, losses, damages or liabilities arise out of or are based upon (a) the breach or alleged breach by ABGENIX of any agreement, contract or other obligation transferred to ABGENIX under this Agreement, (b) claims relating to products manufactured and/or sold by or through ABGENIX, (c) claims made by persons who immediately prior to the Closing were employees of CG and who immediately after the Closing become employees of ABGENIX, and (d) operation of the Business after the Closing; and ABGENIX agrees to reimburse each indemnified person for any legal and other expenses reasonably incurred, as incurred, in connection with investigating or defending any such claim, loss, damage, liability or action; provided, that the indemnity contained in this section shall not apply to amounts paid in settlement of any such claim, loss, damage, liability or action -26- 27 if settlement is effected without the consent of ABGENIX (which consent shall not unreasonably be withheld); and provided, further, that the indemnity contained in this section shall not apply to any amounts covered by CG's insurance. 8.4 Right of First Refusal. (a) ABGENIX hereby grants to CG the right of first refusal to purchase up to its Pro Rata Share of New Securities (as defined below) which ABGENIX may, from time to time, propose to sell and issue so long as CG's Pro Rata Share is at least fifty percent. CG may purchase said New Securities on the same terms and at the same price at which ABGENIX proposes to sell the New Securities. The "Pro Rata Share" of CG for purposes of this right of first refusal, is the ratio of (i) the total number of shares of Common Stock held by CG (including any shares of Common Stock into which shares of any convertible securities held by CG are convertible) to (ii) the total number of shares of Common Stock and Common Stock options outstanding immediately prior to the issuance of the New Securities (including any shares of Common Stock into which outstanding shares of convertible securities are convertible). (b) "New Securities" shall mean any capital stock of ABGENIX, whether authorized or not, and any rights, options, or warrants to purchase said capital stock, and securities of any type whatsoever that are, or may become, convertible into said capital stock; provided that "New Securities" does not include (i) convertible securities issued by ABGENIX in the first private financing concluded within one year after the date of this Agreement; (ii) securities offered pursuant to a registration -27- 28 statement filed under the Securities Act; (iii) securities issued pursuant to the acquisition of another corporation by ABGENIX by merger, purchase of substantially all of the assets, or other reorganization, if approved by ABGENIX's Board of Directors; (iv) shares issued or issuable to employees pursuant to a plan or arrangement approved by ABGENIX's Board of Directors (except to the extent that such shares would cause an adjustment to the conversion rate of any of ABGENIX's convertible securities); (v) shares issued without consideration pursuant to a stock dividend, stock split, or similar transaction; and (vi) warrants, and shares issuable upon exercise of such warrants, issued in connection with equipment leasing or facility financing transactions approved by ABGENIX's Board of Directors. (c) In the event ABGENIX proposes to undertake an issuance of New Securities, it shall give CG written notice (the "Notice") of its intention, describing the type of New Securities, the price, the terms upon which ABGENIX proposes to issue the same the number of shares which CG is entitled to purchase, and a statement that CG shall have 20 days to respond to such Notice. CG shall have 20 days from the date of receipt of the Notice to agree to purchase any or all of its Pro Rata Share of the New Securities for the price and upon the terms specified in the Notice by giving written notice to ABGENIX and stating therein the quantity of New Securities to be purchased and forwarding payment for such New Securities to the Company if immediate payment is required by such terms. (d) In the event that CG fails to exercise in full the right of first refusal within said 20 day period, ABGENIX shall -28- 29 have 90 days thereafter to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall, be closed, if at all, within 60 days from date of said agreement) to sell the New Securities respecting which CG's rights were not exercised, at a price and upon general terms no more favorable to the purchaser thereof than specified in the Notice. In the event ABGENIX has not sold the New Securities within said 90 day period (or sold and issued New Securities in accordance with the foregoing within 60 days from the date of said agreement), ABGENIX shall not thereafter issue or sell any New Securities without first offering such securities to CG in the manner provided above. (e) The right of first refusal granted under this Section 8.4 shall expire upon: (i) The effective date of a Registration Statement filed by ABGENIX in connection with a bona fide firm commitment underwritten public offering of ABGENIX's Common Stock; or (ii) The registration of ABGENIX's Common Stock under the 1934 Act. (f) The right of first refusal granted under this Section 8.3 is assignable by CG to any transferee of a minimum of 250,000 shares of Common Stock (including any shares of Common Stock into which shares of convertible securities then held by it are convertible). 8.5 Notwithstanding any other provisions of this Agreement, neither party shall be required to take any action hereunder if such action would constitute a breach of any -29- 30 contract to which it is a party, including without limitation the MRLOA. 9. GenPharm Litigation. ABGENIX agrees to cooperate with CG in connection with the pending litigation between CG and GenPharm International, Inc., styled as Cell Genesys, Inc. v. GenPharm International, Inc. and Related Cross-Action (Santa Clara Superior Court Case No. CV 738041) and GenPharm International, Inc. v. Japan Tobacco, Inc., et al. (N. Dist. California Federal District Court Case No. C 96-0487 CW) (collectively the "GenPharm Litigation"). Without limiting the foregoing, ABGENIX shall (a) identify, designate and make ABGENIX employees and consultants available to serve as witnesses to testify on behalf of CG for corporate depositions; (b) assist litigation counsel to comply with CG's discovery obligations, including, without limitation, responding to written discovery requests; and (c) perform such other ministerial and administrative functions that may be necessary and appropriate to ensure that the GenPharm Litigation is prosecuted and/or defended as efficiently as possible to obtain results most favorable to CG under the circumstances. All out-of-pocket expenses (i.e., expenses paid to third parties, other than compensation paid to ABGENIX employees) incurred by ABGENIX in the performance of the foregoing obligations shall be paid or reimbursed by CG and CG shall be solely responsible for the payment of any settlement, judgment and costs incurred in the GenPharm litigation. -30- 31 10. Miscellaneous. 10.1 Entire Agreement. This Agreement, together with the Transaction Agreements, constitutes the entire understanding of the parties with respect to the matters provided for herein and supersedes any previous agreements and understanding between the parties with respect to the subject matter hereof and thereof. No amendment, modification or alteration of the terms or provisions of this Agreement shall be binding unless the same shall be in writing and duly executed by the party against whom such amendment, modification or alteration is asserted. 10.2 Assignment. Except as set forth in Sections 6 and 8.3(d), neither party shall delegate duties of performance or in whole or in part, rights or obligations under this without the prior written consent of the other party, except either party may assign this Agreement without such consent to an entity that acquires all or substantially all of the assets or business of such party, whether by sale, merger or otherwise. The terms and conditions of this Agreement shall be binding on and inure to benefit of the permitted successors and Assigns of the parties. 10.3 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument. 10.4 Headings. The headings of this Agreement are included for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. -31- 32 10.5 Modifications and Waivers. Any of the terms or conditions of this Agreement may be waived in writing at any time by the party which is entitled to the benefits thereof. No waiver of any of the provisions of this Agreement shall be deemed to or shall constitute a waiver of any other provisions hereof (whether or not similar) or of the same provision in respect of a subsequent event. 10.6 Notices. All notices required or permitted to be given under this Agreement shall be in writing and shall be sent by facsimile transmission or mailed by registered or certified mail addressed to the party to whom such notice is required or permitted to be given. All notices shall be deemed to have been given when transmitted if given by facsimile and confirmation of receipt is received or, if mailed, forty-eight hours after mailed as evidenced by the postmark at the point of mailing. All notices to CG shall be addressed as follows: Cell Genesys, Inc. 322 Lakeside Drive Foster City, CA 94404 Attention: President Facsimile: (415) 358-9316 All notices to ABGENIX shall be addressed as follows: Abgenix, Inc. 324 Lakeside Drive Foster City, CA 94404 Attention: President Facsimile: (415) 358-0318 Either party may, by written notice to the other, designate a new address or number to which notices to the party giving the notice shall thereafter be mailed or sent. 10.7 Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of -32- 33 California applicable to agreements made and to be performed in such jurisdiction. 10.8 Further Action. At any time or from time to time after the date hereof, either party shall, at the request of the other party and at such other party's expense, execute and deliver any further instruments or documents and take all such further action as such party reasonably may request in order to consummate and make effective the transaction contemplated by this Agreement. 10.9 Severability. If any provisions hereof shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such provision shall be thereafter amended by the parties hereto such that it is thereafter legal, valid and enforceable and gives effect to the intention of the parties, but in any event the illegality or unenforceability of such provision shall have no effect upon and shall not impair the enforceability of any other provision of this Agreement. 10.10 No Third-Party Beneficiaries. The provisions of this Agreement are for the sole benefit of the parties of this Agreement and are not for the benefit of any third party. 10.11 Disputes. If disagreement should arise between the parties with respect to any provision of this Agreement or the Transaction Agreements, the parties will use reasonable efforts to resolve such dispute through mediation. If the parties are unable to do so within 60 days, either party may submit the matter to binding arbitration before a panel of three arbitrators in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Any such arbitration -33- 34 shall be completed within 180 days following the date a party submits such matter to arbitration. No punitive damages may be awarded in any such arbitration, and enforcement of any award may be made by any court having jurisdiction over the parties. IN WITNESS WHEREOF, the undersigned have caused this Stock Purchase and Transfer Agreement to be executed as of the date first above written. CELL GENESYS, INC. By: /s/ Stephen A. Sherwin ------------------------------------- Stephen A. Sherwin President and Chief Executive Officer ABGENIX, Inc. By: /s/ R. Scott Greer ------------------------------------- R. Scott Greer President and Chief Executive Officer -34- 35 Exhibit List EXHIBIT A-1 ABGENIX Biological Materials EXHIBIT A-2 CG Biological Materials EXHIBIT A-3 Joint Biological Materials EXHIBIT B Patents and Patent Applications EXHIBIT C Services Agreement EXHIBIT D Immunization Services Agreement EXHIBIT E Governance Agreement EXHIBIT F Tax Sharing Agreement EXHIBIT G Gene Therapy Rights Agreement EXHIBIT H Voting Agreement EXHIBIT I Convertible Promissory Note EXHIBIT J Patent Assignment Agreement EXHIBIT K Certificate of Designations EXHIBIT L Certificate of Incorporation EXHIBIT M Bylaws EXHIBIT N Employee Notes EXHIBIT 0 Equipment, Furniture and Fixtures EXHIBIT P Antibody Business Agreements
-35- 36 Exhibit A-1 ABGENIX Biological Materials [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 37 Exhibit A-1 ABGENIX Biological Materials (CONTINUED) [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 38 Exhibit A-1 ABGENIX Biological Materials (CONTINUED) [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 39 Exhibit A-1 ABGENIX Biological Materials (CONTINUED) [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 40 Exhibit A-2 CG Biological Materials [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 41 Exhibit A-3 Joint Biological Materials [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 42 Exhibit B DOCKET NO. FILING DATE SERIAL NO. TITLE INVENTORS [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 43 Exhibit B (CONTINUED) DOCKET NO. FILING DATE SERIAL NO. TITLE INVENTORS [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 44 EXHIBIT C SERVICES AGREEMENT This Services Agreement is made as of the 15th day of July, 1996, between CELL GENESYS, INC. ("CG") and ABGENIX, INC. ("ABGENIX"). R E C I T A L S The parties desire that CG provide certain services to ABGENIX, and CG is willing to provide such services on the terms and conditions set forth herein. NOW, THEREFORE, the parties agree as follows: 1. Administrative Services. During the term of this Agreement, CG shall provide to ABGENIX the administrative services ("Administrative Services") and the facilities set forth in Schedule 1 attached hereto. CG shall be required to provide the Administrative Services only to the extent and only at the locations such services are currently being provided by CG for its Antibody Business, as such term is defined in the Stock Purchase and Transfer Agreement between ABGENIX and CG effective as of July 15, 1996 (the "Business") immediately prior to the date of formation of ABGENIX and transfer to it by CG of the Business. 2. Development Services. During the term of this Agreement, CG shall provide to ABGENIX the development services set forth in Schedule 1 attached hereto ("Development Services"). The Development Services shall 45 be available to ABGENIX only for purposes of conducting the Business and shall not be used by ABGENIX for any other purpose. 3. Performance of Services. A. CG shall not be obligated to acquire new or additional assets, or hire new or additional employees, to perform the Administrative Services and Development Services (collectively, the "Services"). In addition, CG may contract with one or more third parties for the performance of all or any part of the Services provided (i) the costs to ABGENIX for the services to be provided by the third party do not exceed the amounts that would have been charged by CG, (ii) the level of service provided by the third party is at least substantially equivalent to that provided by CG hereunder, and (iii) such third party is reasonably acceptable to ABGENIX. It is currently contemplated that the Services will generally continue to be provided by the entity (whether such entity be CG or a third party) that is providing such Services as of the date hereof. ABGENIX agrees that all third parties currently providing any Services are acceptable third parties to provide such Services. B. Each party shall provide to the other party on a timely basis any and all information which is necessary for CG to provide the Services as set forth herein. Neither party shall have any right to obtain any confidential or proprietary information of the other party as the result of the Services provided hereunder, and any such information so obtained shall be treated in accordance with Section 9. -2- 46 4. Performance and Limitation of Services. A. CG shall provide the Services at a comparable level to that provided for its internal operations. In addition, CG shall be required to provide the Services only as reasonably appropriate to conduct the Business and shall not be required to provide a level of service which is materially higher than that currently provided by CG for its internal operations or as contemplated by CG's operating budget. B. CG shall not be required to perform any Administrative Services, to the extent such services would result in the breach of any software license or other applicable contract by which it is bound. If CG believes it is unable to provide any Services pursuant to the foregoing, CG shall promptly notify ABGENIX. If requested by ABGENIX, CG shall use reasonable efforts to obtain the rights necessary to provide such Services, including obtaining any appropriate consents from third parties. ABGENIX shall be responsible for all additional costs and expenses incurred by CG in order to allow CG to provide such Services. If any Services are not provided by CG pursuant to this Section 4(B), ABGENIX shall not be responsible for the price (as set forth in Section 5) applicable to such Services which are not provided. C. CG shall not be required to provide any Services to the extent the performance of such Services becomes impracticable as a result of a cause or causes outside CG's reasonable control or to the extent the performance of such Services would require it to violate any applicable laws, rules or regulations. -3- 47 D. ABGENIX shall have continued access to the premises where the Business is presently being conducted, and CG shall continue to provide administration and utility support for the premises (i.e., telephone, utilities, housekeeping, etc.) as set forth on Schedule 1. Nothing herein is intended to give ABGENIX exclusive access to any of the premises or any part of the premises, except as expressly provided in Schedule 1. E. CG MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AND CG SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE SERVICES TO BE PROVIDED HEREUNDER. 5. Price. A. ABGENIX shall pay to CG, as the price for the Services performed and facilities provided by CG pursuant to this Agreement, the amounts set forth in Schedule 1 hereto. Schedule 1 shall be subject to adjustment semi-annually by mutual agreement, no later than September 30 for the six months beginning January 1 and no later than March 31 for the six months beginning July 1. B. CG shall submit to ABGENIX a quarterly invoice on the first day of each calendar quarter for reimbursement for the Services to be performed by CG during such quarter under this Agreement, in accordance with Schedule 1, as it may be amended from time to time. The invoice shall be payable on the last day of the calendar quarter. As long as ABGENIX is eligible to draw on the Convertible Promissory Note in the maximum principal amount of $4,000,000 dated July 15, 1996 held by CG (the "Note"), ABGENIX shall be deemed to have drawn the amount of the invoice -4- 48 as of the last day of the calendar quarter. At such time as ABGENIX is no longer eligible to draw on the Note, invoices shall be payable in cash. C. In addition, CG shall submit to ABGENIX a monthly invoice on the fifth business day of each month for reimbursement for any payments made to third parties on behalf of ABGENIX in the prior month. The invoice shall be payable upon receipt in cash. D. An interest charge of 1% per month shall be payable for all amounts payable to CG under Section 5.C more than 10 days overdue. In the event that ABGENIX, in good faith, questions any invoiced item, such amount shall be payable immediately after the satisfactory resolution of such item. 6. Term. A. Unless terminated earlier as provided in this Section 6, this Agreement shall terminate on the later of December 31, 1996 or the date on which ABGENIX and CG no longer share facilities (the "Termination Date"). The Termination Date shall be automatically extended for successive six-month periods unless written notice of termination is given by the terminating party to the other party at least ninety days in advance of the next Termination Date. B. This Agreement may be terminated upon thirty days' notice by the mutual consent of the parties. C. Either party may terminate this Agreement if the other party is in material default under this Agreement and fails to correct such default within thirty days after receiving written notice of such default. -5- 49 7. Indemnification. A. ABGENIX shall indemnify and hold harmless CG, its affiliates, and their officers, directors, employees, and agents from and against all claims, liabilities, obligations, suits, causes of action, or expenses (including reasonable attorneys fees) (collectively "Claims") claimed to have resulted, directly or indirectly, from or in connection with the performance of the Services or in the provision of facilities; provided, however, that ABGENIX shall not be required to indemnify or hold harmless CG to the extent the Claims are caused by the negligence or willful misconduct of CG. B. CG shall indemnify and hold harmless ABGENIX, its affiliates, and their officers, directors, employees, and agents from and against all Claims claimed to have resulted, directly or indirectly, from or in connection with the performance of the Services or in the provision of facilities; provided, however, that CG shall not be required to indemnify or hold harmless ABGENIX to the extent the Claims are caused by the negligence or willful misconduct of ABGENIX. C. An indemnitee shall provide written notice to the indemnifying party of any Claims with respect to which it seeks indemnification, and the indemnifying party shall assume the defense of such Claims with counsel reasonably satisfactory to the indemnitee. If such defense is assumed by the indemnifying party with counsel so selected, the indemnifying party will not be subject to any liability for any settlement of such claim made by an indemnified party without the indemnifying party's consent (such consent not to be unreasonably withheld or delayed). No -6- 50 indemnified party will be subject to any liability for any settlement of such Claims made by the indemnifying party without such party's consent (such consent not to be unreasonably withheld or delayed), and such settlement shall include an unconditional release of all indemnitees from all liability on such claims. If an indemnified party desires to retain separate counsel, such indemnified party shall have the right to do so, but the indemnifying party will not be obligated to pay the fees and expenses of such separate counsel. The parties hereto agree to cooperate fully with each other in connection with the defense, negotiation or settlement of any legal proceeding, claim or demand and to engage in no actin that would result in or increase liability on the part of another party. D. Claims reimbursable hereunder shall not include any losses or expenses covered by the indemnitee's insurance. E. The provisions of this Section 7 shall survive termination of the Agreement. 8. Confidentiality A. Except as expressly provided herein, ABGENIX and CG agree that, for the term of this Agreement and for five eyars thereafter, the receiving party shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose any information furnished to it by the other party pursuant to this Agreement (including, without limitation, know-how), except to the extent that it can be established by the receiving party by competent proof that such information: -7- 51 (i) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure; provided, however, that this exception shall not apply to information assigned or licensed exclusively by the receiving party to the other party pursuant to the Stock Purchase and Transfer Agreement between ABGENIX and CG effective as of July 15, 1996; (ii) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving party; (iii) 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; (iv) was subsequently lawfully disclosed to the receiving party by a person other than the disclosing party; or (v) was developed by the receiving party without reference to any information or materials disclosed by the disclosing party. B. Notwithstanding the foregoing, a party hereto may nevertheless disclose the other party's information to the extent such disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental regulations or otherwise submitting information to tax or other governmental authorities, making a permitted sublicense or other exercise of its rights hereunder or conducting clinical trials, provided that if a party is required to make any such disclosure of another party's secret -8- 52 or confidential information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the other party such disclosure requirement and, save to the extent inappropriate in the case of patent applications, will use efforts consistent with prudent business judgment to secure confidential treatment of such information prior to its disclosure (whether through protective orders or confidentiality agreements or otherwise). 9. Miscellaneous. A. Notices. All notices required or permitted to be given under this Agreement shall be in writing and shall be sent by facsimile transmission or mailed by registered or certified mail addressed to the party to whom such notice is required or permitted to be given. All notices shall be deemed to have been given when transmitted if given by facsimile and confirmation of receipt is received or, if mailed, forty-eight hours after mailed as evidenced by the postmark at the point of mailing. All notices to CG shall be addressed as follows: Cell Genesys, Inc. 322 Lakeside Drive Foster City, CA 94404 Attention: President Facsimile: (415) 358-9316 All notices to ABGENIX shall be addressed as follows: Abgenix, Inc. 324 Lakeside Drive Foster City, CA 94404 Attention: President Facsimile: (415) 358-0318 Either party may, by written notice to the other, designate a new address or number to which notices to the party giving the notice shall thereafter be mailed or sent. -9- 53 B. Force Majeure. CG shall not be liable for any delay or failure of performance to the extent such delay or failure is caused by circumstances beyond its reasonable control and that by the exercise of due diligence it is unable to prevent, provided that CG uses its reasonable best efforts to overcome the same. C. LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR INDIRECT, CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST PROFITS, ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF SUCH DAMAGES. NOTHING IN THIS SECTION 9(C) IS INTENDED TO LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATION OF EITHER PARTY. D. Entire Agreement. This Agreement constitutes the entire understanding of the parties with respect to the matters provided for herein and supersedes any previous agreements and understanding between the parties with respect to the subject matter hereof and thereof. No amendment, modification or alteration of the terms or provisions of this Agreement shall be binding unless the same shall be in writing and duly executed by the party against whom such amendment, modification or alteration is asserted. E. Modifications and Waivers. Any of the terms or conditions of this Agreement may be waived in writing at any time by the party which is entitled to the benefits thereof. No waiver of any of the provisions of this Agreement shall be deemed to or shall constitute a waiver of any other provisions hereof -10- 54 (whether or not similar) or of the same provision in respect of a subsequent event. F. Disclaimer of Agency. This Agreement shall not constitute either party the legal representative or agent of the other, nor shall either party have the right or authority to assume, create, or incur any third-party liability or obligation of any kind, express or implied, against or in the name of or on behalf of the other party except as expressly set forth in this Agreement. The relationship of CG and ABGENIX shall be solely that of contracting parties and no partnership, joint venture or other arrangement of any nature shall be deemed to be created hereby. G. Severability. If any provisions hereof shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such provision shall be thereafter amended by the parties hereto such that it is thereafter legal, valid and enforceable and gives effect to the intention of the parties, but in any event the illegality or unenforceability of such provision shall have no effect upon and shall not impair the enforceability of any other provision of this Agreement. H. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of California applicable to agreements made and to be performed in such jurisdiction. I. Assignment. Except as provided in Section 4, neither CG nor ABGENIX shall delegate duties of performance or assign, in whole or in part, rights or obligations under this Agreement without the prior written consent of the other party, -11- 55 except that either may assign this Agreement without such consent to an entity that acquires all or substantially all of the assets or business of such party, whether by sale, merger or otherwise. The terms and conditions of this Agreement shall be binding on and inure to the benefit of the permitted successors and assigns of the parties. J. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument. K. Headings. The headings of this Agreement are included for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. This Services Agreement is executed by the parties as of the date indicated above. CELL GENESYS, INC. ABGENIX, INC. /s/ STEPHEN A. SHERWIN /s/ R. SCOTT GREER - ---------------------- ------------------- Stephen A. Sherwin R. Scott Greer President and Chief President and Chief Executive Officer Executive Officer -12- 56 SCHEDULE 1 Administrative Services Departments and functions that will perform services for the Company and the related Full Time Equivalent headcount required per calendar quarter.
DEPARTMENT/FUNCTIONS 3Q96 4Q96 Accounting Accounts payable Corp. Comm. Environment Health & Safety Facilities operations, maintenance, Financial Planning & Reporting Human Resources Lab. Operations MIS & Library Office Operations Payroll Purchasing Stock Administration Treasury & Cash Management Warehouse, shipping and receiving TOTAL ADMINISTRATIVE FTE 14.1 14.1 Price/FTE/Yr. $125,000 $125,000 Price/Qtr. $31,250 $31,250 TOTAL COST PER QTR. $440,625 $440,625
Facilities The facility space at 324 Lakeside Drive, Foster City, CA will be provided to the Company for $549,600 rent per quarter. The Company and CG will share some additional facility spaces. During this period the occupying party will compensate the other party at the rate of $41,000 per year per headcount. Development Services Full Time Equivalent headcount required per calendar quarter for Development services for IL8 product for the Company.
DEVELOPMENT 3Q96 4Q96 Development & Project 1.5 management Price/FTE/Yr. $162,100 $162,100 Price/Qtr. $40,525 $40,525 TOTAL COST PER QTR. $60,788 $0
57 EXHIBIT D IMMUNIZATION SERVICES AGREEMENT -------------------------------- This Immunization Services Agreement (the "Agreement") is made as of the 15th day of July 1996 (the "Effective Date") between ABGENIX, INC. ("ABGENIX") and CELL GENESYS, INC. ("CG"). RECITALS A. Pursuant to the Stock Purchase and Transfer Agreement between the parties dated as of July 15, 1996 (the "Stock Purchase and Transfer Agreement"), CG has assigned to ABGENIX certain assets related to the Antibody Business (as defined therein), including the Master Research License and Option Agreement among CG, Japan Tobacco Inc. ("JTI") and Xenotech, L.P. ("XT") dated as of June 28, 1996 (the "Master Research License and Option Agreement") and Articles 2 and 3 of the Universal Receptor License Option Agreement between CG and XT dated as of June 28, 1996 (the "Universal Receptor License Option Agreement"). B. Pursuant to the Master Research License and option, Agreement and Articles 2 and 3 of the Universal Receptor License Option Agreement, ABGENIX has certain rights to conduct research using Mice as defined in the Master Research License and option Agreement). C. The parties desire that ABGENIX provide certain Immunization Services (as defined in Schedule 1 hereto) to CG using the Mice, and ABGENIX is willing to provide such services on the terms and conditions set forth herein. NOW, THEREFORE, the parties agree as follows: 58 1. Services. During the term of this Agreement, ABGENIX shall provide to CG the Immunization Services as requested by CG. 2. Performance of Services. A. In order to enable ABGENIX to provide the Immunization Services, CG agrees to guarantee funding of one full-time equivalent person until December 31, 1996. The schedule for the Immunization Services to be provided by ABGENIX during such period will be agreed to by the parties within 15 days of the Effective Date and attached hereto as Schedule 2. No later than September 30, 1996, and each September 30 thereafter, ABGENIX and CG shall mutually agree to the number of full-time equivalent persons, if any, for which CG is to guarantee funding for the next calendar year, as well as on a schedule for Immunization Services to be provided by ABGENIX for such calendar year, which schedule shall be attached hereto as the amended Schedule 2. From one year to the next, CG shall have the right to increase or decrease the number of full-time equivalent persons for which it is guaranteeing funding by one person, including without limitation from one to zero or zero to one. Notwithstanding the foregoing, the number of full-time equivalents for which CG is guaranteeing funding may be increased or decreased at any time by the mutual agreement of the parties. B. At the time of setting the schedule of Immunization Services for the next calendar year, ABGENIX agrees to give at least equal priority to the Immunization Services provided to CG as to its own priorities, ABGENIX agrees that, to the extent consistent with the established schedule of -2- 59 Immunization Services, it shall dedicate (at no further charge above the established annual rate for each full-time equivalent) up to 135% of the full-time equivalents funded by CG to providing Immunization Services to CG. CG agrees that, to the extent that any CG funded full-time equivalents are not needed to provide the scheduled Immunization Services, ABGENIX shall be free to use them on other programs. C. Each party shall provide to the other on a timely basis any and all information and materials which are necessary for ABGENIX to provide the Immunization Services as set forth herein. Neither party shall have any right to obtain any confidential or proprietary information of the other party as the result of the Immunization Services provided hereunder, and any such information so obtained shall be treated in accordance with Section 7. 3. Performance and Limitation of Services. A. ABGENIX shall not be required to perform any Immunization Services to the extent such services would result in the breach of any applicable contract-by which ABGENIX is bound. However, ABGENIX shall not enter into any contract which would restrict its right to provide Immunization Services to CG. If ABGENIX nonetheless believes that it is unable to provide any Immunization Services to CG because of the foregoing, it shall promptly notify CG. B. ABGENIX shall not be required to provide any Immunization Services to the extent the performance of such Immunization Services becomes impracticable as a result of a cause or causes outside its reasonable control or to the extent -3- 60 the performance of such Immunization Services would require it to violate any applicable laws, rules or regulations. C. ABGENIX MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AND ABGENIX SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE IMMUNIZATION SERVICES TO BE PROVIDED BY IT HEREUNDER. D. ABGENIX agrees to maintain a colony of Phase II Mice (as defined below) for as long as the maintenance of such colony does not prove unduly burdensome to ABGENIX. In the event that ABGENIX, in its reasonable discretion, determines that the continued maintenance of its colony of Phase II Mice has become unduly burdensome, it shall give reasonable, but not less than 90 days, notice to CG thereof before taking any action to discontinue maintenance of the colony. Phase II Mice, as used herein, means either the Phase IIa Mice, Phase IIb Mice or Phase IIc Mice, as such terms are defined in the Master Research License and Option Agreement. 4. Price. A. CG shall reimburse ABGENIX for the Immunization Services at the annual rate of $219,000 per full-time equivalent person for 1996, which rate shall be subject to annual adjustment as set forth below. In addition, CG shall reimburse ABGENIX for all direct third-party costs incurred by the Company in connection with providing Immunization Serviced to CG. B. The reimbursement rate to be paid to the Company for Immunization Services hereunder shall be reviewed ninety days prior to the end of each calendar year by the Company and CG. It -4- 61 is understood that the reimbursement rate is intended to approximate actual anticipated research costs and that the purpose of such annual review is to adjust such reimbursement rate in the event that it differs materially from the actual costs incurred. If the reimbursement rate is adjusted pursuant to such a review, the new reimbursement rate shall apply prospectively from the first day of the calendar year after which such review was begun. Any readjustment of the reimbursement rate will be determined on the basis of changes in any of the same factors utilized in determining the 1996 reimbursement rate. C. ABGENIX shall submit to CG a quarterly invoice on the first day of each calendar quarter for reimbursement for the Immunization Services to be performed by ABGENIX as set forth on the Schedule 2 then in effect. The invoice shall be payable on the last day of the calendar quarter in cash. D. In addition, ABGENIX shall submit to CG a monthly invoice on the fifth business day of each month for reimbursement for any invoices for outside services or expenses incurred on behalf of CG in providing the Immunization Services in the prior month. The invoice shall be payable upon receipt in cash (unless payments are being made directly to third parties by CG on behalf of ABGENIX pursuant to the Services Agreement between ABGENIX and CG dated as of July 15, 1996). E. An interest charge of 1% per month shall be payable for all amounts payable to ABGENIX hereunder more than 10 days overdue. In the event that CG, in good faith, questions any invoiced item, such amount shall be payable immediately after the satisfactory resolution of such item. -5- 62 5. Term. A. Unless terminated earlier as provided in this Section, this Agreement shall have an initial term of twenty years. B. At any time after June 30, 1997, CG may terminate this Agreement on sixty-days' notice to the Company; provided, that CG shall be required to continue to fund any full-time equivalent for which it has guaranteed funding for the remainder of such year. C. This Agreement may be terminated upon thirty-days, notice by the mutual consent of the parties. D. Either party may terminate this Agreement if the other party is in material default under this Agreement and fails to correct such default within thirty days after receiving written notice of such default. 6. Indemnification. A. ABGENIX shall indemnify and hold harmless CG, its affiliates, and their officers, directors, employees, and agents from and against all claims, liabilities, obligations, suits, causes of action, or expenses (including reasonable attorneys fees) (collectively "Claims") claimed to have resulted, directly or indirectly, from or in connection with the performance of the Immunization Services; provided, however, that ABGENIX shall not be required to indemnify or hold harmless CG to the extent the claims are caused by the negligence or willful misconduct of CG. B. CG shall indemnify and hold harmless ABGENIX, its affiliates, and their officers, directors, employees, and agents from and against all Claims claimed to have resulted, directly or -6- 63 indirectly, from or in connection with the performance of the Immunization Services; provided, however, that CG shall not be required to indemnify or hold harmless ABGENIX to the extent the Claims are caused by the negligence or willful misconduct of ABGENIX. C. An indemnitee shall provide written notice to the indemnifying party of any Claims with respect to which it seeks indemnification, and the indemnifying party shall assume the defense of such Claims with counsel reasonably satisfactory to the indemnitee. If such defense is assumed by the indemnifying party with counsel so selected, the indemnifying party will not be subject to any liability for any settlement of such claim made by an indemnified party without the indemnifying party's consent (such consent not to be unreasonably withheld or delayed). No indemnified party will be subject to any liability for any settlement of such Claims made by the indemnifying party without such party's consent (such consent not to be unreasonably withheld or delayed), and such settlement shall include an unconditional release of all indemnitees from all liability on such claims. If an indemnified party desires to retain separate counsel, such indemnified party shall have the right to do so, but the indemnifying party will not be obligated to pay the fees and expenses of such separate counsel. The parties hereto agree to cooperate fully with each other in connection with the defense, negotiation or settlement of any legal proceeding, claim or demand and to engage in no action that would result in or increase liability on the part of another party. -7- 64 D. Claims reimbursable hereunder shall not include any losses or expenses covered by the indemnitee's insurance. E. The provisions of this Section 6 shall survive termination of the Agreement. 7. Confidentiality. A. Except as expressly provided herein, ABGENIX and CG agree that, for the term of this Agreement and for five years thereafter, the receiving party shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose any information furnished to it by the other party pursuant to this Agreement (including, without limitation, know-how), except to the extent that it can be established by the receiving party by competent proof that such information: (i) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure; provided, however, that this exception shall not apply to information assigned or licensed exclusively by the receiving party to the other party pursuant to the Stock Purchase and Transfer Agreement between ABGENIX and CG effective as of July 15, 1996; (ii) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the receiving party; (iii) 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; -8- 65 (iv) was subsequently lawfully disclosed to the receiving party by a person other than the disclosing party; or (v) was developed by the receiving party without reference to any information or materials disclosed by the disclosing party. B. Notwithstanding the foregoing, a party hereto may nevertheless disclose the other party's information to the extent such disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental regulations or otherwise submitting information to tax or other governmental authorities, making a permitted sublicense or other exercise of its rights hereunder or conducting clinical trials, provided that if a party is required to make any such disclosure of another party's secret or confidential information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the other party of such disclosure requirement and, save to the extent inappropriate in the case of patent applications, will use efforts consistent with prudent business judgment to secure confidential treatment of such information prior to its disclosure (whether through protective orders or confidentiality agreements or otherwise). C. ABGENIX shall retain all right, title and interest in any biological materials, information, technical data, ideas, discoveries, works of authorship, patentable and unpatentable inventions, know-how, engineering, drawings, and equipment resulting from or arising out of its provision of Immunization Services hereunder. -9- 66 8. Miscellaneous. A. Notices. All notices required or permitted to be given under this Agreement shall be in writing and shall be sent by facsimile transmission or mailed by registered or certified mail addressed to the party to whom such notice is required or permitted to be given. All notices shall be deemed to have been given when transmitted if given by facsimile and confirmation of receipt is received or, if mailed, forty-eight hours after mailed as evidenced by the postmark at the point of mailing. All notices to CG shall be addressed as follows: Cell Genesys, Inc. 322 Lakeside Drive Foster City, CA 94404 Attention: President Facsimile: (415) 358-9316 All notices to ABGENIX shall be addressed as follows: Abgenix, Inc. 324 Lakeside Drive Foster City, CA 94404 Attention: President Facsimile: (415) 358-0318 Either party may, by written notice to the other, designate a new address or number to which notices to the party giving the notice shall thereafter be mailed or sent. B. Force Majeure. ABGENIX shall not be liable for any delay or failure of performance to the extent such delay or failure is caused by circumstances beyond its reasonable control and that by the exercise of due diligence it is unable to prevent, provided that ABGENIX uses its reasonable best efforts to overcome the same. C. LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR INDIRECT, CONSEQUENTIAL, -10- 67 INCIDENTAL OR SPECIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST PROFITS, ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF SUCH DAMAGES. NOTHING IN THIS SECTION 8(C) IS INTENDED TO LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF EITHER PARTY. D. Entire Agreement. This Agreement constitutes the entire understanding of the parties with respect to the matters provided for herein and supersedes any previous agreements and understanding between the parties with respect to the subject matter hereof and thereof. No amendment, modification or alteration of the terms or provisions of this Agreement shall be binding unless the same shall be in writing and duly executed by the party against whom such amendment, modification or alteration is asserted. E. Modifications and Waivers. Any of the terms or conditions of this Agreement may be waived in writing at any time by the party which is entitled to the benefits thereof. No waiver of any of the provisions of this Agreement shall be deemed to or shall constitute a waiver of any other provisions hereof (whether or not similar) or of the same provision in respect of a subsequent event. F. Disclaimer of Agency. This Agreement shall not constitute either party the legal representative or agent of the other, nor shall either party have the right or authority to assume, create, or incur any third-party liability or obligation of any kind, express or implied, against or in the name of or on behalf of the other party except as expressly set forth in this Agreement. The relationship of CG and ABGENIX shall be solely -11- 68 that of contracting parties and no partnership, joint venture or other arrangement of any nature shall be deemed to be created hereby. G. Severability. If any provisions hereof shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such provision shall be thereafter amended by the parties hereto such that it is thereafter legal, valid and enforceable and gives effect to the intention of the parties, but in any event the illegality or unenforceability of such provision shall have no effect upon and shall not impair the enforceability of any other provision of this Agreement. H. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of California applicable to agreements made and to be performed in such jurisdiction. I. Assignment. Except as provided in Section 4, neither CG nor ABGENIX shall delegate duties of performance or assign, in whole or in part, rights or obligations under this Agreement without the prior written consent of the other party, except that either party may assign this Agreement without such consent to an entity that acquires all or substantially all of the assets or business of such party, whether by sale, merger or otherwise. The terms and conditions of this Agreement shall be binding on and inure to the benefit of the permitted successors and assigns of the parties. J. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be -12- 69 deemed to be an original and all of which shall constitute the same instrument. K. Headings. The headings of this Agreement are included for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. This Immunization Services Agreement is executed by the parties as of the date indicated above. ABGENIX, INC. CELL GENESYS, INC. /s/ R. SCOTT GREER /s/ STEPHEN A. SHERWIN - ------------------------------- ------------------------------- R. Scott Greer Stephen A. Sherwin President and Chief President and Chief Executive officer Executive Officer -13- 70 SCHEDULE 1 IMMUNIZATION SERVICES ---------------------
Procedure Responsibility --------- -------------- 1. Provide antigen (unformulated) CG 2. Provide screening assay CG 3. Formulate antigen/adjuvant ABGENIX 4. Immunize animals ABGENIX 5. Boost immunizations ABGENIX 6. Harvest and prepare spleens ABGENIX 7. Do cell fusions and HAT selections ABGENIX 8. Primary screening ABGENIX; CG as needed 9. Clone and expand hybridomas, ABGENIX cyropreserve 10. Sub-clone and secondary screen ABGENIX; CG as needed 11. Transfer hybridoma to CG ABGENIX
-14- 71 Exhibit E Governance Agreement [OMITTED -- SEE EXHIBIT 10.15] -40- 72 Exhibit F Tax Sharing Agreement [OMITTED -- SEE EXHIBIT 10.16] -41- 73 Exhibit G Gene Therapy Rights Agreement [OMITTED -- SEE EXHIBIT 10.17] -42- 74 EXHIBIT H VOTING AGREEMENT ---------------- This Voting Agreement (the "Agreement") is made as of the 15th day of July 1996 (the "Effective Date") between ABGENIX, INC. ("ABGENIX") and CELL GENESYS, INC. ("CG"). RECITALS A. Pursuant to the Stock Purchase and Transfer Agreement between the parties dated as of July 15, 1996 (the "Stock Purchase and Transfer Agreement"), CG has assigned to ABGENIX certain assets related to the Antibody Business (as defined therein), including the Master Research License and Option Agreement among CG, Japan Tobacco Inc. and Xenotech, L.P.("XT") dated as of June 28, 1996 (the "Master Research License and Option Agreement"), and has also granted ABGENIX a worldwide, royalty-free license to practice any Know-How owned or controlled by CG that relates to the Antibody Business (as such terms are defined in the Stock Purchase and Transfer Agreement). B. Pursuant to the Master Research License and Option Agreement, ABGENIX has certain rights to obtain Product Licenses to Antigens (as such terms are defined therein). C. Pursuant to the Gene Therapy Rights Agreement between ABGENIX and CG made as of July 15, 1996, ABGENIX has granted to CG certain rights to Antigens for applications in Gene Therapy (as defined below). D. ABGENIX and CG wish to establish certain voting and other procedures relating to proposals to license Antigens for applications in Gene Therapy. NOW, THEREFORE, the parties agree as follows: 75 1. DEFINITIONS 1.1 "Antigen" shall have the meaning set forth in the Master Research License and Option Agreement. 1.2 "Gene Therapy" shall mean the transfer or use of DNA, RNA, or hybrids thereof to treat or prevent disease by means of ex vivo or in vivo gene delivery, including without limitation the use of both viral and non-viral gene transfer systems. 1.3 "Licensed Technology" shall have the meaning set forth in the Master Research License and option Agreement. 1.4 "Master Research License and Option Agreement" shall mean the Master Research License and Option Agreement among CG, Japan Tobacco Inc. and XT dated as of June 28, 1996. 1.5 "XT" shall mean Xenotech, L.P. a California limited partnership. 1.6 "XenoMouse(TM) Technology" shall have the meaning set forth in the Master Research License and Option Agreement. 2. XT LICENSES TO THIRD PARTIES TO ANTIGENS FOR GENE THERAPY 2.1 Action by XT Board. ABGENIX agrees to instruct the directors nominated by ABGENIX on the board of Xenotech, Inc., the general partner of XT, to vote in accordance with the timely directions of CG management on proposal to have XT license Licensed Technology to a third party for Gene Therapy, whether the Gene Therapy application is to be licensed as a separate field or as part of a more general field license. 2.2 ABGENIX Proposal. ABGENIX agrees not to propose to XT the granting of a license of XenoMouse(TM) Technology, pursuant to Section 7.2 of the Master Research License and Option Agreement, to any third party for an Antigen for Gene Therapy purposes, -2- 76 other than at the written request of CG, unless such third party has a blocking patent position with respect to the Antigen. 2.3 Determination of Position of Third Party. In the event that ABGENIX proposes, pursuant to Section 7.2 of the Master Research License and Option Agreement, that XT grant a license to a third party that claims proprietary rights to an Antigen, the parties agree to select a mutually agreed upon intellectual property attorney with substantial experience in biotechnology intellectual property matters to determine the extent of the third party's patent. This determination shall be made in a timely manner. If the third party's claim is determined by such expert to be blocking the right of any other party to use the Antigen in Gene Therapy applications, ABGENIX shall be permitted to propose to XT that a license be granted to such third party. ABGENIX and CG shall share the cost of such expert. 3. LIMITATION Notwithstanding any other provisions of this Agreement, ABGENIX shall not be required to take any action hereunder if such action would constitute a breach of the Master Research License and Option Agreement. 4. TERM; TERMINATION 4.1 Initial Term. Unless terminated earlier as provided in this, Section 4, this Agreement shall have an initial term of twenty years. 4.2 Termination by Mutual Consent. This Agreement may be terminated upon thirty days' notice by the mutual consent of the parties. -3- 77 4.3 Termination for Material Breach. Either party may terminate this Agreement if the other party is in material default under this Agreement and fails to correct such default within thirty days after receiving written notice of such default. 5. CONFIDENTIALITY. 5.1 Confidential Information. Except as expressly provided herein, ABGENIX and CG agree that, or the term of this Agreement and for five years thereafter, the receiving party shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose any information furnished to it by the other party pursuant to this Agreement (including, without limitation, know-how), except to the extent that it can be established by the receiving party by competent proof that such information: (a) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure; provided, however, that this exception shall not apply to information assigned or licensed exclusively by the receiving party to the other party pursuant to the Stock Purchase and Transfer Agreement between ABGENIX and CG effective as of July 15, 1996; (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 -4- 78 other than through any act or omission of the receiving party in breach of this Agreement; (d) was subsequently lawfully disclosed to the receiving party by a person other that the disclosing party; or (e) was developed by the receiving party without reference to any information or materials disclosed by the disclosing party. 5.2 Disclosure. Notwithstanding the foregoing, a party hereto may nevertheless disclose the other party's information to the extent such disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental regulations or otherwise submitting information to tax or other governmental authorities, making a permitted sublicense or other exercise of its rights hereunder or conducting clinical trials, provided that if a party is required to make any such disclosure of another party's secret or confidential information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the other party of such disclosure requirement and, save to the extent inappropriate in the case of patent applications, will use efforts consistent with prudent business judgment to secure confidential treatment of such information prior to its disclosure (whether through protective orders or confidentiality agreements or otherwise). 6. MISCELLANEOUS. 6.1 Notices. All notices required or permitted to be given under this Agreement shall be in writing and shall be sent by facsimile transmission or mailed by registered or certified mail -5- 79 addressed to the party to whom such notice is required or permitted to be given. All notices shall be deemed to have been given when transmitted if given by facsimile and confirmation of receipt is received or, if mailed, forty-eight hours after mailed as evidenced by the postmark at the point of mailing. All notices to CG shall be addressed as follows: Cell Genesys, Inc. 322 Lakeside Drive Foster City, CA 94404 Attention: President Facsimile: (415) 358-9316 All notices to ABGENIX shall be addressed as follows: Abgenix, Inc. 324 Lakeside Drive Foster City, CA 94404 Attention: President Facsimile: (415) 358-0318 Either party may, by written notice to the other, designate a new address or number to which notices to the party giving the notice shall thereafter be mailed or sent. 6.2 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR INDIRECT, CONSEQUENTIAL, INCIDENTAL OR SPECIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST PROFITS, ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF SUCH DAMAGES. 6.3 Entire Agreement. This Agreement constitutes the entire understanding of the parties with respect to the matters provided for herein and supersedes any previous agreements and understanding between the parties with respect to the subject matter hereof and thereof. No amendment, modification or alteration of the terms or provisions of this Agreement shall be binding unless the same shall be in writing and duly executed by -6- 80 the party against whom such amendment, modification or alteration is asserted. 6.4 Modifications and Waivers. Any of the terms or conditions of this Agreement may be waived in writing at any time by the party which is entitled to the benefits thereof. No waiver of any of the provisions of this Agreement shall be deemed to or shall constitute a waiver of any other provisions hereof (whether or not similar) or of the same provision in respect of a subsequent event. 6.5 Disclaimer of Agency. This Agreement shall not constitute either party the legal representative or agent of the other, nor shall either party have the right or authority to assume, create, or incur any third-party liability or obligation of any kind, express or implied, against or in the name of or on behalf of the, other party except as expressly set forth in this Agreement. The relationship of CG and ABGENIX shall be solely that of contracting parties and no partnership, joint venture or other arrangement of any nature shall be deemed to be created hereby. 6.6 Severability. If any provisions hereof shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such provision shall be thereafter amended by the parties hereto such that it is thereafter legal, valid and enforceable and gives effect to the intention of the parties, but in any event the illegality or unenforceability of such provision shall have no effect upon and shall not impair the enforceability of any other provision of this Agreement. -7- 81 6.7 Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of California applicable to agreements made and to be performed in such jurisdiction. 6.8 Assignment. Except as provided in Section 4, neither CG nor ABGENIX shall delegate duties of performance or assign, in whole or in part, rights or obligations under this Agreement without the prior written consent of the other party, except that either party may assign this Agreement without such consent to entity that acquires all or substantially all of the assets or business of such party, whether by sale, merger or otherwise. The terms and conditions of this Agreement shall be binding on and inure to the benefit of the permitted successors and assigns of the parties. 6.9 Counterparts. This Agreement may be executed in one or more counterparts each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument. 6.10 Headings. The headings of this Agreement are included for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. This Voting Agreement is executed by the parties as of the date indicated above. ABGENIX, INC. CELL GENESYS, INC. /s/ R. SCOTT GREER /s/ STEPHEN A. SHERWIN - ------------------------------- ------------------------------- R. Scott Greer Stephen A. Sherwin President and Chief President and Chief Executive Officer Executive officer -8- 82 EXHIBIT I THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT FOR DISTRIBUTION. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR UNLESS SOLD IN COMPLIANCE WITH SUCH ACT. Foster City, California $4,000,000 July 15, 1996 CONVERTIBLE PROMISSORY NOTE ABGENIX, INC., a Delaware corporation (the "Abgenix"), for value received, receipt of which is hereby acknowledged, hereby promises to pay to Cell Genesys, Inc., a Delaware corporation ("CG" or "Holder"), at the address set forth below or at such other place as the Holder hereof may designate in writing, or order, in lawful United States currency, the sum of $4,000,000, or such lesser amount as shall then equal the outstanding principal amount hereof, and any unpaid accrued interest hereon, as set forth below, on or before July 14, 2000. 1. Principal. From time to time, Abgenix may draw against the maximum principal amount of this Note (a) to pay any amount due to CG pursuant to the Services Agreement between Abgenix and CG effective as of July 15, 1996, (b) for expenses incurred in connection with a facilities or equipment lease approved by the Abgenix Board of Directors, or (c) with the prior written consent of CG; provided, however, that in no event shall Abgenix be able to make any further draws against the maximum principal amount of this Note after the closing of a financing in which Abgenix receives net proceeds of more than $9,000,000, without the prior written consent of CG. Draws made hereunder shall be noted by the Holder on Exhibit A hereto. The maximum principal amount of this Note shall be reduced by the amount of any principal converted into shares of Abgenix, as provided in Section 4 below. 2. Interest. Interest shall accrue at the rate of 6.82% per annum (the "Initial Interest Rate") on the outstanding principal of this Note until July 15, 1997, whereupon the accrued interest shall be added to the outstanding principal of this Note. Thereafter, commencing on September 30, 1997, and on each December 30, March 31, June 30 and September 30 thereafter until all outstanding principal and interest on this Note shall have, been paid in full, Abgenix, shall pay interest quarterly at the Initial Interest Rate. In the event that the outstanding principal amount of this Note is not paid when such amount becomes due and payable, interest at the Initial Interest Rate plus 2% per annum shall continue to accrue on the balance of any unpaid principal until such balance is paid in full. 83 3. Prepayment Option. Abgenix, upon no less than 30 business days' advance written notice to the Holder and specifying the date on which such prepayment shall occur, may prepay, in whole or in part, the balance of principal remaining unpaid as of the date of such prepayment plus any interest then accrued. All permitted prepayments shall be credited first against any accrued interest and then against principal. 4. Holder's Option to Convert. (a) The Holder has the right, at the Holder's option, at any time after the earliest of (i) 180 days after the closing of Abgenix's initial public offering of its Common Stock, (ii) July 14, 1999, and (iii) 20 business days after Holder receives notice from Abgenix of its exercise of the prepayment option pursuant to Section 3 hereof, to convert the outstanding principal of this Note, in whole or in part, in accordance with the provisions set forth in Section 4(e) hereof. (b) Subject to paragraph (c), this Note shall be convertible into fully paid and nonassessable shares of Series A Senior Convertible Preferred Stock of Abgenix (the "Series A Preferred"). The number of shares of Series A Preferred to be received upon conversion shall be determined by dividing the aggregate amount of principal to be converted by $6.00 (the "Conversion Price"). (c) From and after such time, if any, that all of the outstanding Series A Preferred is converted into shares of Abgenix's Common Stock (the "Common Stock") in accordance with Section 2.4 of the Certificate of Designations of Series A Senior Convertible Preferred Stock and Series 1 Subordinated Convertible Preferred Stock of Abgenix, this Note shall be convertible into fully paid and nonassessable shares of Common Stock. In such event, the number of shares of Common Stock to be received upon conversion shall be determined by (a) dividing the aggregate amount of principal to be converted by $6.00 and (b) multiplying the result by the Conversion Price for the Series A Preferred as in effect immediately prior to its conversion into Common Stock. (d) No fractional shares shall be issuable upon exercise of the Holder's conversion rights. In lieu of fractional shares, if conversion of the amount of principal and interest to be converted would yield a fractional share, the number of shares to be issued upon such conversion shall be reduced to prevent the issuance of said fractional share and the amount not so converted shall be paid by Abgenix in cash. (e) If the Holder wishes to convert all or any part of this Note, it shall deliver to the office of Abgenix a written notice indicating the amount of principal of this Note to be converted, and the name or names in which the certificate or 2 84 certificates for the shares issuable upon such conversion are to be issued. Such conversion shall be effective as of the close of business on the date of delivery of such notice, or at such later time as the notice of conversion shall specify. As promptly as practicable after receipt of such notice, Abgenix shall issue and deliver to the Holder a certificate or certificates for the shares of Series A Preferred or Common Stock issuable upon such conversion, together with a check payable to the Holder for any cash amount payable for a fractional share as described in Section 4(d) above. The maximum principal amount of this Note shall be reduced by the amount of principal converted. If this Note is converted in part but not in full, the Holder shall note on Exhibit A the amount of principal converted. If this Note is converted in full, it shall be delivered to Abgenix for cancellation, as provided in Section 16. 5. Adjustments for Stock Splits and Subdivisions. In the event that Abgenix should at any time or from time to time after the date of issuance hereof fix a record date for the effectuation of a split or subdivision of the outstanding shares of Series A Preferred or the determination of holders of Series A Preferred entitled to receive a dividend or other distribution payable in additional shares of Series A Preferred or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Series A Preferred (hereinafter referred to as "Series A Preferred Equivalents") without payment of any consideration by such holder for the additional shares of Series A Preferred or the Series A Preferred Equivalents (including the additional shares of Series A Preferred issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of this Note shall be appropriately decreased so that the number of shares of Series A Preferred issuable upon conversion of this Note shall be increased in proportion to such increase of outstanding shares. 6. Adjustments for Reverse Stock Splits. If the number of shares of Series A Preferred outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Series A Preferred, then following the record date of such combination, the Conversion Price for this Note shall be appropriately increased so that the number of shares of Series A Preferred issuable on conversion hereof shall be decreased in proportion to such decrease in outstanding shares. 7. Shareholder Rights. The Holder hereof shall not have any rights as a shareholder of Abgenix with regard to any shares subject to the conversion rights under this Note prior to actual exercise or conversion resulting in the purchase of said shares. 3 85 8. Notices of Record Date, etc. In the event of: (a) any taking by Abgenix of a record of the holders of any class of securities of Abgenix for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend payable out of earned surplus at the same rate as that of the last such cash dividend theretofore paid) or other distribution, or 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; or (b) any capital reorganization of Abgenix, any reclassification or recapitalization of the capital stock Abgenix or any transfer of all or substantially all of the assets of Abgenix to any other person or any consolidation or merger involving Abgenix; or (c) any voluntary or involuntary dissolution, liquidation or winding-up of Abgenix, Abgenix will mail to the Holder at least 10 days prior to the earliest date specified therein, a notice specifying: (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right; and (ii) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding-up is expected to become effective and the record date for determining stockholders entitled to vote thereon. 9. Events of Default. If any of the events specified in this Section 9 shall occur (an "Event of Default"), the Holder may, so long as such condition exists, declare the entire principal and accrued interest hereon immediately due and payable, by notice in writing to Abgenix: (a) the failure of Abgenix to pay the principal and unpaid accrued interest on this Note when due and payable, if such default is not cured by Abgenix within 10 days after the Holder has given Abgenix notice of such default; (b) the institution by Abgenix of voluntary proceedings in bankruptcy, under any insolvency law, for corporate reorganization, for dissolution or for an assignment for the benefit of creditors; or the institution of involuntary proceedings against Abgenix in bankruptcy, under any insolvency law, for corporate reorganization, for the appointment of a receiver; or for dissolution, if such involuntary proceedings are not dismissed within 60 days of their institution or if Abgenix files a response admitting or consenting to the material 4 86 allegations in the applications for such involuntary proceedings or the relief prayed for therein; (c) the cessation of operations by Abgenix other than because of merger, consolidation, reorganization or sale of all or substantially all of its assets, as a result of which the succeeding entity continues the business of Abgenix; (d) a transaction or series of related transactions pursuant to the holders of Abgenix's voting stock immediately prior to such transaction(s) hold less than a majority of the Abgenix's voting stock immediately after such transactions; or (e) a declared default of Abgenix under any indebtedness for borrowed money that gives the holder thereof the right to accelerate such indebtedness, and such indebtedness is in fact accelerated by the holder. 10. Legend; Compliance with Securities Act; Transferability of Note. (a) Legend. This Note and the shares issued upon conversion hereof shall be imprinted with a legend in substantially the following form: "THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT FOR DISTRIBUTION. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR UNLESS SOLD IN COMPLIANCE WITH SUCH ACT." (b) Compliance with Securities Act. This Note may not be assigned or transferred except as provided herein and in accordance with and subject to the provisions of the Securities Act. (c) Transferability of Note. Except as set forth below, this Note may not be assigned or transferred without the consent of Abgenix. Notwithstanding the foregoing, this Note may be assigned or transferred without consent (i) to a successor in interest to all or substantially all of the assets or business of the Holder or (ii) to a person controlling, controlled by or under common control with the Holder. 11. Notice. All notices required or permitted to be given under this Note shall be in writing and shall be sent by facsimile transmission or mailed by registered or certified mail addressed to the party to whom such notice is required or permitted to be given. All notices shall be deemed to have been given when transmitted if given by facsimile and confirmation of 5 87 receipt is received or, if mailed, 48 hours after mailed as evidenced by the postmark at the point of mailing. All notices to Abgenix shall be addressed as follows: Abgenix, Inc, 324 Lakeside Drive Foster City, CA 94404 Attention: President Facsimile: (415) 358-0318 All notices to the Holder shall be addressed as follows: Cell Genesys, Inc. 322 Lakeside Drive Foster City, CA 94404 Attention: President Facsimile: (415) 358-9316 Either party may, by written notice to the other, designate a new address to which notices to the party giving the notice shall thereafter be mailed. 12. Construction. This Note shall be governed and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely in California. 13. Enforcement Costs; Waivers. If Abgenix shall default in making any payment due under this Note, it will pay to Holder such further amounts as shall be sufficient to pay the costs and expenses of collection, including reasonable attorneys' fees, whether collected in a proceeding at law or in equity, or in bankruptcy, receivership or other judicial proceedings, or if placed in the hands of attorneys for collection. Abgenix waives its rights to impose any defense other than payment, including, without limitation, any rights or purported rights to set-off, counterclaim or cross-claim, in any action brought on this Note. Abgenix hereby waives presentment, demand for performance, notice of performance, protest, notice of protest and notice of dishonor. 14. No Waiver by Delay. No delay on the part of Holder in exercising any right hereunder shall operate as a waiver of such right under this Note. 15. Severability. If any provision of this Note is held to be unenforceable for any reason, it shall be adjusted rather than voided, if possible, in order to achieve the intent of the parties to the extent possible. In any event, all other provisions of this Note shall be deemed valid and enforceable to the full extent. 6 88 16. Cancellation. Upon payment in full of all principal and interest due hereunder, or upon conversion of this Note in full, the Holder shall return this Note to Abgenix for cancellation. IN WITNESS WHEREOF, Abgenix has caused this Convertible Note to be executed as of the date and year first set forth above. ABGENIX, By: /s/ R. SCOTT GREER ------------------------------- R. Scott Greer President and Chief Executive Officer 7 89 EXHIBIT A TO CONVERTIBLE PROMISSORY NOTE Maximum Principal Amount: $4,000,000
Principal Total Principal Amount Paid Principal Date Amount Drawn or Converted Outstanding - ---- ------------ ------------ ----------- $ $
8 90 Exhibit J Patent Assignment Agreement [OMITTED - SEE EXHIBIT 10.18] -45- 91 Exhibit K Certificate of Designations [OMITTED -- SEE EXHIBIT 3.2] -46- 92 Exhibit L Certificate of Incorporation [OMITTED -- SEE EXHIBIT 3.1] -47- 93 Exhibit M By Laws [OMITTED -- SEE EXHIBIT 3.4] -48- 94 Exhibit N Employee Notes None. -49- 95 EXHIBIT O EQUIPMENT
Asset Estimated Approved No. Description Bldg. Location Cost - --------------------------------------------------------------------------------------------------------------------------- Yes 1341 Matrix Pipettor 324 AD QC lab 1,045 Yes 1227 HPLC-HP 1050 324 AD & QC lab 52,618 Yes 1380 Spectramax Plate Reader 324 AD/QC Lab 19,500 Yes 1140 Cole Parmer Refrigerated Water Bath 324 Biochem lab Rm 248 1,040 Yes 1034 Fisher Refrigerator Water Bath 324 Biochemistry Room 248 2,784 Yes 1149 Advantek Fraction Collector 324 Biochemistry lab Rm 248 4,200 Yes 1035 Beckman BioMek SL 324 Biochemistry Room 248 38,861 Yes 1148 Sorvall RC 5C Centrifuge 324 Equipment Rm 16,160 Yes 1019 Fisher Isotemp Freezer 324 Equipment Room 2,205 Yes 805 Media Cold Box 324 Hall 3,112 Yes 1113 HP Laser Jet 4 324 Hall 1,972 Yes 1072 Bio-Tek Plate Washer 324 Hybridoma lab 4,900 Yes 1187 Moduline Plate Coater 324 Hybridoma lab 5,200 Yes 1188 Innove 4080 Incubator Shaker 324 Hybridoma lab 4,583 Yes 1233 Millpore Plate Washer 324 Hybridoma lab 1,360 Yes 1268 Beckman GS-6R Centrifuge 324 Hybridoma lab 6,265 Yes 996 HP Desk Jet 1200C/PS 324 Mall Area 1,950 Yes 370 Dissecting Microscope & Light 324 Micro Injection 7,205 Yes Sutter Pipette Puller 324 Microinjection Yes 104 Nikon Diaphot Microscope 324 Microinjection lab 30,900 Yes 106 Sutter Microfuge 324 Microinjection lab 2,591 Yes 140 Wild Leitz Dissecting Microscope 324 Microinjection lab 2,898 Yes 151 Precision Water Bath Heater 324 Microinjection lab 650 Yes 355 Fisher Balance 324 Microinjection lab 1,309 Yes 576 Nikon Dissecting Microscope 324 Microinjection lab Yes 917 Forma Laminar Flow Hood 324 Microinjection lab 3,520 Yes 918 Incubator (embryology) 324 Microinjection Lab 5,846 Yes 1009 Nikon Dissecting Microscope 324 Microinjection lab 6,509 Yes 1053 TV Monitor (used w/Microscope -- See CG 00140) 324 Microinjection lab 1,715 Yes 925 Forma Cage Hood 324 Rm 101 4,215 Yes 935 Anderson ETO Chamber 324 Rm 101 80,000 Yes 1192 Forma Laminar Flow Hood 324 Rm 102 Yes 1191 Forma Laminar Flow Hood 324 Rm 103 Yes 916 Forma Laminar Flow Hood 324 Rm 109 4,008 Yes 915 Forma Laminar Flow Hood 324 Rm 110 4,008 Yes 914 Forma Laminar Flow Hood 324 Rm 116 4,008 Yes 913 Forma Laminar Flow Hood 324 Rm 117 4,008 Yes 909 Forma Laminar Flow Hood 324 Rm 135 4,008 Yes 910 Incubator 324 Rm 136 5,846 Yes 911 Hood 324 Rm 136 3,520
July 15, 1996 96 EXHIBIT O EQUIPMENT
Asset Estimated Approved No. Description Bldg. Location Cost - --------------------------------------------------------------------------------------------------------------------------- Yes 533 Compaq Computer 324 Rm 201 1,895 Yes 665 Vacuum Pump 324 Rm 201 AD + QC Lab 1,780 Yes 809 Gilson Fraction Collector 324 Rm 201 AD + QC Lab 1,610 Yes 989 Glyco Face Imager 324 Rm 201 AD + QC Lab 19,500 Yes 666 Fisher Isotemp Freezer 324 Rm 205 Equipment Room 2,335 Yes 899 Forma - 80O Freezer 324 Rm 205 Equipment Room 5,612 Yes 900 Forma - 80O Freezer 324 Rm 205 Equipment Room 5,612 Yes 901 Forma - 80O Freezer 324 Room 205 Equipment Room 5,612 Yes 953 Quadra 630 324 Rm 206 1,224 Yes 1089 Quadra 630 324 Rm 206 990 Yes 1205 Nikon Microscope 324 Rm 206 4,931 Yes 531 Sysmex F-80O Micro Cell Counter 324 Rm 206 Hybridoma 18,269 Yes 585 Sysmex Auto Diluter 324 Rm 206 Hybridoma 1,300 Yes 934 Beckman PH Meter 324 Rm 206 Hybridoma Research 1,192 Yes 959 Fisher Isotemp Deli Box 324 Rm 206 Hybridoma Research 5,095 Yes 1006 Eppendorf Centrifuge 5415C 324 Rm 206 Hybridoma Research 1,756 Yes 863 Forma CO2 Incubator 324 Rm 236 5,846 Yes 929 Forma Lab Freezer 324 Rm 236 2,545 Yes 930 Beckman GS 6R Centrifuge 324 Rm 236 6,265 Yes 815 VWR Shaker Waver 324 Rm 237 1,200 Yes 889 Forma Freezer 324 Rm 237 3,148 Yes 891 Fume-Hood 324 Rm 237 2,530 Yes 1002 Beckman GS 6R Centrifuge 324 Rm 241 Zsebo Tech 6,265 Yes 1003 Nikon Microscope 324 Rm 241 Zsebo Tech 4,979 Yes 389 Mac Ilsi 324 Rm 248 1,811 Yes 398 Mac Ilsi 324 Rm 248 2,711 Yes 798 Revco Deli Box 324 Rm 248 Yes 954 Pharmacia PhastSystem 324 Rm 248 7,365 Yes 955 FPLC - Pharmacia 324 Rm 248 41,423 Yes 956 Pharmacia Ultrospec III 324 Rm 248 2,434 Yes 1050 Refrigerator 324 Rm 248 5,745 Yes 1071 Pharmacia Smart System 324 Rm 248 Biochemistry lab 52,700 Yes 487 Bio Cad RPM 324 Rm 248 Biochemistry lab 13,465 Yes 789 Flammable Material Refrigerator 324 Rm 248 Biochemistry lab 1,266 Yes 1085 NEC Image 466es 324 Rm 248 Biochemistry lab 5,486 Yes 1005 Fisher Refrigerator Water Bath 324 Rm 248 Biochemistry lab 2,784 Yes 882 Forma CO2 Incubator 324 Rm 236 5,846 Yes 884 Forma Biological Safety Cabinet 324 Rm 236 5,040 Yes 890 Forma Lab Refrigerator 324 Rm 237 3,367 Yes 794 Dionex Carbohydrate Analysis Gradient Pump 324 Rm 201 AD + QC Lab 15,000 Yes 924 Basil Water Filter 324 Room 101 7,312
July 15, 1996 97 EXHIBIT O EQUIPMENT
Asset Estimated Approved No. Description Bldg. Location Cost - --------------------------------------------------------------------------------------------------------------------------- Yes 152 Nikon Microscope 324 Room 236 4,000 Yes 712 Incubator - Roller Bottle 324 Room 236 5,045 Yes 945 Revco Refrigerator 324 Room 236 3,167 Yes 493 Eppendorf Microfuge 324 Room 237 1,866 Yes 494 Eppendorf Thermomiser 324 Room 237 2,082 Yes 495 Denver Analytical Balance 324 Room 237 2,416 Yes 496 Novex Power Supply 324 Room 237 2,750 Yes 654 Fraction Collector 324 Room 237 1,570 Yes 661 HPLC Michron Bio Resource Computer 324 Room 237 1,461 Yes 797 HP Protein Sequencer 324 Room 237 103,920 Yes 927 Forma Lab Freezer 324 Storeroom 2,545 Yes 928 Forma Lab Freezer 324 Storeroom 2,545 Yes 880 Forma CO2 Incubator 324 T.C. Lab 1 5,846 Yes 881 Forma CO2 Incubator 324 T.C. Lab 1 5,846 Yes 894 Forma Biological Safety Cabinet 324 T.C. Lab 1 5,040 Yes 895 Forma Biological Safety Cabinet 324 T.C. Lab 1 5,040 Yes 931 Beckman GS 6R Centrifuge 324 T.C. Lab 1 6,265 Yes 947 Nikon Microscope 324 T.C. Lab 1 4,390 Yes 878 Forma CO2 Incubator 324 T.C. Lab 2 5,846 Yes 879 Forma CO2 Incubator 324 T.C. Lab 2 5,846 Yes 892 Forma Biological Safety Cabinet 324 T.C. Lab 2 5,040 Yes 893 Forma Biological Safety Cabinet 324 T.C. Lab 2 5,040 Yes 932 Beckman GS 6R Centrifuge 324 T.C. Lab 2 6,265 Yes 946 Nikon TMS Microscope 324 T.C. Lab 2 4,390 Yes 1020 Beckman GS 6R Centrifuge 324 T.C. Lab 3 6,265 Yes 1025 Nikon Microscope 324 T.C. Lab 3 4,979 Yes 1029 Forma Biological Safety Cabinet 324 T.C. Lab 3 5,040 Yes 1030 Forma Biological Safety Cabinet 324 T.C. Lab 3 5,040 Yes 1031 Forma CO2 Incubator 324 T.C. Lab 3 5,846 Yes 1032 Forma CO2 Incubator 324 T.C. Lab 3 5,846 Yes 1213 Forma Biological Safety Cabinet 324 T.C. Lab 4 5,242 Yes 1232 Beckman GS 6R Centrifuge 324 T.C. Lab 4 7,040 Yes 1244 Kenmore Refrigerator/Freeezer 324 T.C. Lab 4 500 Yes 1206 Nikon TMS Microscope 324 T.C. Lab 5 4,931 Yes 1214 Forma Biological Safety Cabinet 324 T.C. Lab 5 5,242 Yes 1215 Forma Biological Safety Cabinet 324 T.C. Lab 5 5,242 Yes 1216 Forma CO2 Incubator 324 T.C. Lab 5 5,850 Yes 1217 Forma CO2 Incubator 324 T.C. Lab 5 5,850 Yes 1231 Beckman GS 6R Centrifuge 324 T.C. Lab 5 7,040 Yes 1245 Kenmore Refrigerator 324 T.C. Lab 5 500 Yes 1095 Cryomed Liquid Nitrogen Storage 324 Utility Rm 4,906 July 15, 1996
98 EXHIBIT O EQUIPMENT
ASSET ESTIMATED APPROVED NO. DESCRIPTION BLDG. LOCATION COST - --------------------------------------------------------------------------------------------------------------------- Yes 960 Cryomed Liquid Nitrogen Storage 324 Utility Room 4,750 Yes 964 Taylor Wharton Liquid Nitrogen Storage 324 Utility Room 1 Yes 1015 Forma Biological Safety Cabinet 324 Zsebo Tech Rm 241 5,040 Yes 1017 Forma CO2 Incubator 324 Zsebo Tech Rm 241 5,741 Yes 1018 Forma CO2 Incubator 324 Zsebo Tech Rm 241 5,741 Yes 1043 Walloc Heat Sealer 324 Zsebo Tech. Room 241 1,500 Yes 1016 Forma Biological Safety Cabinet 324 Zsebo Tech Rm 241 5,040 Yes 1041 TomTec Cell Harvester 324 Zsebotech Room 241 14,500 Yes 488 HP Desk Jet 550C Printer 324 1,100 Yes 489 HP Laser Jet 4 Printer 324 1,975 Yes 497 Blacher, Russ - Mac Centris 650 324 2,429 Yes 926 Baell Cage Warmer 324 53,464 Yes 1180 Bellco 10-roller Apparatus 324 2,352 Yes 1276 Matrix Pipettor 324 1,045
99 Exhibit P Antibody Business Agreements [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -51- EX-10.17 5 GENE THERAPY RIGHTS AGREEMENT 1 EXHIBIT 10.17 CONFIDENTIAL TREATMENT REQUESTED BY ABGENIX, INC. GENE THERAPY RIGHTS AGREEMENT This Gene Therapy Rights Agreement (the "Agreement"), effective as of November 1, 1997 (the "Effective Date") is made by and among Cell Genesys, Inc., a Delaware corporation ("CGI") and Abgenix, Inc., a Delaware corporation ("ABX"). RECITALS A. Xenotech, L.P. ("XT") is a limited partnership formed in June 1991 by JT Immunotech USA Inc. ("JT Immunotech"), a wholly-owned indirect subsidiary of Japan Tobacco, Inc. ("JTI"), and CGI to research, create and develop transgenic mice that make human antibodies when immunized with antigens (as defined below, "Mice"). B. Pursuant to that certain Stock Purchase and Transfer Agreement effective July 15, 1996, CGI assigned to ABX certain of its rights in and to XT, including rights relating to the use and commercialization of the Mice pursuant to the terms of the MRLOA (as that term is defined below). C. CGI and ABX have entered into certain other agreements which relate to ABX's interest in XT and the use and exploitation of the Mice and products generated from the Mice, including without limitation the Gene Therapy Rights Agreement effective as of July 15, 1996, the Voting Agreement effective as of July 15, 1996, and the Immunization Services Agreement effective as of July 15, 1996. D. CGI has also entered into the Universal Receptor License Option Agreement with XT, effective June 28, 1996 (the "URLOA"), which grants CGI the option to enter into license agreements with XT regarding the use of the Mice for generation of antibodies for use in universal receptor products. E. CGI and ABX now desire to restructure the agreements existing between them and certain agreements with XT. NOW THEREFORE, for and in consideration of the covenants, conditions, and undertakings hereinafter set forth, it is agreed by and between the parties as follows: 1. DEFINITIONS For purposes of this Agreement, the terms set forth in this Article shall have the meanings set forth below: 1.1 "ABX-Controlled Rights" shall mean all rights to patents or technology (including biological materials) that are licensed to ABX pursuant to (i) the MRLOA, (ii) Product Licenses 2 from XT for Covered Products related to CGI Antigens, or (iii) any other license or similar agreement granting ABX rights to patents or technology to the extent, and only to the extent, that such patent or technology is reasonably necessary to exercise the rights in (i) and (ii) to make, have made, use, sell, offer to sell, or import Covered Products in the field of Gene Therapy (each such agreement being referred to as an "ABX In-License"), in each case to the extent that ABX has the right under the terms of the applicable ABX In-License to further license or sublicense such rights during the term of this Agreement; provided, however, that "ABX-Controlled Rights" shall not include Antigen Specific Technology. Exhibit D lists the ABX- Controlled Rights as of the Effective Date. 1.2 "ABX Proprietary Antigen" shall mean a specifically identified Antigen for which an issued patent, or a pending patent application being prosecuted in good faith in the United States or Europe, which patent or application is owned or controlled by ABX prior to CGI's exercise of its Option with respect to such Antigen in accordance with Article 2 below, contains claims to the following: (i) the composition of such specifically identified Antigen or Genetic Material encoding the Antigen, (ii) a method of therapeutic use of an Antibody or other moiety which binds to such specifically identified Antigen, or (iii) the composition of an antibody to such Antigen (excluding compositions of antibodies resulting from immunization services under Article 3 of this Agreement). 1.3 "ABX Territory" shall mean the United States and its territories, and Canada and Mexico. 1.4 "Affiliate" shall mean any entity which controls, is controlled by or is under common control with ABX, CGI or a Sublicensee. An entity shall be regarded as in control of another entity if it owns or controls at least fifty percent (50%) of the shares of the subject entity entitled to vote in the election of directors (or, in the case of an entity that is not a corporation, for the election of the corresponding managing authority). As used herein, a "Wholly-Owned Subsidiary" shall mean an Affiliate in which ABX owns or controls one hundred percent (100%) of such shares in such Affiliate. Notwithstanding the foregoing, neither ABX, CGI, JTI nor XT shall be considered to control, be controlled by, be under common control with, or be an Affiliate of the other for purposes of this Agreement. 1.5 "Antibody" shall mean a composition comprising a whole antibody or fragment thereof, said antibody or fragment having been generated from the Mice or Future Generation Mice or having been derived from nucleotide sequences encoding, or amino acid sequences of, such an antibody or fragment. 1.6 "Antibody Product" shall mean any product comprising an Antibody or Genetic Material encoding an Antibody wherein, in respect of each Antibody Product, said Genetic Material does not encode multiple Antibodies. 1.7 "Antigen" shall have the meaning set forth in the MRLOA. -2- 3 1.8 "Antigen Invention" shall mean intellectual property rights in and to patentable inventions (including patent and patent applications) which both (i) include claims to the following: (A) the composition of matter of Antigens, or Genetic Materials (if any) encoding such Antigens (or fragments, hybrids, or homologues of such Genetic Materials or such Antigens); (B) the composition of matter of Antibodies which bind to the Antigen, or Genetic Materials encoding such Antibodies (or fragments, hybrids or homologues of such Genetic Materials or such Antibodies), and cells that express or secrete such Antibodies; (C) methods of treatment of humans using antibodies that bind to the Antigen or Genetic Materials encoding such antibodies; or (D) antibodies that bind to the Antigen, or Genetic Materials encoding such antibodies (or any uses of such antibodies or Genetic Material); and (ii) wherein, but for a license thereto, such claims would be infringed by the manufacture, use, sale, offer for sale, or import of Antibody Products to such Antigen. 1.9 "Antigen-Specific Technology" shall mean any intellectual property or technology or other proprietary rights of ABX in or to ABX Proprietary Antigens, including: (i) compositions of such Antigens and Genetic Materials encoding such Antigens; (ii) uses of such Antigens; (iii) antibodies that bind to such Antigens and Genetic Materials encoding such antibodies, and cells that express or secrete such antibodies; and (iv) uses of antibodies to such Antigens; provided, however, that Antigen-Specific Technology shall not include rights in and to such intellectual property created in connection with the performance of services for CGI under Article 3 of this Agreement to the extent such intellectual property is reasonably necessary for CGI to make, use, sell, or otherwise exploit Covered Products in accordance with a CGI Product Sublicense. Antigen-Specific Technology shall also include methods to discover novel Antigens and methods of using Antigens other than to create Antibodies pursuant to this Agreement. 1.10 "Buy-In Right" shall mean the right of ABX or JTI under the terms of the MRLOA to obtain an option for an Exclusive Home Territory Product License with respect to an Antigen that has been Selected by the other. 1.11 "CGI Antigen" shall mean an Antigen which ABX has Selected upon the request of CGI as provided in Section 2.2 below or for which ABX has exercised its Buy-In Rights upon the request of CGI as provided in Section 2.3 below. 1.12 "CGI Product Sublicense" shall mean a sublicense, in the form attached hereto as Exhibit B, to be granted by ABX to CGI pursuant to Section 2.6 of this Agreement. -3- 4 1.13 "CGI Proprietary Antigen" shall mean a specifically identified Antigen for which an issued patent, or a pending patent application being prosecuted in good faith in the United States or Europe, which patent or application is owned or controlled by CGI prior to CGI's exercise of its Option with respect to such Antigen in accordance with Article 2 below, contains claims to the following: (i) the composition of such specifically identified Antigen or Genetic Material encoding the Antigen, (ii) a method of therapeutic use of an antibody or other moiety which binds to such specifically identified Antigen, or (iii) the composition of an antibody to such Antigen (excluding compositions of antibodies resulting from immunization services under Article 3 of this Agreement). 1.14 "Covered Product" shall mean any Antibody Product which incorporates (i) an Antibody which binds to a particular Antigen or (ii) Genetic Material encoding such an Antibody wherein said Genetic Material does not encode multiple Antibodies. If ABX acquires the right to sell (and the right to sublicense the right to sell) any other product derived through immunization of Mice or Future Generation Mice, whether by amendment of the MRLOA or otherwise, such products shall be included in the definition of Covered Product under this Agreement and shall be incorporated in the definition of Product under CGI Product Sublicenses entered into pursuant to this Agreement. 1.15 "Future Generation Mice" shall have the meaning set forth in the MRLOA. 1.16 "Genetic Material" shall mean a nucleotide sequence, including DNA, RNA, and complementary and reverse complementary nucleotide sequences thereto, whether coding or noncoding and whether intact or a fragment. 1.17 "Gene Therapy" shall mean the treatment or prevention of a disease by means of [***]. - ---------- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -4- 5 1.18 "GenPharm Cross License" shall mean that certain Cross License entered into by and between ABX, CGI, JTI, XT, and GenPharm International, Inc. effective as of March 26, 1997, as the same may be amended from time to time. 1.19 "Home Territory" shall mean either the JTI Territory or the ABX Territory, as the case may be. 1.20 "IND" shall mean an Investigational New Drug Application to the U.S. Food and Drug Administration, or its non-U.S. equivalent. 1.21 "JTI Territory" shall mean Japan, Taiwan, and South Korea (including the territory now comprising North Korea, if reunited with South Korea after the date hereof). 1.22 "Licensed Technology" shall mean: (i) the ABX-Controlled Rights; (ii) subject matter (including patentable inventions, information, biological materials and other intellectual property, and including all patent- and other intellectual property rights therein) created by ABX in performing immunization services at the request of CGI under Article 3 of this Agreement, in each case to the extent such subject matter is reasonably necessary for CGI to make, use, sell or otherwise exploit Covered Products in accordance with a CGI Product Sublicense. (iii) all other subject matter (including patentable inventions, information, biological materials and other intellectual property, and including all patent- and other intellectual property rights therein) owned by ABX, in each case to the extent that ABX has the right, under the terms of the applicable agreement(s), if any, pursuant to which ABX acquired such rights, to license or sublicense such rights to CGI hereunder during the term of this Agreement, and in each case only to the extent such subject matter is reasonably necessary to make, use, sell or otherwise exploit Covered Products in accordance with a CGI Product Sublicense; provided, however, that Antigen Specific Technology shall be excluded from Licensed Technology. 1.23 "Mice" shall have the meaning set forth in the MRLOA. 1.24 "MRLOA" and "Master Research License and Option Agreement" shall mean that certain Master Research License and Option Agreement entered into by and among XT, JTI and CGI effective as of June 28, 1996, as amended from time to time. As used herein, "MRLOA" shall also mean and include any agreement which supersedes the MRLOA. 1.25 "Net Sublicense Revenues" shall mean (i) the amount of cash license fees, milestone payments, Premium on Equity, and running royalties received by ABX or its Wholly-Owned Subsidiary in respect of a Sublicense, less (ii) any cash payments, including license fees, milestone payments or royalties, that ABX is required to pay to third parties (other than amounts paid to XT for -5- 6 XT's own account, as described in (iii) below) as a result of such Sublicense with respect to such Antigen by reason of the grant or exercise of such Sublicense, and less (iii) one-half of any amounts paid by ABX to XT for XT's own account (i.e., amounts that are paid to XT net of amounts XT is obligated to pay to third parties other than JTI or its Affiliates) by reason of ABX's acquiring or exercising (directly or through third parties) the Product License, or other rights under the Licensed Technology, for such Antigen. In determining Net Sublicense Revenue: 1.25.1 For purposes of clarification, it is understood and agreed that Net Sublicense Revenues shall (A) not include amounts paid to ABX [***], and (B) shall be [***] payments that ABX otherwise would be required to make. 1.25.2 For purposes of this Agreement, [***] shall mean the amount by which cash amounts received by ABX or its Wholly-Owned Subsidiary [***]. 1.25.3 In the event that ABX or its Wholly-Owned Subsidiary grants a Sublicense to an entity that is not a Wholly-Owned Subsidiary of ABX, and [***]. It is understood that if ABX grants a Sublicense to a Wholly-Owned Subsidiary, any consideration received by ABX from such Wholly-Owned Subsidiary in respect of such Sublicense shall not be - ---------- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -6- 7 included within the definition of Net Sublicense Revenues; however, if following such grant of a Sublicense, the entity ceases to be a Wholly-Owned Subsidiary of ABX, any cash payment that ABX receives thereafter (including in the transaction in which such entity ceases to be a Wholly-Owned Affiliate) shall be deemed within Net Sublicense Revenues to the extent the same is attributable to the Sublicense. 1.26 "Product License" shall mean a license granted from XT to ABX pursuant to the terms of the MRLOA (including without limitation Sections 4.2, 5.2, 5.5, 5.6, 6.2, or 7.1 thereof) permitting ABX to commercialize certain Antibody Products. Product Licenses shall include Exclusive Worldwide Product Licenses, Exclusive Qualified Worldwide Product Licenses, Co-Exclusive Worldwide Product Licenses, and Exclusive Home Territory Product Licenses, as such terms are defined in the MRLOA. 1.27 "Rest of the World" shall mean all countries of the world other than the countries in the ABX Territory and the JTI Territory. 1.28 "Selecting" an Antigen or to "Select" an Antigen or similar phrases shall refer to the process described in Article 4 of the MRLOA whereby JTI or ABX obtains an option to acquire a Product License related to a particular Antigen, and shall also include (i) the process of obtaining a Product License pursuant to Section 7.1 of the MRLOA and (ii) any other process by which ABX may have the right to obtain a license to make use and sell Covered Products related to Antigens chosen by ABX. 1.29 "Selection Slot" shall mean the right of ABX to Select an Antigen pursuant to the terms and procedures set forth in the MRLOA. 1.30 "Six-Month Period" shall mean the first six (6) months of each Year (i.e., the six-month period ending on June 30) and the last six (6) months of each Year (i.e., the six-month period ending on December 31). 1.31 "Sublicensee" shall mean a third party that is not an Affiliate to whom ABX has, granted a sublicense under the Licensed Technology to both make and sell a particular Covered Product. "Sublicensee" shall also include a third party to whom ABX has granted the right to distribute Covered Product, provided that such third party is responsible for marketing and promotion of such Covered Product. It is understood that CGI is not a Sublicensee of ABX for purposes of this Agreement. As used in this Agreement, "Sublicense" shall mean an agreement or arrangement pursuant to which such a sublicense or distribution right has been granted. 1.32 "Transgenic Product" shall have the meaning set forth in the GenPharm Cross License. 1.33 "Year" shall mean each calendar year. -7- 8 1.34 Terminology Regarding Antibody Products, Covered Products, and Licenses. For purposes of clarification, it is understood and agreed that (i) references to Antibody Products or Covered Products "to X," "for X," "related to X," and "with respect to X" and similar references, where "X" is an Antigen (including without limitation any Product Antigen or Sublicense Product Antigen), shall mean Antibody Products or Covered Products which incorporate (A) an Antibody which binds to such Antigen or (B) Genetic Material encoding such an Antibody wherein said Genetic Material does not encode multiple Antibodies, and (ii) references to a license or sublicense (including without limitation any Product License, CGI Product Sublicense, or Direct Third Party Sublicense) "to X," "for X," "related to X," and "with respect to X" and similar references, where "X" is an Antigen, shall mean such licenses or sublicenses conveying rights to Antibody Products for such Antigen. 2. OPTION FOR ANTIGEN SELECTION AND CGI PRODUCT SUBLICENSES 2.1 Option to Acquire CGI Product Sublicenses. 2.1.1 Option. Pursuant to the terms and conditions set forth in this Agreement, ABX hereby grants to CGI an option (the "Option") to enter into CGI Product Sublicenses during the term of this Agreement, which Option may be exercised by CGI with respect to two (2) Antigens per Year, [***], all pursuant to the procedures set forth in this Article 2. 2.1.2 Loss of Unexercised Slot. If CGI does not exercise the Option with respect to the full number of Antigens for which CGI has the right to exercise the Option for any given Six-Month Period, then the unexercised Option shall expire with respect to that number of Antigens for which it was not exercised (i.e., so that unexercised Options may not be carried over by CGI to any subsequent Six-Month Period). However, in the event that ABX obtains the right to carry Selection Slots forward from the first Six- Month Period in a Year and exercise them in the second Six-Month Period in that same Year, then CGI shall also have the same right to the same extent to so carry forward a proportional number of Selection Slots, in accordance with procedures to be reasonably agreed by CGI and ABX, and in the event that ABX obtains the right to carry Selection Slots forward from one Year to the next, ABX and CGI shall negotiate in good faith whether, and if so the manner in which, the benefit of such carry-forward will be made available to CGI; provided, however, that in no event shall CGI be entitled to carry forward more Selection Slots than ABX is permitted to carry forward and in no event shall CGI be entitled to carry any Slot forward more than [***]. 2.2 Selection of CGI Antigens. To exercise the Option with respect to an Antigen, CGI must notify ABX in writing (each such notice an "Exercise Notice") that CGI desires ABX to Select an Antigen for CGI for a given Six-Month Period and identify the Antigen. A Form of Exercise Notice is attached hereto as Exhibit E. An Exercise Notice with respect to an Antigen for a given Six-Month Period must be given during the Six-Month Period immediately preceding the Six-Month Period for which the Exercise Notice is given, it being understood that if CGI has not, for each Selection Slot available to CGI for a given Six-Month Period, provided the first Exercise Notice for - ---------- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -8- 9 such Selection Slot on or before the last day of the preceding Six-Month Period (i.e., on or before December 31st or June 30th), CGI shall be deemed not to have exercised its Option for such Selection Slots. Notwithstanding the foregoing, the Exercise Notice with respect to the Option for the Six-Month Period ending on December 31, 1997 may be given by CGI at any time prior to December 1, 1997, and the Exercise Notice with respect to the Option for the Six-Month Period beginning on January 1, 1998 may be given by CGI at any time prior to January 31, 1998. CGI may also, in cases in which Section 7.1 of the MRLOA applies (i.e., those cases in which CGI has proprietary rights in the Antigen), request in the Exercise Notice that ABX Select the Antigen pursuant to Section 7.1 of the MRLOA; provided, however, that CGI shall provide to ABX for disclosure to JTI the basis for claiming that Section 7.1 of the MRLOA applies. Following receipt of such Exercise Notice: (a) ABX shall promptly and in good faith determine whether, at the time ABX received CGI's Exercise Notice, any of the following conditions (each, an "Impediment") existed: (i) the Antigen so identified by CGI was not then available, under the terms of the MRLOA, for Selection by ABX because (A) ABX or JTI then has in effect a Product License with respect to such Antigen, or has previously Selected such Antigen and has the continuing right to acquire a Product License with respect to such Antigen by reason of such Selection; (B) XT is obligated to grant to a third party other than ABX or JTI exclusive rights to sell one or more Covered Products to such Antigen (or has granted such rights to such third parties, which rights are then in effect), or (C) XT otherwise does not have the authority to grant ABX rights to Covered Products to such Antigen; (ii) ABX was contractually obligated to Select such Antigen for a third party, or has granted to a third party a contractual right (including, without limitation, an option) to require ABX to Select such Antigen on such third party's behalf, it being understood that the Antigen must be specifically identified as part of such obligation or right; (iii) the Antigen so identified by CGI is an ABX Proprietary Antigen; (iv) ABX is actively and in good faith engaged in negotiations with a third party regarding the grant to such third party of a license under the Licensed Technology to commercialize Covered Products related to such Antigen; or (v) ABX has performed research on its own behalf regarding such Antigen and has reached a point equivalent to completion of Item No. 11 of the attached Exhibit A [***] of Mice or Future Generation Mice with such Antigen. ABX shall, within thirty (30) days after receiving the Exercise Notice, notify CGI in writing of any such Impediment and, unless contractually prohibited from doing so, provide reasonable documentation of the existence of such Impediment; provided, that at ABX's election ABX may provide such documentation under circumstances reasonably calculated to ensure the confidentiality - ---------- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -9- 10 thereof, which circumstances may include disclosure of such documentation to a third party, chosen by CGI and reasonably acceptable to ABX, under terms of a confidentiality agreement. If such an Impediment exists and ABX so notifies CGI during such period, then ABX shall not be obligated to Select such Antigen or grant to CGI a CGI Product Sublicense with respect to such Antigen; provided, however, that nothing herein shall preclude CGI from later attempting again to exercise the Option with respect to such Antigen in accordance with this Article 2. In the event that CGI has exercised the Option with respect to an Antigen, but has been unable to have ABX Select such Antigen by reason of an Impediment (as set forth in this Section 2.2), then CGI may again exercise such Option for a different Antigen, as provided in Section 2.2(b) below. (b) Subject to paragraph 2.2(a) above, ABX shall Select such Antigen at the first [***], or at the next other opportunity at which ABX may make such selection, whichever occurs first. If requested to do so by CGI in an appropriate case, ABX shall Select such Antigen pursuant to Section 7.1 of the MRLOA. ABX agrees to keep available for Selection at CGI's request in accordance with this Section 2.2 during each Six-Month Period the number of Selection Slots with respect to which CGI has the right to exercise the Option for such Six-Month Period, it being understood, however, that if CGI does not exercise the Option during the time permitted under this Section 2.2, ABX shall have the right to use such Selection Slot for its own account or for the benefit of a third party, subject to Section 5.1 below. It is understood that if CGI exercises its Option with a timely Exercise Notice but an Impediment exists with respect to the Antigen requested by CGI, ABX shall, unless the parties otherwise mutually agree, be required to keep the Selection Slot available for CGI to exercise the Option with respect to an alternative Antigen until the midpoint of the Six-Month Period during which the Selection Slot was to be exercised on behalf of CGI (i.e., March 31st or Sept 30th of such Six-Month Period, as the case may be). CGI may exercise the Option with respect to such alternative Antigen by sending a new Exercise Notice naming such alternative Antigen; provided, however, that if ABX receives such an Exercise Notice naming an alternative Antigen less than thirty (30) days before the first quarterly meeting within the Six-Month Period, then ABX may, in its discretion, [***] within the Six-Month Period or the next available opportunity, whichever is sooner. If CGI has not provided an Exercise Notice naming an alternative Antigen that is free of Impediments prior to the midpoint of the Six-Month Period, then (i) ABX shall not be obligated to Select an Antigen for CGI using that Selection Slot during such Six-Month Period but (ii) ABX shall not, without CGI's written consent, be entitled to Select another Antigen on behalf of itself or a third party using such Selection Slot. (c) CGI shall be responsible for the payment of all amounts that ABX may owe to XT under the MRLOA by reason of ABX's Selection of an Antigen on behalf of CGI. Upon ABX's Selection of an Antigen identified by CGI under this Section 2.2, such Antigen shall become a "CGI Antigen." ABX shall promptly notify CGI of its Selection of an Antigen requested by CGI and shall inform CGI of the deadline for ABX to exercise its option under the MRLOA to obtain a Product License resulting from Selection of the Antigen. - ---------- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -10- 11 (d) Coordination with Selection Under MRLOA. (i) With the Exercise Notice for each CGI Antigen, CGI shall propose a definition of such CGI Antigen and shall provide a summary of the scientific background for Selection of such CGI Antigen at least sufficient for ABX to comply with its minimum disclosure obligations under Section 4.2(i)(a) of the MRLOA. (ii) In the event a dispute arises between CGI and ABX as to whether the definition proposed by CGI indicates a substance that is sufficiently characterized to be within the definition of Antigen set forth in the MRLOA, the issue shall be resolved by binding arbitration by one arbitrator reasonably acceptable to the parties who is experienced in the pharmaceutical industry and in biological research and development. If the parties are unable to agree on an arbitrator, the arbitrator shall be an independent expert as described in the preceding sentence selected by the chief executive of the San Francisco office of the American Arbitration Association. The arbitrator shall in a written opinion state whether the selected substance is an Antigen. The arbitration shall be conducted in English and shall be held in San Francisco, California. Each party shall pay its own costs in connection with such arbitration and share equally the other expenses associated with the arbitration. Any arbitration subject to this Section 2.2(d) shall be completed within sixty (60) days from the filing of notice of a request for such arbitration. (iii) ABX agrees to use reasonable efforts to obtain JTI's agreement to the CGI Antigen definition proposed by CGI to the extent that such proposed definition is consistent with the definition of "Antigen" under the MRLOA, and CGI agrees to provide reasonable cooperation to ABX in support of such efforts. Prior to Selection of the Antigen by ABX, CGI and ABX agree, at the request of either party, to discuss in good faith the definition of the CGI Antigen proposed by CGI and any proposed changes to such definition. Notwithstanding any other provision of this Agreement, it is understood that the rights granted to CGI under this Agreement (and any CGI Product Sublicense entered into under this Agreement) shall be subject to the definition for each CGI Antigen that is established in accordance with the terms of the MRLOA. 2.3 Buy-In Rights. 2.3.1 Notice. ABX may, at its sole election, from time to time describe to CGI one or more Buy-In Rights that ABX may be entitled to exercise in respect of Antigens Selected by JTI, as well as the deadline for exercising such Buy-In Rights, and offer to exercise such Buy-In Rights as to an Antigen at the request of CGI in lieu of CGI's exercising its Option [***] for that Six-Month Period or, if the parties mutually agree, for any following Six-Month Period. It is understood that the parties may need to reach additional agreements regarding disclosure and licensing of Antigen Inventions regarding such Antigen before agreeing to have ABX exercise its Buy-In Right for such Antigen as described in this Section 2.3. 2.3.2 Request by CGI. If, in response to a proposal under Section 2.3.1 and after the parties have negotiated the terms of such a proposal (including without limitation the rights to disclose or license Antigen Inventions pursuant to the terms of the MRLOA), CGI requests that ABX - ---------- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -11- 12 exercise its Buy-In Right related to an Antigen, ABX shall, to the extent it has the right to do so, exercise its Buy-In Right related to such Antigen promptly following the request by CGI. 2.3.3 Payment; Exercise. CGI shall be responsible for the payment of all amounts that ABX may owe to XT under the MRLOA by reason of ABX's exercising a Buy-In Right related to an Antigen on behalf of CGI under this Section 2.3. Upon ABX's exercise under the MRLOA of a Buy-In Right related to an Antigen as requested by CGI under this Section 2.3, the Antigen to which the Buy-In Right relates shall be a "CGI Antigen." ABX shall promptly notify CGI of its exercise of a Buy-In Right requested by CGI and shall inform CGI of the deadline for ABX to exercise its option under the MRLOA to obtain a Product License resulting from the exercise of the Buy-In Right. In the event that CGI so requests ABX to exercise its Buy-In Right with respect to an Antigen, and ABX exercises such Buy-In Right under the MRLOA with respect to such Antigen pursuant to such Buy-In Right, then CGI shall be deemed to have exercised its Option [***] in the Six-Month Period in which CGI requested ABX to exercise such Buy-In Right; provided, however, that if ABX does not exercise its Buy-In Right, then CGI shall not be deemed to have exercised its Option [***] by reason of requesting ABX to exercise such Buy-In Right. 2.4 Obtaining Product Licenses from XT to ABX for CGI Antigens. 2.4.1 Notice. Following Selection of a CGI Antigen, or exercise of a Buy-In Right for a CGI Antigen, (i) ABX shall (subject to Section 4.1.2 below) exercise its rights under the MRLOA and obtain a Product License for such CGI Antigen from XT, (ii) CGI shall be responsible for payment of any amounts due to XT pursuant to the terms of the MRLOA by reason of such exercise, and (iii) ABX and CGI shall enter into a CGI Product Sublicense pursuant to the terms of Section 2.6 of this Agreement with respect to such CGI Antigen. Notwithstanding the foregoing, in the event that CGI provides written notice to ABX, no later than thirty (30) days prior to the deadline for ABX to enter into a Product License for a CGI Antigen, instructing ABX not to exercise its rights to obtain a Product License for that CGI Antigen on behalf of CGI (each such notice an "Abandonment Notice"), then (i) CGI shall not be obligated to pay amounts due to XT pursuant to the terms of the MRLOA for such Product License, (ii) ABX shall not be obligated to obtain such Product License, and (iii) ABX shall not be obligated to enter a CGI Product Sublicense for such Antigen. If CGI sends such an Abandonment Notice with respect to an Antigen, then that Antigen shall cease to be a CGI Antigen for purposes of this Agreement; however, it is understood that CGI shall nonetheless continue to be considered to have exercised the Option for purposes of determining the number of Antigens for which CGI is entitled to exercise the Option under Section 2.1 above. 2.4.2 Use by ABX. It is understood that if ABX has Selected a CGI Antigen or exercised a Buy-In Right for a CGI Antigen and CGI thereafter gives ABX an Abandonment Notice regarding that CGI Antigen as provided in Section 2.4.1, ABX shall be entitled, in its sole discretion, to exercise ABX's option and enter into the Product License related to that Antigen on its own behalf and shall not be obligated to enter into the corresponding CGI Product Sublicense, and shall not be obligated to make the payments to CGI provided under Section 5.1 of this Agreement (although ABX will remain obligated to make the payments, if any, required under Section 6.3); provided, - ---------- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -12- 13 however, that in such event CGI shall not be responsible to pay any further amounts due from ABX to XT with respect to such Product License. 2.5 Research License. Following Selection of each CGI Antigen (or exercise of a Buy-In Right for each CGI Antigen) and subject to the terms and conditions of this Agreement, ABX agrees to grant, and hereby grants, to CGI a nonexclusive sublicense under the Licensed Technology to develop, make, have made, use, import or export or otherwise transfer physical possession of (but not to sell, lease, offer to sell or lease, or otherwise transfer title to) Covered Products related to such CGI Antigen and cells that express or secrete Antibodies to such CGI Antigen, in each case solely for purposes relating to or in connection with research or development (i) of Covered Products for use in the field of Gene Therapy or (ii) involving Genetic Material when used with viral or nonviral gene transfer systems. CGI shall have the right to sublicense the rights granted under this Section 2.5 upon the approval of ABX, which approval shall not be unreasonably withheld. In the event that ABX refuses to approve such a sublicense, ABX shall, to the extent that ABX has the right to do so, grant at CGI's request a nonexclusive sublicense of such rights directly to a non-Affiliate third party designated by CGI on terms and conditions substantially identical to the applicable terms and conditions of this Agreement. The sublicense granted by ABX under this Section 2.5 with respect to a CGI Antigen (and the further sublicenses, if any, granted by CGI under this Section 2.5 with respect to such CGI Antigen) shall terminate at such time as (A) CGI sends ABX an Abandonment Notice pursuant to Section 2.4.1 above regarding such CGI Antigen or (B) CGI enters into a CGI Product Sublicense related to such CGI Antigen; provided, however, that termination of a sublicense under this Section 2.5 with respect to a CGI Antigen pursuant to (B) above shall not affect the duration or survival of a grant of similar rights or sublicense under the CGI Product Sublicense with respect to such CGI Antigen, which rights or sublicense shall terminate or expire only in accordance with the terms of such CGI Product Sublicense. In the event that ABX enters into a Product Sublicense with respect to a CGI Antigen and CGI has not within six (6) months thereafter entered into a CGI Product Sublicense with respect to such CGI Antigen, the sublicense granted under this Section 2.5 with respect to such CGI Antigen shall terminate. It is understood and agreed that (x) as to ABX-Controlled Rights, the grant of rights under this Section 2.5 shall be subject to and limited in all respects by the terms of the applicable ABX In-License(s) pursuant to which such ABX-Controlled Rights were granted to ABX and (y) the rights and sublicenses granted to CGI under this Section 2.5 or any other provision of this Agreement shall be subject in all respects to the GenPharm Cross License. 2.6 Terms of CGI Product Sublicense. At such time as ABX enters into a Product License with XT with respect to a CGI Antigen pursuant to Section 2.4.1, CGI and ABX shall promptly execute a CGI Product Sublicense granting CGI rights corresponding to such CGI Antigen in the Gene Therapy field, all as set forth in the form of CGI Product Sublicense attached as Exhibit B hereto. During such time as CGI is an Affiliate of ABX (as the term "Affiliate" is defined in the GenPharm Cross License), CGI shall have a direct sublicense from XT under the GenPharm Cross License for Covered Products related to that CGI Antigen, as set forth in the Direct Sublicense of GenPharm Rights entered into by and between XT and CGI effective as of October ___, 1997 (the "Direct Sublicense of GenPharm Rights"). ABX shall arrange for Product Licenses entered into by ABX for CGI Antigens during such time as CGI is an Affiliate of ABX (as the term "Affiliate is -13- 14 defined in the GenPharm Cross License) to contain provisions specifying that rights under the GenPharm Cross License conveyed to ABX under such Product Licenses are subordinate to the rights conveyed to CGI under the Direct Sublicense of GenPharm Rights. 2.6.1 Coordination With Direct Sublicense of GenPharm Rights. (a) To the extent (and only to the extent) that the grant of sublicenses and rights to CGI, or third parties, under the Direct Sublicense of GenPharm Rights precludes, under the terms of the GenPharm Cross License, the grant of any sublicense or rights under the GenPharm Cross License related to the same Antigen to ABX (whether by Product License or otherwise), ABX agrees that rights granted to ABX by XT, including the sublicense of rights under the GenPharm Cross License under the Product License related to that Antigen, shall be subordinate to the sublicenses and rights granted to CGI under the Direct Sublicense of GenPharm Rights. (b) For purposes of further clarification, it is understood that, to the extent that one or more sublicenses granted to CGI, or third parties, under the Direct Sublicense of GenPharm Rights terminate or expire for any reason (including without limitation any termination or expiration pursuant to Article 9 of the Direct Sublicense of GenPharm Rights), the rights granted to ABX under the Product Licenses related to the same CGI Product Antigens as the terminated or expired sublicenses shall no longer be subject to the rights granted to CGI under the Direct Sublicense of GenPharm Rights; and, accordingly, in such event the rights granted to CGI or third parties under the Direct Sublicense of GenPharm Rights may become part of the rights granted under the Product License from XT to ABX related to that Antigen (and from ABX to CGI in any corresponding CGI Product Sublicense), in each case to the extent so provided in the applicable Product License (or CGI Product Sublicense, respectively). 2.6.2 Territory and Exclusivity. The Territory and exclusivity provided in a given CGI Product Sublicense shall be the same as the Territory and exclusivity granted to ABX under the Product License from XT to ABX related to the same Antigen. Accordingly, for example, (i) if ABX obtains a Co- Exclusive Worldwide Product License related to the CGI Antigen, the terms of the CGI Product Sublicense shall provide for a Territory which is the Home Territory of ABX and the Rest of the World and will provide that the rights granted therein are exclusive in the Home Territory of ABX and co-exclusive with JTI or its assignee or sublicensee in the Rest of the World, (ii) if ABX obtains an Exclusive Home Territory Product License related to the CGI Antigen, the terms of the CGI Product Sublicense shall provide for a Territory which is the Home Territory of ABX and will provide that the rights granted are exclusive in that Home Territory, (iii) if ABX obtains an Exclusive Qualified Worldwide Product License related to the CGI Antigen, the terms of the CGI Product Sublicense will provide for a Territory which is the Home Territory of ABX and the Rest of the World, and will provide that the rights granted are exclusive in that territory, and (iv) if ABX obtains an Exclusive Worldwide Product License related to the CGI Antigen, the terms of the CGI Product Sublicense will provide for a Territory which is worldwide and will provide that the rights granted are exclusive in that territory. -14- 15 2.6.3 Financial Terms. It is understood that the financial terms of each CGI Product Sublicense, including without limitation license fees, milestone payments, and royalty payments, shall be no less favorable to CGI than the financial terms of the Product License between ABX and XT related to the same Antigen. This Section 2.6.3 shall not be deemed to limit ABX's obligations under Section 11.1(v) below. 2.6.4 Rights to Antigens. Notwithstanding any other provision of this Agreement, it is understood and agreed that neither this Agreement nor the CGI Product Sublicenses convey to CGI any rights ABX may have (whether by patentable invention, license, or otherwise) in or to Antigen Specific Technology, nor does the CGI Product Sublicense or this Agreement convey to ABX any rights that CGI may have (whether by patentable invention, license, or otherwise) in or to any technology of CGI whatsoever (other than the right to use Antigen provided by CGI for the purpose of conducting the immunization services set forth in Article 3 of this Agreement), unless the parties expressly agree otherwise in writing. 2.6.5 Residual Rights. For purposes of clarification, it is understood that the license granted to CGI under a CGI Product Sublicense shall be for Covered Products in the Gene Therapy field, and that ABX shall retain all rights under the corresponding Product Licenses outside of the Gene Therapy field, subject to Section 5.2 below. 3. IMMUNIZATION SERVICES 3.1 Services. Following CGI's exercise of its Option with respect to an Antigen pursuant to Section 2.2 or exercise of a Buy-In Right to a CGI Antigen pursuant to Section 2.3, and upon request from CGI, ABX agrees to provide to CGI reasonable immunization services as described in Exhibit A hereto with respect to such CGI Antigen, [***]. Unless the parties agree otherwise in writing, ABX shall perform such immunization services with a number of Mice (or Future Generation Mice) as specified in Exhibit A and shall use a level of effort calculated to complete the tasks set forth in Exhibit A within six (6) months after the time CGI requests such services and provides to ABX both reasonably sufficient quantities of the Antigen and the primary and secondary screening assays as set forth in Exhibit A unless, with diligent efforts, ABX is unable to complete such services in such time, in which case ABX shall complete such services as soon as practicable; provided, that in no event shall ABX use efforts less than the efforts ABX uses for similar activities with respect to its own Antibody Products. CGI may direct ABX to use one or more types of Mice or Future Generation Mice from such colonies as ABX makes available for such use by third parties, provided that ABX shall not be obligated to use a total number of Mice and Future Generation Mice exceeding the number set forth in Exhibit A. It is understood that ABX shall have no obligation to provide immunization services related to an Antigen if an Impediment exists with respect to such Antigen (as described in Section 2.2 above) or ABX has not exercised its Buy-In Right with respect to such Antigen. 3.2 Improvements; Disclosure and Cooperation. On CGI's request, ABX shall make reasonably available for use in connection with performance of immunization services pursuant to - ---------- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -15- 16 this Article 3, such improvements and new technologies (including without limitation immunization methodologies, hybridoma technologies, and the use of different strains of, or improvements in, Mice or Future Generation Mice for immunization) as may become available to ABX for use in performing such immunization services and are generally offered to be made similarly available by ABX to third parties. To the extent that ABX may make such improvements or new technologies available for use on behalf of CGI without incurring substantial incremental expenses, over the cost of performing immunization services using technologies available as of the Effective Date, ABX shall make such improvements or new technologies available to CGI at no cost to CGI, and if there is such substantial incremental expense, ABX shall notify CGI in advance and shall use such improvements or new technologies for immunization services under this Article 3 if CGI agrees in advance to pay such additional expenses. ABX agrees to keep CGI reasonably informed of any such improvements or new technologies and agrees to provide, on CGI's request, reasonable cooperation and assistance in helping CGI to understand the nature of the improvements or new technology and determine whether CGI should choose to request the use of such improvements or new technologies in performance of immunization services under this Agreement. 3.3 Ownership of Materials and Intellectual Property. Except as otherwise provided in Section 8.1 of this Agreement, ABX shall retain all right, title and interest in any biological materials, information, technical data, ideas, discoveries, works of authorship, patentable and unpatentable inventions, know-how, engineering drawings, and equipment made by ABX (and its employees, agents, or representatives) in the course of performing immunization services under this Agreement. 3.4 Supply of Hybridomas; Terms of Material Transfer. ABX agrees to use reasonable efforts to provide quantities of the hybridoma clones supplied in accordance with Exhibit A to CGI as reasonably requested by CGI. All hybridomas derived from Mice or Future Generation Mice provided from ABX to CGI shall remain the property of ABX, and the transfer of physical possession of any Transgenic Products to CGI shall not be construed as a sale, lease, offer to sell or lease, or other transfer of title. All Antibody Products transferred from ABX to CGI shall remain the property of ABX, and the transfer of physical possession to CGI, and/or possession or use by CGI, of such Antibody Products shall not be (nor be construed as) a sale, lease, offer to sell or lease, or other transfer of title to such Antibody Products. It is understood and agreed that transfer of hybridomas to CGI pursuant to Article 3 of this Agreement shall not convey to CGI any implied rights or sublicenses, and that CGI shall only be authorized regarding the manufacture, use, and other exploitation of such hybridomas pursuant to (and to the extent of) rights and sublicenses conveyed to CGI under a CGI Product Sublicense (and any corresponding sublicense directly to CGI from XT under the GenPharm Cross License, it being understood that all rights and sublicenses under the GenPharm Cross License are subject to the limitations set forth therein). CGI shall only use such hybridomas in compliance with all applicable national, state, and local laws and regulations, including all applicable National Institutes of Health guidelines and agrees that such hybridomas will not be used in humans, except in accordance with all applicable regulations and laws. CGI acknowledges that such hybridomas are experimental in nature and may have unknown characteristics and therefore agrees to use prudence and reasonable care in the use, handling, storage, transportation, disposition and containment of such hybridomas and all derivatives thereof. -16- 17 3.5 Supply of CGI Antigen; Terms of Material Transfer. CGI Antigen materials, and primary and secondary screening assay materials, provided by CGI to ABX for performance of the immunization services shall remain the property of CGI, and the transfer of physical possession of such materials to ABX shall not be construed as a sale, lease, offer to sell or lease, or other transfer of title. It is understood and agreed that transfer of such materials to ABX pursuant to Article 3 of this Agreement shall not convey any implied right, license or sublicense to ABX regarding such materials except to the extent (and only to the extent) necessary to perform the immunization services set forth in this Article 3. ABX shall only use such materials for performing immunization services pursuant to Article 3 as set forth in Exhibit A. ABX shall only use such CGI Antigen materials in compliance with all applicable national, state, and local laws and regulations, including all applicable National Institutes of Health guidelines and agrees that such materials will not be used in humans, except in accordance with all applicable regulations and laws. ABX acknowledges that such CGI Antigen materials are experimental in nature and may have unknown characteristics and therefore agrees to use prudence and reasonable care in the use, handling, storage, transportation, disposition and containment of such materials and all derivatives thereof. ABX shall not disclose to any third party, or license to any third party, any Antigen Inventions for CGI Proprietary Antigens made by ABX using materials provided by CGI. 4. LIMITATIONS ON LICENSES AND SELECTION; RIGHT TO EXCLUSIVE WORLDWIDE LICENSE. 4.1 Limitation on Licenses and Selection of Antigens. 4.1.1 "[***] Product License." For purposes of this Section 4.1, a Product License for a CGI Antigen shall be a "[***] Product License" from the time that ABX and XT enter into such Product License for such CGI Antigen until the earlier of (i) the time a Covered Product [***]or (ii) the time the CGI Product Sublicense for such CGI Antigen and all sublicenses thereunder are terminated or expire (or is disclaimed by CGI in writing prior to execution of the CGI Product Sublicense). 4.1.2 Limitation on CGI Pre-IND Product Licenses. Notwithstanding any other provision of this Agreement, ABX shall not be obligated to enter into a Product License for a CGI Antigen if entering into such Product License would bring the total number of [***]. 4.2 Right to Exclusive Worldwide Product License. In the event that ABX has obtained a Product License for Covered Products related to a CGI Antigen which is a Co-Exclusive Worldwide Product License, Exclusive Qualified Worldwide Product License, Exclusive Home Territory Product License, or other license conveying lesser rights than would be conveyed under an Exclusive Worldwide Product License, and thereafter acquires the right under the MRLOA to obtain additional rights relating to such Covered Products (including without limitation an Exclusive Worldwide Product License for such Covered Products), ABX shall notify CGI and provide a description to CGI of such additional rights. If CGI requests ABX to exercise its right to obtain such broader rights - ---------- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -17- 18 prior to the deadline, if any, for ABX to exercise such right, ABX shall exercise its right under the MRLOA to obtain such broader rights and revise the corresponding CGI Product Sublicense to match the Territory and exclusivity available to ABX after obtaining such broader rights; provided, however, that CGI shall be responsible for paying any additional license fees paid by ABX to XT therefor and CGI shall not have the right to obtain rights broader than those contained in the form of CGI Product Sublicense attached hereto as Exhibit B. ABX shall not be obligated to give notice or exercise its right to obtain additional rights as provided in this Section 4.2, unless a CGI Product Sublicense related to such CGI Antigen is then in effect. ABX shall have the right, at its own expense, to exercise its right to obtain such broader rights at any time prior to request by CGI under this Section 4.2. 5. EXPLOITATION OF RESIDUAL RIGHTS BY ABX 5.1 Use of the CGI Selection Slot by ABX. If for any given Six-Month Period CGI does not exercise its Option (and is not deemed to have exercised its Option under Section 2.3 above) with respect to the full number of Antigens for which CGI has the right to do so under Section 2.1, then that Selection Slot will be available for ABX to select an Antigen (for its own account or for the benefit of a third party). In the event that ABX Selects an Antigen using such Selection Slot, ABX shall promptly notify CGI which Antigen was Selected using the CGI Selection Slot. If ABX or its Wholly-Owned Subsidiary thereafter grants to a third party a Sublicense under ABX's Product License related to such Antigen, then ABX shall pay to CGI [***] of Net Sublicense Revenues from such Sublicense. 5.2 Use of Residual Rights Related to CGI Antigen. In the event that ABX grants a Sublicense to a third party with respect to non-Gene Therapy applications of Covered Products related to a CGI Antigen, then ABX shall pay to CGI [***] of Net Sublicense Revenues from such Sublicense. If such residual rights exercised by ABX were obtained as a result of CGI requesting ABX to exercise a Buy-In Right as set forth under Section 2.3, then ABX shall also reimburse CGI for [***] of any option fees and up front license fees paid by CGI pursuant to Section 2.3.3. 5.3 No Implied Obligation. Nothing in the Agreement shall obligate ABX to use the Selection Slot reserved for CGI in the manner set forth in Section 5.1 or to exploit the residual rights for non-Gene Therapy applications of Covered Products related to a CGI Antigen as set forth in Section 5.2, nor shall ABX have any implied obligation or duty to Sublicense any such rights to a third party. 6. ADDITIONAL OBLIGATIONS REGARDING NON-CGI ANTIGENS 6.1 Sale of Covered Products for Gene Therapy. ABX shall not itself market or sell any Covered Product solely or primarily for use in Gene Therapy. - ---------- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -18- 19 6.2 Gene Therapy Sublicenses. ABX shall not enter into any Sublicense agreement with a third party granting rights to make, have made, use, sell or offer to sell Covered Products (i) solely for use in the Gene Therapy or (ii) where ABX knows, at the time the Sublicense is granted, that the third party's objective is primarily to sell the Covered Products for use in Gene Therapy. Notwithstanding the foregoing, the parties acknowledge and agree that if a Sublicensee's stated intention (in writing) at any time prior to obtaining the Sublicense is to commercialize a Covered Product pursuant to such Sublicense for an application other than Gene Therapy before commercializing a Covered Product pursuant to such Sublicense for a Gene Therapy Application, such Sublicensee's primary objective shall be deemed not to be to sell Covered Products for use in Gene Therapy, even if such Sublicensee also intends to develop and sell Covered Products for use in Gene Therapy, and even if such Gene Therapy application is ultimately commercialized before Covered Products for non-Gene Therapy applications are commercialized. 6.3 Permitted Sublicenses Including Gene Therapy. (a) Subject to Section 6.2, ABX may enter into a Sublicense agreement with a third party granting rights to such third party with respect to Covered Products for use in Gene Therapy; provided, however, that ABX shall pay to CGI (i) [***] of the net amount of all cash milestone payments and Premium on Equity (as defined in Section 1.25.2) received by ABX from such third party under such Sublicense which are triggered by Covered Products in the Gene Therapy field and (ii) [***] of the net amount of running royalties received by ABX from such third party for such Covered Products in the Gene Therapy field. For purposes of determining the "net" amount of milestone payments, Premium on Equity, and running royalties described in the preceding sentence, (A) any amounts that ABX is required to pay to third parties (other than amounts paid to XT for XT's own account, as described in (B) below) as a result of the grant or exercise of such Sublicense including without limitation any royalties owed by ABX to such third parties in respect of Sublicensee Net Sales of such Covered Products, and (B) [***] of any amounts paid by ABX to XT for XT's own account (i.e., amounts that are paid to XT net of amounts XT is obligated to pay to third parties other than JTI or its Affiliates) by reason of ABX's acquiring or exercising (directly or through third parties) the Product license, or other rights under the Licensed Technology for such Antigen, shall in each case be deducted from the amount of milestone payments, Premium Equity, and royalties received by ABX or its Wholly-Owned Subsidiary in respect of such Sublicense, before calculating CGI's share. For purposes of clarification, it is understood and agreed that such "net" amounts shall (A) not include amounts paid to ABX for [***], and (B) shall be net of any [***]. - ---------- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -19- 20 (b) In the event that ABX performed research regarding an Antigen and reached a point equivalent to completion of Item 11 on Exhibit A hereto with respect to such Antigen prior to (i) granting to a third party a Sublicense with respect to Covered Products related to that Antigen, or an option to obtain such a Sublicense, or (ii) obtaining a contractual commitment from a third party to reimburse the expenses of such research and development work in whole or part, then the payments set forth in Section 6.3(a) shall not apply, and ABX shall not be required to account to CGI for milestone and royalty payments related to such Covered Products; provided, however, that the payments in Section 6.3(a) shall apply in the case of Covered Products related to the [***]. (c) It is understood and agreed by the parties that the obligations in this Section 6.3 shall not apply with respect to Covered Products for Antigens (i) that were Selected by ABX prior to the Effective Date, (ii) for which ABX exercised a Buy-In Right prior to the Effective Date, or (iii) with respect to which ABX entered into a license to make, use and sell Covered Product prior to the Effective Date; provided, however, that the provisions of this Section 6.3 shall apply to Covered Products for the [***]. 6.4 [***]. ABX agrees that it will [***], and ABX agrees to [***]. 6.5 No Implied Obligations. Nothing in this Agreement shall be deemed to obligate CGI to (i) request ABX to Select CGI Antigens, (ii) request ABX to exercise Buy-In Rights for CGI Antigens, or (iii) request ABX to obtain a Product License for Covered Products related to a CGI Antigen; provided, however, that CGI's diligence obligations under each CGI Product Sublicense shall be as set forth in that CGI Product Sublicense. Subject to the terms of any CGI Product Sublicense entered into between CGI and ABX, nothing in this Agreement shall prevent CGI from commercializing products similar to or competitive with Covered Products, in addition to or in lieu of such Covered Products. Nor shall anything in this Agreement be deemed to obligate ABX to act in a manner to generate or maximize the amounts payable to CGI under Sections 5.1, 5.2, or 6.3 of this Agreement. 7. PAYMENTS; ACCOUNTING AND REPORTS 7.1 Amounts Due to ABX From CGI. ABX shall invoice CGI for all amounts due to ABX from CGI hereunder (including without limitation any amounts that ABX owes XT for Selection of a CGI Antigen or for execution of a Product License with respect to a CGI Antigen), and CGI shall pay such amounts within thirty (30) days of receiving such invoice. Payments due to ABX from CGI under CGI Product Sublicenses shall be made as set forth therein. - ---------- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -20- 21 7.2 Revenue Sharing Reports and Payments. After the first commercial sale of Product on which amounts are required to be paid by ABX to CGI under Sections 5.1, 5.2, or 6.3 above, ABX agrees to make quarterly written reports to CGI within sixty (60) days after the end of each calendar quarter, stating in each such report the source, basis, and payments, and aggregate amounts of, amounts received by ABX from Sublicensees during the calendar quarter upon which payments are due to CGI under Sections 5.1, 5.2 and 6.3 above. Concurrently with the making of such reports, ABX shall pay to CGI all amounts payable pursuant to Sections 5.1, 5.2, and 6.3 above. All payments to CGI hereunder shall be made in U.S. Dollars to a bank account designated by CGI. 7.3 Records; Inspection. ABX shall keep (and cause its Wholly-Owned Subsidiaries to keep) complete, true and accurate books of account and records for the purpose of determining the amounts payable to CGI under Sections 5.1, 5.2, and 6.3 this Agreement. Such books and records shall be kept at the principal place of business of ABX or its Wholly-Owned Subsidiaries, as the case may be, for at least three years following the end of the calendar quarter to which they pertain. Such records of ABX or its WhollyOwned Subsidiaries will be open for inspection during such three-year period by a representative of CGI for the purpose of verifying the statements. ABX shall require each of its Sublicensees to maintain similar books and records and to open such records for inspection during the same three-year period by a representative of ABX reasonably satisfactory to CGI on behalf of, and as required by, CGI for the purpose of verifying the revenue sharing statements. All such inspections may be made no more than once each calendar year, at reasonable times mutually agreed by CGI and ABX. The representative of CGI will be obliged to execute a reasonable confidentiality agreement prior to commencing any such inspection. Inspections conducted under this Section 7.3 shall be at the expense of CGI, unless a variation or error producing an increase exceeding ten percent of the amount stated for the period covered by the inspection is established in the course of any such inspection, whereupon all costs relating thereto will be paid by ABX. Upon the expiration of three years following the end of any fiscal year, the calculation of revenues to be shared with respect to such year shall be binding and conclusive, and ABX shall be released from any liability or accountability with respect to royalties for such year. 7.4 Currency Conversion. If any currency conversion shall be required in connection with the calculation of royalties or other payments hereunder, such conversion shall be made using the selling exchange rate for conversion of the foreign currency into U.S. Dollars, quoted for current transactions reported in The Wall Street Journal for the last business day of the calendar quarter to which such payment pertains. 7.5 Late Payments. Any payments due under this Agreement from either party 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 Bank of America in San Francisco, California on the date such payment is due, plus an additional two percent, calculated on the number of days such payment is delinquent. This Section 7.5 shall in no way limit any other remedies available to any party. 7.6 Withholding Taxes. All payments required to be made pursuant to this Agreement shall be without deduction or withholding for or on account of any taxes (other than taxes -21- 22 imposed on or measured by net income) or similar governmental charge imposed by a jurisdiction, such taxes referred to herein as "Withholding Taxes." Such Withholding Taxes shall be the sole responsibility of the withholding party. The withholding party shall provide a certificate evidencing payment of any Withholding Taxes hereunder. 8. INTELLECTUAL PROPERTY 8.1 Ownership of Inventions. Title to all inventions and other intellectual property made solely by an ABX employee in connection with this Agreement shall be owned by ABX. Title to all inventions and other intellectual property made solely by an CGI employee in connection with this Agreement shall be owned by CGI. Title to all inventions and other intellectual property made jointly by employees of ABX and CGI in connection with this Agreement shall be jointly owned by CGI and ABX. Notwithstanding the foregoing, as to CGI Proprietary Antigens, CGI shall own all intellectual property rights, and other proprietary rights, in and to inventions comprising: (i) compositions of such Antigens and Genetic Materials encoding such Antigens; (ii) antibodies that bind to such Antigens, Genetic Materials encoding such antibodies, and cells that express or secrete such antibodies (it being understood that ownership of such intellectual property by CGI shall not be, nor be construed as, a sale, lease, offer to sell or lease, or other transfer of title of any physical materials, including without limitation materials comprising Transgenic Products); and (iii) uses of antibodies to such Antigens; in each case which inventions are made in the course of performing services under Article 3 of this Agreement. Except as expressly provided in this Agreement, it is understood that neither party shall have any obligation to account to the other for profits, or to obtain any approval of the other party to license or exploit jointly owned intellectual property. In addition, except as may be expressly provided under a CGI Product Sublicense actually entered into between the parties, this Agreement shall not be deemed to grant to either CGI or ABX any right to prosecute, enforce or defend any patent or other intellectual property right owned or controlled by the other party. 8.2 Disclosure of Inventions. Each party shall promptly disclose to the other any patentable invention related to a CGI Antigen or an Antibody Product for such CGI Antigen, using the inventions disclosure form attached as Exhibit C hereto. All inventions disclosed under this Section 8.2 shall be treated as "Confidential Information" of the disclosing party under Article 9 of this Agreement. Nothing herein shall affect a party's ownership of any invention disclosed to the other party. 8.2.1 Disclosure and Licensing to JTI. It is understood and agreed that if an Antigen does not qualify for Selection by ABX pursuant to Section 7.1 of the MRLOA and ABX makes Antibody Inventions for such Antigen other than through use of materials supplied by CGI pursuant [***]. Unless otherwise agreed in writing by CGI, ABX shall be entitled to disclose and license such Antigen Inventions to JTI to the extent (and only to the extent) required under the MRLOA. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -22- 23 9. CONFIDENTIALITY 9.1 Confidentiality. Except as expressly provided herein, CGI and ABX each agree that, for the term of this Agreement and for five years thereafter, the receiving party shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose any information furnished to it by the other party pursuant to this Agreement (including, without limitation, knowhow), except to the extent that it can be established by the receiving party by competent proof that such information: (a) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure; (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; or (d) was subsequently lawfully disclosed to the receiving party by a third party or independently developed by the receiving party without reference to any information or materials disclosed by the disclosing party. 9.2 Permitted Disclosure. Notwithstanding Section 9.1 above and Section 13.16 below, each party may nevertheless disclose the other party's information to the extent such disclosure is reasonably necessary in exercise of its rights or performing its obligations hereunder or as required by law, provided that if a party is required by law to make any such disclosure of the other party's secret or confidential information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the other party of such disclosure requirement and will use efforts consistent with prudent business judgment to secure confidential treatment of such information prior to its disclosure (whether through protective orders or confidentiality agreements or otherwise). 10. INDEMNIFICATION 10.1 CGI. CGI agrees to indemnify and hold ABX and its directors, officers, employees and agents harmless from and against any claims, damages, liabilities or actions (including reasonable attorneys' fees and court and other expenses of litigation) (collectively, the "Liabilities") suffered or incurred in connection with third party (i) claims relating to or arising from the making, having made, use, offer for sale, or sale of any Covered Product manufactured, used, sold or otherwise distributed by CGI and its Affiliates or Sublicensees, (ii) claims arising from the negligence or willful misconduct of CGI or the breach of CGI's warranties under this Agreement or any derivatives thereof, or (iii) claims of infringement to the extent such infringement is caused solely by ABX's use of an Antigen provided by CGI or at the request of CGI, or ABX's production of -23- 24 antibodies to such an Antigen, in performing the immunization services and other obligations under this Agreement; provided, however, that CGI shall not be obligated to indemnify or hold harmless ABX or its directors, officers, employees or agents for such Liabilities to the extent that such Liabilities arise from the negligence or willful misconduct of ABX. 10.2 ABX. ABX agrees to indemnify and hold CGI and its directors, officers, employees and agents harmless from and against any claims, damages, liabilities or actions (including reasonable attorneys' fees and court and other expenses of litigation) (collectively, the "Liabilities") suffered or incurred in connection with third party claims relating to negligence or willful misconduct of ABX or the breach of ABX's warranties under this Agreement; provided, however, that ABX shall not be obligated to indemnify or hold harmless CGI or its directors, officers, employees or agents for such Liabilities to the extent that such Liabilities arise from the negligence or willful misconduct of CGI. 10.3 Procedure. If a party (an "Indemnitee") intends to claim indemnification under this Article 10, it shall promptly notify the indemnifying party (the "Indemnitor") in writing of any loss, claim, damage, liability or action in respect of which the Indemnitee or its directors, officers, employees or agents intend to claim such indemnification, and the Indemnitor shall have the right to participate in, and, to the extent the Indemnitor so desires, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor, 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 proceeding. The indemnity agreement in this Article 10 shall not apply to amounts paid in settlement of any loss, claim, damage, liability or action if such settlement is effected without the consent of the Indemnitor, which consent shall not be withheld or delayed unreasonably. The failure to deliver written notice to the Indemnitor within a reasonable time after the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such Indemnitor of any liability to the Indemnitee under this Article 10, but the omission so to deliver written notice to the Indemnitor shall not relieve it of any liability that it may have to any party claiming indemnification otherwise than under this Article 10. The party claiming indemnification under this Article 10, its employees and agents, shall cooperate fully with the Indemnitor and its legal representatives in the investigation of any action, claim or liability covered by this indemnification. 11. REPRESENTATIONS AND WARRANTIES 11.1 ABX. ABX represents and warrants that: (i) it has the full right and authority to enter into this Agreement; (ii) to the knowledge of ABX, there are no existing or threatened actions, suits or claims pending with respect to the subject matter hereof or the right of ABX to enter into and perform its obligations under this Agreement; (iii) it has not entered and during the term of this Agreement will not enter any other agreement inconsistent or in conflict with this Agreement; (iv) it will not take any action that will cause a breach of the GenPharm Cross License, the MRLOA or a -24- 25 Product License, which in any such case would adversely affect the rights of CGI hereunder or under a CGI Product Sublicense; (v) Exhibit D hereto lists the ABX-Controlled rights as of the Effective Date; and (vi) ABX will not, without CGI's prior consent, amend the MRLOA or a Product License for a CGI Antigen or the GenPharm Cross License in any manner that impairs CGI's rights under this Agreement. 11.2 CGI. CGI represents and warrants that: (i) it has the full right and authority to enter into this Agreement; (ii) to the knowledge of CGI, there are no existing or threatened actions, suits or claims pending with respect to the subject matter hereof or the right of CGI to enter into and perform its obligations under this Agreement; (iii) it has not entered and during the term of this Agreement will not enter any other agreement inconsistent or in conflict with this Agreement; and (iv) it will not take any action, or fail to take any action, under this Agreement or a CGI Product Sublicense that will cause a breach of the GenPharm Cross License, the MRLOA or a Product License. 11.3 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, ABX AND CGI MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND REGARDING COVERED PRODUCTS OR THE LICENSED TECHNOLOGY, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, AND VALIDITY OF TECHNOLOGY OR PATENT CLAIMS, ISSUED OR PENDING. ALL HYBRIDOMAS PROVIDED TO CGI UNDER ARTICLE 3 OF THIS AGREEMENT ARE PROVIDED "AS IS," AND ABX SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO SUCH HYBRIDOMAS OR ANY IMMUNIZATION SERVICES PROVIDED PURSUANT TO ARTICLE 3 OF THIS AGREEMENT. 12. TERM; TERMINATION 12.1 Term. This Agreement shall commence on the Effective Date and, unless earlier terminated pursuant to the other provisions of this Article 12, shall continue in effect until June 28, 2016 and, thereafter, until the earlier of (i) the date the MRLOA is no longer in effect or (ii) the twentieth anniversary of the Effective Date. 12.2 Termination by CGI. CGI may terminate this Agreement at any time upon sixty (60) days written notice to ABX. 12.3 Breach. If a party to this Agreement believes that another party to this Agreement shall have committed a material breach hereunder, and such breach shall have continued for sixty days after written notice thereof was provided to the allegedly breaching party, unless the allegedly breaching party has cured any such material breach or it has been waived by the notifying party prior to the expiration of the sixty-day period, the party alleging the material breach shall have the right to initiate an arbitration proceeding in accordance with Section 13.12 below. If the arbitrators determine in such proceeding that a material breach has occurred, they shall also determine an -25- 26 appropriate remedy, which may include termination of this Agreement, and if the arbitrators do not order termination of the Agreement, the breaching party shall cure such breach within thirty days following the final decision of the arbitrators or such other time as directed by the arbitrators. 12.4 Effect of Termination; Accrued Rights and Survival of Terms. Termination, relinquishment or expiration of this Agreement for any reason shall be without prejudice to any rights which shall have accrued to the benefit of a party prior to such termination, or expiration. Such termination, relinquishment or expiration shall not relieve a party from obligations which are expressly indicated to survive termination or expiration of this Agreement. Without limiting the foregoing, Articles 3, 7, 8, 9, 10, 11, and 13 and Sections 2.6.1, 2.6.4, 2.6.5, 4.2, 5.3, and 6.5, and the payment obligations set forth in Sections 2.2(c), 5.1 and 5.2 of this Agreement shall survive any expiration or termination of this Agreement. As to those Covered Products (and only as to those Covered Products) for which Abgenix has both (i) entered into a contractual licensing obligation with a third party and (ii) also Selected the corresponding Antigen (or identified such Antigen as an Antigen to be Selected for the third party), the payment obligations set forth in Section 6.3 of this Agreement shall survive expiration or termination of this Agreement. It is understood that each CGI Product Sublicense executed prior to any expiration or termination of this Agreement shall remain in effect in accordance with its terms. 13. MISCELLANEOUS PROVISIONS 13.1 Governing Laws. This Agreement shall be interpreted and construed in accordance with the laws of the State of California, without regard to conflicts of law principles. 13.2 Waiver. It is agreed that no waiver by a party hereto of any breach or default of any of the covenants or agreements herein set forth shall be deemed a waiver as to any subsequent and/or similar breach or default. 13.3 Assignments. Neither this Agreement nor any right or obligation hereunder may be assigned or delegated, in whole or part, by either party without the prior written consent of the other, which consent shall not be unreasonably withheld; provided, however, that either party may, without the written consent of the other, assign its rights and delegate its obligations hereunder to (i) any entity to which it has acquired all or substantially all of the business or assets of the assigning party related to the subject matter of this Agreement, or (ii) any successor corporation resulting from any merger or consolidation with another corporation; provided, however, that ABX shall not sell or transfer all or substantially all of its business or assets related to the subject matter of this Agreement unless the assignee or transferee agrees in writing to be bound by the terms of this Agreement. The terms and conditions of this Agreement shall be binding on and inure to the benefit of the permitted successors and assigns of the parties. 13.4 Independent Contractors. The relationship of the parties hereto is that of independent contractors. The parties hereto are not deemed to be agents, partners or joint venturers of the others for any purpose as a result of this Agreement or the transactions contemplated thereby. -26- 27 13.5 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. 13.6 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. 13.7 Notices. Any notice required or permitted to be given to the parties hereto shall be given in writing and shall be deemed to have been properly given if delivered in person or when received if mailed by first class certified mail to the other parties at the appropriate address as set forth below or to such other addresses as may be designated in writing by the parties from time to time during the term of this Agreement. Cell Genesys, Inc.: Cell Genesys, Inc. 342 Lakeside Drive Foster City, California 94404 Attn: President Abgenix, Inc.: Abgenix, Inc. 7601 Dumbarton Circle Fremont, California 94555 Attn: President 13.8 Export Laws. Notwithstanding anything to the contrary contained herein, all obligations of the parties are subject to prior compliance with the export regulations of the United States and such other United States laws and regulations as may be applicable, and to obtaining all necessary approvals required by the applicable agencies of the government of the United States. CGI shall use efforts consistent with prudent business judgment to obtain such approvals. 13.9 Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision and the parties shall discuss in good faith appropriate revised arrangements. 13.10 Force Majeure. Nonperformance of a party (except nonperformance of payment obligations) shall be excused to the extent that performance is rendered impossible by strike, fire, earthquake, flood, governmental acts or orders or restrictions, failure of suppliers, or any other reason where failure to perform is beyond the reasonable control and not caused by the negligence, intentional conduct or misconduct of the nonperforming party. 13.11 No Consequential Damages. IN NO EVENT SHALL A PARTY HERETO BE LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT OR THE EXERCISE OF ITS RIGHTS HEREUNDER, INCLUDING -27- 28 WITHOUT LIMITATION LOST PROFITS ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF SUCH DAMAGES. NOTHING IN THIS SECTION 13.11 IS INTENDED TO LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF EITHER PARTY. 13.12 Dispute Resolution; Arbitration. The parties will attempt to resolve any dispute under this Agreement by mutual agreement, and, if required, there shall be a face-to-face meeting between the Chief Executive Officer of CGI and the Chief Executive Officer of ABX. Any dispute under this Agreement which is not settled after such meeting, shall be finally settled by binding arbitration, conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, by three arbitrators appointed in accordance with said rules. The costs of the arbitration, including administrative and arbitrators' fees, shall be shared equally by the parties to the arbitration. Each party shall bear its own costs and attorneys' and witness' fees. The prevailing party in any arbitration, as determined by the arbitration panel, shall be entitled to an award against the other party in the amount of the prevailing party's costs and reasonable attorneys, fees. The arbitration shall be held in San Francisco, California. A disputed performance or suspended performances pending the resolution of the arbitration must be completed within thirty days following the final decision of the arbitrators. Any arbitration subject to this Section 13.12 shall be completed within six months from the filing of notice of a request for such arbitration. 13.13 Complete Agreement. It is understood and agreed by the parties that this Agreement constitutes the entire agreement, both written and oral, among the parties with respect to the subject matter hereof, and that all prior agreements respecting the subject matter hereof, either written or oral, expressed or implied, shall be abrogated, canceled, and are null and void and of no effect. No amendment or change hereof or addition hereto shall be effective or binding on the parties hereto unless reduced to writing and executed by the respective duly authorized representatives of the parties. 13.14 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and together shall be deemed to be one and the same agreement. 13.15 Headings. The captions to the several Articles and Sections hereof are not a part of this Agreement, but are included merely for convenience of reference only and shall not affect its meaning or interpretation. 13.16 Nondisclosure. Except as set forth in Article 9 hereof, each of the parties hereto agrees not to disclose to any third person the terms of this Agreement without the prior written consent of the other parties hereto, except to advisors, investors, licensees, sublicensees and others on a need to know basis under circumstances that reasonably ensure the confidentiality thereof, or to the extent required by law. Without limitation upon any provision of this Agreement, each of the parties hereto shall be responsible for the observance by its employees, consultants and contractors of the foregoing confidentiality obligations. -28- 29 13.17 GenPharm Cross License. All rights and licenses granted hereunder shall be subject to the GenPharm Cross-License, and to the extent that this Agreement (or any license or CGI Product Sublicense granted or permitted under this Agreement) purports to grant greater rights to any Grantee or third party than is permitted under the GenPharm Cross License, such rights shall be granted only to the extent permitted under the GenPharm Cross License, and the terms of the GenPharm Cross License shall control. 13.18 Termination of Certain Agreements. The existing (i) Voting Agreement, (ii) Immunization Services Agreement, and (iii) Gene Therapy Rights Agreement between CGI and ABX, all effective as of July 15, 1996, shall be terminated and hereby are terminated. Notwithstanding that any provisions of such Agreements may be stated therein to survive, no provision of any such Agreement shall survive such termination; provided, however, that any information received by either party from the other required to be treated as confidential information of the disclosing party pursuant to Article 5 of such Voting Agreement, Article 7 of such Immunization Services Agreement, or Article 8 of such Gene Therapy Rights Agreement shall be treated as confidential information of the disclosing party pursuant to Article 10 of this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized officers as of the day and year first above written, each copy of which shall for all purposes be deemed to be an original. ABGENIX, INC. CELL GENESYS, INC. By: /s/ R. Scott Greer By: /s/ Stephen A. Sherwin --------------------------------- ------------------------------------ Printed Name: R. Scott Greer Printed Name: Stephen A. Sherwin Title: President and CEO Title: Chairman and CEO Date: Date: ------------------------------- --------------------------------- -29- 30 EXHIBIT A [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 31 EXHIBIT B FORM OF CGI PRODUCT SUBLICENSE THIS PRODUCT SUBLICENSE AGREEMENT (the "Agreement") effective the ____ day of ___________, ____, (the "Effective Date") is made by and between ABGENIX, INC., a Delaware corporation ("ABX"), and CELL GENESYS, INC., a Delaware Corporation (hereinafter "CGI"). RECITALS CGI and ABX have entered into that certain Gene Therapy Rights Agreement dated as of November__, 1997 (the "Gene Therapy Rights Agreement"), pursuant to which CGI has certain rights to acquire a license under the Licensed Technology; CGI has exercised its rights under the Gene Therapy Rights Agreement to acquire from ABX a license or sublicense, as the case may be, under the Licensed Technology to commercialize Products in the field of Gene Therapy, as set forth below and on the terms and conditions herein. NOW, THEREFORE, for and in consideration of the covenants, conditions, and undertakings hereinafter set forth, it is agreed by and between the parties as follows: 1. DEFINITIONS. For purposes of this Agreement, the terms set forth in this Article shall have the meanings set forth below. 1.1 "ABX-Controlled Rights" shall mean all rights to patents or technology (including biological materials) that are licensed to ABX pursuant to (i) the MRLOA, (ii) Product Licenses from XT for Covered Products related to the Product Antigen, or (iii) any other license or similar agreement granting ABX rights to patents or technology to the extent, and only to the extent, that such patent or technology is reasonably necessary to exercise the rights in (i) and (ii) to make, have made, use, sell, offer to sell, or import Products in the field of Gene Therapy (each such agreement being referred to as an "ABX In-License"), in each case to the extent that ABX has the right under the terms of the applicable ABX In-License to further license or sublicense such rights during the term of this Agreement; provided, however, that "ABX- Controlled Rights" shall not include Antigen Specific Technology. Attachment D lists the ABX-Controlled Rights as of the Effective Date. 1.2 "ABX Proprietary Antigen" shall mean a specifically identified Antigen for which an issued patent, or a pending patent application being prosecuted in good faith in the United States or Europe, which patent or application is owned or controlled by ABX prior to CGI's exercise of its Option with respect to such Antigen in accordance with the Gene Therapy Rights Agreement, contains claims to the following: (i) the composition of such specifically identified Antigen or Genetic Material encoding such Antigen, (ii) a method of therapeutic use of an antibody or other -1- 32 moiety which binds to such specifically identified Antigen, or (iii) the composition of an antibody to such Antigen (excluding compositions of antibodies resulting from immunization services under Article 3 of this Agreement). 1.3 "ABX Home Territory" shall mean the United States and its territories, and Canada and Mexico. 1.4 "Affiliate" shall mean any entity which controls, is controlled by or is under common control with ABX, CGI or a Sublicensee. An entity shall be regarded as in control of another entity if it owns or controls at least fifty percent (50%) of the shares of the subject entity entitled to vote in the election of directors (or, in the case of an entity that is not a corporation, for the election of the corresponding managing authority). Notwithstanding the foregoing, neither ABX, CGI, JTI nor XT shall be considered to control, be controlled by, be under common control with, or be an Affiliate of the other for purposes of this Agreement. 1.5 "Antibody" shall mean a composition comprising a whole antibody or fragment thereof, said antibody or fragment having been generated from the Mice or Future Generation Mice or having been derived from nucleotide sequences encoding, or amino acid sequences of, such an antibody or fragment. 1.6 "Antibody Product" shall mean any product comprising an Antibody or Genetic Material encoding an Antibody wherein, in respect of each Antibody Product, said Genetic Material does not encode multiple Antibodies. 1.7 "Antigen" shall have the meaning set forth in the Gene Therapy Rights Agreement. 1.8 "Antigen-Specific Technology" shall mean any intellectual property or technology or other proprietary rights of ABX in or to ABX Proprietary Antigens, including: (i) compositions of such Antigens and Genetic Materials encoding such Antigens; (ii) uses of such Antigens; (iii) antibodies that bind to such Antigens and Genetic Materials encoding such antibodies, and cells that express or secrete such antibodies; and (iv) uses of antibodies to such Antigens; provided, however, that Antigen-Specific Technology shall not include rights in and to such intellectual property created in connection with the performance of services for CGI under Article 3 of the Gene Therapy Rights Agreement to the extent such intellectual property is reasonably necessary for CGI to make, use, sell, or otherwise exploit Covered Products in accordance with a CGI Product Sublicense. Antigen-Specific Technology shall also include methods to discover novel Antigens and methods of using Antigens other than to create Antibodies pursuant to the Gene Therapy Rights Agreement. 1.9 "Future Generation Mice" shall have the meaning set forth in the Gene Therapy Rights Agreement. -2- 33 1.10 "Genetic Material" shall mean a nucleotide sequence, including DNA, RNA, and complementary and reverse complementary nucleotide sequences thereto, whether coding or noncoding and whether intact or a fragment. 1.11 "Gene Therapy" shall mean the treatment or prevention of a disease by means of [***]. 1.12 "GenPharm Cross License" shall mean that certain Cross License Agreement entered into by and between ABX, CGI, JTI, XT, and GenPharm International, Inc. effective as of March 26, 1997, as the same may be amended from time to time. 1.13 "GenPharm Rights" shall mean the rights granted to XT under the GenPharm Cross License and sublicensed to ABX, to the extent that ABX has the right under the terms of the GenPharm Cross License to further sublicense such rights. 1.14 "IND" shall mean an Investigational New Drug Exemption for a Product, as defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder, or its non-U.S. equivalent. 1.15 "JTI" shall mean Japan Tobacco Inc. 1.16 "JTI Home Territory" shall mean Japan, Taiwan, and South Korea (including the territory now comprising North Korea, if reunited with South Korea after the date hereof). 1.17 "License Fee" shall have the meaning set forth in Article 3 of the Product License. - ---------- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -3- 34 1.18 "Licensed Technology" shall mean: (i) the ABX-Controlled Rights; (ii) subject matter (including patentable inventions, information, biological materials and other intellectual property, and including all patent- and other intellectual property rights therein) created by ABX in performing immunization services with respect to the Product Antigen at the request of CGI under Article 3 of the Gene Therapy Rights Agreement, in each case to the extent such subject matter is reasonably necessary for CGI to make, use, sell, offer to sell, or otherwise exploit Products in accordance with this Agreement; and (iii) all other subject matter (including patentable inventions, information, biological materials and other intellectual property, and including all patent- and other intellectual property rights therein) owned by ABX, in each case to the extent that ABX has the right, under the terms of the applicable agreement(s), if any, pursuant to which ABX acquired such rights, to license or sublicense such rights to CGI hereunder during the term of this Agreement, and in each case only to the extent such subject matter is reasonably necessary to make, use, sell or otherwise exploit Products in accordance with this Agreement; provided, however, that Antigen Specific Technology shall be excluded from Licensed Technology. 1.19 "Master Research License and Option Agreement" or "MRLOA" shall mean that certain Master Research License and Option Agreement entered into by CGI, JTI and XT as of June 28, 1996 (and subsequently assigned by CGI to ABX), as amended from time to time. 1.20 "Mice" shall have the meaning set forth in the Gene Therapy Rights Agreement. 1.21 "Net Sales" shall mean the gross sales price charged by CGI or its Affiliates and Sublicensees for sales of Product to non-Affiliate customers, less (i) normal and customary rebates, cash and trade discounts, and credits for returns and allowances, (ii) sales, consumption or other excise taxes or duties imposed upon and paid by CGI and its Affiliates or Sublicensees, with respect to such sales, and (iii) reasonable reserves for uncollectible accounts, as reflected in financial statements of CGI and its Affiliates or Sublicensees, to the extent such accounts are not actually collected (such gross sales price less items (i)-(iii) above referred to in this Section 1.21 as "Gross Sales"); provided, however, that in the case of [***] "Net Sales" shall mean [***] of the Gross Sales. "Net Sales" shall not include sales by CGI or its Sublicensees to Affiliates for resale, provided that CGI or Sublicensee shall include the amounts invoiced by such Affiliates to third parties on the resale of such Product. In the case of [***] "Net Sales" shall include [***] but notwithstanding any of the foregoing, shall not include [***]. Notwithstanding the foregoing, "Net Sales" for Universal Donor Cell Products shall be [***] of Gross Sales. - ---------- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -4- 35 1.22 "Product" shall mean any Antibody Product which incorporates (i) an Antibody which binds to the Product Antigen or (ii) Genetic Material encoding such an Antibody wherein said Genetic Material does not encode multiple Antibodies. If ABX acquires the right to sell (and the right to sublicense the right to sell) any other product derived through immunization of Mice or Future Generation Mice with the Product Antigen, whether by amendment of the MRLOA, the GenPharm Cross License, or otherwise, such products shall be included in the definition of Product under this Agreement. 1.23 "Product Antigen" shall mean ____________________. 1.24 "Product License" shall mean a license granted from XT to ABX pursuant to the terms of the MRLOA (including without limitation Sections 4.2, 5.2, 5.5, 5.6, 6.2, or 7.1 thereof) permitting ABX to commercialize certain Antibody Products to the Product Antigen. Product Licenses shall include Exclusive Worldwide Product Licenses, Exclusive Qualified Worldwide Product Licenses, Co-Exclusive Worldwide Product Licenses, and Exclusive Home Territory Product Licenses, as such terms are defined in the MRLOA. A true and correct copy of the applicable Product License(s) related to the Product Antigen are attached hereto as Attachment(s) ____, and any modifications or substitutions thereto shall promptly be provided to CGI and added as Attachments hereto. 1.25 "Rest of the World" shall mean all countries of the world other than the countries in the ABX Home Territory and JTI Home Territory. 1.26 "Sublicensee" shall mean a third party that is not an Affiliate to whom CGI has granted a sublicense under the Licensed Technology to both make and sell Products. "Sublicensee" shall also include a third party to whom CGI has granted the right to distribute Product, provided that such third party is responsible for marketing and promotion of Product within the applicable territory. As used herein, a "Sublicense" shall mean an agreement or arrangement pursuant to which such a sublicense or distribution right has been granted. 1.27 "Territory" shall mean [all the countries of the world]* [the ABX Home Territory and the Rest of the World]** [the ABX Home Territory and the Rest of the World]*** [the ABX Home Territory]****. 1.28 "Transgenic Product" shall have the meaning set forth in the GenPharm Cross License. 1.29 "Universal Donor Cell Product" shall mean a Universal Receptor Product that is also entirely a Universal Donor Cell (as that term is defined in Section 1.31 below). -5- 36 1.30 "Universal Receptor Product" shall mean a substance that is developed utilizing both (i) an Antibody and (ii) Universal Receptor Technology. 1.31 "Universal Receptor Technology" shall mean technology for universal receptors [***]. As used herein: (i) "universal receptor" shall mean a receptor [***]. 1.32 "XT" shall mean Xenotech, L.P., a California limited partnership. 1.33 Terminology Regarding Antibody Products, Products, and Licenses. For purposes of clarification, it is understood and agreed that (i) references to Antibody Products or Products "to X," "for X," "related to X," and "with respect to X" and similar references, where "X" is an Antigen (including without limitation any Product Antigen or Sublicense Product Antigen), shall mean Antibody Products or Products which incorporate (A) an Antibody which binds to such Antigen or (B) Genetic Material encoding such an Antibody wherein said Genetic Material does not encode multiple Antibodies, and (ii) references to a license or sublicense (including without limitation any Product License, CGI Product Sublicense, or Direct Third Party Sublicense) "to X," "for X," "related to X," and "with respect to X" and similar references, where "X" is an Antigen, shall mean such licenses or sublicenses conveying rights to Antibody Products for such Antigen. 2. LICENSE GRANT 2.1 Grant under Product License. Subject to the terms and conditions of this Agreement, ABX hereby grants to CGI [an exclusive license or sublicense, as the case may be, under the Licensed Technology, to make and have made Product anywhere in the world and to use, sell, lease, offer to sell or lease, import, export, otherwise transfer physical possession of or otherwise transfer title to Product in the field of Gene Therapy in the Territory]* [(i) a nonexclusive license or sublicense, as the case may be, under the Licensed Technology, to make and have made Product anywhere in the world and (ii) an exclusive license under the Licensed Technology to use, - ---------- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -6- 37 sell, lease, offer to sell or lease, import, export, otherwise transfer physical possession of or otherwise transfer title to Product in the field of Gene Therapy in the Territory]** [(i) a nonexclusive license or sublicense, as the case may be, under the Licensed Technology, to make and have made Product anywhere in the world and (ii) an exclusive license under the Licensed Technology and to use, sell, lease, offer to sell or lease, import, export, otherwise transfer physical possession of or otherwise transfer title to Product in the field of Gene Therapy in the Territory]*** [(i) a nonexclusive license or sublicense, as the case may be, under the Licensed Technology, to make and have made Product anywhere in the world and (ii) a license under the Licensed Technology and to use, sell, lease, offer to sell or lease, import, export, otherwise transfer physical possession of or otherwise transfer title to Product in the field of Gene Therapy exclusively in the ABX Home Territory and co-exclusively with JTI (or its Affiliates or Sublicensees and their Affiliates) in the Rest of the World]****. To the extent such license or sublicense is exclusive or co-exclusive, such license or sublicense shall be exclusive even as to ABX, and whether non-exclusive, exclusive or co-exclusive, shall include the right to grant and authorize sublicenses for exploitation worldwide; provided, however, that CGI may not, under this license, grant sublicenses to any rights to the Mice. 2.2 Grant Under Research License. Subject to the terms and conditions of this Agreement, ABX hereby grants to CGI a nonexclusive sublicense under the Licensed Technology to develop, make, have made, use, import or export or otherwise transfer physical possession of (but not to sell, lease, offer to sell or lease, or otherwise transfer title to) Products and cells that express or secrete Antibodies to the Product Antigen, in each case solely for purposes relating to or in connection with research or development (i) of Products for use in the field of Gene Therapy or (ii) involving Genetic Material when used with viral or nonviral gene transfer systems. CGI shall have the right to sublicense the rights granted under this Section 2.2 upon the approval of ABX, which approval shall not be unreasonably withheld. In the event that ABX refuses to approve such a sublicense, ABX shall, to the extent that ABX has the right to do so, grant at CGI's request a nonexclusive sublicense of such rights directly to a non-Affiliate third party designated by CGI on terms and conditions substantially identical to the applicable terms and conditions of this Agreement. 2.3 Third Party Rights. It is understood and agreed that, as to ABX-Controlled Rights, the grant of rights under this Article 2 shall be subject to and limited in all respects by the terms of the applicable ABX In-License(s) pursuant to which such ABX-Controlled Rights were granted to ABX. It is further understood and agreed that, without limiting the foregoing, the rights granted to CGI hereunder, including without limitation any grant of "exclusive" rights, shall be subject to the rights granted to or retained by GenPharm under the GenPharm Cross-License. It is understood and agreed that the rights and sublicenses granted to CGI under this Article 2 or any other provision of this Agreement shall be subject in all respects to the GenPharm Cross License, and that to the extent this Agreement purports to grant greater rights or sublicenses to CGI than are permitted under the GenPharm Cross License, any grant of rights or sublicenses to CGI hereunder shall be limited to the extent that ABX may grant such rights and sublicenses pursuant to the GenPharm Cross License. -7- 38 2.4 Direct Sublicenses to Partners. (a) From time to time, CGI may request ABX to sublicense directly to a third party part or all of the GenPharm Rights (and other ABX-Controlled Rights, if any, which ABX cannot, pursuant to the terms of the applicable ABX In-License, sublicense to CGI with the right to grant further sublicenses) sublicensed under Section 2.1, and in such event ABX shall grant such sublicense under the such rights with respect to the Product Antigen directly to the third party on terms and conditions substantially identical to this Agreement except as provided below (each such sublicense a "Direct Third Party Sublicense"). In such event, CGI shall notify ABX in writing of the Products to be sublicensed to such third party, as well as the field, territory, duration, and other limitations of such Direct Third Party Sublicense; provided, however, that the rights granted under any such Direct Third Party Sublicense for the Product Antigen shall in no event exceed the scope of the rights granted to CGI under this Agreement. If, at the time of the request, CGI is an Affiliate of ABX (as the term Affiliate is defined in the GenPharm Cross License), then CGI shall terminate certain of its rights under the Direct Sublicense of GenPharm Rights entered into by and between CGI and XT effective as of November __, 1997 by completing and delivering to XT the attached form Notice of Partial Termination of Direct Sublicense attached hereto as Attachment C. For the removal of doubt, it is understood that the Direct Third Party Sublicense shall include provisions substantially identical to Articles 5, 6, 7, 9, 10, and 11 and Sections 3.3, 4.1, 4.3, and 8.2 of this Agreement and such modifications of Article 2 as are appropriate to define the scope of the sublicense to be granted. Upon such a request by CGI, ABX shall cooperate with CGI and the third party designated by CGI to prepare and execute such Direct Third Party Sublicense in a prompt and expeditious manner. (b) CGI agrees that the sublicense granted to CGI under Section 2.1 above shall be subordinate in all respects to any Direct Third Party Sublicense entered into in accordance with this Section 2.4 (i.e., the sublicense granted to CGI under Section 2.1 shall be of no force or effect to the extent that the GenPharm Cross License does not permit both the sublicense to CGI under Section 2.1 and the Direct Third Party Sublicense). If, following the grant of a Direct Third Party Sublicense in accordance with this Section 2.4 to a third party (such third party being referred to as an "Initial Direct Third Party Sublicensee," and such sublicense being referred to as an "Initial Direct Third Party Sublicense"), CGI requests ABX to grant to a different third party a Direct Third Party Sublicense (a "Subsequent Direct Third Party Sublicense") with respect to Products and/or other subject matter within the scope of the Initial Third Party Direct Sublicense which is then in effect, ABX shall not be obligated to grant such Subsequent Direct Third Party Sublicense unless the Initial Direct Third Party Sublicensee signs and provides to ABX a Subordination Statement in the form attached hereto as Attachment A. For purposes of clarification, it is understood that, to the extent that any Direct Third Party Sublicense terminates for any reason, for so long as this Agreement remains in effect, the rights granted to CGI under this Agreement shall no longer be subordinate to such Direct Third Party Sublicense. -8- 39 3. PAYMENTS. 3.1 Amounts Payable Under Product License. CGI shall reimburse ABX for all amounts that ABX is required to pay to XT under the Product License related to the Product Antigen for (i) the License Fee under Article 3 of such Product License and (ii) the reimbursements, if any, due to XT from ABX under Section 5.1 of such Product License, and (iii) royalties and other amounts owed to XT under such Product License on Net Sales of Product by or under authority of CGI. 3.2 Third Party Royalties Payable by ABX. ABX will be responsible for the payment of [***]. In addition to the payments otherwise due to ABX under this Agreement, CGI shall reimburse ABX for [***]. CGI shall continue any such reimbursement payments to ABX until [***]. In the event that ABX enters into any license or similar agreement after the Effective Date which would be [***] , ABX shall promptly notify CGI and provide to CGI a copy of all terms and conditions of such license or agreement that would affect CGI hereunder; in such event, CGI shall [***], unless CGI promptly after receiving CGI's notice and a copy of the above described terms and conditions of such license or agreement notifies ABX that CGI elects not to accept such terms, in which event the license or agreement shall [***] for purposes of this Agreement. 3.3 Royalties Payable by CGI. CGI, its Affiliate, and/or its Sublicensee shall be responsible for the payment of any royalties, license fees and milestone and other payments due to third parties under licenses or similar agreements entered into by such parties to allow the manufacture, use or sale of Product. 4. ACCOUNTING AND RECORDS. 4.1 Royalty Reports; Payments, Invoices. After the first commercial sale of Product on which royalties are required to be paid by CGI under Article 3 above, CGI agrees to make quarterly written reports to ABX within sixty (60) days after the end of each calendar quarter, stating in each such report the number, description, and aggregate Net Sales of Product sold during the calendar quarter upon which a royalty is payable under Article 3 above. Concurrently with the making of such reports, CGI shall pay to ABX all amounts payable pursuant to Article 3 above which are based upon Net Sales of Product, including such amounts (if any) due pursuant to Section 3.2 and amounts equal to the amounts that ABX owes to XT for (i) royalties at the applicable rate specified in Section 4.1, 4.2 or 4.4 of the Product License related to the Product Antigen, and - ---------- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -9- 40 (ii) all royalties payable pursuant to Section 5.1 of such Product License. ABX shall invoice CGI for all other amounts due under this Agreement, and CGI shall pay such amounts to ABX within thirty (30) days of receiving such invoice. All payments to ABX hereunder shall be made in U.S. Dollars to a bank account designated by ABX. 4.2 Early Third Party License Payments. If ABX is obligated to pay royalties to a third party prior to ninety days after the end of the calendar quarter, ABX shall so notify CGI and CGI shall provide the reports and payments set forth in Section 4.1 above with respect to such royalties not later than ten days before the date such payments are due to the third party. ABX shall provide CGI with an invoice setting forth the royalties ABX must pay third parties with respect to CGI's activities in the Territory in the preceding quarter and the date such payments are due the third parties, and CGI shall pay such invoices within thirty days of receipt of such invoice; provided, however, that if ABX is invoiced for such amounts by XT or another third party and must pay such amounts less than forty (40) days after receiving such invoice, ABX shall invoice such amounts to CGI within ten (10) days of receiving such invoice from the third party, and CGI shall pay such amounts before the later of (i) 20 days after receiving such invoice from ABX or (ii) five (5) days prior to the date such amount is due to the third party from ABX. 4.3 Records; Inspection. CGI shall keep (and cause its Affiliates and Sublicensees to keep) complete, true and accurate books of account and records for the purpose of determining the royalty amounts payable to ABX under this Agreement. Such books and records shall be kept at the principal place of business of CGI or its Affiliates or Sublicensees, as the case may be, for at least three years following the end of the calendar quarter to which they pertain. Such records of CGI or its Affiliates will be open for inspection during such three-year period by a representative of ABX for the purpose of verifying the royalty statements. CGI shall require each of its Sublicensees to maintain similar books and records and to open such records for inspection during the same three-year period by a representative of CGI reasonably satisfactory to ABX on behalf of, and as required by, ABX for the purpose of verifying the royalty statements. All such inspections may be made no more than once each calendar year, at reasonable times mutually agreed by CGI and ABX. The representative of ABX will be obliged to execute a reasonable confidentiality agreement prior to commencing any such inspection. Inspections conducted under this Section 4.3 shall be at the expense of ABX, unless a variation or error producing an increase exceeding [***] of the amount stated for the period covered by the inspection is established in the course of any such inspection, whereupon all costs relating thereto will be paid by CGI. Upon the expiration of three years following the end of any fiscal year, the calculation of royalties payable with respect to such year shall be binding and conclusive, and CGI shall be released from any liability or accountability with respect to royalties for such year. 4.4 Currency Conversion. If any currency conversion shall be required in connection with the calculation of royalties hereunder, such conversion shall be made using the selling exchange rate for conversion of the foreign currency into U.S. Dollars, quoted for current transactions reported in The Wall Street Journal for the last business day of the calendar quarter to which such payment pertains. - ---------- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -10- 41 4.5 Late Payments. Any payments due from CGI 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 Bank of America in San Francisco, California on the date such payment is due, plus an additional two percent, calculated on the number of days such payment is delinquent. This Section 4.5 shall in no way limit any other remedies available to any party. 4.6 Withholding Taxes. All payments required to be made pursuant to Article 3 hereof shall be without deduction or withholding for or on account of any taxes (other than taxes imposed on or measured by net income) or similar governmental charge imposed by a jurisdiction, such taxes referred to herein as "Withholding Taxes." Withholding Taxes shall be the sole responsibility of the withholding party. The withholding party shall provide a certificate evidencing payment of any Withholding Taxes hereunder. 5. DUE DILIGENCE. 5.1 Reasonable Commercial Efforts: [***] Milestone. 5.1.1 CGI agrees to use commercially reasonable efforts consistent with prudent business judgment to commercialize Product, by the [***] by CGI, or its Affiliate or Sublicensee, in the United States (or Japan, if Japan is within the Territory) within such period of time as may be agreed upon by the parties after good faith negotiations taking into account factors relating to the Product Antigen or, if no such period is agreed upon, [***] from the Effective Date. 5.1.2 Notwithstanding the foregoing, CGI shall be required actively and continuously to [***] by CGI, or its Affiliate or Sublicensee, as soon as practicable after the Effective Date using reasonable commercial efforts consistent with prudent business judgment. After [***], CGI, or its Affiliate or Sublicensee, shall be required to have [***] and to be actively conducting clinical trials in pursuit of regulatory approval for the Product in the United States (or Japan, if Japan is with the Territory) until such Product may be sold commercially in the United States (or Japan, respectively). 5.2 Failure to Meet Due Diligence Obligation. 5.2.1 If the diligence requirements set forth in Section 5.1 are not met by CGI (or its Affiliates or Sublicensees) in the United States or in Japan, CGI's rights hereunder shall terminate upon written notice by ABX to CGI and subject to Sections 5.3, 5.4 and 10.3 below. 5.2.2 Notwithstanding Section 5.2.1, the license granted hereunder to CGI shall not terminate by reason of a delay in meeting the [***] milestone set forth in Section 5.1.1, to the extent that prudent business judgment, based on circumstances outside of CGI's reasonable control, reasonably justifies such delay. - ---------- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -11- 42 5.3 Dispute Resolution. In the event that a dispute arises whether the diligence requirements in this Article 5 have been met or circumstances exist which CGI believes justifies a failure on its part to meet such obligation, the parties will attempt to resolve any dispute by mutual agreement during a period of 30 days following CGI's receipt of the notice under Section 5.2.1. 5.4 Arbitration. In the event that the parties are unable to resolve such dispute pursuant to Section 5.3 above, such dispute shall be settled between ABX and CGI by binding arbitration as set forth in Section 11.12. If the arbitrator determines that the party acted in good faith, but failed to meet its obligations under Section 5.1 above, the license granted to such party shall not terminate unless the nonperforming party fails to cure such non-performance within a reasonable period of time, as determined by the arbitrator. 5.5 Funding and Conduct. Except for the immunization services described in the Gene Therapy Rights Agreement, CGI shall independently furnish and be responsible for funding and conducting all of its preclinical and clinical research and development of Product, at its own expense. 6. INTELLECTUAL PROPERTY. 6.1 Prosecution. Subject to Section 6.5, ABX or its licensor, as they may agree, shall have the right to control the preparing, filing, prosecuting and maintaining of patents and patent applications worldwide within the Licensed Technology and conducting any interferences, oppositions, reexaminations, or requesting reissues or patent term extensions with respect to the Licensed Technology. ABX shall keep CGI reasonably informed as to the status of such patent matters where the patent or patent application contains one or more compositions of matter claims covering (i) one or more Antibodies which binds to the Product Antigen or (ii) Genetic Material encoding such Antibodies wherein said Genetic Material does not encode multiple Antibodies (each such claim a "Product Composition Claim"), including without limitation by providing CGI the opportunity to review and comment on any substantive documents which will be filed in any patent office, and providing CGI copies of any substantive documents received by ABX from such patent offices including notice of all interferences, reexaminations, oppositions or requests for patent term extensions. CGI shall provide reasonable cooperation and assistance to ABX in connection with such activities, at ABX's request and expense. If ABX has the right to prepare, file, prosecute or maintain patents or patent applications containing one or more Product Composition Claims and notifies CGI that is does not desire to do so in any country in the Territory, then CGI may prepare, file, prosecute or maintain such patent or patent application at CGI's expense on ABX's behalf. 6.2 Enforcement. Subject to Section 6.5, in the event that CGI becomes aware that any Licensed Technology necessary for the practice of the license granted herein is infringed or misappropriated by a third party or is subject to a declaratory judgment action arising from such infringement, CGI shall promptly notify ABX and ABX shall thereafter promptly notify the owner of such intellectual property. ABX or its licensor, as they may agree, shall have the exclusive right at its expense to bring an enforcement proceeding, or defend any declaratory judgment action, involving any Licensed Technology. ABX shall keep CGI reasonably informed of the progress of -12- 43 such claim, suit or proceeding involving enforcement or defense of the Licensed Technology. Any recovery received by ABX as a result of any such claim, suit or proceeding shall be used first to reimburse ABX for all expenses (including attorneys, and professional fees) incurred in connection with such claim, suit or proceeding, and the remaining amount (if any) retained by ABX after paying amounts ABX is obligated to pay to third parties in respect of such amount pursuant to agreements within the ABX-Controlled Rights divided, to the extent that the recovery expressly represents lost profits on sales of Product within the field of Gene Therapy because of the infringer, in equal shares between ABX and CGI. Notwithstanding the foregoing, if ABX (i) has the right to bring an enforcement proceeding, or defend a declaratory judgment action, involving a Product Composition Claim and (ii) notifies CGI that it does not desire to pursue or defend such an action, then CGI may at its expense bring or defend such action in consultation with ABX; provided, however, that (i) ABX shall have the right to join such proceeding at any time at its own expense, (ii) CGI shall not admit the invalidity or unenforceability of any patent rights within the Licensed Technology without ABX's prior written consent, and (iii) if ABX does not join the action, any recovery obtained by CGI shall be used first to reimburse CGI for all expenses (including attorneys, and professional fees) incurred in connection with such claim, suit or proceeding, and the remaining amount (if any) retained by CGI after paying amounts CGI is obligated to pay to third parties in respect of such amount pursuant to agreements within the ABX-Controlled Rights shall be retained by CGI; provided, however, such remainder shall, to the extent that the recovery expressly represents lost profits on sales of Product within the field of Gene Therapy because of the infringer, be treated as Net Sales of Product by CGI for purposes of determining royalties under this Agreement. 6.3 Infringement Claims. Subject to Section 6.5, if the production, sale or use of Product pursuant to this Agreement results in any claim, suit or proceeding alleging patent infringement against CGI (or its Affiliates or Sublicensees), CGI shall promptly notify ABX thereof in writing setting forth the facts of such claim in reasonable detail. CGI shall keep ABX reasonably informed of all material developments in connection with any such claim, suit or proceeding as it relates to the Licensed Technology. Notwithstanding the above, CGI shall not be able to settle any such claim, suit or proceeding if such settlement involves any admission of the invalidity of the Licensed Technology without written consent from ABX. 6.4 Patent Marking. CGI agrees to mark and have its Affiliates and Sublicensees mark all Products sold pursuant to this Agreement in accordance with the applicable statutes or regulations in the country or countries of manufacture and sale thereof. 6.5 Limitation. Notwithstanding any other provision in this Article 6, the parties acknowledge and understand that (i) ABX shall not be obligated to prepare, file, prosecute, and maintain patents and patent applications, or to bring or pursue enforcement proceedings or defend declaratory judgement actions regarding the Licensed Technology if, and to the extent that, ABX is not entitled to do so under one or more agreements within the ABX-Controlled Rights, and (ii) any rights conveyed under this Article 6 permitting CGI to prepare, file, prosecute and maintain certain patents and patent applications, or to bring and pursue enforcement proceedings, or defend declaratory judgment actions, regarding the Licensed Technology, shall be subject to ABX's -13- 44 agreements within the ABX-Controlled Rights, and are conveyed only to the extent permitted under such agreements. 7. CONFIDENTIALITY. 7.1 Confidential Information. Except as expressly provided herein, CGI and ABX each agree that, for the term of this Agreement and for five years thereafter, the receiving party shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose any information furnished to it by the other party pursuant to this Agreement (including, without limitation, knowhow) except to the extent that it can be established by the receiving party by competent proof that such information: (a) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure; (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; or (d) was subsequently lawfully disclosed to the receiving party by a third party or independently developed by the receiving party without reference to any information or materials disclosed by the disclosing party. 7.2 Permitted Disclosures. Notwithstanding Sections 7.1 above and 11.16 below, each party may nevertheless disclose the other party's information to the extent such disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental regulations (including without limitation any disclosure requirements for publicly traded companies) or otherwise submitting information to tax or other governmental authorities, making a permitted sublicense or other exercise of its rights hereunder (including the grant of sublicenses) or conducting clinical trials, provided that if a party is required by law to make any such disclosure of the other party's secret or confidential information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the other party of such disclosure requirement and will use efforts consistent with prudent business judgment to secure confidential treatment of such information prior to its disclosure (whether through protective orders or otherwise). Notwithstanding the foregoing, ABX shall not, except as required by law, disclose to third parties clinical data or regulatory filings received from CGI except as agreed in writing by CGI. 8. SUBLICENSES; OBLIGATIONS UNDER XT PRODUCT LICENSE. 8.1 Sublicenses. Pursuant to Article 2 herein, CGI will have the right to grant and authorize sublicenses to third parties; provided, however, the CGI shall remain responsible for any -14- 45 payments due ABX for Net Sales of Product by any Sublicensee. [***]. Any sublicense granted by CGI pursuant to this Agreement shall provide that the Sublicensee will be subject to the applicable terms of this Agreement. CGI shall provide ABX with a copy of relevant portions of each sublicense agreement, as reasonably required by ABX. 8.2 Obligations Under Agreements With Third Parties. The sublicenses granted by ABX to CGI under the ABX-Controlled Rights will be subject to the applicable terms of the agreements pursuant to which ABX acquired such ABX-Controlled Rights, including without limitation the Product License. It is understood that ABX may provide a copy of some or all of this Agreement to XT and other parties to such agreements. 9. REPRESENTATIONS AND WARRANTIES. 9.1 ABX. ABX represents and warrants that: (i) it has the full right and authority to enter into this Agreement and grant the rights and licenses granted herein; (ii) it has not previously granted and will not grant any rights inconsistent or in conflict with the rights and licenses granted to CGI herein; (iii) there are no existing or threatened actions, suits or claims pending against ABX with respect to the Licensed Technology or the right of ABX to enter into and perform its obligations under this Agreement; (iv) it has not previously granted, and will not grant during the term of this Agreement, any right, license or interest in and to the Licensed Technology, or any portion thereof, with respect to the manufacture, sale, offer for sale, use, or import of the Product in the Gene Therapy field; and (v) Attachment B hereto sets forth all ABX-Controlled Rights as of the Effective Date; ABX shall not terminate (or permit to be terminated), or alter or amend, any of the ABX-Controlled Rights in a manner that adversely affects or may adversely affect CGI, without CGI's prior written consent. 9.2 CGI. CGI represents and warrants that: (i) it has the full right and authority to enter into this Agreement; (ii) to its knowledge, there are no existing or threatened actions, suits or claims pending with respect to the subject matter hereof or the right of CGI to enter into and perform its obligations under this Agreement; and - ---------- [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -15- 46 (iii) it has not entered and during the term of this Agreement will not enter any other agreement inconsistent or in conflict with this Agreement. 9.3 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, ABX MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, REGARDING PRODUCTS OR THE LICENSED TECHNOLOGY, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, AND VALIDITY OF LICENSED TECHNOLOGY CLAIMS, ISSUED OR PENDING. 9.4 Effect of Representations and Warranties. It is understood that if the representations and warranties under this Article 10 are not true and accurate and a party incurs liabilities, costs or other expenses as a result of such falsity, the party at fault shall indemnify, defend and hold the injured party harmless from and against any such liabilities, costs or expenses incurred, provided that the party at fault receives prompt notice of any claim against the injured party resulting from or related to such falsity and the sole right to control the defense or settlement thereof. 10. TERM AND TERMINATION. 10.1 Effectiveness. This Agreement shall become effective as of the Effective Date and the license rights granted by ABX under Article 2 above shall be in full force and effect as of such date. 10.2 Term. Unless earlier terminated pursuant to the other provisions of this Article 10, this Agreement shall continue in full force and effect until the later of (i) the expiration of the last to expire patent within the Licensed Technology claiming Product; or (ii) the twentieth anniversary of the Effective Date. The licenses granted under Article 2 shall survive the expiration (but, except as expressly provided in Section 10.5 below, not an earlier termination) of this Agreement; provided that such licenses shall in such event become nonexclusive. 10.3 Termination for Breach. Either party to this Agreement may terminate this Agreement in the event the other party shall have materially breached or defaulted in the performance of any of its material obligations hereunder, and such shall have continued for sixty days after written notice thereof was provided to the breaching party by the nonbreaching party that terminates the Agreement as to such party. Any termination shall become effective at the end of such sixty day period unless the breaching party has cured any such breach or default prior to the expiration of the sixty day period. However, if the party alleged to be in breach of this Agreement disputes such breach within such sixty day period, the non-breaching party shall not have the right to terminate this Agreement unless it has been determined by an arbitration proceeding in accordance -16- 47 with Section 11.12 below that this Agreement was materially breached, and the breaching party fails to cure such breach within thirty days following the final decision of the arbitrators or such other time as directed by the arbitrators. 10.4 Other Termination Rights. CGI may terminate this Agreement and the license granted herein, in its entirety or as to any particular patent within the Licensed Technology in a particular country, at any time, by providing ABX ninety (90) days written notice. In the event of termination as to a particular country, the subject patent in such country shall cease to be within the Licensed Technology (and the ABX- Controlled Rights, if applicable) for all purposes of this Agreement. 10.5 Effect of Termination. 10.5.1 Termination of this Agreement for any reason shall not release either 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. 10.5.2 In the event this Agreement is terminated for any reason, CGI and its Affiliates and Sublicensees shall have the right to sell or otherwise dispose (consistent with all applicable regulations and law) of the stock of any Product subject to this Agreement then on hand. Upon termination of this Agreement by ABX for any reason, any sublicense granted by CGI hereunder shall survive, provided that upon request by ABX, such Sublicensee promptly agrees in writing to be bound by the applicable terms of this Agreement. 10.5.3 This Agreement, including the license granted in Article 2, is independent of, and shall not be affected by, any breach or termination of the Gene Therapy Rights Agreement or any other agreement between the parties or their Affiliates. In the event of the termination of the Gene Therapy Rights Agreement, the rights and obligations of the parties hereto under Article 10 of that agreement (Indemnification) shall be deemed to be part of this Agreement. 10.5.4 Section 4.3 and Articles 7, 9, and 11 shall survive the expiration and any termination of this Agreement for any reason. 11. MISCELLANEOUS. 11.1 Governing Laws. This Agreement shall be interpreted and construed in accordance with the laws of the State of California, without regard to conflicts of law principles. 11.2 Waiver. It is agreed that no waiver by any party hereto of any breach or default of any of the covenants or agreements herein set forth shall be deemed a waiver as to any subsequent and/or similar breach or default. 11.3 Assignment. Neither this Agreement nor any right or obligation hereunder may be assigned or delegated, in whole or part, by either party without the prior written consent of -17- 48 the other, which consent shall not be unreasonably withheld; provided, however, that either party may, without the written consent of the other, assign its rights and delegate its obligations hereunder to (i) any entity to which it has acquired all or substantially all of the business or assets of the assigning party related to the subject matter of this Agreement, or (ii) any successor corporation resulting from any merger or consolidation with another corporation; provided, however, that neither party shall sell or transfer all or substantially all of its business or assets related to the subject matter of this Agreement unless the assignee or transferee agrees in writing to be bound by the terms of this Agreement. The terms and conditions of this Agreement shall be binding on and inure to the benefit of the permitted successors and assigns of the parties. 11.4 Independent Contractors. The relationship of the parties hereto is that of independent contractors. The parties hereto are not deemed to be agents, partners or joint venturers of the others for any purpose as a result of this Agreement or the transactions contemplated thereby. 11.5 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. 11.6 No Implied Obligations. Except as expressly provided in Article 5 above, nothing in this Agreement shall be deemed to require CGI to exploit the Licensed Technology nor to prevent CGI from commercializing products similar to or competitive with any Product, in addition to or in lieu of such Product. 11.7 Notices. Any notice required or permitted to be given to the parties hereto shall be given in writing and shall be deemed to have been properly given if delivered in person or when received if mailed by first class certified mail to the other party at the appropriate address as set forth below or to such other addresses as may be designated in writing by the parties from time to time during the term of this Agreement. Cell Genesys, Inc.: Cell Genesys, Inc. 342 Lakeside Drive Foster City, California 94404 Attn: President Abgenix, Inc.: Abgenix, Inc. 7601 Dumbarton Circle Fremont, California 94555 Attn: President 11.8 Export Laws. Notwithstanding anything to the contrary contained herein, all obligations of ABX and CGI are subject to prior compliance with United States export regulations and such other United States laws and regulations as may be applicable, and to obtaining all necessary approvals required by the applicable agencies of the government of the United States. CGI -18- 49 shall use efforts consistent with prudent business judgment to obtain such approvals. ABX shall cooperate with CGI and shall provide assistance to CGI as reasonably necessary to obtain any required approvals. 11.9 Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision and the parties shall discuss in good faith appropriate revised arrangements. 11.10 Force Majeure. Nonperformance of a party (except nonperformance of payment obligations) shall be excused to the extent that performance is rendered impossible by strike, fire, earthquake, flood, governmental acts or orders or restrictions, failure of suppliers, or any other reason where failure to perform, is beyond the reasonable control and not caused by the negligence, intentional conduct or misconduct of the nonperforming party. 11.11 No Consequential Damages. IN NO EVENT SHALL A PARTY HERETO BE LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT OR THE EXERCISE OF ITS RIGHTS HEREUNDER, INCLUDING WITHOUT LIMITATION LOST PROFITS ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF SUCH DAMAGES. NOTHING IN THIS SECTION 11.11 IS INTENDED TO LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF EITHER PARTY. 11.12 Dispute Resolution; Arbitration. The parties will attempt to resolve any dispute under this Agreement by mutual agreement, and, if required, there shall be a face-to-face meeting between the Chief Executive Officer of CGI and the Chief Executive Officer of ABX. Any dispute under this Agreement which is not settled after such meeting, shall be finally settled by binding arbitration, conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association, by three arbitrators appointed in accordance with said rules. The costs of the arbitration, including administrative and arbitrators' fees, shall be shared equally by the parties to the arbitration. Each party shall bear its own costs and attorneys' and witness' fees. The prevailing party in any arbitration, as determined by the arbitration panel, shall be entitled to an award against the other party in the amount of the prevailing party's costs and reasonable attorneys' fees. The arbitration shall be held in San Francisco, California. A disputed performance or suspended performances pending the resolution of the arbitration must be completed within thirty days following the final decision of the arbitrators. Any arbitration subject to this Section 11.12 shall be completed within six months from the filing of notice of a request for such arbitration. 11.13 Complete Agreement. It is understood and agreed between ABX and CGI that this Agreement constitutes the entire agreement, both written and oral, between the parties with respect to the subject matter hereof, and that all prior agreements respecting the subject matter hereof, either written or oral, expressed or implied, shall be abrogated, canceled, and are null and void and of no effect. No amendment or change hereof or addition hereto shall be effective or -19- 50 binding on either of the parties hereto unless reduced to writing and executed by the respective duly authorized representatives of ABX and CGI. 11.14 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and both together shall be deemed to be one and the same agreement. 11.15 Headings. The captions to the several Articles and Sections hereof are not a part of this Agreement, but are included merely for convenience of reference only and shall not affect its meaning or interpretation. 11.16 Nondisclosure. Except as provided in Article 7, each of the parties hereto agrees not to disclose to any third party the terms of this Agreement without the prior written consent of each other party hereto, except to advisors, investors, licensees, sublicensees and others on a need to know basis under circumstances that reasonably ensure the confidentiality thereof, or to the extent required by law. Without limitation upon any provision of this Agreement, each of the parties hereto shall be responsible for the observance by its employees, consultants and contractors of the foregoing confidentiality obligations. 11.17 Indemnification. The indemnification obligations of the parties hereunder shall be as set forth in the Gene Therapy Rights Agreement. 11.18 Conformity with GenPharm Cross-License. The rights and licenses granted to CGI hereunder shall be subject to that certain Cross License Agreement entered into by the parties and GenPharm International, Inc., effective as of March 26, 1997 (the "Cross License"), and to the extent that this Agreement purports to grant greater rights to CGI than is permitted under the Cross License, such rights shall be granted only to the extent permitted under the Cross License, and the terms of the Cross License shall control. IN WITNESS WHEREOF, the parties have executed this Agreement, through their respective officers hereunto duly authorized, as of the day and year first above written. ABGENIX, INC. CELL GENESYS, INC. By: By: ----------------------------------- ------------------------------------- Name: Name: --------------------------------- ----------------------------------- Title: Title: -------------------------------- ---------------------------------- * -- use if Product License is Exclusive Worldwide Product License * -- use if Product License is Exclusive Qualified Worldwide Product License *** -- use if Product License is Exclusive Home Territory Product License **** -- use if Product License is Co-Exclusive Worldwide Product License -20- 51 ATTACHMENT A SUBORDINATION STATEMENT [To Abgenix] This notice is sent to Abgenix pursuant to Section 2.4(b) of the CGI Product Sublicense with respect to _____________________ (the "Sublicense Antigen") between Abgenix and Cell Genesys. The undersigned party (the "Subordinating Third Party") agrees that the sublicense granted to the Subordinating Third Party under its Direct Third Party Sublicense with Abgenix with respect to the Sublicense Antigen shall be subordinate in all respects to any Direct Third Party Sublicense with respect to the Sublicense Antigen entered into between Abgenix and ________________________ (the "Subsequent Direct Third Party Sublicensee") in accordance with Section 2.4 of the CGI Product Sublicense for the Sublicense Antigen (i.e., the sublicense granted to the Subordinating Third Party under its Direct Third Party Sublicense with Abgenix related to the Sublicense Antigen shall be of no force or effect to the extent that the GenPharm Cross license does not permit both that sublicense and the Direct Third Party Sublicense to the Subsequent Direct Third Party Licensee related to the Sublicense Antigen). - -------------------------------------- (the Subordinating Third Party) By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- Date: -------------------------------- -21- 52 ATTACHMENT B PAYMENTS DUE TO THIRD PARTIES [TO BE COMPLETED AT TIME OF EXECUTION] -22- 53 ATTACHMENT C NOTICE OF PARTIAL TERMINATION OF DIRECT SUBLICENSE [To Xenotech] This notice is sent to Xenotech pursuant to Section 9.3 of the Direct Sublicense of GenPharm Rights entered into by and between Cell Genesys and Xenotech effective as of November __, 1997. Cell Genesys hereby terminates, effective as of __________________, its rights under the Direct Sublicense of GenPharm Rights in the countries indicated below with respect to the CGI Product Antigen indicated below. CGI Product Antigen:_________________________________. Countries: __________________________________. Cell Genesys, Inc. By: ----------------------------------- Name: Title: Date: cc: [Abgenix] -23- 54 ATTACHMENT D ABX-CONTROLLED RIGHTS [TO BE COMPLETED AT TIME OF EXECUTION.] [Note when completing: This Exhibit D will reflect the ABX-Controlled Rights as of the effective date of each CGI Product Sublicense, and will include the rights indicated in Exhibit D of the Gene Therapy Rights Agreement, taking into account the changes, if any, in the ABX-Controlled Rights between the effective date of the Gene Therapy Rights Agreement and the effective date of the CGI Product Sublicense.] -24- 55 EXHIBIT C [SAME AS EXHIBIT G TO EXHIBIT 10.13] 56 EXHIBIT D [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 57 EXHIBIT E EXERCISE NOTICE [DATE] [To Abgenix:] Pursuant to Section 2.2 of the Gene Therapy Rights Agreement, Cell Genesys, Inc. ("CGI") exercises its option for the Six-Month Period beginning on [January 1,_________] [July 1, _________] and requests that Abgenix, Inc. ("ABX") select an Antigen on behalf of CGI. ANTIGEN TO BE SELECTED: (Attach additional pages if necessary.) SCIENTIFIC BACKGROUND: (Attach additional pages if necessary.) By: ---------------------------------- Print Name: ------------------------- _____MARK HERE if CGI desires ABX to select this Antigen pursuant to Section 7.1 of the 1996 Master Research License and Option Agreement, and ATTACH ADDITIONAL INFORMATION to support selection of this Antigen under Section 7.1. EX-10.22 6 LICENSE AGREEMENT 1 EXHIBIT 10.22 THIS LICENSE AGREEMENT (the "Agreement") effective the 1st day of February, 1997 (the "Effective Date"), is made by and between RONALD J. BILLING, Ph.D., an individual residing at 682 Ora Avo Drive, Vista, CA 92084 ("Licensor") and ABGENIX, INC., a California corporation doing business at 7601 Dumbarton Circle, Fremont, CA 94555 ("Licensee"). RECITALS WHEREAS, Licensor has entered into a Research Evaluation and Option Agreement with Cell Genesys, Inc. dated June 10, 1996 (the "Research Evaluation and Option Agreement"); WHEREAS, Cell Genesys, Inc. has assigned the Research Evaluation and Option Agreement to Licensee, a subsidiary of Cell Genesys, Inc.; and WHEREAS, Licensor desires to grant to Licensee and Licensee desires to acquire from Licensor an exclusive worldwide license under the Patent Rights to commercialize CBL-1 antibody products, on the terms and conditions herein; NOW, THEREFORE, for and in consideration of the covenants, conditions, and undertakings, hereinafter set forth, it is agreed by and between the parties as follows: 1. DEFINITIONS For purposes of this Agreement, the terms set forth in this Article shall have the meanings set forth below. 1.1 "Affiliate" shall mean any entity which controls, is controlled by or is under common control with Licensee. An entity shall be regarded as in control of another entity if it owns or controls at least fifty percent (50%) of the shares of the subject entity entitled to vote in the election of directors, or, in the case of an entity that is not a corporation, for the election of the corresponding managing authority. 1.2 "Annual License Maintenance Fee" shall have the meaning set forth in Article 3 hereof. 1.3 "Initial License Fee" shall have the meaning set forth in Article 3 hereof. 1.4 "Intellectual Property" shall have the meaning set forth in Section 9.5. 1.5 "Licensed Field" shall mean all human medical uses. 1.6 "Materials" shall mean samples of (i) the original hybridoma cells deposited with the ATCC and having the accession number HB8214 and (ii) samples of murine CBL-1 ascites produced by Licensor. 2 1.7 "NET SALES" shall mean the gross sales price charged by Licensee or its Affiliates and Sublicensees for sales of Product to non-Affiliate customers, [***] with respect to such sales. 1.8 "PATENT RIGHTS" shall mean (i) United States Patent Number 5,330,896 and its priority US applications; (ii) any continuations, continuations-in-part, divisionals, reexamination certificates, reissues or extensions of (i) above; (iii) any foreign counterparts of any of (i) or (ii) above including but not limited to: (a) European Patent Number EP0311438B1 and (b) Japanese Patent Registration Number 1864269. 1.9 "PRODUCT" shall mean the CBL-1 antibody, together with any analogues, derivations, modifications, humanized or human versions, or parts thereof, each to the extent that making, using or selling the above would infringe the Patent Rights. 1.10 "SUBLICENSEE" shall mean a third party that is not an Affiliate to whom Licensee has granted a sublicense under the Patent Rights and Materials to make, use and/or sell Product to the extent of the rights of Licensee therein. "Sublicensee" shall also include a third party to whom License has granted the right to distribute Product under the Patent Rights to the extent of the rights of Licensee therein, provided that such third party is responsible for the marketing and promotion of Product within the applicable country. 1.11 "TERRITORY" shall mean all the countries of the world. 2. LICENSE GRANT Subject to the terms and conditions of this Agreement, Licensor hereby grants to Licensee an exclusive license, under the Patent Rights and Materials, to make, have made, use and sell Product in the Field in the Territory. Such license shall be exclusive even as to Licensor, and shall include the exclusive right to grant and authorize sublicenses for exploitation worldwide. 3. LICENSE FEES Licensee shall pay to Licensor an initial license fee of [***] (the "Initial License Fee") within 30 days of the Effective Date. In addition, Licensee shall pay to Licensor an annual license maintenance fee of [***] (the "Annual License Maintenance Fee") on each anniversary of the Effective Date. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 3 4. ROYALTIES; THIRD-PARTY ROYALTIES 4.1 ROYALTY RATES. In consideration for the license and rights granted herein, Licensee agrees to pay to Licensor royalties of [***] of Product by it and its Affiliates and, subject to Section 11, their Sublicensees; provided, however, that beginning with the first calendar quarter following commercialization of Product, Licensee shall in no event pay Licensor annual royalties of [***]. 4.2 SINGLE ROYALTY; NON-ROYALTY SALES. Only one royalty shall be payable with respect to any Product, regardless of how many claims or patents within the Patent Rights cover such Product. In addition, no royalty shall be payable under this Article 4 with respect to sales of Product among Licensee and its Affiliates and/or Sublicensees or for use in research and/or development or clinical trials. 4.3 TERMINATION OF ROYALTIES. Royalties under Section 4.1 will be due until the later of (i) ten years from the first commercial sale of Product in any country or (ii) on a country-by-country basis, the expiration of the last-to-expire patent within the Patent Rights covering the Product in such country. 4.4 THIRD-PARTY ROYALTIES. Licensee will be responsible for the payment of any royalties, license fees and milestone and other payments due to third parties under licenses or similar agreements entered into by Licensee to all the manufacture, use or sale of Product. 5. MILESTONE PAYMENT Licensee shall issue to Licensor 25,000 shares of common stock of Licensee upon the submission of a Product License Application ("PLA") for the first indication of Product. 6. ACCOUNTING AND RECORDS 6.1 ROYALTY REPORTS AND PAYMENTS. After the first commercial sale of Product on which royalties are required, Licensee agrees to make quarterly written reports to Licensor within 60 days after the end of each calendar quarter, stating in each such report the number, description, and aggregate Net Sales of Product sold during the calendar quarter upon which a royalty is payable under Article 4 above. Concurrently with the making of such reports, Licensee shall pay to Licensor royalties at the applicable rate specified in Section 4.1 above. All payments to Licensor hereunder shall be made in U.S. Dollars to a bank account designated by Licensor. 6.2 RECORDS, INSPECTION. Licensee shall keep complete, true and accurate books of account and records for the purpose of determining the royalty amounts payable to Licensor under this [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -3- 4 Agreement. Such books and records shall be kept for at least three years following the end of the calendar quarter to which they pertain. Licensee shall require each of its Sublicensees to maintain similar books and records. 6.3 Currency Conversion. If any currency conversion shall be required in connection with the calculation of royalties hereunder, such conversion shall be made using the selling exchange rate for conversion of the foreign currency into U.S. Dollars, quoted for current transactions reported in The Wall Street Journal for the last business day of the calendar quarter to which such payment pertains. 6.4 Late Payments. Any payments due from Licensee 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 Bank of America in San Francisco, California on the date such payment is due, plus an additional two percent, calculated on the number of days such payment is delinquent. This Section 6.4 shall in no way limit any other remedies available to any party. 7. MATERIALS; CONSULTING 7.1 Materials. Licensee acknowledges that Licensor has already provided to Licensee samples of the Materials. Title to the Materials shall remain with Licensor. Upon any termination of the Agreement pursuant to Section 14.3, Licensee shall return Materials to Licensor. 7.2 Consulting. Licensor shall provide services as a consultant to Licensee with respect to Product from time to time as reasonably requested by Licensee until the commercialization of Product for the first indication, such services not to exceed more than one day per calendar month. Licensor hereby covenants and agrees that, during such time as he is providing consulting services to Licensee pursuant to this Section 7.2, Licensor shall not perform consulting services to any third party with respect to Product, without the Licensee's prior written consent. In consideration for the services to be provided pursuant to this Section 7.2, Licensee shall grant Licensor an option to purchase 10,000 shares of common stock of Licensee under the Abgenix, Inc. 1996 Incentive Stock Plan. 7.3 Research and Development Funding. Licensee shall provide research and development funding to the CV Cancer Center until the commercialization of Product for the first indication as follows: [***] shall be paid to the CV Center within 30 days of the Effective Date and [***]. The monthly research and development payments shall be subject to adjustment annually by a percentage equal to the [***]. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -4- 5 8. DEVELOPMENT OF PRODUCT, DUE DILIGENCE 8.1 Funding and Conduct. Licensee shall independently furnish and be responsible for funding and conducting all of its preclinical and clinical research and development of Product, at its own expense. 8.2 IND Filing. Licensor shall allow Licensee to access Licensor's IND relating to murine CBL-1 by providing Licensee with a letter of access to such IND, at the request and at the discretion of Licensee. Licensor shall execute and deliver such other documents as may be reasonably requested by Licensee to access such IND. 8.3 Due Diligence. Licensee agrees to use commercially reasonable efforts consistent with prudent business judgment to commercialize Product. Licensee agrees to commit not less than One Million Dollars ($1,000,000) per year to the development of Product until Product obtains regulatory approval in any one country of the world. Licensee shall keep Licensor reasonably informed as to the status of such commercialization efforts. 9. PATENTS, INTELLECTUAL PROPERTY 9.1 Patent Prosecution. Licensee shall have responsibility for preparing, filing, prosecuting and maintaining patents and patent applications worldwide relating to the Patent Rights and conducting any interferences, reexaminations, or requesting reissues or patent term extensions with respect to the Patent Rights. Licensee shall keep Licensor reasonably informed as to the status of such patent matters and shall provide Licensor copies of any documents received by Licensee from such patent offices including notice of all interferences, reexaminations, oppositions or requests for patent term extensions. Licensor shall cooperate with and assist Licensee in connection with such activities, at Licensee's request and expense. 9.2 Patent Enforcement. In the event that any Patent Rights necessary for the practice of the license granted herein are infringed or misappropriated by a third party or are subject to a declaratory judgment action arising from such infringement. Licensee shall have the exclusive right to enforce or defend any declaratory judgment action, at its expense, involving any Patent Rights. In such event, Licensee shall keep Licensor reasonably informed of the progress of any such claim, suit or proceeding. Any recovery received by Licensee as a result of any such claim, suit or proceeding shall be retained by Licensee. 9.3 Infringement Claims. If the production, sale or use of Product pursuant to this Agreement results in any claim, suit or proceeding alleging patent infringement against Licensee, Licensee shall have the exclusive right to defend and control the [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 6 defense of any such claim, suit or proceeding, at its own expense, using counsel of its choice. Licensee shall keep Licensor reasonably informed of all material developments in connection with any such claim, suit or proceeding as it relates to the Patent Rights. Subject to the limitation set forth below, the costs of any damages and expenses (including attorneys' and professional fees) shall be divided [***]. Licensee shall deduct Licensor's share of such costs from any amounts due, or which may become due, to Licensor pursuant to this Agreement; provided, however, that in no event shall such deductions [***] of any such amounts and Licensor shall not be liable for any costs in excess of such deductible amounts. 9.4 Patent Marking. Licensee agrees to mark and have its Affiliates and Sublicensees mark all Products sold pursuant to this Agreement in accordance with the applicable statute or regulations in the country or countries of manufacture and sale thereof. 9.5 Intellectual Property Rights. Licensee may disclose to Licensor inventions, technology, improvements, discoveries, developments, original works of authorship, trade secrets or intellectual property, conceived, developed or reduced to practice by employee of Licensee ("Intellectual Property"). Intellectual Property shall be treated as confidential information subject to the provisions of Article 10. Title to any Intellectual Property, including patent applications, divisionals, continuations, continuations-in-part, patents or reissues and re-examinations thereon shall be owned by Licensee. 10. CONFIDENTIALITY 10.1 Confidential Information. Except as expressly provided herein, the parties agree that, for the term of this Agreement and for five years thereafter, the receiving party shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose any information furnished to it by another party hereto pursuant to this Agreement except to the extent that it can be established by the receiving party by competent proof that such information: (a) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure; (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; or [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -6- 7 (d) was subsequently lawfully disclosed to the receiving party by a person other than a party or developed by the receiving party without reference to any information or materials disclosed by the disclosing party. 10.2 Permitted Disclosures. Notwithstanding Sections 10.1 above and 15.16 below, Licensee may disclose Licensor's information to the extent such disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental regulations or otherwise submitting information to tax or other governmental authorities, making a permitted sublicense or other exercise of its rights hereunder or conducting clinical trials. 11. SUBLICENSES Pursuant to Article 2 herein, Licensee shall have the right to grant and authorize sublicenses to third parties; provided, however, the Licensee shall remain responsible for any payments due Licensor for Net Sales of Product by any Sublicensee. In the event that Licensee receives a license fee from a Sublicensee at any time within [***] provided, however, that to the extent that such fee is creditable against future royalties on Net Sales of Product by the Sublicensee, Licensee shall not be required to pay Licensor royalties on such Net Sales of Product pursuant to Section 4.1 Except as set forth in this Section 11, Licensee may retain any amounts received from Sublicensees in excess of the amounts owed to Licensor pursuant to Article 4. Any sublicense granted by Licensee pursuant to this Agreement shall provide that the Sublicensee will be subject to the applicable terms of this Agreement. 12. INDEMNIFICATION Licensee agrees to indemnify and hold Licensor harmless from and against any losses, claims, damages, liabilities or actions suffered or incurred in connection with third party claims arising from any Product manufactured, used, sold or otherwise distributed by Licensee and its Affiliates or Sublicensees; provided, however, that Licensee shall not be required to provide indemnification to Licensor for any losses, claims, damages, liabilities or actions suffered or incurred in connection with third party claims resulting from the gross negligence, recklessness or intentional misconduct by Licensor or its agents. If Licensor intends to claim indemnification under this Article 12, it shall promptly notify Licensee in writing of any loss, claim, damage, liability or action in respect of which Licensor intends to clam such indemnification, and Licensee shall have the right to participate in or to assume the defense thereof with counsel of its choice; provided, however, that Licensor shall have the right to retain its own counsel, at its own expense. This indemnity agreement shall not apply to amounts [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -7- 8 paid in settlement of any losses, claims, damages, liabilities or actions if such settlement is effected without the consent of Licensee. The failure to deliver written notice to Licensee within a reasonable time after the commencement of any such action, if prejudicial to its ability to defend such action shall relieve Licensee of any Liability that it may have to Licensor under this Article 12. Licensor shall cooperate fully with Licensee and its legal representatives in the investigation of any action, claim or liability covered by this indemnification. 13. REPRESENTATIONS AND WARRANTIES 13.1 Licensor. Licensor represents and warrants that: (i) it has the full right and authority to enter into this Agreement and grant the rights and licenses granted herein; (ii) it has not previously granted and will not grant any rights inconsistent or in conflict with the rights and licenses granted to Licensee herein; (iii) there are no existing or threatened actions, suits or claims pending against Licensor with respect to the Patent Rights or Materials or the right of Licensor to enter into and perform its obligations under this Agreement; (iv) it has not previously granted, and will not grant during the term of this Agreement, any right, license or interest in and to the Patent Rights or Materials, or any portion thereof, with respect to the Product, or its manufacture or use. 13.2 Licensee: Licensee represents and warrants that: (i) it has the full right and authority to enter into this Agreement; and (ii) it has not entered and during the term of this Agreement will not enter any other agreement inconsistent or in conflict with this Agreement. 13.3 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, LICENSOR MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING. 14. TERM AND TERMINATION 14.1 Effectiveness. This Agreement shall become effective as of the Effective Date and the license rights granted by Licensor under Article 2 above shall be in full force and effect as of such date. -8- 9 14.2 Term. Unless earlier terminated pursuant to the other provisions of this Article 14, this Agreement shall continue in full force and effect until the expiration of the last to expire patent within the Patent Rights claiming Product. The licenses granted under Article 2 shall survive the expiration (but not an earlier termination) of this Agreement; provided that such license shall in such event become nonexclusive. 14.3 Termination for Breach. Either party to this Agreement may terminate this Agreement in the event the other party shall have materially breached or defaulted in the performance of any of its material obligations hereunder, and such shall have continued for sixty days after written notice thereof was provided to the breaching party by the nonbreaching party that terminates the Agreement as to such party. Any termination shall become effective at the end of such sixty day period unless the breaching party has cured any such breach or default prior to the expiration of the sixty day period. However, if the party alleged to be in breach of this Agreement disputes such breach within such sixty day period, the non-breaching party shall not have the right to terminate this Agreement unless it has been determined by an arbitration proceeding in accordance with Section 15.12 below that this Agreement was materially breached, and the breaching party fails to cure such breach within 30 days following the final decision of the arbitrators or such other time as directed by the arbitrators. 14.4 Other Termination Rights. Licensee may terminate this Agreement and the license granted herein, in its entirety or as to any particular patent within the Patent Rights in a particular country, at any time, by providing Licensor ninety-days written notice. In the event of termination as to a particular country, the subject patent in such country shall cease to be within the Patent Rights for all purposes of this Agreement. 14.5 Effect of Termination. 14.5.1 Termination of this Agreement for any reason shall not release either 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. 14.5.2 In the event this Agreement is terminated for any reason, Licensee and its Affiliates and Sublicensees shall have the right to sell or otherwise dispose of the stock of any Product subject to this Agreement then on hand. Upon termination of this Agreement by Licensor for any reason, any sublicense granted by Licensee hereunder shall survive, provided that upon request by Licensor, such Sublicensee promptly agrees in writing to be bound by the applicable terms of this Agreement. 14.5.3 Section 9.5 and Articles 10, 12, 13, 14, and 15 shall survive the expiration and any termination of this Agreement for any reason. -9- 10 15. MISCELLANEOUS 15.1 Governing Laws. This Agreement shall be interpreted and construed in accordance with the laws of the State of California, without regard to conflicts of law principles. 15.2 Waiver. It is agreed that no waiver by any party hereto of any breach or default of any of the covenants or agreements herein set forth shall be deemed a waiver as to any subsequent and/or similar breach or default. 15.3 Assignment. This Agreement and the license granted hereunder may not be assigned by Licensee to any third party without the written consent of Licensor, and Licensor may not assign this Agreement to a third party without the consent of Licensee; except Licensee may assign this Agreement without such consent to (a) an Affiliate or (b) an entity that acquires substantially all of the stock or assets of the Licensee's business to which this Agreement relates. The terms and conditions of this Agreement shall be binding on and inure to the benefit of such permitted successors and assigns. 15.4 Independent Contractors. The relationship of the parties hereto is that of independent contractors. The parties hereto are not deemed to be employees, agents, partners or joint venturers of the others for any purpose as a result of this Agreement or the transactions contemplated thereby. 15.5 Compliance with Laws. In exercising their rights under this license, 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 license. 15.6 No Implied Obligations. Nothing in this Agreement shall be deemed to require Licensee to exploit the Patent Rights nor to prevent Licensee from commercializing products similar to or competitive with any Product, in addition to or in lieu of such Product. 15.7 Notices. Any notice required or permitted to be given to the parties hereto shall be given in writing and shall be deemed to have been properly given if delivered in person or when received if mailed by first class certified mail to the other party at the appropriate address as set forth below or to such other addresses as may be designated in writing by the parties from time to time during the term of this Agreement. Licensor: Ronald J. Billing, Ph.D. 682 Ora Avo Drive Vista, CA 92084 11 Licensee: Abgenix, Inc. 7601 Dumbarton Circle Fremont, CA 94555 Attn: President 15.8 Export Laws. Notwithstanding anything to the contrary contained herein, all obligations of Licensor and Licensee are subject to prior compliance with United States export regulations and such other United States laws and regulations as may be applicable, and to obtaining all necessary approvals required by the applicable agencies of the government of the United States. Licensee shall use efforts consistent with prudent business judgment to obtain such approvals. Licensor shall cooperate with Licensee and shall provide assistance to Licensee as reasonably necessary to obtain any required approvals. 15.9 Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision and the parties shall discuss in good faith appropriate revised arrangements. 15.10 Force Majeure. Nonperformance of any party (except for payment obligations) shall be executed to the extent that performance is rendered impossible by strike, fire, earthquake, flood, governmental acts or orders or restrictions, failure of suppliers, or any other reason where failure to perform, is beyond the reasonable control and not caused by the negligence, intentional conduct or misconduct of the nonperforming party. 15.11 No Consequential Damages. IN NO EVENT SHALL ANY PARTY HERETO BE LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT OR THE EXERCISE OF RIGHTS HEREUNDER. 15.12 Dispute Resolution; Arbitration. The parties will attempt to resolve any dispute under this Agreement by mutual agreement, and, if required, there shall be a face-to-face meeting between a senior executive of Licensee and the Licensor. Any dispute under this Agreement which is not settled after such meeting, shall be finally settled by binding arbitration, conducted in accordance with the Rules of Arbitration of the American Arbitration Association by three arbitrators appointed in accordance with said rules. The costs of the arbitration, including administrative and arbitrators' fees, shall be shared equally by the parties. Otherwise, except as set forth in the next sentence, each party shall bear its own costs and attorneys' and witness' fees. The prevailing party in any arbitration, as determined by the arbitration panel, shall be entitled to an award against the other party in the amount of the prevailing party's costs and reasonable attorneys' fees. The arbitration shall be held in San Francisco, California. A disputed performance or suspended performance pending the resolution of the arbitration must be completed within thirty days following -11- 12 the final decision of the arbitrators. Any arbitration shall be completed within six months from the filing of notice of a request for such arbitration. 15.13 COMPLETE AGREEMENT. It is understood and agreed between Licensor and Licensee that this Agreement, together with the Research Evaluation and Option Agreement, constitute the entire agreement, both written and oral, between the parties with respect to the subject matter hereof, and that all prior agreements respecting the subject matter hereof, either written or oral, expressed or implied, shall be abrogated, canceled, and are null and void and of no effect. No amendment or change hereof or addition hereto shall be effective or binding on either of the parties hereto unless reduced to writing and executed by the respective duly authorized representatives of Licensor and Licensee. 15.14 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and both together shall be deemed to be one and the same agreement. 15.15 HEADINGS. The captions to the several Articles and Sections hereof are not a part of this Agreement, but are included merely for convenience of reference only and shall not affect its meaning or interpretation. 15.16 NONDISCLOSURE. Except as provided in Article 10, each of the parties hereto agrees not to disclose to any third party the terms of this Agreement without the prior written consent of each other party hereto, except to advisors, investors, potential investors, sublicensees, potential sublicensees and others on a need to know basis, or to the extent required by law. 15.17 ATTORNEY. Licensor and Licensee hereby acknowledge that each has had the opportunity to consult with an attorney of their choice and that each has entered into this Agreement upon their own free will and with due consideration for all the terms and provisions herein. -12- 13 IN WITNESS WHEREOF, the parties have executed this Agreement, their respective officers hereunto duly authorized, as of the day and year first above written. RONALD J. BILLING ABEGNIX, INC. (Licensor) (Licensee) [SIG] /s/ R. SCOTT GREER - ----------------------------------- ----------------------------------- Social Security Number R. Scott Greer ###-##-#### President and Chief Executive Officer AGREED TO: ANGELA BILLING [SIG] - ----------------------------------- Social Security Number ###-##-#### EX-10.27 7 COLLABORATIVE RESEARCH AGREEMENT 1 EXHIBIT 10.27 PFIZER, INC. COLLABORATIVE RESEARCH AGREEMENT 2 COLLABORATIVE RESEARCH AGREEMENT This COLLABORATIVE RESEARCH AGREEMENT ("Agreement") is entered into as of December 22, 1997 by and between PFIZER INC ("Pfizer"), a Delaware corporation, having an office at 235 East 42nd Street, New York, New York 10017 and its Affiliates, and ABGENIX, INC. ("Abgenix"), a Delaware corporation, having an office at 7601 Dumbarton Circle, Fremont, CA 94555; WHEREAS, Abgenix has expertise in the generation of human monoclonal antibodies through utilization of transgenic Xenomouse(TM) animals; and WHEREAS, Abgenix is licensed under the patents and patent applications set forth in Exhibit A attached to and made part of this Agreement with respect to the transgenic Xenomouse(TM) animals; and WHEREAS, Pfizer has the capability to undertake research for the discovery and evaluation of agents for treatment of disease and also the capability for clinical analysis, manufacturing and marketing with respect to therapeutic agents; WHEREAS, Pfizer and Abgenix enter into this Agreement to discover and develop patentable therapeutic antibody agents; NOW, THEREFORE, the parties agree as follows: 1. Definitions Whenever used in this Agreement, the terms defined in this Section 1 shall have the meanings specified. 3 1.1 "Affiliate" means any corporation or other legal entity owning, directly or indirectly, fifty percent (50%) or more of the voting capital shares or similar voting securities of Pfizer or Abgenix; any corporation or other legal entity fifty percent (50%) or more of the voting capital shares or similar voting rights of which is owned, directly or indirectly, by Pfizer or Abgenix or any corporation or other legal entity fifty percent (50%) or more of the voting capital shares or similar voting rights of which is owned, directly or indirectly, by a corporation or other legal entity which owns, directly or indirectly, fifty percent (50%) or more of the voting capital shares or similar voting securities of Pfizer or Abgenix. 1.2 "Research Plan" means the written plan describing the research and development in the Area to be carried out by Pfizer and Abgenix pursuant to this Agreement. The Research Plan is attached to and made a part of this Agreement as Exhibit B. 1.3 "Research Program" is the collaborative research program in the Area conducted by Pfizer and Abgenix pursuant to the Research Plan. 1.4 "Effective Date" is December 22, 1997. 1.5 "Contract Period" means the period beginning on the Effective Date and ending on the date on which this Agreement terminates. 1.6 "Area" means research or development with respect to the discovery and development of therapeutic Antibody Products directed against a Target Antigen useful in the treatment or prevention of human disease. 1.7 "Technology" means and includes all materials, technology, technical information, know-how, expertise and trade secrets within the Area. 1.8 "Abgenix Technology" means Technology that is or was: (a) developed by employees of or consultants to Abgenix alone or jointly with third parties prior to the Effective Date; or 2 4 (b) acquired by purchase, license, assignment or other means from third parties by Abgenix prior to the Effective Date or since that date that is not part of Joint Technology. 1.9 "Joint Technology" means Technology that is or was: (a) developed by employees of or consultants to Pfizer or Abgenix solely or jointly with each other in the course of performing the Research Program including (i) Antibody Products, (ii) cells that express or secrete Antibody Products and (iii) materials derived from Antibody Products or cells that express or secrete Antibody Products; provided, however that XenoMouse(TM) animals immunized in the course of conducting the Research Program shall remain Abgenix Technology; or (b) acquired by purchase, license, assignment or other means from third parties by Abgenix or Pfizer, pursuant to Article 7, in the course of performing the Research Program. 1.10 "Pfizer Technology" means Technology that is or was: (a) developed by employees of or consultants to Pfizer alone or jointly with third parties prior to the Effective Date; or (b) acquired by purchase, license, assignment or to other means from third parties by Pfizer prior to the Effective Date or since that date that is not of Joint Technology. 1.11 "Abgenix Confidential Information" means all information about any element of the Abgenix or Joint Technology which is disclosed by Abgenix to Pfizer and designated "Confidential" in writing by Abgenix at the time of disclosure or within thirty (30) days following disclosure, to the extent that such information as of the date of disclosure to Pfizer is not (i) known to Pfizer other than by virtue of a prior confidential disclosure to Pfizer by Abgenix; or (ii) disclosed in published literature, or otherwise generally known to the public 3 5 through no fault or omission of Pfizer; or (iii) obtained from a third party free from any obligation of confidentiality to Abgenix. 1.12 "Pfizer Confidential Information" means all information about any element of Pfizer or Joint Technology which is disclosed by Pfizer to Abgenix and designated "Confidential" in writing by Pfizer at the time of disclosure or within thirty (30) days following disclosure to the extent that such information as of the date of disclosure to Abgenix is not (i) known to Abgenix other than by virtue of a prior confidential disclosure to Abgenix by Pfizer; or (ii) disclosed in published literature, or otherwise generally known to the public through no fault or omission of Abgenix; or (iii) obtained from a third party free from any obligation of confidentiality to Pfizer. 1.13 "Valid Claim" means a claim within Patent Rights so long as such claim shall not have been disclaimed by Pfizer (in the case of Patent Rights within the Pfizer Technology) or by Abgenix (in the case of Patent Rights within the Abgenix Technology) or both (in the case of Joint Patent Rights) and shall not have been held invalid in a final decision rendered by a tribunal of competent jurisdiction from which no appeal has been or can be taken. 1.14 "Patent Rights" shall mean: (a) the Abgenix Patent Rights, the Abgenix-Controlled Patent Rights and the Joint Patent Rights; and (b) all patent rights in and to inventions within Pfizer Technology including all the Valid Claims of patent applications, whether domestic or foreign, claiming such patentable inventions, including all continuations, continuations-in-part, divisions, and renewals, all letters patent granted thereon, and all reissues, reexaminations and extensions thereof. 1.15 "Abgenix Patent Rights" shall mean: 4 6 (a) the Valid Claims of Abgenix's patents and patent applications, listed in Exhibit Al, and patents issuing on them, including any divisions, continuation, continuation-in-part, renewal, extension, reexamination, reissue or foreign counterpart thereof; and (b) all patent rights in and to inventions within Abgenix Technology including all the Valid Claims of patent applications, whether domestic or foreign, claiming such patentable inventions, including all continuations, continuations-in-part, divisions, and renewals, all letters patent granted thereon, and all reissues, reexaminations and extensions thereof. 1.16 "Abgenix Controlled Patent Rights" shall mean the Valid Claims of the licensed patent applications and patents listed on Exhibit A2, including all continuations, continuations-in-part, divisions, and renewals, all letters patent granted thereon, and all reissues, reexaminations, extensions and all foreign counterparts thereof. 1.17 "Joint Patent Rights" shall mean all patent rights in and to inventions within the Joint Technology, including all the Valid Claims of patent applications, whether domestic or foreign, claiming such patentable inventions, including all continuations, continuations-in-part, divisions, and renewals, all letters patent granted thereon, and all reissues, reexaminations and extensions thereof. 1.18 "Target Antigen" means the target molecule used as an immunogen for the discovery of antibodies. 1.19 " Antibody Product" means a whole antibody, or a fragment thereof, that binds to a particular Target Antigen and is derived from Abgenix Technology pursuant to the Research Plan. 1.20 "Licensed Antibody Product" shall have the meaning defined in the License Agreement. 5 7 1.21 "Materials Transfer Agreement" means that certain Materials Transfer Agreement entered into by and between Pfizer and Abgenix existing as of September 25, 1997. 1.22 "License Agreement" means the License and Royalty Agreement attached hereto as Exhibit C entered into by and between Pfizer and Abgenix as of the Effective Date. 2. Collaborative Research Program 2.1.1 Purpose. Abgenix and Pfizer shall conduct the Research Program throughout the Contract Period. All Technology in the Area developed in the course of performing the Research Plan will become part of the Joint Technology. The objective of the Research Program is to discover and develop Antibody Products. The Target Antigen for this Agreement is [*]. 2.1.2 Research Plan. The Research Plan is described in the attached Exhibit B. Each new Research Plan, if any, for each succeeding Target Antigen, in accordance with Section 9.6, shall be appended to Exhibit B and made part of this Agreement. Additional research projects, determined to be needed by the Research Committee will also be appended to Exhibit B and made part of this Agreement in accordance with Section 2.2 below. 2.1.3 Exclusivity. Abgenix agrees that during the Contract Period, Abgenix shall not conduct research itself or sponsor any other research, or engage in any research sponsored by any third party to develop or commercialize any protein, peptide, or antibodies that bind to the Target Antigen without Pfizer's consent. 2.2 Research Committee 2.2.1 Purpose. Pfizer and Abgenix shall establish a Research Committee (the "Research Committee"): *Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 6 8 (a) to review and evaluate progress under the Research Plan; (b) to prepare the Research Plan, and any amendments thereto, for any additional projects or Target Antigens; and (c) to coordinate and monitor publication of research results obtained from and the exchange of information and materials that relate to the Research Program. (This function shall survive the termination of this Agreement). 2.2.2 Membership.. Pfizer and Abgenix each shall appoint, in its sole discretion, three members to the Research Committee. Substitutes may be appointed at any time. The members initially shall be: Pfizer Appointees: [*] [*] [*] Abgenix Appointees: [*] [*] [*] 2.2.3 Chair. The Research Committee shall be chaired by two co- chairpersons, one appointed by Pfizer and the other appointed by Abgenix. 2.2.4 Meetings. The Research Committee shall meet at least quarterly, at places selected by each party in turn and on dates mutually agreed by the parties. The location of the first meeting of the Research Committee shall be at Pfizer's election. Representatives of Pfizer or Abgenix or both, in addition to members of the Research Committee, may attend such meetings at the invitation of either party. 2.2.5 Minutes. The Research Committee shall keep accurate minutes of its deliberations which record all proposed decisions and all actions recommended or taken. Drafts of the minutes shall be delivered to all Research *Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 7 9 Committee members within five (5) business days after each meeting. The party choosing the location for the meeting shall be responsible for the preparation and circulation of the draft minutes. Draft minutes shall be edited by the cochairpersons and shall be issued in final form only with their approval and agreement. 2.2.6 Decisions. All technical decisions of the Research Committee shall be made by majority of the members, with final authority residing with Pfizer. Notwithstanding the foregoing or any other provision of this Agreement (i) Research Plans may only be amended (and Research Plans for additional Target Antigens adopted) as mutually agreed by Pfizer and Abgenix and approved by the Research Committee, and (ii) except as Abgenix may otherwise agree, Abgenix shall only be obligated under this Agreement to perform research activities in accordance with such a Research Plan. 2.2.7 Expenses. Pfizer shall bear all expenses, including reasonable travel, related to the participation of the designated members of the Research Committee. 2.3 Reports and Materials. 2.3.1 Reports. During the Contract Period, Pfizer and Abgenix each shall furnish to the Research Committee: (a) summary written reports within fifteen (15) days after the end of each stage of the Research Plan, commencing on the Effective Date, describing the progress under the Research Plan; and (b) comprehensive written reports within thirty (30) days after the end of each year, describing in detail the work accomplished by it under the Research Plan during the year and discussing and evaluating the results of such work. 8 10 2.3.2 Materials. Abgenix and Pfizer shall, during the Contract Period, as a matter of course as described in the Research Plan, or upon each other's written or oral request, furnish to each other samples of biochemical, biological or synthetic chemical materials which are part of Pfizer Technology, Abgenix Technology or Joint Technology and which are necessary for each party to carry out its responsibilities under the Research Plan; provided, however, that Abgenix shall, upon request, deliver to Pfizer samples of any material made pursuant to the Research Plan. This will not include the transfer of Xenomouse(TM) animals by Abgenix. To the extent that Pfizer requests and Abgenix provides quantities of materials in excess of the quantities required to be provided under the Research Plan, Pfizer shall reimburse Abgenix for the reasonable costs of such materials as per Section 3.2.2. 2.3.3 The materials transferred by one party (the "Transferor") to the other (the "Transferee") shall remain the property of the respective owner of such materials prior to such transfer, and the transfer of physical possession of materials to the Transferee, and/or possession or use by the Transferee, of such materials shall not be, nor be construed as, a sale, lease, offer to sell or lease, or other transfer of title to such transferred materials. The Transferee shall retain control over the Transferor's materials provided to the Transferee hereunder and shall not transfer the Transferor's materials to any third party without the Transferor's written consent. 2.4 Laboratory Facilities and Personnel. Abgenix shall provide suitable laboratory facilities, equipment and personnel for the work to be done by Abgenix in carrying out the Research Program. 2.5 Diligent Efforts. Pfizer and Abgenix each shall use reasonably diligent efforts to achieve the objectives of the Research Program. Abgenix will use reasonably diligent efforts to achieve the objectives listed in the Research Plan 9 11 and Pfizer will use reasonably diligent efforts to assist Abgenix in each Research Plan. 3. Funding the Research Program. 3.1.1 Pfizer will fund the research to be performed by Abgenix, pursuant to this Agreement, by making payments to Abgenix within thirty (30) days of the completion of each event as described in the Research Plan, according to the following schedule:
EVENT AMOUNT ----- ------ A. Execution of this Agreement [*] B. [*] C. [*] [*]
3.1.2 [*]. *Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 10 12 3.2 Other Payments. 3.2.1 [*], Pfizer shall pay Abgenix the amount of [*]. 3.2.2 [*]. 3.2.3 [*]. 3.3. Each payment pursuant to this Agreement shall be paid by Pfizer in U.S. currency by wire transfer in immediately available funds to an account designated by Abgenix, or by other mutually acceptable means within thirty (30) days after receipt and acceptance by Pfizer of the invoice from Abgenix. 3.4 Abgenix shall keep for three (3) years from the conclusion of each year complete and accurate records of its expenditures of payments received by it from Pfizer under Section 3.2.3. The records shall conform to good accounting principles as applied to a similar company similarly situated. Pfizer shall have the right at its own expense during the term of this Agreement and during the subsequent three-year period to appoint an independent certified public accountant reasonably acceptable to Abgenix to inspect said records to verify the accuracy of such expenditures, pursuant to each Research Plan. Upon reasonable notice by Pfizer, Abgenix shall make its records available for inspection by the independent certified public accountant during regular business hours at the place *Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 11 13 or places where such records are customarily kept, to verify the accuracy of the expenditures. This right of inspection shall not be exercised more than once in any calendar year and not more than once with respect to records covering any specific period of time. All information concerning such expenditures, and all information learned in the course of any audit or inspection, shall be deemed to be Abgenix Confidential Information, except to the extent that it is necessary for Pfizer to reveal the information in order to enforce any rights it may have pursuant to this Agreement or if disclosure is required by law. The failure of Pfizer to request verification of any expenditures before or during the three-year period shall be considered acceptance by Pfizer of the accuracy of such expenditures, and Abgenix shall have no obligation to maintain any records pertaining to such report or statement beyond such three-year period. The results of such inspection, if any, shall be binding on the parties. 4. Treatment of Confidential Information 4.1 Confidentiality 4.1.1 Pfizer and Abgenix each recognize that the other's Confidential Information constitutes highly valuable, confidential information. Subject to the terms and conditions of the License and Royalty Agreement between the parties of even date with this Agreement (the "License Agreement"), the obligations set forth in Section 4.3 and the publication rights set forth in Section 4.2, Pfizer and Abgenix each agree that during the term of this Agreement and for five (5) years thereafter, it will keep confidential, and will cause its Affiliates to keep confidential, all Abgenix Confidential Information or Pfizer Confidential Information, as the case may be, that is disclosed to it, or to any of its Affiliates pursuant to this Agreement. Neither Pfizer nor Abgenix nor any of their respective Affiliates shall use such Confidential Information of the 12 14 other party except as expressly permitted in this Agreement. For the purposes of this Section 4, it is understood that Joint Technology shall be deemed Confidential Information of both parties. 4.1.2 Pfizer and Abgenix each agree that any disclosure of the other's Confidential Information to any officer, employee or agent of the other party or of any of its Affiliates shall be made only if and to the extent necessary to carry out its responsibilities under this Agreement and shall be limited to the maximum extent possible consistent with such responsibilities. Pfizer and Abgenix each agree not to disclose the other's Confidential Information to any third parties under any circumstance without written permission from the other party. Each party shall take such action, and shall cause its Affiliates to take such action, to preserve the confidentiality of each other's Confidential Information as it would customarily take to preserve the confidentiality of its own Confidential Information. Each party, upon the other's request, will return all the Confidential Information disclosed to it by the other party pursuant to this Agreement, including all copies and extracts of documents, within sixty (60) days of the request upon the termination of this Agreement except for one (1) copy which may be kept for the purpose of complying with continuing obligations under this Agreement. 4.1.3 Abgenix and Pfizer each represent that all of its employees, and any consultants to such party, participating in the Research Program who shall have access to Joint Technology, the Technology of the other (Pfizer Technology or Abgenix Technology, as the case may be) or Confidential Information of the other (Pfizer Confidential Information or Abgenix Confidential Information, as the case may be) are bound by agreement to maintain such information in confidence. 13 15 4.2 Publication. Notwithstanding any matter set forth with particularity in this Agreement to the contrary, results obtained in the course of the Research Program may be submitted for publication following scientific review by the Research Committee and subsequent approval by Abgenix's and Pfizer's managements, which approval shall not be unreasonably withheld. After receipt of the proposed publication by both Pfizer's and Abgenix's managements written approval or disapproval shall be provided within thirty (30) days for a manuscript, within fourteen (14) days for an abstract for presentation at, or inclusion in the proceedings of a scientific meeting, and within fourteen (14) days for a transcript of an oral presentation to be given at a scientific meeting. 4.3 Publicity. Except as required by law, neither party may disclose the terms of this Agreement nor the research described in it without the written consent of the other party, which consent shall not be unreasonably withheld. 4.4 Permitted Disclosure. 4.4.1 Disclosure Required by Law. If either party is requested to disclose the Confidential Information in connection with a legal or administrative proceeding or is otherwise required by law to disclose the Confidential Information, such party will give the other party prompt notice of such request. The disclosing party may seek an appropriate protective order or other remedy or waive compliance with the provisions of this Agreement. If such party seeks a protective order or other remedy, the other party will cooperate. If such party fails to obtain a protective order or waive compliance with the relevant provisions of this Agreement, the other party will disclose only that portion of Confidential Information which its legal counsel determines it is required to disclose. 4.4.2 Disclosure of Inventions. Each party shall promptly inform the other about all inventions in the Area within the Joint Technology that are 14 16 made in the course of carrying out the Research Program by employees of, or consultants to, either of them solely, or jointly with employees of, or consultants to the other. 4.5 Restrictions on Transferring Materials. Abgenix recognizes that the biological and biochemical materials which are part of Pfizer Technology or Joint Technology, represent valuable commercial assets. Therefore, throughout the Contract Period and for five (5) years thereafter, Abgenix agrees not to transfer such materials to any third party, unless prior written, consent for any such transfer is obtained from Pfizer. 5. Intellectual Property Rights. The following provisions relate to rights in the intellectual property developed by or for Abgenix or Pfizer, or both, during the course of carrying out the Research Program. 5.1 Ownership. All Abgenix Confidential Information and Abgenix Technology shall be owned by Abgenix. All Pfizer Confidential Information and Pfizer Technology shall be owned by Pfizer. All Joint Technology shall be jointly owned by Abgenix and Pfizer except for the hybridoma cells generated during the course of conducting the Research Program ("Hybridoma Technology") which shall be owned by Abgenix. 5.2 Grants of Research Licenses. 5.2.1 Abgenix and Pfizer each grants to the other a nonexclusive, irrevocable, worldwide, royalty-free, perpetual license, including the right to grant sublicenses to Affiliates, to make and use Confidential Information, Joint Technology and joint Patent Rights for all research purposes other than the sale or manufacture for sale of products or processes except for the following: (i) this license does not include the Xenomouse(TM) animals owned by Abgenix; and 15 17 (ii) neither party can use an Antibody Product derived from the Joint Technology to identify or model the structure of a Target Antigen or the structure of the Antibody Product to which the Target Antigen is bound, to design a molecule of pharmaceutical therapeutic value which is not an antibody. 5.2.2 Abgenix grants to Pfizer a co-exclusive, irrevocable, worldwide, royalty-free, perpetual license, including the right to grant sublicenses to Affiliates, to make and use Hybridoma Technology for all research purposes other than the sale or manufacture for sale of products or processes. 6. Provisions Concerning the Filing, Prosecution and Maintenance of Joint Patent Rights. The following provisions relate to the filing, prosecution and maintenance of Joint Patent Rights during the term of this Agreement: 6.1 Filing, Prosecution and Maintenance by Abgenix. With respect to Joint Patent Rights in which Abgenix employees or consultants, alone or together with Pfizer employees, or consultants are named as inventors, Abgenix shall have the exclusive right and obligation : (a) to file applications for letters patent on patentable inventions included in Joint Patent Rights; provided, however, that Abgenix shall consult with Pfizer regarding countries in which such patent applications should be filed and shall file patent applications in those countries where Pfizer requests that Abgenix file such applications; and, further provided, that Abgenix, at its option and expense, may file in countries where Pfizer does not request that Abgenix file such applications; (b) to take all reasonable steps to prosecute all pending and new patent applications included within Joint Patent Rights; 16 18 (c) to respond to oppositions, nullity actions, re-examinations, revocation actions and similar proceedings filed by third parties against the grant of letters patent for such applications; (d) to maintain in force any letters patent included in Joint Patent Rights by duly filing all necessary papers and paying any fees required by the patent laws of the particular country in which such letters patent were granted; and (e) to cooperate fully with, and take all necessary actions requested by, Pfizer in connection with the preparation, prosecution and maintenance of any letters patent included in Joint Patent Rights. Abgenix shall notify Pfizer in a timely manner of any decision to abandon a pending patent application or an issued patent included in Joint Patent Rights. Thereafter, Pfizer shall have the option, at its expense, of continuing to prosecute any such pending patent application or of keeping the issued patent in force. 6.1.1 Copies of Documents. Abgenix and Pfizer shall provide to each other copies of all patent applications that are part of Joint Patent Rights prior to filing, for the purpose of obtaining substantive comment of the other party's patent counsel. Abgenix and Pfizer shall also provide to the other copies of all documents relating to prosecution of all such patent applications in a timely manner and shall provide to the other every six (6) months a report detailing the status of all patent applications that are a part of Joint Patent Rights. 6.1.2 Reimbursement of Costs for Filing Prosecuting and Maintaining Joint Patent Rights, Within thirty (30) days of receipt of invoices from Abgenix, Pfizer shall reimburse Abgenix for all the costs of filing, prosecuting, responding to opposition and maintaining patent applications and patents in countries where Pfizer requests that patent applications be filed, prosecuted and maintained. Such reimbursement shall be in addition to other 17 19 funding payments under this Agreement and shall include such costs of all activities described in 6.1 (a)-(e) above. However, Pfizer may, upon sixty (60) days notice, request that Abgenix discontinue filing or prosecution of certain patent applications in any country and discontinue reimbursing Abgenix for the costs of filing, prosecuting, responding to opposition or maintaining such patent application or patent in any country. Abgenix shall pay all costs in those countries in which Pfizer requests that Abgenix not file, prosecute or maintain patent applications and patents, but in which Abgenix, at its option, elects to do so. 6.1.3 Pfizer shall have the right to file on behalf of and as an agent for Abgenix all applications for, and take all actions necessary to obtain patent extensions pursuant to 35 USC Section 156 and foreign counterparts with respect to the Joint Patent Rights to the extent that such extensions are available by reason of a Licensed Antibody Product under the License Agreement during the period the License Agreement is in effect. Abgenix agrees, to sign, such further documents and take such further actions as may be requested by Pfizer in this regard, at Pfizer's expense 6.2 Filing, Prosecution and Maintenance by Pfizer. With respect to Patent Rights in which Pfizer employees or consultants alone are named as inventors, Pfizer shall have those rights and duties ascribed to Abgenix in Section 6.1., except that Pfizer will bear all related expenses. 6.3 Neither party may disclaim a Valid Claim within Joint Patent Rights without the consent of the other. 7. Acquisition of Rights from Third Parties. (a) During the Contract Period, Abgenix and Pfizer shall each promptly notify each other of any and all opportunities to acquire in any manner from third parties, technology or patents or information which it elects to use in 18 20 the course of performing the Research Program. Abgenix and Pfizer shall decide if such rights should be acquired in connection with the Research Program and, if so, whether by Abgenix, Pfizer or both, it being understood that nothing herein shall obligate either party to obtain such rights or, if it does acquire such rights, to make such rights available for use in the Research Program. If acquired such rights shall become part of the Confidential Information, Technology or Patent Rights, whichever is appropriate, of the acquiring party or Joint Technology, as the case may be. 8. Other Agreements. Concurrently with the execution of this Agreement, Abgenix and Pfizer shall enter into the License Agreement appended to and made part of this Agreement as Exhibit C and the Stock Purchase Agreement appended to and made a part of this Agreement as Exhibit D. This Agreement, the Stock Purchase Agreement and the License Agreement are the sole agreements with respect to the subject matter and supersede all other agreements and understandings between the parties with respect to same. The Materials Transfer Agreement is hereby terminated and superseded by this Agreement, provided, however, that Abgenix shall not (except as otherwise authorized pursuant to this Agreement or the License Agreement) disclose or license to any third party inventions made using the antigen materials provided to Abgenix under the Materials Transfer Agreement without the prior agreement of Pfizer. 9. Term, Termination and Disengagement. 9.1 Term. Unless sooner terminated, as provided below or extended, by mutual agreement of the parties, this Agreement shall expire on December 21, 1999. 19 21 9.2 Events of Termination. The following events shall constitute events of termination ("Events of Termination"): (a) any written representation or warranty by Abgenix or Pfizer, or any of its officers, made under or in connection with this Agreement shall prove to have been incorrect in any material respect when made; (b) Abgenix or Pfizer shall fail in any material respect to perform or observe any term, covenant or understanding contained in this Agreement or in any of the other documents or instruments delivered pursuant to, or concurrently with, this Agreement, and any such failure shall remain unremedied for thirty (30) days after written notice to the failing party. 9.3 Termination. 9.3.1 Upon the occurrence of any Event of Termination, the party not responsible may, by notice to the other party, terminate this Agreement. 9.3.2 If Pfizer terminates this Agreement pursuant to Section 9.3.1, the License Agreement shall not automatically terminate, but instead shall terminate or expire in accordance with its terms. If Abgenix terminates this Agreement pursuant to Section 9.3.1, the License Agreement shall terminate immediately. 9.4 Termination of this Agreement by either party, with or without cause, will not terminate the licenses granted pursuant to Section 5.2. 9.5 Termination of this Agreement for any reason shall be without prejudice to: (a) the rights and obligations of the parties provided in Sections 2.3.3, 4, 6, 12 and 15; (b) Abgenix's right to receive all payments accrued under Section 3; or 20 22 (c) any other remedies which either party may otherwise have. 9.6 Option for Additional Target-Antigens by Pfizer. Pfizer shall have the option, in its sole, unfettered discretion, to discuss with Abgenix the research and development of up to two (2) Target Antigens, in addition to [*] during the term of this Agreement; provided, however, that Abgenix shall not be obligated to accept any such additional Target Antigen proposed by Pfizer or grant any rights or obligations with respect to such additional Target Antigens or antibodies to them. This option shall expire if not exercised by Pfizer on or before the last day of the twenty fourth month this Agreement is in effect. If Pfizer exercises this option, by notice to Abgenix, and Abgenix accepts either of both of the Target Antigens, the parties shall adopt a Research Plan during the ensuing ninety (90) day period which shall include the funding payments not to exceed those set forth in Sections 3.1 and 3.2 for the next ensuing two (2) year period. All other terms and conditions of this Agreement shall otherwise remain in full force. 10. Representations and Warranties. Abgenix and Pfizer each represents and warrants as follows: 10.1 It is a corporation duly organized, validly existing and is in good standing under the laws of the State of Delaware, is qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the conduct of its business or the ownership of its properties requires such qualification and has all requisite power and authority, corporate or otherwise, to conduct its business as now being conducted, to own, lease and operate its properties and to execute, deliver and perform this Agreement. 10.2 The execution, delivery and performance by it of this Agreement have been duly authorized by all necessary corporate action and do not and will * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 21 23 not (a) require any consent or approval of its stockholders, (b) violate any provision of any law, rule, regulations, order, writ, judgment, injunctions, decree, determination award presently in effect having applicability to it or any provision of its certificate of incorporation or by-laws or (c) result in a breach of or constitute a default under any material agreement, mortgage, lease, license, permit or other instrument or obligation to which it is a party or by which it or its properties may be bound or affected. 10.3 This Agreement is a legal, valid and binding obligation of it enforceable against it in accordance with its terms and conditions, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws, from time to time in effect, affecting creditor's rights generally. 10.4 It is not under any obligation to any person, or entity, contractual or otherwise, that is conflicting or inconsistent in any respect with the terms of this Agreement or that would impede the diligent and complete fulfillment of its obligations. 10.5 It has good and marketable title to or valid leases or licenses for, all of its properties, rights and assets necessary for the fulfillment of its responsibilities under the Research Program, subject to no claim of any third party other than any relevant lessors or licensors. 10.6 ALL MATERIALS PROVIDED BY ABGENIX UNDER THE RESEARCH PROGRAM (INCLUDING WITHOUT LIMITATION ALL HYBRIDOMAS AND ANTIBODY PRODUCTS) ARE PROVIDED "AS IS" EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 10, ABGENIX MAKES NO WARRANTY, EXPRESS OR IMPLIED, AND EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, INCLUDING WITHOUT 22 24 LIMITATION, ANY WARRANTIES AS TO THE PATENT RIGHTS. MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY, NONINFRINGEMENT OR ENFORCABILITY. 11. Covenants of Abgenix and Pfizer Other Than Reporting Requirements. Throughout the Contract Period, Abgenix and Pfizer each shall: 11.1 maintain and preserve its corporate existence, rights, franchises and privileges in the jurisdiction of its incorporation, and qualify and remain qualified as a foreign corporation in good standing in each jurisdiction in which such qualification is from time to time necessary or desirable in view of their business and operations or the ownership of their properties. 11.2 comply in all material respects with the requirements of all applicable laws, rules, regulations and orders of any government authority to the extent necessary to conduct the Research Program, except for those laws, rules, regulations, and orders it may be contesting in good faith. 12. Indemnification. Pfizer and Abgenix will indemnify each other for damages, settlements, costs, legal fees and other expenses incurred in connection with a claim by a third party against either party based on any action or omission of the indemnifying party's agents, employees, or officers related to its obligations under this Agreement; provided, however, that the foregoing shall not apply (i) if the claim is found to be based upon the negligence, recklessness or willful misconduct of the party seeking indemnification; or (ii) if such party falls to give the other party prompt notice of any claim it receives and such failure materially prejudices the other party with respect to any claim or action to which its obligation pursuant to this Section applies. Notwithstanding the foregoing, Abgenix shall not indemnify Pfizer for claims arising from the sale of Antibody 23 25 Products or exercise of rights granted to Pfizer under Section 5.2, or the License Agreement (including without limitation product liability claims) and Pfizer shall indemnify Abgenix with respect to such claims and to claims arising from Joint Patent Rights, Pfizer Patent Rights, Joint Technology and Pfizer Technology except for intellectual property claims with respect to Abgenix Patent Rights, Abgenix Controlled-Patent Rights or Abgenix Technology. Each party, in its sole discretion, shall choose legal counsel, shall control the defense of such claim or action and shall have the right to settle same on such terms and conditions it deems advisable; provided however, it shall obtain the other party's prior consent to such part of any settlement which requires payment or other action by the other party or is likely to have a material adverse effect on the other party's business. 13. Notices. All notices shall be in writing mailed via certified mail, return receipt requested, courier, or facsimile transmission addressed as follow, or to such other address as may be designated from time to time: If to Pfizer: Pfizer Central Research Eastern Point Road Groton, CT 06340 Attention: Dr. George Milne, President with copy to: Joshua A. Kalkstein, General Counsel If to Abgenix: Abgenix, Inc. 7601 Dumbarton Circle Fremont, CA 94555 Attention: President cc: Wilson, Sonsini, Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304 Attn: Kenneth A. Clark 24 26 Notices shall be deemed given as of the date sent. 14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 15. Miscellaneous. 15.1 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, successors and permitted assigns. 15.2 Headings. Paragraph headings are inserted for convenience of reference only and do not form a part of this Agreement, 15.3 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original. 15.4 Amendment, Waiver. This Agreement may be amended, modified, superseded or canceled, and any of the terms may be waived, only by a written instrument executed by each party or, in the case of waiver, by the party or parties waiving compliance. The delay or failure of any party at any time or times to require performance of any provisions shall in no manner affect the rights at a later time to enforce the same. No waiver by any party of any condition or of the breach of any term contained in this Agreement, whether by conduct, or otherwise, in any one or more instances, shall be deemed to be, or considered as, a further or continuing waiver of any such condition or of the breach of such term or any other term of this Agreement. 15.5 No Third Party Beneficiaries. No third party including any employee of any party to this Agreement, shall have or acquire any rights by 25 27 reason of this Agreement. Nothing contained in this Agreement shall be deemed to constitute the parties partners with each other or any third party. 15.6 Assignment and Successors. This Agreement may not be assigned by either party, except that each party may assign this Agreement and the rights and interests of such party, in whole or in part, to any of its Affiliates, any purchaser of all or substantially all of its assets or to any successor corporation resulting from any merger or consolidation of such party with or into such corporations. 15.7 Force Majeure. Neither Pfizer nor Abgenix shall be liable for failure of or delay in performing obligations set forth in this Agreement, and neither shall be deemed in breach of its obligations, if such failure or delay is due to natural disasters or any causes reasonably beyond the control of Pfizer or Abgenix. 15.8 Severability. If any provision of this Agreement is or becomes invalid or is ruled invalid by any court of competent jurisdiction or is deemed unenforceable, it is the intention of the parties that the remainder of the Agreement shall not be affected. 26 28 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives. PFIZER INC By: [SIG] ------------------------------------ Title: President, Control Research Div. --------------------------------- ABGENIX, INC. By: [SIG] ------------------------------------ Title: Vice President, Corporate Development cc: Pfizer Inc, Legal Division, Groton, CT 06340 27 29 EXHIBIT A EXHIBIT A1 ABGENIX PATENT RIGHTS [*] *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 30 EXHIBIT A1 (CONTINUED) [*] *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 31 EXHIBIT A2 ABGENIX CONTROLLED PATENT RIGHTS [*] *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 32 EXHIBIT A2 (CONTINUED) [*] *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. ---END--- 33 EXHIBIT B ABGENIX, INC. CONFIDENTIAL Pfizer Research Plan November 26, 1997 Page 1 RESEARCH PLAN [*] *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 34 ABGENIX, INC. CONFIDENTIAL Pfizer Research Plan November 26, 1997 Page 2 [*] *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 35 ABGENIX, INC. CONFIDENTIAL Pfizer Research Plan November 26, 1997 Page 3 [*] *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 36 EXHIBIT C LICENSE AND ROYALTY AGREEMENT This LICENSE AND ROYALTY AGREEMENT is entered into as of December 22, 1997 (the "Effective Date") by and between PFIZER INC ("Pfizer"), a Delaware corporation, having an office at 235 East 42nd Street, New York, New York 10017 and its Affiliates and ABGENIX, INC. ("Abgenix"), a Delaware corporation, having an office at 7601 Dumbarton Circle, Fremont, CA 94555; WHEREAS, Pfizer desires to obtain an exclusive license under Abgenix's right, title and interest in the Patent Rights so that Pfizer can manufacture, use, sell, offer for sale and import the Licensed Antibody Products; and WHEREAS, Abgenix is willing to grant such license; Therefore, in consideration of the mutual covenants and promises set forth in this Agreement, the parties agree as follows: 1. DEFINITIONS. The capitalized terms used in this Agreement and not defined elsewhere in it shall have the meanings specified for such terms in this Section 1 and in the Research Agreement. 1.1 "RESEARCH AGREEMENT" means the Collaborative Research Agreement between Pfizer and Abgenix effective December 22, 1997. 1.2 "NET SALES" means the gross amount invoiced by Pfizer, its 37 Affiliates, or any sublicensee of Pfizer for sales to a third party or parties of Licensed Antibody Products, less [*] invoices as a separate item. 1.3 "LICENSED ANTIBODY PRODUCT" means any Antibody Product, (i) the manufacture, use, sale, offer for sale or import would be within the scope of any Valid Claim within the Patent Rights or (ii) is developed using a method or using a transgenic animal, wherein the use of such method or such transgenic animal would be within the scope of any Valid Claim within the Patent Rights. 1.4 "SUBLICENSEE" shall mean a third party who has been granted a sublicense to make, use, sell, offer for sale or import Licensed Antibody Products. It is understood that the term "sublicensee" shall have the foregoing meaning whether or not such term is capitalized herein. 2. OPTION, GRANT OF LICENSE, TERM, RIGHTS AND OBLIGATIONS. 2.1 OPTION. For a period of [*] from the Effective Date, Pfizer shall have the exclusive option to acquire the License described in Section 2.2 below. Such option will be exercised in writing by Pfizer to Abgenix. 2.2 LICENSE GRANTED TO PFIZER UNDER THE PATENT RIGHTS. If the option described in Section 2.1 is exercised by Pfizer, Abgenix will grant to Pfizer: *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 2 38 (a) an exclusive, worldwide license, including the right to grant sublicenses, to manufacture, use, sell, offer for sale and import Licensed Antibody Products under all Abgenix's right, title and interest in the Joint Patent Rights; (b) an exclusive, worldwide license, to manufacture, use, sell, offer for sale and import Licensed Antibody Products under all Abgenix's right, title and interest in the Abgenix Patent Rights for human medical uses (subject to the non-exclusive grant of rights to GenPharm International Inc. under that certain Cross License Agreement effective as of March 26, 1997 by and among Abgenix, GenPharm. and other parties named therein); (c) a non-exclusive worldwide license to manufacture, use, sell, offer for sale and import Licensed Antibody Products under all Abgenix's right, title and interest in the Abgenix-Controlled Patent Rights for human medical uses. The licenses described above in (a), (b) and (c) shall be collectively referred to herein as the "License". Pfizer acknowledges and agrees that its rights granted under this Agreement and the Collaborative Research Agreement with respect to the Abgenix Patent Rights and the Abgenix-Controlled Patent Rights licensed from Xenotech L.P. are subject to the terms and conditions contained in agreements between Abgenix and Xenotech L.P. including the right to prosecute, maintain and defend certain patent rights. 2.3 TERM OF LICENSE GRANT AND PAYMENT OF ROYALTIES. Unless terminated earlier as provided below, the License in a country shall commence on the date that Pfizer exercises its option pursuant to Section 2.1 and shall terminate on the date of the last to expire of the Patent Rights in such country. 2.4 PFIZER OBLIGATIONS. 2.4.1 Pfizer shall use reasonably diligent efforts to exploit Licensed 3 39 Antibody Products [*]. 2.4.2 If Pfizer grants a sublicense pursuant to this Section 2, Pfizer shall guarantee that any sublicensee fulfills all of Pfizer's obligations under this Agreement; provided, however, that Pfizer shall not be relieved of its obligations pursuant to this Agreement. 2.4.3 Pfizer shall not initiate any human clinical trial involving a Licensed Antibody Product without exercising the option to a license pursuant to Section 2. 1. 2.5 TECHNICAL ASSISTANCE. Abgenix shall provide to Pfizer or any sublicensee of Pfizer, at Pfizer's request and expense, any agreed technical assistance reasonably necessary to enable Pfizer or such sublicensee to manufacture, use, sell, offer for sale or import each Licensed Antibody Product and to enjoy fully all the rights granted to Pfizer pursuant to this Agreement; provided, however, that Abgenix is reasonably capable of providing that assistance. Pfizer shall reimburse Abgenix's direct and indirect costs of providing such assistance. 3. MILESTONE PAYMENTS, ROYALTIES, PAYMENTS OF ROYALTIES, ACCOUNTING FOR ROYALTIES, RECORDS. 3.1 Pfizer shall pay Abgenix, within [*] of the exercise of the option described in 2.1 by Pfizer to obtain an exclusive license from Abgenix, a [*]. Payment shall be made in US currency by wire transfer in immediately available funds to an account designated by Abgenix, or by other mutually acceptable means. Pfizer shall be obligated to make this payment only once with respect to the first Licensed Antibody Product for a Target Antigen affected by the License, so that additional *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 4 40 Licensed Antibody Products for the same Target Antigen will not require Pfizer to make additional payments. 3.2 PATENT RIGHTS. 3.2.1 Pfizer shall pay Abgenix a royalty based on the Net Sales of each Licensed Antibody Product. Such royalty shall be paid with respect to each country of the world from the date of the first commercial sale (the date of the invoice of Pfizer or any sublicensee of Pfizer with respect to such sale) of such Licensed Antibody Product in each such country until the expiration of the last Patent Right to expire with respect to each such country and each such Licensed Antibody Product. 3.2.2 If the manufacture and sale of an Antibody Product [*], Pfizer will pay to Abgenix a royalty based on the Net Sales of each Antibody Product in each such country for ten (10) years after the first commercial sale of such Antibody Product in such country. 3.3 ROYALTY RATES. 3.3.1 Pfizer shall pay Abgenix a royalty for the sale of each Licensed Antibody Product under Section 2.2 as set forth in Section 3.2; [*] for such Licensed Antibody Product for such calendar year, the *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 5 41 [*]. Notwithstanding the [*] in the United States. As used in this Section 3.3.1, the [*] shall mean the average [*]. 3.3.2 The royalty paid by Pfizer to Abgenix shall be [*] with respect to Licensed Antibody Products. It is understood that the royalty rate specified in this Section 3.3.2 is subject to [*] below. Notwithstanding those sections, or any other provisions of this Agreement, in no event shall the royalty paid to Abgenix with respect to Net Sales of a Licensed Antibody Product [*] under Section 4.4 [*]. In the event that an Antibody Product unit is made, used or sold, in a country in which there [*] shall be made. *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 6 42 3.4 RENEGOTIATION OF ROYALTY RATES. The parties acknowledge that the royalty rates set forth in Section 3.3 are based on the expectation that Licensed Antibody Products will be administered to patients intravenously. If Pfizer identifies or develops a different method of administration ("New Dosage Form") with respect to a Licensed Antibody Product or Antibody Products which represents a commercial opportunity for Pfizer or improves the safety or efficacy of such Licensed Antibody Product, the parties may negotiate, as mutually agreed, a new royalty rate for such Licensed Antibody Product in such New Dosage Form to account for development costs and changes in the cost of goods, selling price and projected annual Net Sales. It is understood, however, that the royalty rate specified in Section 3.3.2 shall be modified only as Pfizer and Abgenix mutually agree. 3.5 PAYMENT DATES. Royalties shall be paid by Pfizer on Net Sales within sixty (60) days after the end of each calendar quarter in which such Net Sales are made. Such payments shall be accompanied by a statement showing the Net Sales of each Licensed Antibody Product by Pfizer or any sublicensee of Pfizer in each country, the applicable royalty rate for such Licensed Antibody Product, and a calculation of the amount of royalty due, including any offsets. 3.6 ACCOUNTING. The Net Sales used for computing the royalties payable to Abgenix by Pfizer shall be computed and paid in US dollars by wire transfer in immediately available funds to a U.S. account designated by Abgenix, or by other mutually acceptable means. For purposes of determining the amount of royalties due, the amount of Net Sales in any foreign currency shall be computed by (a) converting such amount into U.S. dollars at the prevailing commercial rate of exchange for purchasing dollars with such foreign currency as published in the 7 43 Wall Street Journal for the close of the last business day of the calendar quarter for which the relevant royalty payment is to be made by Pfizer and (b) deducting the amount of any governmental tax, duty, charge, or other fee actually paid in respect of such conversion into, and remittance of U.S. dollars. 3.7 RECORDS. Pfizer shall keep for three (3) years from the date of each payment of royalties complete and accurate records of sales by Pfizer of each Licensed Antibody Product in sufficient detail to allow the accruing royalties to be determined accurately. Abgenix shall have the right for a period of [*] after receiving any report or statement with respect to royalties due and payable to appoint at its expense an independent certified public accountant reasonably acceptable to Pfizer to inspect the relevant records of Pfizer to verify such report or statement. Pfizer shall make its records available for inspection by such independent certified public accountant during regular business hours at such place or places where such records are customarily kept, upon reasonable notice from Abgenix, to verify the accuracy of the reports and payments. Such inspection right shall not be exercised more than once in any calendar year nor more than once with respect to sales in any given period. Abgenix agrees to hold in strict confidence all information concerning royalty payments and reports, and all information learned in the course of any audit or inspection, except to the extent necessary for Abgenix to reveal such information in order to enforce its rights under this Agreement or if disclosure is required by law. The failure of Abgenix to request verification of any report or statement during said three-year period shall be considered acceptance of the accuracy of such report, and Pfizer shall have no obligation to maintain records pertaining to such report or statement beyond said three-year period. The results of each inspection, if any, shall be binding on both parties. *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 8 44 3.8 MILESTONE PAYMENTS. Pfizer shall pay Abgenix, within [*] of the completion of each event set forth below ("Event"), the payment listed opposite that Event. Payments shall be made in US dollars by wire transfer in immediately available funds to a U.S. bank account designated by Abgenix, or other mutually acceptable means. Pfizer shall be obligated to make each payment only once with respect to each Licensed Antibody Product affected by an Event; provided, however, that such payment for such Event shall not be due with respect to any subsequent Licensed Antibody Product directed to a Target Antigen which has previously been the subject of the same Event. All payments made by Pfizer pursuant to this Section 3.8 with respect to a Licensed Antibody Product shall [*] of such Licensed Antibody Product; provided, however, that [*] in any calendar year with respect to such Licensed Antibody Product shall [*]
EVENT AMOUNT ----- ------ [*]
*CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 9 45 For the purposes of the foregoing, [*] shall mean [*] shall mean [*] 4. LEGAL ACTION. 4.1 ACTUAL OR THREATENED DISCLOSURE OR INFRINGEMENT. When information comes to the attention of Pfizer to the effect that any Joint Patent Rights relating to a Licensed Antibody Product have been or are threatened to be unlawfully infringed, Pfizer shall have the right at its expense to take such action as It may deem necessary to prosecute or prevent such unlawful infringement, including the right to bring or defend any suit, action or proceeding involving any such infringement. Pfizer shall notify Abgenix promptly of the receipt of any such information and of the commencement of any such suit, action or proceeding. If Pfizer determines that it is necessary or desirable for Abgenix to join any such suit, action or proceeding, Abgenix shall, at Pfizer's expense, execute all papers and perform such other acts as may be reasonably required to permit Pfizer to commence such action, suit or proceeding in which case Pfizer shall hold Abgenix free, clear and harmless from any and all costs and expenses of litigation, including attorneys fees. If Pfizer brings a suit, it shall have the night first to reimburse itself out of any sums recovered in such suit or in its settlement for all costs and expenses, including attorney's fees, related to such suit or settlement, and [*] of any funds that *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 10 46 shall remain from said recovery shall be paid to Abgenix and the balance of such funds shall be retained by Pfizer. If Pfizer does not, within [*] after giving notice to Abgenix of the above-described Information, notify Abgenix of Pfizer's intent to bring suit against any infringer, Abgenix shall have the right to bring suit for such alleged infringement, but it shall not be obligated to do so, and may join Pfizer as party plaintiff, if appropriate, in which event Abgenix shall hold Pfizer free, clear and harmless from any and all costs and expenses of such litigation, including attorney's fees, and any sums recovered in any such suit or in its settlement shall belong to Abgenix. However, [*] of any such sums received by Abgenix, after deduction of all costs and expenses related to such suit or settlement, including attorney's fees paid, shall be paid to Pfizer. Each party shall always have the right to be represented by counsel of its own selection and at its own expense in any suit instituted by the other for infringement under the terms of this Section. If Pfizer lacks standing and Abgenix has standing to bring any such suit, action or proceeding, then Abgenix shall do so at the request of Pfizer and at Pfizer's expense. 4.2 DEFENSE OF INFRINGEMENT CLAIMS. Abgenix will cooperate with Pfizer at Pfizer's expense in the defense of any suit, action or proceeding against Pfizer or any sublicensee of Pfizer alleging the infringement of the intellectual property rights of a third party by reason of the use of Patent Rights in the manufacture, use or sale of the Licensed Antibody Product. Pfizer shall give Abgenix prompt written notice of the commencement of any such suit, action or proceeding or claim of infringement and will furnish Abgenix a copy of each communication relating to the alleged infringement. Abgenix shall give to Pfizer all authority (including the right to exclusive control of the defense of any such suit, action or proceeding and the *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 11 47 exclusive right after consultation with Abgenix, to compromise, litigate, settle or otherwise dispose of any such suit, action or proceeding), at Pfizer's expense, including by providing information and assistance necessary to defend or settle any such suit, action or proceeding; provided, however, Pfizer shall obtain Abgenix's prior consent to such part of any settlement which contemplates payment or other action by Abgenix or has a material adverse effect on Abgenix's business. If the parties agree that Abgenix should institute or join any suit, action or proceeding pursuant to this Section, Pfizer may, at Pfizer's expense, join Abgenix as a defendant if necessary or desirable, and Abgenix shall execute all documents and take all other actions, including giving testimony, which may reasonably be required in connection with the prosecution of such suit, action or proceeding. 4.3 HOLD HARMLESS. Abgenix agrees to defend, protect, indemnify and hold harmless Pfizer and any sublicensee of Pfizer, from and against any loss or expense arising from any proven claim of a third party that it has been granted rights by Abgenix that Pfizer or any sublicensee of Pfizer in exercising their rights granted to Pfizer by Abgenix pursuant to this Agreement, has infringed upon such rights granted to such third party by Abgenix. 4.4 THIRD PARTY LICENSES. If the manufacture, use or sale by Pfizer of a Licensed Antibody Product in any country would, in the opinion of both Pfizer and Abgenix, infringe a patent owned by a third party, Pfizer and Abgenix, upon mutual consent, shall attempt to obtain a license under such patent at Pfizer's expense. If such license is obtained under such patent, [*] of any payments made by Pfizer to such third party shall be deductible from royalty payments due from Pfizer to Abgenix pursuant to this Agreement; provided, however, that in * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 12 48 no event shall royalties payable to Abgenix be lower than [*] of Net Sales as a result of all such deductions. All such computations, payments, and adjustments shall be on a country by country and patent by patent basis. 5. REPRESENTATION AND WARRANTY. 5.1 Abgenix represents and warrants to Pfizer that it has the right to grant the License granted pursuant to this Agreement, and that the License so granted does not conflict with or violate the terms of any agreement between Abgenix and any third party. 5.2 EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 5 ABGENIX MAKES NO WARRANTY, EXPRESS OR IMPLIED, AND EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, INCLUDING ANY WARRANTIES AS TO THE PATENT RIGHTS, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE. 6. TREATMENT OF CONFIDENTIAL INFORMATION. 6.1 CONFIDENTIALITY. 6.1.1 Pfizer and Abgenix each recognize that the other's Confidential Information constitutes highly valuable, confidential information, Subject to Pfizer's right and obligations pursuant to this Agreement, Pfizer and Abgenix each agree that during the term of the Research Agreement and for five (5) years thereafter, it will keep confidential, and will cause its Affiliates to keep confidential, all Abgenix Confidential Information or Pfizer Confidential Information, as the case may be, that is disclosed to it or to any of its Affiliates pursuant to this Agreement. Neither Pfizer, its Affiliates nor Abgenix shall use Confidential Information of the other party except as expressly permitted under this Agreement. For all purposes of this Section 6, it is understood that Joint * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 13 49 Technology shall be deemed Confidential Information of both parties. 6.1.2 Subject to Pfizer's rights and obligations pursuant to this Agreement, Pfizer and Abgenix each agree that any disclosure of the other's Confidential Information to any officer, employee or agent of the other party or of any of its Affiliates shall be made only if and to the extent necessary to carry out its responsibilities under this Agreement and shall be limited to the maximum extent possible consistent with such responsibilities. Subject to Pfizer's rights and obligations pursuant to this Agreement, Pfizer and Abgenix each agree not to disclose the other's Confidential Information to any third parties under any circumstance without written permission from the other party. Each party shall take such action, and shall cause its Affiliates to take such action, to preserve the confidentiality of each other's Confidential Information as it would customarily take to preserve the confidentiality of its own Confidential Information. Each party, upon the other's request, will return all the Confidential Information disclosed to it by the other party pursuant to this Agreement, including all copies and extracts of documents, within sixty (60) days of the request upon the termination of this Agreement except for one (1) copy which may be kept for the purpose of complying with continuing obligations under this Agreement. 6.2 PUBLICITY. Except as required by law, neither party may disclose the terms of this Agreement without the written consent of the other party. 6.3 DISCLOSURE REQUIRED BY LAW. If either party is requested to disclose the Confidential Information in connection with a legal or administrative proceeding or is otherwise required by law to disclose the Confidential Information, such party will give the other party prompt notice of such request. The disclosing party may seek an appropriate protective order or other remedy or waive compliance with the provisions of this Agreement. If such party seeks a protective order or other remedy, the other party will cooperate. If such party 14 50 fails to obtain a protective order or waive compliance with the relevant provisions of this Agreement, the other party will disclose only that portion of Confidential Information which its legal counsel determines it is required to disclose. 6.4 DISCLOSURE OF INVENTIONS. Each party shall promptly inform the other about all inventions in the Area within Joint Technology that are conceived, made or developed in the course of carrying out the Research Program by employees of, consultants to, either of them solely, or jointly with employees of, or consultants to the other. 7. PROVISIONS CONCERNING FILING, PROSECUTION AND MAINTENANCE OF JOINT PATENT RIGHTS. The following provisions relate to the filing, prosecution and maintenance of Joint Patent Rights during the term of this Agreement: 7.1 Filing. Prosecution and Maintenance by Abgenix. With respect to Joint Patent Rights in which Abgenix employees or consultants, alone or together with Pfizer employees, or consultants are named as inventors, Abgenix shall have the exclusive right and obligation : (a) to file applications for letters patent on patentable inventions included in Joint Patent Rights; provided, however, that Abgenix shall consult with Pfizer regarding countries in which such patent applications should be filed and shall file patent applications in those countries where Pfizer requests that Abgenix file such applications; and, further provided, that Abgenix, at its option and expense, may file in countries where Pfizer does not request that Abgenix file such applications; (b) to take all reasonable steps to prosecute all pending and new patent applications included within Joint Patent Rights; 15 51 (c) to respond to oppositions, nullity actions, re-examinations, revocation actions and similar proceedings filed by third parties against the grant of letters patent for such applications; (d) to maintain in force any letters patent included in Joint Patent Rights by duly filing all necessary papers and paying any fees required by the patent laws of the particular country in which such letters patent were granted; and (e) to cooperate fully with, and take all necessary actions requested by, Pfizer in connection with the preparation, prosecution and maintenance of any letters patent included in Joint Patent Rights. Abgenix shall notify Pfizer in a timely manner of any decision to abandon a pending patent application or an issued patent included in Joint Patent Rights. Thereafter, Pfizer shall have the option, at its expense, of continuing to prosecute any such pending patent application or of keeping the issued patent in force. 7.1.1 Copies of Documents. Abgenix and Pfizer shall provide to each other copies of all patent applications that are part of Joint Patent Rights prior to filing, for the purpose of obtaining substantive comment of the other party's patent counsel. Abgenix and Pfizer shall also provide to the other copies of all documents relating to prosecution of all such patent applications in a timely manner and shall provide to the other every six (6) months a report detailing the status of all patent applications that are a part of Joint Patent Rights. 7.1.2 Reimbursement of Costs for Filing Prosecuting and Maintaining Joint Patent Rights. Within thirty (30) days of receipt of invoices from Abgenix, Pfizer shall reimburse Abgenix for all the costs of filing, prosecuting, responding to opposition and maintaining patent applications and patents in countries where Pfizer requests that patent applications be filed, prosecuted and maintained. Such reimbursement shall be in addition to other 16 52 funding payments under this Agreement and shall include such costs of all activities described in 7.1 (a)-(e) above. However, Pfizer may, upon sixty (60) days notice, request that Abgenix discontinue filing or prosecution of patent applications in any country and discontinue reimbursing Abgenix for the costs of filing, prosecuting, responding to opposition or maintaining such patent application or patent in any country. Abgenix shall pay all costs in those countries in which Pfizer requests that Abgenix not file, prosecute or maintain patent applications and patents, but in which Abgenix, at its option, elects to do so. 7.1.3 Pfizer shall have the right to FILE on behalf of and as an agent for Abgenix all applications for, and take all actions necessary to obtain patent extensions pursuant to 35 USC Section 156 and foreign counterparts with respect to the Joint Patent Rights to the extent that such extensions are available by reason of a Licensed Antibody Product under the License Agreement during the period the License Agreement is in effect. Abgenix agrees, to sign, such further documents and take such further actions as may be requested by Pfizer in this regard, at Pfizer's expense 7.2 Filing, Prosecution and Maintenance by Pfizer. With respect to Patent Rights in which Pfizer employees or consultants alone are named as inventors, Pfizer shall have those rights and duties ascribed to Abgenix in Section 7.1. except that Pfizer will bear all related expenses. 7.3 Neither party may disclaim a Valid Claim within Joint Patent Rights without the consent of the other. 8. OTHER AGREEMENTS. Concurrently with the execution of this Agreement, Abgenix and Pfizer shall enter into a Research Agreement and a Stock Purchase Agreement. This Agreement, the Research Agreement, and the Stock Purchase Agreement are the 17 53 sole agreements with respect to the subject matter and supersede all other agreements and understanding between the parties with respect to same. 9. TERMINATION AND DISENGAGEMENT. 9.1 Events OF TERMINATION. The following events shall constitute events of termination ("Events of Termination"): (a) Any written representation or warranty by Abgenix or Pfizer, or any of its officers, made under or in connection with this Agreement shall prove to have been incorrect in any material respect when made; (b) Abgenix or Pfizer shall fail in any material respect to perform or observe any term, covenant or understanding contained in this Agreement or in any of the other documents or instruments delivered pursuant to, or concurrently with, this Agreement, and any such failure shall remain unremedied for thirty (30) days after written notice to the failing party. 9.2 TERMINATION. Upon the occurrence of any Event of Termination, the party not responsible may, by notice to the other party, terminate this Agreement. 9.3 Termination of this Agreement by either party, with or without cause, will not terminate the licenses granted pursuant to Section 5.2 of the Research Agreement. 9.4 Termination of this Agreement for any reason shall be without prejudice to: (a) the rights and obligations of the parties provided in Sections 6, 7 and 10; (b) Abgenix's right to receive all royalty payments accrued hereunder; or (c) any other remedies which either party may otherwise have. 18 54 10. INDEMNIFICATION. Pfizer and Abgenix will indemnify each other for damages, settlements, costs, legal fees and other expenses incurred in connection with a claim by a third party against either party based on any action or omission of the indemnifying party's agents, employees, or officers related to its obligations under this Agreement; provided, however, that the foregoing shall not apply (i) if the claim is found to be based upon the negligence, recklessness or wilful misconduct of the party seeking indemnification; or (ii) if such party fails to give the other party prompt notice of any claim it receives and such failure materially prejudices the other party with respect to any claim or action to which its obligation pursuant to this Section applies. Notwithstanding the foregoing, Abgenix shall not indemnify Pfizer for claims arising from the sale of Antibody Products or exercise of rights granted to Pfizer under Section 5.2 of the Research Agreement, or the License Agreement (including without limitation product liability claims) and Pfizer shall indemnify Abgenix with respect to such claims and to claims arising from Joint Patent Rights, Pfizer Patent Rights, Joint Technology and Pfizer Technology except for intellectual property claims with respect to Abgenix Patent Rights, Abgenix Controlled-Patent Rights or Abgenix Technology. Each party, in its sole discretion, shall choose legal counsel, shall control the defense of such Claim or action and shall have the right to settle same on such terms and conditions it deems advisable; provided however, it shall obtain the other party's prior consent to such part of any settlement which requires payment or other action by the other party or is likely to have a material adverse effect on the other party's business. 19 55 11. NOTICES AND REPORTS. 11.1 All notices shall be in writing mailed via certified mail, return receipt requested, courier, or facsimile transmission addressed as follows, or to such other address as may be designated from time to time: If to Pfizer: Pfizer Central Research Eastern Point Road Groton, CT 06340 Attention: Dr. George Milne, President with copy to: Joshua A. Kalkstein, General Counsel If to Abgenix: Abgenix, Inc. 7601 Dumbarton Circle Fremont, CA 94555 Attention: President cc: Wilson, Sonsini, Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304 Attn: Kenneth A. Clark Notices shall be deemed given as of the date sent. 11.2 Reports. Pfizer agrees to keep Abgenix informed with respect to activities and progress toward further research, development and commercialization of Licensed Antibody Products. Pfizer agrees to provide to Abgenix every six months a summary of such activities and progress. In addition, Pfizer will provide to Abgenix copies of any data regarding the immunogenicity and pharmacokinetics of the Antibody Products together with copies of any reports or summaries of such data. Abgenix agrees that all such information will be deemed Pfizer Confidential Information. 20 56 12. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 13. MISCELLANEOUS. 13.1 BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the parties and their respective legal representatives, successors and permitted assigns. 13.2 HEADINGS. Paragraph headings are inserted for convenience of reference only and do not form a part of this Agreement. 13.3 COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original. 13.4 AMENDMENT; WAIVER; ETC. This Agreement may be amended, modified, superseded or canceled, and any of the terms may be waived, only by a written instrument executed by each party or, in the case of waiver, by the party or parties waiving compliance. The delay or failure of any party at any time or times to require performance of any provisions shall in no manner affect the rights at a later time to enforce the same. No waiver by any party of any condition or of the breach of any term contained in this Agreement, whether by conduct, or otherwise, in any one or more instances, shall be deemed to be, or considered as, a further or continuing waiver of any such condition or of the breach of such term or any other term of this Agreement. 13.5 NO THIRD PARTY BENEFICIARIES. No third party including any employee of any party to this Agreement, shall have or acquire any rights by reason of this Agreement. Nothing contained in this Agreement shall be deemed to constitute the parties partners with each other or any third party. 21 57 13.6. ASSIGNMENT AND SUCCESSORS. This Agreement may not be assigned by either party, except that each party may assign this Agreement and the rights and interests of such party, in whole or in part, to any of its Affiliates, any purchaser of all or substantially all of its assets or to any successor corporation resulting from any merger or consolidation of such party with or into such corporations. 13.7 FORCE MAJEURE. Neither Pfizer nor Abgenix shall be liable for failure of or delay in performing obligations set forth in this Agreement, and neither shall be deemed in breach of its obligations, if such failure or delay is due to natural disasters or any causes reasonably beyond the control of Pfizer or Abgenix. 13.8 SEVERABILITY. If any provision of this Agreement is or becomes invalid or is ruled invalid by any court of competent jurisdiction or is deemed unenforceable, it is the intention of the parties that the remainder of the Agreement shall not be affected. 22 58 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives. PFIZER INC ABGENIX, INC. By: [SIG] By: [SIG] -------------------------------- ------------------------------ Title: President, Control, Research Title: Vice President, Corporate Development Development ---------------------------- --------------------------- cc: Pfizer Inc, Legal Division, Groton, CT 06340 23 59 EXHIBIT D SERIES C PREFERRED STOCK PURCHASE AGREEMENT THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 12th day of January, 1998, by and between Abgenix, Inc., a Delaware corporation located at 7601 Dumbarton Circle, Fremont, California 94555 (the "Company"), and Pfizer, Inc. (the "Investor"). THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase and Sale of Shares. 1.1 Sale of Shares. (a) The Company shall adopt and file with the Secretary of State of Delaware on or before the Closing (as defined below) a Certificate of Designations in the form attached hereto as Exhibit A. (b) Subject to the terms and conditions of this Agreement, the Investor agrees to purchase at the Closing and the Company agrees to sell and issue to the Investor at the Closing, 160,000 shares of the Company's Series C Preferred Stock at a per share price of $8.00 for an aggregate purchase price of $1.28 million. (c) The number of shares of Series C Preferred Stock to be sold pursuant to this Agreement are hereinafter referred to as the "Shares." The total amount of Common Stock and other securities issuable upon conversion of the Shares is hereinafter referred to as the "Conversion Stock." The Shares and the Conversion Stock are hereinafter collectively referred to as the "Securities." 1.2 Closing. The purchase and sale of the Shares shall take place at the offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California, at 11:00 A.M., on January 12, 1998, or at such other time and place as the Company and Investors acquiring in the aggregate more than half the Shares sold pursuant hereto mutually agree upon orally or in writing (which time and place are designated as the "Closing"). At the Closing the Company shall deliver to the Investor certificate(s) representing the Shares which such Investor is purchasing, against delivery to the Company by such Investor of a check or wire transfer in the aggregate amount of the purchase price payable to the Company's order. 2. Representations and Warranties of the Company. The Company hereby represents and warrants to the Investor that, except as set forth on a Schedule of Exceptions attached hereto as Exhibit B, which exceptions shall be deemed to be representations and warranties as if made hereunder: 2.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has 60 all requisite corporate power and authority to carry on its business as now conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect on its business or properties. 2.2 Capitalization. The authorized capital of the Company consists, or will consist prior to the Closing, of: (a) 20,000,000 shares of Preferred Stock (the "Preferred Stock"), of which 5,396,667 shares have been designated Series A Preferred Stock, 3,385,000 shares have been designated Series B Preferred Stock, 160,000 shares have been designated Series C Preferred Stock and the remaining 11,058,333 have not been designated. 4,416,667 shares of Series A Preferred Stock are issued and outstanding, 3,267,685 shares of Series B Preferred Stock are issued and outstanding and 160,000 shares of Series C Preferred Stock will be sold pursuant to this Agreement. The rights, preferences, privileges and restrictions of the Shares will be as stated in the Company's Certificate of Designations attached hereto as Exhibit A. (b) 50,000,000 shares of Common Stock (the "Common Stock"), of which 171,620 shares are issued and outstanding and 25,000 are subject to a purchase right pursuant to a license agreement between the Company and Ronald J. Billing, M.D., dated February 1, 1997. (c) Options exercisable for up to 1,614,861 shares of Common Stock, and after accounting for 171,620 shares of Common Stock issued upon exercise of options or stock purchase rights, there are 604,769 shares available for grant under the Company's Incentive Stock Plan. (d) Warrants exercisable for 121,667 shares of Series A Preferred Stock issued to Cell Genesys, Inc. (e) Except as provided herein and for (i) the conversion privileges of the Shares and (ii) the right of first offer provided in the Amended and Restated Stockholder Rights Agreement attached hereto as Exhibit C (the "Rights Agreement"), there are no other outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company of any shares of its capital stock. The Company is not a party or subject to any agreement or understanding, and, to the Company's knowledge, there is no agreement or understanding between any persons and/or entities, which affects or relates to the voting or giving of written consents with respect to any security. 2.3 Subsidiaries. The Company does not presently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity. The Company is not a participant in any joint venture, partnership, or similar arrangement. 2.4 Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement and the Rights Agreement, the performance of all obligations of the Company hereunder and thereunder and -2- 61 the authorization, issuance (or reservation for issuance) and delivery of the Shares being sold hereunder has been taken or will be taken prior to the Closing, and this Agreement and the Rights Agreement constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms. 2.5 Valid Issuance of Preferred and Common Stock. (a) The Shares which are being purchased by the Investor hereunder, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable and, based in part upon the representations of the Investor in this Agreement, will be issued in compliance with all applicable federal and state securities laws. The Conversion Stock has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Certificate of Designations, shall be duly and validly issued, fully paid and nonassessable, and issued in compliance with all applicable securities laws, as presently in effect, of the United States and each of the states whose securities laws govern the issuance of the Shares hereunder and will be free of restrictions on transfer other than restrictions on transfer under this Agreement or the Rights Agreement and under applicable state and federal securities law. (b) The outstanding shares of Common Stock and Preferred Stock are all duly and validly authorized and issued, fully paid and nonassessable, and were issued in compliance with all applicable federal and state securities laws. 2.6 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state, local or provincial governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement and the Rights Agreement, except for the filing pursuant to Section 25102(f) of the California Corporate Securities Law of 1968, as amended, and the rules thereunder, which filing will be effected within 15 days of the sale of the Shares hereunder or as otherwise required by Rule 506 of the Securities Act of 1933, as amended (the "Act"). 2.7 Litigation. There is no action, suit, proceeding or investigation pending or currently threatened against the Company which questions the validity of this Agreement and the Rights Agreement or the right of the Company to enter into them, or to consummate the transactions contemplated hereby and thereby, or which might result, either individually or in the aggregate, in any material adverse changes in the assets, condition, affairs or prospects of the Company, financially or otherwise, or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for the foregoing. The foregoing includes, without limitation, actions pending or threatened (or any basis therefor known to the Company) involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers or negotiations by the Company with proposed backers of, or investors in, the Company or its proposed business. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. -3- 62 There is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate. 2.8 Patents and Trademarks. The Company owns or possesses sufficient title and ownership of or rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes necessary for its business as now conducted and as proposed without any conflict with or infringement of the rights of others. There are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. The Company has not received any communications alleging that the Company has violated or, by conducting its business as proposed to be conducted immediately after the Closing, would violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets, licenses or other proprietary rights of any other person or entity. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of the Company or that would conflict with the Company's business as proposed to be conducted immediately after the Closing. Neither the execution nor delivery of this Agreement or the Rights Agreement nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as proposed to be conducted immediately after the Closing, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. The Company does not believe it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by the Company. The Company has not granted rights to manufacture, produce, assemble, license, market, or sell its products to any other person and is not bound by any agreement that affects the Company's exclusive right to develop, manufacture, assemble, distribute, market, or sell its products. 2.9 Compliance with Other Instruments. (a) The Company is not in violation or default of any provisions of its Certificate of Incorporation, Certificate of Designations or Bylaws, as amended, or of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound or, to its knowledge, of any provision of federal or state statute, rule or regulation applicable to the Company. The execution, delivery and performance of this Agreement and the Rights Agreement and the consummation of the transactions contemplated hereby and thereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture or nonrenewal of any material permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties. -4- 63 (b) To the Company's knowledge, the Company has met every condition, and has performed no act, the occurrence of which would result in the Company's loss of any right granted under any permit, license, authorization, approval, distribution or other agreement. 2.10 Related Party Transactions. There are no obligations of the Company to employees, officers, directors or 5% stockholders of the Company other than (a) for payment of salary for services rendered, (b) reimbursement for reasonable expenses incurred on behalf of the Company and (c) for other standard employee benefits made generally available to all employees (including stock option agreements outstanding under any stock option plan approved by the Board of Directors of the Company). No employee, officer, director or 5% stockholder of the Company or member of his or her immediate family thereof is indebted to the Company, nor is the Company indebted (or committed to make loans or extend or guarantee credit) to any of them. To the Company's knowledge, none of such persons has any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation that competes with the Company, except that employees, officers or directors of the Company and members of their immediate families may own stock in publicly traded companies that may compete with the Company. To the Company's knowledge except for agreements to purchase shares of the Company's securities, no officer or director or any member of their immediate families is, directly or indirectly, interested in any material contract with the Company. 2.11 Agreements; Action. (a) Except for agreements explicitly contemplated hereby, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates, or any affiliate thereof. (b) There are no agreements, understandings, instruments, contracts or proposed transactions to which the Company is a party or by which it is bound which involve (i) obligations (contingent or otherwise) of, or payments to the Company in excess of $50,000, (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company, (iii) provisions restricting or affecting the development, manufacture or distribution of the Company's products or services, or (iv) indemnification by the Company with respect to infringements of proprietary rights. (c) The Company has not (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of $50,000 or in excess of $200,000 in the aggregate, (iii) made any loans or advances to any person, other than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than in the ordinary course of business. (d) The Company is not a party to and is not bound by any contract, agreement or instrument, or subject to any restriction under its Certificate of Incorporation, Certificate -5- 64 of Designations or Bylaws, as amended, which materially adversely affects its business as now conducted and as proposed to be conducted. 2.12 Disclosure. The Company has fully provided the Investor with all the information which such Investor has requested for deciding whether to purchase the Shares and all information which the Company believes is reasonably necessary to enable such Investor to make such decision. Neither this Agreement nor any other statements or certificates made or delivered in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. 2.13 Registration or First Offer Rights. Except as provided in the Rights Agreement, the Company has not granted or agreed to grant any registration rights, including piggyback rights, or any right of first offer to any person or entity. 2.14 Corporate Documents. Except for amendments necessary to satisfy representations and warranties or conditions contained herein (the form of which amendments has been approved by the Investor), the Company's Certificate of Incorporation, Certificate of Designations and Bylaws, as amended, are in the form previously provided to the Investor. 2.15 Title to Property and Assets. The Company owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not individually or in the aggregate materially impair the Company's ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and, to its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances. 2.16 Permits. The Company has all franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties, or financial condition of the Company and believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority. 2.17 Financial Statements. The Company has delivered to the Investor its audited balance sheet and income statement for the period from inception (July 15, 1996) to December 31, 1996 and unaudited balance sheet and income statement for the nine month period ended September 30, 1997 (collectively the "Financial Statements"). The Financial Statements, together with the notes thereto, (i) are complete and correct in all material respects, (ii) are in accordance with the Company's books and records, (iii) present fairly its financial position as of that date and the results of its operations for the period indicated, and (iv) have been prepared in conformity with generally accepted accounting principles consistently applied throughout the periods indicated, subject, in the case of interim statements, to normal year end adjustments and the absence of footnotes. Except as set forth in the Financial Statements, the Company has no material liabilities, contingent or otherwise, other than -6- 65 (i) liabilities incurred in the ordinary course of business and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements which, in both cases, individually or in the aggregate, are not material to the financial condition or operating results of the Company. Except as disclosed in the Financial Statements, the Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. 2.18 Changes. To the Company's knowledge, since September 30, 1997, there has not been: (a) Any change in the assets, liabilities, financial condition or operating results of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not been, in the aggregate, materially adverse. (b) any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the business, properties, or financial condition of the Company (as such business is presently conducted and as it is proposed to be conducted); (c) any waiver or compromise by the Company of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and which is not material to the business, properties, or financial condition of the Company (as such business is presently conducted and it is proposed to be conducted); (e) any material change to a material contract or arrangement by which the Company or any of its assets is bound or subject; (f) any material change in any compensation arrangement or agreement with any employee, officer, director, or stockholder; (g) any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets; (h) any resignation or termination of employment of any key officer of the Company; and the Company, to its knowledge, does not know of the impending resignation or termination of employment of any such officer; (i) receipt of notice that there has been a loss of, or material order cancellation by, any major customer of the Company; -7- 66 (j) any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material properties or assets, except liens for taxes not yet due or payable; (k) any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business; (l) any declaration, setting aside or payment or other distribution in respect of any of the Company's capital stock, or any direct or indirect redemption, purchase or other acquisition of any of such stock by the Company; (m) to the Company's knowledge, any other event or condition of any character that might materially and adversely affect the business, properties, or financial condition of the Company (as such business is presently conducted and as it is proposed to be conducted); or (n) any agreement or commitment by the Company to do any of the things described in this Section 2.19. 2.19 Employee Benefit Plans. The Company does not have any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974. 2.20 Tax Returns, Payments and Elections. The Company has filed all tax returns and reports as required by law. These returns and reports are true and correct in all material respects. The Company has paid all taxes and other assessments due. The provision for taxes of the Company as shown in the Financial Statements is adequate for taxes due or accrued as of the date thereof. The Company has not elected pursuant to the Internal Revenue Code of 1986, as amended (the "Code"), to be treated as a Subchapter S corporation or a collapsible corporation pursuant to Section 341(f) or Section 1362(a) of the Code, nor has it made any other elections pursuant to the Code (other than elections which relate solely to methods of accounting, depreciation or amortization) which would have a material effect on the Company, its financial condition, its business as presently conducted or proposed to be conducted or any of its properties or material assets. The Company has never had any tax deficiency proposed or assessed against it and has not executed any waiver of any statute of limitations on the assessment or collection of any tax or governmental charge. To the Company's knowledge none of its federal income tax returns and none of its state income or franchise tax or sales or use tax returns has ever been audited by governmental authorities. Since the date of the Financial Statements, the Company has made adequate provisions on its books of account for all taxes, assessments and governmental charges with respect to its business, properties and operations for such period. The Company has withheld or collected from each payment made to each of its employees, the amount of all taxes (including, but not limited to, federal income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be withheld or collected therefrom, and has paid the same to the proper tax receiving officers or authorized depositaries. -8- 67 2.21 Insurance. The Company has in full force and effect fire and casualty insurance policies, with coverage customary for companies similarly situated to the Company. 2.22 Minute Books. The minute books of the Company made available to Investor or its counsel as requested, contain a complete summary of all meetings and actions by consent of directors and stockholders since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material respects. 2.23 Labor Agreements and Actions. The Company and its employees are not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Company, has sought to represent any of the employees, representatives or agents of the Company. There is no strike or other labor dispute involving the Company pending, or to the knowledge of the Company threatened, nor is the Company aware of any labor organization activity involving its employees. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with the Company, nor does the Company have a present intention to terminate the employment of any of the foregoing. The employment of each officer and employee of the Company is terminable at the will of the Company. 2.24 Employees: Employee Compensation. To its knowledge, the Company has complied in all material respects with all applicable state and federal equal employment opportunity and other laws related to employment. To the Company's knowledge, no employee of the Company is or will be in violation of any judgment, decree or order, or any term of any employment contract, patent disclosure agreement or other contract or agreement relating to the relationship of any such employee with the Company or any other party because of the nature of the business conducted or to be conducted by the Company or to the utilization by the employee of his best efforts with respect to such business. The Company is not party to or bound by any currently effective employment contract, deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement, or other employee compensation agreement. 2.25 Real Property Holding Corporation. The Company is not a real property holding corporation within the meaning of Internal Revenue Code Section 897(c)(2) and any regulations promulgated thereunder. 2.26 Offering. Subject in part to the truth and accuracy of the Investor's representations set forth in Section 3 of this Agreement, the offer, sale and issuance of the shares as contemplated by this Agreement are exempt from the registration requirements of the Act, and will have been registered or qualified (or are exempt from registration and qualification) under the registration, permit or qualification requirements of all applicable state securities laws. Neither the Company nor any authorized agent acting on its behalf has taken or will take any action hereafter that would cause the loss of such exemption. -9- 68 2.27 Environmental and Safety Laws. To its knowledge, the Company is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to its knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. 3. Representations and Warranties of the Investor. The Investor hereby represents and warrants that: 3.1 Authorization. This Agreement constitutes its valid and legally binding obligation, enforceable in accordance with its terms. The Investor represents that it has full power and authority to enter into this Agreement. 3.2 Purchase Entirely for Own Account. This Agreement is made with the Investor in reliance upon such Investor's representation to the Company, which by such Investor's execution of this Agreement such Investor hereby confirms, that the Shares will be acquired for investment for such Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Investor further represents that such Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the Securities. 3.3 Disclosure of Information. The Investor believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Shares. The Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Shares. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of the Investor to rely thereon. 3.4 Investment Experience. The Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, and bear the economic risk of its investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Shares. If other than an individual, Investor also represents it has not been organized for the purpose of acquiring the Shares. 3.5 Accredited Investor. The Investor is an accredited investor as defined in Rule 501(a) of Regulation D under the Act. 3.6 Restricted Securities. The Investor understands that the Shares it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Act only in certain limited circumstances. In this connection, The Investor represents that it is familiar with Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Act. -10- 69 3.7 Further Limitations on Disposition. Without in any way limiting the representations set forth above, The Investor further agrees not to make any disposition of all or any portion of the Shares (or the Conversion Stock) unless and until: (a) There is then in effect a Registration Statement under the Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement; or (b) (i) Such Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (ii) if requested by the Company, such Investor shall have furnished the Company with an opinion of Investor's corporate counsel or counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Act. (c) Notwithstanding the provisions of subsections (a) and (b) above, no such registration statement or opinion of counsel shall be necessary for a transfer by an Investor which is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner or the transfer by gift, will or intestate succession of any partner to such partner's spouse or lineal descendants or ancestors or by an Investor which is a corporation to an Affiliate (as defined under the Act), if the transferee agrees in writing to be subject to the terms hereof to the same extent as if such transferee were an original Investor hereunder. 3.8 Legends. It is understood that the certificates evidencing the Shares (and the Conversion Stock) may bear one or all of the following legends: (a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT." (b) Any legend required by the laws of the State of California or any other applicable state, including any legend required by the California Department of Corporations and Sections 417 and 418 of the California Corporations Code. 4. California Commissioner of Corporations. THE SALE OF THE SECURITIES THAT IS THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF THE SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, -11- 70 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT. 5. Conditions of Investor's Obligations at Closing. The obligations of the Investor under Section 1.1(b) of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective against any Investor who does not consent in writing thereto: 5.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing. 5.2 Performance. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 5.3 Compliance Certificate. The President or CEO of the Company shall deliver to the Investor at the Closing a certificate certifying that the conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating that there shall have been no adverse change in the business, affairs, operations, properties, assets or condition of the Company since September 30, 1997. 5.4 Officer's Certificate. The President, CEO or CFO of the Company shall deliver to the Investor at the Closing a certificate certifying that the Certificate of Incorporation and Bylaws of the Company are true and correct. 5.5 Qualifications. The Commissioner of Corporations of the State of California shall have issued a permit qualifying the offer and sale of the Shares and the Conversion Stock to the Investor pursuant to this Agreement, or such offer and sale shall be exempt from such qualification under the California Corporate Securities Law of 1968, as amended. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the issuance and sale of the Shares and the Conversion Stock pursuant to this Agreement shall be duly obtained and effective as of the Closing. Wilson Sonsini Goodrich & Rosati, counsel for the Company, will undertake the filing of any such authorizations, approvals, or permits and will provided copies of any such authorizations, approvals, or permits to the Investor. 5.6 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Investor and counsel to any of the Investor, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. -12- 71 5.7 Certificate of Designations. The Certificate of Designations in the form attached hereto as Exhibit A shall have been approved by the Company's Board of Directors and filed with the Delaware Secretary of State. 5.8 Rights Agreement. The Company and the Investor shall have entered into the Rights Agreement in the form attached hereto as Exhibit C. 5.9 Opinion of Company Counsel. The Investor shall have received from Wilson Sonsini Goodrich & Rosati, counsel for the Company, an opinion, dated as of the Closing, in the form attached hereto as Exhibit D. 5.10 Consents, Permits, and Waivers. The Company shall have obtained any and all consents, permits and waivers necessary or appropriate for consummation of the transactions contemplated by this Agreement and the Rights Agreements (except for such as may be properly obtained subsequent to the Closing). 6. Conditions of the Company's Obligations at Closing. The obligations of the Company to the Investor under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective unless consented to in writing by the Company: 6.1 Representations and Warranties. The representations and warranties of the Investor contained in Section 3 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 6.2 Payment of Purchase Price. The Investor shall have delivered the purchase price specified in Section 1.1(b). 6.3 California Qualification. The Commissioner of Corporations of the State of California shall have issued a permit qualifying the offer and sale to the Investor of the Shares and the Conversion Stock or such offer and sale shall be exempt from such qualification under the California Corporate Securities Law of 1968, as amended. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the issuance and sale of the Shares and Conversion Stock pursuant to this Agreement shall be duly obtained and effective as of the Closing. 6.4 Certificate of Designations. The Certificate of Designations attached hereto as Exhibit A shall have been accepted for filing by the Delaware Secretary of State. 6.5 Rights Agreement. The Company and the Investor shall have entered into the Rights Agreement in the form attached hereto as Exhibit C. -13- 72 6.6 Pfizer, Inc. Agreement. The Company and Pfizer, Inc. shall have entered into the Collaborative Research Agreement. 7. Covenants of the Company. 7.1 Delivery of Financial Statements. The Company shall deliver to the Investor: (a) as soon as practicable, but in any event within one hundred (100) days after the end of each fiscal year of the Company commencing with the fiscal year ending December 31, 1997, a balance sheet, and statements of operations and cash flow for such fiscal year. Such year-end financial reports to be in reasonable detail and shown compared to the prior fiscal year, prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied and consistent with the requirements of Regulation S-X of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and audited and certified by independent public accountants of nationally recognized standing selected by the Company; (b) within fifty (50) days of the end of each quarter, and until a public offering of Common Stock of the Company, a management letter, describing the results of operations and liquidity and capital resources, and an unaudited statement of operations and balance sheet and cash flow for and as of the end of such quarter, in reasonable detail and prepared in accordance with GAAP consistently applied, subject to year end audit adjustments and the absence of footnotes; (c) with respect to the financial statements called for in subsection (b) of this Section 7.1, an instrument executed by the Chief Financial Officer, President or Chairman of the Company and certifying that such financials were prepared in accordance with GAAP consistently applied with prior practice for earlier periods and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end audit adjustments and the absence of footnotes; 7.2 Inspection. The Company shall permit the Investor at such Investor's expense to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested in writing by the Investor; provided, however, that the Company shall not be obligated pursuant to this Section 7.2 to provide access to any information which it reasonably considers to be a trade secret, proprietary information or other confidential information. 7.3 Termination of Covenants. The covenants set forth in Sections 7.1 and 7.2 shall terminate and be of no further force or effect when the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the firm commitment underwritten offering of its securities to the general public is consummated at a per share price not less than $9.00 (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares) with aggregate proceeds to the Company of not less than $15.0 million (after deduction of -14- 73 underwriters commissions and expenses) or when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, whichever event shall first occur. 8. Miscellaneous. 8.1 Survival of Warranties. The warranties, representations and covenants of the Company and Investors contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investor or the Company. 8.2 Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 8.3 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. 8.4 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. 8.5 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 8.6 Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on the signature page hereto or in the case of the Company on the first page of this Agreement, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. 8.7 Finder's Fee. Each party represents that it neither is nor will be obligated for any finders' fee or commission in connection with this transaction. The Investor agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Investor or any of its officers, partners, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless the Investor from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. -15- 74 8.8 Expenses. The Company shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement and the Rights Agreement. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the Certificate of Designations or the Rights Agreement, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 8.9 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement 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 a majority of the Securities. Any amendment or waiver effected in accordance with this Section shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities, and the Company; provided, however, that no condition set forth in Section 5 hereof may be waived with respect to any Investor who does not consent thereto. 8.10 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 8.11 Aggregation of Stock. All Shares held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 8.12 Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. -16- 75 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. ABGENIX, INC. By: ----------------------------------------- Kurt Leutzinger, Chief Financial Officer PFIZER, INC. By: ----------------------------------------- Title: -------------------------------------- ABGENIX, INC. SERIES C PREFERRED STOCK PURCHASE AGREEMENT SIGNATURE PAGE. -17- EX-10.29 8 COLLABORATIVE RESEARCH AGREEMENT 1 EXHIBIT 10.29 SCHERING-PLOUGH RESEARCH INSTITUTE COLLABORATIVE RESEARCH AGREEMENT 2 COLLABORATIVE RESEARCH AGREEMENT This Collaborative Research Agreement (the "Agreement"), effective as of January 28, 1998 (the "Effective Date") is made by and between Abgenix, Inc., a Delaware corporation having its principal place of business at 7601 Dumbarton Circle, Fremont, California 94555 ("ABX") and Schering-Plough Research Institute, a Delaware corporation having its principal place of business at 2015 Galloping Hill Road, Kenilworth, New Jersey 07033 ("SPRI"). WHEREAS SPRI and ABX are interested in conducting research regarding antibodies derived from XenoMouse(TM) Animals (described below) that bind to [*], as set forth below; NOW THEREFORE, in consideration of the mutual promises contained in this Agreement, the parties agree as follows: 1. DEFINITIONS For purposes of this Agreement, the following terms shall have the meanings set forth below: 1.1 "Antibody" shall mean a composition comprising a whole antibody or fragment thereof, said antibody or fragment having been derived in whole or part from immunization of the XenoMouse Animals with the Target Antigen, or having been derived from nucleotide sequences encoding, or amino acid sequences of, such an antibody or fragment. 1.2 "Research" shall mean the research activities set forth in Exhibit A. 1.3 "Target Antigen" shall mean [*]. 1.4 "XenoMouse Animals" shall mean one or more transgenic mice available for use by ABX that produce human antibodies when immunized with antigens. 2. RESEARCH PROGRAM 2.1 Research Program Activities. Subject to the terms and conditions set forth in this Agreement, the parties shall conduct the Research as set forth in Exhibit A on a collaborative basis with the goal of generating and studying Antibodies that bind to the Target Antigen. Each party shall use commercially reasonable efforts to conduct the Research in accordance with Exhibit A within the time schedules contemplated therein. The parties will confer at mutually agreed times, no less than [*] in person or by telephonic conference call, to discuss the status of the research project pursuant to Exhibit A. The obligation of each party to use commercially reasonable efforts to conduct the *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 1 3 Research in accordance with Exhibit A is expressly conditioned upon the performance by each party of its obligations to the other party under this Agreement, including but not limited to, the obligations set forth in Exhibit A. 2.2 SPRI Responsibilities. Promptly following execution of this Agreement, SPRI will provide to ABX reasonable quantities of the materials set forth in Exhibit A. Upon request by ABX, SPRI agrees to provide reasonable assistance to ABX in performance of the Research. SPRI shall provide a reasonably detailed report to ABX showing the data generated pursuant to item I of Exhibit A, promptly after completion of the tasks set forth in item I of Exhibit A. 2.3 ABX Responsibilities. After receiving Target Antigen materials from SPRI for immunization, ABX shall use commercially reasonable efforts to immunize XenoMouse Animals with the Target Antigen [*] and in accordance with Exhibit A during the term of this Agreement. ABX shall provide a reasonably detailed report to SPRI showing the data generated pursuant to items E and F of Exhibit A, promptly after completion of the tasks set forth in items E and F of Exhibit A. 2.4 Payments. SPRI shall pay to ABX [*] Such payments shall be nonrefundable and noncreditable. It is understood that if SPRI enters into a definitive Research, Option and License Agreement, it will make all the payments described under this Section 2.4 regardless of whether or not the goal described in Exhibit A was met. Each of SPRI and ABX shall be solely responsible for its own out-of-pocket costs and disbursements incurred, and for providing the necessary facilities, supplies (except for materials to be provided pursuant to Exhibit A), personnel and other resources necessary in the performance of the Research and its obligations under this Agreement. 2.5 Exclusivity. In consideration of the payment to ABX hereunder, during the term of this Agreement, ABX shall not actively solicit or enter into any agreement with a third party pursuant to which ABX would convey or grant rights to such third party regarding [*] In addition, during the term of this Agreement, ABX shall not offer the [*] to any third party for purposes of discussing or evaluating a possible business relationship relating to such Antibodies, nor enter into any agreements which would otherwise diminish the rights granted to SPRI under this Agreement, without the prior written consent of SPRI. ABX shall not, without SPRI's written consent, use for the benefit of any third party, or provide to any third party, the XenoMouse Animals immunized in the course of performing the Research or any materials derived from such XenoMouse Animals in the course of performing the Research. *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 2 4 2.6 Material Transfer Terms. 2.6.1 Transfer by SPRI. SPRI agrees to provide the materials required to be provided to ABX pursuant to the Research (the "SPRI Materials") solely upon the following terms and conditions: (a) All SPRI Materials provided to ABX by SPRI under this Agreement shall remain the property of SPRI, and the transfer of physical possession of any such materials to, and the physical possession of any such materials by, ABX shall not be (nor be construed as) a sale, lease, offer to sell or lease, or other transfer of title of such materials to ABX; (b) All SPRI Materials shall remain in the control of ABX and shall not be transferred to any other party, and ABX shall use the SPRI Materials only for purposes of performing the Research and not for any other purpose; and (c) ABX agrees to use the SPRI Materials in compliance with all applicable national, state, and local laws and regulations, including all applicable National Institutes of Health guidelines, and agrees that such materials will not be used in humans. ABX acknowledges that the SPRI Materials are experimental in nature and may have unknown characteristics and therefore agrees to use prudence and reasonable care in the use, handling, storage, transportation, disposition and containment of SPRI Materials and all derivatives thereof. 2.6.2 Transfer by ABX. ABX agrees to provide the XenoMouse Materials (as defined below) required to be provided to SPRI pursuant to the Research solely upon the following terms and conditions: (a) All materials derived in whole or part from the XenoMouse Animals, including without limitation all Antibodies to the Target Antigen and all [*] derived from XenoMouse Animals under this Agreement (collectively, "XenoMouse Materials"), shall be the property of ABX, and the transfer of physical possession of any such materials to, and the physical possession of any such materials by, SPRI shall not be (nor be construed as) a sale, lease, offer to sell or lease, or other transfer of title of such materials to SPRI; (b) All XenoMouse Materials shall remain in the control of SPRI and shall not be transferred to any other party, and SPRI shall use the XenoMouse Materials only for purposes of performing the Research and not for any other purpose; and (c) SPRI agrees to use the XenoMouse Materials in compliance with all applicable national, state, and local laws and regulations, including all applicable National Institutes of Health guidelines, and agrees that such materials will not be used in humans. SPRI acknowledges that the XenoMouse Animals, and all materials derived in whole or part from the XenoMouse Animals, are experimental in nature and may have unknown *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 3 5 characteristics and therefore agrees to use prudence and reasonable care in the use, handling, storage, transportation, disposition and containment of XenoMouse Materials and all derivatives thereof. 2.7 Research License. Each party hereby grants the other party a non-exclusive license to perform the Research activities set forth in Exhibit A under all patents and patent applications owned or controlled by the granting party that are necessary to perform such activities. 3. RESEARCH AND LICENSE OPTION During the period commencing on the Effective Date and ending on [*] or (ii) termination of this agreement (the "Option Period"), SPRI, through a corporate affiliate, shall have the exclusive option to enter into a written definitive agreement ("Research, Option and License Agreement") that will provide for the additional research described in Exhibit B and an option to acquire a worldwide, exclusive (even as to ABX) license, including the right to sublicense, to develop, make, have made, use, export and import [*] derived from XenoMouse animals under this Agreement in order to develop, make, have made, use, sell, offer for sale, export and import [*] generated under this Agreement upon mutually agreeable terms and conditions to be set forth in the Research, Option and License Agreement. It is understood that any such license will be subject to non-exclusive grant of rights to GenPharm International Inc. ("GenPharm") under that certain Cross License Agreement effective as of March 26, 1997 by and among Abgenix, GenPharm and other parties named therein. The parties agree to negotiate the terms of the Research, Option and License Agreement in good faith during the Option Period, it being understood that, in addition to other key terms to be negotiated by the parties, the Research, Option and License Agreement shall provide for further research reimbursement fees, license fees, milestone payments, royalty and other key financial terms set forth on the attached term sheet as Exhibit C; and other customary terms and conditions for commercial agreements of this type, including, but not limited to, provisions relating to intellectual property, confidentiality and publication, representations and warranties of each party, diligence, indemnification, and reporting. 4. CONFIDENTIALITY 4.1 Confidentiality. During the term of this Agreement and for a period of ten (10) years following the expiration or termination of this Agreement ABX and SPRI shall keep completely confidential and shall not, without the prior written consent of the other party, publish or otherwise disclose, and shall not use for any purpose other than conducting the Research, any information furnished to it by the other party or generated pursuant to this Agreement, except to the extent that such information: *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 4 6 (a) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure; (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 acts or omissions of the receiving party; (d) was subsequently lawfully disclosed to the receiving party by a third party under no obligation of confidentiality; or (e) was independently developed by the receiving party without the use of such confidential information received from the disclosing party and such independent development can be documented by contemporaneous written records of the receiving party kept in the ordinary course of business. 4.2 Disclosure Required by Law. Notwithstanding the foregoing Section 4.1, either party may disclose the other party's confidential information to the extent such disclosure is required by law, regulation, rule act of order or any governmental authority or agency to be disclosed provided that if a party is so required to make any such disclosure of the other party's secret or confidential information, other than pursuant to a confidentiality agreement or protective order, it will give reasonable advance notice to the other party of such disclosure requirement and will use efforts consistent with prudent business judgment to secure confidential treatment of such information prior to its disclosure (whether through protective orders or confidentiality agreements or otherwise) and thereafter the receiving party uses reasonable efforts to disclose to the requesting entity only the minimum confidential information required to be disclosed in order to comply with the request, whether or not a protective order or other similar order is obtained by the disclosing party. 4.3 No Publicity. A party may not use the name of the other party, or any of its affiliates, in any publicity or advertising and may not issue a press release or otherwise publicize or disclose any information related to the existence of this Agreement or the terms or conditions hereof, without the prior written consent of the other party, such consent not to be unreasonably withheld. The parties shall agree on a form of initial press release (Exhibit D attached hereto) that may be used by either party to describe this Agreement and either party may subsequently release any information contained in such press release without consultation with or consent of the other. Nothing in the foregoing, however, shall prohibit a party from making such disclosures to the extent deemed necessary under applicable federal or state securities laws or any rule or regulation of any nationally recognized securities exchange. In such event, however, the disclosing party shall use good faith efforts to consult with the other party prior to such disclosure and, where applicable, shall request confidential treatment to the extent available. Nothing in 5 7 the foregoing, however, shall prohibit a party from making such disclosures to professional advisors, including, but not limited to, attorneys, accountants and bankers under customary confidentiality conditions. In the event of disclosure to a banker, however, the disclosing party shall notify the other party of such disclosure. 5. INDEMNIFICATION 5.1 SPRI. SPRI agrees to indemnify and hold ABX and its directors, officers, employees and agents harmless from and against any claims, damages, liabilities or actions (including reasonable attorneys' fees and other expenses of litigation) relating to or arising from (i) ABX's use of materials provided by SPRI in performing the Research; (ii) SPRI's use of XenoMouse Materials; or (iii) the breach by SPRI of any representation or warranty contained in this Agreement; provided, however, that SPRI shall not be obligated to indemnify or hold harmless ABX to the extent that such claims arise from the negligence or willful misconduct of ABX 5.2 ABX. ABX agrees to indemnify and hold SPRI and its directors, officers, employees and agents harmless from and against any claims, damages, liabilities or actions (including reasonable attorneys' fees and other expenses of litigation) arising from the negligence or willful misconduct of ABX or the breach by ABX of any representation or warranty contained in this Agreement; provided, however, that ABX shall not be obligated to indemnify or hold harmless SPRI to the extent that such claims arise from the negligence or willful misconduct of SPRI. 5.3 Limitation of Liability. With respect to any claim by one party against the other arising out of the performance or failure of performance of the other party under this Agreement, the parties expressly agree that the liability of such party to the other party for such breach shall be limited under this Agreement or otherwise at law or equity to direct damages only and in no event shall a party be liable for: (i) punitive, exemplary or consequential damages, or (ii) the cost of procurement of substitute goods, technology or services. 6. TERM; TERMINATION 6.1 Term. Subject to the next sentence this Agreement shall commence on the Effective Date and, unless earlier terminated by mutual agreement of the parties, shall continue in effect until six (6) weeks after the completion of Research pursuant to Exhibit A but no later than eight (8) months after the Effective Date. Notwithstanding anything contained herein to the contrary, at any time prior to the execution of the Research, Option and License Agreement SPRI shall have the unilateral right to terminate this Agreement, with or without cause, by giving thirty (30) days advance written notice to ABX. In such event, and provided that ABX performed the activities assigned to it in Exhibit A until the time of receipt of the written notice of termination, SPRI shall pay ABX the Research 6 8 payments described in section 2.4 of this Agreement regardless of whether or not the Research pursuant to Exhibit A was completed. The expiration of this Agreement shall not affect the rights and liabilities of the parties accrued prior to such expiration. Articles 4, 5, and 8 and Section 2.6 shall survive any expiration or termination of this Agreement. 6.2 Destruction of Materials. Upon the expiration or termination of this Agreement, SPRI and ABX shall destroy the SPRI Materials and the ABX Materials and any XenoMouse Animals that have been immunized with the Target Antigen unless otherwise mutually agreed by the parties, provided that each party's legal counsel may retain one copy of confidential information (other than biological materials) furnished by the other party pursuant to this Agreement in a secure location for the sole purpose of identification such party's obligations under the confidentiality provisions of this Agreement. 7. REPRESENTATIONS AND WARRANTIES 7.1 Representations and Warranties of Each Party. Each of ABX and SPRI hereby represents, warrants and convenants to the other party hereto as follows: (a) it is a corporation duly organized and validly existing under the laws of the state or other jurisdiction of its incorporation or formation; (b) the execution, delivery and performance of this Agreement by such party has been duly authorized by all requisite corporate action; (c) it has the power and authority to execute and deliver this Agreement and to perform its obligations hereunder; and (d) the execution, delivery, and performance by such party of this Agreement and its compliance with the terms and provisions hereof does not and will not conflict with or result in a breach of any of the terms and provisions of, or constitute a default under, (i) a loan agreement, guaranty, financing agreement, or other agreement or instrument binding or affecting it or its property; (ii) the provisions of its charter documents or bylaws; or (iii) any order, writ, injunction or decree or any court or governmental authority entered against it or by which any of its property is bound. 7.2 ABX's Representations. ABX hereby represents, warrants and convenants to SPRI as follows: (a) to the best of its knowledge, Abgenix has sufficient right, title and interest in and to the XenoMouse Animals, and to [*] derived from the XenoMouse Animals, and to Antibodies to the Target Antigen derived from the XenoMouse Animals to perform the Research set forth herein, to grant the Research License set forth in section 2.7, and to enter into the Research, Option and License *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 7 9 Agreement on terms to be negotiated by the parties; (b) it will use diligent efforts not to diminish the rights granted to SPRI hereunder, including, without limitation, by not committing or permitting any acts or omissions which would cause the breach of any agreements between itself and third parties which provide for intellectual property rights applicable to the development, manufacture, use or sale of Antibodies to the Target Antigen and all [*] derived from XenoMouse Animals and in connection therewith. ABX agrees to provide SPRI promptly with notice of any alleged breach and ABX is in compliance in all material respects with any such agreements with third parties. 7.3 SPRI's Representations. SPRI hereby represents, warrants and convenants to ABX that it has not entered into any agreement with any third party that would prohibit it from entering into the definitive Research, Option and License Agreement. 7.4 Continuing Representations. The representations and warranties of each party contained in Sections 7.1, 7.2 and 7.3 above shall survive the execution of this Agreement and shall remain true and correct after the date hereof with the same effect as if made as of the date hereof. 7.5 No Inconsistent Agreement. As of the Effective Date neither party has in effect, and during the term of this Agreement neither party shall enter into, any oral or written agreement or arrangement that would be inconsistent with its obligations under this Agreement. 8. MISCELLANEOUS PROVISIONS 8.1 Governing Laws. This Agreement shall be interpreted and construed in accordance with the laws of the State of California, without regard to conflicts of law principles. 8.2 Assignments. Neither this Agreement nor any right or obligation hereunder may be assigned or delegated, in whole or part, by either party without the prior written consent of the other, which consent shall not be unreasonably withheld; provided, however, that either party may, without the written consent of the other, assign its rights and delegate its obligations hereunder to (i) any entity to which it has acquired all or substantially all of the business or assets of the assigning party, or (ii) any successor corporation resulting from any merger or consolidation with another corporation. Any purported assignment in violation or the preceding sentence shall be void. Any permitted assignee shall assume all obligations of its assignor under this Agreement. 8.3 No Warranties. EACH OF SPRI AND ABX ACKNOWLEDGE AND AGREE THAT ANY AND ALL MATERIALS PROVIDED BY ONE PARTY TO THE OTHER PURSUANT TO THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO *CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 8 10 ALL ANTIBODIES AND OTHER MATERIALS DERIVED IN WHOLE OR PART FROM XENOMOUSE ANIMALS PROVIDED TO SPRI PURSUANT TO THIS AGREEMENT ARE PROVIDED "AS IS." EACH OF SPRI AND ABX MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND REGARDING ANY MATERIALS PROVIDED PURSUANT TO THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO THE XENOMOUSE ANIMALS OR ANTIBODIES OR OTHER MATERIALS DERIVED IN WHOLE OR PART FROM THE XENOMOUSE ANIMALS, WHETHER EXPRESS OR IMPLIED, AND EACH OF SPRI AND ABX SPECIFICALLY DISCLAIMS ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NONINFRINGEMENT. 8.4 Independent Contractors. The relationship of the parties hereto is that of independent contractors. The parties hereto are not deemed to be agents, partners or joint venturers of the others for any purpose as a result of this Agreement or the transactions contemplated thereby. Neither ABX nor SPRI 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, without the prior written consent of the other party to do so. 8.5 Notices. All requests and notices required or permitted to be given to the parties hereto shall be given in writing, shall expressly reference the section(s) of this Agreement to which they pertain, and shall be deemed to have been properly given if delivered in person or when received if mailed by first class certified mail to the other party at the appropriate address as set forth below or to such other addresses as may hereinafter be designated in writing by the parties. SPRI: Schering-Plough Research Institute 2015 Galloping Hill Road Kenilworth, New Jersey 07033 Attn: Dr. Francis Cuss ABX: Abgenix, Inc. 7601 Dumbarton Circle Fremont, California 94555 Attn: President 8.6 No Implied Licenses. Only licenses and rights granted expressly herein shall be of legal force and effect. No license or other right shall be created hereunder by implication, estoppel or otherwise. Under no circumstances shall a party hereto, as a result of this Agreement, obtain any ownership interest in, or any other right or license to, any existing or future technology, know-how, patents, patent applications or products of the other party except as expressly provided in this Agreement. 8.7 Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this 9 11 Agreement shall continue in full force and effect without said provision and the parties shall discuss in good faith appropriate revised arrangements. 8.8 No Consequential Damages. IN NO EVENT SHALL A PARTY HERETO BE LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT OR THE EXERCISE OF ITS RIGHTS HEREUNDER, INCLUDING WITHOUT LIMITATION LOST PROFITS, REGARDLESS OF ANY NOTICE OF SUCH DAMAGES. 8.9 Complete Agreement. This Agreement constitutes the entire agreement, written and oral, between the parties with respect to the subject matter hereof, and supersedes all prior agreements between the parties respecting the subject matter hereof, whether written or oral, expressed or implied. This Agreement can be modified or amended in a writing signed by the parties, and the rights under this Agreement can be waived only in a writing signed by the party to be charged. 8.10 Dispute Resolution 8.10.1 Cooperation. In the event that SPRI and ABX are unable, after exercising good faith efforts, to reach agreement on an issue relating to this Agreement, then upon written notice to the other party the issue shall be referred to SPRI's Executive Vice President - Discovery Research and the President of ABX, or their designees with similar authority, who shall meet and use good faith efforts to reach agreement on the issue (the "Dispute"). In the event the representatives of SPRI and ABX are unable to reach agreement on the Dispute in such meeting, then the parties shall have the right to submit the Dispute to binding arbitration in accordance with the provisions of Section 8.10.2 by providing written notice to the other party within two (2) weeks after such meeting. 8.10.2 Arbitration. All Disputes arising in connection with this Agreement shall be finally settled by binding arbitration conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect. The arbitration shall be held in San Francisco, California if the Dispute was referred to arbitration by SPRI and in New York, New York if the Dispute was referred to arbitration by ABX, and the arbitrator shall be an independent expert with a background suitable for the matters in dispute. The cost of the arbitration, including administrative and arbitrator's fees, shall be shared equally by the parties. Each party shall bear its own costs and attorneys' and witnesses' fees. The prevailing party in any arbitration, as determined by the arbitrator, shall be entitled to an award against the other party in the amount of the prevailing party's costs and reasonable attorneys' fees. A disputed or suspended performance pending the resolution of the arbitration shall be completed within thirty (30) days following the final decision of the arbitrator. Any arbitration under this section 8.10.2 shall be completed within six (6) months from the filing of notice of a request for such arbitration. 10 12 8.11 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and together shall be deemed to be one same agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized officers as of the day and year first above written. ABGENIX, INC. SCHERING-PLOUGH RESEARCH INSTITUTE By: /s/ R. SCOTT GREER By: /s/ JONATHAN SPICEHANDLER ------------------------------ ----------------------------------- Printed Name: R. Scott Greer Printed Name: Jonathan Spicehandler -------------------- ------------------------- Title: CEO Title: President --------------------------- -------------------------------- Date: January 28, 1998 Date: January 30, 1998 ---------------------------- --------------------------------- 11 13 EXHIBIT A [ * ] * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 12 14 EXHIBIT B [ * ] * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 13 15 EXHIBIT C [ * ] * Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 14 16 EXHIBIT D [ABGENIX LOGO] Contact: Kurt Leutzinger Vice President and Chief Financial Officer 510-608-6575 ABGENIX SIGNS AGREEMENT WITH SCHERING-PLOUGH FREMONT, Calif., January XX, 1998 -- Abgenix, Inc., a subsidiary of Cell Genesys, Inc. (Nasdaq: CEGE), announced today that it has signed a collaborative research agreement with Schering-Plough Research Institute (SPRI), the pharmaceutical research and development arm of Schering-Plough Corporation (NYSE: SGP). Under the agreement, Abgenix, will use its XenoMouse(TM) technology to generate fully human monoclonal antibodies to an undisclosed antigen target for SPRI. The agreement provides SPRI with an option to enter into a research and license agreement that would provide Abgenix with additional research payments, milestone payments and royalties on future product sales by Schering-Plough. "We are pleased to be collaborating with Schering-Plough Corporation, one of the world's leading pharmaceutical companies," stated R. Scott Greer, president and chief executive officer of Abgenix. "This collaboration, along with the company's recently announced deal with Pfizer Inc., reflects the growing interest in our XenoMouse(TM) technology." Abgenix has developed novel strains of transgenic mice (XenoMouse(TM)) that are capable of quickly generating high affinity, fully human antibodies to essentially any target, including human antigens. The company currently has three antibody products in development. ABX-CBL is in a confirmatory Phase II trial for steroid-resistant graft versus host disease (GVHD). The antibody targets the specific cells active in an unwanted immune response, such as occurs in GVHD, kidney transplant rejection, rheumatoid arthritis and psoriasis. ABX-IL8 is a fully human monoclonal antibody targeting inflammation that is expected to begin a Phase I clinical trial this quarter for moderate to severe psoriasis. ABX-EGF is a fully human monoclonal antibody in preclinical development that may arrest the growth of cancer cells. - more - 17 Statements made in this press release about Abgenix's and Cell Genesys' product development activities, clinical trials, product pipelines, corporate partnerships and patent portfolio, other than statements of historical fact, are forward looking statements and are subject to a number of uncertainties that could cause actual results to differ materially from the statements made, including risks associated with the success of clinical trials, research and product development programs, the regulatory approval process, competitive products and the extent and breadth of Cell Genesys and its subsidiary's patent portfolio. Please see Cell Genesys' Form 10-K/A dated April 30, 1997 for information about risks associated with clinical trials and product development programs and other risks which may affect Cell Genesys and its subsidiary. ### [1/XX/98] EX-10.32 9 EXCLUSIVE WORLDWIDE PRODUCT LICENSE 1 EXHIBIT 10.32 CONFIDENTIAL TREATMENT REQUESTED BY ABGENIX, INC. EXCLUSIVE WORLDWIDE PRODUCT LICENSE THIS PRODUCT LICENSE AGREEMENT (the "Agreement") effective the ____ day of November, 1997, is made by and between XENOTECH, L.P., a California limited partnership ("XT"), and ABGENIX, INC., a Delaware corporation ("Licensee"). RECITALS XT desires to grant to Licensee and Licensee desires to acquire from XT an exclusive worldwide license or sublicense, as the case may be, under the Licensed Technology to commercialize Products, on the terms and conditions herein. NOW, THEREFORE, for and in consideration of the covenants, conditions, and undertakings hereinafter set forth, it is agreed by and between the parties as follows: 1. DEFINITIONS. For purposes of this Agreement, the terms set forth in this Article shall have the meanings set forth below. 1.1 "ABX" shall mean Abgenix, Inc. 1.2 "Affiliate" shall mean any entity which controls, is controlled by or is under common control with any one of ABX, JTI or XT. An entity shall be regarded as in control of another entity if it owns or controls at least fifty percent (50%) of the shares of the subject entity entitled to vote in the election of directors (or, in the case of an entity that is not a corporation, for the election of the corresponding managing authority); provided, however, XT shall not be an Affiliate of ABX or JTI under this Agreement and XT shall not be considered controlled by ABX or JTI for purposes of determining Affiliates of ABX or JTI. 1.3 "Antibody" shall mean a composition comprising a whole antibody or a fragment thereof, said antibody or fragment having been derived from the Licensed Technology and/or generated from the Mice or the Future Generation Mice or having been derived from nucleotide sequences encoding, or amino acid sequences of, such an antibody or fragment. 1.4 "Antibody Product" shall mean any product comprising an Antibody or Genetic Material encoding an Antibody wherein, in respect of each Antibody Product, said Genetic Material does not encode multiple Antibodies. 1.5 "Antibody-Secreting Cell" shall mean a cell that secretes an Antibody, except where such cell is part of a mammal. 1.6 "Antigen Technology" shall mean (i) all U.S. patent applications and patents listed on Schedule 1 and patents issuing on such patent applications owned by or licensed to XT 2 which relate to the Product Antigen, in each case to the extent XT has the right to license or sublicense the same; (ii) any continuations, divisionals, reexaminations, reissues or extensions of any of (i) above; (iii) any foreign counterparts issued or issuing on any of (i) or (ii) above; and (iv) materials as set forth in Schedule 1. 1.7 "CGI" shall mean Cell Genesys, Inc. 1.8 "Effective Date" shall mean the date this Agreement is executed by XT and Licensee. 1.9 "Future Generation Mice" shall have the meaning defined in the Master Research License and Option Agreement, as amended. 1.10 "Genetic Material" shall mean a nucleotide sequence, including DNA, RNA, and complementary and reverse complementary nucleotide sequences thereto, whether coding or noncoding and whether intact or a fragment. 1.11 "GenPharm Cross License" shall mean that certain Cross License Agreement, effective as of March 26, 1997, entered into by and among the parties, GenPharm International, Inc. ("GenPharm") and the other parties named therein, as the same may be amended from time to time. 1.12 "IND" shall mean an Investigational New Drug Exemption for a Product, as defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated thereunder, or its non-U.S. equivalent. 1.13 "JTI" shall mean Japan Tobacco Inc. 1.14 "License Fee" shall have the meaning set forth in Article 3 hereof. 1.15 "Licensed Field" shall mean all human medical uses. 1.16 "Licensed Technology" shall mean the Antigen Technology, the XenoMouse Technology, and XT-Controlled Rights. 1.17 "Master Research License and Option Agreement" shall mean that certain Master Research License and Option Agreement entered into by CGI, JTI and XT as of June 28, 1996 (and subsequently assigned by CGI to ABX), as it may be amended. 1.18 "Mice" shall have the meaning defined in the Master Research License and Option Agreement, as amended. 1.19 "Net Sales" shall mean the gross sales price charged by Licensee or its Affiliates and Sublicensees for sales of Product to non-Affiliate customers, less: (i) normal and customary rebates, cash and trade discounts, and credits for returns and allowances, (ii) sales -2- 3 consumption or other excise taxes or duties imposed upon and paid by Licensee and its Affiliates or Subsidiaries with respect to such sales, and (iii) reasonable reserves for uncollectible accounts, as reflected in financial statements of Licensee and its Affiliates or Sublicensees, to the extent such accounts are not actually collected. "Net Sales" for [***] shall mean [***] of Gross Sales, where Gross Sales shall mean the [***]. Notwithstanding the foregoing, Gross Sales shall include [***], but notwithstanding any of the foregoing, shall not include [***]. Notwithstanding the foregoing, "Net Sales" for Universal Donor Cell Products shall be [***] of Gross Sales. 1.20 "Product" and "Products" shall mean one or more Antibody Products which incorporate (i) an Antibody which binds to the Product Antigen or (ii) Genetic Material encoding such an Antibody wherein said Genetic Material does not encode multiple antibodies. 1.21 "Product Antigen" shall mean Epidermal Growth Factor Receptor (EGFR). 1.22 "Sublicensee" shall mean a third party that is not an Affiliate (provided, however, that CGI may be a Sublicensee of ABX, whether or not CGI is an Affiliate of ABX) to whom Licensee has granted a sublicense under the Licensed Technology to make, use and/or sell Products to the extent of the rights of Licensee therein. "Sublicensee" shall also include a third party to whom Licensee has granted the right to distribute Products under the Licensed Technology to the extent of the rights of Licensee therein, provided that such third party is responsible for the marketing and promotion of Products within the applicable country. 1.23 "Territory" shall mean all the countries of the world. 1.24 "Transgenic Product" shall mean any product constituting (i) Mice or Future Generation Mice, (ii) Genetic Material from Mice or Future Generation Mice, or (iii) an Antibody-Secreting Cell. 1.25 "Universal Receptor Product" shall mean a substance that is developed utilizing both (i) an Antibody and (ii) Universal Receptor Technology. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -3- 4 1.26 "Universal Receptor Technology" shall mean technology for universal receptors [***]. As used herein: (i) "universal receptor" shall mean a receptor [***]. 1.27 "Valid Claim" shall mean a claim of a pending or issued, and unexpired patent included within the Licensed Technology, which has not been held unenforceable, unpatentable or invalid by a court or other governmental agency of competent jurisdiction, and which has not been admitted to be invalid or unenforceable through reissue, disclaimer or otherwise. 1.28 "XenoMouse Technology" shall mean (i) all U.S. patent applications and patents listed on Schedule 2 and patents issuing on such applications; (ii) any continuations, divisionals, reexaminations, reissues or extensions of any of (i) above; (iii) any foreign counterparts issued or issuing on any of (i) or (ii) above; and (iv) the Mice (as such term is defined in the Master Research License and Option Agreement) and other materials as set forth on Schedule 2. 1.29 "XT-Controlled Rights" shall mean all rights to patents or technology that are licensed to XT pursuant to the agreements listed on Schedule 4 or any other license or similar agreement granting XT rights to patents or technology (each such agreement an "XT In-License"), to the extent that XT has the right under the terms of the applicable XT In-License to further license or sublicense such rights during the Term of this Agreement. 1.30 "XT In-License" shall have the meaning set forth in Section 1.29 above. 2. LICENSE GRANT; USE OF MICE BY THIRD PARTIES. 2.1 Subject to the terms and conditions of this Agreement, XT hereby grants to Licensee an exclusive license or sublicense, as the case may be, under the Licensed Technology, to make and have made Products anywhere in the world and to use, sell, lease, offer to sell or lease, import, export, otherwise transfer physical possession of or otherwise transfer title to such Products [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -4- 5 in the Licensed Field in the Territory. Such license or sublicense shall be exclusive even as to XT, and shall include the exclusive right to grant and authorize sublicenses for exploitation worldwide; provided, however, that Licensee may not, under this license, grant sublicenses to any rights to the Mice except as provided in Section 2.2 of this Agreement. 2.2 In connection with the grant of a sublicense under this Agreement to a third party, and notwithstanding any provision to the contrary in the Master Research License and Option Agreement or any Material Transfer Agreement entered into between the parties under Sections 2.1, 2.2 or 2.3 of the Master Research License and Option Agreement, Licensee shall have the right to grant a sublicense to use Mice and Future Generation Mice transferred to the third party pursuant to the terms of Section 2.7 of the Master Research License and Option Agreement, and Transgenic Products other then Mice or Future Generation Mice, to research, develop, make, have made, use, import, export, sell, lease, offer to sell or lease or otherwise distribute or commercialize Products, with the proviso that the sublicense described in this Section 2.2 shall not exceed the Licensee's rights conferred in accordance with the Master Research License and Option Agreement or this Product License. 2.3 It is understood and agreed that, as to all XT-Controlled Rights, the grant of rights under this Article 2 shall be subject in all respects to the applicable XT In-License(s) pursuant to which such XT-Controlled Rights were granted to XT. 3. LICENSE FEE. Licensee shall pay to XT within thirty days of the Effective Date a license fee of [***]. 4. ROYALTIES. 4.1 Royalty Rates. In consideration for the license and rights granted herein, Licensee agrees to pay to XT royalties of [***] of Net Sales of Products by it and its Affiliates and Sublicensees. 4.2 Royalty Offsets. In the event that (i) Licensee, its Affiliate or Sublicensee is required to pay a non-Affiliate third party amounts with respect to Products under agreements for patent rights or other technologies with Licensee, its Affiliate or Sublicensee, in its reasonable judgment, determines are necessary or desirable to license or acquire with respect to such Products (excluding any such payments made to Licensee by its Affiliates), or (ii) any reimbursement payments are due to XT pursuant to Section 5.1 below, then Licensee may deduct the aggregate of any such amounts from any royalty amount owing to XT for the sale of such Products pursuant to Section 4.1 above; provided, however, that payments from Licensee to a third party that is an Affiliate, or was an Affiliate at any time within two (2) years prior to the Effective Date, may not be offset under this Section 4.2. Notwithstanding the foregoing provisions of this Section 4.2, in no event shall the royalties due to XT pursuant to Section 4.1 above be so reduced to less than [***] of the amount that would otherwise be due to XT thereunder. [***] [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -5- 6 [***]. 4.3 Single Royalty; Non-Royalty Sales. Only one royalty shall be payable with respect to any Product, regardless of how many claims or patents within the Licensed Technology cover such Product. In addition, no royalty shall be payable under this Article 4 with respect to sales of Products among Licensee and its Affiliates and/or Sublicensees and their Affiliates or for use in research and/or development or clinical trials. 4.4 No Patent Protection. Royalties shall be payable at the rates specified in Section 4.1 or 4.2 above only with respect to sales of Products that would infringe a Valid Claim in the country in which such Products are sold. In the event that such Products are not covered by a Valid Claim in such country, XT shall be paid a royalty on such sales in accordance with this Article 4, but the royalty due XT with respect to Net Sales in such country will equal [***] of the royalty set forth in Section 4.1 or as it may be offset under Section 4.2. 4.5 Combination Products. In the event that a Product is sold in combination as a single product with another product or component, Net Sales from such combination sales for purposes of calculating the amounts due under this Article 4 shall be calculated by multiplying the Net Sales of that combination by the fraction A/(A+B), where A is the gross selling price of the Product sold separately and B is the gross selling price of the other product sold separately. In the event that no such separate sales are made in the same quarter by Licensee, Net Sales for royalty determination shall be as reasonably allocated by Licensee, between such Product and such other product, based upon their relative importance and proprietary protection. 4.6 Termination of Royalties. Royalties under Section 4.1, 4.2, or 4.4 will be due until the later of (i) ten years from the first commercial sale of Products in any country or (ii) on a country-by-country basis, the expiration of the last-to-expire patent within the Licensed Technology covering the Products in such country. 5. THIRD PARTY ROYALTIES. 5.1 Royalties Payable by XT. XT will be responsible for the payment of any royalties, license fees and milestone and/or other payments due to third parties under licenses or similar agreements entered into by XT necessary to allow the manufacture, use or sale of Products. Licensee shall reimburse XT for any royalties paid by XT to third parties under licenses or similar agreements covering Products necessary to allow the manufacture, use or sale or other exploitation of Products anywhere in the world. Licensee shall continue any such reimbursement payments to XT until XT's obligation to pay royalties to a third party under any license covering Products expires or terminates. XT agrees not to enter into any license or similar agreement after the Effective Date which would obligate Licensee to make any payments under this Section 5.1 without the prior written consent of Licensee. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -6- 7 5.2 Royalties Payable by Licensee. Xenotech shall have no responsibility under the terms of this Agreement for the payment of any royalties, license fees or milestone or other payments due to third parties under licenses or similar agreements entered into by Licensee, its Affiliates, or its Sublicensees to allow the manufacture, use or sale of Products. 6. ACCOUNTING AND RECORDS. 6.1 Royalty Reports and Payments. After the first commercial sale of Products on which royalties are required, Licensee agrees to make quarterly written reports to XT within eighty days after the end of each calendar quarter, stating in each such report the number, description, and aggregate Net Sales of Products sold during the calendar quarter upon which a royalty is payable under Article 4 above. Concurrently with the making of such reports, Licensee shall pay to XT royalties at the applicable rate specified in Section 4.1, 4.2 or 4.4 above and all royalties payable pursuant to Section 5.1 above, and any adjustment to Net Sales for a prior period in accordance with the definition of Net Sales in Section 1.11 hereof. All payments to XT hereunder shall be made in U.S. Dollars to a bank account designated by XT. 6.2 Early Third Party License Payments. If XT is obligated to pay royalties to a third party prior to ninety days after the end of the calendar quarter, XT shall so notify Licensee and Licensee shall provide the reports and payments set forth in Section 6.1 above not later than ten days before the date such payments are due to the third party. Up to thirty-five days before such payments are due, XT may provide Licensee with an invoice by facsimile setting forth the royalties XT must pay third parties with respect to Licensee's activities in the Territory in the preceding quarter, and Licensee shall pay such invoices within thirty days of receipt of such invoice. 6.3 Records; Inspection. Licensee shall keep (and cause its Affiliates and Sublicensees to keep) complete, true and accurate books of account and records for the purpose of determining the royalty amounts payable to XT under this Agreement. Such books and records shall be kept at the principal place of business of Licensee or its Affiliates or Sublicensees, as the case may be, for at least three years following the end of the calendar quarter to which they pertain. Such records of Licensee or its Affiliates will be open for inspection during such three-year period by a representative of XT for the purpose of verifying the royalty statements. Licensee shall require each of its Sublicensees to maintain similar books and records and to open such records for inspection during the same three-year period by a representative of Licensee reasonably satisfactory to XT on behalf of, and as required by, XT for the purpose of verifying the royalty statements. All such inspections may be made no more than once each calendar year, at reasonable times mutually agreed by XT and Licensee. The XT representative will be obliged to execute a reasonable confidentiality agreement prior to commencing any such inspection. Inspections conducted under this Section 6.3 shall be at the expense of XT, unless a variation or error producing an increase exceeding [***] of the amount stated for the period covered by the inspection is established in the course of any such inspection, whereupon all costs relating thereto will be paid by Licensee. Upon the expiration of three years following the end of any fiscal year, the calculation of royalties payable with respect to [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -7- 8 such year shall be binding and conclusive, and Licensee shall be released from any liability or accountability with respect to royalties for such year. 6.4 Currency Conversion. If any currency conversion shall be required in connection with the calculation of royalties hereunder, such conversion shall be made using the selling exchange rate for conversion of the foreign currency into U.S. Dollars, quoted for current transactions reported in The Wall Street Journal for the last business day of the calendar quarter to which such payment pertains. 6.5 Late Payments. Any payments due from Licensee 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 Bank of America in San Francisco, California on the date such payment is due, plus an additional [***] percent, calculated on the number of days such payment is delinquent. This Section 6.5 shall in no way limit any other remedies available to any party. 6.6 Withholding Taxes. 6.6.1 Unless immediately reimbursable under Section 6.6.2 below, all payments required to be made pursuant to Articles 3, 4 and 5 hereof shall be without deduction or withholding for or on account of any taxes (other than taxes imposed on or measured by net income) or similar governmental charge imposed by a jurisdiction. Such taxes are referred to herein as "Withholding Taxes" and such Withholding Taxes shall be the sole responsibility of the withholding party. The withholding party shall provide a certificate evidencing payment of any Withholding Taxes hereunder. 6.6.2 XT agrees to elect to claim a tax credit for Withholding Taxes with respect to which it is entitled so to elect, and further agrees not to amend such election for the full carry-forward period with respect to such credit. At the time that XT realizes a reduction in U.S. tax liability by actually utilizing the Withholding Taxes as a credit against regular U.S. tax liability (determined on a "first-in-first-out" basis pro rata with other available foreign tax credits) , then the amount of such reduction attributable to such credit shall immediately be reimbursed to the withholding party. For these purposes, a reduction in U.S. tax liability shall include both a direct reduction in XT's own tax liability and a reduction in the U.S. tax liability of any of its partners. 6.7 Tax Indemnity. Except as provided in Section 6.6, each party (the "Tax Indemnitor") shall indemnify and hold harmless the other party hereto (each a "Tax Indemnitee") from and against any tax or similar governmental charge assessed solely because of this Agreement with respect to and directly attributable to the income or the assets of the Tax Indemnitor. In the event that any governmental agency shall make a claim against a party hereto which could give rise to an indemnity hereunder, such potential Tax Indemnitee shall give reasonably prompt notice to the potential Tax Indemnitor of the assertion of such claim. If the transmission of such notice is unreasonably deferred and has a material, adverse affect on the ability of the potential Tax Indemnitor to challenge such claim, such potential Tax Indemnitor shall be released from liability hereunder. The Tax Indemnitor alone shall (at its own expense) control the defense or compromise [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -8- 9 of any such claim. The Tax Indemnitee shall execute any documents required to enable Tax Indemnitor to defend such claim, provide any information necessary therefor, and cooperate with Tax Indemnitor in such defense. 6.8 XT Tax Indemnity. XT shall indemnify and hold harmless Licensee and its Affiliates from and against any increase to its country of incorporation income tax liability directly attributable to a positive adjustment to the amount of gross receipts (an "Adjustment") reported or reportable by such party from the income, including the royalty income, received from Licensee on Covered Products. The amount payable hereunder shall be equal to the difference between (a) the product of (i) the amount of the Adjustment, and (ii) the highest combined marginal corporate tax rate in the country of incorporation in effect for the taxable year for which such Adjustment is made, and (b) the reduction in the party's foreign tax liability, which for purposes of this Agreement shall be equal to the product of (i) the amount of any correlative adjustment to its foreign taxable income, and (ii) the highest combined marginal foreign corporate tax rate in effect for the taxable year for which the correlative adjustment is made. No indemnification payment shall be required hereunder until comprehensive efforts to obtain a correlative adjustment to Licensee's or its Affiliates', as the case may be, taxable income in a foreign state (which may include, for example invoking competent authority provisions under the U.S. Japanese Income Tax Treaty (if applicable) or other applicable bilateral tax treaty) have, to the extent reasonable to do so, been exhausted. 7. RESEARCH AND DEVELOPMENT. 7.1 Funding and Conduct. Licensee shall independently furnish and be responsible for funding and conducting all of its preclinical and clinical research and development of Products, at its own expense. 7.2 Biomaterials. In the case of Previously Selected Antigens as defined in the Master Research License and Option Agreement, at the reasonable request of Licensee, XT shall make available as part of the license granted hereunder to Licensee [***]. Such hybridomas, reagents and materials, as well as the related data thus made available will be used only by Licensee and its Affiliates and Sublicensees and manufacturing subcontractors. 8. DUE DILIGENCE. 8.1 Reasonable Commercial Efforts: [***] Milestone. 8.1.1 Licensee agrees to use commercially reasonable efforts consistent with prudent business judgment to commercialize Products, by the [***] by Licensee, or its Affiliate or Sublicensee, in the United States or Japan within such period of time as may be agreed upon by the parties after good faith negotiations taking into account factors relating to the Product Antigen or, if no such period is agreed upon,[***] from the Effective Date. [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -9- 10 8.1.2 Notwithstanding the foregoing, Licensee shall be required actively and continually to [***] by Licensee, or its Affiliate or Sublicensee, as soon as producible after the Effective Date using reasonable commercial efforts consistent with prudent business judgment. After [***] Licensee, or its Affiliate or Sublicensee, shall be required to have [***] and to be actively conducting clinical trials in pursuit of regulatory approval for the Products in the United States or Japan. 8.2 Failure to Meet Due Diligence Obligation. 8.2.1 If the diligence requirements set forth in Section 8.1 are not met by Licensee (or its Affiliates or Sublicensees) in the United States or in Japan, Licensee's rights hereunder shall terminate upon written notice by XT to Licensee and subject to Sections 8.3, 8.4 and 13.3 below. 8.2.2 Notwithstanding Section 8.2.1, the license granted hereunder to Licensee shall not terminate by reason of a delay in meeting the [***] milestone set forth in Section 8.1.1, to the extent that prudent business judgment, based on circumstances outside of Licensee's reasonable control, reasonably justifies such delay. 8.3 Dispute Resolution. In the event that a dispute arises whether the diligence requirements in Article 8 have been met or circumstances exist which Licensee believes justifies a failure on its part to meet such obligation, the parties will attempt to resolve any dispute by mutual agreement during a period of 30 days following Licensee's receipt of the notice under Section 8.2.1. 8.4 Arbitration. In the event that the parties are unable to resolve such dispute pursuant to Section 8.3 above, such dispute shall be settled between XT and Licensee by binding arbitration as set forth in Section 14.12. If the arbitrator determines that the party acted in good faith, but failed to meet its obligations under Section 8.1 above, the license granted to such party shall not terminate unless the nonperforming party fails to cure such non-performance within a reasonable period of time, as determined by the arbitrator. 9. PATENTS. 9.1 XenoMouse Technology. (a) XT or its licensor, as they may agree, shall have responsibility for preparing, filing, prosecuting and maintaining patents and patent applications worldwide relating to the XenoMouse Technology and conducting any interferences, oppositions, reexaminations, or requesting reissues or patent term extensions with respect to the XenoMouse Technology. XT shall keep Licensee reasonably informed as to the status of such patent matters, including without limitation, by providing Licensee the opportunity to review and comment on any substantive documents which will be filed in any patent office, and providing Licensee copies of any substantive documents received by XT from such patent offices including notice of all interferences, [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -10- 11 reexaminations, oppositions or requests for patent term extensions. Licensee shall cooperate with and assist XT in connection with such activities, at XT's request and expense. (b) In the event that Licensee becomes aware that any XenoMouse Technology necessary for the practice of the license granted herein is infringed or misappropriated by a third party or is subject to a declaratory judgment action arising from such infringement, Licensee shall promptly notify XT and XT shall thereafter promptly notify the owner of such intellectual property. XT or its licensor, as they may agree, shall have the exclusive right to enforce, or defend any declaratory judgment action, at its expense, involving any XenoMouse Technology. In such event, XT shall keep Licensee reasonably informed of the progress of any such claim, suit or proceeding. Any recovery received by XT as a result of any such claim, suit or proceeding shall be used first to reimburse XT for all expenses (including attorneys, and professional fees) incurred in connection with such claim, suit or proceeding, and the remainder divided [***] between XT and Licensee, only to the extent that such recovery is related to the Products. 9.2 Antigen Technology. 9.2.1 Licensee shall, at its expense, have the initial worldwide responsibility for preparing, filing, prosecuting and maintaining patent applications and conducting any interferences, oppositions, reexaminations, or requesting reissues or patent term extensions with respect to Antigen Technology, except to the extent XT may not have the right to do so. Licensee shall give XT the opportunity to review the status of all such pending patent applications and actions and shall keep XT fully informed of the progress of such applications and actions, including, without limitation, by promptly providing XT with copies of all substantive worldwide correspondence sent to and received from patent offices, and providing notice of all interferences, reexaminations, oppositions or requests for patent term extensions. In the event that Licensee declines or fails to prepare, file, prosecute or maintain such patent applications or patents or take such other actions, relating to the Products in any country, it shall promptly and in no event later than ninety days prior to any filing deadline, provide notice to XT. XT shall have the right to assume such responsibilities at its own expense, using counsel of its choice. 9.2.2 In the event that Licensee becomes aware that any Antigen Technology is infringed or misappropriated by a third party in any country of the world, or is subject to a declaratory judgment action arising from such infringement in any country, Licensee shall promptly notify XT and XT shall thereafter promptly notify the owner of such intellectual property. Licensee shall have the exclusive right to enforce, or defend any declaratory judgment action, in any country of the world, at its expense, involving any Antigen Technology. In such event, Licensee shall keep XT reasonably informed of the progress of any such claim, suit or proceeding. Any recovery by Licensee received as a result of any such claim, suit or proceeding shall be used first to reimburse Licensee for all expenses (including attorneys, and professional fees) incurred in connection with such claim, suit or proceeding, and the remainder divided [***] between Licensee and XT. 9.3 Infringement Claims. If the production, sale or use of Products pursuant to this Agreement results in any claim, suit or proceeding alleging patent infringement against Licensee [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -11- 12 (or its Affiliates or Sublicensees), Licensee shall promptly notify XT thereof in writing setting forth the facts of such claim in reasonable detail. [***], Licensee 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 choice. Licensee shall keep XT reasonably informed of all material developments in connection with any such claim, suit or proceeding as it relates to the Licensed Technology, Licensee shall have the right to deduct any damages and expenses (including attorneys' and professional fees) against any amounts due, or which may become due, to XT pursuant to this Agreement. Notwithstanding the above, Licensee shall not be able to settle any such claim, suit or proceeding that involves any admission of the invalidity of the Licensed Technology. 9.4 Patent Marking. Licensee agrees to mark and have its Affiliates and Sublicensees mark all Products sold pursuant to this Agreement in accordance with the applicable statutes or regulations in the country or countries of manufacture and sale thereof. 10. CONFIDENTIALITY. 10.1 Confidential Information. Except as expressly provided herein, the parties agree that, for the term of this Agreement and for five years thereafter, the receiving party shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose any information furnished to it by another party hereto pursuant to this Agreement except to the extent that it can be established by the receiving party by competent proof that such information: (a) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure; (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; or (d) was subsequently lawfully disclosed to the receiving party by a person other than a party or developed by the receiving party without reference to any information or materials disclosed by the disclosing party. 10.2 Permitted Disclosures. Notwithstanding Sections 10.1 above and 14.16 below, each party hereto may disclose the other party's information to the extent such disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental regulations or otherwise submitting information to tax or [***] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -12- 13 other governmental authorities, making a permitted sublicense or other exercise of its rights hereunder or conducting clinical trials, provided that if a party is required to make any such disclosure of the other party's secret or confidential information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the latter party of such disclosure requirement and, save to the extent inappropriate in the case of patent applications, will use efforts consistent with prudent business judgment to secure confidential treatment of such information prior to its disclosure (whether through protective orders or otherwise). Notwithstanding the foregoing, XT shall not disclose to third parties, clinical data or regulatory filings received from Licensee except as agreed in writing by Licensee. 11. SUBLICENSES. Pursuant to Article 2 herein, Licensee will have the right to grant and authorize sublicenses to third parties; provided, however, the Licensee shall remain responsible for any payments due XT for Net Sales of Products by any Sublicensee. Licensee may retain any amounts received from Sublicensees in excess of the amounts owed to XT pursuant to Articles 4 and 5. Any sublicense granted by Licensee pursuant to this Agreement shall provide that the Sublicensee will be subject to the applicable terms of this Agreement. Licensee shall provide XT with a copy of relevant portions of each sublicense agreement, as reasonably required by XT. 12. REPRESENTATIONS AND WARRANTIES. 12.1 XT. XT represents and warrants that: (i) it has the full right and authority to enter into this Agreement and grant the rights and licenses granted herein; (ii) it has not previously granted and will not grant any rights inconsistent or in conflict with the rights and licenses granted to Licensee herein; (iii) there are no existing or threatened actions, suits or claims pending against XT with respect to the Licensed Technology or the right of XT to enter into and perform its obligations under this Agreement; (iv) it has not previously granted, and will not grant during the term of this Agreement, any right, license or interest in and to the Licensed Technology, or any portion thereof, with respect to the Products, or their manufacture or use; (v) Schedule 3 hereto sets forth all royalties, license fees, milestone payments and similar payments due to third parties for which Licensee is obligated to reimburse XT under Section 5.1 above as of the Effective Date; and (vi) the Licensed Technology is all the technology owned by or licensed to XT as of the Effective Date. -13- 14 12.2 Licensee. Licensee represents and warrants that: (i) it has the full right and authority to enter into this Agreement, (ii) to its knowledge, there are no existing or threatened actions, suits or claims pending with respect to the subject matter hereof or the right of Licensee to enter into and perform its obligations under this Agreement; and (iii) it has not entered and during the term of this Agreement will not enter any other agreement inconsistent or in conflict with this Agreement. 12.3 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, XT MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF LICENSED TECHNOLOGY CLAIMS, ISSUED OR PENDING. 12.4 Effect of Representations and Warranties. It is understood that if the representations and warranties under this Article 12 are not true and accurate and a party incurs liabilities, costs or other expenses as a result of such falsity, the party at fault shall indemnify, defend and hold the injured party harmless from and against any such liabilities, costs or expenses incurred, provided that the party at fault receives prompt notice of any claim against the injured party resulting from or related to such falsity and the sole right to control the defense or settlement thereof. 13. TERM AND TERMINATION. 13.1 Effectiveness. This Agreement shall become effective as of the Effective Date and the license rights granted by XT under Article 2 above shall be in full force and effect as of such date. 13.2 Term. Unless earlier terminated pursuant to the other provisions of this Article 13, this Agreement shall continue in full force and effect until the later of (i) the expiration of the last to expire patent within the Licensed Technology claiming Products; or (ii) the twentieth anniversary of the Effective Date. The licenses granted under Article 2 shall survive the expiration (but not an earlier termination) of this Agreement; provided that such licenses shall in such event become nonexclusive. 13.3 Termination for Breach. Either party to this Agreement may terminate this Agreement in the event the other party shall have materially breached or defaulted in the -14- 15 performance of any of its material obligations hereunder, and such shall have continued for sixty days after written notice thereof was provided to the breaching party by the nonbreaching party that terminates the Agreement as to such party. Any termination shall become effective at the end of such sixty day period unless the breaching party has cured any such breach or default prior to the expiration of the sixty day period. However, if the party alleged to be in breach of this Agreement disputes such breach within such sixty day period, the non-breaching party shall not have the right to terminate this Agreement unless it has been determined by an arbitration proceeding in accordance with Section 14.12 below that this Agreement was materially breached, and the breaching party fails to cure such breach within thirty days following the final decision of the arbitrators or such other time as directed by the arbitrators. 13.4 Other Termination Rights. Licensee may terminate this Agreement and the license granted herein, in its entirety or as to any particular patent within the Licensed Technology in a particular country, at any time, by providing XT ninety-days written notice. In the event of termination as to a particular country, the subject patent in such country shall cease to be within the Licensed Technology for all purposes of this Agreement. 13.5 Effect of Termination. 13.5.1 Termination of this Agreement for any reason shall not release either 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. 13.5.2 In the event this Agreement is terminated for any reason, Licensee and its Affiliates and Sublicensees shall have the right to sell or otherwise dispose of the stock of any Products subject to this Agreement then on hand. Upon termination of this Agreement by XT for any reason, any sublicense granted by Licensee hereunder shall survive, provided that upon request by XT, such Sublicensee promptly agrees in writing to be bound by the applicable terms of this Agreement. 13.5.3 This Agreement, including, without limitation, any licenses or sublicenses granted pursuant to this Agreement, shall survive any dissolution, liquidation or acquisition of XT. Such licenses shall remain in full force and effect even after any distribution, following dissolution, of the intellectual property owned or licensed to XT, to any entity. Any transfer of such intellectual property prior to or following dissolution shall be subject to the licenses granted herein. 13.5.4 This Agreement, including the license granted in Article 2, is independent of, and shall not be affected by, any breach or termination of the Master Research License and Option Agreement or any other agreement between the parties or their Affiliates. In the event of the termination of the Master Research License and Option Agreement, the rights and obligations of the parties hereto under Article 12 thereof shall be deemed to be part of this Agreement. 13.5.5 Sections 6.3, 6.5, 6.6, 6.7 and 6.8 and Articles 10, 12, 13 and 14 shall survive the expiration and any termination of this Agreement for any reason. -15- 16 14. MISCELLANEOUS. 14.1 Governing Laws. This Agreement shall be interpreted and construed in accordance with the laws of the State of California, without regard to conflicts of law principles. 14.2 Waiver. It is agreed that no waiver by any party hereto of any breach or default of any of the covenants or agreements herein set forth shall be deemed a waiver as to any subsequent and/or similar breach or default. 14.3 Assignment. This Agreement and the license granted hereunder may not be assigned by Licensee to any third party without the written consent of XT, and XT may not assign this Agreement to a third party without the consent of Licensee; except any party may assign this Agreement without such consent to (a) an Affiliate (provided that such Affiliate is two-thirds or greater owned directly or indirectly) or (b) an entity that acquires substantially all of the assets of the monoclonal antibody business segment of the assigning party. The terms and conditions of this Agreement shall be binding on and inure to the benefit of the permitted successors and assigns of the parties. 14.4 Independent Contractors. The relationship of the parties hereto is that of independent contractors. The parties hereto are not deemed to be agents, partners or joint venturers of the others for any purpose as a result of this Agreement or the transactions contemplated thereby. 14.5 Compliance with Laws. In exercising their rights under this license, 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 license. 14.6 No Implied Obligations. Except as expressly provided in Article 8 above, nothing in this Agreement shall be deemed to require Licensee to exploit the Licensed Technology nor to prevent Licensee from commercializing products similar to or competitive with any Products, in addition to or in lieu of such Products. 14.7 Notices. Any notice required or permitted to be given to the parties hereto shall be given in writing and shall be deemed to have been properly given if delivered in person or when received if mailed by first class certified mail to the other party at the appropriate address as set forth below or to such other addresses as may be designated in writing by the parties from time to time during the term of this Agreement. XT: Xenotech, L.P. 322 Lakeside Drive Foster City, California 94404 Attn: Chief Financial Officer -16- 17 Japan Tobacco Inc.: Japan Tobacco Inc. JT Building 2-1 Toranomon 2-chome Minato-ku, Tokyo 105 Japan Attn: Vice President Pharmaceutical Division with a copy to: JT America Inc. 1825 South Grant Street, Suite 220 San Mateo, CA 94402 Attn: President and to: Gilbert, Segall and Young LLP 430 Park Avenue New York, NY 10022 Attn: Neal N. Beaton, Esq. Abgenix, Inc.: Abgenix, Inc. 7601 Dumbarton Circle Fremont, California 94555 Attn: President with a copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304 Attn: Kenneth A. Clark, Esq. 14.8 Export Laws. Notwithstanding anything to the contrary contained herein, all obligations of XT and Licensee are subject to prior compliance with United States export regulations and such other United States laws and regulations as may be applicable, and to obtaining all necessary approvals required by the applicable agencies of the government of the United States. Licensee shall use efforts consistent with prudent business judgment to obtain such approvals. XT shall cooperate with Licensee and shall provide assistance to Licensee as reasonably necessary to obtain any required approvals. 14.9 Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision and the parties shall discuss in good faith appropriate revised arrangements. 14.10 Force Majeure. Nonperformance of any party (except for payment obligations) shall be excused to the extent that performance is rendered impossible by strike, fire, earthquake, flood, governmental acts or orders or restrictions, failure of suppliers, or any other -17- EX-10.33 10 RESEARCH LICENSE AND OPTION AGREEMENT 1 EXHIBIT 10.33 Execution Copy RESEARCH LICENSE AND OPTION AGREEMENT This License Option Agreement (the "Agreement"), effective as of April 6, 1998 (the "Option Effective Date") is made by and between Abgenix, Inc., a Delaware corporation ("ABX") and Genentech, Inc., a Delaware corporation ("GNE") with reference to the following facts and circumstances. RECITALS A. ABX has rights in certain technology relating to certain strains of XenoMouse (TM) Animals (as described below); B. GNE desires to use such XenoMouse Animals to generate antibodies to [*] (as defined below); C. ABX is willing to grant to GNE, and GNE desires to obtain, a license to use XenoMouse Animals solely for immunization with [*] for research purposes, as described below and on the terms and conditions set forth herein; D. ABX has immunized XenoMouse Animals using [*] material provided by GNE pursuant to that certain Materials Transfer Agreement between GNE and ABX effective as of [*] (as defined below, the "MTA"); and E. ABX is willing to grant to GNE, and GNE desires to obtain, an option to enter into the [*] Product License Agreement with respect to Products derived from immunization of XenoMouse Animals with [*], all as described fully below and on the terms and conditions set forth herein. NOW THEREFORE, for and in consideration of the covenants, conditions, and undertakings hereinafter set forth, it is agreed by and between the parties as follows: 1. DEFINITIONS For purposes of this Agreement, the terms set forth in this Article shall have the meanings set forth below: [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -1- 2 1.1. The terms "ABX In-License," "ABX Know-How," "ABX Patent Rights," "Affiliate," "Antibody," "Derived" or "derived," "Excluded Technology," "Field," "Genetic Material," "GenPharm Cross License," "IND," "Independent Discovery," "JTI," "Licensed Technology," "MTA," "Product," "Product Antigen," "[*]," "Product License," "Sublicense," "Sublicensee," "Territory," "XenoMouse," "XenoMouse Animals," and "Xenotech Agreement" shall have the meaning ascribed thereto in the [*] Product License. 1.2. "GNE Option Agreement" shall mean this Research License and Option Agreement entered into by and between ABX and GNE effective as of the Option Effective Date (as defined in the introductory paragraph above), as the same may be amended from time to time. 1.3. "Option" and "Option Expiration Deadline" shall have the meanings described in Section 3.1 below. 1.4. "Research Field" shall mean the immunization of XenoMouse Animals with the Product Antigen and the use of XenoMouse Animals that are so immunized and materials generated in whole or part from XenoMouse Animals that are so immunized, in each case solely for the creation, identification, analysis, manufacture, research, and development of Products in the Field. For purposes of clarification, the Research Field shall not include, among other things: (i) the creation, breeding or development of mice or any transgenic animals, (ii) use in humans of materials derived in whole or part from the XenoMouse Animals, (iii) use of XenoMouse Animals or materials derived in whole or part from XenoMouse Animals (including without limitation Products) for any purpose other than the creation, identification, analysis, manufacture, testing, research and development of Products for human medical uses, or (iv) the transfer, sale, lease, offer for sale or lease, or other transfer of title to XenoMouse Animals or any materials derived in whole or part from the XenoMouse Animals. For purposes of further clarification, it is understood that "immunization" of XenoMouse Animals with the Product Antigen includes the immunization of XenoMouse Animals with any formulation or construction of the Product Antigen, regardless of the three dimensional configuration of the Product Antigen, including, but not limited to, cell lines expressing the Product Antigen on their cell surface and chimeric molecules containing the Product Antigen; provided, however, that any research, development or use of Antibodies that do not bind to the Product Antigen (other than to determine whether they bind to the Product Antigen) shall be outside of the scope of the licenses granted hereunder or under the [*] Product Licenses. 1.5. "Research Plan" shall mean the research plan agreed upon by the parties for work by the parties in the Research Field, which is attached hereto as Exhibit A and incorporated herein, as the same may be amended from time to time. 1.6. "[*] Product License" shall mean that certain agreement between the parties (if entered into at all) in the form attached hereto as Exhibit B and incorporated herein, as the same may be amended from time to time. [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -2- 3 2. SUPPLY OF MICE AND MATERIALS; RESEARCH LICENSE 2.1 Supply of XenoMouse Animals and Hybridomas. Subject to the terms and conditions of this Agreement, including those set forth in Section 2.2 below: 2.1.1 Hybridomas. As soon as practicable, but in any event, not less than ten (10) days after the Option Effective Date, ABX shall provide GNE with reasonable quantities of cells from hybridoma cell lines generated by ABX from immunization of XenoMouse Animals prior to the Option Effective Date with the Product Antigen provided by GNE pursuant to the MTA. 2.1.2 XenoMouse Animals. ABX agrees to provide to GNE, solely for use in creating Antibodies to [*] for the creation, identification, analysis, manufacture, research, development and commercialization of Products in accordance with this Agreement and the [*] Product License (if entered into at all by the parties), numbers and types of sterilized male XenoMouse Animals as follows: (a) as soon as practicable after the Option Effective Date, but in any event not later than twenty (20) days after the Option Effective Date, ABX will ship to GNE sterilized male XenoMouse Animals of the sterilized male XenoMouse Animals of the types, strains and quantities specified in item number 19 of the Research Plan. If, before ABX has provided to GNE all the XenoMouse Animals that ABX is required to provide under this Agreement and/or the [*] Product License (if entered into at all by the parties), ABX develops and has available for shipment to GNE a strain of transgenic animals that produce human antibodies that was not available on the Option Effective Date (such a strain referred to herein as a "New Strain"), ABX agrees to inform GNE and discuss whether GNE would prefer to receive animals from the New Strain. Upon request of GNE, ABX will agree to substitute a reasonable number of animals from the New Strain in place of an equal number of XenoMouse Animals, of the types and strains specified in the Research Plan, to be shipped to GNE under this Agreement; provided that any such animals shall be deemed to be XenoMouse Animals for purposes of this Agreement (including, without limitation, Section 2.2) and the [*] Product License. GNE shall use XenoMouse Animals or animals from the New Strain provided hereunder only for conducting the research set forth in the Research Plan and/or for work in the Research Field, all in accordance with this Agreement. 2.1.3 Research. GNE and ABX shall each conduct those research activities specified for such party as outlined in the Research Plan attached hereto as Exhibit A. The parties may amend the Research Plan (including, without limitation, the number and type of XenoMouse Animals to be provided to GNE) only by mutual written agreement. During the term of this Agreement, GNE and ABX shall each update the other, as requested by the other, as to the status of any research activities of the party under the Research Plan. It is understood that, except as expressly provided in the Research Plan or as the parties may otherwise agree in writing, GNE shall be responsible for conducting all other research activities involved in the creation, research and development of Products, including without limitation immunizations of XenoMouse Animals with the Product Antigen, screening of Antibodies generated from such immunizations, creation of hybridoma cells [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -3- 4 that produce Antibodies to the Product Antigen, production of Antibodies to the Product Antigen, and preclinical evaluation of Antibodies to the Product Antigen. 2.1.4 Payments. In consideration for ABX's research activities under the Research Plan, GNE shall pay ABX in accordance with the agreed-upon budget included in the Research Plan within thirty (30) days of receipt of invoice from ABX. 2.1.5 Ownership of Materials and Data. It is understood and agreed that: (a) ABX shall solely own all XenoMouse Animals, Genetic Material encoding such XenoMouse Animals, Antibodies, Genetic Material encoding such Antibodies, hybridomas and B cells. (b) GNE shall own all reagents, samples, data, results, technical information, know-how, preclinical and/or clinical testing data and any other non-patentable information resulting from the parties' use of the Licensed Technology related to the Product Antigen under the MTA or under this Agreement. (c) With respect to any materials (including, without limitation, all Antibodies, hybridomas or Genetic Material) generated in whole or in part from immunization of XenoMouse Animals with the Product Antigen and/or data made or generated under the MTA, this Section 2.1.5 hereby supersedes and cancels any terms or provisions in the MTA inconsistent with this Section 2.1.5 or any other term of this Agreement. The transfer of physical possession of any materials owned by, and the physical possession and use of such materials and/or data by, GNE or ABX, as the case may be, shall not be (nor be construed as) a sale, lease, offer to sell or lease, or other transfer of title of such materials and/or data to GNE or ABX, as the case may be. 2.2 Supply of XenoMouse Animals and Materials; Material Transfer Terms. It is understood and agreed that all XenoMouse Animals, and all materials derived in whole or part from XenoMouse Animals, provided by ABX to GNE are provided solely for use in accordance with, and subject to, the following terms and conditions: (a) all XenoMouse Animals transferred to GNE shall be the property of ABX, and the transfer of physical possession to GNE, and/or possession or use by GNE, of XenoMouse Animals shall not be, nor be construed as, a sale, lease, offer to sell or lease, or other transfer of title to any XenoMouse Animals; (b) all XenoMouse Animals and all materials derived in whole or part from the XenoMouse Animals shall remain in the control of GNE and shall not be transferred to GNE's Affiliates or Sublicensees or any other party (other than ABX), except as expressly permitted under the [*] Product License (if entered into by the parties hereto); [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -4- 5 (c) GNE shall not attempt to use the XenoMouse Animals, or any materials derived in whole or part from the XenoMouse Animals (including Genetic Materials) to reproduce the XenoMouse Animals or to generate or produce other transgenic mice or other transgenic animals; (d) The XenoMouse Animals shall be delivered to GNE solely for the purpose of performing the research activities set forth in the Research Plan and work in the Research Field, and GNE shall not use the XenoMouse Animals for any purpose other than immunizing the XenoMouse Animals with [*] and subsequent use of such immunized XenoMouse Animals and materials derived therefrom as reasonably necessary for creation, manufacture, testing, use, identification, analysis, research, and for development and commercialization of Products pursuant to the [*] Product License; (e) GNE shall not transfer, sell, have sold, lease, offer to sell or lease, or otherwise transfer title to (i) any XenoMouse Animals, (ii) cells derived in whole or part from the XenoMouse Animals (including without limitation hybridomas), or (iii) except as provided in Section 2.2(f) below, any other materials (including without limitation Antibodies and Genetic Materials) derived in whole or part from the XenoMouse Animals; (f) GNE shall not transfer, sell, have sold, lease, offer to sell or lease, otherwise transfer title to, or otherwise distribute or commercialize any Antibody or Product without first entering into the [*] Product License with ABX; (g) GNE shall not use the XenoMouse Animals to make or use antibodies to any antigen other than the Product Antigen or immunize the XenoMouse Animals with any antigen other than the Product Antigen; (h) Upon expiration or termination of this Agreement for any reason, GNE shall destroy (or return to ABX) each XenoMouse Animal and certify such destruction, except as otherwise provided in the [*] Product License (if entered into by the parties); (i) ABX shall own all right, title and interest in and to all inventions and intellectual property (whether patentable or nonpatentable) made or created by GNE (and by any of its agents or employees on behalf of, or under authority of, GNE) through any use of the XenoMouse Animals (and/or materials derived in whole or part from the XenoMouse Animals) which is not in accordance with the terms and conditions set forth in this Section 2.2; (j) Unless otherwise agreed by ABX in advance in writing, all XenoMouse Animals delivered to GNE shall be delivered to GNE's facilities in South San Francisco, California, and such XenoMouse Animals shall not leave such facility (except for return to ABX); and (k) XT shall be a third-party beneficiary of the commitments by GNE set forth in items (a) through (g) above. [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -5- 6 2.3 Research License. Subject to the terms and conditions of this Agreement (including without limitation compliance with the provisions of Section 2.2), ABX agrees to grant, and hereby grants, to GNE an exclusive license and sublicense of its rights, as the case may be, under the Licensed Technology, without right to grant further sublicenses, (i) to use the XenoMouse Animals provided by ABX in the Research Field solely for immunization with the Product Antigen and for conducting the creation, identification, analysis, manufacturing, research and development work set forth in the Research Plan or work in the Research Field, (ii) to use the Licensed Technology other than XenoMouse Animals (but including materials derived from XenoMouse Animals) for research and development work within the scope of the Research Field, including for work with ABX under the Research Plan in the Research Field and for other GNE work in the Research Field. The parties acknowledge that while ABX is granting GNE an exclusive license of its rights within the Research Field, ABX's rights may not be exclusive from ABX's licensors. The license and sublicense rights granted under this Section 2.3 shall terminate on the Effective Date (if any) of the [*] Product License between ABX and GNE or, in the event that GNE has not exercised the Option by the Option Expiration Deadline, on such Option Expiration Deadline. 2.4 Limitation. Notwithstanding any other provision of this Agreement, in no event shall GNE (a) file, or authorize any third party to file, an IND (or a similar filing with an equivalent agency or regulatory body in any country) with respect to a Product or (b) initiate, or authorize any third party to initiate, clinical trials in humans with respect to a Product or (c) sell, or authorize any third party to sell, a Product, unless and until GNE has entered into the [*] Product License. 2.5 Compliance with Laws. Each party shall only use the XenoMouse Animals and materials derived in whole or part from the XenoMouse Animals (including without limitation any hybridomas, Antibodies, and Genetic Material) in compliance with all applicable laws and regulations, including all applicable National Institutes of Health guidelines, and each party agrees that such materials will not be used in humans, except in accordance with all applicable regulations and laws. The parties acknowledge that ABX's obligations under the preceding sentence applies only to ABX's use of the XenoMouse Animals and materials derived in whole or in part from the XenoMouse Animals pursuant to this Agreement. Each party acknowledges that the XenoMouse Animals, and all materials generated in whole or part from the XenoMouse Animals, are experimental in nature and may have unknown characteristics and therefore agrees to use prudence and reasonable care in the use, handling, storage, transportation, disposition and containment thereof. 2.6 Use Only For Products; No Implied Rights. GNE agrees that it shall not use the Licensed Technology (including, without limitation, XenoMouse Animals, Antibodies, Antibody-secreting cells, Genetic Material encoding the foregoing, or any other material derived from the XenoMouse Animals) except in the course of conducting research activities within the Research Field (and as may be permitted under the terms of the [*] Product License, if entered into by the parties). It is understood and agreed that no implied licenses or rights are conveyed to GNE under this Agreement, and that no license or other right shall be created hereunder by implication, estoppel [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -6- 7 or otherwise, and that GNE shall not sell, lease, offer to sell or lease, otherwise transfer title to or commercialize materials derived in whole or part from the XenoMouse Animals, except as expressly provided under the [*] Product License (if entered into at all by the parties). 3. OPTION TO OBTAIN [*] PRODUCT LICENSE 3.1 Option. Subject to the terms and conditions set forth in this Agreement, ABX hereby grants to GNE an exclusive option (the "Option") to obtain the right to enter into the [*] Product License between GNE and ABX, which Option may be exercised by GNE pursuant to the procedures set forth in this Article 3 on or before 5 o'clock p.m. (Pacific Time) on [*] (the "Option Expiration Deadline"). 3.2 Exercise of Option. 3.2.1 Exercise. To exercise the Option, GNE must give ABX written notice (the "Exercise Notice") stating that GNE desires that ABX (a) obtain the Product License for the Product Antigen between ABX and XT and (b) enter into the [*] Product License with GNE. GNE's exercise of the Option shall be effective upon timely receipt by ABX of the Exercise Notice. In the event that ABX has not received the Exercise Notice on or before the Option Expiration Deadline, the Option shall immediately terminate. 3.2.2 Obtaining Product License from XT to ABX for [*]. As soon as practicable after GNE's exercise of the Option (if any) in accordance with Section 3.2.1 above, ABX shall exercise its option under the Xenotech Agreement to obtain a Product License from XT. In the event that GNE timely exercises the Option, ABX shall enter into such Product License with XT as soon as reasonably practicable and in any event prior to when GNE and ABX enter into the [*] Product License, and ABX shall send written notice to GNE at such time ABX has entered into such Product License with XT, together with a complete copy (excepting only financial terms) of the fully signed Product License. At such time as ABX enters into such Product License and notifies GNE thereof as required hereunder, GNE and ABX shall promptly execute the [*] Product License as set forth in the form attached hereto as Exhibit B. If GNE timely exercises its Option hereunder, ABX shall use its best efforts to enter into the specified Product License with XT and the [*] Product License with GNE by not later than 5 o'clock p.m. (Pacific Time) on [*]. If GNE timely exercises its Option hereunder and ABX fails or is unable to enter into the specified Product License with XT and the [*] Product License with GNE by not later than 5 o'clock p.m. (Pacific Time) on [*], GNE shall (subject to the notice and cure provisions of Section 8.3) be entitled to all available remedies conferred on it under this Agreement and by law or in equity. Subject to the foregoing and to the proviso at the end of this sentence, it is understood that once GNE has exercised its Option, GNE shall be obligated to enter into the [*] Product License and promptly thereafter pay ABX the License Fee as set forth in Section 3.1 thereof, it being understood and agreed that if GNE fails or is unwilling to enter into the [*] Product License after having exercised the Option and unless such failure is due to inaction of ABX or breach of ABX of [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -7- 8 its obligations, then GNE shall pay to ABX an amount equal to such License Fee within fifteen (15) days of the date that ABX offers to execute and enter into the [*] Product License with GNE; provided, however, that in the event that anything is contemplated to be set forth on Schedule A of the [*] Product License, GNE shall not be obligated to enter into such [*] Product License or pay the amount set forth in this sentence. It is understood and agreed that, notwithstanding any other provision of this Agreement, in the event that the Product License entered into by ABX with XT is a "Qualified Exclusive Worldwide Product License" rather than an "Exclusive Worldwide Product License" (as each term is defined in the Xenotech Agreement), then (a) GNE shall not be obligated to enter into the [*] Product License with ABX or pay the amount set forth in the previous sentence, (b) ABX shall not, if ABX used commercially reasonable best efforts to obtain an "Exclusive Worldwide Product License," be in breach of this Agreement and (c) in the event that GNE enters the [*] Product License notwithstanding the fact that the Product License is a "Qualified Worldwide Exclusive Product License", then the definitions of "Product License" and "Territory" in the [*] Product License shall be amended accordingly, and the parties shall make such other changes as are necessary to reflect the nature of the Product License. 3.2.3 Third Party Rights. It is understood and agreed that the grant of rights under Articles 2 and 3 hereof shall be subject to and limited in all respects by the terms of the applicable ABX In-License(s) pursuant to which ABX acquired or does acquire any Licensed Technology, including, without limitation, any rights granted to or retained by GenPharm International, Inc. under the GenPharm Cross License, and that all rights or sublicenses granted under this Agreement shall be to the extent that ABX may grant such rights and sublicenses under such ABX In-Licenses. 3.2.4 Definition of [*] Antigen. ABX shall use commercially reasonable efforts to establish as the definition of [*] under the Xenotech Agreement the same definition of [*] as is established under this Agreement, it being understood and agreed, however, that the precise definition of the [*] Antigen defining the rights licensed to ABX under the Product License (and the definition in the corresponding [*] Product License) shall be as established in accordance with the Xenotech Agreement. 3.2.5 Use by ABX. It is understood that if GNE does not exercise its Option on or before the Option Exercise Deadline and enter into the [*] Product License with ABX, ABX shall be entitled, in its sole discretion, to exercise ABX's rights under the Xenotech Agreement and enter into the Product License related to the Product Antigen with XT on ABX's own behalf or on behalf of a third party without further obligation to GNE, and ABX shall not be obligated to enter into the [*] Product License with GNE. Notwithstanding the foregoing, nothing in this Section 3.2.5 shall entitle ABX (a) to license or make any other use of any technology, know-how, intellectual property, materials (including, without limitation, any Antibodies, Antibody secreting cells, hybridomas or Genetic Material) or data owned by GNE, ABX, owned jointly by GNE and ABX, and, in each case generated in whole or in part from GNE's or ABX's activities under this Agreement or the MTA in any case without first obtaining GNE's prior written consent, except as expressly provided in this Agreement. [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -8- 9 3.2.6 Non-Use of Materials. ABX shall not license or make any other use of any material (including, without limitation, any Antibodies, B-cells, hybridomas or Genetic Material) owned by GNE or ABX, or owned jointly by GNE and ABX, in each case generated in whole or part from GNE's or ABX's activities under this Agreement or the MTA, except as expressly provided in this Agreement, in any case without first obtaining GNE's prior written consent. ABX shall not, license or use any technology, know-how, intellectual property or data owned by GNE or ABX, or owned jointly by GNE and ABX (in each case generated in whole or part from GNE's or ABX's activities under this Agreement or the MTA) in order to make or sell Products, except as expressly provided in this Agreement, in any case without first obtaining GNE's prior written consent. 4. INTELLECTUAL PROPERTY 4.1 Ownership of Intellectual Property. 4.1.1 Intellectual Property Concerning Antibodies, Cells, and Genetic Material. GNE and ABX shall jointly own all right, title and interest in patent or patent applications directed to inventions solely or jointly made, conceived, reduced to practice, or otherwise developed by GNE and/or ABX in the course of performing research or development work under the MTA, this Agreement, or the [*] Product License that are directed to (i) Antibodies, (ii) hybridoma cells that secrete or express Antibodies, and/or (iii) Genetic Material encoding Antibodies. This Section 4.1.1 hereby supercedes and cancels any term or provision of the MTA that are inconsistent with this Section 4.1.1 to the extent that such term or provision of the MTA relate to the Product Antigen. It is understood and agreed that nothing in the Section 4.1.1 shall convey, or be construed to convey, title in or to the biological materials themselves embodying any such jointly-owned inventions to GNE or ABX, as the case may be. 4.1.2 Intellectual Property Concerning Other Inventions. Except as otherwise provided in Section 4.1.1 and 2.1.5 above, on and after the effective date of the MTA, title to any inventions (and to any patent applications and patents thereon) by a party or parties under the MTA or this Agreement, shall follow inventorship, which shall in turn be determined in accordance with United States laws of inventorship and probative evidence of the parties. Designation of inventors on any patent application hereunder is a matter of law and shall be solely within the discretion of qualified patent counsel of the party(ies) hereto making such invention. 4.1.3 Joint Ownership. For purposes of clarification, to the extent that something is jointly owned under this Agreement, and except as otherwise provided in this Agreement (including the exclusive nature of the licenses granted by ABX hereunder), both parties shall have the right to use, commercialize, grant and authorize sublicenses, and otherwise exploit all such jointly-owned patents and inventions without obligation to account to, or obtain the consent of, the other joint owner. Both parties hereto agree to promptly disclose to the other all jointly-owned inventions under this Agreement and, on request of the other party, will provide such information and assistance as may be reasonably necessary to assist in the filing and prosecution of patent applications claiming [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -9- 10 such inventions. The parties hereto agree to ensure that each employee, agent, or independent contractor that conducts research using the XenoMouse Animals, or materials derived in whole or part from the XenoMouse Animals, will promptly disclose and assign to the parties hereto any and all rights to jointly-owned inventions. The parties hereto agree to maintain records in sufficient detail and in good scientific manner appropriate for patent purposes and so as to properly reflect all work done and results achieved in performing research under the MTA or this Agreement. 4.2 Patent Prosecution. (a) Solely Owned. The party solely owning any invention under Section 4.1 above shall have the sole right and responsibility (but not the obligation), at its expense, to file, prosecute and maintain all patent applications and patents thereon, and to conduct any interferences, oppositions, or reexaminations thereon, and to request any reissues or patent term extensions thereof. (b) Jointly Owned. In the event of any invention jointly owned by the parties under Section 4.1 above, ABX shall have the sole right and responsibility (but not the obligation), at its expense, to file, prosecute and maintain all patent applications (and to conduct any interferences, oppositions, or reexaminations thereon, and to request any reissues or patent term extensions thereof) claiming any XenoMouse Animals or any uses thereof, and GNE shall have the sole right and responsibility (but not the obligation), at its expense, to file, prosecute and maintain all patent applications and patents (and to conduct any interferences, oppositions, or reexaminations thereon, and to request any reissues or patent term extensions thereof) claiming the Product Antigen, any Antibody or Product and/or its development, manufacture, use or sale. The party having such rights and responsibilities hereunder is referred to as the "Controlling Party". The Controlling Party shall: (i) provide the non-Controlling Party with any patent application filed hereunder by the Controlling Party promptly after such filing; (ii) provide the non-Controlling Party promptly with copies of all substantive communications received from or filed in patent office(s) with respect to such filings; (iii) notify the non-Controlling Party of any interference, opposition, reexamination request, nullity proceeding, appeal or other interparty action and review it with the non-Controlling Party as reasonably requested; and (iv) provide the non-Controlling Party, a reasonable time prior to taking or failing to take any action that would substantially affect the scope of validity of rights under such patent applications or patents thereon (including substantially narrowing or canceling any claim without reserving the right to file a continuing or divisional application, abandoning any patent or not filing or perfecting the filing of any patent application) with notice of such proposed action so that the non-Controlling Party has a reasonable opportunity to review and make comments. If the Controlling Party fails to undertake the filing of a patent application (or continuing or divisional application) within ninety (90) days after a written request from the non-Controlling Party to do so, or if the Controlling Party discontinues the prosecution or maintenance of a patent application or patent, the non-Controlling Party at its expense may, in its discretion, undertake such filing, prosecution or maintenance thereof, in which case such patent application and patent thereon shall be solely owned by the non-Controlling Party. The parties hereto shall assist each other to the extent commercially reasonable in securing intellectual property rights resulting from jointly owned -10- 11 inventions hereunder. As to enforcement of jointly-owned patents, including actions against an alleged infringer, the parties hereto shall consult with each other in good faith as to the best manner in which to proceed. The parties agree as a basic principle that in the case of such actions against alleged infringers, the expenses incurred and damages awarded shall be first used to reimburse the costs and expenses (including reasonable attorneys' fees) of the party or parties in the action, second used to reimburse ABX for any amounts ABX is obligated to pay to third parties (if any) in respect of such amount pursuant to applicable ABX In-Licenses, with the remainder for the account of the party or parties that undertake such actions to the extent of their financial participation therein. To the extent that damages are awarded for lost sales or lost profits from the sale of Products, such damages shall be allocated among the parties taking into account royalties that would have been payable to ABX on the sale of such Products. Either party may withdraw from or abandon any jointly-owned patent application or patent hereunder, on reasonable prior written notice to the other party providing a free-of-charge option to assume the prosecution and/or maintenance thereof. 4.3 Grant Back. It is the intent of the parties that this Agreement shall not restrict ABX's freedom to operate regarding the practice and commercialization of the Licensed Technology (including without limitation XenoMouse Animals and cells, genetic material, and antibodies generated or derived from XenoMouse Animals), except in relation to Product. Accordingly, in the event that any patent owned or controlled by GNE that directly arises from use of the XenoMouse Animals that has application other than for the manufacture, use, sale, offer for sale or import of Products, GNE agrees to grant, and hereby grants, to ABX a non-exclusive license in the Territory, with the right to grant and authorize sublicenses, under all patents claiming such inventions, for all fields of use other than the manufacture, use, sale, offer for sale or import of Products, in each case on terms and conditions to be negotiated by the parties. In the event that any patent owned or controlled by GNE claims use of the XenoMouse Animals that has application other than for the manufacture, use, sale, offer for sale or import of Products, GNE agrees, upon written notice from ABX, to grant to ABX a non-exclusive, royalty-free license in the Territory, with the right to grant and authorize sublicenses, under all patents claiming such inventions, for all fields of use other than the manufacture, use, sale, offer for sale or import of Products, provided, however, that to receive the license contemplated by this sentence, ABX shall be responsible for reasonable costs incurred by GNE relating to the filing, prosecution and maintenance of patents claiming such invention. 5. CONFIDENTIALITY 5.1 Confidentiality. Except as expressly provided herein, the parties agree that during the term of this Agreement and for five (5) years thereafter the receiving party shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose other than performance of this Agreement any information furnished to it by the other party hereto pursuant to this Agreement ("Confidential Information"), except to the extent that it can be established by the receiving party by competent proof that such information: -11- 12 (a) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure; (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; or (d) was subsequently lawfully disclosed to the receiving party by a person other than a party or developed by the receiving party without reference to any information or materials disclosed by the disclosing party. 5.2 Permitted Disclosures. Notwithstanding Section 5.1 above and Section 5.4 below, each party hereto may nevertheless disclose the other party's Confidential Information and the terms of this Agreement to the extent such disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable laws or regulations or otherwise submitting information to tax or other governmental authorities, making a permitted Sublicense or publication or other exercise of its rights hereunder or conducting clinical trials, provided that if a party is required by law to make any such disclosure of the other party's Confidential Information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the other party of such disclosure requirement and, save to the extent inappropriate in the case of patent applications, will use efforts consistent with prudent business judgment to secure confidential treatment of such information prior to its disclosure (whether through protective orders or confidentiality agreements or otherwise). It is understood that the obligations set forth in this Article 5 are separate from GNE's obligations under Section 2.2 above, and the expiration or nonapplicability of GNE's obligations under Section 5.1 shall not be deemed to limit GNE's obligations under Section 2.2. 5.3 Scientific Publications. The parties agree, as a general principle, that it is desirable to publish the results of the research conducted by the parties hereto under this Agreement, and agree that both parties will have the right to publish such results. The following restrictions shall apply with respect to the disclosure in scientific journals or publications by the parties hereto regarding any scientific work under this Agreement (but not any Independent Discovery or other research performed by the parties): (a) the party publishing, or proposing to publish, such results (the "Publishing Party") shall provide the other party (the "Non-Publishing Party") with an advance copy of any proposed submission of a publication arising from such scientific work, not less than thirty (30) days prior to submission or disclosure of such publication, and the Non-Publishing Party shall have a reasonable opportunity to recommend any changes it reasonably believes are necessary to preserve its Patent Rights or Know-How or to protect its Confidential Information hereunder, and the incorporation of such recommended changes shall not be unreasonably refused; and (b) if the Non- -12- 13 Publishing Party informs the Publishing Party, within thirty (30) days of receipt of an advance copy of a proposed publication hereunder, that such publication includes Confidential Information of the Non-Publishing Party the publication of which, in the Non-Publishing Party's sole judgment, could be expected to have a material adverse effect on any of its Patent Rights or Know-How, or on the Non-Publishing Party's business affairs, the Publishing Party shall delete such Confidential Information of the Non-Publishing Party from such publication and, in the case of inventions made solely by the Publishing Party or jointly by the Publishing Party and the Non-Publishing Party, delay publication thereof for an a time period (not to exceed ninety (90) days) sufficient for the preparation and filing of a patent application or application for a certificate of invention thereon, in accordance with Article 6 of this Agreement. The parties agree to confer regarding authorship of such publications, which shall be determined in accordance with the standards for authorship customary for peer-reviewed journals. For purposes of this Section, the parties agree that publication of Confidential Information covered by a filed patent shall not be required to be deleted solely due to a patent application not having reached its 18 month publication date. 5.4 Terms of Agreement. Except as expressly provided in this Article 5, each party hereto agrees not to make any public disclosure of the terms of this Agreement or the identity of the Product Antigen (including, without limitation, any press release and/or Q&A to be issued on the Option Effective Date), without first obtaining the written approval of the other party and agreement upon the nature and text of such public announcement or disclosure. After execution of this Agreement, either party hereto may issue a press release, the content of which will be agreed upon by the parties. The party desiring to make any such public announcement shall provide the other party with a copy of the proposed announcement for review and comment in reasonably sufficient time prior to public release. Each party agrees that it shall cooperate fully with the other with respect to all disclosures regarding this Agreement required under applicable laws and regulations to the United States Securities Exchange Commission and any other governmental or regulatory agencies, including requests for confidential treatment of proprietary information of either party included in any such governmental disclosure. The parties may publicly disclose information contained in any prior public disclosure that was in compliance with this Section without further approvals hereunder. In addition, each party agrees not to disclose the identity of the Product Antigen to any third party under any circumstances except if required by law, nor the terms of this Agreement or the [*] Product License to any third party, other than to professional advisors and financing sources, and in that case, only under confidentiality terms at least as stringent in material respects as this Article. The parties acknowledge that, in the event of an initial public offering by ABX, ABX may be required to file this Agreement or information related thereto with the Securities and Exchange Commission (the "SEC"). In that event, and thereafter, ABX shall be entitled to comply with the disclosure requirements of the SEC, provided, however, that in connection with any required SEC filing of this Agreement by ABX, ABX shall use reasonable efforts to obtain confidential treatment of portions of the Agreement from the SEC (including, without limitation, financial terms and the identity of the Product Antigen). GNE shall have the right to review and comment on such an application for confidential treatment insofar as it pertains to this Agreement prior to its being filed with the SEC and ABX shall not unreasonably refuse such comments. GNE shall provide its [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -13- 14 comments, if any, on such application as soon as practicable, and in no event later than four (4) days after such application is provided to GNE. 6. INDEMNIFICATION 6.1 GNE. GNE agrees to save, defend and hold ABX and its directors, officers, employees, agents and Affiliates harmless from and against any suits, claims, actions, demands, damages, liabilities, expenses or losses (including court costs and reasonable attorneys' and experts' fees) (collectively, the "Liabilities") resulting directly from (a) third party claims arising from any negligence or willful misconduct of GNE (or its directors, officers, employees, agents, or Sublicensees) or the breach of any representations or warranties of GNE under this Agreement, or (b) any third party claims arising from GNE's or its Sublicensee's development, making, having made, use, offer for sale, or sale of any Product developed, manufactured, used, sold or otherwise distributed by GNE and its Sublicensees under this Agreement; provided, however, that nothing in this Section 6.1 shall obligate GNE to save, defend or hold harmless ABX for any Liabilities to the extent arising from the negligence or willful misconduct of ABX or its directors, officers, employees, or agents. 6.2 ABX. ABX agrees to save, defend and hold GNE and its directors, officers, employees, agents and Affiliates harmless from and against any Liabilities resulting directly from (a) third party claims arising from any negligence or willful misconduct of ABX (or its directors, officers, employees, or agents) or the breach of any representations or warranties of ABX under this Agreement, or (b) any third party claims arising from any negligence or willful misconduct of ABX or its directors, officers, employees, or agents in the course of conducting ABX work under the Research Plan; provided, however, that nothing in this Section 6.2 shall obligate ABX to save, defend or hold harmless GNE for any such Liabilities to the extent arising from the negligence or willful misconduct of GNE or its directors, officers, employees, agents or Sublicensee. 6.3 Indemnification Procedures. If any person or party entitled to indemnification under this Article 6 (an "Indemnitee") intends to claim indemnification under this Article 6, it shall promptly notify the indemnifying party hereunder (the "Indemnitor") in writing of any Liability in respect of which the Indemnitee intends to claim such indemnification, as soon as reasonably practicable after the Indemnitee receives notice of such Liability. Indemnitor's obligations under this Article 6 are conditioned upon the Indemnitee permitting the Indemnitor to assume direction and control of the defense of the Liability (including the right to settle it); provided, however, that an Indemnitee shall have the right to retain its own legal counsel, with the reasonable fees and expenses thereof to be paid by the Indemnitor, if representation of such Indemnitee by the legal counsel retained by the Indemnitor would be inappropriate due to actual or potential conflicts of interest between such Indemnitee and such Indemnitor. Indemnitor's obligations under this Article 6 shall not apply to amounts paid in settlement of any loss, claim, damage, liability or action if such settlement is effected without the consent of the Indemnitor, which consent shall not be withheld or delayed unreasonably. The failure to deliver written notice to the Indemnitor within a reasonable -14- 15 time after the commencement of any third party suit, claim, action or demand, if prejudicial to Indemnitor's ability to defend such suit, claim, action or demand, shall relieve the Indemnitor of its obligations under this Section 6 with respect to Liabilities that could have been defended in such action. The Indemnitee (and its directors, officers, employees and agents) shall cooperate fully with the Indemnitor and its legal counsel in the investigation of any such Liability for which indemnification is sought by such Indemnitee hereunder. 7. REPRESENTATIONS, WARRANTIES AND COVENANTS 7.1 ABX. ABX represents, warrants and covenants to GNE that: (a) it has the full right and authority to enter into this Agreement and grant the rights and licenses granted herein; (b) it has not previously granted, and during the term of this Agreement will not grant, any rights inconsistent or in conflict with the rights and licenses granted to GNE herein, including without limitation, any right, license in and to the Licensed Technology granted under this Agreement, or any portion thereof, with respect to the Products or their development, manufacture, use or sale; (c) to its knowledge as of the Option Effective Date, there are no existing or threatened actions, suits or claims pending against ABX with respect to the Licensed Technology or the right of ABX to enter into and perform its obligations under this Agreement or the [*] Product License; (d) it will not take any action or fail to take any action under this Agreement that will cause a breach of the GenPharm Cross-License, the Xenotech Agreement, the Product License, or any ABX In-License; provided, however, that it shall not be a breach of this covenant if ABX cures any breach of such third party agreement pursuant to the cure provisions contained therein; (e) as of the Option Effective Date, ABX has no knowledge (without the obligation to perform due diligence) of any rights of third parties that would interfere with the use of the ABX Know-How or practice of the ABX Patent Rights as contemplated under this Agreement (including, without limitation, work under the Research Plan or otherwise in the Research Field pursuant to this Agreement or the [*] Product License), and, as of the Option Effective Date, ABX has no knowledge (without the obligation to perform due diligence) that any patents or patent applications within the ABX Patent Rights are invalid or unenforceable or that their practice as licensed hereunder would infringe patent rights of third parties, provided, however, that this representation does not apply to possible infringements relating to the Product Antigen; [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -15- 16 (f) as of the Option Effective Date, Cell Genesys, Inc. ("CGI") has assigned to ABX all of CGI's rights and obligations under the Xenotech Agreement, and ABX is a party to the Xenotech Agreement in lieu of CGI; (g) on the first date on which the Product License for the Product Antigen between ABX and XT and the [*] Product License between ABX and GNE are both in full force and effect, and thereafter so long as both are in effect, ABX shall be and remain XT's exclusive licensee and sublicensee (except with respect to the research license set forth in Article 3 of the Xenotech Agreement and the licenses granted in the GenPharm Cross License) for all the uses of the Licensed Technology relating to Products in the Field throughout the Territory, and GNE shall be ABX's exclusive sublicensee thereunder for all uses of the Licensed Technology relating to the Products in the Field throughout the Territory, as more fully set forth in the [*] Product License and on the terms and conditions set forth therein; (h) it has provided to GNE on or before the Option Effective Date complete copies of all applicable ABX In-Licenses setting forth all applicable limitations or restrictions described in Section 3.2.3 (it being understood that the financial terms have been redacted from some or all such copies); (i) Based upon information provided to ABX by GNE concerning GNE's intellectual property rights in [*] and to the best of ABX's knowledge (without the obligation to perform due diligence), ABX has the right to obtain from XT a Product License that is an "Exclusive Worldwide Product License" (as defined in the Xenotech Agreement and in the form attached thereto as an exhibit). ABX will provide GNE with a complete (excepting only for financial terms) copy of such Product License as signed by all parties thereto, as required under Section 3.2.2 or 3.2.3 above; (j) Based upon information provided to ABX by GNE concerning GNE's intellectual property rights in [*] and to the best of ABX's knowledge (without the obligation to perform due diligence), JTI does not have the right under the Xenotech Agreement to obtain an "Exclusive Home Territory Product License" or a "Co-Exclusive Worldwide Product License" (as these are defined in the Xenotech Agreement and attached thereto as exhibits) for the Product Antigen, or any other right or license under the Licensed Technology to develop, make and have made, use, sell, lease, offer to sell or lease, import, export, otherwise transfer physical possession of or otherwise transfer title to Products in the Field in the Territory, except, in each case, with respect to the research license set forth in Article 3 of the Xenotech Agreement. ABX shall notify GNE promptly in writing of assertion by JTI (if any) that it may have any such rights anywhere in the Territory; (k) ABX has nominated the Product Antigen under Section 7.1 of the Xenotech Agreement and taken every other step necessary under the Xenotech Agreement to obtain the right to acquire an "Exclusive World Wide Product License" under the Xenotech Agreement; [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -16- 17 (l) ABX shall, at the request of GNE, discuss with GNE ABX's interpretation of material terms and conditions of ABX In-Licenses, including, without limitation, any limitations on ABX's right to further transfer or grant licenses or sublicenses to GNE to any and all rights to technology within the scope of the ABX Patent Rights and/or ABX Know-How under any ABX In-License; (m) ABX shall not agree to any termination, modifications or amendments to any ABX In-Licenses that would negatively affect GNE's rights under this Agreement without first obtaining Genentech's prior written consent, and ABX shall notify GNE as soon as practicable of any material modification or amendment of any ABX In-License that affects (positively or negatively) GNE's rights or obligation under this Agreement or the [*] Product License; (n) ABX shall provide GNE promptly with a copy of any notice of default by ABX and/or its sublicensee under any ABX In License, and of any notice of termination by any other party to any ABX In License; and (o) ABX shall not use or permit others to use cells created by GNE or ABX from immunization of XenoMouse Animals with the Product Antigen under this Agreement, the [*] Product License, or the MTA in any way without GNE's prior written consent nor shall ABX directly or indirectly create, incur, assume or suffer to exist, any lien, security interest or other similar encumbrance of any kind, or any other type of preference, as such term is used in bankruptcy law, upon or with respect to such cells. 7.2 GNE. GNE represents, warrants and covenants to ABX that: (a) it has the full right and authority to enter into this Agreement and grant the rights and licenses granted herein; (b) to its knowledge, there are no existing or threatened actions, suits or claims pending with respect to the subject matter hereof (including, without limitation, rights in and to the Product Antigen and/or antibodies to the Product Antigen) or the right of GNE to enter into and perform its obligations under this Agreement; (c) it has not previously granted, and during the term of this Agreement will not grant, any rights inconsistent or in conflict with the rights and licenses granted under this Agreement; and (d) it will not, to its knowledge, take any action or fail to take any action that will cause a breach of the GenPharm Cross License, the Xenotech Agreement, the Product License, or any ABX In-License. [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -17- 18 (e) as of the Option Effective Date, GNE has no knowledge (without the obligation to perform due diligence) of any rights of third parties that would interfere with the use of the ABX Know-How or practice of the ABX Patent Rights as contemplated under this Agreement (including, without limitation, work under the Research Plan or otherwise in the Research Field pursuant to this Agreement or the [*] Product License). 7.3 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER MAKES ANY REPRESENTATIONS AND OR EXTENDS ANY WARRANTIES TO THE OTHER PARTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, REGARDING PRODUCTS OR THE LICENSED TECHNOLOGY, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, AND VALIDITY OF LICENSED TECHNOLOGY CLAIMS, ISSUED OR PENDING. ALL XENOMOUSE ANIMALS AND MATERIALS DERIVED IN WHOLE OR PART FROM THE XENOMOUSE ANIMALS PROVIDED TO GNE BY ABX ARE PROVIDED "AS IS," AND ABX SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO XENOMOUSE ANIMALS AND MATERIALS DERIVED IN WHOLE OR PART FROM XENOMOUSE ANIMALS. 7.4 Effect of Representations and Warranties. It is understood that if the representations and warranties of a party under this Article 7 are not true and accurate and the other party incurs any suits, claims, actions, demands, damages, liabilities, expenses or losses (including court costs and reasonable attorneys' and experts' fees, but excluding costs and fees incurred in asserting a claim or bringing a lawsuit between the parties hereto) as a direct result of such falsity or inaccuracy, the party at fault shall save, defend and hold the other party harmless from and against any such suits, claims, actions, demands, damages, liabilities, expenses or losses. 8. TERM; TERMINATION 8.1 Term. This Agreement shall commence on the Option Effective Date and, unless earlier terminated as provided in this Article 8, shall continue in effect until the Effective Date (if any) of the [*] Product License between ABX and GNE or, in the event that GNE has not exercised the Option by the Option Expiration Deadline, on such Option Expiration Deadline. 8.2 Termination by GNE. GNE may terminate this Agreement at any time upon sixty (60) days written notice to ABX. 8.3 Termination for Breach. Either party to this Agreement may terminate this Agreement in the event that the other party shall have materially breached or defaulted in the performance of any of its material obligations hereunder, and such breach or default shall have continued for sixty (60) days after written notice of such breach and intent to terminate this Agreement therefor was provided to the breaching party by the nonbreaching party. Any such [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -18- 19 termination shall become effective at the end of such sixty (60) day period unless the breaching party has cured any such breach or default prior to the expiration of the sixty (60) day period. Any such termination shall be without prejudice to any other remedies available to, the nonbreaching party by law or at equity (including, without limitation under Section 8.4 below). The right of a nonbreaching party to terminate this Agreement shall not be affected in any way by its waiver or failure to take action with respect to any previous default. Without limiting the generality of the foregoing, if GNE timely exercises its Option hereunder and ABX fails or is unable to enter into the Product License and/or the [*] Product License by the deadline specified in Section 3.2.2 above (subject to the notice and cure provisions of this Section 8.3) other than as a result of any action or inaction of GNE or its Affiliates, ABX shall be deemed to have materially breached or defaulted in the Performance of its material obligations under this Agreement, and GNE shall be entitled to all available remedies conferred on it under this Agreement and by law or in equity. 8.4 Effect of Expiration or Termination. 8.4.1 Accrued Obligations and Rights. Expiration or any termination of this Agreement shall not release either party hereto from any liability which at the time of such expiration or termination has already accrued to such party or which is attributable to a period prior to such expiration or termination, subject to the terms of this Agreement, nor preclude either party from pursuing any rights and remedies it may have hereunder or at law or in equity which accrued to it prior to such expiration or termination, subject to the terms of this Agreement. 8.4.2 ABX Failure or Inability to Enter into One or More Licenses. In the event of any breach by ABX of the type described in the last sentence of Section 8.3 hereunder, it is understood and agreed that money damages would not be a sufficient remedy for GNE, and GNE may be entitled to specific performance and injunctive relief as remedies. Such remedies shall not be deemed to be the exclusive remedies for such breach, but shall be in addition to all other remedies available at law or in equity to GNE. Further, in the event that ABX breaches this Agreement by not exercising its option under the Xenotech Agreement or using its best efforts to enter into a Product License, in each case as set forth in Section 3.2.2, ABX shall refund the amount paid to ABX by GNE under Section 2.1.4. The parties agree that such refund will not apply if ABX uses the required efforts but is for some other reason unable to enter into such Product License. 8.4.3 XT. GNE and ABX agree that this Agreement, including, without limitation, any licenses and sublicenses granted to GNE pursuant to this Agreement, and the [*] Product License (including any licenses and sublicenses to be granted to GNE therein) shall survive any dissolution, liquidation or acquisition of XT, and that such licenses shall remain in full force and effect even after any distribution, following dissolution, of the intellectual property owned or licensed to XT, to any entity. GNE and ABX agree that any transfer of such intellectual property to or following such dissolution shall be subject to the licenses and sublicenses granted herein (and to be granted pursuant to the [*] Product License, if entered into at all by the parties). [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -19- 20 8.4.4 Xenotech Agreement. This Agreement, including without limitation, any license and sublicense granted to GNE hereunder, and the [*] Product License (if entered into by the parties) (including without limitation, any licenses and sublicenses granted to GNE thereunder) are, except as otherwise provided in this Agreement, independent of, and, as between GNE and ABX, shall not be affected by, any breach or termination of the Xenotech Agreement. 8.4.5 Survival. Articles 4, 5, 6 and 9 and Sections 2.1.5, 2.2, 2.4, 2.6, 3.2.3. 3.2.4, 3.2.5, 3.2.6, 4.3, 7.3 and 8.4 shall survive the expiration and any termination of this Agreement. 8.4.6 Destruction of XenoMouse Animals. Except as otherwise provided in the [*] Product License (if entered into by the parties), upon expiration or termination of this Agreement for any reason, as required under Section 2.2(h) above GNE shall destroy each XenoMouse Animal and certify such destruction, and shall do so within ten (10) business days after such expiration or termination. 9. MISCELLANEOUS PROVISIONS 9.1 Governing Laws. This Agreement shall be interpreted and construed in accordance with the laws of the State of California, without regard to conflicts of law principles. 9.2 Waiver. It is agreed that no waiver by a party hereto of any breach or default of any of the covenants or agreements herein set forth shall be deemed a waiver as to any subsequent and/or similar breach or default. 9.3 Assignments. Neither this Agreement nor any right or obligation hereunder may be assigned or delegated, in whole or part, by either party without the prior written consent of the other; provided, however, that either party may, without the written consent of the other, assign this Agreement to (a) any entity to which it has acquired all or substantially all of the business or assets of the assigning party, or (b) any successor corporation resulting from any merger or consolidation with another corporation (including, in the case of GNE, F. Hoffmann-La Roche Ltd or any Affiliate thereof). Notwithstanding the foregoing, ABX shall not be obligated without its written consent to send XenoMouse Animals to any party other than GNE. The terms and conditions of this Agreement shall be binding on and inure to the benefit of the permitted successors and assigns of the parties. 9.4 Independent Contractors. The relationship of the parties hereto is that of independent contractors. The parties hereto are not deemed to be agents, partners or joint venturers of the others for any purpose as a result of this Agreement or the transactions contemplated thereby. 9.5 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. [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -20- 21 9.6 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. 9.7 No Implied Obligations. Except as expressly provided in Article 5 above, nothing in this Agreement shall be deemed to require GNE to exploit the Licensed Technology or to prevent GNE from commercializing products similar to or in competition with any Product, in addition to or in lieu of such Products. 9.8 Notices. Any notice, request, approval or consent required or permitted to be given between the parties hereto shall be given in writing, and shall be deemed to have been properly given if delivered in person, transmitted by telecopy with machine confirmation of transmission, or mailed by first class certified mail to the other party at the appropriate address set forth below, or to such other address as may be designated in writing by a party from time to time in accordance with this Agreement. Such notice, request, approval or consent shall be deemed given (i) on the date delivered or transmitted if delivered in person or transmitted by telecopy prior to 5 p.m. on any business day, (ii) on the next business day following delivery or transmission if delivered in person or transmitted by telecopy after 5 p.m. on any business day or on any non-business day, or (iii) on the fourth business day following the date deposited in the United States mail if sent mailed by first class certified mail. Genentech, Inc.: Genentech, Inc. One DNA Way South San Francisco, CA 94080 Attn: Corporate Secretary Telecopy: (650) 952-9881 Abgenix, Inc.: Abgenix, Inc. 7601 Dumbarton Circle Fremont, California 94555 Attn: President Telecopy: (510) 608-6511 with a copy to: Kenneth A. Clark, Esq. Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, California 94304 Telecopy: (650) 493-6811 9.9 Export Laws. Notwithstanding anything to the contrary contained herein, all obligations of ABX and GNE are subject to prior compliance with United States export regulations -21- 22 and such other United States laws and regulations as may be applicable, and to obtaining all necessary approvals required by the applicable agencies of the government of the United States. GNE shall be responsible for obtaining such approvals, and shall use efforts consistent with prudent business judgment to obtain such approvals. ABX agrees to cooperate reasonably and provide reasonable assistance to GNE as may be reasonably necessary to obtain any required approvals. 9.10 Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision and the parties shall discuss in good faith appropriate revised arrangements. 9.11 Force Majeure. Nonperformance of any party (except for payment obligations) shall be excused to the extent that performance is rendered impossible by strike, fire, earthquake, flood, governmental acts or orders or restrictions, failure of suppliers, or any other reason where failure to perform is beyond the reasonable control and not caused by the negligence, intentional conduct or misconduct of the nonperforming party. 9.12 No Consequential Damages. IN NO EVENT SHALL ANY PARTY HERETO BE LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT OR THE EXERCISE OF ITS RIGHTS HEREUNDER, INCLUDING WITHOUT LIMITATION LOST PROFITS ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT, REGARDLESS OF ANY NOTICE OF SUCH DAMAGES. 9.13 Disputes. The parties recognize that disputes as to certain matters may from time to time arise during the term of this Agreement which relate to either party's rights and/or obligations hereunder. 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 cooperation and without resort to litigation. To accomplish this objective, it is agreed that each party will inform the other as soon as possible when it becomes aware of an area or issue of dispute. Prior to filing or initiating any legal proceeding, the parties agree to discuss the dispute at the organizational level at which such dispute arises. If either party believes there has been sufficient discussion of the matter at such level, then such party, by written notice to the other party, may have such dispute referred to their respective chief executive officers (or, if unavailable, a designee who is an officer of the party empowered to resolve such disputes) for attempted resolution by good faith negotiations between such chief executive officers within fourteen (14) days of such referral. In the event that the chief executive officers are not able to resolve such dispute within such fourteen (14) day period, either party may pursue whatever remedies are available to them under this Agreement or by law. 9.14 Complete Agreement. It is understood and agreed between ABX and GNE that this Agreement and the [*] Product License constitute the entire agreement, both written and oral, between the parties with respect to the subject matter hereof, and supersede and cancel all prior agreements respecting the subject matter hereof, either written or oral, expressed or implied, [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -22- 23 including, without limitation, that certain Non-Disclosure Agreement between ABX and GNE dated as of [*], and the MTA (to the extent provided in Sections 2.1.5, 3.2.4 and 4.1 above). No amendment or change hereof or addition hereto shall be effective or binding on either of the parties hereto unless reduced to writing and executed by the respective duly authorized representatives of ABX and GNE. 9.15 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and both together shall be deemed to be one and the same agreement. 9.16 Headings. The captions to the several Articles and Sections hereof are not a part of this Agreement, but are included merely for convenience of reference only and shall not affect its meaning or interpretation. [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -23- 24 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized officers as of the day and year first above written, each copy of which shall for all purposes be deemed to be an original. ABGENIX, INC. GENENTECH, INC. By: /s/ Raymond M. Withy By: [SIG] --------------------------- ---------------------------------- Printed Name: Raymond M. Withy Printed Name: [UNREADABLE] ---------------- ------------------------ Title: Vice President, Corporate Development Title: Vice President ---------------------- ------------------------------- Date: April 16, 1998 Date: April 16, 1998 ---------------------- ------------------------------- -24- 25 EXHIBIT A RESEARCH PLAN [*] [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. 26 EXHIBIT A RESEARCH PLAN [*] [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -2- 27 EXHIBIT B FORM OF [*] PRODUCT LICENSE AGREEMENT THIS [*] PRODUCT LICENSE AGREEMENT (the "Agreement") effective as of the ____ day of ____________, 1998, (the "Effective Date") is made by and between ABGENIX, INC., a Delaware corporation ("ABX"), and GENENTECH, INC., a Delaware corporation (hereinafter "GNE") with reference to the following facts and circumstances. RECITALS GNE and ABX have entered into that certain License Option Agreement effective as of April 6, 1998 (as defined below, the "GNE Option Agreement"), pursuant to which GNE has certain rights to acquire a license under the Licensed Technology; and GNE has exercised its rights under the GNE Option Agreement to acquire from ABX a license or sublicense, as the case may be, under the Licensed Technology to commercialize Products in the Field, all as set forth below on the terms and conditions herein. NOW, THEREFORE, for and in consideration of the covenants, conditions, and undertakings hereinafter set forth, it is agreed by and between the parties hereto as follows: 1.0 DEFINITIONS. For purposes of this Agreement, the terms set forth in this Article shall have the meanings set forth below. 1.1 "ABX In-Licenses", "ABX Know-How" and "ABX Patent Rights" are defined in Section 1.19. 1.2 "Affiliate" shall mean any entity which controls, is controlled by or is under common control with a party hereto. An entity shall be regarded as in control of another entity if it owns or controls at least fifty percent (50%) of the shares of the subject entity entitled to vote in the election of directors (or, in the case of an entity that is not a corporation, for the election of the corresponding managing authority). 1.3 "Antibody" shall mean (i) a composition comprising a whole antibody or fragment thereof, said antibody or fragment having been generated in whole or part from the XenoMouse [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -1- 28 Animals, and (ii) any composition comprising a whole antibody or fragment thereof made by or on behalf of GNE or its Affiliates or Sublicensees which is derived (directly or indirectly through single or multiple steps) from an antibody contemplated by (i) above. ABX acknowledges that as of the Effective Date, Genentech has already undertaken and thereafter may continue its own research efforts (on its own or with partners) separate from this Agreement, and such efforts may result in one or more antibodies to the Product Antigen. ABX agrees that no protein (or any fragment, variant or derivative thereof or any or nucleotide sequences encoding, or amino acid sequences of, any of the foregoing) that is an "Independent Discovery" as defined in Section 1.16 shall be considered an "Antibody" or "Product" for purposes of this Agreement, even if a homologous sequence might also be generated in whole or in part from XenoMouse Animals. 1.4 "BLA" shall mean a Biologics License Application, Product License Application, New Drug Application, or other equivalent application filed with the FDA seeking regulatory approval to market and sell a Product in the United States for a particular indication, including, without limitation, any pricing and/or reimbursement approvals (if any). 1.5 "Core Third Party Patent" means an issued, unexpired patent not within the ABX Patent Rights that is infringed, or except for a license would be infringed, by the manufacture and sale of Products or Antibodies, in each case specifically because Antibodies were generated from XenoMouse Animals rather than some other source (e.g., a patent that is, or except for a license would be, infringed by manufacture and sale of Antibodies or Products but would not be infringed by manufacture and sale of antibodies or products derived from immunization of a wild-type mouse, or a strain of mouse other than XenoMouse, using the same method of immunization with the Product Antigen, method of creation of hybridomas or other antibody-secreting cells, modification (if any) of antibodies derived from immunization, and methods and processes of production, development, and manufacture); provided, however, that "Core Third Party Patents" shall not include (a) any patent owned or controlled by GNE or its Sublicensee, or any Affiliate of GNE or GNE's Sublicensee, (b) any patent that has been held invalid, unpatentable, unenforceable or revoked in a decision of a court or other governmental body of competent jurisdiction that is unappealable or unappealed within the time frame allowed for appeal, or (c) any patent that has been rendered unenforceable or invalid through disclaimer, reissue or otherwise. 1.6 "Derived" or "derived," for purposes of determining when an antibody or fragment thereof has been "derived" from an Antibody, shall mean: (a) resulting from a program of synthesis or modification or selection based on an Antibody; (b) resulting from a program of synthesis or modification or selection based on nucleotide or amino acid sequence information obtained from an Antibody (or Genetic Material encoding an Antibody); [*]. [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -2- 29 1.7 "Europe" shall mean Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Monaco, Netherlands, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. 1.8 "Excluded Technology" is defined in Section 1.19.4. 1.9 "Field" shall mean the use of Products for [*]. 1.10 "FDA" shall mean the United States Food and Drug Administration, and any successor agencies thereto. 1.11 "Foreign Marketing Application" shall mean all applications for regulatory approval filed with any Foreign Regulatory Authority necessary for the marketing and sale of any Product for a particular indication in the applicable country or regulatory jurisdiction (other than the FDA in the United States), including, without limitation, any pricing and/or reimbursement approvals (if any). 1.12 "Foreign Regulatory Authority" shall mean any applicable agency, department, bureau or other governmental entity or authority (and any successors thereto) of any country or regulatory jurisdiction in the Territory (other than the FDA in the United States) having responsibility in such country or regulatory jurisdiction over any Foreign Marketing Application in such country or regulatory jurisdiction. 1.13 "Genetic Material" shall mean a nucleotide sequence, including DNA, RNA, and complementary and reverse complementary nucleotide sequences thereto, whether coding or noncoding and whether intact or a fragment. 1.14 "GenPharm Cross License" shall mean that certain Cross License Agreement entered into by and between ABX, JTI, XT, Cell Genesys, Inc., and GenPharm International, Inc. effective as of March 26, 1997, as the same may be amended from time to time. 1.15 "GNE Option Agreement" shall mean that certain Research License and Option Agreement entered into by and between ABX and GNE effective as of the Option Effective Date (as defined therein), as the same may be amended from time to time. 1.16 "IND" shall mean an Investigational New Drug Application filed with FDA, or any similar filing with any Foreign Regulatory Authority, to commence human clinical testing of any Product in any country in the Territory. 1.17 "Independent Discovery" shall mean any protein (or any fragment, variant or derivative thereof or any nucleotide sequences encoding, or amino acid sequences of, any of the foregoing) or other material, information and/or development that both (a) is discovered or obtained by GNE (on its own or with partners) without the use of any ABX Know-How, and (b) does not [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -3- 30 incorporate or include any Antibody, in any case as demonstrated by competent written records of GNE (and/or its partners) which may be supported or explained by additional testimonial evidence. 1.18 "JTI" shall mean Japan Tobacco Inc., a Japanese corporation. 1.19 "Licensed Technology" shall mean ABX Patent Rights and ABX Know-How; provided, however, that Licensed Technology shall not include Excluded Technology. 1.19.1 "ABX Patent Rights" shall mean any and all patent applications and patents (including inventor's certificates and utility models) throughout the Territory, including any substitutions, extensions, reissues, reexaminations, renewals, divisions, continuations, and continuations-in-part of any of the foregoing, that are owned or controlled by ABX (solely or jointly, including under any ABX In-License) as of the Effective Date or hereafter during the term of this Agreement, and as to which ABX has the right to transfer or grant licenses or sublicenses (including as permitted under any ABX In-License), to the extent that any of the foregoing relates to (a) any XenoMouse Animals and/or any uses thereof, (b) the Product Antigen, or (c) any Antibody or Product. "ABX Patent Rights" shall include, without limitation, the patents and patent applications listed on Attachment A attached hereto and incorporated herein. ABX shall notify Genentech promptly in writing of any changes to Attachment A during the term of this Agreement (e.g., issuance of new patents, filing of new patent applications, abandonment of existing filings, etc.), so that the parties may update Attachment A by amendment of this Agreement. 1.19.2 "ABX Know-How" shall mean any and all XenoMouse Animals and any and all processes, techniques, ideas, technical information and any other information or materials, whether or not any of the foregoing is patentable, that are owned or controlled by ABX (solely or jointly, including under any ABX In-License) as of the Effective Date or hereafter during the term of this Agreement, and as to which ABX has the right to transfer or grant licenses or sublicenses (including as permitted under any ABX In-License), to the extent that any of the foregoing relates to the immunization of XenoMouse Animals with the Product Antigen to generate any Antibody hereunder. "ABX Know-How" shall not include any of the foregoing which is generally ascertainable from publicly available information, or that was known to GNE prior to disclosure to GNE by ABX, or which GNE obtained independently (on its own or with partners) and not in violation of any obligation of confidentiality owed to ABX or any third party, in any case as demonstrated by competent written records of GNE (and/or its partners) which may be supported or explained by additional testimonial evidence. All "ABX Know-How" shall be treated as "Confidential Information" of ABX as provided in Article 8 of this Agreement. As of the Effective Date, the parties have agreed that ABX shall transfer to or provide GNE with the ABX Know-How identified in Attachment B attached hereto and incorporated herein. 1.19.3 "ABX In-Licenses" shall mean any and all licenses, sublicenses or other agreements, as in effect as of the Effective Date or hereafter during the term of this Agreement (as the same may be amended from time to time), under which ABX has rights to technology (whether or not patentable) that is within the scope of the ABX Patent Rights and/or the ABX Know-How. -4- 31 The parties agree that any and all such rights pursuant to any ABX In-License are included in the ABX Patent Rights or the ABX Know-How, as the case may be, but not to the extent that ABX is not permitted under the terms of the applicable ABX In-License to further transfer or grant licenses or sublicenses of such rights. "ABX In-Licenses" shall include, without limitation, the Xenotech Agreement, the Product License for the Product Antigen between XT and ABX, the GenPharm Cross License, and the other agreements listed on Attachment C attached hereto and incorporated herein. ABX shall notify Genentech promptly in writing of any changes to Attachment C during the term of this Agreement (e.g., any new agreements, any amendments to any agreements, etc.), so that the parties may update Attachment C by amendment of this Agreement. 1.19.4 "Excluded Technology" shall mean any intellectual property or technology or other proprietary rights of ABX in or to: (a) all antigens other than the Product Antigen, including without limitation, (i) compositions of such antigens or of Genetic Materials encoding such antigens, (ii) uses of such antigens, (iii) antibodies or other compositions that bind to such antigens (except Antibodies which bind to the Product Antigen), Genetic Materials encoding such antibodies or compositions, and cells that express or secrete such antibodies or compositions, and (iv) uses of such antibodies or compositions; and (b) methods to discover novel antigens and methods of using antigens other than to create antibodies. 1.20 "Major Country" shall mean the [*]. 1.21 "MTA" shall mean that certain Material Transfer Agreement entered into by ABX and GNE and effective as of [*], as the same may be amended from time to time. 1.22 "Net Sales" shall mean [*] by GNE or its Affiliates and Sublicensees for sales of Product to non-Affiliate customers, [*], with respect to such sales [*], as reflected in [*] of GNE and its Affiliates or Sublicensees, [*]. 1.22.1 Sales Among GNE and Sublicensees. Net Sales shall not include [*], provided that Net Sales shall include the [*] of such Products. 1.22.2 Combination Products. In the event that a Product is sold in combination as a single product with another product or component, Net Sales from such combination sales for purposes of calculating the amounts due under this Agreement shall be [*]. In the event that no such separate sales are made in the same quarter by GNE or its Sublicensee, Net Sales [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -5- 32 for royalty determination shall be [*]. 1.23 "Option Effective Date" shall have the meaning set forth in the GNE Option Agreement. 1.24 "Phase II Trial" shall mean a human clinical trial prospectively designed to generate data evidencing the safety, dose ranging and preliminary efficacy of a Product for a particular indication sufficient (if successful) to commence a Phase III trial for the Product for the indication, and that would otherwise satisfy the requirements of 21 CFR 312.21(b). "Initiation" of a Phase II Trial shall be deemed to occur upon the administration of such drug or placebo to the first patient in such trial. 1.25 "Phase III Trial" shall mean a human clinical trial prospectively designed to demonstrate with statistical significance whether a Product is safe and effective for use in a particular indication in a manner sufficient (if successful) to file a BLA with the United States Food and Drug Administration (including any successor agency, the "USFDA") for the marketing and sale of the Product for the indication, and would otherwise satisfy the requirements of 21 CFR 312.21(c). "Initiation" of a Phase III Trial shall be deemed to occur upon the administration of study drug or placebo to the first patient in such trial. 1.26 "Product" shall mean any product which incorporates (a) an Antibody that binds to the Product Antigen or (b) Genetic Material encoding such an Antibody wherein said Genetic Material does not encode multiple Antibodies. 1.27 "Product Antigen" and "[*]" shall mean [*]. 1.28 "Product License" shall mean an "Exclusive Worldwide Product License" as defined in the Xenotech Agreement (and in the form attached thereto as an exhibit) granted from XT to ABX pursuant to the terms of the Xenotech Agreement and permitting ABX, among other things, to commercialize Products throughout the world for [*]. 1.29 "Research Field" shall have the meaning set forth in the GNE Option Agreement. 1.30 "Research Plan" shall mean the research plan attached to the GNE Option Agreement as Exhibit A thereto and incorporated therein , which is hereby incorporated into this Agreement also. The parties may amend the Research Plan, from time to time, by mutual agreement in writing. [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -6- 33 1.31 "Sublicensee" shall mean a third party that GNE grants rights under the Licensed Technology to develop, make, use and/or sell Products, including, without limitation, a third party to whom GNE grants the right to distribute Product, provided that such third party also has responsibility for marketing and promotion of Product within the applicable territory. As used herein, a "Sublicense" shall mean an agreement or arrangement between GNE and any Sublicensee pursuant to which such rights of such Sublicensee have been granted. 1.32 "Territory" shall mean [*]. 1.33 "Therapeutically Active" shall mean that a compound or agent has activity as a therapeutic agent, or directly or indirectly acts to increase, enhance, catalyze, enable, protect, target or deliver a Product or the activity of a Product, but shall not include any diluent, vehicle, adjuvant or other ingredient (other than a Product) that does not have any, or only incidental, therapeutic properties. 1.34 "[*] Product License" shall mean this [*] Product License Agreement entered into by and between ABX and GNE effective as of the Effective Date, as the same may be amended from time to time. 1.35 "United States" shall mean the United States of America and its territories and possessions. 1.36 "Valid Patent Claim" shall mean a claim in an [*] within the ABX Patent Rights that (a) has not been held invalid, unpatentable, unenforceable or revoked in a decision of a court or other governmental body of competent jurisdiction that is unappealable or unappealed within the time frame allowed for appeal, (b) has not been rendered unenforceable or invalid through disclaimer, reissue or otherwise and (c) is [*]. 1.37 "XenoMouse" and "XenoMouse Animals" shall mean both (a) all transgenic mice provided by ABX to GNE for immunization with the Product Antigen under the GNE Option Agreement or this Agreement and (b) all transgenic mice immunized with the Product Antigen by ABX under the MTA or the GNE Option Agreement on or before the Effective Date of this Agreement. 1.38 "Xenotech Agreement" shall mean that certain Master Research License and Option Agreement entered into by JTI, XT and Cell Genesys, Inc. effective as of June 28, 1996, as the same may be amended from time to time. 1.39 "XT" shall mean Xenotech, L.P., a California limited partnership. [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -7- 34 2.0 LICENSE GRANT 2.1 Grant of Rights. Subject to the terms and conditions of this Agreement, ABX hereby grants to GNE an exclusive (even as to ABX) license or sublicense, as the case may be, under the Licensed Technology, to research and develop, make and have made Products in the Field in the Territory and to use, sell, lease, offer to sell or lease, import, export, otherwise transfer physical possession of or otherwise transfer title to Products in the Field in the Territory. For purposes of clarification, it is understood and agreed that the licenses and sublicenses granted herein shall not include any right to make or sell (or lease, or offer to sell or lease, or otherwise transfer title to) any transgenic animal or the right to sell (or lease, or offer to sell or lease, or otherwise transfer title to) Antibody-secreting cells. 2.2 Sublicenses. GNE may grant a Sublicense of any or all of its rights under Section 2.1 to (a) Affiliates of GNE or (b) to any other third party on written notice to ABX. It is understood that any such Sublicense shall be subject and subordinate to the terms and conditions of this Agreement, and that GNE shall remain responsible for all payments due to ABX hereunder with respect to Net Sales of Products by any such Sublicensee. It is understood that GNE shall not have the right to grant any Sublicense except as provided above, and notwithstanding the foregoing, shall in no event have the right to Sublicense any right under this Agreement in or to (i) a XenoMouse Animal, or (ii) other transgenic animal covered by the Licensed Technology. 2.3 Third Party Rights. It is understood and agreed that the grant of rights under this Article 2 shall be subject to and limited in all respects by the terms of the applicable ABX In-License(s) pursuant to which ABX acquired or does acquire any Licensed Technology, including, without limitation, any rights granted to or retained by GenPharm International, Inc. under the GenPharm Cross License, and that all rights or sublicenses granted under this Agreement shall be limited to the extent that ABX may grant such rights and sublicenses under such ABX In-Licenses. Further, the parties acknowledge that while ABX is granting GNE an exclusive license to certain of its rights, ABX's rights may not be exclusive from ABX's licensors. 2.4 Continuation of Research. It is understood and agreed that during the term of this Agreement, GNE and ABX may continue the research activities set forth in the Research Plan as set forth in this Section 2.4. 2.4.1 Supply and Use of XenoMouse Animals. In the event that the parties enter into this Agreement before ABX has provided to GNE the XenoMouse Animals ABX is required to provide to GNE pursuant to Section 2.1.2 of the GNE Option Agreement, or in the event that ABX and GNE mutually agree in writing that ABX will provide additional sterilized male XenoMouse Animals to GNE under this Agreement, ABX agrees to continue to provide XenoMouse Animals to GNE in accordance with Section 2.1.2 of the GNE Option Agreement or as agreed by writing by the parties, subject to all terms and conditions set forth in Sections 2.1 and 2.2 of the GNE Option Agreement. It is further agreed that GNE may continue to use any XenoMouse Animals provided by ABX under the GNE Option Agreement, in accordance with all terms and conditions set forth in -8- 35 Sections 2.1 and 2.2 of the GNE Option Agreement, to continue GNE's research activities within the Research Field as set forth in this Section 2.4. GNE shall not transfer any XenoMouse Animal to any third party, including any Sublicensee, without the express written consent of ABX. It is understood that during the term of this Agreement, GNE may require additional XenoMouse Animals for performance under this Agreement. The parties agree to engage in good faith discussion to determine reasonable quantities, if any, of such XenoMouse Animals to be provided by ABX to GNE for such performance. 2.4.2 Research Activities. During the term of this Agreement, the parties will conduct such collaborative research and development of Products as they may mutually agree upon in writing in the Research Plan (as the same may be amended from time to time). During the term of this Agreement, GNE and ABX shall each update the other, as requested by the other, as to the status of any research activities of the party under the Research Plan. 2.4.3 Ownership of Materials and Data. It is understood and agreed that: (a) ABX shall solely own all XenoMouse Animals, Genetic Material encoding such XenoMouse Animals, hybridomas and B cells. (b) GNE shall own all Antibodies, Genetic Material encoding Antibodies, and all reagents, samples, data, results, technical information, know-how, preclinical and/or clinical testing data and any other non-patentable information resulting from the parties' use of the Licensed Technology related to the Product Antigen under the MTA or under this Agreement. To the extent that ABX owned any of the foregoing prior to the Effective Date of this Agreement under the terms of the GNE Option Agreement, ownership shall transfer from ABX to GNE as of the Effective Date of this Agreement. (c) With respect to any materials (including, without limitation, all Antibodies, hybridomas or Genetic Material) generated in whole or in part from immunization of XenoMouse Animals with the Product Antigen and/or data made or generated under the MTA, this Section 2.4.3 hereby supersedes and cancels any terms or provisions in the MTA inconsistent with this Section 2.4.3 or any other term of this Agreement. The transfer of physical possession of any materials owned by, and the physical possession and use of such materials and/or data by, GNE or ABX, as the case may be, shall not be (nor be construed as) a sale, lease, offer to sell or lease, or other transfer of title of such materials and/or data to GNE or ABX, as the case may be. 2.5 No Other Rights; No License to Other Therapeutically Active Components. No rights other than those expressly set forth in this Agreement are granted to either party hereunder, and no additional rights shall be deemed granted to either party by implication, estoppel or otherwise. It is understood and agreed that, although a Product licensed hereunder may contain other components (including without limitation, other Therapeutically Active components) in conjunction with or in addition to an Antibody that binds to [*] or Genetic Material encoding such an Antibody, the licenses and rights granted under this Agreement shall not be construed to convey, and shall not [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -9- 36 convey, any licenses or rights under the ABX Patent Rights with respect to the manufacture, use, or sale of any such component other than an Antibody that binds to [*] or Genetic Material encoding such an Antibody. 2.6 No Products Other Than Products. GNE shall not sell, lease, offer to sell or lease, or otherwise transfer title to any materials derived in whole or part from the XenoMouse Animals (including, without limitation, Antibodies, Antibody-secreting cells and Genetic Materials encoding the foregoing) other than as Products in accordance with this Agreement. 3.0 CONSIDERATION. 3.1 License Fee. In consideration of the license rights granted herein to GNE, within fifteen (15) days after the Effective Date, GNE shall pay to ABX a [*] license fee in the amount of [*], in accordance with the payment provisions of Section 4.3 below. 3.2 Milestone Payments. 3.2.1 Amounts. In further consideration of the license rights granted herein to GNE, within thirty (30) days following the first achievement by GNE (or any of its Sublicensees) of each of the following milestones with respect to any Product under this Agreement, GNE shall pay to ABX the corresponding milestone payment set forth herein, in accordance with the payment provisions of Section 4.3 below:
Milestone Payment --------- ------- [*] A [*] B [*] [*] C [*] [*] D [*] [*] E [*] [*]
[*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -10- 37 In the event that milestone C, D, or E is met, and at such time either milestone A or milestone B has not been met, the payment for such unmet milestone(s) shall be due. It is understood and agreed that (i) GNE shall not be obligated to pay to ABX the milestone payments set forth in this Section 3.2.1 more than once for each of milestones A, B, C, D, and E under this Agreement, irrespective of how many Products hereunder achieve such milestone. 3.2.2 [*]. If, before or during the term of this Agreement, the Product License between ABX and XT is modified for any reason such that the [*] for purposes of the license granted to GNE under this Agreement [*] shall refund any remaining amount at that point in cash. 3.2.3 Potential Readjustments. Upon request of either party, the parties shall discuss in good faith and may agree to amend this Agreement to provide an option for GNE to make milestone payments for the events set forth in milestones C, D and/or E above in amounts greater than those set forth in milestones C, D and/or E above, in exchange for royalties on Net Sales of Products in the countries and territories covered by such milestones lower than those set forth in Section 3.3 below. 3.2.4 [*]. The milestone payments set forth in Section 3.2.1 shall be [*] except as otherwise provided in Section 3.2.2 above, but may be [*] as set forth in Section 3.3.5 below. 3.3 Royalties. GNE or its Sublicensee shall notify ABX of the date of commercial introduction of the first Product into any country in the Territory, which shall mean, on a country-by-country basis in the Territory, the date of first commercial sale (other than for purposes of obtaining Regulatory Approval) of the first Product by GNE or any Sublicensee in such country (hereinafter, the "Royalty Commencement Date"). In consideration of the license rights granted herein, GNE shall pay to ABX a royalty on Net Sales of Products as set forth herein: 3.3.1 Countries With Issued Patents. (a) Commencing as to each country in the Territory on the Royalty Commencement Date for the first Product in such country, GNE shall pay ABX a running royalty equal to [*] of Net Sales by GNE and its Sublicensees of Products in such country (i) if there is a Valid Patent Claim within the ABX Patent Rights related to the XenoMouse Animals that covers GNE's manufacture, use or sale of such Products within the country where such Products are made, used or sold or (ii) if there [*] [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -11- 38 [*], such [*] running royalty to be in effect for the life of such Valid Patent Claim. A country in which the above [*] royalty applies is referred to herein as a "Patent Country." (b) It is understood that if, during the term of this Agreement, one or more Valid Patent Claims is or are revoked in a decision of a court or other governmental body of competent jurisdiction that is unappealable or unappealed within the time from allowed for appeal (hereinafter, "Revoked Claim(s)"), such Revoked Claim(s) shall not be considered Valid Patent Claim(s) for purposes of determining royalties owed under this Agreement on Net Sales of Products thereafter. (c) Notwithstanding anything to the contrary in this Agreement or the GNE Option Agreement, including, without limitation, anything contained in Sections 1.19, 3.3.1(a), 3.3.3 or 6.1 of this Agreement, [*]. 3.3.2 Non-Patent Countries. Commencing as to each country in the Territory on the Royalty Commencement Date for the first Product in such country, GNE shall pay ABX a running royalty equal to [*] of Net Sales of any Product by GNE and its Sublicensees not covered by Section 3.3.1(a) above. 3.3.3 Countries With [*]. In the event that the dollar amount of net royalties owed by ABX [*] under the ABX In-Licenses for Net Sales of Products by GNE and its Sublicensees in any [*] (as defined below) [*] (after all offsets and/or credits) by GNE to ABX under the provisions of this Section 3.3 (other than this Section 3.3.3) for such Net Sales, then GNE agrees to pay to ABX [*] under the ABX In-Licenses to the extent the net royalties owed by ABX [*] are attributable to [*], as set forth in this Section 3.3.3, in lieu of the amounts that GNE would otherwise owe (after all offsets and/or credits). ABX shall invoice GNE for any such amounts [*] on such Net Sales within [*] after receiving the report from GNE under Section 4.1 setting forth the quarterly Net Sales of Products in each country and/or any annual reconciliation regarding such royalties, and GNE shall pay such amounts to ABX within [*] after delivery of such invoice. It is understood that such invoice will not specify the [*] for which the invoice is sent, or the [*]. As used in this Section 3.3.3, "[*]" means any country or territory in the Territory in which there is a [*] within the ABX Patent Rights but the conditions set forth in [*] are not met (and therefore such country is not a [*]). It is understood and agreed that nothing in this Section 3.3.3 shall obligate GNE to pay a total royalty to ABX on Net [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -12- 39 Sales of a Product in excess of the royalty amount that would be due if such Net Sales were subject to the [*] royalty provided in Section 3.3.1 and any applicable offsets under Sections 3.3.4 and 3.3.5, subject to the "Patent Country" floor royalty amounts set forth in Sections 3.3.4 and 3.3.5 for such Net Sales. 3.3.4 Third Party Royalty Offset. (a) In the event that GNE or any of its Sublicensees is required to pay to a third party (other than an Affiliate of GNE or its Sublicensees) during the term of this Agreement royalties with respect to a Product under agreements for patent rights or other technologies that GNE or its Sublicensee reasonably determines are necessary to license with respect to such Product, then GNE may deduct such royalty amounts actually paid by GNE or its Sublicensee from the royalties owed to ABX for Net Sales of such Product pursuant to this Section 3.3; provided, however, that the third party royalty offset under this Section 3.3.4 if any, shall be applied first to determine the applicable royalty amount on Net Sales of a Product for each quarter in accordance with the table set forth below and down to the royalty floors set forth therein, which floor royalties will be established on a Region-by-Region basis (as such Regions are defined in Section 3.3.4(b) below), and thereafter the applicable milestone credits described in Section 3.3.5 shall then be applied for such quarter. [*] [*] [*] (b) For purposes of this Section 3.3.4, a "Region" shall mean [*]. (c) For purposes of determining the applicable floor royalty under this Section 3.3.4, the Annual Net Sales for a Region shall include all Net Sales of all Products in all countries and territories in such Region. For such purposes, annual Net Sales of all Products within a Region shall be [*], and the floor shall be applied to the Net Sales of [*] in the corresponding Net Sales level for such Region. Notwithstanding the foregoing, the royalty payable hereunder shall be reconciled on a calendar yearly basis using actual aggregate totals [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -13- 40 of annual Net Sales for all countries and territories in each Region for each full calendar year during the term of this Agreement, and for a given calendar year such reconciliation shall be completed in time to be included in the next royalty report to ABX under Section 4.1 below. If as a result of such reconciliation it is determined that GNE has underpaid ABX royalties for a calendar year, GNE shall pay the shortfall for such calendar year promptly to ABX. If as a result of such reconciliation it is determined that GNE has overpaid ABX royalties for a calendar year, GNE shall be entitled to credit [*] of such overpaid amount against future royalties due to ABX hereunder; provided, however, that if GNE has no further obligation to pay royalties under this Agreement anywhere in the Territory, ABX shall refund any such overpayment within [*] following such reconciliation. 3.3.5 Milestone Credit Offset. Certain milestone payments set forth in Section 3.2 that have been paid to ABX shall be creditable against royalty payments due to ABX as described in this Section 3.3.5. (a) [*]. [*] of milestone payments paid to ABX for achievement of milestone B set forth in Section 3.2.1 above shall be credited against royalties due to ABX under Section 3.3 in respect of Net Sales of Products in the Territory. (b) [*]. [*] of each of milestone payments paid to ABX for achievement of milestones C, D, and E set forth in Section 3.2.1 shall be credited against royalties due to ABX under Section 3.3 in respect of Net Sales of such Product in the countries and territories for which such milestones apply (i.e., [*] shall be credited against royalties on Net Sales of Products [*] (as defined in Section [*]); [*] shall be credited against royalties on Net Sales of Products [*] (as defined in Section [*]); and [*] shall be credited against royalties on Net Sales of Products in [*]). (c) Limitation on Milestone Credit. Notwithstanding the foregoing Sections 3.3.5(a) and (b), the milestone credits described in this Section 3.3.5 shall not reduce the royalty amounts paid to ABX under this Section 3.3 in respect of Net Sales of Products in any given quarter during the term of this Agreement, to an amount below the following "floor" royalties, on a country-by-country basis: A Floor Royalty on Net Sales of Products in Country with Valid Patent Claim Covering Product (Section 3.3.1): [*] B Floor Royalty on Net Sales of Products in All Other Countries (Section 3.3.2): [*] [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -14- 41 However, the foregoing limitation on milestone credits per quarter hereunder shall not preclude carrying forward unused milestones credits into future quarter(s) until the entire available credit hereunder has been used. 3.3.6 Length of Term of Royalty Obligations. GNE's obligation to pay royalties on Net Sales of Products under this Agreement shall commence on a country-by-country basis on the Royalty Commencement Date for such country as defined in Section 3.3 above, and continue thereafter on a country-by-country basis until the later of (a) ten (10) years after the Royalty Commencement Date in such country or (b) expiration, in Patent Countries (as defined in Section 3.3.1), of the last-to-expire of the Valid Patent Claims in the ABX Patent Rights that causes GNE to owe the [*] royalty described in Section 3.3.1 (before any offsets or credits) in such country. 3.3.7 Single Royalty. Only one royalty shall be payable with respect to any Product hereunder, regardless of how many Valid Patent Claims or Pending Patent Applications within the ABX Patent Rights cover such Product. 3.3.8 [*]. ABX agrees to promptly inform GNE, on a country-by-country basis, in the event ABX [*], arising from the use, manufacture or sale of any Product in such country hereunder, and shall inform GNE of the [*]. GNE may, thereafter, [*]. In the event that GNE has already paid to ABX royalties on Net Sales in such countries for the period after ABX is [*]. It is understood and agreed that nothing in this Section 3.3.8 shall reduce the payment obligations set forth in Sections 3.3.3, 3.6.1 or 3.6.2 of this Agreement. 3.4 Discounting. If GNE or its Sublicensee sells any Product to a third party who also purchases other products or services from GNE or its Sublicensee, GNE agrees not to, and to require its Sublicensee not to, discount the sales price of the Products to a greater degree than GNE or its Sublicensee, respectively, generally discounts the price of its other products to such customer. 3.5 Royalties To Be Paid By ABX. Subject to the terms and conditions of this Agreement, including without limitation GNE's payment of royalties as set forth herein, ABX shall be responsible for paying all amounts owed to third parties in respect of Net Sales of Products by GNE and its Sublicensees in accordance with this Agreement under the Agreements set forth in [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -15- 42 Attachment C attached hereto and incorporated herein. GNE may not offset such payments under Section 3.3.4. 3.6 Core Third Party Patents. If either party becomes aware of any Core Third Party Patent during the term of this Agreement, or any pending patent application that would be a Core Third Party Patent if issued, such party shall promptly notify the other party and, except to the extent that such party is prohibited under a duty of confidentiality from disclosing such information, provide a reasonably detailed summary of its knowledge regarding such patent or patent application (including, by way of example and without limitation, the identity of the person that owns or controls such patent, the subject matter of the patent or application, and any available information about terms offered or asked with respect to licenses under such patents). 3.6.1 ABX. GNE agrees to [*] under any Core Third Party Patent; provided, however, that neither ABX nor GNE (nor its Sublicensees) shall be obligated [*], and provided, further, that if ABX elects not [*] it shall promptly notify GNE of such election, and GNE shall thereafter be [*] on its own behalf. In the absence of such an election, on and after the date falling [*] after either party first notifies the other of the Core Third Party Patent, GNE [*] directly [*]. If ABX [*] such patent, ABX will be responsible to [*] owed thereunder for the Net Sales of Products in the Territory by GNE and its Sublicensees; provided, however, in the event that the [*], as set forth in this Section 3.6.1, [*]; and provided, further, that if both ABX and GNE [*], GNE shall not thereafter [*] Core Third Party Patent by ABX under this Agreement, and GNE shall [*], to be offset as provided in Section 3.6.2 below. ABX shall invoice GNE for any such amounts [*] on such Net Sales within [*] after receiving the report from GNE under Section 4.1 setting forth the quarterly Net Sales of Products in each country and/or any annual reconciliation regarding such royalties, and GNE shall pay such amounts to ABX within [*] after delivery of such invoice. It is understood that such invoice will not [*] for which the invoice is sent, or the [*]. The parties hereto agree to discuss and negotiate in good [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -16- 43 faith regarding the manner in which the [*]. 3.6.2 GNE. If GNE or its Sublicensee [*] under a Core Third Party Patent, GNE may [*]; provided, however, that (a) the [*]. It is understood that the [*]; provided, however, that in the event that the [*]. ABX shall invoice GNE for any such amounts [*] on such Net Sales within [*] after receiving the report from GNE under Section 4.1 setting forth the quarterly Net Sales of Products in each country and/or any annual reconciliation regarding such royalties, and GNE shall pay such amounts to ABX within [*] after delivery of such invoice. It is understood that such invoice will not specify the [*] for which the invoice is sent, or the [*]. 4.0 ACCOUNTING AND RECORDS. 4.1 Royalty Reports; Payments, Invoices. After the Royalty Commencement Date in any country in the Territory, GNE agrees to make quarterly written reports to ABX within sixty (60) days after the end of each calendar quarter, stating in each such report the number, description, and aggregate Net Sales of Product sold during the calendar quarter upon which a royalty is payable under Article 3 above and, if applicable, the annual royalty reconciliation under Section 3.3.3(c) above. Concurrently with the making of such reports, GNE shall pay to ABX all amounts payable pursuant to Article 3 above, in accordance with the payment provisions of Section 4.3. For purposes of determining when a sale of any Product occurs under this Agreement, the sale shall be deemed to occur on the earlier of the date the Product is shipped, or the date of the invoice to the purchaser of the Product. 4.2 Records; Inspection. 4.2.1 GNE. GNE shall keep (and require its Sublicensees to keep) complete, true and accurate books of account and records for the purpose of determining the royalty amounts payable to ABX under this Agreement. Such books and records shall be kept at the principal place [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -17- 44 of business of GNE or its Sublicensees, as the case may be, for at least three (3) years following the end of the calendar quarter to which they pertain. Such records of GNE or its Sublicensees will be open for inspection during such three-year period by an independent certified public accountant representing ABX (which representative may also represent XT) and reasonably acceptable to GNE for the purpose of verifying the royalty statements. GNE shall require each of its Sublicensees to maintain similar books and records and to open such records for inspection during the same three (3)-year period by such representative of ABX for the purpose of verifying the royalty statements. All such inspections may be made no more than once each calendar year at reasonable times mutually agreed by GNE and ABX. The representative of ABX will be obliged to execute a reasonable confidentiality agreement prior to commencing any such inspection. The results of any inspection hereunder shall be provided to both parties, and GNE shall pay any underpayment to ABX within thirty (30) days. Any overpayment may be credited against future royalty amounts due to ABX hereunder; provided, however, that if there is no further obligation to pay royalties hereunder anywhere in the Territory, ABX shall refund any such overpayment within thirty (30) days. Inspections conducted under this Section 4.2.1 shall be at the expense of ABX, unless a variation or error producing an increase exceeding [*] of the amount stated for any period (after taking into account any applicable annual reconciliation) is established in the course of any such inspection, whereupon all costs of such audit of such period will be paid by GNE. Upon the expiration of three (3) years following the end of any calendar year, the calculation of royalties payable with respect to such year shall be binding and conclusive, and GNE shall be released from any liability or accountability with respect to royalties for such year; provided, however, that if ABX has demanded payment of additional royalties it claims have not been properly paid under this Agreement, or if there is a dispute between the parties regarding the amount of royalties due, prior to the expiration of the third calendar year following the calendar year in question, then the calculation of royalties shall not become binding and conclusive (and GNE shall not be released from liability or accountability with respect to such royalties) before three years following the date, if any, that such dispute is finally resolved between the parties by mutual written agreement. It is understood that nothing in the preceding sentence shall limit or prohibit the carrying forward of an applicable credit against royalties permitted under Sections 3.3.1(b) or 3.3.3(c). 4.2.2 ABX. ABX shall keep complete, true and accurate books of account and records for the purpose of determining the royalty amounts payable to ABX under Sections 3.3.3, 3.3.8, 3.6.1 or 3.6.2. Such books and records shall be kept at the principal place of business of ABX for at least three (3) years following the end of the calendar quarter to which they pertain. For any period for which GNE has paid royalties under Sections 3.3.3, 3.6.1 or 3.6.2 of this Agreement, such records will be open for inspection during such three-year period by an independent certified public accountant representing GNE and reasonably acceptable to ABX for the purpose of verifying the invoiced amounts paid by GNE. All such inspections may be made no more than once each calendar year at reasonable times mutually agreed by GNE and ABX. The representative of GNE will be obliged to execute a reasonable confidentiality agreement prior to commencing any such inspection. The results of any inspection hereunder shall be provided to both parties as follows: it is understood and agreed that GNE shall not be informed of the financial terms of any [*], and shall only be informed whether or not the amounts invoiced by ABX and paid by GNE accurately [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -18- 45 represent the amounts to be paid by [*]. ABX shall refund any overpayment found by the accountant in such an inspection within thirty (30) days after receiving the results, and GNE shall pay to ABX any underpayment found by the accountant in such an inspection within thirty (30) days after receiving notice of such underpayment. Inspections conducted for payments under Section 3.3.3, 3.6.1, or 3.6.2 shall be at the expense of ABX; provided, however, that if the invoices referred to in Sections 3.3.3, 3.6.1, or 3.6.2 do specify the [*], such inspection shall be at the expense of GNE unless a variation or error producing a decrease exceeding [*] of the amount paid by GNE for any period (after taking into account any applicable annual reconciliation) is established in the course of any such inspection, whereupon all costs of such audit of such period will be paid by ABX and provided, further, that audits under Section 3.3.8 will be at the expense of GNE. Upon the expiration of three (3) years following the end of any calendar year, the calculation of royalties payable with respect to such year shall be binding and conclusive, and GNE shall be released from any liability or accountability with respect to royalties for such year; provided, however, that if ABX has demanded payment of additional royalties it claims have not been properly paid under this Agreement, or if there is a dispute between the parties regarding the amount of royalties due, prior to the expiration of the third calendar year following the calendar year in question, then the calculation of royalties shall not become binding and conclusive (and GNE shall not be released from liability or accountability with respect to such royalties) before three years following the date, if any, that such dispute is finally resolved between the parties by mutual written agreement. It is understood that nothing in the preceding sentence shall limit or prohibit the carrying forward of an applicable credit against royalties permitted under Section 3.3.5. 4.3 Payment Method. All payments due hereunder shall be made in U.S. dollars, and shall be made by bank wire transfer in immediately available funds to an account designated by ABX in a written notice to GNE. Any payments from ABX to GNE (if any) shall also be made in U.S. dollars, by bank wire transfer in immediately available funds to an account designated by GNE in a written notice to ABX. 4.4 Currency Conversion. If any currency conversion shall be required in connection with the calculation of royalties hereunder, such conversion shall be made using the selling exchange rate for conversion of the foreign currency into U.S. Dollars, quoted for current transactions reported in The Wall Street Journal for the last business day of the calendar quarter to which such payment pertains. 4.5 Late Payments. Any payments due from GNE (or from ABX, if any) that are not paid on the date such payments are due under this Agreement shall bear interest at the lesser of (i) the [*], or (ii) the maximum rate permitted by applicable law, in each case calculated on the number of days such payment is delinquent. This Section 4.5 shall in no way limit any other remedies available to either party. [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -19- 46 4.6 Withholding Taxes. All payments required to be made pursuant to Article 3 hereof shall be without deduction or withholding for or on account of any taxes or similar governmental charge imposed by a jurisdiction except for withholding taxes to the extent applicable ("Withholding Taxes"). GNE shall pay any applicable Withholding Taxes due on behalf of ABX and shall promptly provide ABX with written documentation of any such payment sufficient to satisfy the requirements of the United States Internal Revenue Service related to an application by ABX for a foreign tax credit for such payment. 4.7 Restrictions on Payment. If by law, regulation or fiscal policy of a particular country or jurisdiction in the Territory, remittance of funds in U.S. Dollars is restricted or forbidden such that GNE cannot expatriate funds and that both ABX and GNE are affected, written notice thereof will promptly be given to ABX, and payment of such funds that constitute amounts that would be owing to ABX under this Agreement that cannot be expatriated shall be made by the deposit thereof in local currency to the credit of ABX in a recognized banking institution designated by ABX in writing. When in any country or jurisdiction in the Territory the law, regulation or fiscal policy prohibit both the transmittal and the deposit of royalties on sales of Products in such country or jurisdiction, royalty payments shall be suspended for as long as such prohibition is in effect, and as soon as such prohibition ceases to be in effect, all royalties that GNE would have been under an obligation to transmit or deposit but for such prohibition shall forthwith be deposited or transmitted. 5.0 DUE DILIGENCE. 5.1 Reasonable Commercial Efforts; IND Milestone. 5.1.1 GNE agrees to use commercially reasonable efforts consistent with prudent business judgment to commercialize Products, by the filing of an IND by GNE or its Sublicensee in the United States or Japan, within such time period as may be mutually agreed upon by the parties after taking into account factors relating to the Product Antigen and ABX's obligations under the Product License with XT or, if no such period is agreed upon, [*] years from the Effective Date. ABX agrees that it will, on request of GNE, use reasonable efforts to try to establish a longer period of time for filing of an IND in the United States or Japan under the terms of the Product License. 5.1.2 Notwithstanding the foregoing, GNE shall be required actively and continuously to pursue the filing of an IND by GNE or its Sublicensee, as soon as practicable after the Effective Date using reasonable commercial efforts consistent with prudent business judgment. After filing of an IND, GNE or its Sublicensee shall be required to have an active IND and to use commercially reasonable efforts, consistent with prudent business judgment, to conduct clinical trials in pursuit of regulatory approval for a Product in the United States or Japan. 5.2 Failure to Meet Due Diligence Obligation. If the diligence requirements set forth in Section 5.1 are not met by GNE (or its Sublicensees), ABX shall have the right, at ABX's election (subject to the notice and cure provisions under Section 10.2, except to the extent that the Product [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -20- 47 License between ABX and XT is terminated by XT because the diligence requirements set forth in the Product License have not been met), either (a) to convert GNE's exclusive license to a non-exclusive royalty-bearing license to use the ABX Know-How and practice the ABX Patent Rights for the purposes set forth in this Agreement, or (b) to terminate the license rights granted to GNE hereunder. 5.3 GNE Reports. GNE agrees, upon request by ABX, to keep ABX informed as to the research, development and commercialization of Products hereunder. Without limiting the foregoing, if ABX makes a written request, then within ninety (90) days of such written request during the term of this Agreement, GNE shall provide to ABX a report detailing the status and potential timing of any anticipated IND filings under Section 5.1 above, the status of clinical and preclinical testing of any Products, and anticipated filings of any BLA and/or Foreign Marketing Application for any Products in the Territory, provided, however, that ABX may make only one such written request per twelve (12) month period. All GNE reports hereunder shall be treated as "Confidential Information" of GNE as provided in Article 7 of this Agreement. 5.4 Gene Therapy Applications. GNE's intention as of the Effective Date is to commercialize a Product hereunder for an application other than Gene Therapy (as defined below) before commercializing a Product hereunder for a Gene Therapy application. It is understood, however, that GNE may or may not also intend to develop and sell Products for use in Gene Therapy, and that such Gene Therapy application may ultimately be commercialized before a Product is commercialized hereunder for a non-Gene Therapy application. As used herein, "Gene Therapy" shall mean the treatment or prevention of a disease by means of [*]. 6.0 INTELLECTUAL PROPERTY. 6.1 Ownership of Intellectual Property [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -21- 48 6.1.1 Intellectual Property Concerning Antibodies, Cells, and Genetic Material. GNE and ABX shall jointly own all right, title and interest in patent or patent applications directed to inventions solely or jointly made, conceived, reduced to practice, or otherwise developed by GNE and/or ABX in the course of performing research or development work under the MTA, the GNE Option Agreement, or this Agreement that are directed to (i) Antibodies, (ii) hybridomas, and/or (iii) Genetic Material encoding Antibodies. This Section 6.1.1 hereby supercedes and cancels any term or provision of the MTA that are inconsistent with this Section 6.1.1 to the extent that such term or provision of the MTA relates to the Product Antigen. It is understood and agreed that nothing in the Section 6.1.1 shall convey, or be construed to convey, title in or to the biological materials themselves embodying any such jointly-owned inventions to GNE or ABX, as the case may be. 6.1.2 Intellectual Property Concerning Other Inventions. Except as otherwise provided in Sections 6.1.1 and 2.4.3 above, on and after the effective date of the MTA, title to any inventions (and to any patent applications and patents thereon) by a party or parties under the MTA, this Agreement, or the GNE Option Agreement shall follow inventorship, which shall in turn be determined in accordance with United States laws of inventorship and probative evidence of the parties. Designation of inventors on any patent application hereunder is a matter of law and shall be solely within the discretion of qualified patent counsel of the party(ies) hereto making such invention. 6.1.3 Joint Ownership. For purposes of clarification, to the extent that something is jointly owned under this Agreement, and except as otherwise provided in this Agreement (including the exclusive nature of the licenses granted by ABX hereunder), either party shall have the right to use, commercialize, grant and authorize sublicenses, and otherwise exploit all such jointly-owned patents and inventions without obligation to account to, or obtain the consent of, the other joint owner. Both parties hereto agree to promptly disclose to the other all jointly-owned inventions under this Agreement and, on request of the other party, will provide such information and assistance as may be reasonably necessary to assist in the filing and prosecution of patent applications claiming such inventions. The parties hereto agree to ensure that each employee, agent, or independent contractor that conducts research using the XenoMouse Animals, or materials derived in whole or part from the XenoMouse Animals, will promptly disclose and assign to the parties hereto any and all rights to jointly-owned inventions. The parties hereto agree to maintain records in sufficient detail and in good scientific manner appropriate for patent purposes and so as to properly reflect all work done and results achieved in performing research under the MTA, the GNE Option Agreement, or this Agreement. 6.1.4 Non-Use of Materials. ABX shall not license or make any other use of any material (including, without limitation, any Antibodies, B cells, hybridomas or Genetic Material) owned by GNE or ABX, or owned jointly by GNE and ABX, in each case, generated in whole or in part from GNE or ABX's activities under this Agreement, the GNE Option Agreement or the MTA, except as expressly provided in this Agreement, in any case without first obtaining GNE's prior written consent. -22- 49 6.2 Patent Prosecution. (a) Solely Owned. The party solely owning any invention under Section 6.1 above shall have the sole right and responsibility (but not the obligation), at its expense, to file, prosecute and maintain all patent applications and patents thereon, and to conduct any interferences, oppositions, or reexaminations thereon, and to request any reissues or patent term extensions thereof. (b) Jointly Owned. In the event of any invention jointly owned by the parties under [*] above, ABX shall have the sole right and responsibility (but not the obligation), at its expense, to file, prosecute and maintain all patent applications (and to conduct any interferences, oppositions, or reexaminations thereon, and to request any reissues or patent term extensions thereof) claiming any XenoMouse Animals or any uses thereof, and GNE shall have the sole right and responsibility (but not the obligation), at its expense, to file, prosecute and maintain all patent applications and patents (and to conduct any interferences, oppositions, or reexaminations thereon, and to request any reissues or patent term extensions thereof) claiming the Product Antigen, any Antibody or Product and/or its development, manufacture, use or sale. The party having such rights and responsibilities hereunder is referred to as the "Controlling Party". The Controlling Party shall: (i) provide the non-Controlling Party with any patent application filed hereunder by the Controlling Party promptly after such filing; (ii) provide the non-Controlling Party promptly with copies of all substantive communications received from or filed in patent office(s) with respect to such filings; (iii) notify the non-Controlling Party of any interference, opposition, reexamination request, nullity proceeding, appeal or other interparty action and review it with the non-Controlling Party as reasonably requested; and (iv) provide the non-Controlling Party, a reasonable time prior to taking or failing to take any action that would substantially affect the scope of validity of rights under such patent applications or patents thereon (including substantially narrowing or canceling any claim without reserving the right to file a continuing or divisional application, abandoning any patent or not filing or perfecting the filing of any patent application) with notice of such proposed action so that the non-Controlling Party has a reasonable opportunity to review and make comments. If the Controlling Party fails to undertake the filing of a patent application (or continuing or divisional application) within ninety (90) days after a written request from the non-Controlling Party to do so, or if the Controlling Party discontinues the prosecution or maintenance of a patent application or patent, the non-Controlling Party at its expense may, in its discretion, undertake such filing, prosecution or maintenance thereof in which case such patent application thereon shall be solely owned by the non-Controlling Party. The parties hereto shall assist each other to the extent commercially reasonable in securing intellectual property rights resulting from jointly owned inventions hereunder. The parties hereto shall assist each other to the extent commercially reasonable in securing intellectual property rights resulting from jointly owned inventions hereunder. As to enforcement of jointly-owned patents, including actions against an alleged infringer, the parties hereto shall consult with each other in good faith as to the best manner in which to proceed. The parties agree as a basic principle that in the case of such actions against alleged infringers, the expenses incurred and damages awarded shall be first used to reimburse the costs and expenses (including reasonable attorneys' fees) of the party or parties in the action, second used to reimburse ABX for any amounts ABX is obligated to pay to third parties (if any) in respect of such amount [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -23- 50 pursuant to applicable ABX In-Licenses, with the remainder for the account of the party or parties that undertake such actions to the extent of their financial participation therein. To the extent that damages are awarded for lost sales or lost profits from the sale of Products, such damages shall be allocated among the parties taking into account royalties that would have been payable to ABX on the sale of such Products. Either party may withdraw from or abandon any jointly-owned patent application or patent hereunder, on reasonable prior written notice to the other party providing a free-of-charge option to assume the prosecution and/or maintenance thereof. 6.3 Grant Back. It is the intent of the parties that this Agreement shall not restrict ABX's freedom to operate regarding the practice and commercialization of the Licensed Technology (including without limitation XenoMouse Animals and cells, genetic material, and antibodies generated or derived from XenoMouse Animals), except in relation to Products. Accordingly, in the event that any patent owned or controlled by GNE that directly arises from use of the XenoMouse Animals that has application other than for the manufacture, use, sale, offer for sale or import of Products, GNE agrees to grant, and hereby grants, to ABX a [*] license in the Territory, with the right to grant and authorize sublicenses, under all patents claiming such inventions, for all fields of use other than the manufacture, use, sale, offer for sale or import of Products, in each case on terms and condition [*]. In the event that any patent owned or controlled by GNE claims use of the XenoMouse Animals that has application other than for the manufacture, use, sale, offer for sale or import of Products, GNE agrees upon written notice from ABX to grant to ABX a [*] license in the Territory, with the right to grant and authorize sublicenses, under all patents claiming such inventions, for all fields of use other than the manufacture, use, sale, offer for sale or import of Products, [*]. 6.4 Enforcement of ABX Patent Rights. (a) If either party learns that a third party is infringing or allegedly infringing any ABX Patent Rights, it shall promptly notify the other party thereof, including available evidence of infringement. As between GNE, its Sublicensees and ABX, ABX shall have the exclusive right at its expense, and in its discretion, to bring an enforcement proceeding, or defend any declaratory judgment action, involving any ABX Patent Rights. ABX shall keep GNE reasonably informed of the progress of such claim, suit or proceeding involving enforcement or defense of any ABX Patent Rights. To the extent such action involves claims directly concerning any Antibody or Product, GNE shall have the right to join such proceeding at any time at its own expense, but GNE shall not admit the invalidity or unenforceability of any ABX Patent Rights without ABX's prior written consent. (b) Notwithstanding the foregoing, if ABX notifies GNE that it does not desire to pursue an enforcement action or defend a declaratory judgment action hereunder with respect to any infringement of any patent rights described in Section 6.1.1 or other patent rights [*] by [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -24- 51 the parties as set forth in Section 6.1.2, then to the extent such action involves or affects any Antibody or Product, GNE may at its expense bring or defend such action with respect to such patent rights (and no other patent rights in the ABX Patent Rights) in consultation with ABX, and in such event ABX agrees to join as party plaintiff at GNE's expense if necessary to prosecute the action and agrees to give GNE reasonable assistance and authority to file and prosecute the suit (but neither party shall be required to transfer title to any property to confer standing on a party hereunder). In connection with any such action by GNE hereunder. GNE shall not admit the invalidity or unenforceability of any ABX Patent Rights without ABX's prior written consent. (c) Any recovery as a result of any such claim, suit or proceeding hereunder shall be first used to reimburse the costs and expenses (including reasonable attorneys' fees) of the party or parties in the action, second used to reimburse ABX for any amounts ABX is obligated to pay to third parties in respect of such amount pursuant to applicable ABX In-Licenses and GNE's and its Sublicensees' lost sales of Products within the Field because of the infringement, with the remainder for the account of the party or parties that undertake such actions to the extent of their financial participation therein. To the extent that damages are awarded for lost sales or lost profits from the sale of Products, such damages shall be allocated among the parties taking into account royalties that would have been payable to ABX on the sale of such Products. 6.5 Infringement Claims Against GNE. If the production, sale or use of Product pursuant to this Agreement results in any claim, suit or proceeding alleging patent infringement against GNE (or its Affiliates or Sublicensees), GNE shall promptly notify ABX thereof in writing setting forth the facts of such claim in reasonable detail. GNE agrees to keep ABX reasonably informed of all material developments in connection with any such claim, suit or proceeding as it relates to the Licensed Technology. Notwithstanding the above, GNE shall not admit the invalidity of any patent within the Licensed Technology without written consent from ABX. 6.6 Limitation. Notwithstanding any other provision in this Article 6, the parties acknowledge and understand that (i) ABX shall not be obligated to prepare, file, prosecute, and maintain patents and patent applications, or to bring or pursue enforcement proceedings or defend declaratory judgement actions regarding the Licensed Technology if, and to the extent that, ABX is not entitled to do so under one or more ABX In-Licenses, and (ii) any rights conveyed under this Article 6 permitting GNE to prepare, file, prosecute and maintain certain patents and patent applications, or to bring and pursue enforcement proceedings, or defend declaratory judgment actions, regarding the Licensed Technology, shall be subject to all applicable ABX In-Licenses, and are conveyed only to the extent permitted under such agreements. 6.7 Patent Marking. GNE agrees to mark and have its Sublicensees mark all Products sold pursuant to this Agreement in accordance with the applicable statutes or regulations in the country or countries of manufacture and sale thereof. 7.0 CONFIDENTIALITY. -25- 52 7.1 Confidentiality. Except as expressly provided herein, the parties agree that during the term of this Agreement and for five (5) years thereafter the receiving party shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose other than performance of this Agreement any information furnished to it by the other party hereto pursuant to this Agreement ("Confidential Information"), except to the extent that it can be established by the receiving party by competent proof that such information: (a) was already known to the receiving party, other than under an obligation of confidentiality, at the time of disclosure; (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; or (d) was subsequently lawfully disclosed to the receiving party by a person other than a party or developed by the receiving party without reference to any information or materials disclosed by the disclosing party. 7.2 Permitted Disclosures. Notwithstanding Section 7.1 above and Section 7.4 below, each party hereto may nevertheless disclose the other party's Confidential Information and the terms of this Agreement to the extent such disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable laws or regulations or otherwise submitting information to tax or other governmental authorities, making a permitted Sublicense or publication or other exercise of its rights hereunder or conducting clinical trials, provided that if a party is required by law to make any such disclosure of the other party's Confidential Information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the other party of such disclosure requirement and, save to the extent inappropriate in the case of patent applications, will use efforts consistent with prudent business judgment to secure confidential treatment of such information prior to its disclosure (whether through protective orders or confidentiality agreements or otherwise). It is understood that the obligations set forth in this Article 7 are separate from GNE's obligations under Section 2.2 of the GNE Option Agreement, and the expiration or nonapplicability of GNE's obligations under Section 7.1 above shall not be deemed to limit GNE's obligations under Section 2.2 of the GNE Option Agreement. 7.3 Scientific Publications. The parties agree, as a general principle, that it is desirable to publish the results of the research conducted by the parties hereto under this Agreement and agree that both parties will have the right to publish such results. The following restrictions shall apply with respect to the disclosure in scientific journals or publications by the parties hereto regarding any scientific work under this Agreement (but not any Independent Discovery or other research performed by the parties): (a) the party publishing, or proposing to publish, such results (the -26- 53 "Publishing Party") shall provide the other party (the "Non-Publishing Party") with an advance copy of any proposed submission of a publication arising from such scientific work, not less than thirty (30) days prior to submission or disclosure of such publication, and the Non-Publishing Party shall have a reasonable opportunity to recommend any changes it reasonably believes are necessary to preserve its Patent Rights or Know-How or to protect its Confidential Information, and the incorporation of such recommended changes shall not be unreasonably refused; and (b) if the Non-Publishing Party informs the Publishing Party, within thirty (30) days of receipt of an advance copy of a proposed publication hereunder, that such publication includes Confidential Information of the Non-Publishing Party the publication of which, in the Non-Publishing Party's sole judgment, could be expected to have a material adverse effect on any of its Patent Rights or reasonable Know-How, or on the Non-Publishing Party's business affairs, the Publishing Party shall delete such Confidential Information of the Non-Publishing Party from such publication and, in the case of inventions made solely by the Publishing Party or jointly by the Publishing Party and the Non-Publishing Party, delay publication thereof for an a time period (not to exceed ninety (90) days) sufficient for the preparation and filing of a patent application or application for a certificate of invention thereon, in accordance with Article 6 of this Agreement. The parties agree to confer regarding authorship of such publications, which shall be determined in accordance with the standards for authorship customary for peer-reviewed journals. For purposes of this Section, the Parties agree that publication of Confidential Information covered by a filed patent application shall not be required to be deleted solely due to a patent application not having reached its 18 month publication date. 7.4 Terms of Agreement. Except as expressly provided in this Article 7, each party hereto agrees not to make any public disclosure of the terms of this Agreement or the identity of the Product Antigen (including, without limitation, any press release and/or Q&A to be issued on the Option Effective Date), without first obtaining the written approval of the other party and agreement upon the nature and text of such public announcement or disclosure. The party desiring to make any such public announcement shall provide the other party with a copy of the proposed announcement for review and comment in reasonably sufficient time prior to public release. Each party agrees that it shall cooperate fully with the other with respect to all disclosures regarding this Agreement required under applicable laws and regulations to the United States Securities Exchange Commission and any other governmental or regulatory agencies, including requests for confidential treatment of proprietary information of either party included in any such governmental disclosure. The parties may publicly disclose information contained in any prior public disclosure that was in compliance with this Section without further approvals hereunder. In addition, each party agrees not to disclose the identity of the Product Antigen to any third party under any circumstances except if required by law, [nor the terms of this Agreement or the GNE Option Agreement to any third party, other than professional advisors and financing sources, and in that case, only under confidentiality terms that are at least as stringent in material respects as those in this Article. The parties acknowledge that, in the event of an initial public offering by ABX, ABX may be required to file this Agreement or information related thereto with the Securities and Exchange Commission (the "SEC"). In that event, and thereafter, ABX shall be entitled to comply with the disclosure requirements of the SEC, provided, however, that in connection with any required SEC filing of this Agreement by ABX, ABX shall use its reasonable efforts to obtain confidential treatment of portions of the Agreement -27- 54 from the SEC (including, without limitation, financial terms and the identity of the Product Antigen). GNE shall have the right to review and comment on such an application for confidential treatment insofar as it pertains to this Agreement prior to its being filed with the SEC and ABX shall not unreasonably refuse such comments. GNE shall provide its comments, if any, on such application as soon as practicable, and in no event later than four (4) days after such application is provided to GNE. 8.0 INDEMNIFICATION 8.1 GNE. GNE agrees to save, defend and hold ABX and its directors, officers, employees, agents and Affiliates harmless from and against any suits, claims, actions, demands, damages, liabilities, expenses or losses (including court costs and reasonable attorneys' and experts' fees) (collectively, the "Liabilities") resulting directly from (a) third party claims arising from any negligence or willful misconduct of GNE (or its directors, officers, employees, agents or Sublicensees) or the breach of any representations or warranties of GNE under this Agreement, or (b) any third party claims arising from GNE's or its Sublicensee's development, making, having made, use, offer for sale, or sale of any Product developed, manufactured, used, sold or otherwise distributed by GNE and its Sublicensees under this Agreement; provided, however, that nothing in this Section 8.1 shall obligate GNE to save, defend or hold harmless ABX for any Liabilities to the extent arising from the negligence or willful misconduct of ABX or its directors, officers, employees, or agents. 8.2 ABX. ABX agrees to save, defend and hold GNE and its directors, officers, employees, agents and Affiliates harmless from and against any Liabilities resulting directly from (a) third party claims arising from any negligence or willful misconduct of ABX (or its directors, officers, employees, or agents) or the breach of any representations or warranties of ABX under this Agreement, (b) any third party claims arising from any negligence or willful misconduct of ABX or its directors, officers, employees, agents in the course of conducting ABX work under the Research Plan or (c) any third party claims arising from infringement of a Core Third Party Patent in the course of using the Licensed Technology in accordance with this Agreement, the GNE Option Agreement, or the MTA, (including, without limitation, the production of Antibodies to the Product Antigen); provided, however, that indemnification under Section 8.2(c) shall only be required by ABX in the event that neither ABX nor GNE enters into a license with the party claiming infringement, under Section 3.6 of this Agreement; provided, further, that indemnification under Section 8.2(c) shall be limited to amounts paid by GNE to ABX under this Agreement; and provided, further, that nothing in this Section 8.2 shall obligate ABX to save, defend or hold harmless GNE for any such Liabilities to the extent arising from the negligence or willful misconduct of GNE or its directors, officers, employees, agents or Sublicensees. 8.3 Indemnification Procedures. If any person or party entitled to indemnification under this Article 8 (an "Indemnitee") intends to claim indemnification under this Article 8, it shall promptly notify the indemnifying party hereunder (the "Indemnitor") in writing of any Liability in respect of which the Indemnitee intends to claim such indemnification, as soon as reasonably -28- 55 practicable after the Indemnitee receives notice of such Liability. Indemnitor's obligations under this Article 8 are conditioned upon the Indemnitee permitting the Indemnitor to assume direction and control of the defense of the Liability (including the right to settle it); provided, however, that an Indemnitee shall have the right to retain its own legal counsel, with the reasonable fees and expenses thereof to be paid by the Indemnitor, if representation of such Indemnitee by the legal counsel retained by the Indemnitor would be inappropriate due to actual or potential conflicts of interest between such Indemnitee and such Indemnitor. Indemnitor's obligations under this Article 8 shall not apply to amounts paid in settlement of any loss, claim, damage, liability or action if such settlement is effected without the consent of the Indemnitor, which consent shall not be withheld or delayed unreasonably. The failure to deliver written notice to the Indemnitor within a reasonable time after the commencement of any third party suit, claim, action or demand, if prejudicial to Indemnitor's ability to defend such suit, claim, action or demand, shall relieve the Indemnitor of its obligations under this Section 8 with respect to Liabilities that could have been defended in such action. The Indemnitee (and its directors, officers, employees and agents) shall cooperate fully with the Indemnitor and its legal counsel in the investigation of any such Liability for which indemnification is sought by such Indemnitee hereunder. 9.0 REPRESENTATIONS, WARRANTIES AND COVENANTS. 9.1 ABX. ABX represents, warrants and covenants to GNE that: (a) it has the full right and authority to enter into this Agreement and grant the rights and licenses granted herein; (b) it has not previously granted, and during the term of this Agreement will not grant, any rights inconsistent or in conflict with the rights and licenses granted to GNE herein, including without limitation, any right, license in and to the Licensed Technology granted under this Agreement, or any portion thereof, with respect to the Products or their development, manufacture, use or sale; (c) to its knowledge as of the Effective Date and except as set forth on Schedule A hereto, there were no existing or threatened actions, suits or claims pending against ABX with respect to the Licensed Technology or the right of ABX to enter into and perform its obligations under this Agreement or the Product Agreement with XT, and ABX has informed GNE of all such existing or threatened actions, suits or claims of which ABX is aware as of the Effective Date; (d) it will not take any action or fail to take any action under this Agreement that will cause a breach of the GenPharm Cross-License, the Xenotech Agreement, the Product License, or any ABX In-License; provided, however, that it shall not be a breach of this covenant if ABX cures any breach of such third party agreement pursuant to the cure provisions contained therein; (e) As of the Effective Date and except as set forth on Schedule A hereto ABX (a) had no knowledge (without the obligation to perform due diligence) of any rights of third parties that -29- 56 would interfere with the use of the ABX Know-How or practice of the ABX Patent Rights as contemplated under this Agreement (including, without limitation, work under the Research Plan or otherwise in the Research Field pursuant to the GNE Option Agreement or this Agreement), and (b) had no knowledge (without the obligation to perform due diligence) that any patents or patent applications within the ABX Patent Rights are invalid or unenforceable or that their practice would infringe patent rights of third parties, provided, however, that this representation does not apply to possible infringements relating to the Product Antigen; (f) as of the Effective Date, Cell Genesys, Inc. ("CGI") had assigned to ABX all of CGI's rights and obligations under the Xenotech Agreement, and ABX is now a party to the Xenotech Agreement in lieu of CGI; (g) it has provided to GNE, on or before the Effective Date, complete copies of all applicable ABX In-Licenses setting forth all applicable limitations or restrictions described in Section 2.3 (it being understood that the financial terms have been redacted from some or all such copies) and shall, at GNE's request, discuss with GNE ABX's interpretation of material terms (excepting only financial terms) and conditions of such ABX In-License, including, without limitation, any limitations on ABX's right to further transfer or grant licenses or sublicenses to GNE to any and all rights to technology within the scope of the ABX Patent Rights and/or ABX Know-How under any ABX In-License; (h) on or before the Effective Date, ABX entered into a Product License for the Product Antigen with XT under the Xenotech Agreement and that Product License is an [Exclusive Worldwide Product License] [Exclusive Qualified Worldwide Product License] (as such term is defined in the Xenotech Agreement), and GNE is ABX's exclusive sublicensee of ABX for all uses of the Licensed Technology under the Produce License relating to Products in the Field throughout the Territory, as provided in this Agreement; (i) ABX has provided GNE with a complete copy (excepting only financial terms) of such Product License as signed by all parties thereto. During the term of this Agreement: (i) ABX will not agree to any modifications or amendments to such Product License that restrict or limit or otherwise negatively affect the rights and licenses granted to GNE hereunder, and shall not terminate any licenses therein, in any case without GNE's prior written consent in its sole discretion; and (ii) ABX shall provide GNE promptly with a copy of any notice of default by ABX and/or its Sublicensee under such Product License, and of any notice of termination by any other party thereto; (j) If the Product License is an Exclusive Worldwide Product License, JTI does not have the right under the Xenotech Agreement to obtain an "Exclusive Home Territory Product License" or a "Co-Exclusive Worldwide Product License" (as these are defined in the Xenotech Agreement and attached thereto as exhibits) for the Product Antigen, or any other right or license under the Licensed Technology to develop, make or have made, use, sell, lease, or offer to sell or lease, import, export, otherwise transfer physical possession of or otherwise transfer title to Products -30- 57 in the Field in the Territory. ABX shall notify GNE promptly in writing of assertion by JTI (if any) that it may have any such rights anywhere in the Territory; (k) ABX shall not agree to any termination, modifications or amendments to any ABX In-Licenses that would negatively affect GNE's rights or obligations under this Agreement without first obtaining Genentech's prior written consent, and ABX shall notify GNE as soon as practicable of any material modification or amendment of any ABX In-License that affects (positively or negatively) GNE's rights or obligations under the Agreement; (l) ABX shall provide GNE promptly with a copy of any notice of default by ABX and/or its Sublicensee under any ABX In-License, and of any notice of termination by any other party to any ABX In-License; and (m) ABX shall not use or permit others to use cells created by GNE or ABX from immunization of XenoMouse Animals with the Product Antigen under this Agreement, the [*] Product License, or the MTA in any way without GNE's prior written consent nor shall ABX directly or indirectly create, incur, assume or suffer to exist, any lien, security interest or other similar encumbrance upon or with respect to such cells. 9.2 GNE. GNE represents, warrants and covenants to ABX that: (a) it has the full right and authority to enter into this Agreement and grant the rights and licenses granted herein; (b) to its knowledge as of the Option Effective Date, there were no existing or threatened actions, suits or claims pending against GNE or its Affiliates with respect to the subject matter hereof (including, without limitation, rights in and to the Product Antigen and/or antibodies to the Product Antigen) or the right of GNE to enter into and perform its obligations under this Agreement, and GNE has informed ABX of all such existing or threatened actions, suits or claims of which GNE is aware as of the Effective Date; (c) it has not previously granted, and during the term of this Agreement will not grant, any rights inconsistent or in conflict with the rights and licenses granted under this Agreement; and (d) it will not, to its knowledge, take any action or fail to take any action that will cause a breach of the GenPharm Cross License, the Xenotech Agreement, the Product License, or any ABX In-License. (e) as of the Effective Date and except as set forth on Schedule B hereto, GNE has no knowledge (without the obligation to perform due diligence) of any rights of third parties that would interfere with the use of the ABX Know-How or practice of the ABX Patent Rights as contemplated [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -31- 58 under this Agreement (including, without limitation, work under the Research Plan or otherwise in the Research Field pursuant to this Agreement or the [*] Product License). 9.3 Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS OR EXTENDS ANY WARRANTIES TO THE OTHER PARTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, REGARDING PRODUCTS OR THE LICENSED TECHNOLOGY, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, AND VALIDITY OF LICENSED TECHNOLOGY CLAIMS, ISSUED OR PENDING. ALL XENOMOUSE ANIMALS AND MATERIALS DERIVED IN WHOLE OR PART FROM THE XENOMOUSE ANIMALS PROVIDED TO GNE BY ABX ARE PROVIDED "AS IS," AND ABX SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO XENOMOUSE ANIMALS AND MATERIALS DERIVED IN WHOLE OR PART FROM XENOMOUSE ANIMALS. 9.4 Effect of Representations and Warranties. It is understood that if the representations and warranties of a party under this Article 9 are not true and accurate and the other party incurs any damages, liabilities, expenses or losses (including court costs and reasonable attorneys' and experts' fees, but excluding costs and fees incurred in asserting a claim or bringing a lawsuit between the parties hereto) as a direct result of such falsity or inaccuracy, the party at fault shall save, defend and hold the other party harmless from and against any such suits, claims, actions, demands, damages, liabilities, expenses or losses. 10.0 TERM AND TERMINATION. 10.1 Term. The term of this Agreement shall commence on the Effective Date and, unless earlier terminated as provided in this Article 10, shall continue in full force and effect on a country-by-country basis until the expiration of all royalty obligations pursuant to this Agreement for such country, as provided in Section 3.3.6 above. Following the expiration, but not earlier termination, of this Agreement on a country-by-country basis, GNE shall have a fully-paid up, royalty-free, perpetual, sublicensable license as granted in Article 2 which shall be an exclusive (as to ABX) license under the ABX Know-How solely to commercialize Products in such country. 10.2 Termination for Breach. Either party to this Agreement may terminate this Agreement in the event that the other party shall have materially breached or defaulted in the performance of any of its material obligations hereunder, and such breach or default shall have continued for sixty (60) days after written notice of such breach and intent to terminate this Agreement therefor was provided to the breaching party by the nonbreaching party. Any such termination shall become effective at the end of such sixty (60) day period unless the breaching party has cured any such breach or default prior to the expiration of the sixty (60) day period. Any such termination shall be without prejudice to any other rights, conferred, or remedies available to, the nonbreaching party by law or at equity, including, without limitation, under Section 8.3 above. The [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -32- 59 right of a nonbreaching party to terminate this Agreement pursuant to this Section 10.2 shall not be affected in any way by its waiver or failure to take action with respect to any previous default. 10.3 Termination for Insolvency or Bankruptcy. Either party may, in addition to any other remedies available to it by law or in equity, terminate this Agreement effective on written notice to the other party in the event the other party shall have become insolvent or bankrupt, or shall have made an assignment for the benefit of its creditors, or there shall have been appointed a trustee or receiver of the other party or for all or a substantial part of its property, or any case or proceeding shall have been commenced or other action taken by or against the other party in bankruptcy or seeking reorganization, liquidation, dissolution, winding-up, arrangement, composition or readjustment of its debts or any other relief under any bankruptcy, insolvency, reorganization or other similar act or law of any jurisdiction now or hereafter in effect, or there shall have been issued a warrant of attachment, execution, distraint or similar process against any substantial part of the property of the other party, and any such event shall have continued for ninety (90) days undismissed, unbonded and undischarged. Furthermore, all rights and licenses granted under this Agreement are, and shall be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code, licenses of rights to "intellectual property" as defined under Section 101(56) of the United States Bankruptcy Code. The parties agree that in the event of the commencement of a bankruptcy proceeding by or against of party hereunder under the United States Bankruptcy Code, the other party shall be entitled to complete access, in accordance with this Agreement, to any such intellectual property, and all embodiments of such intellectual property, pertaining to the rights licensed to it hereunder of the party by or against whom a bankruptcy proceeding has been commenced. 10.4 Termination by GNE. GNE may terminate this Agreement and the license granted herein at any time, by providing ABX ninety (90) days prior written notice. 10.5 Effect of Termination. 10.5.1 Accrued Obligations. Expiration or any termination of this Agreement shall not release either party hereto from any liability which at the time of such expiration or termination has already accrued to such party or which is attributable to a period prior to such expiration or termination, subject to the terms of this Agreement, nor preclude either party from pursuing any rights and remedies it may have hereunder or at law or in equity which accrued to it prior to such expiration or termination, subject to the terms of this Agreement. 10.5.2 Stock in Hand; Sublicenses. In the event this Agreement is terminated for any reason, GNE and its Sublicensees shall have the right to sell or otherwise dispose (consistent with all applicable regulations and law and subject to Articles 3 and 4 of this Agreement) of the stock of any Product subject to this Agreement then on hand. No termination of this Agreement (except by ABX under Section 10.2 above) shall be construed as a termination of any Sublicenses hereunder, and any Sublicense granted by GNE hereunder shall survive, provided that upon request by ABX, such Sublicensee promptly agrees in writing to be bound by the applicable terms of this Agreement. -33- 60 10.5.3 Return of Know-How; Termination of Licenses (a) In the event that ABX terminates this Agreement under Section 10.2 above, GNE shall promptly transfer to ABX, at GNE's expense, all ABX Know-How (including without limitation any XenoMouse Animals) then in GNE's or any of its Sublicensee's possession or control. After the effective date of such termination, GNE shall have no further obligations to ABX with respect to the development and commercialization of Products in the Field in the Territory, all underlying rights to the ABX Patent Rights and ABX Know-How (including without limitation as such rights pertain to the Products in the Field in the Territory) shall be the sole property of ABX, and all of GNE's license rights to the ABX Patent Rights and the ABX Know-How shall terminate. GNE, at GNE's expense, shall execute all documents and make any filings necessary to perfect such license rights in ABX. In the event that GNE terminates this Agreement under Section10.2, above, after the effective date of such termination, GNE shall have no further obligations to ABX with respect to the development and commercialization of Products in the Field in the Territory except as set forth herein, including Section 10.5.7. Such termination shall not terminate any rights of GNE under this Agreement, and GNE shall have an exclusive license under the ABX Patent Rights and to use the ABX Know-How to research, develop, make, have made Products in the Field in the Territory and to use, sell, lease, offer to sell or lease, import, export, otherwise transfer physical possession of or otherwise transfer title to Products in the Field in the Territory. Such license shall be subject to the same royalty obligations as set forth under Article 3 above. ABX, at ABX's expense, shall execute all documents and make any filings necessary to perfect such license rights to GNE. 10.5.4 GNE Option Agreement. This Agreement is independent of, and shall not be affected by, the expiration or termination of the GNE Option Agreement; provided that notwithstanding the foregoing, any breach by GNE of the GNE Option Agreement shall be deemed a breach of this Agreement. 10.5.5 XT. GNE and ABX agree that this Agreement, including, without limitation, any licenses and sublicenses granted to GNE pursuant to this Agreement, and the [*] Product License (including any licenses and sublicenses to be granted to GNE therein) shall survive any dissolution, liquidation or acquisition of XT, and that such licenses shall remain in full force and effect even after any distribution, following dissolution, of the intellectual property owned or licensed to XT, to any entity. GNE and ABX agree that any transfer of such intellectual property to or following such dissolution shall be subject to the licenses and sublicenses granted herein (and to be granted pursuant to the [*] Product License, if entered into at all by the parties). 10.5.6 ABX In-Licenses. In the event that any ABX In-License is terminated due to breach by ABX and, as a result of such termination, ABX is unable to convey to GNE the rights necessary to manufacture, use or sell Products, ABX agrees that GNE's licenses hereunder shall survive and GNE shall step into the shoes of ABX with regard to such ABX In-License as set forth in, and on the terms and conditions provided in, such ABX In-License. ABX agrees to use reasonable efforts and to take such actions as are reasonably necessary to effectuate the foregoing. [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -34- 61 10.5.7 Survival. Section 2.6, 5.3, 9.3 and 10.5 and Articles 3, 4, 6, 7, 8 and 11 shall survive the expiration and any termination of this Agreement for any reason. 11.0 MISCELLANEOUS. 11.1 Governing Laws. This Agreement shall be interpreted and construed in accordance with the laws of the State of California, without regard to conflicts of law principles. 11.2 Waiver. It is agreed that no waiver by any party hereto of any breach or default of any of the covenants or agreements herein set forth shall be deemed a waiver as to any subsequent and/or similar breach or default. 11.3 Assignment. Neither this Agreement nor any right or obligation hereunder may be assigned or delegated, in whole or part, by either party without the prior written consent of the other; provided, however, that either party may, without the written consent of the other, assign this Agreement to (a) any entity to which it has acquired all or substantially all of the business or assets of the assigning party, or (b) any successor corporation resulting from any merger or consolidation with another corporation (including, in the case of GNE, F. Hoffmann-La Roche Ltd or any Affiliate thereof). Notwithstanding the foregoing, ABX shall not be obligated without its written consent to send XenoMouse Animals to any party other than GNE. The terms and conditions of this Agreement shall be binding on and inure to the benefit of the permitted successors and assigns of each party hereto. 11.4 Independent Contractors. The relationship of the parties hereto is that of independent contractors. The parties hereto are not deemed to be agents, partners or joint venturers of the others for any purpose as a result of this Agreement or the transactions contemplated thereby. 11.5 Compliance with Laws. In exercising their rights under this license, 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 license. 11.6 No Implied Obligations. Except as expressly provided in Article 5 above, noting in this Agreement shall be deemed to require GNE to exploit the Licensed Technology nor to prevent GNE from commercializing products similar to or competitive with any Product, in addition to or in lieu of such Products. 11.7 Notices. Any notice, request, approval or consent required or permitted to be given between the parties hereto shall be given in writing, and shall be deemed to have been properly given if delivered in person, transmitted by telecopy with machine confirmation of transmission, or mailed by first class certified mail to the other party at the appropriate address set forth below, or to such other address as may be designated in writing by a party from time to time in accordance with this Agreement. Such notice, request, approval or consent shall be deemed given (i) on the date delivered or transmitted if delivered in person or transmitted by telecopy prior to 5 p.m. on any -35- 62 business day, (ii) on the next business day following delivery or transmission if delivered in person or transmitted by telecopy after 5 p.m. on any business day or on any non-business day, or (iii) on the fourth business day following the date deposited in the United States mail if sent mailed by first class certified mail. Genentech, Inc.: Genentech, Inc. One DNA Way South San Francisco, CA 94080 Attn: Corporate Secretary Telecopy: (650) 952-9881 Abgenix, Inc.: Abgenix, Inc. 7601 Dumbarton Circle Fremont, California 94555 Attn: President Telecopy: with a copy to: Kenneth A. Clark, Esq. Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, California 94304 Telecopy: (650) 493-8311 11.8 Export Laws. Notwithstanding anything to the contrary contained herein, all obligations of ABX and GNE are subject to prior compliance with United States export regulations and such other United States laws and regulations as may be applicable, and to obtaining all necessary approvals required by the applicable agencies of the government of the United States. GNE shall be responsible for obtaining such approvals, and shall use efforts consistent with prudent business judgment to obtain such approvals. ABX agrees to cooperate reasonably with GNE and provide reasonable assistance to GNE as may be reasonably necessary to obtain any required approvals. 11.9 Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision and the parties shall discuss in good faith appropriate revised arrangements. 11.10 Force Majeure. Nonperformance of any party (except for payment obligations) shall be excused to the extent that performance is rendered impossible by strike, fire, earthquake, flood, governmental acts or orders or restrictions, failure of suppliers, or any other reason where failure to perform, is beyond the reasonable control and not caused by the negligence, intentional conduct or misconduct of the nonperforming party. -36- 63 11.11 No Consequential Damages. IN NO EVENT SHALL ANY PARTY HERETO BE LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT OR THE EXERCISE OF RIGHTS HEREUNDER. 11.12 Disputes. The parties recognize that disputes as to certain matters may from time to time arise during the term of this Agreement which relate to either party's rights and/or obligations hereunder. 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 cooperation and without resort to litigation. To accomplish this objective, it is agreed that each party will inform the other as soon as possible when it becomes aware of an area or issue of dispute. Prior to filing or initiating any legal proceeding, the parties agree to discuss the dispute at the organizational level at which such dispute arises. If either party believes there has been sufficient discussion of the matter at such level, then such party, by written notice to the other party, may have such dispute referred to their respective chief executive officers (or, if unavailable, a designee who is an officer of the party empowered to resolve such disputes) for attempted resolution by good faith negotiations between such chief executive officers within fourteen (14) days of such referral. In the event that the chief executive officers are not able to resolve such dispute within such fourteen (14) day period, either party may pursue whatever remedies are available to them under this Agreement or by law. 11.13 Complete Agreement; Amendment. It is understood and agreed between ABX and GNE that this Agreement and the GNE Option Agreement constitute the entire agreement, both written and oral, between the parties with respect to the subject matter hereof, and supersede and cancel all prior agreements respecting the subject matter hereof, either written or oral, expressed or implied, including, without limitation, that certain Non-Disclosure Agreement between ABX and GNE dated as of April 25, 1997, and the MTA (to the extent provided in Section 2.1.5, 3.2.4 and 4.1 of the GNE Option Agreement and Sections 2.5(d) and 6.1 of this Agreement). No amendment or change hereof or addition hereto shall be effective or binding on either of the parties hereto unless reduced to writing and executed by the respective duly authorized representatives of ABX and GNE. 11.14 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and both together shall be deemed to be one and the same agreement. 11.15 Headings. The captions to the several Articles and Sections hereof are not a part of this Agreement, but are included merely for convenience of reference only and shall not affect its meaning or interpretation. -37- 64 IN WITNESS WHEREOF, the parties have executed this Agreement, through their respective officers hereunto duly authorized, as of the day and year first above written. ABGENIX, INC. GENENTECH, INC. By:______________________________ By:________________________________ Name:____________________________ Name:______________________________ Title:___________________________ Title:_____________________________ -38- 65 ATTACHMENT A [*] [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -39- 66 ATTACHMENT A [*] [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -40- 67 ATTACHMENT A [*] [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -41- 68 ATTACHMENT B ABX MATERIALS [*] [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -42- 69 ATTACHMENT C IN-LICENSES [*] [*] Certain information on this page has been omitted and filed separately with the Commission. Confidential treatment has been requested with respect to the omitted portions. -43- 70 SCHEDULE A [TO BE COMPLETED BY ABX PRIOR TO EXECUTION OF THIS AGREEMENT] -44- 71 SCHEDULE B [TO BE COMPLETED BY GNE PRIOR TO EXECUTION OF THIS AGREEMENT] -45- EX-23.1 11 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the references to our firm under the captions "Selected Financial Data" and "Experts" and to the use of our reports dated January 23, 1998 in Amendment No. 5 to the Registration Statement (Form S-1) and related Prospectus of Abgenix, Inc. for the registration of 3,450,000 shares of its common stock. /s/ Ernst & Young LLP Palo Alto, California May 22, 1998 -----END PRIVACY-ENHANCED MESSAGE-----