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Proc-Type: 2001,MIC-CLEAR
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UNITED STATES FORM 10-Q (Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________to _________
Commission file number 0-19756
PROTEIN DESIGN LABS, INC.
34801 Campus Drive
(510) 574-1400
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
As of July 31, 2001, there were 43,831,630 shares of the Registrant's
Common Stock outstanding.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Exact name of Registrant as specified in its Charter)
Fremont, California, 94555
(Address of Principal Executive Offices including Zip Code)
(Registrant's Telephone Number, Including Area Code)
PROTEIN DESIGN LABS, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2001
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION | Page No. |
Item 1. Financial Statements |
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Consolidated Statements of Operations for the Three months ended June 30, 2001 and 2000 and Six months ended June 30, 2001 and 2000 |
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Consolidated Balance Sheets at June 30, 2001 and December 31, 2000 |
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Consolidated Statements of Cash Flows for the Six months ended June 30, 2001 and 2000 |
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Notes to Unaudited Financial Statements |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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PART II. OTHER INFORMATION |
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Item 4. Submission of Matters to a Vote of Security Holders |
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Item 5. Other Information |
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Item 6. Exhibits and Reports on Form 8-K |
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Signatures |
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Protein Design Labs, our logo and SMART are registered U.S. trademarks and Nuvion, Remitogen and Zamyl are trademarks of Protein Design Labs, Inc. Zenapax is a registered U.S. trademark of Hoffmann-La Roche Inc. All other company names and trademarks included in this Quarterly Report are trademarks, registered trademarks or trade names of their respective owners.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROTEIN DESIGN LABS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except net income per share data)
(unaudited)
Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Revenues: Revenue under agreements with third parties $12,667 $15,893 $29,378 $28,343 Interest and other income 8,982 4,472 18,441 7,521 ---------- ---------- ---------- ---------- Total revenues 21,649 20,365 47,819 35,864 ---------- ---------- ---------- ---------- Costs and expenses: Research and development 12,207 10,216 25,879 21,284 General and administrative 4,052 2,870 7,672 5,329 Interest expense 2,250 2,257 4,497 3,460 ---------- ---------- ---------- ---------- Total costs and expenses 18,509 15,343 38,048 30,073 ---------- ---------- ---------- ---------- Net income $3,140 $5,022 $9,771 $5,791 ========== ========== ========== ========== Net income per share: Basic $0.07 $0.13 $0.22 $0.15 ========== ========== ========== ========== Diluted $0.07 $0.12 $0.21 $0.13 ========== ========== ========== ========== Weighted average number of shares: Basic 43,722 39,514 43,669 39,218 ========== ========== ========== ========== Diluted 46,592 43,262 46,424 43,186 ========== ========== ========== ==========
See accompanying notes
PROTEIN DESIGN LABS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value per share)
June 30, December 31, 2001 2000 ------------ ----------- (unaudited) ASSETS Current assets: Cash and cash equivalents $138,062 $421,541 Marketable securities 507,697 239,632 Other current assets 4,520 1,980 ------------ ----------- Total current assets 650,279 663,153 Property and equipment, net 38,380 37,673 Convertible note receivable 30,000 -- Other assets 3,808 4,154 ------------ ----------- $722,467 $704,980 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable 1,183 1,062 Accrued compensation 1,443 1,729 Accrued clinical trials 1,733 1,103 Accured interest 3,071 3,071 Other accrued liabilities 2,010 2,692 Deferred revenue 100 1,455 Current portion of other long-term debt 415 400 ------------ ----------- Total current liabilities 9,955 11,512 Convertible subordinated notes 150,000 150,000 Other long-term debt 9,111 9,324 ------------ ----------- Total liabilities 169,066 170,836 Stockholders' equity: Preferred stock, par value $0.01 per share, 10,000 shares authorized; no shares issued and outstanding -- -- Common stock, par value $0.01 per share, 250,000 shares authorized; 43,824 and 43,576 issued and outstanding at June 30, 2001 and December 31, 2000, respectively 438 436 Additional paid-in capital 617,064 611,690 Accumulated deficit (68,799) (78,570) Accumulated other comprehensive income 4,698 588 ------------ ----------- Total stockholders' equity 553,401 534,144 ------------ ----------- $722,467 $704,980 ============ ===========
See accompanying notes
PROTEIN DESIGN LABS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
Six Months Ended June 30, ---------------------- 2001 2000 ---------- ---------- Cash flows from operating activities: Net income $9,771 $5,791 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,277 1,665 Amortization of convertible notes offering costs 361 269 Other (5,016) 179 Changes in assets and liabilities: Other current assets (2,542) 4,447 Other assets (14) (4,231) Accounts payable 121 (304) Accrued liabilities (339) 2,607 Deferred revenue (1,355) (942) ---------- ---------- Total adjustments (6,507) 3,690 ---------- ---------- Net cash provided by operating activities 3,264 9,481 Cash flows from investing activities: Purchase of convertible note (30,000) -- Purchases of marketable securities (377,011) -- Maturities of marketable securities 117,885 5,000 Purchase of property, plant and equipment (2,796) (1,777) ---------- ---------- Net cash provided by (used in) investing activities (291,922) 3,223 Cash flows from financing activities: Proceeds from convertible notes -- 150,000 Proceeds from issuance of capital stock, net of issuance 5,376 15,312 Payments on other long-term debt (197) (181) ---------- ---------- Net cash provided by financing activities 5,179 165,131 ---------- ---------- Net increase (decrease) in cash and cash equivalents (283,479) 177,835 Cash and cash equivalents at beginning of period 421,541 17,138 ---------- ---------- Cash and cash equivalents at end of period $138,062 $194,973 ========== ==========
See accompanying notes
PROTEIN DESIGN LABS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
(unaudited)
Summary of Significant Accounting Policies
Organization and Business
Protein Design Labs, Inc. is a biotechnology company engaged in the development of humanized antibodies to prevent or treat various disease conditions. PDL currently has antibodies under development for autoimmune and inflammatory conditions, asthma and cancer. PDL holds fundamental patents in the U.S., Europe and Japan for its antibody humanization technology.
Basis of Presentation and Responsibility for Quarterly Financial Statements
The Consolidated Balance Sheet as of June 30, 2001, the Consolidated Statements of Operations for the three and six months ended June 30, 2001 and 2000 and the Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000 are unaudited, but include all adjustments (consisting only of normal recurring adjustments) which we consider necessary for a fair presentation of our financial position at such dates and the operating results and cash flows for those periods. Although we believe that the disclosures in our financial statements are adequate to make the information presented not misleading, certain information and footnote information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying financial statements should be read in conjunction with the our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, for the year ended December 31, 2000. The Consolidated Balance Sheet as of December 31, 2000 is derived from audited financial statements. Results for any interim period are not necessarily indicative of results for any other interim period or for the entire year.
Cash Equivalents, Marketable Securities and Concentration of Credit Risk
We consider all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. The "Marketable securities" line item in the Consolidated Balance Sheets includes the interest receivable associated with all marketable securities. The "Other" adjustments line item in the Consolidated Statements of Cash Flows represents the accretion of the book value of certain debt securities. We place our cash and marketable debt securities with high-credit-quality financial institutions and in securities of the U.S. government and U.S. government agencies and U.S. corporations and, by policy, limit the amount of credit exposure in any one financial instrument. To date, we have not experienced credit losses on investments in these instruments.
The following is a summary of all available-for-sale securities. Estimated fair value is based upon quoted market prices for these or similar instruments.
(In thousands) Available-for-Sale Securities --------------------------------------- Gross Gross Estimated UnrealizedUnrealized Fair Cost Gains Losses Value --------- --------- --------- --------- June 30, 2001 Securities of the U.S. Government and its agencies maturing: within 1 year $20,255 $118 $ -- $20,373 between 1-3 years 356,183 2,370 (38) 358,515 U.S. corporate debt securities maturing: between 1-3 years 126,561 2,248 -- 128,809 --------- --------- --------- --------- Total marketable debt securities $502,999 $4,736 $ (38) $507,697 ========= ========= ========= =========
As of June 30, 2001, there were no realized gains or losses on the sale of available-for-sale securities, as all securities liquidated prior to this date were held to maturity.
Revenue Recognition
Contract revenues from research and development arrangements are recognized based on the performance requirements of the contracts. Revenues from achievement of milestones are recognized when the funding party agrees that the scientific or clinical results stipulated in the agreement have been met. Deferred revenue arises principally due to timing of cash payments received under research and development contracts.
Our collaborative, humanization and patent licensing agreements with third parties provide for the payment of royalties to us based on net sales of the licensed product under the agreement. The agreements generally provide for royalty payments to us following completion of each calendar quarter or semi-annual period and royalty revenue is recognized when royalty reports are received from the third party. Non-refundable signing and licensing fees under collaborative and humanization agreements are recognized over the period in which performance obligations are achieved. Non-refundable signing and licensing fees under patent rights and patent licensing agreements are recognized as revenue when there are no future performance obligations remaining with respect to such fees.
Net Income Per Share
In accordance with Financial Accounting Standards Board Statement No. 128, "Earnings Per Share" (FAS 128), basic and diluted net income per share amounts have been computed using the weighted average number of shares of common stock outstanding during the periods presented. Calculation of diluted net income per share also includes the dilutive effect of outstanding stock options, but does not include the dilutive effect of outstanding convertible notes because the assumed conversion of these notes would be anti-dilutive.
The following is a reconciliation of the numerators and denominators of the basic and diluted net income per share computations for the periods presented below:
(In thousands, except basic and diluted net income per share)
Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------- 2001 2000 2001 2000 --------- --------- --------- --------- Numerator: Net income $3,140 $5,022 $9,771 $5,791 ========= ========= ========= ========= Denominator: Basic net income per share - weighted-average shares 43,722 39,514 43,669 39,218 Dilutive potential common shares: Stock Options 2,870 3,748 2,667 3,968 --------- --------- --------- --------- Denominator for diluted net income per share 46,592 43,262 46,336 43,186 ========= ========= ========= ========= Basic net income per share $0.07 $0.13 $0.22 $0.15 ========= ========= ========= ========= Diluted net income per share $0.07 $0.12 $0.21 $0.13 ========= ========= ========= =========
Comprehensive Income
For the three months ended June 30, 2001 and 2000, total comprehensive income was $3.1 million and $5.3 million, respectively. For the six months ended June 30, 2001 and 2000, total comprehensive income was $13.9 million and $5.6 million, respectively. Total comprehensive income is comprised of net income and unrealized gains and losses on the Company's available-for- sale securities.
Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities" (FAS 133), which was adopted January 1, 2001. The adoption of FAS 133 did not have an effect on the results of operations or the financial position of the Company because the Company does not hold or use derivatives.
Management Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of management's estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. For example, we have a policy of recording expenses for clinical trials based upon pro rating estimated total costs of a clinical trial over the estimated length of the clinical trial and the number of patients anticipated to be enrolled in the trial. Expenses related to each patient are recognized ratably beginning upon entry into the trial and over the course of the trial. In the event of early termination of a clinical trial, management accrues an amount based on its estimate of the remaining non-cancellable obligations associated with the winding down of the clinical trial. In addition, funded research is expensed on a straight-line basis over the period of the funding. Our estimates and assumptions could differ significantly from the amounts which may actually be incurred.
Research and Development Funding
In May 2001, the Company entered into a Collaboration Agreement with Exelixis, Inc. to provide $4.0 million in annual research funding for two or more years, and purchased a $30.0 million note, which is convertible after the first year of the collaboration into shares of Exelixis common stock. For the three months ended June 30, 2001, the Company expensed approximately $0.3 million in funding under this commitment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to those discussed in "Risk Factors" as well as those discussed elsewhere in this document and the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission for the year ended December 31, 2000.
OVERVIEW
In general, we have a history of operating losses and may not achieve sustained profitability. Our expenses have generally exceeded revenues. As of June 30, 2001, we had an accumulated deficit of approximately $68.8 million. Our losses may increase because of the extensive resource commitments required to achieve regulatory approval and commercial success for any individual product. For example, over the next several years, we will incur substantial additional expenses as we continue to develop and manufacture our potential products, invest in new research areas and improve and expand our manufacturing, marketing and sales capabilities. Since we or our collaborative partners or licensees may not be able to successfully develop additional products, obtain required regulatory approvals, manufacture products at an acceptable cost and with appropriate quality, or successfully market such products with desired margins, we may never achieve sustained profitable operations. The amount of net losses and the time required to reach sustained profitability are highly uncertain. Although we have had some profitable reporting periods, we may be unable to achieve sustained profitability.
Our commitment of resources to the continued development of our products will require significant additional funds for development. Our operating expenses may also increase as some of our earlier stage potential products move into later stage clinical development, as additional potential products are selected as clinical candidates for further development, as we invest in additional manufacturing capacity, as we defend or prosecute our patents and patent applications, and as we invest in research or acquire additional technologies, product candidates or businesses.
In the absence of substantial revenues from new corporate collaborations or patent licensing or humanization agreements, significant royalties on sales of products licensed under our intellectual property rights, product sales or other uncertain sources of revenue, we will incur substantial operating losses.
Our revenues, expenses and operating results will likely fluctuate in future periods. Our revenues have varied in the past and will likely continue to fluctuate considerably from quarter to quarter and from year to year. As a result, our revenues in any period may not be predictive of revenues in any subsequent period. Our royalty revenues may be unpredictable and may fluctuate since they depend upon the seasonality of sales of licensed products, the existence of competing products, the marketing efforts of our licensees, potential reductions in royalties payable to us due to credits for prior payments to us, the timing of royalty reports, some of which are required quarterly and others semi-annually, our method of accounting for royalty revenues from our licensees, and our ability to successfully defend and enforce our patents. We receive royalty revenues on sales of the product Synagis. This product has higher sales in the fall and winter, which to date have resulted in much higher royalties paid to us in our first and second quarters than in other quarters. The seasonality of Synagis sales could contribute to fluctuation of our revenues from quarter to quarter.
Other revenue may also be unpredictable and may fluctuate due to the timing of payments of non-recurring licensing and signing fees, payments for manufacturing and clinical development services and payments for the achievement of milestones under new and existing collaborative, humanization, and patent licensing agreements. Revenue historically recognized under our prior agreements may not be an indicator of revenue from any future collaborations.
In addition, our expenses may be unpredictable and may fluctuate from quarter to quarter due to the timing of expenses, which may include payments owed by us and to us under collaborative agreements for reimbursement of expenses and which are reported under our policy during the quarter in which such expenses are reported to us or to our collaborative partners and agreed to by us or our partners.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2001 and 2000
The Company's total revenues for the three months ended June 30, 2001 were $21.6 million compared to $20.4 million in the second quarter of 2000. Total revenues recognized under agreements with third parties were $12.7 million in the second quarter of 2001 compared to $15.9 million in the comparable period in 2000. Interest and other income was $9.0 million in the second quarter of 2001 compared to $4.5 million in the comparable period in 2000, reflecting the increased interest earned on our cash, cash equivalents and marketable securities balances primarily as a result of our public offering of common stock in the second half of 2000, which raised approximately $343.6 million in net proceeds.
Revenues under agreements with third parties of $12.7 million for the three months ended June 30, 2001 consisted principally of royalties, license maintenance fees, a signing and licensing fee and a milestone payment. In the second quarter of 2000, revenues of $15.9 million under agreements with third parties consisted principally of royalties, signing and licensing fees, portions of upfront fees paid to PDL pursuant to humanization agreements, research and development reimbursement funding and license maintenance fees.
Total costs and expenses for the three months ended June 30, 2001 were $18.5 million compared with $15.3 million in the comparable period in 2000.
Research and development expenses for the three months ended June 30, 2001 were $12.2 million compared with $10.2 million in the year-earlier quarter. Research and development costs increased primarily due to the expansion of clinical development programs, including staff and support for both clinical development and manufacturing process development and payments to third parties related to research and development funding.
General and administrative expenses for the three months ended June 30, 2001 increased to $4.1 million from $2.9 million in the comparable period in 2000. These increases were primarily the result of expenses associated with managing and supporting the Company's expanding operations including pre-marketing expenses associated with our clinical development program.
Interest expense for the three months ended June 30, 2001 and 2000 was essentially unchanged at $2.3 million.
Six Months Ended June 30, 2001 and 2000
The Company's total revenues for the six months ended June 30, 2001 were $47.8 million compared to $35.9 million in the comparable period in 2000. Total revenues recognized under agreements with third parties were $29.4 million in the six months ended June 30, 2001 compared to $28.3 million in the comparable period in 2000. Interest and other income was $18.4 million in the six month period of 2001 compared to $7.5 million in the comparable period in 2000, reflecting the increased interest earned on our cash, cash equivalents and marketable securities balances primarily as a result of our public offering of common stock in the second half of 2000, which raised approximately $343.6 million in net proceeds.
Revenues under agreements with third parties of $29.4 million for the six months ended June 30, 2001 consisted principally of royalties, signing and licensing fees, milestone payments, portions of upfront fees paid to PDL pursuant to humanization agreements and license maintenance fees. In the comparable period in 2000, revenues of $28.3 million under agreements with third parties consisted principally of royalties, signing and licensing fees, portions of upfront fees paid to PDL pursuant to humanization agreements, research and development reimbursement funding, license maintenance fees and a milestone payment earned under a licensing agreement.
Total costs and expenses for the six months ended June 30, 2001 were $38.0 million compared with $30.1 million in the comparable period in 2000.
Research and development expenses for the six months ended June 30, 2001 were $25.9 million compared with $21.3 million in the year-earlier quarter. Research and development costs increased primarily due to the expansion of clinical development programs, including staff and support for both clinical development and manufacturing process development and payments to third parties related to manufacturing of certain potential products and research and development funding.
General and administrative expenses for the six months ended June 30, 2001 increased to $7.7 million from $5.3 million in the comparable period in 2000. These increases were primarily the result of expenses associated with managing and supporting the Company's expanding operations, including pre- marketing expenses associated with our clinical development program.
Interest expense for the six months ended June 30, 2001 was $4.5 million as compared to $3.5 million in the year earlier period, primarily due to the interest expense associated with our convertible subordinated notes issued on February 15, 2000.
LIQUIDITY AND CAPITAL RESOURCES
To date, we have financed our operations primarily through public and private placements of equity and debt securities, revenue under agreements with third parties and interest income on invested capital. At June 30, 2001, we had cash, cash equivalents and marketable securities in the aggregate of $645.8 million, compared to $661.2 million at December 31, 2000. The cash balance at June 30, 2001, reflects a reduction due to a $30 million loan to Exelixis, Inc. associated with our cancer target discovery collaboration announced in May 2001.
As set forth in the Consolidated Statements of Cash Flows, net cash provided by our operating activities was approximately $3.3 million and $9.5 million for the six months ended June 30, 2001 and 2000, respectively. The change was primarily due to the accretion of the book value of certain debt securities and other current assets.
As set forth in the Consolidated Statements of Cash Flows, net cash used in our investing activities for the six months ended June 30, 2001 was $291.9 as compared to net cash provided by our investing activities of $3.2 million in 2000. The change in 2001 was primarily the result of our reinvestment activities associated with the purchases of marketable securities and a convertible note.
As set forth in the Consolidated Statements of Cash Flows, net cash provided by our financing activities for the six months ended June 30, 2001 was $5.2 million compared to $165.1 million in 2000. The change in 2001 from 2000 was primarily the result of our sale of $150 million of convertible subordinated notes in February 2000.
Our future capital requirements will depend on numerous factors, including, among others, royalties from sales of products of third party licensees, including Synagis, Herceptin, Zenapax and Mylotarg; our ability to enter into additional collaborative, humanization and patent licensing arrangements; progress of product candidates in clinical trials; the ability of our licensees to obtain regulatory approval and successfully manufacture and market products licensed under our patents; the continued or additional support by our collaborative partners or other third parties of research and development efforts and clinical trials; investment in existing and new research and development programs; time required to gain regulatory approvals; resources we devote to manufacturing facilities; our ability to obtain and retain funding from third parties under collaborative arrangements; our continued development of internal marketing and sales capabilities; the demand for our potential products, if and when approved; potential acquisitions of technology, product candidates or businesses by us; and the costs of defending or prosecuting any patent opposition or litigation necessary to protect our proprietary technology. In order to develop and commercialize our potential products we may need to raise substantial additional funds through equity or debt financings, collaborative arrangements, the use of sponsored research efforts or other means. No assurance can be given that such additional financing will be available on acceptable terms, if at all, and such financing may only be available on terms dilutive to existing stockholders.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The Company maintains a non-trading investment portfolio of investment grade, highly liquid, debt securities which limits the amount of credit exposure to any one issue, issuer, or type of instrument. The Company does not use derivative financial instruments for speculative or trading purposes. The securities in the Company's investment portfolio are not leveraged and are classified as available for sale and therefore are subject to interest rate risk. The Company does not currently hedge interest rate exposure. As of June 30, 2001, there has been no material change in the Company's interest rate exposure from that described in the Company's Annual Report on Form 10-K for the year ended December 31, 2000.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 2001 Annual Meeting of Stockholders was held on June 14, 2001 at the Company's principal offices in Fremont, California. Of the 43,664,717 shares of common stock outstanding as of the record date, 35,135,653 shares were present at the meeting or represented by proxy, representing approximately 80% of the total votes eligible to be cast.
At the meeting, the stockholders voted to re-elect the Class III members of the Corporation's Board of Directors as follows:
Nominee |
For |
Withheld |
Jürgen Drews, M.D. |
28,648,887 |
6,486,766 |
Laurence Jay Korn, Ph.D. |
32,414,917 |
2,720,736 |
Max Link, Ph.D. |
34,816,608 |
319,045 |
The stockholders also voted to approve an amendment to the Certificate of Incorporation to increase the number of authorized shares of Common Stock from 90,000,000 to 250,000,000 as follows:
For |
Against |
Abstentions |
23,479,538 |
11,643,866 |
12,249 |
In addition, the stockholders voted to approve an amendment to the Company's 1999 Stock Option Plan to increase the number of shares of Common Stock reserved for issuance thereunder by 2,000,000 shares as follows:
For |
Against |
Abstentions |
22,125,423 |
12,983,195 |
27,035 |
Lastly, the stockholders voted to ratify the appointment of Ernst & Young LLP as the Corporation's independent auditors for the fiscal year ending December 31, 2001 as follows:
For |
Against |
Abstentions |
34,626,824 |
488,278 |
20,551 |
ITEM 5. OTHER INFORMATION - RISK FACTORS
Risk Factors
This Quarterly Report contains, in addition to historical information, forward-looking statements which involve risks and uncertainties. Our actual results may differ significantly from the results discussed in forward-looking statements. Factors that may cause such a difference include those discussed in the material set forth in this document and in our Annual Report on Form 10-K for the year ended December 31, 2000. Additional risks and uncertainties not presently known to us or that we currently see as immaterial may also impair our business. If any of these risks actually occurs, it could materially harm our business, financial condition or operating results.
We have a history of operating losses and may not achieve sustained profitability.
Our expenses have generally exceeded revenues. As of June 30, 2001, we had an accumulated deficit of approximately $ 68.8 million. Our losses may increase because of the extensive resource commitments required to achieve regulatory approval and commercial success for any individual product. For example, over the next several years, we will incur substantial additional expenses as we continue to develop and manufacture our potential products, invest in new research areas and improve and expand our manufacturing, marketing and sales capabilities. Since we or our collaborative partners or licensees may not be able to successfully develop additional products, obtain required regulatory approvals, manufacture products at an acceptable cost and with appropriate quality, or successfully market such products with desired margins, we may never achieve sustained profitable operations. The amount of net losses and the time required to reach sustained profitability are highly uncertain. We may be unable to achieve sustained profitability.
Our commitment of resources to the continued development of our products will require significant additional funds for development. Our operating expenses may also increase as:
In the absence of substantial revenues from new corporate collaborations or patent licensing or humanization agreements, significant royalties on sales of products licensed under our intellectual property rights, product sales or other uncertain sources of revenue, we will incur substantial operating losses.
Our revenues, expenses and operating results will likely fluctuate in future periods.
Our revenues have varied in the past and will likely continue to fluctuate considerably from quarter to quarter and from year to year. As a result, our revenues in any period may not be predictive of revenues in any subsequent period. Our royalty revenues may be unpredictable and may fluctuate since they depend upon:
We receive royalty revenues on sales of the product Synagis. This product has higher sales in the fall and winter, which to date have resulted in much higher royalties paid to us in our first and second quarters than in other quarters. The seasonality of Synagis sales could contribute to fluctuation of our revenues from quarter to quarter.
Other revenue may also be unpredictable and may fluctuate due to the timing of payments of non-recurring licensing and signing fees, payments for manufacturing and clinical development services, and payments for the achievement of milestones under new and existing collaborative, humanization, and patent licensing agreements. Revenue historically recognized under our prior agreements may not be an indicator of non-royalty revenue from any future collaborations.
In addition, our expenses may be unpredictable and may fluctuate from quarter to quarter due to the timing of expenses, which may include payments owed by us and to us under collaborative agreements for reimbursement of expenses and which are reported under our policy during the quarter in which such expenses are reported to us or to our collaborative partners and agreed to by us or our partners.
Our humanization patents are being opposed and a successful challenge could limit our future revenues.
Most of our current revenues are related to our humanization patents. At an oral hearing in March 2000, the Opposition Division of the European Patent Office decided to revoke the broad claims of our first European humanization patent. We have appealed this decision. Until our appeal is resolved, we may be limited in our ability to collect royalties or to negotiate future licensing or collaborative research and development arrangements based on this and our other humanization patents. Moreover, if our appeal is unsuccessful, our ability to collect royalties on European sales of antibodies humanized by others would depend on the scope and validity of our second European patent, whether the antibodies are manufactured in a country outside of Europe where they are covered by one of our patents, and in that case the terms of our license agreements with respect to that situation. Also, the Opposition Division's decision could encourage challenges of our related patents in other jurisdictions, including the U.S. This decision may lead some of our licensees to stop making royalty payments or lead potential licensees not to take a license, either of which might result in us initiating formal legal actions to enforce our rights under our humanization patents. In such a situation, a likely defensive strategy to our action would be to challenge our patents in that jurisdiction. During the appeals process with respect to our first European patent, if we were to commence an infringement action to enforce that patent, such an action would likely be stayed until the appeal is decided by the European Patent Office. As a result, we may not be able to successfully enforce our rights under our European or related U.S. and Japanese patents. Eight notices of opposition have been filed with respect to our second European antibody humanization patent and we recently filed our response to the European Patent Office. Also, three opposition statements have been filed with the Japanese Patent Office with respect to our humanization patent issued in Japan in late 1998. We received a notice from the Japanese Patent Office supporting one aspect of the position of the opponents to our Japanese humanization patent in the Japanese Patent Office opposition proceeding. Under Japanese Patent Office procedures, until receiving this notice, we had not been afforded an opportunity to respond to arguments made by the opponents to this patent. We are now preparing a response to file with the Japanese Patent Office.
We intend to vigorously defend the European patents and the Japanese patent in these proceedings; however, we may not prevail in the opposition proceedings or any litigation contesting the validity of these patents. If our appeal with respect to our first European patent is unsuccessful or if the outcome of the other European or Japanese opposition proceedings or any litigation involving our antibody humanization patents were to be unfavorable, our ability to collect royalties on existing licensed products and to license our patents relating to humanized antibodies may be materially harmed. In addition, these proceedings or any other litigation to protect our intellectual property rights or defend against infringement claims by others could result in substantial costs and diversion of management's time and attention, which could harm our business and financial condition.
If we are unable to protect our patents and proprietary technology, we may not be able to compete successfully.
Our pending patent applications may not result in the issuance of valid patents or our issued patents may not provide competitive advantages. Also, our patent protection may not prevent others from developing competitive products using related or other technology.
A number of companies, universities and research institutions have filed patent applications or received patents in the areas of antibodies and other fields relating to our programs. Some of these applications or patents may be competitive with our applications or contain material that could prevent the issuance of patents to us or result in a significant reduction in the scope of our issued patents.
The scope, enforceability and effective term of patents can be highly uncertain and often involve complex legal and factual questions. No consistent policy has emerged regarding the breadth of claims in biotechnology patents, so that even issued patents may later be modified or revoked by the relevant patent authorities or courts. Moreover, the issuance of a patent in one country does not assure the issuance of a patent with similar claims in another country, and claim interpretation and infringement laws vary among countries, so we are unable to predict the extent of patent protection in any country.
In addition to seeking the protection of patents and licenses, we also rely upon trade secrets, know-how and continuing technological innovation which we seek to protect, in part, by confidentiality agreements with employees, consultants, suppliers and licensees. If these agreements are not honored, we might not have adequate remedies for any breach. Additionally, our trade secrets might otherwise become known or patented by our competitors.
We may require additional patent licenses in order to manufacture or sell our potential products.
Other companies, universities and research institutions may obtain patents that could limit our ability to use, import, manufacture, market or sell our products or impair our competitive position. As a result, we might be required to obtain licenses from others before we could continue using, importing, manufacturing, marketing, or selling our products. We may not be able to obtain required licenses on terms acceptable to us, if at all. If we do not obtain required licenses, we may encounter significant delays in product development while we redesign potentially infringing products or methods or may not be able to market our products at all.
Celltech has been granted a European patent covering humanized antibodies, which we have opposed. At an oral hearing in September 2000, the Opposition Division of the European Patent Office decided to revoke this patent. Celltech may elect to appeal that decision. Also, Celltech has a pending divisional patent application in Europe, which is currently drafted with broad claims directed towards humanized antibodies. We cannot predict whether Celltech will be able to successfully appeal the decision of the Opposition Division with respect to their first European patent or whether they will be able to obtain the grant of a patent from the pending application with claims broad enough to generally cover humanized antibodies. Celltech has also been issued a corresponding U.S. patent that contains claims that may be considered broader in scope than their first European patent. We have entered into an agreement with Celltech providing each company with the right to obtain nonexclusive licenses for up to three antibody targets under the other company's humanization patents. Nevertheless, if our SMART antibodies were covered by Celltech's European or U.S. patents and if we were to need more than the three licenses under those patents currently available to us under the agreement, we would be required to negotiate additional licenses under those patents or to significantly alter our processes or products. We might not be able to successfully alter our processes or products to avoid conflict with these patents or to obtain the required additional licenses on commercially reasonable terms, if at all.
In addition, if the Celltech U.S. patent or any related patent applications conflict with our U.S. patents or patent applications, we may become involved in proceedings to determine which company was the first to invent the products or processes contained in the conflicting patents. These proceedings could be expensive, last several years and either prevent issuance of additional patents to us relating to humanization of antibodies or result in a significant reduction in the scope or invalidation of our patents. Any limitation would reduce our ability to negotiate or collect royalties or to negotiate future collaborative research and development agreements based on these patents.
Lonza Biologics, Inc. has a patent issued in Europe to which we do not have a license that may cover a process that we use to produce our potential products. In addition, we do not have a license to an issued U.S. patent assigned to Stanford University and Columbia University, which may cover a process we use to produce our potential products. We have been advised that an exclusive license has been previously granted to a third party under this patent. If our processes were covered by either of these patents, we might be required to obtain licenses or to significantly alter our processes or products. We might not be able to successfully alter our processes or products to avoid conflicts with these patents or to obtain licenses on acceptable terms.
If we cannot successfully complete our clinical trials, we will be unable to obtain regulatory approvals required to market our products.
To obtain regulatory approval for the commercial sale of any of our potential products or to promote these products for expanded indications, we must demonstrate through preclinical testing and clinical trials that each product is safe and effective for use in indications for which approval is requested. We have conducted only a limited number of clinical trials to date. Moreover, we have a relatively large number of potential products in clinical development. We may not be able to successfully commence and complete all of our planned clinical trials without significant additional resources and expertise. Additionally, regulatory review of our clinical trial protocols may cause us in some cases to delay or abandon our planned clinical trials. Our potential inability to commence or continue clinical trials, to complete the clinical trials on a timely basis or to demonstrate the safety and efficacy of our potential products, further adds to the uncertainty of regulatory approval for our potential products.
Larger and later stage clinical trials may not produce the same results as early stage trials. Many companies in the pharmaceutical and biotechnology industries, including our company, have suffered significant setbacks in clinical trials, including advanced clinical trials, even after promising results had been obtained in earlier trials.
Even when a drug candidate shows indications of efficacy in a clinical trial, it may be impossible to further develop or receive regulatory approval for the drug if it causes an unacceptable incidence or severity of side effects, or further development may be slowed down by the need to find dosing regimens that do not cause such side effects. For example, while Nuvion has shown biological activity in some patients in the Phase I/II trial for psoriasis, it has also caused a level of side effects that would be unacceptable in this patient population. Enrollment in this trial currently is suspended and we may choose not to continue this trial or to further develop Nuvion for psoriasis. As a second example, Remitogen (SMART 1D10 Antibody) produced partial clinical responses in some B-cell lymphoma patients but at some dose levels there were significant side effects. Hence, we are conducting a Phase II trial of Remitogen to determine a useful dosing regimen.
Our clinical trial strategy may increase the risk of clinical trial difficulties.
Research, preclinical testing and clinical trials may take many years to complete and the time required can vary depending on the indication being addressed and the nature of the product. We may at times elect to use aggressive clinical strategies in order to advance potential products through clinical development as rapidly as possible. For example, we may commence clinical trials without conducting preclinical animal efficacy testing where an appropriate animal efficacy testing model does not exist, or we may conduct later stage trials based on limited early stage data. As a result, we anticipate that only some of our potential products may show safety and efficacy in clinical trials and some may encounter difficulties or delays during clinical development.
For example, we have entered Zamyl (SMART M195 Antibody) into a Phase III clinical trial in acute myelogenous leukemia with a clinical regimen that has not been tested previously with this antibody in combination with chemotherapy. Results from our prior Phase II and Phase II/III studies showed only a limited number of complete and partial remissions using the antibody without concomitant chemotherapy. In addition, based in part on the nature and severity of the disease, we initiated the Phase III study without a meeting with the FDA or European regulatory authorities to discuss the protocol and its adequacy to support approval of Zamyl. This study may not be successful, or the FDA or European regulatory authorities may not agree that the study will be adequate to obtain regulatory approval, even if the study is successful.
We may be unable to enroll sufficient patients to complete our clinical trials.
The rate of completion of our clinical trials, and those of our collaborators, is significantly dependent upon the rate of patient enrollment. Patient enrollment is a function of many factors, including:
We may have difficulty obtaining sufficient patient enrollment or clinician support to conduct our clinical trials as planned, and we may need to expend substantial additional funds to obtain access to resources or delay or modify our plans significantly. These considerations may lead us to consider the termination of ongoing clinical trials or development of a product for a particular indication.
Our revenues from licensed technologies depend on the efforts and successes of our licensees.
In those instances where we have licensed rights to our technologies, the product development and marketing efforts and successes of our licensees will determine the amount and timing of royalties we may receive, if any. We have no assurance that any licensee will successfully complete the product development, regulatory and marketing efforts required to sell products. The success of products sold by licensees will be affected by competitive products, including potential competing therapies that are marketed by the licensee or others.
If our collaborations are not successful, we may not be able to effectively develop and market some of our products.
We have collaborative agreements with several pharmaceutical and other companies to develop, manufacture and market Zenapax and some of our potential products. In some cases, we are relying on our collaborative partners to manufacture such products, to conduct clinical trials, to compile and analyze the data received from these trials, to obtain regulatory approvals and, if approved, to market these licensed products. As a result, we may have little or no control over the manufacturing, development and marketing of these potential products and little or no opportunity to review clinical data prior to or following public announcement.
Our collaborative agreements can generally be terminated by our partners on short notice. A collaborator may terminate its agreement with us or separately pursue alternative products, therapeutic approaches or technologies as a means of developing treatments for the diseases targeted by us or our collaborative effort. Even if a collaborator continues its contributions to the arrangement, it may nevertheless determine not to actively pursue the development or commercialization of any resulting products. In these circumstances, our ability to pursue potential products could be severely limited.
Continued funding and participation by collaborative partners will depend on the timely achievement of our research and development objectives, the retention of key personnel performing work under those agreements and on each collaborative partner's own financial, competitive, marketing and strategic considerations. Such considerations include:
Our ability to enter into new collaborations and the willingness of our existing collaborators to continue development of our potential products depends upon, among other things, our patent position with respect to such products. If we are unable to successfully maintain our patents we may be unable to collect royalties on existing licensed products or enter into additional collaborations and agreements.
Our lack of experience in sales, marketing and distribution may hamper market introduction and acceptance of our products.
We intend to market and sell a number of our products either directly or through sales and marketing partnership arrangements with collaborative partners. To market products directly, we must either establish a marketing group and direct sales force or obtain the assistance of another company. We may not be able to establish marketing, sales and distribution capabilities or succeed in gaining market acceptance for our products. If we were to enter into co-promotion or other marketing arrangements with pharmaceutical or biotechnology companies, our revenues would be subject to the payment provisions of these arrangements and dependent on the efforts of third parties.
Manufacturing difficulties could delay commercialization of our products.
Of the products that we currently have in clinical development, Hoffmann-La Roche Inc. and its affiliates (Roche) are responsible for manufacturing Zenapax, GlaxoSmithKline is responsible for manufacturing the humanized anti-IL-4 antibody and Scil Biomedicals is responsible for manufacturing the SMART Anti-L-Selectin Antibody. We are responsible for manufacturing our other products for our own development. We intend to continue to manufacture potential products for use in preclinical and clinical trials using our manufacturing facility in accordance with standard procedures that comply with appropriate regulatory standards. The manufacture of sufficient quantities of antibody products that comply with these standards is an expensive, time-consuming and complex process and is subject to a number of risks that could result in delays. We and our collaborative partners have experienced some manufacturing difficulties. Product supply interruptions could significantly delay clinical development of our potential products, reduce third party or clinical researcher interest and support of proposed clinical trials, and possibly delay commercialization and sales of these products. Manufacturing difficulties can even interrupt the supply of marketed products, thereby reducing revenues and risking loss of market share. For example, in December 1999, Roche received a warning letter from the FDA regarding deficiencies in the manufacture of various products. Although the letter primarily related to products other than Zenapax, Roche has also experienced difficulties in the manufacture of Zenapax leading to interruptions in supply. If future manufacturing difficulties arise and are not corrected in a timely manner, Zenapax supplies could be interrupted, which could cause a delay or termination of our clinical trials of Zenapax in autoimmune disease and could force Roche to withdraw Zenapax from the market temporarily or permanently, resulting in loss of revenue to us. These occurrences could impair our competitive position.
We do not have experience in manufacturing commercial supplies of our potential products, nor do we currently have sufficient facilities to manufacture our potential products on a commercial scale. To obtain regulatory approvals and to create capacity to produce our products for commercial sale at an acceptable cost, we will need to improve and expand our existing manufacturing capabilities. We currently plan to improve our current manufacturing plant in order to manufacture initial commercial supplies of certain products, including at least Zamyl in the event that the Phase III trial of that antibody is successful. Our ability to file for, and to obtain, marketing approval for Zamyl, as well as the timing of such filing, will depend on our ability to successfully improve our current manufacturing plant. We may be unable to do so, or to obtain regulatory approval or to successfully produce commercial supplies on a timely basis. Failure to do so could delay commercialization of this product.
In addition, we plan to construct a new commercial manufacturing plant. When we implement these plans we will incur substantial costs. Any construction or other delays could impair our ability to obtain necessary regulatory approvals and to produce adequate commercial supplies of our potential products on a timely basis. Failure to do so could delay commercialization of some of our products and could impair our competitive position.
Our revenue may be adversely affected by competition and rapid technological change.
Potential competitors have developed and are developing human and humanized antibodies or other compounds for treating autoimmune and inflammatory diseases, transplantation, asthma and cancers. In addition, a number of academic and commercial organizations are actively pursuing similar technologies, and several companies have developed or may develop technologies that may compete with our SMART antibody technology. Competitors may succeed in more rapidly developing and marketing technologies and products that are more effective than our products or that would render our products or technology obsolete or noncompetitive. Our collaborative partners may also independently develop products that are competitive with products that we have licensed to them. This could reduce our revenues under our agreements with these partners.
Any product that we or our collaborative partners succeed in developing and for which regulatory approval is obtained must then compete for market acceptance and market share. The relative speed with which we and our collaborative partners can develop products, complete the clinical testing and approval processes, and supply commercial quantities of the products to the market compared to competitive companies will affect market success. In addition, the amount of marketing and sales resources and the effectiveness of the marketing used with respect to a product will affect its marketing success. For example, Novartis, which has a significant marketing and sales force directed to the transplantation market, has received approval to market Simulect, a product competitive with Zenapax, in the U.S. and Europe. Recently, Novartis acquired a significant interest in Roche. We cannot predict the impact, if any, that this relationship may have on Roche's efforts to market Zenapax.
We may be unable to obtain or maintain regulatory approval for our products.
The manufacturing, testing and marketing of our products are subject to regulation by numerous governmental authorities in the U.S. and other countries. In the U.S., pharmaceutical products are subject to rigorous FDA regulation. Additionally, other federal, state and local regulations govern the manufacture, testing, clinical and nonclinical studies to assess safety and efficacy, approval, advertising and promotion of pharmaceutical products. The process of obtaining approval for a new pharmaceutical product or for additional therapeutic indications within this regulatory framework requires a number of years and the expenditure of substantial resources. Companies in the pharmaceutical and biotechnology industries, including us, have suffered significant setbacks in various stages of clinical trials, even in advanced clinical trials after promising results had been obtained in earlier trials.
In addition to the requirement for FDA approval of each pharmaceutical product, each pharmaceutical product manufacturing facility must be registered with, and approved by, the FDA. The manufacturing and quality control procedures must conform to rigorous guidelines in order to receive FDA approval. Pharmaceutical product manufacturing establishments are subject to inspections by the FDA and local authorities as well as inspections by authorities of other countries. To supply pharmaceutical products for use in the U.S., foreign manufacturing establishments must comply with these FDA approved guidelines. These foreign manufacturing establishments are subject to periodic inspection by the FDA or by corresponding regulatory agencies in these countries under reciprocal agreements with the FDA. Moreover, pharmaceutical product manufacturing facilities may also be regulated by state, local and other authorities.
For the marketing of pharmaceutical products outside the U.S., we and our collaborative partners are subject to foreign regulatory requirements and, if the particular product is manufactured in the U.S., FDA and other U.S. export provisions. Requirements relating to the manufacturing, conduct of clinical trials, product licensing, promotion, pricing and reimbursement vary widely in different countries. Difficulties or unanticipated costs or price controls may be encountered by us or our licensees or marketing partners in our respective efforts to secure necessary governmental approvals. This could delay or prevent us, our licensees or our marketing partners from marketing potential pharmaceutical products.
Both before and after approval is obtained, a biologic pharmaceutical product, its manufacturer and the holder of the BLA for the pharmaceutical product are subject to comprehensive regulatory oversight. The FDA may deny a BLA if applicable regulatory criteria are not satisfied. Moreover, even if regulatory approval is granted, such approval may be subject to limitations on the indicated uses for which the pharmaceutical product may be marketed. Further, marketing approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems with the pharmaceutical product occur following approval. In addition, under a BLA, the manufacturer continues to be subject to facility inspection and the applicant must assume responsibility for compliance with applicable pharmaceutical product and establishment standards. Violations of regulatory requirements at any stage may result in various adverse consequences, which may include, among other adverse actions, withdrawal of the previously approved pharmaceutical product or marketing approvals and/or the imposition of criminal penalties against the manufacturer and/or BLA holder.
Manufacturing changes may result in delays in obtaining regulatory approval or marketing for our products.
Manufacturing of antibodies for use as therapeutics in compliance with regulatory requirements is complex, time-consuming and expensive. If we make changes in the manufacturing process, we may be required to demonstrate to the FDA and corresponding foreign authorities that the changes have not caused the resulting drug material to differ significantly from the drug material previously produced. This is particularly important if we want to rely on results of prior preclinical studies and clinical trials performed using the previously produced drug material. Depending upon the type and degree of differences between the newer and older drug material, we may be required to conduct additional animal studies or human clinical trials to demonstrate that the newly produced drug material is sufficiently similar to the previously produced drug material. We have made manufacturing changes and are likely to make additional manufacturing changes for the production of our products currently in clinical development. These manufacturing changes could result in delays in development or regulatory approvals or in reduction or interruption of commercial sales and could impair our competitive position.
Our business may be harmed if we cannot obtain sufficient quantities of raw materials.
We depend on outside vendors for the supply of raw materials used to produce our product candidates. Once a supplier's materials have been selected for use in our manufacturing process, the supplier in effect becomes a sole or limited source of that raw material due to regulatory compliance procedures. If the third party suppliers were to cease production or otherwise fail to supply us with quality raw materials and we were unable to contract on acceptable terms for these services with alternative suppliers, our ability to produce our products and to conduct preclinical testing and clinical trials of product candidates would be adversely affected. This could impair our competitive position.
If we do not attract and retain key employees, our business could be impaired.
To be successful we must retain our qualified clinical, manufacturing, scientific and management personnel. Because we are located in a high technology area, we face competition for personnel from other companies, academic institutions, government entities and other organizations. We are currently conducting a search for several senior management personnel. If we are unsuccessful in filling these positions or retaining qualified personnel, our business could be impaired.
We may be subject to product liability claims, and our insurance coverage may not be adequate to cover these claims.
We face an inherent business risk of exposure to product liability claims in the event that the use of products during research and development efforts or after commercialization results in adverse effects. This risk will exist even with respect to any products that receive regulatory approval for commercial sale. While we have obtained liability insurance for our products, it may not be sufficient to satisfy any liability that may arise. Also, adequate insurance coverage may not be available in the future at acceptable cost, if at all.
We may incur significant costs in order to comply with environmental regulations or to defend claims arising from accidents involving the use of hazardous materials.
We are subject to federal, state and local laws and regulations governing the use, discharge, handling and disposal of materials and wastes used in our operations. As a result, we may be required to incur significant costs to comply with these laws and regulations. We cannot eliminate the risk of accidental contamination or injury from these materials. In the event of such an accident, we could be held liable for any resulting damages and incur liabilities which exceed our resources. In addition, we cannot predict the extent of the adverse effect on our business or the financial and other costs that might result from any new government requirements arising out of future legislative, administrative or judicial actions.
Changes in the U.S. and international health care industry could adversely affect our revenues.
The U.S. and international health care industry is subject to changing political, economic and regulatory influences that may significantly affect the purchasing practices and pricing of pharmaceuticals. Cost containment measures, whether instituted by health care providers or imposed by government health administration regulators or new regulations, could result in greater selectivity in the purchase of drugs. As a result, third-party payors may challenge the price and cost effectiveness of our products. In addition, in many major markets outside the U.S., pricing approval is required before sales can commence. As a result, significant uncertainty exists as to the reimbursement status of approved health care products.
We may not be able to obtain or maintain our desired price for our products. Our products may not be considered cost effective relative to alternative therapies. As a result, adequate third-party reimbursement may not be available to enable us to maintain prices sufficient to realize an appropriate return on our investment in product development. Also, the trend towards managed health care in the U.S. and the concurrent growth of organizations such as health maintenance organizations, as well as legislative proposals to reform health care or reduce government insurance programs, may all result in lower prices, reduced reimbursement levels and diminished markets for our products. These factors will also affect the products that are marketed by our collaborative partners.
Our common stock price is volatile and an investment in our company could decline in value.
Market prices for securities of biotechnology companies, including ourselves, have been highly volatile so that investment in our securities involves substantial risk. Additionally, the stock market from time to time has experienced significant price and volume fluctuations that may be unrelated to the operating performance of particular companies. The following are some of the factors that may have a significant effect on the market price of our common stock:
If any of these factors causes us to fail to meet the expectations of securities analysts or investors, or if adverse conditions prevail or are perceived to prevail with respect to our business, the price of the common stock would likely drop significantly. A significant drop in the price of a company's common stock often leads to the filing of securities class action litigation against the company. This type of litigation against us could result in substantial costs and a diversion of management's attention and resources.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
10.1 Collaboration Agreement between the Company and Exelixis, Inc., a Delaware corporation dated May 22, 2001 (with certain confidential portions deleted and marked by notation indicating such deletion).
10.2 Convertible Note between the Company and Exelixis, Inc., a Delaware corporation dated May 22, 2001.
10.3 Note Purchase Agreement between the Company and Exelixis, Inc., a Delaware corporation dated May 22, 2001.
10.4 Lease Agreement between the Company and St. Paul Properties, Inc., a Delaware corporation, dated May 31, 2001.
10.5 Lease Agreement between the Company and John Arrillaga Survivor's Trust and the Richard T. Peery Separate Property Trust, a California general partnership, dated June 28, 2001.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its be half by the undersigned thereunto duly authorized.
Dated: August 10, 2001
PROTEIN DESIGN LABS, INC. |
(Registrant) |
By: | /s/ Laurence Jay Korn |
| |
Laurence Jay Korn | |
Chief Executive Officer, Chairperson of the Board of Directors | |
(Principal Executive Officer) |
By: | /s/ Robert Kirkman |
| |
Robert Kirkman | |
Vice President, Business Development and Corporate Communications | |
(Principal Accounting Officer) |
[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Exhibit 10.1
COLLABORATION AGREEMENT
THIS COLLABORATION AGREEMENT (the "Agreement") is dated as of May 22, 2001 (the "Effective Date") by and between Exelixis, Inc., a Delaware corporation having its principal place of business at 170 Harbor Way, P.O. Box 511, South San Francisco, California 94083-0511 ("EXEL"), and Protein Design Labs, Inc., a Delaware corporation having its principal place of business at 34801 Campus Drive, Fremont, California 94555-3606 ("PDL"). EXEL and PDL are sometimes referred to herein individually as a "Party" and collectively as the "Parties."
Recitals
A. PDL has expertise and capability in developing antibodies, in particular humanized antibodies, as pharmaceuticals.
B. EXEL has expertise and proprietary technology relating to drug discovery focused particularly on genetic model systems, genomics and computational biology and is applying such technology to discover and validate targets and products for drug discovery in a variety of disease areas.
C. PDL and EXEL desire to establish a collaboration to utilize the technology and expertise of PDL and EXEL to identify and characterize targets for the treatment of cancer and precancerous conditions, controlling cell growth, apoptosis, and proliferation, to generate antibodies directed against such targets, and to develop and commercialize novel antibody products for diagnostic, prophylactic and therapeutic uses.
Now, Therefore, the Parties agree as follows:
The following terms shall have the following meanings as used in this Agreement:
In the case of Combination Products for which a Product and each of the other therapeutically active ingredients contained in the Combination Product have established market prices when sold separately, Net Sales shall be determined by multiplying the Net Sales for each such Combination Product by a fraction, the numerator of which shall be the established market price for the Product(s) contained in the Combination Product, and the denominator of which shall be the sum of the established market prices for the Product(s) plus the other active ingredients contained in the Combination Product. When such separate market prices are not established, then the Parties shall negotiate in good faith to determine the method of calculating Net Sales for Combination Products.
If PDL, its Affiliates or sublicensees receive non-cash consideration for any Product sold or otherwise transferred to a Third Party, the fair market value of such non-cash consideration on the date of the transfer as known to PDL, or as reasonably estimated by PDL if unknown, shall be included in the definition of Net Sales. EXEL shall have a right to review the basis of such determination and upon written notice, audit such estimates as provided in Section 9.16.
[ * ] as used in (b) above shall occur at such time as a draft final report for the trial has been written [ * ].
Milestone payments shall be payable only once, which shall be the first time a milestone is achieved. If a milestone for a PDL Product is skipped or avoided by advancing to what would normally be expected to be a later development or regulatory step, then the milestone that was expected to occur earlier shall be deemed to have been achieved at the same time as such later milestone is achieved, and the corresponding payment for both milestones shall be due. For the purposes of milestone payments, all dosage forms, formulations and constructs containing an Antibody against the same Antibody Target shall be deemed a single Product.
"Major Indication" as used in (d) above means the following: cancers in any of the following: [ * ]; provided, however, that the PDL Product is [ * ] in the target cancer.
"Major Market" as used in (d) above means the United States, United Kingdom, Germany, France, Italy or Japan.
Annual Net Sales of a given PDL Product |
Royalty Rate |
[ * ] |
[ * ] |
[ * ] |
[ * ] |
Except as set forth in Section 9.6, the foregoing royalty rates shall not be subject to adjustment or reduction for any reason. For the purposes of royalty payments, all dosage forms, formulations and constructs containing the same Antibody shall be deemed a single Product. The measure of annual Net Sales set forth in this Section 9.4 shall be the sum of Net Sales of a particular PDL Product in all countries for each fiscal year of PDL.
By way of example, if in a particular fiscal year, PDL sells two PDL Products, with one PDL Product having [ * ] in annual Net Sales and the other PDL Product having [ * ] in annual Net Sales, then PDL shall make royalty payments to EXEL during that year totaling [ * ] with respect to the first PDL Product and [ * ] with respect to the second PDL Product for that fiscal year, assuming no adjustments are required pursuant to Section 9.6.
The Parties acknowledge that the terms of this Agreement shall be treated as Confidential Information of both Parties. Such terms may be disclosed by a Party to investment bankers, investors, prospective business partners (including potential acquirers or acquisition targets) and potential investors, each of whom prior to disclosure must be bound by similar obligations of confidentiality and non-use at least equivalent in scope to those set forth in this Article 11. In addition, if required, a copy of this Agreement may be filed by either Party with the Securities and Exchange Commission. In connection with any such filing, the filing Party shall endeavor to obtain confidential treatment of economic and trade secret information and shall consult with the other Party prior to such filing with respect to determining for which information confidential treatment should be sought.
For EXEL: |
Exelixis, Inc. |
170 Harbor Way |
|
P.O. Box 511 |
|
South San Francisco, CA 94083-0511 |
|
Attention: Chief Executive Officer |
|
With a copy to: |
Cooley Godward LLP |
Five Palo Alto Square |
|
3000 El Camino Real |
|
Palo Alto, CA 94306-2155 |
|
Attention: Robert L. Jones, Esq. |
|
For PDL: |
Protein Design Labs, Inc. |
34801 Campus Drive |
|
Fremont, CA 94555-3606 |
|
Attention: Chief Executive Officer |
|
With a copy to: |
Protein Design Labs, Inc. |
34801 Campus Drive |
|
Fremont, CA 94555-3606 |
|
Attention: General Counsel |
In Witness Whereof, the Parties have executed this Agreement in duplicate originals by their proper officers as of the date and year first above written.
Protein Design Labs, Inc. |
Exelixis, Inc. |
By: /s/ Laurence Jay Korn |
By: /s/ George Scangos |
Laurence Jay Korn |
George A. Scangos |
Chairperson and Chief Executive Officer |
Chief Executive Officer |
[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
List of Exhibits
Exhibit A |
Research Plan |
Exhibit B |
Product Profit Calculation |
Exhibit C |
Form of Press Release |
Exhibit D-1 |
EXEL Background Patents |
Exhibit D-2 |
PDL Background Patents |
Exhibit A
RESEARCH PLAN
[ * ]
Exhibit A1
Entrypoints for Genetic Screens -
Proposed or Initiated in Oncology Program
[ * ]
Exhibit B
Product Profit Calculation
[ * ]
EXHIBIT C
For Immediate Release
Contacts: |
|
Robert L. Kirkman, M.D. |
Glen Y. Sato |
Vice President, Business Development |
Chief Financial Officer |
and Corporate Communications |
Exelixis, Inc. |
Protein Design Labs, Inc. |
(650) 837-7565 |
(510) 574-1419, rkirkman@pdl.com |
gsato@exelixis.com |
PROTEIN DESIGN LABS AND EXELIXIS ANNOUNCE
ONCOLOGY ANTIBODY DRUG DISCOVERY COLLABORATION
FREMONT and SOUTH SAN FRANCISCO, CA - May 22, 2001 - Protein Design Labs, Inc. (Nasdaq: PDLI) (PDL) and Exelixis, Inc. (Nasdaq: EXEL) (Exelixis) announced today a collaboration to discover and develop humanized antibodies for the diagnosis, prevention and treatment of cancer. The collaboration will utilize Exelixis' model organism genetics technology for the identification of new cancer drug targets, and PDL's antibody and clinical development expertise to create and develop new antibody drug candidates. PDL will provide Exelixis with $4.0 million in annual research funding for two or more years, and has purchased a $30.0 million note convertible after the first year of the collaboration into shares of Exelixis common stock.
George A. Scangos, Ph.D., President and Chief Executive Officer of Exelixis, said, "We're pleased to be working with PDL, a leader in the development of humanized antibodies, and are already in a position to deliver our first targets under this collaboration. PDL is committed to a high- quality pipeline of anti-cancer antibody products, and I am pleased that PDL has recognized the value in our oncology target portfolio. The direct cash value to Exelixis is substantial, and there is considerably more value in the co- development rights that Exelixis has in this program, and in the resources that PDL will bring to the collaboration. This relationship is consistent with Exelixis' strategy of moving towards the market and capturing increasing value from the results of our research, and is a strong complement to our internal efforts directed towards finding small molecule therapeutics for cancer."
Laurence Jay Korn, Ph.D., Chief Executive Officer and Chairperson of Protein Design Labs, said, "PDL has seven antibodies in clinical development, including Zamyl™ (anti-CD33) and Remitogen™ (anti-HLA- DR) for potential cancer indications, and Nuvion™ (anti-CD3) for the treatment of graft versus host disease. This collaboration provides PDL with an opportunity to expand our pipeline of oncology drugs with new antibodies that specifically block the initiation or progression of cancer, using the model organism genetic approach of Exelixis to identify novel targets. The Exelixis technology is designed to provide information about the function of a target at an early stage, which mav be quite valuable, as we believe antibodies for cancer are likely to work best when they interfere with a function necessary for cell growth or proliferation, or when they induce apoptosis."
Under the terms of the collaborative agreement, PDL will receive an exclusive, worldwide license to develop antibodies against certain targets identified by Exelixis that are involved in cell growth, apoptosis (cell death) and proliferation. This approach may provide potential targets for developing novel humanized antibodies for the treatment of cancer using PDL's proprietary SMART™ antibody technology. Exelixis will have the right to co-fund and co-develop antibodies resulting from the collaboration. For antibody products developed by PDL that Exelixis elects not to co-develop, Exelixis will be entitled to specified milestone payments and royalty payments on any product sales.
Protein Design Labs, Inc. is a leader in the development of humanized antibodies to prevent or treat various disease conditions. PDL currently has antibodies under development for autoimmune and inflammatory conditions, asthma and cancer. PDL holds fundamental patents in the U.S., Europe and Japan for its antibody humanization technology. Further information is available at www.pdl.com.
Exelixis, Inc. is a leading life sciences biotechnology company focused on product development through its expertise in comparative genomics and model system genetics. These technologies provide a rapid, efficient and cost-effective way to move from DNA sequence data to knowledge about the function of genes and the proteins that they encode. Exelixis' technology is broadly applicable to all life science industries including pharmaceutical, diagnostic, agricultural biotechnology and animal health. Exelixis has partnerships with Aventis, Bayer, Pharmacia, Bristol-Myers Squibb and Dow AgroSciences and is building its internal development program in the area of oncology. For more information, please visit Exelixis' web site at www.exelixis.com.
This press release contains certain forward-looking statements that involve risks and uncertainties that may affect our business, as more fully discussed in the "Risk Factors" section of our filings with the U.S. Securities and Exchange Commission. These risks and uncertainties include, but are not limited to, our ability successfully to collaborate and identify novel targets and develop potential products from the collaboration. Exelixis and PDL direct the reader to our respective SEC filings, including our respective Annual Reports on Form 10-K for the year ended December 31, 2000. The information in this press release is current as of its release date. Neither party assumes responsibility to update the information.
Exelixis and the Exelixis logo are registered U.S. trademarks of Exelixis, Inc.
Protein Design Labs, the PDL logo and SMART are registered U.S. trademarks and Zamyl, Remitogen and Nuvion are U.S. trademarks of Protein Design Labs, Inc.
Exhibit D-1
THIRD PARTY TECHNOLOGY
[ * ]
Exhibit D-2
PDL Excluded Patents
[ * ]
[ * ] = Certain confidential information contained in this document, marked by brackets, has been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
Exhibit 10.2
NEITHER THIS CONVERTIBLE NOTE NOR THE UNDERLYING SHARES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER (AS DEFINED BELOW) MAY NOT TRANSFER THIS CONVERTIBLE NOTE, OR ANY SHARES ISSUED PURSUANT TO ITS CONVERSION PROVISION, UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH NOTE OR SUCH SHARES UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS, (ii) THE COMPANY FIRST RECEIVES A LETTER FROM AN ATTORNEY, ACCEPTABLE TO THE COMPANY OR ITS AGENTS, STATING THAT IN THE OPINION OF THE ATTORNEY THE PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND UNDER ALL APPLICABLE STATE SECURITIES LAWS, OR (iii) THE TRANSFER IS MADE PURSUANT TO RULE 144 UNDER THE SECURITIES ACT.
EXELIXIS, INC.
5.75% CONVERTIBLE
NOTE DUE MAY 22, 2006
South San Francisco, California
FOR VALUE RECEIVED, Exelixis, Inc., a Delaware corporation (the "Company"), hereby promises to pay, subject to the conversion provisions in Section 6 herein, to Protein Design Labs, Inc., a Delaware corporation, or its permitted transfers and assigns (the "Lender" or "Holder") the principal sum of THIRTY MILLION DOLLARS ($30,000,000) plus interest plus enforcement costs (including, but not limited to, reasonable attorney fees) thereon (collectively, the "Obligations") on the earlier of (i) a "Change in Control" (as hereinafter defined) of the Company; and (ii) May 22, 2006 (such earlier date being the "Maturity Date"). A "Change in Control" of the Company would occur if the Company sells, conveys or otherwise disposes of all or substantially all of its property or business, or merges or consolidates with any other corporation or business entity (other than a wholly-owned subsidiary of the Company) or effects any other transaction or series of transactions in which (I) the members of the Board of Directors of the Company prior to the transaction or series of transactions constituting the putative Change in Control event do not constitute a majority of the members of the Board of Directors of the enterprise following completion of the transaction or series of transactions constituting the putative Change in Control event (and in any event excluding from any such calculation any members of the Board of Directors who prior to such transaction(s) were members of the Board of both the Company and such other company or entity); and (II) the stockholders of the Company immediately prior thereto own less than a majority of the outstanding voting securities of the Company (or its successor or parent) immediately thereafter.
Section 1. Interest. Interest on the outstanding principal amount shall be cumulative, accrue at the rate of 5.75% per annum (or, if lower, the maximum rate permitted by law), and be paid in cash annually in arrears from and after the date hereof until and including the Maturity Date, unless this convertible note ("Note") is converted pursuant to Section 6 hereof, in which case accrued interest thereon (whether or not yet payable) shall be payable in cash to Lender within thirty (30) days of such date of conversion. Any interest not paid when due shall accrue interest at a rate of 10% per annum (or, if lower, the maximum rate permitted by law) and shall be treated as principal for the purposes of Section 6 hereof until paid.
Section 2. Note Purchase Agreement. This Note has been issued pursuant to a Note Purchase Agreement (the "Note Purchase Agreement") dated as of the date hereof by and among the Company and the Holder. The Company shall keep or cause to be kept at its principal office appropriate records for the recordation of the name and address of the Holder, which address may be changed from time to time effective ten (10) days after receipt of written notice of such change from the Holder.
Section 3. Default. The occurrence of one or more of the following events shall constitute an event of default ("Event of Default"):
3.5 The Company shall (a) be in breach of any material term or provision of this Note; (b) be in breach under Section 12.2 of the Collaboration Agreement of even date herewith ("Collaboration Agreement"), which breach shall remain uncured as provided thereunder; or (c) be in breach of any material term or provision of the Note Purchase Agreement.
Section 4. Acceleration. Upon an Event of Default, all Obligations shall become immediately due and payable to the Holder without presentment, demand, protest or other notice of any kind, all of which are expressly waived by the Company.
Section 5. Prepayments. The Company may not prepay the amounts due hereunder prior to the third anniversary of this Note. After the third anniversary of this Note, and subject to Holder's right of conversion under Section 6 herein, the Company shall have the right to prepay the amounts due hereunder in whole or in part; provided that the Company meets the following conditions: (a) the Company shall provide the Holder not less than thirty (30) days prior written notice of each prepayment ("Prepayment Notice"), specifying the principal amount or amounts to be prepaid and the prepayment date, and (b) the Company shall pay on the prepayment date the interest accrued to date on the principal amount paid. Any Prepayment Notice shall be irrevocable and binding on the Company; provided any Prepayment Notice shall be deemed rescinded upon notice prior to the prepayment date that Holder intends to exercise its conversion rights.
Section 6. Conversion.
6.1 The Holder of this Note shall have the right, at the Holder's option, at any time after the first anniversary of this Note, upon written notice, to convert all of the principal amounts outstanding from time to time under this Note into the Company's common stock ("Common Stock") at a price per share ("Original Conversion Price") equal to the lower of: (x) $28.175; and (y) 110% of the Fair Market Value (as hereinafter defined) of a share of Common Stock. "Fair Market Value" of a share of Common Stock means: (i) if the Company's stock is traded on NASDAQ or a national securities exchange, the average closing price for such share of Common Stock on such exchange for the twenty (20) trading days immediately prior to the applicable date of conversion, or (ii) if the Company's stock is not traded on NASDAQ or a national securities exchange, the fair market value of the Company's stock on the applicable date of conversion as determined in good faith by the Company's Board of Directors.
6.2 In the event of an exercise of the Holder's rights of conversion under this Section 6, the Holder shall irrevocably be obligated to convert all of the principal amounts then outstanding under this Note and the Company shall, as promptly as practicable after the surrender, but in no event more than fourteen (14) days after the delivery of the Note for conversion, deliver to the Holder a certificate or certificates representing the number of fully paid and nonassessable shares of Common Stock of the Company into which this Note shall be converted.
6.3 The number of shares of Common Stock which shall be delivered on conversion of principal under this Note shall be an amount determined by dividing the principal under this Note by the Original Conversion Price (or the Conversion Price (as defined below), as determined in accordance with this Section 6), and rounding the result down to the nearest share. The conversion price from time to time specified in Section 6.1 above may be adjusted from time to time as provided in Section 9, and any adjusted conversion price shall be the "Conversion Price."
6.4 No fractional shares of stock or scrip shall be issued upon conversion of this Note. Instead of any fractional shares of stock which would otherwise be issuable upon conversion of this Note, the Company shall pay in cash an amount equal to the fractional share multiplied by the Conversion Price in respect of such fractional interest.
Section 7. Assignment, Exchange, or Loss of Note. Subject to any transfer restrictions herein, upon presentation and surrender of this Note to the Company at its principal office with a duly executed request for assignment and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Note in the name of the assignee named in such instrument of assignment and this Note shall promptly be canceled.
Section 8. Rights of the Holder. The Holder shall not, by virtue of the provisions in this Note, be entitled to any rights of a stockholder in the Company, either at law or equity.
Section 9. Adjustments. In case the Company shall, after the receipt of notice pursuant to Section 6.1 but prior to the conversion thereunder: (i) pay a dividend or make a distribution on the Common Stock payable in common shares, (ii) subdivide the outstanding Common Stock into a greater number of shares, (iii) combine the outstanding Common Stock into a lesser number of shares, or (iv) issue by reclassification of the Common Stock any common shares of the Company, the Holder of this Note shall thereafter be entitled, upon conversion, to receive the number and kind of shares which, if this Note had been converted immediately prior to the happening of such event, the Holder would have owned upon such conversion and been entitled to receive upon such dividend, distribution, subdivision, combination, or reclassification. Such adjustment shall become effective on the day next following (x) the record date of such dividend or distribution or (y) the day upon which such subdivision, combination, or reclassification shall become effective.
Section 10. Restrictions on Transfer. This Note has not been registered under the Securities Act. This Note, or any right hereunder, may not be enforced against the Company by any Holder, except the original Holder herein, (i) unless there is an effective registration covering such note or underlying shares under the Securities Act and applicable state securities laws, (ii) unless the Company receives an opinion of an attorney acceptable to the Company or its agents, that the proposed transfer of the Note complies with the requirements of the Securities Act and any relevant state securities law, or (iii) unless the transfer is made pursuant to Rule 144 under the Securities Act.
Section 11. Notices. All notices and other communications required or permitted under this Note shall be validly given, made, or served if in writing and delivered personally, via overnight courier or sent by registered mail, to the Company at the following address:
Exelixis, Inc. |
With a copy to: |
Exelixis, Inc. |
All notices and other communications required or permitted under this Note shall be validly given, made or served if in writing and delivered personally, via overnight courier or sent by registered mail, to the Holder at the following address:
Protein Design Labs, Inc. |
With a copy to: |
Protein Design Labs, Inc. |
Changes to a party's address information provided herein shall be effected by notice to the other party as provided herein.
Section 12. Law Governing. This Note shall be governed by and construed in accordance with the internal laws of the State of California.
Section 13. Titles and Captions; Presumption. All section titles or captions contained in this Note are for convenience only and shall not be deemed part of the context nor affect the interpretation of this Note. This Note or any section thereof shall not be construed against any party due to the fact that said Note or any section thereof was drafted by said party.
Section 14. Computation of Time. In computing any period of time pursuant to this Note, the day of the act, event or default from which the designated period of time begins to run shall be included, unless it is a Saturday, Sunday, or a legal holiday, in which event the period shall begin to run on the next day which is not a Saturday, Sunday, or legal holiday, in which event the period shall run until the end of the next day thereafter which is not a Saturday, Sunday, or legal holiday.
Section 15. Further Assurances. The Company shall execute and deliver all documents, provide all information and take or forbear from all such action as may be necessary or appropriate to achieve the purposes of the Note.
Section 16. Parties in Interest. Nothing herein shall be construed to be to the benefit of any third party, nor is it intended that any provision shall be for the benefit of any third party.
IN WITNESS WHEREOF, a duly authorized officer of Exelixis, Inc. has executed this Note to be effective on this 22nd day of May 2001.
EXELIXIS, INC. |
|
_______________________ |
Exhibit 10.3
NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT (the "Agreement") is dated as of May 22, 2001 (the "Effective Date") by and between Exelixis, Inc., a Delaware corporation having its principal place of business at 170 Harbor Way, P.O. Box 511, South San Francisco, California 94083-0511 (the "Company") and Protein Design Labs, Inc., a Delaware corporation having its principal place of business at 34801 Campus Drive, Fremont, California 94555-3606 (the "Holder").
Recitals
A. Pursuant to the terms of the Convertible Note (the "Note"), dated as of even date herewith between the Company and the Holder, the Holder has loaned to the Company the principal sum of Thirty Million Dollars ($30,000,000) (the "Principal Amount").
B. The Company has agreed to issue the Note pursuant to the terms set forth in this Agreement.
Now, Therefore, in consideration of the premises and promises herein contained and in order to induce the Holder to loan to the Company the Principal Amount, the Company agrees with the Holder as follows:
1. AUTHORIZATION AND SALE OF NOTES
1.1 Authorization of Notes. On or before the date hereof the Company shall authorize the issuance of the Note in the form attached to this Agreement as Exhibit A in the Principal Amount.
1.2 Sale of Note. Subject to the terms and conditions hereof, the Company will issue and sell to the Holder, and the Holder will purchase from the Company for the Principal Amount, the Note. The Note and the shares of common stock of the Company (the "Shares") issued upon conversion of the Note are sometimes collectively referred to herein as the "Securities."
2. CLOSING DATE; DELIVERY
2.2 Closing Date. Subject to the terms and conditions of this Agreement, the purchase and sale of the Note hereunder shall take place at 3:00 p.m. local time at the offices of the Company, on the date hereof or at such other time and place as the Company and the Holder may agree (the "Closing"). The date of the Closing is hereinafter referred to as the "Closing Date."
2.3 Delivery. At the Closing, the Company will deliver to the Holder the Note against payment of the Principal Amount therefor by wire transfer in immediately available funds:
Bank: Silicon Valley Bank, Santa Clara, CA
ABA Routing: 121-140-399
Acct Number: 33001-60643
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Holder as follows:
3.1 Organization and Standing. The Company:
(a) is a corporation duly organized, validly existing, authorized to exercise all its corporate powers, rights, and privileges, and in good standing under the laws of the State of Delaware; and
(b) has the corporate power and corporate authority to own and operate its properties and to carry on its business as now conducted and as proposed to be conducted.
3.2 Authorization and Validity. All corporate action on the part of the Company, its officers, directors, and stockholders necessary for the authorization, execution, delivery, and performance of all of the Company's obligations under this Agreement, the Note and all documents, instruments and agreements executed in connection therewith (the "Loan Documents") and for the authorization, issuance, and delivery of the Note has been taken and the Loan Documents constitute legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms.
3.3 Corporate Power. The Company has all requisite legal and corporate power and authority to execute and deliver the Loan Documents, to sell and issue the Note hereunder, and to carry out and perform its obligations under the Loan Documents.
3.4 Validity of Securities. The Securities, when issued, sold, and delivered in compliance with the terms and for the consideration expressed in this Agreement, will be duly authorized and validly issued (including without limitation, but subject to the accuracy of the representations of Holder herein, issued in compliance with all applicable federal and state securities laws), fully paid and nonassessable. The Securities will be free and clear of all liens and encumbrances other than any liens or encumbrances created by or imposed thereon by the Holder; provided, however, that the Securities shall be subject to restrictions on transfer under state and/or federal securities laws. The Securities are not subject to any preemptive rights or rights of first refusal. The Shares have been duly authorized and reserved for issuance upon conversion of the Note. The certificate evidencing the Shares will be in due and proper form.
3.5 Securities Law Compliance. Subject to the accuracy of the representations and warranties of the Holder set forth in Section 4, the offer, issue, and sale of the Securities are exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended, (the "Securities Act") and the qualification requirements, if any, of applicable state securities laws.
3.6 No Conflict. The execution, delivery, and performance of the Loan Documents, the sale and issuance of the Note and the consummation of the transactions contemplated hereby and thereby will not (a) result in any violation of, be in conflict with, or constitute a default under, with or without the passage of time or the giving of notice: (i) any provision of the Company's Certificate of Incorporation or Bylaws; (ii) any provision of any judgment, decree, or order to which the Company is a party or by which it is bound; (iii) any material contract, obligation, or commitment to which the Company is a party or by which it is bound; or (iv) any material statute, rule, or governmental regulation applicable to the Company, (b) (i) require any consent, approval, authorization or other order of, or qualification with, any court or governmental body or agency (except such as may be required under applicable securities laws), or (ii) result in the imposition or creation of (or the obligation to create or impose) a lien under, any agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound.
3.7 Properties. The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them that is material to the business of the Company and its subsidiaries, in each case free and clear of all liens and defects, except as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and its subsidiaries; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries.
3.8 SEC Filings, Financial Statements. The Company has filed with the Securities and Exchange Commission (the "SEC") all required quarterly reports on Form 10-Q and annual reports on Form 10-K, registration statements, documents, and reports required to be filed by it with the SEC or, if not required to be filed, such other reports and documents as have otherwise been filed by the Company (collectively, the "SEC Reports"). To the knowledge of the Company, all of the SEC Reports complied as to form, when filed, in all material respects with the applicable provisions of the Securities Act, and the Securities Exchange Act of 1934, as amended. As of their respective dates, the SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Each of the consolidated financial statements (including notes thereto) contained in the SEC Reports (a) was prepared in accordance with generally accepted accounting principals applied on a consistent basis throughout the periods involved (except as indicated in the notes thereto) and (b) fairly presented the financial position of the Company as at the respective dates thereof.
3.9 No Material Adverse Changes. Since the filing of the Company's Registration Statement on Form S-4, other than as set forth in the Company's SEC Reports, (a) there has not occurred any material adverse change: (i) in the financial condition or operations of the Company and its subsidiaries, taken as a whole, or (ii) in the capital stock or long-term debt of the Company or any of its subsidiaries, taken as a whole, except as contemplated under this Agreement or development, that would reasonably be expected to involve a material adverse change in the financial condition or operations of the Company and its subsidiaries, taken as a whole; (b) the Company and its subsidiaries, taken as a whole, have not sustained any material loss or interference with its assets, businesses or properties (whether owned or leased) from fire, explosion, earthquake, flood or other calamity, whether or not covered by insurance, or from any labor dispute or any court or legislative or other governmental action, order or decree; and (c) since the date of the latest consolidated balance sheet included in the SEC Reports, except as reflected therein, the Company has not (A) issued any securities other than the issuance of securities pursuant to the grant of or the exercise of options granted under stock option plans or agreements existing prior to the date of the latest consolidated balance sheet included in the SEC Reports, or (B) declared or paid any dividend or made any distribution on any shares of its capital stock or redeemed, purchased or otherwise acquired or agreed to redeem, purchase or otherwise acquire any shares of capital stock, except to the extent provided under any stock option plans or agreements existing prior to the latest date of the consolidated balance sheet included in the SEC Reports.
4. REPRESENTATIONS AND WARRANTIES OF THE HOLDER
Holder hereby represents and warrants to the Company as follows:
4.1 Authorization. When executed and delivered by the Holder, and assuming execution and delivery by the Company, the Agreement will constitute a valid obligation of such Holder, enforceable in accordance with its terms.
4.2 Brokers and Finders. Holder has not retained any investment banker, broker, or finder in connection with the transactions contemplated by this Agreement.
4.3 Investment. This Agreement is made with the Holder in reliance upon its representations to the Company, which by the Holder's execution of this Agreement Holder hereby confirms, that the Securities to be received by the Holder will be acquired for investment for the Holder's own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and that the Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Holder further represents that it has no 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.
4.4 No Registration. Holder understands and acknowledges that the offering of the Securities pursuant to this Agreement will not be registered under the Securities Act on the grounds that the offering and sale of securities contemplated by this Agreement are exempt from registration pursuant to Section 4(2) of the Securities Act, and that the Company's reliance upon such exemption is predicated upon Holder's representations set forth in this Agreement
4.5 Limitations on Transferability. Holder covenants that in no event will it dispose of any of the Securities (other than pursuant to Rule 144 promulgated by the SEC under the Securities Act ("Rule 144") or any similar or analogous rule) unless and until (i) Holder shall have notified the Company of the proposed disposition, and (ii) if requested by the Company, Holder shall have furnished the Company with an opinion of counsel satisfactory in form and substance to the Company and the Company's counsel, in the reasonable exercise of their judgment, to the effect that (x) such disposition will not require registration under the Securities Act and (y) appropriate action necessary for compliance with the Securities Act and any applicable state, local, or foreign law has been taken. Notwithstanding the limitations set forth in the foregoing sentence, if Holder is a limited liability company or a partnership it may transfer Securities to its members or constituent partners or a retired partner of such partnership who retires after the date hereof, or to the estate of any such member or partner or retired partner or transfer by gift, will, or intestate succession to any such member's or partner's spouse or lineal descendants or ancestors without the necessity of registration or opinion of counsel if the transferee agrees in writing to be subject to the terms of this Agreement to the same extent if such transferee were a Holder; provided, however, that Holder hereby covenants not to effect such transfer if such transfer either would invalidate the securities laws exemptions pursuant to which the Securities were originally offered and sold or would itself require registration under the Securities Act or applicable state securities laws. Each certificate evidencing the Securities transferred as above provided shall bear the appropriate restrictive legends set forth in Sections 7.6 and 7.7(a) below, except that such certificate shall not bear such legend if the transfer was made in compliance with Rule 144 or if the opinion of counsel referred to above is to the further effect that such legend is not required in order to establish compliance with any provisions of the Securities Act.
4.6 Experience. Holder represents that: (i) it has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its prospective investment in the Securities; (ii) it has received all the information it has requested from the Company and considers necessary or appropriate for deciding whether to purchase the Securities; (iii) it has had the opportunity to discuss the Company's business management, and financial affairs with its management, (iv) it has the ability to bear the economic risks of its prospective investment; and (v) it is able, without materially impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss on its investment.
4.7 Accredited Holder. Holder presently qualifies, and will as of the Closing Date qualify, as an "accredited investor" within the meaning of Regulation D of the rules and regulations promulgated under the Securities Act.
5. CONDITIONS OF THE HOLDER'S OBLIGATIONS AT CLOSING
The obligations of the Holder under Section 1 of this Agreement are subject to the fulfillment at or before the Closing of the following conditions, any of which may be waived by the Holder:
5.1 Representations and Warranties. The representations and warranties of the Company contained in Section 3 shall be true on and as of the Closing with the same effect as if made on and as of the Closing.
5.2 Performance. The Company shall have performed or fulfilled all agreements, obligations, and conditions contained in the Loan Documents and required to be performed or fulfilled by the Company before the Closing.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Company under Section 1 of this Agreement are subject to the fulfillment at or before the Closing of the following condition, which may be waived in writing by the Company:
6.1 Representations and Warranties. The representations and warranties of the Holder contained in Section 4 shall be true on and as of the Closing with the same effect as if made on and as of the Closing.
7. MISCELLANEOUS
7.1 Governing Law. This Agreement shall be governed by, and be construed in accordance with, the laws of the State of California, excluding those laws that direct the application of the laws of another jurisdiction.
7.2 Survival; Termination. The warranties and representations of the parties contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing for until the earlier of: (a) the payment in full of all outstanding principal and interest under the Note, or (b) the conversion of the Note into Shares, provided, however, that such representations and warranties need only be accurate as of the date of such execution and delivery and as of the Closing. This Agreement shall be terminated and of no further force and effect upon earlier of: (a) the payment in full of all outstanding principal and interest under the Note, or (b) the conversion of the Note into Shares.
7.3 Successors and Assigns. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of and be binding upon the successors, assigns, heirs, executors and administrators of the parties hereto.
7.4 Entire Agreement; Indemnity; Waiver.
(a) Entire Agreement. This Agreement and the exhibits hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and supersede any and all prior and contemporaneous agreements, understandings, discussions and correspondence.
(b) Waiver. Holder's failure, at any time or times hereafter, to require strict performance by the Company of any provision of this Agreement shall not waive, affect or diminish any right of the Holder thereafter to demand strict compliance and performance therewith. Any suspension or waiver by the Holder of a default under the Agreement or a default under any of the other Loan Documents shall not suspend, waive or affect any other default under this Agreement or any other default under any of the other Loan Documents, whether the same is prior or subsequent thereto and whether of the same or of a different kind or character. None of the undertakings, agreements, warranties, covenants and representations of the Company contained in this Agreement or any of the other Loan Documents and no default under this Agreement or default under any of the other Loan Documents shall be deemed to have been suspended or waived by the Holder unless such suspension or waiver is in writing signed by an officer of the Company, and directed to the Holder.
7.5 Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by Federal Express or other national overnight delivery service or otherwise delivered by hand or by messenger, addressed (a) if to the Holder, at Holder's address set forth below or at such other address as the Holder shall have furnished to the Company in writing or (b) if to any other holder of any Note, at such address as such holder shall have furnished the Company in writing or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Note who has so furnished an address to the Company, or (c) if to the Company, at its address set forth below, or at such other address as the Company shall have furnished to the Holder.
Holder: |
Company: |
Protein Design Labs, Inc. |
Exelixis, Inc. |
34801 Campus Drive |
170 Harbor Way |
Fremont, CA 94555-3606 |
P. O. Box 511 |
Attn: General Counsel |
South San Francisco, CA 94083-0511 |
Attn: General Counsel |
|
7.6 California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE.
7.7 Legends.
(a) All certificates for the Securities shall bear a legend substantially similar to the following:
"The securities represented hereby have not been registered under the Securities Act of 1933, as amended ("Securities Act"). Such securities may not be transferred unless a Registration Statement under the Act is in effect as to such transfer or, in the opinion of counsel for the Company, registration under the Act is unnecessary in order for such transfer to comply with the Act or unless sold pursuant to Rule 144 of the Act."
(b) The certificates evidencing the Securities shall also bear any legend required pursuant to any state, local, or foreign law governing such securities.
7.8 Counterparts. This Agreement may be executed in two counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
COMPANY: |
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EXELIXIS, INC., |
_________________________________ |
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George A. Scangos |
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Chief Executive Officer |
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HOLDER: |
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PROTEIN DESIGN LABS, INC., |
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___________________________ |
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Laurence Jay Korn |
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Chairperson and Chief Executive Officer |
Exhibit 10.4
STANDARD COMMERCIAL LEASE AGREEMENT |
Approximately 27,259 square feet |
(REV. - 6/85) |
3850 Annapolis Lane |
Plymouth, Minnesota 55447 |
LEASE AGREEMENT
THIS LEASE AGREEMENT is between ST. PAUL PROPERTIES, INC., a Delaware corporation ("Landlord") and PROTEIN DESIGN LABS, INC., a Delaware corporation ("Tenant").
W I T N E S S E T H:
TO HAVE AND TO HOLD the same for a term commencing on the "commencement date," as hereinafter defined, and ending February 28, 2009, unless sooner terminated as hereinafter provided.
The commencement date shall be June 1, 2001. Taking of possession by Tenant shall be deemed conclusively to establish that the Premises have been completed and that the Premises are in good and satisfactory condition, as of when possession was so taken. Tenant acknowledges that no representations as to the condition of the Premises or the Building have been made by Landlord, unless such are expressly set forth in this lease. On or before such commencement date Tenant shall, upon demand, execute and deliver to landlord a letter of acceptance of delivery of the Premises, on Landlord's standard form. Landlord and Tenant acknowledge that all leasehold improvements to be placed in the Premises shall be constructed and placed therein by Tenant and/or Tenant's contractors, pursuant to EXHIBIT B attached hereto and made a part hereof, and, notwithstanding anything in the Lease to the contrary, Landlord's obligation to complete the Premises shall be satisfied by Landlord's delivery to Tenant of the Building shell as currently constructed and in an "AS- IS" condition.
$13,061.60 per month for the period beginning on the commencement date and ending on the last day of the forty-eighth (48th) full calendar month thereafter,
$15,333.19 per month for the period beginning on the first day of the forty-ninth (49th) full calendar month of the term and ending on the last day of the eighty-fourth (84th) full calendar month of the term; and
$16,468.98 per month for the period beginning on the first day of the eighty-fifth (85th) full calendar month of the term and ending on the last day of the ninety-third (93rd) full calendar month of the term (such last day of the ninety-third (93rd) full calendar month of the term or any earlier date as to which the term is terminated as provided herein is hereinafter the "Expiration Date"),
except that the monthly installment which otherwise shall be due on the commencement date shall be due and payable on the date hereof. Thereafter, one such monthly installment shall be due and payable without demand on or before the first day of each calendar month succeeding the commencement date during the term hereof, except that the rental payment for any fractional calendar month at the commencement or end of the lease period shall be prorated.
As used in this lease, the term "Operating Costs" shall mean any and all expenses, costs and disbursements of any kind and nature whatsoever incurred by Landlord in connection with the ownership, management, maintenance, operation and repair of the Property or the Building which landlord shall pay or become obligated to pay in respect of a calendar year (regardless of when such Operating Costs were incurred). Operating Costs shall include, without limitation, the costs of maintenance, repairs, and replacements to the Building including roof, walls, downspouts, gutters, painting, and sprinkler systems; the costs of maintaining and repairing parking lots, parking structures and easements; property management fees, salaries, fringe benefits and related costs payable to employees of Landlord whose duties are connected with the Property; insurance costs, all heating and air conditioning costs, electricity, sewer and water and other utility costs not separately metered to tenants, landscape maintenance, trash and snow removal, taxes, as defined in Paragraph 4F, and costs and expenses incurred by Landlord in protesting any assessments, levies or the tax rate, provided, however, that Operating Costs shall not include the following: (i) costs of alterations of any tenant's premises; (ii) costs of curing construction defects; (iii) depreciation; (iv) interest and principal payments on mortgages, and other debt costs; (v) real estate brokers' leasing commissions or compensation; (vi) any cost or expenditure (or portion thereof) for which landlord is reimbursed, whether by insurance proceeds or otherwise; and (vii) cost of any service furnished to any other occupant of the Building which landlord does not provide to Tenant hereunder. Notwithstanding anything contained herein to the contrary, depreciation of any structural repairs or replacements to the Building, or of any capital improvements made after the date of this lease which are intended to reduce Operating Costs or of any capital improvements which are required under any governmental laws, regulations, or ordinances which were not applicable to the Building at the time it was constructed, shall be included in Operating Costs. The useful life of any such improvement, structural repair or replacement shall be reasonably determined by Landlord. In addition, interest on the undepreciated cost of any such improvement, structural repair or replacement (at the prevailing construction loan rate available to Landlord on the date the cost of such improvement was incurred) shall also be included in Operating Costs. Notwithstanding anything to the contrary contained in the Lease, Operating Costs shall, in no event, include the following:
Within ninety (90) days after the close of each calendar year or as soon thereafter as practicable, Landlord shall deliver to Tenant a summary of the total Operating Costs for the previous calendar year and Tenant's proportionate share thereof. If such summary shows an amount due from Tenant that is less than the estimated payments previously paid by Tenant, it shall be accompanied by a refund of the excess to Tenant. If such summary shows an amount due from Tenant that is more than the estimated payments previously paid by Tenant, Tenant shall pay the deficiency to Landlord, as additional rent, within thirty (30) days after delivery of the summary.
(x) all costs of maintaining and replacing the Tenant HVAC Equipment and the Existing HVAC Equipment (as those terms are defined in Paragraph 28 hereof) shall be borne solely by Tenant.
(y) notwithstanding anything to the contrary in this Lease, Tenant shall be liable to Landlord for all costs incurred by Landlord in repairing or replacing the roof of the Building in excess of those costs which would have been incurred by Landlord if Tenant had not placed the Tenant HVAC Equipment on the roof of the Building; and
(z) On or before November 30 of each of 2004 and 2007, and simultaneously with any request for (i) an assignment of this Lease; (ii) a sublease of all or a portion of the Premises; or (iii) early termination of this Lease, Tenant shall deliver to Landlord a written report on the condition of the Tenant HVAC Equipment and the Existing HVAC Equipment, which report shall be based on an inspection of the condition of the Tenant HVAC Equipment performed by a qualified maintenance contractor and which report shall contain such qualified maintenance contractor's estimate of the remaining useful life of the Tenant HVAC Equipment and the Existing HVAC Equipment.
If Landlord grants its consent to any sublease or assignment, Tenant shall pay Landlord, as additional rent, in addition to the base rent payable hereunder (a) fifty percent (50%) of rent payable to Tenant by the assignee or sublessee (the "Subrent") if such Subrent exceeds the base rent payable hereunder, it being understood and agreed that Tenant shall pay all costs associated with such sublease or assignment, including, without limitation, leasehold improvement costs, brokerage commissions and its own legal fees and costs; and (b) Landlord's attorneys' fees incurred with respect to such assignment or sublease. In addition, if Tenant has any options to extend or renew the Term, such options shall not be available to any subtenant or assignee directly or indirectly. If Tenant assigns this Lease or sublets all or a portion of the Premises without first obtaining Landlord's consent, as required by this Paragraph 15.A, said assignment or sublease shall be null and void and of no force or effect. Landlord's consent to an assignment, sublease or other transfer of any interest of Tenant in this Lease or in the Premises shall not be deemed to be a consent to any subsequent assignment, transfer, use or occupation.
Tenant shall, at Tenant's own cost and expense, discharge in full any outstanding commission obligation on the part of Landlord with respect to this lease, and any commissions which may be due and owing as a result of any proposed assignment or subletting, whether or not the Premises are recaptured pursuant hereto and rented by Landlord to the proposed tenant or any other tenant.
(ii) Landlord may, but need not relet the Premises or any part thereof for such rent and upon such terms as Landlord in its sole discretion shall determine (including the right to relet the Premises as part of a larger area and the right to change the character or use made of the Premises) and Landlord shall not be required to accept any tenant offered by Tenant or to observe any instructions given by Tenant about such reletting. In any such case, Landlord may make repairs, alterations and additions in or to the Premises, and redecorate the same to the extent Landlord deems necessary or desirable, and Tenant shall, upon demand, pay the cost thereof, together with landlord' expenses of reletting including, without limitation, any broker's commission incurred by landlord. If the consideration collected by Landlord upon any such reletting plus any sums previously collected from Tenant are not sufficient to pay the full amount of all rent, including any amounts treated as additional rent hereunder and other sums reserved in this lease for the remaining term hereof, together with the costs of repairs, alterations, additions, redecorating, and Landlord's expenses of reletting and the collection of the rent accruing therefrom (including attorney's fees and broker's commissions), Tenant shall pay to Landlord the amount of such deficiency upon demand and Tenant agrees that Landlord may file suit to recover any sums falling due under this subparagraph from time to time;
Subject to the provisions of Paragraph 18(a), in the event Tenant fails to pay any installment of rent, including any amount treated as additional rent hereunder, or other sums hereunder as and when such installment or other charge is due, Tenant shall pay to Landlord on demand a late charge in an amount equal to five percent (5%) of such installment or other charge overdue in any month and five percent (5%) each month thereafter until paid in full to help defray the additional cost to Landlord for processing such late payments, and such late charge shall be additional rent hereunder and the failure to pay such late charge within ten (10) days after demand therefor shall be an additional event of default hereunder. The provision for such late charge shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner.
Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law, nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any rent due to Landlord hereunder or of any damages accruing to Landlord by reason of the violation of any of the terms, provisions and covenants herein contained. No act or thing done by the Landlord or its agents during the term hereby granted shall be deemed a termination of this lease or an acceptance of the surrender of the Premises, and no agreement to terminate this lease or accept a surrender of said Premises shall be valid unless in writing signed by Landlord. No waiver by Landlord of any violation or breach of any of the terms, provisions and covenants herein contained shall be deemed or construed to constitute a waiver of any other violation or breach of any of the terms, provisions and covenants herein contained. Landlord's acceptance of the payment of rental or other payments hereunder after the occurrence of an event of default shall not be construed as a waiver of such default, unless Landlord so notifies Tenant in writing. Forbearance by Landlord to enforce one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default or of Landlord's right to enforce any such remedies with respect to such default or any subsequent default. If, on account of any breach or default by Tenant in Tenant's obligations under the terms and conditions of this lease, it shall become necessary or appropriate for Landlord to employ or consult with an attorney concerning or to enforce or defend any of Landlord's rights or remedies hereunder, Tenant agrees to pay any reasonable attorney's fees so incurred.
LANDLORD: |
TENANT: |
St. Paul Properties, Inc. |
Protein Design Labs, Inc. |
385 Washington Street |
38401 Campus Drive |
St. Paul, Minnesota 55102 |
Fremont, California 94555 |
Attention: Vice-President, Asset Management |
Attention: General Counsel |
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With a copy to: |
With a copy to: |
United Properties, LLC |
Vice President, Manufacturing |
3500 West 80th Street, Suite 200 |
3955 Annapolis Lane |
Bloomington, Minnesota 55431 |
Plymouth, Minnesota 55447 |
Attention: Vice-President, Property Management |
If and when included within the term "Landlord," as used in this instrument, there are more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of such a notice specifying some individual at some specific address for the receipt of notices and payments to Landlord; if and when included within the term "Tenant," as used in this instrument, there are more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of such a notice specifying some individual at some specific address within the continental United States for the receipt of notices and payments to Tenant. All parties included within the terms "Landlord" and "Tenant," respectively, shall be bound by notices given in accordance with the provisions of this paragraph to the same effect as if each had received such notice.
(a) Tenant is not in default under this lease beyond any time to cure at the time such option is exercised or at the commencement of the renewal term; and
(b) Tenant gives Landlord written notice of the exercise of the renewal of this Lease nine (9) months prior to the end of the Term (the "Renewal Notice of Exercise"), time being of the essence. Tenant's failure to notify Landlord of its intent to exercise the option to renew the Term granted herein on or before the dates specified in this subparagraph (b) for such renewal shall be deemed a waiver of Tenant's right to exercise the option to renew granted herein.
If Tenant elects to renew this Lease under this Paragraph 31, the following terms and conditions shall apply:
(w) the renewal term in question shall commence upon the expiration of the term and continue thereafter for a period of five (5) years;
(x) base rent for the Premises for the renewal term shall be Market Rent (as defined in Paragraph 32 of this lease);
(y) Paragraph 6.E.(z) of this lease shall be amended to require the reports described therein on November 30, 2010 and November 30, 2013; and
(z) all of the other terms and conditions contained in this lease, as it may have been amended from time to time, shall be as set out in this lease, it being understood that there shall be no rights of renewal or extension except as provided in this Paragraph 31, and, upon the exercise of the right of renewal granted by this Paragraph 31, this Paragraph 31 shall be of no further force or effect and Tenant shall have no right to further renew or extend the term at the expiration of the renewal term.
Within fifteen (15) days after request thereof from Landlord, Tenant shall execute and deliver to Landlord those instruments which Landlord may request to evidence the renewal described in this Paragraph 31. The rights of Tenant under this Paragraph 31 shall not be severed from this Lease or separately sold, assigned, or otherwise transferred, and shall expire on the expiration or earlier termination of this Lease. Notwithstanding the foregoing, the renewal option contemplated by this Paragraph 31 shall automatically terminate and become null and void and of no further force and effect upon the earliest to occur of (i) the expiration or termination of this Lease, (ii) the termination of Tenant's right to possession of the Premises, or (iii) the failure of Tenant to timely or properly exercise the rights granted by this Paragraph 31. The right contemplated by this Paragraph shall not survive the expiration or termination of this Lease, and shall not be available to any assignee, sublessee, or successor to Tenant's interests hereunder.
IN WITNESS WHEREOF, the parties have executed this Lease Agreement as of May 31, 2001
LANDLORD: |
ST. PAUL PROPERTIES, INC. |
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By: __________________________ |
Its: ________________________ |
TENANT: |
PROTEIN DESIGN LABS, INC. |
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By: __________________________ |
Its: ________________________ |
EXHIBIT A-1
Description of Premises
3850 Annapolis Lane North, Plymouth, MN
Lot 1, Block, Plymouth Business Center
PID#: 15-118-22-34-0003
Legal to Govern
EXHIBIT B
WORK LETTER AGREEMENT
[Tenant Performs Work]
This Work Letter Agreement ("Work Letter") is dated as of May 31, 2001, and forms a part of that certain Lease Agreement (the "Lease") dated as of May 31, 2001, between PROTEIN DESIGN LABS, INC., a Delaware corporation ("Tenant") and ST. PAUL PROPERTIES, INC., a Delaware corporation ("Landlord") relating to certain premises ("Premises") as defined in the Lease. Capitalized terms used herein, unless otherwise defined in this Work Letter, shall have the respective meanings ascribed to them in the Lease.
For and in consideration of the agreement to lease the Premises and the mutual covenants contained herein and in the Lease, Landlord and Tenant hereby agree as follows:
1. Work. Tenant, at its sole cost and expense, shall perform, or cause to be performed, the work (the "Work") in the Premises provided for in the Approved Plans (as defined in Paragraph 2 hereof).
2. Pre-Construction Activities.
(a) On or before July 1, 2001, as to the demolition of the improvements existing in the Premises as of the date of this Lease, and as of August 1, 2001, as to the construction of the Premises in accordance with this Work Letter, Tenant shall submit the following information and items to Landlord for Landlord's review and approval:
(i) A construction schedule containing the major components of the Work, including the scheduled commencement date of construction of the Work and the estimated date of completion of construction.
(ii) Evidence satisfactory to Landlord in all respects of Tenant's ability to pay the cost of the Work as and when payments become due, it being understood and agreed that, so long as Tenant engages Westin Construction, Inc. ("Westin") as its general contractor, and The DLR Group ("DLR") as its architect, Landlord shall not require payment and performance bonds for all or any portion of the Work; provided however, that if Tenant engages a general contractor other than Westin or an architect other than DLR, Landlord reserves the right to require that Tenant or the general contractor provide payment and performance bonds, with dual obligee riders, for all or a portion of the Work.
(iii) A sworn total project cost statement prepared by Tenant and signed and sworn to as accurate by Tenant and Westin or other general contractor approved by Landlord ("General Contractor") (as to the cost of the Work), setting forth an itemization of estimated construction costs, including fees for permits and architectural and engineering fees, disclosing the various subcontracts and contracts for materials to be entered into by General Contractor (collectively, the "Subcontracts") and setting forth the names of all architects, including DLR or other architect reasonably approved by Landlord, engineers, consultants, designers, subcontractors and material suppliers of all tiers (who, collectively with General Contractor, are referred to herein as "Tenant's Contractors"), including subcontractors and material suppliers, if any, with whom General Contractor has contracted to date, their addresses, work and materials to be furnished, amounts of the Subcontracts, the amounts, if any, paid to date and the balance due under each Subcontract and the Construction Contract.
(iv) The construction contract (the "Construction Contract") entered into by Tenant and the General Contractor for the Work.
(v) Delivery of the Construction Deposit (as more fully described and defined in Paragraph 8(a) hereof).
(vi) Certified copies of insurance policies or certificates of insurance as hereinafter described. Tenant shall not permit Tenant's Contractors to commence work until the required insurance has been obtained and certified copies of policies or certificates have been delivered to Landlord.
(vii) At Landlord's election, but subject to subparagraph (ii) above, payment and performance bonds issued by an insurance company with an A.M. Best rating of at least A-X and qualified to conduct business in the State of Minnesota, for all of Tenant's Contractors naming Landlord (or an agent, designee or representative appointed by Landlord's written notice to Tenant given prior to Tenant's procurement of paid bonds) as a dual obligee.
(viii) The Plans (as hereinafter defined) for the Work, which Plans shall be subject to Landlord's approval in accordance with Paragraph 2(b) below.
Tenant will update such information and items by notice to Landlord of any changes, which changes shall be subject to the provisions of this Work Letter.
(b) As used herein the term "Approved Plans" shall mean the Plans (as hereinafter defined), as and when approved in writing by Landlord. As used herein, the term "Plans" shall mean the full and detailed architectural and engineering plans and specifications covering the Work (including, without limitation, architectural, mechanical and electrical working drawings for the Work), which Plans shall include "tie-ins" to existing utility service at the Building, it being understood and agreed that Landlord shall not be obligated to provide additional utility capacity or tie-ins at other than the location of such utility service in the Building. The Plans shall be subject to Landlord's approval and the approval of all local governmental authorities requiring approval of the work and/or the Plans. Landlord shall give its approval or disapproval (giving specific reasons for disapproval if the Plans are disapproved) of the Plans within ten (10) business days after their delivery to Landlord. Landlord agrees not to unreasonably withhold its approval of said Plans; provided, however, that Landlord shall not be deemed to have acted unreasonably if it withholds its approval of the Plans because, in Landlord's reasonable opinion: the Work as shown in the Plans is likely to adversely affect Building Systems, the structure of the Building or the safety of the Building and/or its occupants; the Work as shown on the Plans might impair Landlord's ability to furnish services to Tenant or other tenants; the Work would increase the cost of operating the Building; the Work would violate any governmental laws, rules or ordinances (or interpretations thereof); the Work contains or uses hazardous or toxic materials or substances that are not otherwise permitted under applicable law, rule or regulation, assuming Tenant's strict compliance with all such laws, rules and regulations; the Work would adversely affect the appearance of the Building; the Work would adversely affect another tenant's premises; or the Work is prohibited by any mortgage or trust deed encumbering the Building. The foregoing reasons, however, shall not be exclusive of the reasons for which Landlord may withhold consent, whether or not such other reasons are similar or dissimilar to the foregoing. Notwithstanding the foregoing, when approved, the Approved Plans shall be considered binding on both Landlord and Tenant. If Landlord notifies Tenant that changes are required to the final Plans submitted by Tenant, Tenant shall, within three (3) business days thereafter, submit to Landlord, for its approval, the Plans amended in accordance with the changes so required. The Plans shall also be revised, and the Work shall be changed, all at Tenant's cost and expense, to incorporate any work required in the Premises by any local governmental field inspector. Landlord's approval of the Plans shall in no way be deemed to be (i) an acceptance or approval of any element therein contained which is in violation of any applicable laws, ordinances, regulations or other governmental requirements, or (ii) an assurance that work done pursuant to the Approved Plans will comply with all applicable laws (or with the interpretations thereof) or satisfy Tenant's objectives and needs.
(c) No Work shall be undertaken or commenced by Tenant in the Premises as to the demolition or construction portions of the Work until (i) Tenant has delivered, and Landlord has approved, all items shown in Paragraph 2(a) above, (ii) all necessary building permits and other consents and approvals have been applied for and obtained by Tenant, and (iii) Tenant has complied with Landlord's requirements pursuant to subparagraph 2(a)(ii) above. Nothing in this subparagraph (c) shall be deemed to preclude Tenant from commencing the demolition portion of the Work at such time as, as to the demolition portion of the Work, Tenant has delivered and Landlord has approved all of the items set forth in Paragraph 2(a) above.
3. Delays. In the event Tenant fails to deliver in sufficient and accurate detail the information required under Paragraph 2 above on or before the respective dates specified in said Paragraph 2, or in the event Tenant, for any reason, fails to complete the Work on or before the Commencement Date, Tenant shall be responsible for Rent and all other obligations under the Lease from and after the Commencement Date regardless of the degree of completion of the Work on such date, and no such delay in completion of the Work shall relieve Tenant of any of its obligations under the Lease.
4. Supervisory Fees. Tenant shall pay Landlord a supervisory fee for actual expenses incurred in an amount not to exceed $2,500.00 to defray Landlord's administrative and overhead expense incurred to review the Plans and coordinate with Tenant's on-site project manager the staging and progress of the Work. Landlord shall invoice Tenant for and provide reasonable documentation of such expenses at the end of the month in which such expenses are incurred and Tenant shall pay the same within ten (10) days after the receipt of Landlord's invoice therefor.
5. Change Orders. All changes to the Approved Plans requested by Tenant must be approved by Landlord in advance of the implementation of such changes as part of the Work. All delays caused by Tenant- initiated change orders, including, without limitation, any stoppage of work during the change order review process, are solely the responsibility of Tenant. All increases in the cost of the Work resulting from such change orders shall be borne by Tenant. Change orders which materially modify the scope of the Work will increase the supervisory fee based on the time and effort required of Landlord's construction project manager identified in Paragraph 9 hereof.
6. Standards And Conditions of Tenant's Performance. All work done in or upon the Premises by Tenant shall be done according to the standards stated in this Paragraph 6, except as the same may be modified in the Approved Plans approved by or on behalf of Landlord and Tenant.
(a) Tenant's Approved Plans and all design and construction of the Work shall comply with all applicable statutes, ordinances, regulations, laws, codes and industry standards, including, but not limited to, requirements of Landlord's fire insurance underwriters. Within the time period provided in Paragraph 2(b) hereof for the review of the Plans, Landlord shall provide to Tenant any requirements from such fire insurance underwriters.
(b) Tenant shall, at its own cost and expense, obtain all required building permits, occupancy permits and other consents and approvals which may be required by the City of Plymouth, the State of Minnesota, the United States of America or any other governmental entity or agency with jurisdiction. Tenant's failure to obtain such permits shall not cause a delay in the commencement of the Term or the obligation to pay Rent or any other obligations under the Lease.
(c) Tenant's Contractors shall be licensed contractors, possessing good labor relations, capable of performing quality workmanship and working in harmony with Landlord's supervisory and management agents and personnel. All work shall be coordinated with any other construction or other work in the Building in order not to adversely affect construction work being performed by or for Landlord or its tenants. Subject to the requirements of this Work Letter, both parties agree to cooperate in connection with all of their respective obligations contemplated by this Work Letter.
(d) To the extent Tenant does not perform or does not cause to be performed any work which pertains to patching of the Work and other work in the Building within five (5) days after notice from Landlord, which notice need not be in writing, but shall be confirmed in writing by Landlord within one (1) business day after oral notice is given, except in the event of an emergency when no notice shall be required, Landlord shall have the right, but not the obligation, to perform, on behalf of and for the account of Tenant, subject to reimbursement by Tenant, the work which pertains to patching of the Work and other work in the Building.
(e) Tenant shall use only new, first-class materials in the Work, except where explicitly shown in the Approved Plans. All Work shall be done in a good and workmanlike manner. With respect to that portion of the Work which is or will become a fixture, Tenant shall obtain contractors' warranties in favor of both Landlord and Tenant of at least one (1) year's duration and manufacturer's warranties in favor of both Landlord and Tenant for the duration customarily granted by the manufacturer from the completion of that portion of the Work against defects in workmanship and materials.
(f) Tenant and Tenant's Contractors shall make all efforts and take all steps appropriate to assure that all construction activities undertaken comport with the reasonable expectations of all tenants and other occupants of a fully-occupied (or substantially fully occupied) building of the same class as the Building and do not unreasonably interfere with the operation of the Building or with other tenants and occupants of the Building. In any event, Tenant shall comply with all reasonable rules and regulations existing from time to time at the Building. Tenant and Tenant's Contractors shall take all precautionary steps to minimize dust, noise, odors, and construction traffic, and to protect their facilities and the facilities of others affected by the Work and to properly police same. Construction equipment and materials are to be kept within the Premises and delivery and loading of equipment and materials shall be done at such locations and at such time as Landlord shall direct so as not to burden the construction or operation of the Building. If and as required by Landlord, the Premises shall be sealed off from the balance of the Building so as to minimize the disbursement of dirt, debris and noise.
(g) Within five (5) days after notice from Landlord, which notice need not be in writing, but shall be confirmed in writing by Landlord within one (1) business day after oral notice is given, except in the event of an emergency when no notice shall be required, Landlord shall have the right to order Tenant or any of Tenant's Contractors who violate the requirements imposed on Tenant or Tenant's Contractors in performing work to cease work and remove its equipment and employees from the Building. No such action by Landlord shall delay the commencement of the Lease or the obligation to pay Rent or any other obligations therein set forth.
(h) Utility costs or charges for any service to the Premises shall be the responsibility of Tenant from the date Tenant is obligated to commence or commences the Work and shall be paid for by Tenant at Landlord's standard rates then in effect. Tenant shall pay for all support services provided by Landlord's contractors at Tenant's request or at Landlord's discretion resulting from breaches or defaults by Tenant under this Work Letter. Tenant shall arrange and pay for removal of construction debris and shall not place debris in the Building's waste containers. If required by Landlord, Tenant shall sort and separate its waste and debris for recycling and/or environmental law compliance purposes.
(i) Tenant shall permit access to the Premises, and the Work shall be subject to inspection by Landlord and Landlord's architects, engineers, contractors and other representatives, at all times during the period in which the Work is being constructed and installed, and following completion of the Work. Landlord shall use reasonable efforts to schedule such inspections so as to not interfere with the Work; provided however, that Landlord shall have no obligation to schedule inspections or other site visits to be made by Landlord's construction project manager identified in Paragraph 9 hereof.
(j) Tenant shall proceed with its work expeditiously, continuously and efficiently, and shall use commercially reasonable efforts to complete the same in accordance with the construction schedule. Tenant shall notify Landlord upon completion of the Work and shall furnish Landlord (and Landlord's title insurance company, if any) with such further documentation as may be necessary under Paragraph 8 below, including, without limitation, a copy of the final as-built plans for the Work.
(k) Tenant shall have no authority to deviate from the Approved Plans in performance of the Work, except as authorized by Landlord and its designated representative in writing. Tenant shall within thirty (30) days after completion of the Work furnish to Landlord "as-built" drawings of the Work prepared by a certified architect.
(l) Landlord shall have the right to run utility lines, pipes, conduits, duct work and component parts of all mechanical and electrical systems where necessary or desirable as a result of the Work through the Premises, to repair, alter, replace or remove the same, and to require Tenant to install and maintain proper access panels thereto.
(m) Tenant shall impose on and enforce all applicable terms of this Work Letter against Tenant's architect and Tenant's Contractors.
7. Insurance and Indemnification.
(a) In addition to any insurance which may be required under the Lease, Tenant shall secure or cause to be secured, pay for or cause to be paid for and maintain or cause Tenant's Contractors to secure, pay for and maintain during the continuance of construction and fixturing work within the Building or Premises, insurance in the following minimum coverages and the following minimum limits of liability:
(i) Worker's Compensation and Employer's Liability Insurance with limits of not less than such amounts as may be required from time to time by law.
(ii) Comprehensive General Liability Insurance (including Contractors' Protective Liability) in an amount not less than $2,000,000.00 (combined single limit). Such insurance shall provide for explosion and collapse, completed operations coverage and broad form blanket contractual liability coverage and shall insure Tenant's Contractors against any and all claims for bodily injury, including death resulting therefrom, and damage to the property of others and arising from its operations under the contracts whether such operations are performed by Tenant's Contractors or by anyone directly or indirectly employed by any of them.
(iii) Comprehensive Automobile Liability Insurance, including the ownership, maintenance and operation of any automotive equipment, owned, hired, or non-owned in an amount not less than $500,000.00 for each person in one accident, and $1,000,000.00 for injuries sustained by two or more persons in any one accident and property damage liability in an amount not less than $1,000,000.00 for each accident. Such insurance shall insure Tenant's Contractors against any and all claims for bodily injury, including death resulting therefrom, and damage to the property of others arising from its operations under the contracts, whether such operations are performed by Tenant's Contractors, or by anyone directly or indirectly employed by any of them.
(iv) "All-risk" builder's risk insurance upon the entire Work to the full insurable value thereof. This insurance shall include the interests of Landlord and Tenant (and their respective contractors and subcontractors of any tier to the extent of any insurable interest therein) in the Work and shall insure against the perils of fire and extended coverage and shall include "all-risk" builder's risk insurance for physical loss or damage including, without duplication of coverage, theft, vandalism and malicious mischief. If portions of the Work stored off the site of the Building or in transit to said site are not covered under said "all-risk" builder's risk insurance, then Tenant shall effect and maintain similar property insurance on such portions of the Work. Any loss insured under said "all-risk" builder's risk insurance shall be adjusted between Landlord and Tenant and made payable to Landlord, as trustee for the insureds, as their interests may appear.
All policies (except the worker's compensation policy) shall be endorsed to include as additional insured parties the parties listed on, or required by, the Lease, Landlord's contractors, Landlord's architects, and their respective beneficiaries, partners, directors, officers, employees and agents, and such additional persons as Landlord may designate. The waiver of subrogation provisions contained in the Lease shall apply to all insurance policies (except the worker's compensation policy) to be obtained by Tenant pursuant to this paragraph. The insurance policy endorsements shall also provide that all additional insured parties shall be given thirty (30) days' prior written notice of any reduction, cancellation or non-renewal of coverage and shall provide that the insurance coverage afforded to the additional insured parties thereunder shall be primary to any insurance carried independently by said additional insured parties. Additionally, where applicable, each policy shall contain a cross-liability and severability of interest clause.
(b) Without limitation of the indemnification provisions contained in the Lease, to the fullest extent permitted by law Tenant agrees to indemnify, protect, defend and hold harmless Landlord, the parties listed, or required by, the Lease to be named as additional insureds, Landlord's contractors, Landlord's architects, and their respective beneficiaries, partners, directors, trustees, officers, employees and agents, from and against all claims, liabilities, losses, damages and expenses of whatever nature arising out of or in connection with the Work or the entry of Tenant or Tenant's Contractors into the Building and the Premises, without limitation, mechanic's liens, the cost of any repairs to the Premises or Building necessitated by activities of Tenant or Tenant's Contractors, bodily injury to persons or damage to the property of Tenant, its employees, agents, invitees, licensees or others. It is understood and agreed that the foregoing indemnity shall be in addition to the insurance requirements described above and shall not be in discharge of or in substitution for same or any other indemnity or insurance provision of the Lease.
8. Completion of Work. Upon completion of the Work, Tenant shall furnish Landlord with full and final waivers of liens and contractors' and architects' affidavits and statements, in such form as may be required by Landlord, Landlord's title insurance company and Landlord's construction or permanent lender, if any, from all parties performing labor or supplying materials or services in connection with the Work showing that all of said parties have been compensated in full and waiving all liens in connection with the Premises and Building. Tenant shall submit to Landlord a detailed breakdown of Tenant's total construction costs, together with such evidence of payment as is satisfactory to Landlord.
9. On-Site Project Manager; Authorities for Action. Landlord hereby appoints Tom Smith, whose address is United Properties LLC, 3500 West 80th Street, Bloomington, Minnesota, 55431 and whose telephone number is 952-893-8873 as Landlord's agent with respect to the matters set forth in this Work Letter and Tenant hereby appoints Phil Gerlach, whose address is 3955 Annapolis Lane North, Plymouth, Minnesota, 55447,and whose telephone number is 763-551-6791, as Tenant's agent and on-site project manager with respect to the matters set forth in this Work Letter. Each of such persons shall be the sole person who will receive and communicate all questions, decisions and other matters as to the party such person represents. Each of such parties will make such communications as is required of him within the times specified therefor in this Work Letter or in the Lease, time being of the essence. Landlord or Tenant may change the person constituting the authority for action by written notice to the other party given in accordance with the Lease. Any person other than Tom Smith or Phil Gerlach appointed by Landlord or Tenant as agent under this Paragraph 9 shall be reasonably acceptable to the other party and shall be qualified, in accordance with this Paragraph 9 to perform his or her duties hereunder.
Tenant's on-site manager shall be familiar with all rules and regulations and procedures of the Building and all personnel of the Building engaged directly or indirectly in the management, operation and construction of the Building. The entire cost and expense of Tenant's on-site project manager shall be borne and paid for by Tenant.
10. Miscellaneous.
(a) Time is of the essence of this Work Letter Agreement.
(b) If Tenant fails to make any payment relating to the Work as required hereunder, Landlord, at its option, may complete the Work pursuant to the Approved Plans and continue to hold Tenant liable for the costs thereof and all other costs due to Landlord. Tenant's failure to pay any amounts owed by Tenant hereunder when due or Tenant's failure to perform its obligations hereunder shall also constitute a default under the Lease and Landlord shall have all the rights and remedies granted to Landlord under the Lease for nonpayment of any amounts owed thereunder or failure by Tenant to perform its obligations thereunder. Notwithstanding the foregoing, Tenant may contest any lien filed against the Premises or the Building for work performed or material supplied if, within thirty (30) days after the filing of any lien arising from work performed, materials furnished or other obligation incurred by Tenant, Tenant shall provide security for such lien upon such terms and conditions, including, without limitation, conditions for the release of said security to Landlord, as Landlord, in Landlord's sole discretion, may require. If, within said thirty (30) day period, Tenant fails to either (a) cause such lien to be discharged; or (b) provide the security on the terms and conditions required by the preceding sentence, then, the same shall constitute an event of default hereunder; provided however, that, in addition to any other right or remedy of Landlord, Landlord may, but shall not be obligated to, discharge the same by paying the amount claimed to be due, and the amount so paid by Landlord and all costs and expenses, including reasonable attorney's fees incurred by Landlord in procuring the discharge of such lien, shall be due and payable in full by Tenant to Landlord on demand. Tenant hereby agrees to defend and indemnify Landlord and to hold Landlord harmless from and against any such lien or claim or action thereon, and shall reimburse Landlord, as additional rent for Landlord's costs of suit and all attorneys' fees and costs incurred in connection with the removal of any such lien, claim or action. Landlord hereby reserves the right, at any time and from time to time during the construction of the Premises or any subsequent alteration to enter onto the Premises and post and review notices in accordance with Minn. Stat. 514.06, as the same may be amended.
(c) Notices under this Work Letter shall be given in the same manner as under the Lease.
(d) The headings in this Work Letter are for convenience only.
(e) This Work Letter sets forth the entire agreement of Tenant and Landlord regarding the Work. This Work Letter may only be amended if in writing, duly executed by both Landlord and Tenant.
(f) All amounts due from Tenant hereunder, if any, shall be deemed to be Rent due under the Lease.
11. Limitation of Landlord's Liability. If Landlord is ever adjudged by any court to be liable to Tenant, Tenant specifically agrees to look solely to Landlord's interest in the Building for the recovery of any judgment from Landlord, it being agreed that none of Landlord, its directors, officers, shareholders, managing agents, employees or agents shall be personally liable for any such judgment. In no event shall Landlord ever be liable to Tenant, Tenant's agents, servants or employees, or to any person or entity claiming by or through Tenant, for any consequential, indirect, special or similar types of damages.
12. Lease Provisions. The terms and provisions of the Lease are hereby amended and supplemented. In the event of any conflict between the provisions of the Lease and the provisions of this Work Letter, the provisions of this Work Letter shall control. All amounts payable by Tenant to Landlord under this Work Letter, if any, shall be deemed to be Additional Rent under the Lease and, upon any default in the payment of same, Landlord shall have all of the rights and remedies provided for in the Lease. The pursuit of any remedies by Tenant in connection with any breach by Landlord of its obligations under this Work Letter shall be subject to the provisions of Paragraph 11 hereof and subject to any other limitations stated in the Lease.
IN WITNESS WHEREOF, this Work Letter Agreement is executed as of the date first written above.
ST. PAUL PROPERTIES, INC. |
PROTEIN DESIGN LABS, INC. |
By: ____________________________ |
By: ____________________________ |
Its: ___________________________ |
Its: ___________________________ |
EXHIBIT C
RULES AND REGULATIONS FOR
PLYMOUTH BUSINESS CENTER
1. The sidewalks, passages and stairways, if any, shall not be obstructed by Tenant or used for any purpose other than for ingress to and egress from the Premises. The passages, entrances, stairways, if any, balconies, if any, and roof are not for the use of the general public, and Landlord shall in all cases retain the right to control and prevent access thereto of all persons whose presence in the judgment of Landlord shall be prejudicial to the safety, character, reputation and interests to the Building and its tenants; provided that nothing herein contained shall be construed to prevent such access to person with whom Tenant normally deals in the ordinary course of its business unless such persons are engaged in illegal activities. Tenant and its employees shall not go upon the roof of the Building without the written consent of the Landlord.
2. The sashes, sash doors, windows, glass lights and any lights or skylights that reflect or admit light into halls, from the building exterior or other places into the building shall not be covered or obstructed. Any curtains, blinds, shades, or screens attached or hung to any of the prior mentioned areas must have prior approval of Landlord. Landlord will provide standard window coverings on exterior windows and other glass if appropriate and Landlord reserves the right to regulate position of such coverings.
3. In case of invasion, riot, public excitement or other commotion, Landlord reserves the right to prevent access to the Building during the continuance of same. Landlord shall in no case be liable for damages for the admission or exclusion of any person to or from the Building. Landlord has the right to evacuate the Building in the event of an emergency or catastrophe.
4. Two door keys for doors to leased premises shall be furnished at the commencement of a lease by Landlord. All duplicate keys shall be purchased only from the Landlord. One security card per each of Tenant's employees so authorized by Tenant will be issued for all approved personnel to permit after-hour access. Tenant shall not alter any lock, or install new or additional locks or bolts, on any door without the prior written approval of Landlord. In the event such alteration or installation is approved by Landlord, Tenant shall supply Landlord with a key for any such lock or bolt. Tenant, upon the termination of the tenancy, shall deliver to Landlord all the keys, locks, bolts, cabinets, safes or vaults, or the means of opening any lockable device and security cards of offices, rooms and toilet rooms which shall have been furnished Tenant or which Tenant shall have had made, and in the event of loss of any keys or security cards so furnished shall pay the Landlord therefor.
5. All deliveries, including intra-company deliveries, must be made via service entrances. Tenant agrees to adhere to floor loading maximum levels as stated by Landlord. All damage done to the Building by the delivery or removal of such items, or by reason of their presence in the Building, shall be paid to Landlord upon demand by Tenant and shall constitute Additional Rent under the Lease.
6. Parking area and parking policies will be established by Landlord, and Tenant agrees to adhere to said policies. UPON A COMPLAINT BY TENANT AND OTHER TENANTS OF THE BUILDING AND AT ANY OTHER TIME, Landlord reserves the right to IMPLEMENT AND institute new parking policies as they are determined to benefit overall Building operations. Tenant agrees to leave no cars, vans or other vehicles overnight or over any weekend in any parking area. Tenant further agrees that its employees will not park in the visitor parking areas at any time.
7. If Tenant desires signal, communication, alarm or other utility or service connection installed or changed, the same shall be made at the expense of Tenant, with approval and under direction of Landlord, it being understood and agreed that (a) no audible alarm shall be installed unless specifically approved in writing by Landlord prior to installation; and (b) only Tenant shall be obligated to respond to such signal, communication, alarm or other utility or service connection, and none of Landlord, Landlord's Managing Agent or other employee, agent or contractor of Landlord shall, under any circumstances have any obligation to Tenant or others to respond to such alarm or be liable to Tenant or any party claiming by or through Tenant for any failure to do so. Any installations, and the boring or cutting for wires, shall be made at the sole cost and expense of Tenant and under control and direction of Landlord. Landlord retains in all cases the right to require (x) the installation and use of such electrical-protecting devices that prevents the transmission of excessive current or electricity into or transmission of excessive current or electricity into or through the Building (y) the changing of wires and of their installation and arrangement underground or otherwise as Landlord may direct, and (z) compliance on the part of all using or seeking access to such wires with such rules as Landlord may establish relating thereto. All such wires used by Tenant must be clearly tagged at the distribution boards and junction box and elsewhere in the Building, with (h) the number of the Premises to which said wires lead, (i) the purpose for which said wires are used and (j) the name of the company operating same.
Tenant agrees to instruct all approved communication, and computer and other cabling installers to attach cable in wire hangers from the deck or in any designated building floor or ceiling system cable location. Tenant will not allow installers to lay any cabling on top of the suspended layer ceiling system.
8. Tenant shall give Landlord prompt notice of all accidents to or defects in air conditioning equipment, plumbing, electrical facilities or any part of appurtenances of the Premises.
9. Tenant assumes full responsibility for protecting its space from theft, robbery, and pilferage, which includes keeping doors locked and other means of entry to the space closed and secured. Landlord shall be in no way responsible to Tenant, its agents, employees, licensees, contractors or invitees for any loss of property from the Premises or public areas or for any damages to any property thereon from any cause whatsoever.
10. Tenant shall not install or operate machinery or any mechanical devices of a nature not directly related to Tenant's ordinary use of the Premises without the prior written permission of the Landlord. Tenant shall not place in or move about the Premises any safe or other heavy article which, in Landlord's reasonable opinion may damage the Premises (including the slab) or overload the floor of the Premises, shall not mark on or drive nails, screw or drill into the partitions, woodwork or plaster (except as may be incidental to the hanging of wall decorations) and shall not in any way deface the Premises or any part thereof.
11. No person or contractor not employed by Landlord shall be used to perform window washing, decorating, repair or other work in the leased Premises without the express written consent of Landlord.
12. The directories of the Building shall be used exclusively for the display of the name and location only of the tenants of the Building, including Tenant, and will be provided at the expense of Landlord. Any additional names requested by Tenant to be displayed in the directories must be approved by Landlord and, if approved, will be provided at the sole expense of Tenant.
13. Tenant shall not and shall ensure that its agents, servants, employees, licensees, contractors or invitees shall not:
(a) enter into or upon the roof of the Building or any storage, electrical or telephone closet, or heating, ventilation, air- conditioning, mechanical or elevator machinery housing areas;
(b) sweep or throw any dirt or other substance into ANY passageway, sidewalk or parking area;
(c) bring in or keep in the Premises any firearms, vehicles, bicycles, motorcycles or animals of any kind, except seeing-eye or hearing-ear dogs or other animals required by Tenant's employees, agents, contractors or invitees to perform their normal life activities;
(d) deposit any trash, refuse or other substance of any kind within or out of the Building, except in the refuse containers provided therefor;
(e) permit the operation any device that may produce an odor, cause music, vibrations of air waves to be heard or felt outside the Premises, or which may emit electrical waves that shall impair radio, television or any other form of communication system; or
(f) permit the carrying of a lighted cigar, cigarette, pipe or any other lighted smoking equipment or permit smoking of cigarettes, cigars or pipes (i) in the common areas of the Building, including, without limitation, restrooms, except common areas which have been designated by Landlord in writing as smoking areas; or (ii) within ten (10) yards of any door leading into the Building or any building comprising a part thereof.
14. Tenant will not install any radio or television antennas or receptor dish or any device on the roof or grounds without the prior written approval of Landlord. Tenant understands that rentals are charged for roof space in the event any roof installation is approved in writing by Landlord. Landlord reserves the right to require removal of any approved installed device in the event it is necessary to do so in Landlord's opinion.
15. No sign, light, name placard, poster advertisement or notice visible from the exterior of any demised premises, shall be placed, inscribed, painted or affixed by Tenant on any part of the Building without the prior written approval of Landlord. All signs or letterings on doors, or otherwise, approved by Landlord shall be inscribed, painted or affixed at the sole cost and expense of Tenant, by a person approved by Landlord.
16. The toilet-rooms, toilet, urinals, wash bowls and water apparatus shall not be used for any purpose other than those for which they were constructed or installed, and no sweeping, rubbish, chemicals or other unsuitable substances shall be thrown or placed therein. Tenant shall bear the expense of repairing and cleaning up any breakage, stoppage or damage resulting from violation(s) of this rule by Tenant or its agents, servants, employees, invitees, licensees or visitors.
17. Tenant must have Landlord's prior written consent before using the name of the Building and/or pictures of the Building in advertising or other publicity.
18. Tenant shall not make any room-to-room canvass to solicit business from other tenants in the Building, and shall not exhibit, sell or offer to sell, use, rent or exchange in or from the Premises unless ordinarily embraced within Tenant's use of the Premises specified herein.
19. Tenant shall not do any cooking in the Premises, except that Tenant may install a microwave oven and coffee makers for the use of its employees in the Premises. Under no circumstances shall Tenant install or use any hot plates.
20. No portion of Tenant's area or any other part of the Building shall at any time be used or occupied as sleeping or lodging quarters.
21. Landlord has the right to enact trash removal and trash recycling rules and regulations as necessary to control trash removal costs or as required by the laws of the State of Minnesota and/or the United States of America. Tenant agrees to adhere to such trash removal regulations and to any and all modifications thereof issued by Landlord from time to time.
22. Tenant will refer all contractors, contractors' representatives and installation technicians rendering any service to Tenant to Landlord for Landlord's supervision, approval and control before performance of any contractual service. This provision shall apply to any work performed in the Building including installations of telephones, telegraph equipment, electrical devices and attachments and installations of any nature affecting floors, walls, woodwork, trim, windows, ceilings, equipment or any other physical portion of the Building.
23. Tenant shall not permit picketing or other union activity involving its employees in the Building except in those locations and subject to time and other limitations as to which Landlord may give prior written consent.
24. Tenant shall not conduct, or permit to be conducted on or from the Premises, any auction of Tenant's personal property, any liquidation sale, any going-out-of-business sale or other similar activity.
25. Landlord reserves the right to rescind, make reasonable amendments, modifications and additions to the rules and regulations heretofore set forth, and to make additional reasonable rules and regulations, as in Landlord's sole judgment may from time-to-time be needed for the safety, care, cleanliness and preservation of good order of the Building, and Landlord agrees that it shall notify Tenant, in writing of any such amendments, modifications and additional or additional rules and regulations. Landlord shall not be responsible for any violation of the foregoing rules and regulations by other tenants of the Building and shall have no obligation to enforce the same against other tenants.
EXHIBIT D
TENANT'S DECEMBER 31, 2000, AUDITED FINANCIAL STATEMENTS
Exhibit 10.5
LEASE AGREEMENT
THIS LEASE, made this 28th day of June, 2001, between JOHN ARRILLAGA, Trustee, or his Successor Trustee, UTA dated 7/20/77 (JOHN ARRILLAGA SURVIVOR'S 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, hereinafter called Landlord, and PROTEIN DESIGN LABS, INC., a Delaware corporation, hereinafter called Tenant.
WITNESSETH:
Landlord hereby leases to Tenant and Tenant hereby hires and takes from Landlord those certain premises (the "Premises") outlined in Red on Exhibit A, attached hereto and incorporated herein by this reference thereto more particularly described as follows:
A portion of that certain 41,472+ square foot, one-story building located at 34810 Campus Drive, Fremont California 94555, consisting of approximately 11,265+ square feet of space. Said Premises is more particularly shown within the area outlined in Red on Exhibit A attached hereto. The entire parcel, of which the Premises is a part, is shown within the area outlined in Green on Exhibit A attached. The Premises shall be improved by Landlord as shown on Exhibit B attached hereto, and is leased on an "as-is" basis, in its present condition, and in the configuration as shown in Red on Exhibit B attached hereto.
The word "Premises" as used throughout this Lease is hereby defined to include the nonexclusive use of landscaped areas, sidewalks and driveways in front of or adjacent to the Premises, and the nonexclusive use of the area directly underneath or over such sidewalks and driveways. The gross leasable area of the building shall be measured from outside of exterior walls to outside of exterior walls, and shall include any atriums, covered entrances or egresses and covered building loading areas.
Said letting and hiring is upon and subject to the terms, covenants and conditions hereinafter set forth and Tenant covenants as a material part of the consideration for this Lease to perform and observe each and all of said terms, covenants and conditions. This Lease is made upon the conditions of such performance and observance.
It is agreed in the event said Lease commences on a date other than the first day of the month the Term of the Lease will be extended to account for the number of days in the partial month. The Basic Rent during the resulting partial month will be pro-rated (for the number of days in the partial month) at the Basic Rent rate scheduled for the projected Commencement Date as shown in Paragraph 4A.
On August 1, 2001, the sum of THIRTY THOUSAND NINE HUNDRED SEVENTY EIGHT AND 75/100 DOLLARS ($30,978.75) shall be due, and a like sum due on the first day of each month thereafter, through and including July 31, 2002.
On August 1, 2002, the sum of THIRTY TWO THOUSAND ONE HUNDRED FIVE AND 25/100 DOLLARS ($32,105.25) shall be due, and a like sum due on the first day of each month thereafter, through and including July 1, 2003.
On August 1, 2003, the sum of THIRTY THREE THOUSAND TWO HUNDRED THIRTY ONE AND 75/100 DOLLARS ($33,231.75) shall be due, and a like sum due on the first day of each month thereafter, through and including July 1, 2004; or until the entire aggregate sum of ONE MILLION ONE HUNDRED FIFTY FIVE THOUSAND SEVEN HUNDRED EIGHTY NINE AND NO/100 DOLLARS ($1,155,789.00) has been paid.
The Additional Rent due hereunder shall be paid to Landlord or Landlord's agent (i) within five days for taxes and insurance and within thirty (30) days for all other Additional Rent items after presentation of invoice from Landlord or Landlord's agent setting forth such Additional Rent (notwithstanding anything to the contrary herein, Landlord shall not be required to submit ongoing monthly statements to Tenant reflecting amounts owed as Additional Rent) and/or (ii) at the option of Landlord, Tenant shall pay to Landlord monthly, in advance, Tenant's prorata share of an amount estimated by Landlord to be Landlord's approximate average monthly expenditure for such Additional Rent items, which estimated amount shall be reconciled within one hundred twenty (120) days of the end of each calendar year or more frequently if Landlord elects to do so at Landlord's sole and absolute discretion as compared to Landlord's actual expenditure for said Additional Rent items, with Tenant paying to Landlord, upon demand, any amount of actual expenses expended by Landlord in excess of said estimated amount, or Landlord crediting to Tenant (providing Landlord may withhold any amount thereof required to cure Tenant's default in the performance of any of the terms, covenants and conditions of this Lease) any amount of estimated payments made by Tenant in excess of Landlord's actual expenditures for said Additional Rent Items. Within thirty (30) days after receipt of Landlord's reconciliation, Tenant shall have the right, at Tenant's sole expense, to audit, at a mutually convenient time at Landlord's office, Landlord's records specifically limited to the foregoing expenses. Such audit must be conducted by Tenant or an independent nationally recognized accounting firm that is not being compensated by Tenant or other third party on a contingency fee basis. Tenant shall submit to Landlord a complete copy of said audit at no expense to Landlord and a written notice stating the results of said audit, and if such notice by Tenant and the respective audit reveals that Landlord has overcharged Tenant, and the audit is not challenged by Landlord, the amount overcharged shall be credited to Tenant's account within thirty (30) days after completion of Landlord's review and approval of said audit. Landlord shall make reasonable efforts to respond to Tenant's audit request within ninety (90) days of receipt of the same; however, in the event that Landlord is unable to respond within that time period, Landlord shall not have waived its rights to respond to said audit.
The reference to "Rent" in this Paragraph 4 includes Basic Rent, Additional Rent, and fixed Management Fee. The respective obligations of Landlord and Tenant under this Paragraph shall survive the expiration or other termination of the Term of this Lease, and if the Term hereof shall expire or shall otherwise terminate on a day other than the last day of a calendar year, the actual Additional Rent incurred for the calendar year in which the Term hereof expires or otherwise terminates shall be determined and settled on the basis of the statement of actual Additional Rent for such calendar year and shall be prorated in the proportion which the number of days in such calendar year preceding such expiration or termination bears to 365.
Landlord shall operate, manage and maintain the Common Area. The manner in which the Common Area shall be maintained and the expenditures for such maintenance shall be at the discretion of Landlord.
As Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall pay its proportionate share (calculated on a square footage or other equitable basis as calculated by Landlord) of the cost of operation (including common utilities), management, maintenance, and repair of the building (including structural and common areas such as lobbies, restrooms, janitor's closets, hallways, elevators, mechanical and telephone rooms, stairwells, entrances, spaces above the ceilings and janitorization of said common areas) in which the Premises are located. The maintenance items herein referred to include, but are not limited to, all windows, window frames, plate glass, glazing, truck doors, main plumbing systems of the building (such as water drain lines, sinks, toilets, faucets, drains, showers and water fountains), main electrical systems (such as panels and conduits), heating and air-conditioning systems (such as compressors, fans, air handlers, ducts, boilers, heaters), structural elements and exterior surfaces of the building; store fronts, roof, downspouts, building common area interiors (such as wall coverings, window coverings, floor coverings and partitioning), ceilings, building exterior doors, skylights (if any), automatic fire extinguishing systems, and elevators (if any); license, permit and inspection fees; security, supplies, materials, equipment and tools; the cost of capital expenditures which have the effect of reducing operating expenses, provided, however, that in the event Landlord makes such capital improvements, Landlord may amortize its investment in said improvements (together with interest at the rate of fifteen (15%) percent per annum on the unamortized balance) as an operating expense in accordance with standard accounting practices, provided, that such amortization is not at a rate greater than the anticipated savings in the operating expenses. Tenant hereby waives all rights hereunder, and benefits of, subsection 1 of Section 1932 and Sections 1941 and 1942 of the California Civil Code and under any similar law, statute or ordinance now or hereafter in effect.
"Additional Rent" as used herein shall not include Landlord's debt repayments; cost for the installation of partitioning or any other tenant improvements for third party tenants; cost of attracting third party tenants; depreciation; interest; or executive salaries.
Landlord shall not be liable for and Tenant shall not be entitled to any abatement or reduction of rent by reason of any interruption or failure of utility services to the Premises when such interruption or failure is caused by accident, breakage, repair, strikes, lockouts, or other labor disturbances or labor disputes of any nature, or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord.
Provided that Tenant is not in default in the performance or observance of any of the terms, covenants or conditions of this Lease to be performed or observed by it, Landlord shall furnish to the Premises between the hours of 8:00 am and 6:00 pm, Mondays through Fridays (holidays excepted) and subject to the rules and regulations of the Common Area hereinbefore referred to, reasonable quantities of water, gas and electricity suitable for the intended use of the Premises and heat and air-conditioning required in Landlord's judgment for the comfortable use and occupation of the Premises for such purposes. Tenant agrees that at all times it will cooperate fully with Landlord and abide by all regulations and requirements that Landlord may prescribe for the proper functioning and protection of the building heating, ventilating and air- conditioning systems. Whenever heat generating machines, equipment, or any other devices (including exhaust fans) are used in the Premises by Tenant which affect the temperature or otherwise maintained by the air-conditioning system, Landlord shall have the right to install supplementary air-conditioning units in the Premises and the cost thereof, including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. Tenant will not, without the written consent of Landlord, use any apparatus or device in the Premises (including, without limitation), electronic data processing machines or machines using current in excess of 110 Volts which will in any way increase the amount of electricity, gas, water or air-conditioning usually furnished or supplied to premises being used as general office space, or connect with electric current (except through existing electrical outlets in the Premises), or with gas or water pipes any apparatus or device for the purposes of using electric current, gas, or water. If Tenant shall require water, gas, or electric current in excess of that usually furnished or supplied to premises being used as general office space, Tenant shall first obtain the written consent of Landlord, which consent shall not be unreasonably withheld and Landlord may cause an electric current, gas or water meter to be installed in the Premises in order to measure the amount of electric current, gas or water consumed for any such excess use. The cost of any such meter and of the installation, maintenance and repair thereof, all charges for such excess water, gas and electric current consumed (as shown by such meters and at the rates then charged by the furnishing public utility); and any additional expense incurred by Landlord in keeping account of electric current, gas, or water so consumed shall be paid by Tenant, and Tenant agrees to pay Landlord therefor promptly upon demand by Landlord.
Tenant shall also maintain a policy or policies of workman's compensation insurance and any other employee benefit insurance sufficient to comply with all laws.
In addition and notwithstanding anything to the contrary in this Paragraph 17, each party to this Lease hereby waives all rights of recovery against the other party or its officer, employees, agents and representatives for loss or damage to its property or the property of others under its control, arising from any cause insured against under the fire and extended coverage (excluding, however, any loss resulting from Hazardous Material contamination of the Property) required to be maintained by the terms of this Lease Agreement to the extent full reimbursement of the loss/claim is received by the insured party. Each party required to carry property insurance hereunder shall cause the policy evidencing such insurance to include a provision permitting such release of liability ("waiver of subrogation endorsement") provided, however, that if the insurance policy of either releasing party prohibits such waiver, then this waiver shall not take effect until consent to such waiver is obtained; provided, however, that if the insurance policy of either releasing party prohibits such waiver, then this waiver shall not take effect until consent to such waiver is obtained. If such waiver is so prohibited, the insured party affected shall promptly notify the other party thereof. In the event the waivers are issued to the parties and are not valid under current policies and/or subsequent insurance policies, the non-complying party will provide, to the other party, 30 days advance notification of the cancellation of the subrogation waiver, in which case neither party will provide such subrogation waiver thereafter and this Paragraph will be null and void. The foregoing waiver of subrogation shall not include any loss resulting from Hazardous Material contamination of the Property or any insurance coverage relating thereto.
"If Landlord and Tenant jointly and voluntarily elect, for any reason whatsoever, to terminate the Master Lease prior to the scheduled Master Lease termination date, then this Sublease (if then still in effect) shall terminate concurrently with the termination of the Master Lease. Subtenant expressly acknowledges and agrees that (1) the voluntary termination of the Master Lease by Landlord and Tenant and the resulting termination of this Sublease shall not give Subtenant any right or power to make any legal or equitable claim against Landlord, including without limitation any claim for interference with contract or interference with prospective economic advantage, and (2) Subtenant hereby waives any and all rights it may have under law or at equity against Landlord to challenge such an early termination of the Sublease, and unconditionally releases and relieves Landlord, and its officers, directors, employees and agents, from any and all claims, demands, and/or causes of action whatsoever (collectively, "Claims"), whether such matters are known or unknown, latent or apparent, suspected or unsuspected, foreseeable or unforeseeable, which Subtenant may have arising out of or in connection with any such early termination of this Sublease. Subtenant knowingly and intentionally waives any and all protection which is or may be given by Section 1542 of the California Civil Code which provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with debtor.
The term of this Sublease is therefore subject to early termination. Subtenant's initials here below evidence (a) Subtenant's consideration of and agreement to this early termination provision, (b) Subtenant's acknowledgment that, in determining the net benefits to be derived by Subtenant under the terms of this Sublease, Subtenant has anticipated the potential for early termination, and (c) Subtenant's agreement to the general waiver and release of Claims above.
Initials: _________ Initials: _________"
Subtenant Tenant
Within thirty (30) days after the court approval of the assumption of this Lease, the trustee or receiver shall cure (or provide adequate assurance to the reasonable satisfaction of Landlord that the trustee or receiver shall cure) any and all previous defaults under the unexpired Lease and shall compensate Landlord for all actual pecuniary loss and shall provide adequate assurance of future performance under said Lease to the reasonable satisfaction of Landlord. Adequate assurance of future performance, as used herein, includes, but shall not be limited to: (i) assurance of source and payment of Rent, and other consideration due under this Lease; (ii) assurance that the assumption or assignment of this Lease will not breach substantially any provision, such as radius, location, use, or exclusivity provision, in any agreement relating to the above described Premises.
Nothing contained in this section shall affect the existing right of Landlord to refuse to accept an assignment upon commencement of or in connection with a bankruptcy, liquidation, reorganization or insolvency action or an assignment of Tenant for the benefit of creditors or other similar act. Nothing contained in this Lease shall be construed as giving or granting or creating an equity in the demised Premises to Tenant. In no event shall the leasehold estate under this Lease, or any interest therein, be assigned by voluntary or involuntary bankruptcy proceeding without the prior written consent of Landlord. In no event shall this Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, insolvency or reorganization proceedings.
The failure to perform or honor any covenant, condition or representation made under this Lease shall constitute a default under this Lease by Tenant upon expiration of the appropriate grace period hereinafter provided. Tenant shall have a period of five (5) days from the date of written notice from Landlord within which to cure any default in the payment of Rent or adjustment thereto. Tenant shall have a period of thirty (30) days from the date of written notice from Landlord within which to cure any other non-monetary default under this Lease; provided, however, that with respect to non-monetary defaults not involving Tenant's failure to pay Basic Rent or Additional Rent, Tenant shall not be in default if (i) more than thirty (30) days is required to cure such non-monetary default and (ii) Tenant commences cure of such default as soon as reasonably practicable after receiving written notice of such default from Landlord and thereafter continuously and with due diligence prosecutes such cure to completion. Upon an uncured default of this Lease by Tenant, Landlord shall have the following rights and remedies in addition to any other rights or remedies available to Landlord at law or in equity:
(a) Rebuild or restore the Premises to their condition prior to the damage or destruction, or
(b) Terminate this Lease (providing that the Premises is damaged to the extent of 33 1/3% or more of the replacement cost, exclusive of footings, foundations and floor slabs).
If Landlord does not give Tenant notice in writing within thirty (30) days from the destruction of the Premises of its election to either rebuild and restore them, or to terminate this Lease, Landlord shall be deemed to have elected to rebuild or restore them, in which event Landlord agrees, at its expense except for any deductible, which is the responsibility of the Tenant, promptly to rebuild or restore the Premises to their condition prior to the damage or destruction. Tenant shall be entitled to a reduction in Rent from the date of such damage or destruction, provided Tenant is not using any portion of such damaged area, while such repair is being made in the proportion that the area of the Premises rendered untenantable by such damage bears to the total area of the Premises. If Landlord initially estimates that the rebuilding or restoration will exceed 180 days or if Landlord does not complete the rebuilding or restoration within one hundred eighty (180) days following the date of destruction (such period of time to be extended for delays caused by the fault or neglect of Tenant or because of Acts of God, acts of public agencies, labor disputes, strikes, fires, freight embargos, rainy or stormy weather, inability to obtain materials, supplies or fuels, acts of contractors or subcontractors, or delay of the contractors or subcontractors due to such causes or other contingencies beyond the control of Landlord), then Tenant shall have the right to terminate this Lease by giving written notice to Landlord within five days following the date Tenant receives Landlord's written notice stating that the restoration will exceed 180 days. Regardless of whether Landlord and/or Tenant elects to terminate the Lease early as provided herein, Tenant shall remain liable for the insurance deductible as it relates to the Leased Premises. Notwithstanding anything herein to the contrary, Landlord's obligation to rebuild or restore shall be limited to the building and interior improvements constructed by Landlord as they existed as of the Commencement Date of the Lease and shall not include restoration of Tenant's trade fixtures, equipment, merchandise, or any improvements, alterations or additions made by Tenant to the Premises, which Tenant shall forthwith replace or fully repair at Tenant's sole cost and expense provided this Lease is not canceled according to the provisions above.
Unless this Lease is terminated pursuant to the foregoing provisions, this Lease shall remain in full force and effect. Tenant hereby expressly waives the provision of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of the California Civil Code.
In any event that the building in which the Premises are situated is damaged or destroyed to the extent of not less than 33 1/3% of the replacement cost thereof, Landlord may elect to terminate this Lease, whether the Premises be injured or not. Notwithstanding anything to the contrary herein, Landlord may terminate this lease in the event of an uninsured event or if insurance proceeds are insufficient to cover one hundred percent of the rebuilding costs net of the deductible.
If any action or proceeding is commenced for such taking of the Premises or any part thereof, or if Landlord is advised in writing by any entity or body having the right or power of condemnation of its intention to condemn the Premises or any part thereof, then Landlord shall have the right to terminate this Lease by giving Tenant written notice thereof within sixty (60) days of the date of receipt of said written advice, or commencement of said action or proceeding, or taking conveyance, which termination shall take place as of the first to occur of the last day of the calendar month next following the month in which such notice is given or the date on which title to the Premises shall vest in the condemnor.
In the event of such a partial taking or conveyance of the Premises, if the portion of the Premises taken or conveyed is so substantial that the Tenant can no longer reasonably conduct its business, Tenant shall have the privilege of terminating this Lease within sixty (60) days from the date of such taking or conveyance, upon written notice to the Landlord of its intention so to do, and upon giving of such notice this Lease shall terminate on the last day of the calendar month next following the month in which such notice is given, upon payment by Tenant of the Rent from the date of such taking or conveyance to the date of termination.
If a portion of the Premises be taken by condemnation or conveyance in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as provided herein, this Lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed, and the Rent herein shall be apportioned as of the date of such taking or conveyance so that thereafter the Rent to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken or conveyed bears to the total area of the Premises prior to such taking.
(a) the sole and exclusive remedy shall be against Landlord's interest in the Premises leased herein;
(b) no partner of Landlord shall be sued or named as a party in any suit or action (except as may be necessary to secure jurisdiction of the partnership);
(c) no service of process shall be made against any partner of Landlord (except as may be necessary to secure jurisdiction of the partnership);
(d) no partner of Landlord shall be required to answer or otherwise plead to any service of process;
(e) no judgment will be taken against any partner of Landlord;
(f) any judgment taken against any partner of Landlord may be vacated and set aside at any time without hearing;
(g) no writ of execution will ever be levied against the assets of any partner of Landlord;
(h) these covenants and agreements are enforceable both by Landlord and also by any partner of Landlord.
Tenant agrees that each of the foregoing covenants and agreements shall be applicable to any covenant or agreement either expressly contained in this Lease or imposed by statute or at common law.
All approved signs or lettering on outside shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved of by Landlord.
Tenant shall not place anything or allow anything to be placed near the glass of any window, door partition or wall which may appear unsightly from outside the Premises.
A. As used herein, the term "Hazardous Materials" shall mean any material, waste, chemical, mixture or byproduct which is or hereafter is defined, listed or designated under Environmental Laws (defined below) as a pollutant, or as a contaminant, or as a toxic or hazardous substance, waste or material, or any other unwholesome, hazardous, toxic, biohazardous, or radioactive material, waste, chemical, mixture or byproduct, or which is listed, regulated or restricted by any Environmental Law (including, without limitation, petroleum hydrocarbons or any distillates or derivatives or fractions thereof, polychlorinated biphenyls, or asbestos). As used herein, the term "Environmental Laws" shall mean any applicable Federal, State of California or local government law (including common law), statute, regulation, rule, ordinance, permit, license, order, requirement, agreement, or approval, or any determination, judgment, directive, or order of any executive or judicial authority at any level of Federal, State of California or local government (whether now existing or subsequently adopted or promulgated) relating to pollution or the protection of the environment, ecology, natural resources, or public health and safety.
B. Tenant shall obtain Landlord's written consent, which may be withheld in Landlord's discretion, prior to the occurrence of any Tenant's Hazardous Materials Activities (defined below); provided, however, that Landlord's consent shall not be required for normal use in compliance with applicable Environmental Laws of customary household and office supplies (Tenant shall first provide Landlord with a list of said materials use), such as mild cleaners, lubricants and copier toner. As used herein, the term "Tenant's Hazardous Materials Activities" shall mean any and all use, handling, generation, storage, disposal, treatment, transportation, release, discharge, or emission of any Hazardous Materials on, in, beneath, to, from, at or about the Property, in connection with Tenant's use of the Property, or by Tenant or by any of Tenant's agents, employees, contractors, vendors, invitees, visitors or its future subtenants or assignees. Tenant agrees that any and all Tenant's Hazardous Materials Activities shall be conducted in strict, full compliance with applicable Environmental Laws at Tenant's expense, and shall not result in any contamination of the Property or the environment. Tenant shall not discharge any Hazardous Materials in the plumbing, sewer and/or storm drains in the Premises and/or Parcel. Tenant agrees to provide Landlord with prompt written notice of any spill or release of Hazardous Materials at the Property during the term of the Lease of which Tenant becomes aware, and further agrees to provide Landlord with prompt written notice of any violation of Environmental Laws in connection with Tenant's Hazardous Materials Activities of which Tenant becomes aware. If Tenant's Hazardous Materials Activities involve Hazardous Materials other than normal use of customary household and office supplies, Tenant also agrees at Tenant's expense: (i) to install such Hazardous Materials monitoring, storage and containment devices as Landlord reasonably deems necessary (Landlord shall have no obligation to evaluate the need for any such installation or to require any such installation); (ii) provide Landlord with a written inventory of such Hazardous Materials, including an update of same each year upon the anniversary date of the Commencement Date of the Lease ("Anniversary Date"); and (iii) on each Anniversary Date, to retain a qualified environmental consultant, acceptable to Landlord, to evaluate whether Tenant is in compliance with all applicable Environmental Laws with respect to Tenant's Hazardous Materials Activities. Tenant, at its expense, shall submit to Landlord a report from such environmental consultant which discusses the environmental consultant's findings within two (2) months of each Anniversary Date. Tenant, at its expense, shall promptly undertake and complete any and all steps necessary, and in full compliance with applicable Environmental Laws, to fully correct any and all problems or deficiencies identified by the environmental consultant, and promptly provide Landlord with documentation of all such corrections.
C. Prior to termination or expiration of the Lease, Tenant, at its expense, shall (i) properly remove from the Property all Hazardous Materials which come to be located at the Property in connection with Tenant's Hazardous Materials Activities, and (ii) fully comply with and complete all facility closure requirements of applicable Environmental Laws regarding Tenant's Hazardous Materials Activities, including but not limited to (x) properly restoring and repairing the Property to the extent damaged by such closure activities, and (y) obtaining from the local Fire Department or other appropriate governmental authority with jurisdiction a written concurrence that closure has been completed in compliance with applicable Environmental Laws. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any such closure activities.
D. If Landlord, in its sole discretion, believes that the Property has become contaminated as a result of Tenant's Hazardous Materials Activities, Landlord in addition to any other rights it may have under this Lease or under Environmental Laws or other laws, may enter upon the Property and conduct inspection, sampling and analysis, including but not limited to obtaining and analyzing samples of soil and groundwater, for the purpose of determining the nature and extent of such contamination. Tenant shall promptly reimburse Landlord for the costs of such an investigation, including but not limited to reasonable attorneys' fees Landlord incurs with respect to such investigation, that discloses Hazardous Materials contamination for which Tenant is liable under this Lease. Notwithstanding the above, Landlord may, at its option and in its sole and absolute discretion, choose to perform remediation and obtain reimbursement for cleanup costs as set forth herein from Tenant. Any cleanup costs incurred by Landlord as the result of Tenant's Hazardous Materials Activities shall be reimbursed by Tenant within thirty (30) days of presentation of written documentation of the expense to Tenant by Landlord. Such reimbursable costs shall include, but not be limited to, any reasonable consultant and attorney fees incurred by Landlord. Tenant shall take all actions necessary to preserve any claims it has against third parties, including, but not limited to, its insurers, for claims related to its operation, management of Hazardous Materials or contamination of the Property. Except as may be required of Tenant by applicable Environmental Laws, Tenant shall not perform any sampling, testing, or drilling to identify the presence of any Hazardous Materials at the Property, without Landlord's prior written consent which may be withheld in Landlord's discretion. Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any sampling, testing or drilling performed pursuant to the preceding sentence.
E. Tenant shall indemnify, defend (with legal counsel acceptable to Landlord, whose consent shall not unreasonably be withheld) and hold harmless Landlord, its employees, assigns, successors, successors-in-interest, agents and representatives from and against any and all claims (including but not limited to third party claims from a private party or a government authority), liabilities, obligations, losses, causes of action, demands, governmental proceedings or directives, fines, penalties, expenses, costs (including but not limited to reasonable attorneys', consultants' and other experts' fees and costs), and damages, which arise from or relate to: (i) Tenant's Hazardous Materials Activities; (ii) any Hazardous Materials contamination caused by Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any obligation of Tenant under this Paragraph 44 (collectively, "Tenant's Environmental Indemnification"). Tenant's Environmental Indemnification shall include but is not limited to the obligation to promptly and fully reimburse Landlord for losses in or reductions to rental income, and diminution in fair market value of the Property. Tenant's Environmental Indemnification shall further include but is not limited to the obligation to diligently and properly implement to completion, at Tenant's expense, any and all environmental investigation, removal, remediation, monitoring, reporting, closure activities, or other environmental response action (collectively, "Response Actions"). Tenant shall promptly provide Landlord with copies of any claims, notices, work plans, data and reports prepared, received or submitted in connection with any Response Actions.
As evidenced by their initials set forth immediately below, Tenant acknowledges that Landlord has provided Tenant with copies of the environmental reports listed on Exhibit C ("Reports"), and Tenant acknowledges that Tenant and Tenant's experts (if any) have had ample opportunity to review such reports and that Tenant has satisfied itself as to the environmental conditions of the Property and the suitability of such conditions for Tenant's intended use of the Property. To the best of Landlord's knowledge as of the date of this Lease, except as noted in said Reports, no additional on site Hazardous Materials contamination exist on the Property; however, Landlord shall have no obligation to further investigate.
Initial: ____________ Initial: _____________
Tenant Landlord
It is agreed that the Tenant's responsibilities related to Hazardous Materials will survive the expiration or termination of this Lease and that Landlord may obtain specific performance of Tenant's responsibilities under this Paragraph 44.
In the event this Lease is terminated early, for any reason whatsoever (excluding, however a termination resulting from Paragraphs 26 ("Destruction") or 27 ("Eminent Domain"), Tenant agrees to reimburse Landlord for one hundred percent (100%) of the balance of the unamortized Lease Commission previously paid by Landlord, that is outstanding as of the early Lease Termination Date. Said amount shall be paid by Tenant to Landlord by the Lease Termination Date, and/or Landlord may, at its option, deduct part or all of said unamortized Lease Commission from Tenant's Security Deposit.
The term "person" includes the plural as well as the singular and individuals, firms, associations, partnerships and corporations. Words used in any gender include other genders. If there be more than one Tenant the obligations of Tenant hereunder are joint and several. The paragraph headings of this Lease are for convenience of reference only and shall have no effect upon the construction or interpretation of any provisions hereof.
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IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this Lease as of the day and year last written below.
LANDLORD: |
TENANT: |
JOHN ARRILLAGA SURVIVOR'S TRUST |
PROTEIN DESIGN LABS, INC. |
By _____________________________________ |
By _____________________________________ |
Date _____________________________________ |
Date _____________________________________ |
RICHARD T. PEERY SEPARATE By _____________________________________ |
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