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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
_________________________________________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996 Commission File No. 1-4430
_________________________________________________________
MAXIM PHARMACEUTICALS, INC.
(Exact Name of Registrant as specified in its charter)
Delaware 87-0279983
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3099 Science Park Road, Suite 150
San Diego, CA 92121
(619) 453-4040
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
_________________________________________________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the
Act: Common Stock, $.001 Par Value
Redeemable Common Stock Purchase Warrants
(Title of Class)
_________________________________________________________
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 such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by persons
considered by the registrant for this purpose to be nonaffiliates of the
registrant was approximately $52,535,991 on December 23, 1996, when the
closing price of such stock, as reported in the American Stock Exchange, was
$7.875.
The number of shares outstanding of the registrant's Common Stock, $.001
par value, as of December 23, 1996 was 6,671,237 shares.
_____________________________________________________________
DOCUMENTS INCORPORATED BY REFERENCE
1. Certain portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended September 30, 1996, are incorporated into Part II hereof.
2. Certain portions of the Registrant's Proxy Statement for its Annual Meeting
of Stockholders to be held on February 10, 1997, which will be mailed on or
about January 10, 1997, are incorporated into Part III hereof.
_______________________________________________________________________________
_______________________________________________________________________________
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THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS REGARDING THE
COMPANY'S BUSINESS AND PRODUCTS AND THEIR PROJECTED PROSPECTS OR QUALITIES.
SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, PARTICULARLY
THOSE INHERENT IN THE PROCESS OF DISCOVERING AND DEVELOPING DRUGS THAT CAN BE
PROVEN TO BE SAFE AND EFFECTIVE FOR USE AS HUMAN THERAPEUTICS AND THE
ENDEAVOR OF BUILDING A BUSINESS AROUND SUCH POTENTIAL PRODUCTS. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THIS FORM 10-K.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE
NOT LIMITED TO, THOSE DISCUSSED IN THIS FORM 10-K INCLUDING, WITHOUT
LIMITATION, IN THE SECTION OF ITEM I ENTITLED "RISK FACTORS." AS A RESULT,
THE READER IS CAUTIONED NOT TO PLACE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS.
PART 1
ITEM 1. BUSINESS
THE COMPANY
Maxim Pharmaceuticals, Inc. (the "Company") was incorporated in Delaware
in 1954 under the name "Wilco Oil & Minerals, Corp." and has existed under
various names since then. From 1987 to 1993, the Company operated as a
medical diagnostics products company under the name "General Biometrics,
Inc." In 1993, the Company merged with Syntello Vaccine Development AB
("SVD"), a Swedish biopharmaceutical company, in an exchange of stock
accounted for as a reverse acquisition. Upon completion of the reverse
acquisition the Company changed its name to "Syntello, Inc." and commenced
its operations as a biopharmaceutical company. The Company sold its medical
diagnostic division in 1994 and sold SVD in July 1996. Since December 1995
the Company has operated under the name "Maxim Pharmaceuticals, Inc."
OVERVIEW
Maxim Pharmaceuticals, Inc. is engaged primarily in the development and
commercialization of two platform technologies for the prevention and
treatment of cancer and infectious diseases. The Company's lead platform
technology, MAXAMINE-TM-, has demonstrated effectiveness in Phase IIb clinical
trials for the treatment of malignant melanoma and acute myelogenous
leukemia. Pivotal trials are planned for these first two indications and
additional clinical trials are planned in other cancer types and certain
infectious diseases. The Company's second platform technology, MAXVAX-TM-,
utilizes a mucosal vaccine carrier/adjuvant system intended to establish a
new class of oral and topical vaccines against a potentially broad range of
infectious diseases.
Reference is made to Items 7 and 8 of this Report for further
information about the business of the Company during the past fiscal year.
MAXAMINE-TM- THERAPY FOR CANCER AND INFECTIOUS DISEASES
OVERVIEW OF CANCER MARKET. Cancer comprises a large and diverse group
of diseases resulting from the uncontrolled proliferation of abnormal
(malignant) cells. Most cancers will spread beyond their original sites and
invade surrounding tissue, and may also metastasize to more distant sites and
ultimately cause death in the patient unless effectively treated. To be
effective, cancer treatment must target not only the primary site and/or
tumor but also its distant metastases. CANCER FACTS AND FIGURES, a report
from the American Cancer Society, states that a total of approximately
1,250,000 new cases and approximately 550,000 deaths were reported for
invasive cancers in the United States in 1995, highlighting the prevalence of
this group of diseases. Predominant forms of cancer include leukemia and
lymphoma, breast, lung, urinary, prostate, melanoma, ovarian, colon, rectal
and brain cancers. The Company estimates that worldwide sales of anticancer
pharmaceutical products in 1995 were approximately $6 billion.
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Traditional methods of treating cancer generally include surgery
(including laser surgery), radiation therapy, and chemotherapy. Although
these techniques have achieved a high rate of success for many cancers,
particularly when detected in the early stages, each has drawbacks which may
significantly limit their success in treating certain types and stages of
cancer. For example, in many instances cancer will recur even after repeated
attempts at surgical removal of tumors or other treatment. Surgery may be
successful in removing visible tumors but may leave smaller nests of cancer
cells in the patient which continue to proliferate. Radiation or
chemotherapy are relatively imprecise methods for the destruction of cancer
cells (i.e. such therapies can kill both cancer cells and normal cells) and
thus have toxic side effects which may themselves be lethal to the patient;
these toxic side effects may also limit the application of these treatment
modes to less than optimal levels required to ensure eradication of the
cancer.
The high numbers of cancer-related deaths indicate the need for more
efficacious therapies for many patients. In addition, the Company believes
that new cancer therapies will increasingly be required to be more
cost-effective and allow for alternate site or in-home treatment, and to
address patient quality of life issues.
IMMUNE SYSTEM MODULATION AGAINST CANCER AND INFECTIOUS DISEASES. In
recent years, research has focused on the immune system's innate ability to
combat cancer and infectious diseases. New drugs, vaccines, chemotherapeutic
agents and advanced radiation therapy technologies are continually being
developed to enhance the response of the immune system to disease. Many of
these technologies, however, have demonstrated significant limitations in
their ability to treat cancer and certain infectious agents. These
limitations include marginal efficacy, adverse side effects and the
development of drug resistance.
Since the early 1980's, the cytokines Interleukin-2 ("IL-2") and
interferon-alpha ("IFN-a") have been studied for the treatment of human
neoplasia, such as malignant melanoma, renal cell carcinoma and acute
myelogenous leukemia ("AML"). The medical community held high expectations
for IL-2 in the treatment of human cancer based on findings that IL-2
effectively enhances the anti-tumor activity of natural killer-cells
("NK-cells"), a specialized subset of cells which function to destroy cancer
cells and virally infected cells. Although beneficial effects were obtained
with IL-2 therapy in both experimental animals and in the killing activity of
human NK-cells IN VITRO, the outcome of the IL-2 clinical trials in human
cancer have resulted in only 10-15% of patients with melanoma or renal cell
carcinoma realizing significant objective regression of tumor burden (IFN-a
has also produced only limited efficacy in human trials). Moreover, IL-2
produces severe adverse side-effects at high doses.
MAXAMINE TECHNOLOGY. The Company's lead product, MAXAMINE, was designed
as a combination therapy to strengthen and assist the activity of cytokines
and may provide more effective therapy for treating certain cancers and
infectious diseases. The Company's investigators have described an
interaction between phagocytes and NK-cells which may explain the generally
low efficacy rates of cytokines in humans. Specific signals transmitted by
phagocytes, a white blood cell prevalent in tumors and in bone marrow, cause
NK-cells to initiate apoptosis (programmed cell death) thereby destroying
their cytotoxic capability. The administration of cytokines, regardless of
the dosage, can not reverse apoptosis.
A corresponding discovery is that H2 receptor agonists "block" the
phagocyte signal that leads to NK-cell death, thereby allowing the NK-cells
to retain cytotoxic (tumor killing) function in the presence of phagocytic
cells. The Company's proprietary MAXAMINE therapy is based on the
administration of an H2 receptor agonist which, when administered in
combination with NK-cell-activating cytokines such as IL-2 and IFN-a, has the
potential of effectively combating cancer and infectious diseases.
The Company is currently sponsoring the testing of MAXAMINE in several
Phase II clinical trials in Sweden. The table below sets forth the disease
indications initially targeted and the status of clinical trials for each
disease indication and the prevalence of each disease in the United States:
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MAXAMINE Clinical Trial Status
Prevalence of
INDICATION STATUS* DISEASE IN U.S
---------- ------- --------------
Malignant Melanoma Phase II trials ongoing 130,000
Acute Myelogenous Leukemia Phase II trials ongoing 10,000
Renal Cell Carcinoma Phase I/II trials ongoing 70,000
Multiple Myeloma Phase I/II trials ongoing 40,000
Hepatitis C Phase I/II trials planned 4,000,000
Prostate Adenocarcinoma Phase I/II trials planned 250,000
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* Research with respect to this product is ongoing and the Company cannot
currently predict when clinical studies for all of the indications shown
above will be completed or whether the results of such studies will support
the filing of NDAs or PLAs. See "Risk Factors -- No Assurance of Successful
Product Development."
MAXAMINE PHASE II CLINICAL TRIALS IN MALIGNANT MELANOMA. In Phase II
clinical trials conducted in Sweden at the Sahlgren's University Hospital in
Gothenburg, fifteen patients with advanced metastatic malignant melanoma were
treated with a high-dose regimen of IL-2 together with daily injections of IFN-
in five-day cycles. Eight of these patients were given MAXAMINE injections
twice daily during treatment with IL-2 and IFN-a. In the seven patients who did
not receive MAXAMINE, one objective response (defined as a >50% reduction of
the total tumor burden) was observed in a patient with skin and lymph node
melanoma. In contrast, in the eight MAXAMINE-treated patients, four objective
responses of overall tumor burden were observed. Two other patients showed
regression at one site of metastasis but tumors remained unchanged at other
sites. Notably, two of the MAXAMINE-treated patients showed complete
resolution of extensive liver metastasis. Sites of response in MAXAMINE-
treated patients also included skin, lymph nodes, skeleton, spleen, and muscle.
In patients receiving MAXAMINE, there was statistically significant improvement
in survival. One Maxamine-treated patient remains completely free of
detectable disease more than three years after the onset of MAXAMINE therapy.
MAXAMINE Clinical Study in Malignant Melanoma*
Single-Center Clinical Trial
Objective Mixed Local
TREATMENT RESPONSE 1 RESPONSE RESPONSES SURVIVAL 2
--------- ---------- -------- --------- ----------
Control 3 1/7 0/7 2/16 6.8 Months
MAXAMINE 4/8 2/8 11/15 14.7 Months
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* Results of this study were published in Cancer Immunology and
Immunotherapy (1994) 39:416-419.
1 Greater than 50% reduction in tumor size in accordance with the definition of
an objective response.
2 Prolonged survival following treatment in combination therapy using MAXAMINE
was statistically significant (i.e., resulted in a P value of less than
0.03).
3 Control group was treated with IL-2/IFN-a without Maxamine.
The results of the above Phase II clinical trial indicate that MAXAMINE
may be given as an effective adjuvant to IL-2/IFN-a therapy. It is noteworthy
that in the MAXAMINE-treated patients, metastatic lesions significantly
responded or disappeared at most or all sites. Even more notable were two
cases with complete, long-lasting remission of metastatic malignant melanoma to
the liver. To the Company's knowledge, complete regression of melanoma liver
metastases after treatment with IL-2 as a single agent or in combination with
other agents had not been reported prior to these Phase II clinical trials.
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A follow-on study was undertaken in Sweden to determine if a lower-dose
regimen of the same cytokines (IL-2 and IFN-a) in combination with the same
doses of MAXAMINE would retain the level of efficacy seen previously while
reducing the toxicity and side effects of the cytokine portion of the
treatment. In addition to survival, one of the goals of MAXAMINE therapy is
to lower toxicity of immunotherapy and thus, enhance the patients' quality of
life (lowering the doses of the cytokines reduces, or eliminates, the side
effects of these drugs, thereby facilitating tolerance of the therapy and
even allowing self-administration of the drugs at home). The mean survival
time of patients with advanced (stage IV) malignant melanoma using
conventional treatments is reported to be seven months. In the ongoing
low-dose malignant melanoma study, 11 patients have been evaluated and
currently have a mean survival time of 15 months, more than double the rate
generally reported for the normal course of the disease and repeating the
favorable results from the high-dose study described above. The Company
expects that the mean survival time under the low-dose study will ultimately
exceed the high-dose study because the survival time under the low-dose study
will continue to increase as some or all of the current patients continue to
survive. A multi-center Phase II/III clinical trial with Maxamine/IL-2/IFN-a
vs. IL-2/IFN- alone in metastatic malignant melanoma is planned for 1997 in
the United States and Europe.
MAXAMINE PHASE II CLINICAL STUDIES IN ACUTE MYELOGENOUS LEUKEMIA
("AML"). In Phase II clinical trials conducted in Sweden, 25 patients with
AML in first, second or third complete remission (CR) have been enrolled to
date in a clinical trial wherein they were given outpatient therapy with
Maxamine plus IL-2 in 21-day cycles, separated by six-week intervals.
Interim data from this trial was reported in the British Journal of
Haematology (1996) 92:620-626. Of the twelve treated patients included in
the interim report, nine remain in complete remission. The other three
patients experienced a relapse. These three patients had all previously
experienced a relapse episode; however, the duration of remission after
treatment with MAXAMINE/IL-2 therapy exceeded that of the previous remission.
Including the three relapsed patients, patients have achieved an average
increase in remission of over 250% compared to prior remission. Interim data
from this trial was reported in the British Journal of Haematology (1996)
92:620-626.
These findings may be compared to those in a study published in 1994 in
which non-bone marrow transplanted patients in first and subsequent remission
were treated with IL-2 alone. In that study, remission inversion (defined as
prolonging the duration of complete remission to at least 75% of the
patient's own previous remission) was achieved with IL-2 in only 2 of 29 AML
patients, or 7%. Furthermore, time in CR2 and CR3 averaged only three to
four and one-half months. In addition, data collected in Gothenburg, Sweden
from 1976 to 1994 representing the natural course for this disease shows a 9%
remission inversion and a mean remission time of five and one-half months.
In the present ongoing MAXAMINE study, however, remission inversion has been
achieved in all patients, with an average remission period continuing beyond
23 months.
In this clinical trial MAXAMINE treatment was well-tolerated and all AML
patients were able to treat themselves at home with subcutaneous injections.
Patients continue to be enrolled in this trial. The Company plans to
continue to enroll patients into the ongoing MAXAMINE clinical trials and
expects to increase the number of trial sites to prepare for a European
multi-center Phase II/III trial for the treatment of AML planned for 1997.
MAXAMINE REGULATORY APPROVAL. The Company believes that upon completion
of the multi-center clinical trials planned for malignant melanoma, and if
such trials are successful, it is likely that the Company may be positioned
to submit a New Drug Application ("NDA") with the Food and Drug
Administration ("FDA") in the United States for that indication, particularly
in view of the March 29, 1996 announcement by the FDA of a series of
administrative actions to speed development and approval of cancer drugs.
The FDA's cancer drug initiative consists of specific requirements and
elements including accelerated approval for cancer drugs, expanded access for
drugs approved in other countries, and facilitating additional uses of
approved cancer drugs. Further, the FDA has stated that it will increase its
proactive role in ensuring cancer drugs become available to patients by
soliciting applications for U.S. approval for products approved overseas and,
for the first time, taking foreign regulatory approvals into
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consideration. The FDA has previously accepted data generated in clinical
trials from Sweden for incorporation in NDAs filed in the United States. See
"Business -- Government Regulation."
MAXAMINE LICENSES AND TECHNOLOGY RIGHTS. In 1993, the Company entered
into a technology transfer agreement with Estero Anstalt, a Swedish
corporation, pursuant to which the Company purchased the core intellectual
property and patent rights related to its MAXAMINE technology. The total
purchase price under the agreement was $700,000, of which $600,000 was paid
pursuant to a promissory note issued by the Company and secured by the
MAXAMINE technology. At September 30, 1996, $247,000 remained payable under
the note and is due April 30, 1997. The technology transfer agreement also
requires that the Company pay certain royalty obligations to Drs. Kristoffer
Hellstrand and Svante Hermodsson, the two inventors of the technology.
SUMMARY OF POTENTIAL BENEFITS OF MAXAMINE. To date, conventional
therapies utilizing cytokines have largely been disappointing in their lack
of efficacy and severe toxicity in humans. The Company believes that Maxamine
will offer a number of important clinical and commercial advantages relative
to current therapies or approaches including:
- OUTPATIENT ADMINISTRATION. MAXAMINE therapy is delivered on an
outpatient basis, subcutaneously, rather than the in-hospital
administration typical of other therapies. The Company believes
that the greater ease of outpatient administration, as well as low
dosage requirements for combined products, will result in increased
compliance with the treatment regimens.
- IMPROVED CLINICAL EFFICACY. The Company's preliminary clinical data has
provided evidence of improved therapeutic efficacy over approved
therapies or approaches. In addition, the combination therapy may
extend the range of indications for the use of therapies in both cancer
and infectious diseases.
- REDUCED TOXICITY. Combination therapies with MAXAMINE may use lower
doses of cytokines, thereby reducing toxicity. As a result, the Company
believes its therapeutic products will result in significantly lower
incidence of adverse reactions and improved patient compliance.
- LOWER COST OF ADMINISTRATION. By utilizing a lower dose of IL-2 or IFN-a
in its therapy, the cost to the patient will be reduced below existing
treatment regimens. In addition, since the Company's product is
delivered on an outpatient basis rather than in-hospital administration,
the cost of administration is also expected to be substantially lower.
MAXVAX-TM- MUCOSAL VACCINE TECHNOLOGY
OVERVIEW OF VACCINE MARKET AND INFECTIOUS DISEASES. There is a broad
range of infectious diseases for which no effective vaccines and/or therapies
currently exist. One of the most promising areas in the fight against such
diseases is the development of vaccines targeting the diseases. Recent
trends in the delivery of healthcare in the United States, including an
increased emphasis on preventive health care, have contributed to significant
growth of the disease-preventing vaccine market. Immunization has long been
recognized as an effective means to decrease health care costs through
disease prevention and is one of the key areas given priority attention by
the United States Department of Health and Human Services and the World
Health Organization in their respective public health service publications.
In 1991, revenues for the total world human vaccine market totaled $1.67
billion with the U.S. and Europe comprising 75% of the market. It is
estimated that by 1999, the total world market for human vaccine products
will have more than tripled to $5.3 billion and have annual growth rates in
excess of 20% commencing in 1997.
The mucosal membranes (which line the nasal compartment and sinuses, oral
cavity, gastrointestinal tract and urogenital tract) represent the body's first
line of defense against infections and
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are the sites where most infectious agents enter the body. Examples of
infectious pathogens which enter the body through the mucosal membranes are
sexually-transmitted diseases caused by Chlamydia and HIV, respiratory
diseases caused by respiratory syncytial virus ("RSV") and streptococcus; and
gastrointestinal diseases caused by HELICOBACTER PYLORI (ulcers) and
rotavirus (diarrhea). There is currently much interest in developing mucosal
vaccines against infections due to the large number of infectious pathogens
which enter the body through the mucosal membranes.
MAXVAX TECHNOLOGY. MAXVAX is a mucosal vaccine carrier/adjuvant
platform based on the cholera toxin B subunit ("CTB"). CTB is generally
considered to be the most effective and safe agent in activating the mucosal
immune system. It has already been administered to hundreds of thousands of
patients worldwide and is a major component of an existing oral cholera
vaccine and traveler's diarrhea vaccine. Traditional vaccines are designed
to provide systemic immunity administered by injection. They treat or
prevent infection only after the infecting organism has entered the blood
stream or deep tissues of the body. The mechanisms which induce mucosal
immunity appear to be distinct from those that protect the systemic tissues
of the body. The Company believes that the MAXVAX approach to therapeutic
and protective vaccines will elicit both mucosal and systemic immunity by
delivering antigens directly to the mucosal system.
A number of experimental alternate delivery approaches for mucosal
vaccines have been tried. To date, none have proven as effective and safe as
CTB. The MAXVAX technology has been shown to possess the important
properties required for an effective mucosal vaccine delivery system. CTB
resists degradation by the mucosal environment, it targets and binds to the
antigen-presenting cells within the mucosa and it stimulates a robust IgA
immune response. By combining the Company's proprietary recombinant form of
CTB with vaccine antigens, the Company believes that it can develop
effective, new CTB-based vaccines.
A number of "proof of principle" studies in animal models have
demonstrated successful stimulation of mucosal immunity (secretory IgA) and
systemic immunity (IgG) when antigens were administered with or chemically
coupled to CTB. In early experiments, CTB coupled antigens have had
favorable results in studies for mucosal immunization.
The MAXVAX technology is currently in preclinical development for a
protective and therapeutic vaccine against sexually-transmitted Chlamydia.
The Company's product development efforts will initially focus on mucosal
vaccines against sexually transmitted diseases, major respiratory diseases
and gastrointestinal tract diseases. The Company intends to seek
collaborations with pharmaceutical and biopharmaceutical partners possessing
antigens and genes which can be effectively coupled with the CTB carrier for
the development of the Chlamydia vaccine and other vaccine indications.
POTENTIAL BENEFITS OF MUCOSAL IMMUNIZATION. The Company's MAXVAX
approach to therapeutic and protective vaccines has been shown to elicit both
mucosal and systemic immunity and is based upon "non-injectable"
administration. The Company believes that there are numerous important
clinical and commercial advantages to mucosal immunization compared with
traditional injected vaccine products, including:
- GREATER CLINICAL EFFICACY. The body's largest defense system against
disease is the mucosal immune system. These membranes are the sites
where most infectious agents enter the body and include the lining of
the nose, mouth, lungs, stomach, intestine and urogenital tract. The
Company believes that its approach to immunization may likely result in
mucosal and systemic immune stimulation and could more effectively
prevent or treat most infectious diseases, as compared to traditional
injected vaccines.
- HIGHER LEVEL OF SAFETY. CTB-based vaccines have been administered to
more than 100,000 patients worldwide, and CTB is widely thought to be
the most safe and effective mucosal
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vaccine therapeutic carrier known today. The Company believes that
non-injectable oral and topically applied vaccines should result in
lower incidence of adverse reactions.
- LOWER COST OF ADMINISTRATION. The administration of the Company's
products by oral, nasal and topical applications involving direct
contact with mucosal surfaces will not require patients to go to
clinics nor will it require trained personnel, thereby effectively
lowering the cost of administration. The vaccines may be prescribed
by a doctor and dispensed by a pharmacy, thus simplifying delivery
and eliminating the multiple office visits required for injection
delivery of most contemporary vaccines.
- IMPROVED VACCINE UTILIZATION. The Company believes that the relative
ease of administration and the concept of "prescription" vaccines will
improve vaccine utilization over traditionally administered vaccines.
Further, the Company believes that this novel mucosal vaccine concept
will allow development of protective and therapeutic approaches to
diseases where previous vaccines and therapeutics have failed.
MAXVAX LICENSES AND TECHNOLOGY RIGHTS. In 1993, the Company entered
into an option and license agreement with Vitec AB and SBL Vaccin AB ("SBL"),
pursuant to which the Company exercised an option for an exclusive, worldwide
license to technology related to CTB. Under the agreement, the Company is
required to use its best efforts to engage SBL to manufacture any products
which result from the application of the licensed technology. The Company
has made payments of $150,000 to Vitec AB under this agreement, and has
agreed to make royalty payments on the net sales of products using the
licensed technology and to make additional license and milestone payments to
Vitec AB upon the execution of any sublicenses. Pursuant to the agreement,
any party may terminate the license agreement, with respect to the rights and
duties of that party, as a result of a material breach of the agreement by
another party.
In 1994, the Company entered into a second license agreement with Vitec
AB and SBL for an exclusive, worldwide license to technology rights related
to CTB for all infectious diseases except Chlamydia (which is governed by the
agreement discussed above), HIV (which is governed by a separate
non-exclusive sub-license agreement held by the Company), cholera and
travelers' diarrhea. Under the agreement, the Company has agreed to use its
best efforts to engage SBL to manufacture any products which result from the
application of licensed technology, and both Vitec AB and the Company shall
receive a percentage of any profits that SBL derives from manufacturing such
products. The Company paid an initial license fee of $100,000, has agreed to
make royalty payments based on net sales of products which utilize the
licensed technology, and to make a minimum payment of $400,000 by December
31, 1996 for the extension of the exclusivity agreement (the Company made the
$400,000 payment in December 1996). The licensors may terminate the agreement
upon a material breach of the agreement by the Company.
In 1992 Vitec AB entered into a license agreement which granted to an
unaffiliated company a fully-paid exclusive, worldwide license to technology
rights related to CTB for the treatment of HIV. Such company then
sublicensed the same technology rights to Syntello Vaccine Development AB
("SVD"). The Company had acquired such technology rights when it merged with
SVD in 1993. On July 5, 1996, the Company sold its ownership interest in SVD
to a former collaborating scientist and former director. As a result of such
sale, the Company now holds a non-exclusive sub-license, instead of an
exclusive license, to CTB for the prevention and treatment of HIV infection.
In 1995, the Company entered into a license agreement with Drs. Jan
Holmgren and Cecil Czerkinsky, inventors of the CTB technology, and their
affiliated companies, Duotol AB and Triotol AB, for an exclusive, worldwide
license to patent applications and related technology rights with respect to
the therapeutic and anti-inflammatory properties of CTB. Under the
agreement, the Company has agreed to make royalty payments based on net sales
of certain products which utilize the licensed technology for the treatment
of infectious diseases. Triotol AB has agreed to make royalty payments to
the Company based
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on net sales of certain other products which utilize the licensed products
for the treatment of certain autoimmune diseases. Duotol AB may terminate
the agreement upon a material breach by the Company and the agreement will
terminate automatically if the Company is liquidated.
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PRODUCT DEVELOPMENT
The Company conducts its research and other product development efforts
through a combination of internal and collaborative programs. The Company
currently relies upon research arrangements with universities, contract
research organizations, and similar institutions and persons for a
significant portion of its product development efforts. The Company expects
to increase its internal product development resources as its efforts related
to the MAXVAx area increases. The Company incurred product development costs
of $1,608,931, $984,778, and $999,439 in the years ended September 30, 1996,
1995 and 1994, respectively. The Company has relied upon licensing and other
transactions to gain access to certain of its proprietary technologies. See
"Business -- MAXAMINE Licenses and Technology Rights" and "--MAXVAX Licenses
and Technology Rights."
MARKETING AND SALES
The treatment of cancer is a highly specialized activity in which the
treating oncologists tend to be concentrated in major medical centers. The
Company's marketing strategy for MAXAMINE is designed to enable the Company
to operate with a relatively small direct sales force in the United States.
As MAXAMINE receives regulatory approval for specific indications, the
Company plans to develop a small marketing force and seek to co-market the
product with corporate partners to service the approximately 3,500 practicing
oncologists in the United States. The Company also intends to seek
collaborative agreements with other companies to market MAXAMINE worldwide.
Due to the nature of the vaccine markets, the Company intends to
establish marketing arrangements with pharmaceutical companies with large
distribution systems for MAXVAX and does not expect to establish a direct
sales capability in the vaccine area.
MANUFACTURING
There are already in existence a number of FDA approved suppliers of raw
materials used in the Company's products. There are also a number of
facilities with FDA Good Manufacturing Practice ("GMP") approval for
providing approved products such as cytokines or for contract manufacturing
of the Company's proposed products. The Company does not intend to acquire
or establish its own dedicated manufacturing facilities for MAXAMINE or
cytokines in the foreseeable future. Rather, the Company's strategy will be
to contract with established pharmaceutical manufacturers for the production
of MAXAMINE. The CTB protein portion of MAXVAX is currently being produced by
SBL Vaccin AB ("SBL"), Stockholm, Sweden, under GMP through the development
of a genetically-engineered overexpression system suitable for large scale
industrial production.
The Company believes that, in the event of the termination of an
agreement with any single supplier or manufacturer, the Company would likely
be able to enter into agreements with other suppliers and/or manufacturers on
similar terms. However, there can be no assurance that there will be
manufacturing capacity available to the Company at the time the Company is
ready to manufacture its products.
PATENTS AND PROPRIETARY RIGHTS
The Company holds three issued patents and has six patent applications
pending in the United States. In addition, the Company holds license rights
to two issued patent and three patent applications pending in the United
States. Corresponding patent application have been filed, and in certain
instances patents have been issued, in major foreign markets.
It is the Company's policy to file, where possible, patent applications
to protect technologies, inventions and improvements that are important to
the development of its business. Maxim's management has devoted substantial
attention and resources to the Company's patent and license portfolio to
obtain the strongest positions available. Maintaining sound patents and
licenses and conducting an assertive patent prosecution strategy is a high
priority at the Company.
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Maxim further protects its proprietary technology and "know-how" through
confidentiality agreements with its founding scientists, collaborative
partners, employees, advisors, and consultants. The Company has entered into
confidentiality and non-compete agreements with its Swedish founding
scientists and other collaborating scientists. These agreements generally
give Maxim license rights and access to most past and current inventions and
processes as they relate to the Company's current products, as well as rights
in certain future discoveries made by such scientists.
It is important to note that technology transfer is directly between the
Company and Maxim's founding scientists. Unlike U.S. institutions, Swedish
universities cannot hold a patent position on any discoveries made by its
research scientists. However, under Swedish law, ownership of technology
rights by the founding scientists is conditioned upon such scientists
fulfilling their teaching obligations at their respective Swedish
universities. There can be no assurance that the founding scientists have
satisfied or will continue to satisfy such teaching obligations.
The patent position of participants in the pharmaceutical field
generally is highly uncertain, involves complex legal and factual questions,
and has recently been the subject of much litigation. There can be no
assurance that any patent applications relating to the Company's potential
products or processes will result in patents being issued, or that the
resulting patents, if any, will provide protection against competitors who
successfully challenge the Company's patents, obtain patents that may have an
adverse effect on the Company's ability to conduct business, or are able to
circumvent the Company's patent position. It is possible that other parties
have conducted or are conducting research, and could make discoveries of
compounds or processes that would precede any discoveries made by the
Company, which could prevent the Company from obtaining patent protection for
these discoveries. Finally, there can be no assurance that others will not
independently develop pharmaceutical products similar to or make obsolete
those that the Company is planning to develop, or duplicate any of the
Company's products.
The Company's competitive position is also dependent upon unpatented
trade secrets. In an effort to protect its trade secrets, the Company has a
policy of requiring its employees, consultants and advisors to execute
proprietary information and invention assignment agreements upon commencement
of employment or consulting relationships with the Company. These agreements
provide that all confidential information of the Company developed or made
known to the individual during the course of their relationship with the
Company must be kept confidential, except in specified circumstances. There
can be no assurance, however, that these agreements will provide meaningful
protection for the Company's trade secrets or other proprietary information
in the event of unauthorized use or disclosure of confidential information.
Invention assignment agreements executed by consultants and advisors may
conflict with, or be subject to, the rights of third parties with whom such
individuals have employment or consulting relationships. In addition, there
can be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets, that such trade secrets will not be disclosed or
that the Company can effectively protect its rights to unpatented trade
secrets.
The Company may be required to obtain licenses to patents or proprietary
rights of others. No assurance can be given that any licenses required under
any such patents or proprietary rights would be made available on terms
acceptable to the Company, or at all. If the Company does not obtain such
licenses, it could encounter delays in product market introductions while it
attempts to design around such patents, or could find that the development,
manufacture or sale of products requiring such licenses could be foreclosed.
Litigation may be necessary to defend against or assert claims of
infringement, to enforce patents issued to the Company, to protect trade
secrets or know-how owned by the Company, or to determine the scope and
validity of the proprietary rights of others. In addition, interference
proceedings declared by the United States Patent and Trademark Office may be
necessary to determine the priority of inventions with respect to patent
applications of the Company or its licensors. Litigation or interference
proceedings could result in substantial costs to and diversion of effort by,
and may have a material adverse
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impact on, the Company. In addition, there can be no assurance that these
efforts by the Company will be successful.
GOVERNMENT REGULATION
INTRODUCTION. Regulation by governmental authorities in the United
States and foreign countries is a significant factor in the development,
manufacture and marketing of the Company's proposed products and in its
ongoing research and product development activities. The nature and extent
to which such regulation applies to the Company will vary depending on the
nature of any products which may be developed by the Company. It is
anticipated that all of the Company's products will require regulatory
approval by governmental agencies prior to commercialization. In particular,
human therapeutic and vaccine products are subject to rigorous preclinical
and clinical testing and other approval procedures of the FDA and similar
regulatory authorities in foreign countries. Various Federal and foreign
statutes and regulations also govern or influence testing, manufacturing,
safety, labeling, storage and record-keeping related to such products and
their marketing. The process of obtaining these approvals and the subsequent
compliance with appropriate Federal and foreign statutes and regulations
require the expenditure of substantial time and financial resources. Any
failure by the Company or its collaborators to obtain, or any delay in
obtaining, regulatory approval could adversely affect the marketing of any
products developed by the Company, its ability to receive product revenues
and its liquidity and capital resources.
FDA APPROVAL PROCESS. Prior to commencement of clinical studies
involving human beings, preclinical testing of new pharmaceutical products is
generally conducted on animals in the laboratory to evaluate the potential
efficacy and the safety of the product. The results of these studies are
submitted to the FDA as a part of an Investigational New Drug ("IND")
application, which must become effective before clinical testing in humans
can begin. Typically, clinical evaluation involves a time consuming and
costly three-phase process. In Phase I, clinical trials are conducted with a
small number of subjects to determine the early safety profile, the pattern
of drug distribution and metabolism. In Phase II, clinical trials are
conducted with groups of patients afflicted with a specific disease in order
to determine preliminary efficacy, optimal dosages and expanded evidence of
safety. In Phase III, large-scale, multi-center, comparative trials are
conducted with patients afflicted with a target disease in order to provide
enough data to demonstrate the efficacy and safety required by the FDA. The
FDA closely monitors the progress of each of the three phases of clinical
testing and may, at its discretion, re-evaluate, alter, suspend or terminate
the testing based upon the data which have been accumulated to that point and
its assessment of the risk/benefit ratio to the patient.
The results of the preclinical and clinical testing on a nonbiologic
drug and certain diagnostic drugs are submitted to the FDA in the form of an
NDA for approval prior to commencement of commercial sales. The results of
well-controlled clinical trials are submitted in the case of vaccines as a
Product License Application ("PLA"). In responding to an NDA or PLA, the FDA
may grant marketing approval, request additional information or deny the
application if the FDA determines that the application does not satisfy its
regulatory approval criteria. There can be no assurance that approvals will
be granted on a timely basis, if at all. Similar procedures are in place in
countries outside the United States.
The FDA has issued "fast-track" regulations intended to accelerate the
approval process for the development, evaluation and marketing of new
therapeutic products used to treat life-threatening and severely debilitating
illnesses, especially those for which no satisfactory alternative therapies
exist. "Fast-track" designation affords the Company early interaction with
the FDA in terms of protocol design and permits, although it does not require
the FDA to grant approval after completion of Phase II clinical trials
(although the FDA may require subsequent Phase III clinical trials or even
post-approval Phase IV efficacy studies). On March 29, 1996, the FDA
announced further intentions to accelerate the approval for cancer
therapeutics. The FDA's cancer drug initiative consists of specific
requirements and elements including accelerated approval for cancer drugs,
expanded access for drugs approved in other countries, and facilitating
additional uses of approved cancer drugs. Further, the FDA has stated that it
will increase its proactive role in ensuring cancer drugs become available to
patients by soliciting applications for U.S.
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approval for products approved overseas and, for the first time, taking
foreign regulatory approvals into consideration. The FDA has previously
accepted data generated in clinical trials from Sweden for incorporation in
NDAs filed in the United States. The Company believes that a number of its
product candidates may fall under these regulations, but there can be no
assurance that any of the Company's products will receive this or other
similar regulatory treatment.
The Immunization Practices Advisory Committee ("ACIP") of the CDCP has a
role in setting the market for most, if not all, of the vaccine products
Maxim intends to make. The ACIP meets quarterly to review developing data on
licensed vaccines, and those approaching license, as well as epidemiologic
data on the need for these products. The recommendations of the ACIP on the
appropriate use of vaccines and related products are published in the
MORBIDITY AND MORTALITY WEEKLY REPORT and reprinted in several journals. The
CDCP develops epidemiologic data in support of the need for new vaccines and
monitors vaccine usage and changes in disease incidence. In addition, CDCP
staff frequently act as key advisors to the FDA in their review process.
In late 1992, legislation imposing FDA user fees on drug manufacturers
was enacted. Such fees will be required for each commercial marketing drug
application submitted by the Company for FDA approval, and annual product and
establishment fees will also be imposed upon approval. The revenues raised
from these fees are earmarked specifically to increase the resources of the
FDA, and by doing so, to increase the speed with which the FDA reviews and
approves drug marketing applications. Currently, the user fee for an NDA is
approximately $150,000, and the statute provides for periodic fee increases.
The statute currently provides small companies (defined as companies with
less than 500 employees that are not marketing a prescription drug product)
with a reduction in the initial application fee and contains limited
provisions for fee waivers. The Company is unable to predict the impact of
the current user fee legislation, as well as possible future changes in the
law, upon its business.
ORPHAN DRUG ACT. Under the Orphan Drug Act, the FDA may designate drug
products as orphan drugs if there is no reasonable expectation of recovery of
the costs of research and development from sales in the United States or if
such drugs are intended to treat a rare disease or condition, which is
defined as a disease or condition that affects less than 200,000 persons in
the United States. If certain conditions are met, designation as an orphan
drug confers upon the sponsor marketing exclusivity for seven years following
FDA approval of the product, meaning that the FDA cannot approve another
version of the "same" product for the same use during such seven year period.
The market exclusivity provision does not, however, prevent the FDA from
approving a different orphan drug for the same use or the same orphan drug
for a different use. The Orphan Drug Act has been controversial, and many
legislative proposals have from time to time been introduced in Congress to
modify various aspects of the Orphan Drug Act, particularly the market
exclusivity provisions. There can be no assurance that new legislation will
not be introduced in the future that may adversely impact the availability or
attractiveness of orphan drug status for any of the Company's products.
OTHER REGULATIONS. The Company is also subject to various Federal,
state and local laws, regulations and recommendations relating to safe
working conditions, laboratory manufacturing practices and the use and
disposal of hazardous or potentially hazardous substances, including
radioactive compounds and infectious disease agents, used in connection with
the Company's research work. The extent of government regulation which might
result from future legislation or administrative action cannot be predicted
accurately.
Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities in foreign countries may be necessary prior
to commencement of marketing the product in such countries. In certain
instances the Company may seek approval to market and sell certain of its
products outside of the U.S. before submitting applications for U.S. approval
to the FDA. The regulatory procedures for approval of new pharmaceutical
products vary significantly among foreign countries. The clinical testing
requirements and the time required to obtain foreign regulatory approvals may
differ from that required for FDA approval. Although there is now a
centralized European Community ("EU")
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approval mechanism in place, each EU country may nonetheless impose its own
procedures and requirements, many of which are time consuming and expensive.
Thus, there can be substantial delays in obtaining required approvals from
both the FDA and foreign regulatory authorities after the relevant
applications are filed, and approval in any single country may not be a
meaningful indication that the product will thereafter be approved in another
country.
COMPETITION
Competition in the discovery and development of methods for treating or
preventing cancer and infectious disease is intense. Numerous
pharmaceutical, biotechnology and medical companies and academic and research
institutions in the United States and elsewhere are engaged in the discovery,
development, marketing and sale of products for the treatment of cancer and
infectious disease. These include surgical approaches, new pharmaceutical
products and new biologically derived products. The Company expects to
encounter significant competition for the principal pharmaceutical products
it plans to develop. Companies that complete clinical trials, obtain
regulatory approvals and commence commercial sales of their products before
their competitors may achieve a significant competitive advantage. A number
of pharmaceutical companies are developing new products for the treatment of
the same diseases being targeted by the Company. In some instances, the
Company's competitors already have products in clinical trials. In addition,
certain pharmaceutical companies are currently marketing drugs for the
treatment of the same diseases being targeted by the Company, and may also be
developing new drugs to address these disorders.
The Company believes that its competitive success will be based on its
ability to create and maintain scientifically advanced technology, develop
proprietary products, attract and retain scientific personnel, obtain patent
or other protection for its products, obtain required regulatory approvals,
obtain orphan drug status for certain products and manufacture and
successfully market its products either independently or through outside
parties. Many of the Company's competitors have substantially greater
financial, clinical testing, regulatory compliance, manufacturing, marketing,
human and other resources. In addition, the Company will continue to seek
licenses with respect to key technologies related to its fields of interest
and may face competition with respect to such efforts.
EMPLOYEES, CONSULTANTS AND ADVISORS
As of December 23, 1996, the Company had 9 full-time employees operating
at its headquarters in San Diego, California. In addition, the Company had
consulting or collaborative agreements with consultants in the United States,
Canada and Sweden, all of whom hold Ph.D. or M.D. degrees. The Company
believes its relationships with its employees and consultants are
satisfactory.
In addition to its employees, Maxim has engaged experienced consultants
with pharmaceutical and business backgrounds to assist in its product
development efforts. Other experienced professionals and personnel are
expected to be hired to join the Company's management team in 1996 and 1997.
The Company plans to leverage these key executives by making extensive use of
contract laboratories, development consultants, and strategic partnerships
with pharmaceutical companies to conduct the Company's preclinical and
clinical trials.
The Company's platform technologies were developed by three founding
scientists in Sweden who are not employees of the Company. Each of these
founding scientists has consulting agreements with the Company that include
confidentiality and non-competition agreements and give Maxim license rights
and access to certain past and current inventions and processes as they
relate to the Company's technologies, as well as rights to certain future
discoveries made by such scientists.
The Company also has consulting and collaborative agreements with
collaborating scientists who assist in the preclinical and clinical
development of the Company's products, and, in some cases, perform the human
clinical trials under the Company's sponsorship. In addition, the Company
regularly engages consultants as needed to act as scientific and development
advisors to the Company. These consultants
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advise the Company on overall scientific, clinical and regulatory strategy,
scientific standards, and help the Company identify and evaluate new product
areas.
RISK FACTORS
In evaluating the Company and its business, prospective investors should
carefully consider the following risk factors in addition to the other
information contained herein.
DEVELOPMENT STAGE COMPANY; LIMITED OPERATING HISTORY. The Company is at
a development stage and is subject to all of the business risks associated
with a new enterprise, including constraints on the Company's financial and
personnel resources, lack of established vendor, creditor and collaborative
partnering relationships and uncertainties regarding product development and
future revenues. The Company anticipates that it will continue to incur
substantial additional operating losses for at least the next several years
and expects cumulative losses to increase as the Company's research and
development efforts expand. There can be no assurance as to when or whether
it will be able to develop sources of revenue, whether from product sales,
license fees or research funding, or that its operations will become
profitable, even if it is able to commercialize any products.
NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT. The Company's research
and development programs are at various stages of development, ranging from
the preclinical stage to Phase II clinical trials. Substantial additional
research and development will be necessary in order for the Company to
develop products based on the Company's MAXAMINE cancer technology and its
MAXVAX mucosal vaccine carrier technology, and there can be no assurance that
the Company's research and development efforts will lead to development of
products that are shown to be safe and effective in clinical trials and are
commercially viable. In addition to further research and development, the
Company's proposed products will require clinical testing, regulatory
approval and substantial additional investment prior to commercialization.
There can be no assurance that any such products will be successfully
developed, prove to be safe and effective in clinical trials, meet applicable
regulatory standards, be capable of being produced in commercial quantities
at acceptable costs, be eligible for third party reimbursement from
governmental or private insurers, be successfully marketed or achieve market
acceptance. Further, the Company's products may prove to have undesirable or
unintended side effects that may prevent or limit their commercial use. The
Company may find, at any stage of this complex process, that products that
appeared promising in preclinical studies or Phase I and Phase II clinical
trials do not demonstrate efficacy in larger-scale, Phase III clinical trials
and do not receive regulatory approvals. Accordingly, any product
development program undertaken by the Company may be curtailed, redirected or
eliminated at any time. In addition, there may be delays in the Company's
testing and development schedules and there can be no assurance that the
Company will meet expected testing and development schedules, which could
have a material adverse effect on the Company's financial condition and
results of operations.
NEED FOR SUBSTANTIAL ADDITIONAL FUNDS. The Company will require
substantial funds to conduct research and development, preclinical and
clinical testing and to manufacture and market its proposed products. The
Company's cash needs may vary materially from those now planned because of
results of research and development, results of clinical testing,
relationships with possible strategic partners, changes in the focus and
direction of the Company's research and development programs, competitive and
technological advances, requirements of the FDA and comparable foreign
regulatory processes and other factors.
The Company may seek to satisfy its future funding requirements through
public or private offerings of securities, through collaborative or other
arrangements with corporate partners or from other sources. Additional
financing may not be available when needed or on terms acceptable to the
Company. If adequate financing is not available, the Company may be required
to delay, scale back or eliminate certain of its research and development
programs, to relinquish rights to certain of its technologies, product
candidates or products, or to license third parties to commercialize products
or technologies that the Company would otherwise seek to develop itself.
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UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS. It is the policy
of the Company to file patent applications in foreign jurisdictions,
including Canada and Europe. The patent positions of biotechnology and
pharmaceutical companies are highly uncertain and involve complex legal and
factual questions, and the breadth of claims allowed in biotechnology and
pharmaceutical patents cannot be predicted. There can be no assurance that
patents will issue from any of the Company's patent applications. With
respect to already issued patents and any patents which may issue from the
Company's applications, there can be no assurance that claims allowed will be
sufficient to protect the Company's technologies. Patent applications in the
United States are maintained in secrecy until a patent issues, and the
Company cannot be certain that others have not filed patent applications for
technology covered by the Company's pending applications or that the Company
was the first to file patent applications for such technology. Competitors
may have filed applications for, or may have received patents and may obtain
additional patents and proprietary rights relating to, compounds or processes
that block or compete without infringing on those of the Company. In
addition, there can be no assurance that any patents issued to the Company or
to licensors from whom the Company has licensed rights to its technologies
will not be challenged, invalidated or circumvented, that the rights granted
thereunder will provide proprietary protection or commercial advantage to the
Company, or that the Company's confidentiality agreements with its licensors,
employees or consultants will not be breached. The Company is aware of other
pharmaceutical and biotechnology companies, some of which have substantially
greater financial resources than the Company, which are currently engaged in
research and development regarding mucosal vaccine carrier technologies.
Such companies may attempt to pursue the manufacture of mucosal vaccine
carriers in a manner that does not infringe the claims in patents or patent
applications owned by or licensed to the Company. See "Business -- Patents
and Proprietary Rights."
Other public and private concerns, including universities, have filed
applications for, or have been issued patents with respect to technology
potentially useful or necessary to the Company. The scope and validity of
such patents, the extent to which the Company may wish or need to acquire
licenses under such patents, and the cost or availability of such licenses,
are currently unknown.
In addition to patents and proprietary rights, the Company relies on
unpatented trade secrets and proprietary know-how, and there can be no
assurance that others will not obtain access to or independently develop such
trade secrets and know-how. Although potential corporate partners and the
Company's research partners and consultants are not given access to
proprietary trade secrets and know-how of the Company until they have
executed confidentiality agreements, these agreements may be breached by the
other party thereto or may otherwise be of limited effectiveness or
enforceability.
The pharmaceutical industry has experienced extensive litigation
regarding patent and other intellectual property rights. Accordingly, the
Company could incur substantial costs in defending itself in suits that may
be brought against the Company claiming infringement of the patent rights of
others or in asserting the Company's patent rights in a suit against another
party. The Company may also be required to participate in interference
proceedings declared by the United States Patent and Trademark Office for the
purpose of determining the priority of inventions in connection with the
patent applications of the Company or other parties. Adverse determinations
in litigation or interference proceedings could require the Company to seek
licenses (which may not be available on commercially reasonable terms) or
subject the Company to significant liabilities to third parties, and could
therefore have a material adverse effect on the Company.
UNCERTAINTIES RELATED TO OVERSEAS CLINICAL TRIALS AND INTERNATIONAL
OPERATIONS. To date, most of the Company's research, product development and
human clinical trials have been conducted by consultants in Europe. The
Company expects that its research, development and clinical trials will
continue to be conducted in significant part in Europe. The geographical
dispersion of the Company's operations and the limited number of persons
employed by the Company make it difficult to oversee and control the
day-to-day progress of the Company's product development efforts and clinical
trials. No assurance can be given that such geographical dispersion and
limited number of employees will not hamper
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the Company's product development efforts or increase the risks associated
with designing and conducting clinical trials or analyzing the results of
such trials. Moreover, no assurance can be given that the FDA and other
regulatory agencies will accept the results of clinical trials conducted
outside the United States.
The Company may seek approvals to market and sell certain of its
products in Europe before it seeks such approvals in the United States. No
assurance can be given that any European approval or data generated in
connection with such approval, if obtained, will be accepted by the FDA and
other regulatory agencies. In addition, there are a number of risks
associated with international sales and distribution of the Company's
products. International sales may be limited or disrupted by the imposition
of government controls, changes in regulatory requirements or interpretations
thereof, export license requirements, political instability, trade
restrictions, and changes in tariffs. Additionally, the Company has
experienced losses due to fluctuations in international currency exchange
rates, and the Company's business, financial condition and results of
operations may be adversely affected by such fluctuations in the future.
There can be no assurance that the Company will be able to successfully
commercialize its current or future products in any international market.
DEPENDENCE ON COLLABORATIVE PARTNERS. The Company's strategy for the
research, development, clinical testing, manufacturing and commercialization
of certain of its products requires arrangements with corporate and
university collaborators, licensors, licensees, consultants and others, and
is dependent upon the subsequent success of these outside parties in
performing their responsibilities. Although the Company believes parties to
any such arrangements would have an economic motivation to perform their
contractual responsibilities, the amount and timing of resources to be
devoted to these activities may not be within the control of the Company. In
addition, there can be no assurance that collaborators will not pursue
alternative technologies as a means for developing treatments for the
diseases targeted by these collaborative programs. Furthermore, there can be
no assurance that the Company will be able to negotiate acceptable
collaborative arrangements, or that its collaborative arrangements will be
successful.
DEPENDENCE ON LICENSES. The Company has licensed certain intellectual
property from third parties including intellectual property underlying its
MAXVAX technology. Under the terms of its license agreements, the Company is
generally obligated to exercise diligence and make certain royalty and
milestone payments as well as incur costs related to filing and prosecuting
the underlying patents. Each agreement is terminable by either party upon
notice if the other party defaults in its obligations. Should the Company
default under any of its agreements, the Company may lose its right to market
and sell products based upon the licensed technology. In such event, the
Company's results of operations and business prospects would be materially
and adversely affected. There can be no assurance that the Company will be
able to meet its obligations under these agreements on a timely basis, if at
all. See "Business -- MaxVax Licenses and Technology Rights."
NO MANUFACTURING CAPABILITIES. The Company has not invested in the
development of pharmaceutical manufacturing capabilities. The Company
currently has limited access to facilities to manufacture product candidates
in accordance with Good Manufacturing Practices, as prescribed by the FDA and
other regulatory bodies, or to produce an adequate supply of compounds to
meet future requirements for clinical trials. If the Company is unable to
develop or to contract for manufacturing capabilities on acceptable terms,
the Company's ability to conduct preclinical and human clinical testing will
be adversely affected, resulting in delays in the submission of products for
regulatory approval and delays in the initiation of new development programs,
which in turn could materially impair the Company's competitive position and
the possibility of achieving profitability. There can be no assurance that
the Company will be able to acquire or establish satisfactory third-party
relationships to provide manufacturing resources. See "Business --
Manufacturing."
NO MARKETING AND SALES CAPABILITIES. The Company has not developed
pharmaceutical marketing or sales capabilities. In order to market and sell
certain products directly or through strategic partner arrangements, the
Company will need to develop a sales force and a marketing group with
technical expertise, or make appropriate arrangements with strategic
partners. There can be no assurance that the
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Company will be able to gain such expertise or that such efforts will be
successful. In addition, there can be no assurance that the Company will be
able to effectively market or sell its products through independent sales
representatives, through arrangements with some other outside sales force, or
through strategic partners. See "Business -- Marketing and Sales."
COMPETITION. There are many companies, both publicly and privately
held, including well-known pharmaceutical companies, as well as academic and
other research institutions, engaged in developing pharmaceutical and
biologically-derived products for the treatment of cancer and vaccines and
therapeutics for the prevention or the treatment of infectious diseases.
Many of the Company's potential competitors have substantially greater
capital, research and development capabilities and human resources than the
Company and represent significant competition for the Company. Many of these
competitors have significantly greater experience than the Company in
undertaking preclinical testing and clinical trials of new pharmaceutical
products and obtaining FDA and other regulatory approvals. If the Company is
permitted to commence commercial sales of any product, it will also be
competing with companies that have greater resources and experience in the
manufacturing, marketing and sales of pharmaceutical products. The Company's
competitors may succeed in developing products that are more effective, less
costly, or have a better side effect profile than any that may be developed
by the Company, and such competitors may also prove to be more successful
than the Company in manufacturing, marketing and sales. See "Business --
Competition."
TECHNOLOGICAL CHANGES AND UNCERTAINTY. The Company is engaged in the
pharmaceutical field, which is characterized by extensive research efforts
and rapid technological progress. New developments in oncology, cancer
therapy, medicinal pharmacology, biochemistry and other fields are expected
to continue at a rapid pace in both industry and academia. There can be no
assurance that research and discoveries by others will not render some or all
of the Company's proposed programs or products noncompetitive or obsolete.
The Company's business strategy is subject to the risks inherent in the
development of new products using new technologies and approaches. There can
be no assurance that unforeseen problems will not develop with these
technologies or applications, that the Company will be able to address
successfully technological challenges it encounters in its research and
development programs or that commercially feasible products will ultimately
be developed by the Company.
NO ASSURANCE OF REGULATORY APPROVAL; GOVERNMENT REGULATION. The FDA and
comparable agencies in foreign countries impose substantial requirements on
the introduction of therapeutic pharmaceutical products and vaccines through
lengthy and detailed laboratory and clinical testing procedures and other
costly and time consuming procedures. Satisfaction of these requirements
typically takes a number of years and varies substantially based upon the
type, complexity and novelty of the pharmaceutical. In general, the FDA
approval process for pharmaceuticals involves the submission of an IND
application following preclinical studies, clinical trials in humans to
demonstrate the safety and efficacy of the product under the protocols set
forth in the IND and submission of preclinical and clinical data as well as
other information to the FDA in an NDA or PLA. The Company must expend
substantial time and financial resources to conduct clinical trials and such
clinical trials have been primarily conducted overseas and in the future will
continue to be conducted in part overseas. There can be no assurance that
the results of such trials will support the submission or the approval of an
NDA or PLA or that data from the Company's overseas trials or approvals of
the Company's products in foreign countries, if any, will be accepted by the
FDA. Accordingly, there can be no assurance that FDA or other regulatory
approval for any products developed by the Company will be granted on a
timely basis, or at all. There can be no assurance that the Company will
have sufficient resources to complete the required regulatory review process,
or that the Company could overcome the inability to obtain, or delays in
obtaining, such approvals. The failure of the Company to receive FDA
approval for its products under development would preclude the Company from
marketing and selling its products in the United States. Therefore, failure
to receive such FDA approval would have a material adverse effect on the
business, financial condition and results of operations of the Company. As
part of its product commercialization strategy, the Company
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intends to seek approval to market and sell certain of its products first in
Europe before it obtains such approvals in the United States. European and
other foreign regulatory approvals are subject to the same risks and
uncertainties as FDA and other regulatory approvals in the United States.
The production and marketing of the Company's proposed products, as well
as its ongoing research and development activities, are also subject to
regulation by governmental agencies of the United States and other countries.
The effect of government regulation may be to delay marketing of the
Company's products for a considerable period of time, to impose costly
procedures upon the Company's activities and to furnish a competitive
advantage to larger companies that compete with the Company. Any delay in
obtaining, or failure to obtain, FDA or other necessary regulatory approvals,
including approvals by comparable agencies in foreign countries, would
adversely affect the marketing of the Company's products and the ability to
generate product revenue. In addition, the marketing and manufacturing of
pharmaceuticals are subject to continuing FDA (or comparable foreign agency)
review and surveillance and failure to comply with regulations or discovery
of previously unknown problems can result in FDA (or comparable foreign
agency) action against the product or the manufacturer, including fines,
recalls, product seizures, and suspension or withdrawal of previously granted
regulatory approvals. Furthermore, government regulation may increase at any
time, creating additional hurdles for the Company. The extent of potential
adverse government regulation which might arise from future legislation or
administrative action cannot be predicted. See "Business - Government
Regulation."
NO PRODUCT LIABILITY INSURANCE. The Company's business exposes it to
potential product liability risks which are inherent in the testing,
manufacturing and marketing of human therapeutic products. The Company does
not currently have any product liability insurance. Although the Company
plans to obtain product liability insurance upon commencement of U.S.
clinical trials, there can be no assurance that it will be able to obtain or
maintain such insurance on acceptable terms or that any insurance obtained
will provide adequate coverage against potential liabilities. Claims or
losses in excess of any liability insurance coverage obtained by the Company
could have a material adverse effect on the business, financial condition or
results of operations of the Company.
PRICE VOLATILITY. The securities markets have from time to time
experienced significant price and volume fluctuations that may be unrelated
to the operating performance of particular companies. In addition, the
market prices of the common stock of many publicly traded pharmaceutical or
biotechnology companies have in the past been, and can in the future be
expected to be, especially volatile. Announcements of technological
innovations or new products by the Company or its competitors, developments
or disputes concerning patents or proprietary rights, publicity regarding
actual or potential medical results relating to products under development by
the Company or its competitors, regulatory developments in both the United
States and foreign countries, delays in the Company's testing and development
schedules, events or announcements relating to the Company's collaborative
relationships with others, public concern as to the safety of
biopharmaceutical or biotechnology products and economic and other external
factors, as well as period-to-period fluctuations in the Company's financial
results, may have a significant impact on the market price of the Company's
securities.
ITEM 2. PROPERTIES
The Company currently leases approximately 9,500 square feet of
laboratory and office space in San Diego, California. The Company believes
it will have access to facilities adequate to meet its needs for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
In April 1996, the Company received a demand letter from an attorney
representing Dannie H. King, Ph.D. and Kirk D. Petersen, the former President
and Chief Operating Officer and Chief Financial
18
<PAGE>
Officer, respectively, of the Company (the "Former Employees"). In the
letter, the Former Employees made claims for certain specified and
unspecified damages in contract and in tort arising out of the termination of
the Former Employees' employment with the Company. The aggregate amount of
economic damages claimed by the Former Employees exceeds $400,000. In
addition, the Former Employees asserted possible punitive damages and damages
based on emotional distress. The Former Employees also claimed the right to
vested options of the Company's Common Stock, which options have subsequently
terminated. Although the Company intends to contest such claims vigorously,
there can be no assurances as to the eventual outcome of such claims or their
effect on the Company's financial condition and results of operations. In
addition, an adverse determination in any litigation arising from these
claims or the settlement of such claims could have a material adverse effect
on the Company, its financial condition and its results of operations. The
Company has not received further communication from the Former Employees
regarding their claims since April 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended September 30, 1996.
19
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
The information required by this Item 5 is incorporated herein by
reference to the information set forth on page 16 of the "Financial
Statements for the Years Ended September 30, 1996, 1995 and 1994" insert of
the Company's Annual Report to Stockholders for the fiscal year ended
September 30, 1996, filed as Exhibit 13 hereto.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item 6 is incorporated herein by
reference to the information set forth on the inside front cover of the
"Financial Statements for the Years Ended September 30, 1996, 1995 and 1994"
insert of the Company's Annual Report to Stockholders for the fiscal year
ended September 30, 1996, filed as Exhibit 13 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information required by this Item 7 is incorporated herein by
reference to the information contained under the caption "Management's
Discussion and Analysis" on pages 14 - 15 of the "Financial Statements for
the Years Ended September 30, 1996, 1995 and 1994" insert of the Company's
Annual Report to Stockholders for the fiscal year ended September 30, 1996,
filed as Exhibit 13 hereto.
ITEM 8. FINANCIAL STATEMENTS
The information required by this Item 8 is incorporated herein by
reference to the information located on the inside front cover and set forth
on pages 1-13 of the "Financial Statements for the Years Ended September 30,
1996, 1995 and 1994" insert of the Company's Annual Report to Stockholders
for the fiscal year ended September 30, 1996, filed as Exhibit 13 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
Information concerning directors is incorporated herein by reference to
the information under the caption "Election of Directors" set forth in the
Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days after September 30, 1996, for its Annual
Meeting of Stockholders to be held on February 10, 1997. Information
concerning executive officers is incorporated herein by reference to the
information included under the caption "Other Information - Executive
Officers" set forth in the Company's definitive Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated herein by
reference to the information under the caption "Executive Compensation" set
forth in the Company's definitive Proxy Statement to be filed with the
Securities and Exchange Commission within 120 days after September 30, 1996,
for its Annual Meeting of Stockholders to be held on February 10, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
The information required by this Item 12 is incorporated herein by
reference to the information under the captions "Security Ownership of
Certain Beneficial and Record Ownership of Securities" in the Company's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after September 30, 1996, for its Annual Meeting
of Stockholders to be held on February 10, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated herein by
reference to the information under the captions "Certain Transactions" in the
Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission within 120 days after September 30, 1996, for its Annual
Meeting of Stockholders to be held on February 10, 1997.
21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES
AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report:
1. FINANCIAL STATEMENTS
The following financial statements are incorporated herein by
reference from pages 1 - 13 of the "Financial Statements for the Year Ended
September 30, 1996" insert of the Company's Annual Report to Stockholders for
the fiscal year ended September 30, 1996:
Consolidated Balance Sheets as of September 30, 1996 and 1995
Consolidated Statements of Operations for the years ended September
30, 1996, 1995, and 1994, and from October 23, 1989 (date of
inception) to September 30, 1996
Consolidated Statements of Stockholders' Equity (Deficit) from
October 23, 1989 (date of inception) through September 30, 1996
Consolidated Statements of Cash Flows for the years ended September
30, 1996, 1995, and 1994, and from October 23, 1989 (date of
inception) to September 30, 1996
Notes to Consolidated Financial Statements
Independent Auditors' Report
2. FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted since the required information is
not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements or notes thereto.
(b) The Company filed no reports on Form 8-K during the fourth quarter
of the fiscal year ended September 30, 1996.
22
<PAGE>
(c) Exhibits
1.1 Form of Underwriting Agreement (1)
3.1 Registrant's Amended and Restated Certificate of Incorporation. (1)
3.2 Registrant's Bylaws. (1)
4.2 Form of Representative's Warrant Agreement between the Company and
National Securities Corporation, as representative of the several
Underwriters (the "Representative"), including form of Representative's
Warrant Certificate. (1)
4.3 Form of Warrant Agreement between the Company, the Representative and
American Stock Transfer and Trust Company, including form of Warrant
Certificate. (1)
5.1 Opinion of Cooley Godward Castro Huddleson & Tatum (1)
10.1 Form of Indemnification Agreement for directors and officers of the
Registrant. (1)
10.2 1993 Long Term Incentive Plan and forms of stock option agreements. (1)
10.3 Employment Agreement dated April 30, 1996, between the Registrant and
Larry G. Stambaugh. (1)
10.4 Cooperative Research and Development Agreement, dated October 21, 1993,
between the Registrant and National Institutes of Health/Allergies and
Infectious Diseases, as amended. (1)(2)
10.5 Patent License Agreement Non-Exclusive, dated August 17, 1994, between
the Registrant and National Institute of Health. (1)(2)
10.6 Option to Buy Technology and Rights Agreement, dated March 30, 1993,
between the Registrant and Estero Anstalt. (1)(2)
10.7 Security Agreement, dated July 27, 1993, between the Registrant and Estero
Anstalt. (1)(2)
10.8 Exclusive License Agreement, dated June 14, 1995, among the Registrant,
Jan Holmgren, M.D., Ph.D., Cecil Czerkinsky, Duotol AB and Triotol Ltd.
(1)(2)
10.9 Option and License Agreement, dated May 19, 1993, among the Registrant,
Vitec AB and SBL Vaccin AB, as amended. (1)(2)
10.10 License Agreement dated January 14, 1994, among the Registrant, Vitec
AB and SBL Vaccin, AB, as amended. (1)(2)
10.11 Agreement, dated December 2, 1995, among the Registrant, Syntello
Vaccine Development AB and Estero Anstalt. (1)(2)
10.12 Agreement, dated April 23, 1996, among the Registrant, Anders Vahlne,
M.D., Ph.D. and Syntello Vaccine Development AB. (1)(2)
10.13 Research Agreement, dated October 6, 1995, by and between the
Registrant and The Regents of the University of California. (1)(2)
10.14 Letter Agreement, dated February 15, 1996, between the Registrant and
Burrill & Craves, Inc.(1)
23
<PAGE>
10.15 250,000 Promissory Note, dated March 31, 1995, executed by the
Registrant in favor of Ventana Growth Fund II L.P. (1)
10.16 Lease dated November 1, 1996 between DM Spectrum LLC, a California
limited liability company, as Landlord and the Registrant for 3099
Science Park Road, Suite 150, San Diego, California 92121. (3)
10.17 Stock Purchase Agreement, dated as of July 5, 1996, by and between
Dr. Anders Vahlne and the Registrant. (1)
11.1 Statement regarding computation of net income (loss) per share. (3)
13.1 Registrant's Annual Report to Stockholders for the fiscal year ended
September 30, 1996. (3)
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors. (3)
27 Financial Data Schedule. (3)
99 Independent Auditors' Report. (3)
_______
(1) Previously filed together with the Registrant's Registration Statement on
Form SB-2 (File No. 333-4854-LA) or amendments thereto and incorporated
herein by reference.
(2) Certain confidential portions deleted pursuant to Order Granting
Application Under the Securities Act of 1933 and Rule 406 thereunder
respecting confidential treatment.
(3) Filed herewith.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MAXIM PHARMACEUTICALS, INC.
By: /s/ DALE A. SANDER
------------------
Dale A. Sander,
Vice President, Finance
Chief Financial Officer,
Date: December 23, 1996
NOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Larry G. Stambaugh and Dale A. Sander,
and each of them, as his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this
Report, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
that all said attorneys-in-fact and agents, or any of them or their or his
substitute or substituted, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below, by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/S/ LARRY G. STAMBAUGH Chairman of the Board December 23, 1996
- ------------------------ Director, President and
Larry G. Stambaugh Chief Executive Officer
(Principal Executive Officer)
/S/ DALE A. SANDER Vice President, Finance, and December 23, 1996
- ------------------------ Chief Financial Officer
Dale A. Sander (Principal Accounting Officer
and Principal Financial Officer)
/S/ COLIN B. BIER Director December 23, 1996
- ------------------------
Colin B. Bier, Ph.D.
/S/ G. STEVEN BURRILL Director December 23, 1996
- ------------------------
G. Steven Burrill
/S/ PER-OLOF MORTENSSON Director December 23, 1996
- ------------------------
Per-Olof Mortensson
/S/ F. DUWAINE TOWNSEN Director December 23, 1996
- ------------------------
F. Duwaine Townsen
25
<PAGE>
LEASE
Dated
November 1, 1996
Between
DM SPECTRUM LLC,
a California limited liability company,
as Landlord
and
MAXIM PHARMACEUTICALS, INC.,
a Delaware corporation,
as Tenant
For
3099 Science Park Road, Suite 150
San Diego, California 92121
<PAGE>
TABLE OF CONTENTS
Page
----
DEFINITION OF TERMS............................................. viii
1. Premises.................................................... 1
1.1 Building and Land....................................... 1
1.2 Parking and Other Common Area........................... 1
1.3 CC&Rs and PID Permit.................................... 1
2. Basic Lease Provisions........................................ 1
2.1 Address of the Demised Premises.......................... 1
2.2 Rentable Area............................................ 2
2.3 Initial Basic Rent....................................... 2
2.4 Improvements............................................. 2
2.5 Term..................................................... 2
2.6 Permitted Uses........................................... 2
2.7 Addresses............................................... 2
2.8 Security Deposit......................................... 2
2.9 Tenant's Share........................................... 2
2.10 Exhibits................................................ 3
3. Term.......................................................... 3
3.1 Binding Effect........................................... 3
4. Possession.................................................... 3
4.1 Substantial Completion................................... 3
4.2 Notice................................................... 3
4.3 Cancellation............................................. 4
5. Rent.......................................................... 4
5.1 Basic Rent............................................... 4
5.2 Commencement............................................. 4
5.3 Additional Rent.......................................... 4
5.4 Rent..................................................... 4
5.5 Proration................................................ 5
5.6 Net Lease................................................ 5
5.7 Annual Increase.......................................... 5
5.8 Security Deposit......................................... 5
5.9 Security Interest........................................ 6
6. Common Areas.................................................. 6
6.1 Common Areas - Definition................................ 6
6.2 Common Areas - Rules and Regulations..................... 6
6.3 Common Areas - Changes................................... 6
6.4 Parking.................................................. 7
6.5 Temporary Parking and Access Easement.................... 8
6.6 Vehicular Access......................................... 9
6.7 Interruption of Tenant's Business........................ 9
7. Operating Expenses............................................ 9
7.1 Tenant's Portion......................................... 9
-i-
<PAGE>
7.2 Operating Expenses....................................... 10
7.3 Exceptions............................................... 11
7.4 Payment to Landlord and Estimate ........................ 13
7.5 Reconciliation........................................... 13
7.6 Monthly Proration........................................ 13
7.7 Audit.................................................... 14
7.8 Continuation............................................. 14
7.9 Annual Proration......................................... 14
8. Rentable Area................................................. 14
8.1 Rentable Area............................................ 14
8.2 Agreement Regarding Rentable Area........................ 15
9. Use .......................................................... 15
9.1 Use...................................................... 15
9.2 Compliance with Law...................................... 15
9.3 Insurance Requirements .................................. 15
9.4 Key to Premises.......................................... 16
9.5 Load Rating.............................................. 16
9.6 Unlawful Purpose......................................... 16
9.7 Additional Limitations................................... 16
9.8 Access to Demised Premises............................... 17
10. Brokers....................................................... 17
10.1 Tenant's Representation................................. 17
10.2 Landlord's Representation............................... 18
11. Holding Over.................................................. 18
11.1 Holding Over with Consent............................... 18
11.2 Holding Over without Consent............................ 18
11.3 No Renewal.............................................. 18
11.4 No Waiver............................................... 18
12. Taxes on Tenant's Property.................................... 19
12.1 Payment of Taxes........................................ 19
12.2 Advance by Landlord..................................... 19
13. Condition of Demised Premises................................. 19
13.1 Landlord's Work......................................... 19
13.2 As Is Condition......................................... 19
13.3 No Representation....................................... 20
13.4 Disclosure.............................................. 20
13.5 Walk Through Inspection................................. 20
14. Utilities and Services........................................ 21
14.1 Utilities and Services.................................. 21
14.2 No Liability............................................ 21
14.3 No Increase in Requirements............................. 21
15. Alterations................................................... 22
15.1 No Alterations.......................................... 22
15.2 Service Facilities...................................... 22
15.3 Exterior Changes........................................ 22
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<PAGE>
15.4 Signs................................................... 23
15.5 Compliance with Law..................................... 23
15.6 Prior Notice............................................ 23
15.7 Property of Landlord.................................... 23
15.8 Removal................................................. 23
15.9 Personal Property....................................... 23
16. Repairs and Maintenance....................................... 24
16.1 Landlord's Obligation................................... 24
16.2 Tenant's Sole Cost...................................... 25
16.3 Notice and Landlord's Right to Repair, Replace and
Maintain the Demised Premises.......................... 26
16.4 No Liability............................................ 26
16.5 Damage or Destruction................................... 27
17. Liens......................................................... 27
17.1 No Liens................................................ 27
17.2 Advance by Landlord..................................... 27
17.3 Financing Statements.................................... 27
18. Indemnification and Exculpation............................... 28
18.1 Indemnification by Tenant............................... 28
18.2 Indemnification by Landlord............................. 28
18.3 No Liability of Landlord................................ 28
18.4 Assumption of Risk...................................... 29
18.5 Security Devices........................................ 29
19. Insurance - Waiver of Subrogation............................. 29
19.1 Landlord's Insurance.................................... 29
19.2 Tenant's Insurance...................................... 30
19.3 Additional Insureds..................................... 30
19.4 Fixtures and Other Items................................ 30
19.5 Lender and Others....................................... 31
19.6 Waiver of Subrogation................................... 31
19.7 Increases in Insurance.................................. 31
20. Damage or Destruction......................................... 32
20.1 Partial Destruction..................................... 32
20.2 Other Destruction....................................... 32
20.3 Uninsured Damage........................................ 32
20.4 Election Not to Repair.................................. 33
20.5 Release................................................. 33
20.6 Abatement of Rent ...................................... 33
20.7 Tenant's Property....................................... 33
20.8 Damage at End of Term................................... 33
21. Eminent Domain................................................ 34
21.1 Taking.................................................. 34
21.2 Restoration............................................. 34
21.3 Award................................................... 34
22. Defaults and Remedies......................................... 34
22.1 Late Charge............................................. 34
22.2 No Waiver............................................... 35
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<PAGE>
22.3 Performance by Landlord................................. 35
22.4 Events of Default....................................... 35
22.5 Remedies................................................ 36
22.6 Right of Re-Entry....................................... 37
22.7 Proceeds of Reletting................................... 37
22.8 Non-Exclusive........................................... 38
22.9 No Relief............................................... 38
23. Assignment or Subletting...................................... 38
23.1 Assignment or Subletting................................ 38
23.2 Notice.................................................. 39
23.3 Approval................................................ 39
23.4 Excess Rent............................................. 40
23.5 Transfer Void........................................... 40
23.6 Further Assignment...................................... 40
23.7 No Waiver............................................... 40
23.8 Hazardous Materials Test................................ 40
23.9 Assumption.............................................. 40
24. Attorneys' Fees............................................... 40
24.1 Attorneys' Fees......................................... 40
24.2 Action.................................................. 41
25. Bankruptcy.................................................... 41
26. Landlord...................................................... 41
26.1 Landlord................................................ 41
26.2 Limit on Landlord's Liability........................... 42
26.3 Right to Cure........................................... 42
26.4 Lender's Right to Cure.................................. 42
27. Estoppel Certificate.......................................... 42
28. Joint and Several Obligations................................. 43
29. Limitation of Landlord's Liability............................ 43
29.1 Limitation.............................................. 43
29.2 Applicability........................................... 44
30. Demised Premises Control by Landlord.......................... 44
31. Quiet Enjoyment............................................... 44
32. Quitclaim Deed................................................ 44
33. Subordination and Attornment.................................. 44
33.1 Subordination .......................................... 44
33.2 Additional Instruments.................................. 44
33.3 Attornment.............................................. 45
33.4 Amendment............................................... 45
34. Surrender..................................................... 45
34.1 No Release.............................................. 45
34.2 Assignment.............................................. 45
-iv-
<PAGE>
34.3 No Merger............................................... 45
35. Waiver and Modification....................................... 45
36. WAIVER OF JURY TRIAL.......................................... 45
37. Hazardous Material............................................ 46
37.1 Prohibition/Compliance.................................. 46
37.2 Termination of Lease.................................... 48
37.3 Assignment and Subletting............................... 49
37.4 Condition............................................... 49
37.5 Perform Tests........................................... 49
37.6 Tenant's Obligations.................................... 50
37.7 Definition of Hazardous Material........................ 50
38. Miscellaneous................................................. 51
38.1 Terms and Headings...................................... 51
38.2 Examination of Lease.................................... 51
38.3 Time.................................................... 51
38.4 Covenants and Conditions................................ 51
38.5 Consents................................................ 51
38.6 Entire Agreement........................................ 51
38.7 Severability............................................ 51
38.8 Recording............................................... 51
38.9 Impartial Construction.................................. 52
38.10 Inurement............................................... 52
38.11 Force Majeure........................................... 52
38.12 Notices................................................. 52
38.13 Exhibits................................................ 52
38.14 Modification............................................ 52
38.15 Periods of Time......................................... 53
38.16 Choice of Law........................................... 53
38.17 Interpretation.......................................... 53
38.18 Merger.................................................. 53
38.19 Financial Statements.................................... 53
39. Contingencies................................................. 53
39.1 Lender.................................................. 53
-v-
<PAGE>
EXHIBITS
A-1 Legal Description of Land
A-2 Conceptual Site Plan
A-3 Demised Premises
B Construction Exhibit
C Form of Estoppel Letter from Tenant
D Acknowledgment of Rent Commencement Date
E Form of Subordination Agreement
F Option to Extend Term
G Rules and Regulations for Acid Neutralization System
H-1 List of Personal Property Security
H-2 Form of Initial UCC Financing Statement
I Joint Service Space
-vi-
<PAGE>
DM SPECTRUM/MAXIM PHARMACEUTICALS LEASE
DEFINITION OF TERMS
Section Location Where
Defined (Letter Preceding
Section Number Refers to
Term Exhibit)
- ---- -------------------------
Additional Rent 5.3
Arbitrator B:6.1
Assignment Date 23.2
Assignment Notice 23.2
Basic Rent 5.1
Building 1.1
CC&Rs 1.3
City B:1.9.1
City Required Changes B:1.9.1
Common Areas 6.1
Conditional Default 15.9
Construction Delay Termination Date 4.3
Construction Documents B:1.6.2
Construction Exhibit (Exhibit B) 1.1
Default 22.4
Demised Premises 1.1
Development Schedule B:1.3
Documents 37.1.2
Estimated Possession Date 4.1
Extended Term F:2
Extended Term Initial Basic Rent F:2.3
Extension Notice F:2.1(a)
-vii-
<PAGE>
Section Location Where
Defined (Letter Preceding
Section Number Refers to
Term Exhibit)
---- -------------------------
Fair Rental Value F:2.3 and F:3(d)
Force Majeure Delays B:4.1(d)
Generic Facility Improvements B:1.2.1
Hazardous Material(s) 37.7
Hazardous Materials List 37.1.2
Improvement Plans B:1.2.6
Initial Basic Rent 2.3
Initial Landlord Contribution B:1.6.1
Joint Service Space 7.1
Land 1.1
Landlord Intro.
Landlord's Agents 18.1
Landlord's Arbitration Representatives B:6.1
Landlord's Work B:1.2.4
LJ Spectrum 6.5
Necessary Capital Replacements 16.2
Notice of Intention to Extend F:2.1(a)
Operating Expenses 7.2
PID Improvements 6.5
PID Permit 1.3
Project 1.1
Project Architect B:1.1.1
Project Contractor(s) B:1.1.1
Rent 5.4
-viii-
<PAGE>
Section Location Where
Defined (Letter Preceding
Section Number Refers to
Term Exhibit)
---- -------------------------
Rentable Area 8.1
Schematic Design Drawings B:1.1.1
Security Deposit 2.8
Specifications B:1.1.1
Subdivision 6.5
Substantially Complete(d) and Substantial Completion 4.1
Temporary Parking and Access Easement 6.5
Tenant Intro.
Tenant-Caused Delays B:4.1(b)
Tenant Changes B:3.1.2
Tenant Equipment B:2.1
Tenant's Agents 18.1
Tenant's Arbitration Representatives B:6.1
Tenant's Capital Operating Expense Threshold 7.2
Tenant's Contribution B:1.8.3
Tenant's Earthquake Insurance Expense Stop 19.1
Tenant's Representative B:5.1
Tenant's Share 2.9
Tenant's Utility Systems 16.2
Tenant's Work B:2.1
Term Expiration Date 2.5
Term Commencement Date 5.2
-ix-
<PAGE>
LEASE
THIS LEASE is dated for reference purposes as of November 1, 1996, and is
entered into by and between DM Spectrum LLC, a California limited liability
company (hereinafter called "Landlord"), and Maxim Pharmaceuticals, Inc., a
Delaware corporation ("Tenant").
1. PREMISES.
1.1 BUILDING AND LAND. Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord during the term of this Lease, on the terms and
conditions set forth herein, those certain premises (hereinafter referred to
as the "Demised Premises") located in the building (the "Building") at 3099
Science Park Road, San Diego, California and shown on the floor plan attached
hereto as EXHIBIT A-3. The Building is a two-story steel frame structure
containing 64,800 square feet of Rentable Area (as defined in Section 8.1
below) which includes the Demised Premises. The land upon which the Building
is located is legally described in EXHIBIT A-1 attached hereto and together
with all the improvements thereto, except the Building, is defined as the
"Land." The Land and Building shall hereinafter collectively be referred to
as the "Project." The conceptual site plan for the future Land improvements
to be constructed in conformance with the PID Permit (defined below) and the
current location of the Building is attached hereto as EXHIBIT A-2. Landlord
shall make certain improvements to the Demised Premises, Building, Land and
Common Area as described in the Construction Exhibit which is attached hereto
as EXHIBIT B (the "Construction Exhibit").
1.2 PARKING AND OTHER COMMON AREA. Landlord also grants to Tenant,
subject to the terms of this Lease, non-exclusive rights to use the Common
Area (as defined in Section 6 below), including the parking areas, on the
terms set forth herein.
1.3 CC&RS AND PID PERMIT. This Lease is subject to that certain
Declaration of Protective Covenants for La Jolla Spectrum dated February 1,
1996, and recorded in the Official Records of the County Recorder of San
Diego County, California, as the same may be amended from time to time (the
"CC&Rs") and that certain Planned Industrial Development Permit No. 89-0269
approved by the City of San Diego, as the same may be amended from time to
time (the "PID Permit").
2. BASIC LEASE PROVISIONS. For convenience of the parties, certain
basic provisions of this Lease are set forth herein. The provisions set
forth herein are subject to the remaining terms and conditions of this Lease
and are to be interpreted in light of such remaining terms and conditions.
2.1 ADDRESS OF THE DEMISED PREMISES. The address of the Demised
Premises is: 3099 Science Park Road, Suite 150, San Diego, California 92121.
2.2 RENTABLE AREA. The Rentable Area of the Building is agreed to
be sixty-four thousand eight hundred (64,800) square feet and the Rentable
Area of the Demised Premises is agreed to be nine thousand one hundred
fifty-seven (9,157) square feet located on the first floor of the Building.
2.3 INITIAL BASIC RENT. The "Initial Basic Rent" shall be Two and
50/100 Dollars ($2.50) per square foot of Rentable Area of the Demised
Premises (9,157) per month.
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2.4 IMPROVEMENTS. Landlord shall provide to Tenant the Generic
Facility Improvements pursuant to the Construction Exhibit attached hereto as
EXHIBIT B.
2.5 TERM. The term of this Lease shall commence on the "Term
Commencement Date" set forth in Section 5.2 below and shall continue through
the Term Expiration Date. As used herein, the "Term Expiration Date" shall
mean November 30, 2001, unless such date is extended pursuant to the terms of
EXHIBIT F of this Lease.
2.6 PERMITTED USES. Biotechnology and/or life sciences laboratory
and administrative space, subject to the provisions of this Lease and all
laws, ordinances, regulations, covenants, conditions and restrictions.
2.7 ADDRESSES.
Address for Rent Payment and Notices to Landlord:
DM Spectrum LLC
c/o Del Mar Partnership, Inc.
Att'n: Robert Tomlinson,
Ivan Gayler and David Winkler
221 Fifteenth Street
Del Mar, California 92014
Address for Notices to Tenant:
Maxim Pharmaceuticals, Inc.
Att'n: Larry Stambaugh
3099 Science Park Road, Suite 150
San Diego, California 92121
2.8 SECURITY DEPOSIT. The "Security Deposit" is equal to Two
Hundred Thousand Dollars ($200,000).
2.9 TENANT'S SHARE. "Tenant's Share" is equal to a fraction with a
numerator equal to the square footage of the Rentable Area of the Demised
Premises (9,157) and a denominator equal to the square footage of the
Rentable Area of the Building (64,800).
2.10 EXHIBITS. The following exhibits are attached hereto and
incorporated herein by this reference, and Landlord and Tenant hereby agree
to the terms of these exhibits:
EXHIBIT TITLE
A-1 Legal Description of Land
A-2 Conceptual Site Plan
A-3 Demised Premises
B Construction Exhibit
C Form of Estoppel Letter from Tenant
D Acknowledgment of Rent Commencement Date
E Form of Subordination Agreement
F Option to Extend Term
G Rules and Regulations for Acid Neutralization System
H-1 List of Personal Property Security
H-2 Form of Initial UCC Financing Statement
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I Joint Service Space
3. TERM.
3.1 BINDING EFFECT. This Lease and each of the provisions hereof
shall be binding upon and inure to the benefit of Landlord and Tenant from
the date of execution hereof by all parties hereto.
4. POSSESSION.
4.1 SUBSTANTIAL COMPLETION. Landlord shall endeavor to tender
possession of the Demised Premises to Tenant on or before December 25, 1996
(the "Estimated Possession Date"), with the work required of Landlord
("Landlord's Work") as described in the Construction Exhibit Substantially
Completed. The terms "Substantially Complete(d)" and "Substantial
Completion" shall mean the date that occupancy of that portion of the Demised
Premises shall be allowed by the City of San Diego, with such premises in
clean condition. Until such time as Landlord tenders to Tenant possession of
the Demised Premises, Tenant shall have no right to occupancy or possession
thereof.
4.2 NOTICE. In the event Landlord reasonably determines that it
will be unable to tender possession of the Demised Premises on or before the
Estimated Possession Date, Landlord shall, not later than ten (10) days prior
to the Estimated Possession Date, give written notice to Tenant of the date
Landlord anticipates being able to tender possession to Tenant.
4.3 CANCELLATION. If the date of Substantial Completion of
Landlord's Work and the tender of possession of the Demised Premises is later
than thirty (30) days after the Estimated Possession Date plus the number of
days of "Tenant-Caused Delays" and "Force Majeure Delays," as the same are
defined in the Construction Exhibit (the "Construction Delay Termination
Date"), then Tenant may, at Tenant's option, exercisable by written notice
delivered to Landlord within ten (10) days of the Construction Delay
Termination Date, terminate this Lease. Such right to terminate shall be
Tenant's only remedy and Landlord shall have no other liability with respect
thereto.
5. RENT.
5.1 BASIC RENT. Tenant agrees to pay Landlord as "Basic Rent,"
commencing as set forth below, the sum per square foot per month of Rentable
Area determined pursuant to Section 2.3, subject to the annual rental
increases provided in Section 5.7 hereof. Basic Rent shall be paid in
advance on the first day of each and every calendar month during the term of
this Lease.
5.2 COMMENCEMENT. Basic Rent for the Demised Premises, calculated
upon the agreed upon Rentable Area, shall commence upon the "Term
Commencement Date," which shall be the earlier of (i) the date Landlord
delivers possession of the Demised Premises to Tenant with Landlord's Work
Substantially Complete; (ii) the date Tenant actually accepts possession of
the Demised Premises; or (iii) the date that Landlord's Work would have been
Substantially Completed but for Tenant-Caused Delays (as set forth in the
Construction Exhibit). Notwithstanding anything to the contrary in this
Lease, Landlord shall provide Tenant with no less than ten (10) days prior
notice in writing that the Demised Premises are, or shortly shall be,
available for occupancy. Landlord shall execute and deliver to Tenant for
its signature written acknowledgement in the form of EXHIBIT D hereto of the
actual date upon which rent commenced
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for the Demised Premises when such is established and shall attach it to this
Lease as EXHIBIT D; provided, however, failure to execute and deliver such
acknowledgement shall not affect Tenant's liability hereunder.
5.3 ADDITIONAL RENT. In addition to Basic Rent, commencing on the
Term Commencement Date and throughout the term of this Lease, Tenant agrees
to pay to Landlord as additional rent ("Additional Rent") (i) Tenant's
portion of all Operating Expenses as provided in Section 7 herein, and (ii)
any other amounts that Tenant is obligated to pay and/or assumes or agrees to
pay under the provisions of this Lease that are owed to Landlord, including,
without limitation, any and all other sums that may become due by reason of
any Default under this Lease or any other failure by Tenant to comply with
the agreements, terms, covenants and conditions of this Lease.
5.4 RENT. Basic Rent and Additional Rent shall together be
denominated "Rent." Except as specifically set forth in this Lease, Rent
shall be paid to Landlord without abatement, deduction or offset, in lawful
money of the United States of America at the office of Landlord as set forth
in Section 2.7, or to such other person or at such other place as Landlord
may from time to time designate in writing.
5.5 PRORATION. In the event that (i) Rent commences on a day other
than the first day of a calendar month or (ii) this Lease terminates on a day
other than the last day of a calendar month for any reason other than a
Default by Tenant, Rent shall be prorated with respect thereto on the basis
of a thirty (30) day month and shall be due and payable for such prorated
portion of the month on the date that Rent commences or the first day of the
month in which this Lease terminates, respectively.
5.6 NET LEASE. This is a net lease and all rent and other monetary
obligations shall be paid without notice or demand and without set-off,
counterclaim, recoupment, abatement, suspension, deferment, diminution,
deduction, reduction or defense except as expressly set forth in this Lease.
5.7 ANNUAL INCREASE. On each anniversary of the Term Commencement
Date, the Basic Rent shall be adjusted upward (to the nearest one hundredth
of one cent per square foot of Rentable Area) to equal one hundred four
percent (104%) of the monthly Basic Rent for the month immediately preceding
the adjustment date.
5.8 SECURITY DEPOSIT. Concurrently herewith Tenant shall deliver
to Landlord, in cash, the Security Deposit as security for Tenant's faithful
performance of Tenant's obligations under this Lease. If Tenant fails to pay
Rent or any other charges due hereunder before the expiration of any
applicable cure period, or otherwise is in Default under this Lease, Landlord
may use, apply or retain all or any portion of the Security Deposit for the
payment of any amount due Landlord or to reimburse or compensate Landlord for
any liability, cost, expense, loss or damage (including reasonable attorneys'
fees) which Landlord may suffer or incur by reason thereof. Any such use or
application shall not cause a waiver or cure of any Default under this Lease.
If Landlord uses or applies all or any portion of the Security Deposit,
Tenant shall within ten (10) days after written request therefor deposit
monies with Landlord sufficient to restore the Security Deposit to the full
amount thereof set forth in Section 2.8 above. Landlord shall not be required
to keep all or any part of the Security Deposit separate from its general
account. Landlord shall, at the expiration or earlier termination of the term
of this Lease, and after Tenant has vacated the Demised Premises in
accordance with the terms of this Lease, return to Tenant (or, at Landlord's
option, to the last assignee, if any, of Tenant's interest herein unless
Tenant has instructed Landlord in writing to return the Security Deposit to
Tenant), that portion of the
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Security Deposit not used or applied by Landlord together with interest on
any portion of the Security Deposit held by Landlord and not applied pursuant
to the terms hereof, at a rate equal to six percent (6%) per annum,
compounded. Unless otherwise expressly agreed in writing by Landlord, no part
of the Security Deposit shall be considered to be held in trust, or to be
prepayment for any monies to be paid by Tenant under this Lease.
5.9 SECURITY INTEREST. Tenant hereby conveys to Landlord a first
priority security interest pursuant to the California Uniform Commercial Code
in all equipment and personal property of Tenant specified in EXHIBIT H-1
hereto (and any and all proceeds, substitutions, additions, accessions,
replacements, increases and products of any such equipment) for the purpose
of securing Tenant's obligations under this Lease, including but not limited
to the payment of Rent. Such security interest shall be a second priority
security interest in any particular items of equipment which are subject only
to a purchase money security interest (including an equipment lease) and
shall be a first priority interest in all other equipment and personal
property described in EXHIBIT H-1. Tenant shall from time to time cause to
be executed, filed and/or recorded, within five (5) business days of request
therefor by Landlord, such financing statements as are reasonably necessary
and/or requested by Landlord to perfect such security interest, including but
not limited to a financing statement in the form of EXHIBIT H-2 hereto to be
filed concurrently with the execution of this Lease.
6. COMMON AREAS.
6.1 COMMON AREAS - DEFINITION. The term "Common Areas" is defined
as all areas and facilities outside the Demised Premises and any other
tenant's demised premises and within the exterior boundary line of the
Project that are provided and designated by Landlord from time to time for
the general non-exclusive use of Landlord, Tenant and other tenant(s) of the
Project and their respective employees, suppliers, shippers, customers and
invitees, including but not limited to common entrances, lobbies, corridors,
stairways and stairwells, public restrooms, elevators, mechanical and
electrical rooms, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, ramps, driveways, landscaped areas and decorative walls.
6.2 COMMON AREAS - RULES AND REGULATIONS. Tenant agrees to abide
by and conform to the reasonable rules and regulations adopted by Landlord
from time to time with respect to the Building and Common Areas, and to cause
its employees, suppliers, shippers, customers, and invitees to so abide and
conform. Landlord or such other person(s) as Landlord may appoint shall have
the exclusive control and management of the Common Areas and shall have the
right, from time to time, to reasonably modify, amend and enforce such rules
and regulations; provided, however, that any such modifications and
amendments do not unreasonably interfere with Tenant's use and enjoyment of
the Demised Premises and the Common Areas. Landlord shall attempt in good
faith to enforce the rules and regulations in a diligent manner with respect
to all tenants of the Building, but Landlord shall not be responsible to
Tenant for the non-compliance with such rules and regulations by other
lessees, their agents, employees and invitees of the Building.
6.3 COMMON AREAS - CHANGES. Landlord shall have the right, in
Landlord's reasonable discretion, from time to time to take any of the
following actions provided that at all times Landlord shall provide the
parking facilities required hereunder and such actions shall not unreasonably
interfere with Tenant's access to the Demised Premises:
(a) To make changes to the Building interior and exterior and
the other Common Areas, including, without limitation, changes in the
location, size, shape, number, and
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appearance thereof, including but not limited to the lobbies, entries,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas,
ingress, egress, direction of traffic, decorative walls, landscaped areas and
walkways;
(b) To close temporarily any of the Common Areas for
maintenance and repair and replacement purposes;
(c) To add additional improvements to the Common Areas;
(d) To use the Common Areas while engaged in making
additional improvements, repairs or alterations to the Project, or any
portion thereof;
(e) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Project as Landlord
may, in the exercise of sound business judgment, deem to be appropriate.
Tenant acknowledges that the present parking areas and landscaping associated
with the Project may be relocated and modified as shown on EXHIBIT A-2 in
accordance with the PID Permit or in such other manner consistent with the
PID Permit as the same may be modified from time to time. If the present
parking areas and landscaping associated with the Project are relocated and
modified as shown on EXHIBIT A-2 or in such other manner consistent with the
PID Permit (as the same may be amended from time to time), the initial
improvement costs incurred in connection with such relocation and
modification shall be excluded from Operating Expenses. Any of the foregoing
notwithstanding, Tenant acknowledges that Landlord is under no obligation to
improve the Project in compliance with the PID Permit during the term of this
Lease.
6.4 PARKING.
(a) Tenant shall be entitled to the non-exclusive use of up
to twenty-seven (27) vehicle parking spaces, on an unreserved and unassigned
basis, on those portions of the Common Areas designated by Landlord for
parking purposes from time to time. Such parking shall be provided without
charge by Landlord; provided, however, Landlord may impose a fee or other
charge for such parking if required to do so by any governmental authority,
and nothing contained in this provision shall limit Landlord's right to pass
on all reasonable costs associated with such parking area as Operating
Expenses, including but not limited to maintenance costs and subdivision
assessments imposed on Landlord.
(b) Tenant shall not use more parking spaces than allotted to
Tenant hereunder. Such parking spaces shall be used only for parking by
vehicles no larger than full size passenger automobiles or pickup trucks.
Tenant shall use its best efforts to ensure that any vehicles that belong to
or that are controlled by Tenant or Tenant's employees, suppliers, shippers,
customers or invitees are not loaded, unloaded or parked in areas other than
those designated by Landlord for such activities. If such activities occur
other than in the spaces designated for the same, then Landlord shall notify
Tenant and Tenant shall have twenty-four (24) hours to remove the vehicle
involved, unless such vehicle is in violation of law, in which case the
vehicle shall immediately be removed. If Tenant fails to so timely remove
such vehicle, Landlord shall have the right, without further notice, and in
addition to such other rights and remedies that it might have under this
Lease or at law, to remove or tow away the vehicle involved and charge the
cost thereof to Tenant, which cost shall be immediately payable upon demand
by Landlord as Additional Rent.
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6.5 TEMPORARY PARKING AND ACCESS EASEMENT. Tenant acknowledges that
the existing parking area for the Building, ingress and egress thereto, and
certain other common areas are presently located off the Land pursuant to a
temporary easement between Landlord and the owner of the land upon which such
parking is presently located ("LJ Spectrum"). Landlord, LJ Spectrum or any
other party may, at its option at any time and from time to time during the
term of this Lease, construct all or a part of the improvements which such
party is entitled to construct on the property known as The La Jolla Spectrum
and subject to the PID Permit (which property, including the Land, may be
referred to as the "Subdivision"), provided that any such improvements are
constructed in compliance with the PID Permit and the CC&Rs (the "PID
Improvements"), and provided that the PID Improvements include twenty-seven
(27) parking spaces for use by Tenant on the Land or elsewhere in compliance
with the CC&Rs and all legal requirements. Tenant's right to use the
existing temporary access and parking facilities shall cease upon ten (10)
days prior written notice from Landlord, provided that other temporary or
permanent parking (that provides no less than twenty-seven (27) parking
spaces on or reasonably near the Land unless otherwise agreed to in writing by
Tenant) and access is provided (such temporary parking and access easement
located off the Land now or hereafter existing from time to time is
hereinafter referred to as the "Temporary Parking and Access Easement").
Tenant acknowledges that Landlord has disclosed to it that the construction
of the PID Improvements is by its nature messy, noisy and disruptive and that
such work may interrupt and interfere with Tenant's access to, or use of, the
Demised Premises. During such period of construction of the PID Improvements,
Landlord shall use reasonable efforts not to interfere with Tenant's access
to, or use of, the Demised Premises. In the event Landlord's construction of
the PID Improvements results in an interference with Tenant's access to, or
use of, the Demised Premises such that Tenant is prevented from accessing or
using the Demised Premises for two (2) or more consecutive days, Tenant shall
thereafter be entitled to an offset of Rent for the period of time Tenant is
prevented from accessing or using the Demised Premises.
6.6 VEHICULAR ACCESS. Tenant acknowledges that Landlord or the owner
of the Subdivision may from time to time change the location of the access
road(s) from Torreyana Road to the Land over the Subdivision. Neither
Landlord nor any other party shall have any liability with respect thereto
provided that reasonable access is provided at all times.
6.7 INTERRUPTION OF TENANT'S BUSINESS. Tenant acknowledges that
Landlord has disclosed to it that the construction of improvements to the
Common Area or to another tenant's premises is by its nature messy, noisy and
disruptive and that such work may interrupt and interfere with Tenant's
business in the Demised Premises notwithstanding Landlord's reasonable
efforts not to interrupt and interfere with Tenant's business in the Demised
Premises. Landlord and Landlord's Agents shall have the right to enter the
Demised Premises at all reasonable times with twenty-four (24) hours' notice
(except in the event of an emergency) for the purpose of making alterations,
repairs, improvements or additions to the Building or any part thereof which
Landlord may deem reasonably necessary or desirable, including tenant
improvements for any other tenant in the Building. Any such entry shall be
without abatement of Rent, unless as a result of such entry Tenant is
prevented from accessing or using all of the laboratory portion of the
Demised Premises for more than three (3) consecutive days and Landlord's need
for such entry was not caused by (i) Tenant's failure to satisfy its
obligations under Section 16.2 below, or (ii) any negligent or intentional
act or omission of Tenant or Tenant's Agents, or (iii) any interruption in
utilities or services furnished to the Demised Premises, in which case
Tenant's right to any abatement or reduction of Rent is addressed in Section
14 below. Landlord shall have no liability with respect to any such entry,
except for any damages, liabilities, expenses or costs incurred by Tenant as
a result of the gross negligence or willful misconduct of Landlord or
Landlord's Agents.
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7. OPERATING EXPENSES.
7.1 TENANT'S PORTION. Tenant's portion of Operating Expenses, for
purposes of this Lease, is equal to (i) the total Operating Expenses for the
Project (except as set forth in the remainder of this sentence) multiplied by
Tenant's Share set forth in Section 2.9 above, plus (ii) the utility expenses
associated with the Building's HVAC system multiplied by a fraction, the
numerator of which is equal to the square footage of the Rentable Area of the
Demised Premises and the denominator of which is equal to the square footage
of the Rentable Area of the Building then under lease to, and occupied by,
Tenant or any other tenants, but in no event shall such denominator be less
than fifty percent (50%) of the total square feet of Rentable Area (32,400)
of the Building, plus (iii) one-half (1/2) of all expenses of operating,
maintaining, repairing, replacing and managing those portions of the acid
neutralization system shared with those portions on the second floor of the
Building as shown on EXHIBIT I (the "Joint Service Space") beyond the point
of connection to those portions of the system exclusively serving the Joint
Service Space.
7.2 Operating Expenses. As used herein, the term "Operating Expenses"
shall include all expenses typically included in an absolute net lease,
including but not be limited to:
(a) Government impositions, including, without limitation, property
tax costs consisting of real property taxes (including any increases in such
property taxes for any reason, including increases resulting from a sale or
other transfer of the Project), assessments, including amounts due under any
improvement bond upon the Project or assessments levied in lieu thereof
imposed by any governmental authority or agency, any tax on or measured by
gross rentals received from the rental of space in the Building, or tax based
on the square footage of the Demised Premises or Building (if such tax is
enacted in lieu of presently existing real property taxes),
(b) Any parking charges, surcharges or any other costs levied,
assessed or imposed by, or at the direction of, or resulting from statutes or
regulations, or interpretations thereof, promulgated by any federal, state,
regional, municipal or local government authority in connection with the use
or occupancy of the Building or the parking facilities serving the Building,
(c) Any tax on this transaction or any document to which Tenant is
a party creating or transferring an interest in the Land or the Building,
(d) Any fee for a business license for Landlord to operate the
Project,
(e) Any expenses, including the cost of attorneys or experts,
reasonably incurred by Landlord in seeking reduction by the taxing authority
of the applicable taxes, but only to the extent such savings are realized, and
(f) All other reasonable costs of any kind paid or incurred by
Landlord directly related to the operation, repair, replacement, maintenance
and management of the Project, the Demised Premises and the Common Area and
not separately reimbursed to Landlord by any tenant in the Building,
including, by way of example and not as a limitation upon the generality of
the foregoing: all utility charges for the Project and the Building incurred
by Landlord (including, without limitation, water, gas and electricity costs
for the central mechanical plant, the landscaping and other improvements on
the Land and the Temporary Parking and Access Easement); all costs of repairs
and replacements to improvements incurred by Landlord as appropriate to
maintain the Project in first-class condition (except as set forth in Section
16.1 or caused by the gross negligence of Landlord or Landlord's Agents);
including
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maintenance costs for the Temporary Parking and Access Easement or any
substitution thereof; all costs of any nature to comply with applicable
governmental requirements for the Project; the cost of all service contracts
maintained on the HVAC system and other parts of the Project; special utility
assessments, including sewer fees and trash collection, assessments imposed
pursuant to the CC&Rs or the PID Permit; transportation management assessment
fees, property management fees equal to four percent (4%) of the Rent;
insurance premiums (except Tenant's share of any insurance premium for
earthquake coverage shall not exceed the applicable Tenant's Earthquake
Insurance Expense Stop, as described in Section 19.1 below); uninsured losses
not resulting from Landlord's failure to carry the insurance required by this
Lease unless such loss results from the grossly negligent or willful act or
omission of Landlord or its agents; portions of insured losses paid by
Landlord as part of the deductible portion of any loss by reason of insurance
policy terms unless such loss results from the grossly negligent or willful
act or omission of Landlord or its agents; service contracts and costs of
services of independent contractors retained to do work of the nature
referenced above; all costs of full or part-time personnel responsible for
the maintenance and management of the Project; and reasonable reserves
established by Landlord in its sole good faith discretion for any of the
foregoing.
Any of the foregoing notwithstanding, at any time during any calendar year
that Tenant's portion of Operating Expenses relating to capital improvements
equals or exceeds the sum of Fifteen Thousand Dollars ($15,000) ("Tenant's
Capital Operating Expense Threshold"), all sums payable in excess of Tenant's
Capital Operating Expense Threshold shall not be treated as an expense solely
in that calendar year, but shall be amortized (with interest at the lower of
twelve percent (12%) per annum or the highest rate allowed by law) thereafter
as an Operating Expense over the expected life of each such improvement as
determined by the manufacturer of such improvement (or as reasonably
determined by Landlord, if the manufacturer of such improvement does not
specify an expected life span). Notwithstanding the foregoing, Tenant's
Capital Operating Expense Threshold shall be decreased to Five Thousand
Dollars ($5,000) for the last calendar year of the initial term of this
Lease, unless Tenant exercises its option to extend this Lease for the
Extended Term, in which event this decreased threshold shall apply solely to
the last calendar year of the Extended Term of this Lease.
7.3 EXCEPTIONS. Operating Expenses shall not include any of the
following:
(a) Any net income, franchise, capital stock, estate or
inheritance taxes.
(b) Any payments of interest, loan fees and other financing costs
related to any mortgage or deed of trust encumbering the Project, and any
payments of rent due or required under any ground lease or master lease (but
excluding therefrom common area maintenance expenses, taxes and similar other
costs).
(c) Costs, including building permit, license and inspection
costs,incurred with respect to the installation of improvements made for
other occupants of the Building or incurred in renovating or otherwise
improving, decorating, painting or redecorating vacant tenant space in the
Building for other occupants of the Building. This exclusion shall not
include costs of repair, replacement or renovation of Common Areas in the
Project.
(d) Leasing commissions or other real estate fees, attorneys' fees
and costs incurred in connection with marketing space or leasing space to
tenants or prospective tenants, including, without limitation advertising and
promotional expenditures.
(e) Tax penalties incurred as a result of Landlord's negligent
failure to make payments or to file any tax return when due.
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(f) Landlord's general overhead and administrative expenses other
than all costs of full or part-time personnel responsible for the maintenance
and management of the Project.
(g) Any depreciation on the Building.
(h) Any expenses for services that are of a type not available to
Tenant but which are provided to another tenant or occupant of the Building.
(i) The amount of any overhead profit increment paid to
subsidiaries and affiliates of Landlord for services on or to the Building or
for supplies or other materials to the extent that the cost of such services,
supplies or materials exceeds the cost which would have been paid had the
services, supplies or materials been provided by unaffiliated parties on a
competitive basis.
(j) Wages, salaries or other compensation paid to any executive
employees above the grade of Facilities Manager.
(k) Any attorneys' fees and other expenses incurred by Landlord to
enforce the provisions of this Lease or any other lease of space in the
Building due to a violation by any tenant of its lease.
(l) Costs incurred by Landlord for the repair or damage to the
Project to the extent that Landlord is reimbursed by insurance proceeds.
(m) Costs incurred in correcting any building code violations
existing prior to the Term Commencement Date in accordance with Landlord's
obligations under Section 13.1 below.
(n) Any expenses for services to Tenant or any other tenant in the
Building for which Landlord is entitled to be reimbursed as an additional
charge over and above the Rent payable under this Lease or the basic rent
payable under the lease with any other tenant.
(o) Any compensation paid to clerks, attendants or other persons in
commercial concessions (e.g., newsstand or deli) operated by Landlord within
the Project.
(p) Costs of repairs and other work occasioned by fire or other
casualty required to be insured against pursuant to Section 19.1 below other
than portions of insured losses paid by Landlord as part of the deductible
portion of any loss by reason of the insurance policy terms.
(q) Subject to the limitations described in Section 37 on any
obligation of Landlord to perform an environmental clean up, the costs
incurred by Landlord of cleaning up any contamination of the Building
(including the underlying land and groundwater) by any Hazardous Material (as
defined in Section 37.7 below) where such contamination was not caused by
Tenant or its agents, employees, contractors or invitees.
7.4 PAYMENT TO LANDLORD AND ESTIMATE. Tenant shall pay Tenant's
portion of Operating Expenses to Landlord, monthly in advance, based upon
Landlord's reasonable estimate of such Operating Expenses. Within thirty
(30) days following the commencement of each calendar year, Landlord shall
provide Tenant, in writing, a statement estimating the amount of monthly
Operating Expenses for the coming year. Tenant shall pay to Landlord on the
first day of each calendar month of the term of this Lease, as Additional
Rent, Tenant's portion of
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Landlord's estimate of such Operating Expenses with respect to the Demised
Premises for such month. Additionally, if any extraordinary Operating
Expense occurs which was not included in Landlord's estimate of such
Operating Costs, then Landlord shall give written notice thereof to Tenant
promptly after Landlord learns of the same; and Tenant shall pay Tenant's
portion of such extraordinary Operating Expense on or before its due date.
7.5 RECONCILIATION. Within ninety (90) days after the conclusion of
each calendar year, Landlord shall furnish to Tenant a statement showing in
reasonable detail the actual Operating Expenses for the previous calendar
year. If the amounts paid by Tenant are less than the actual amount of
Operating Expenses for the previous year, any additional sum due from Tenant
to Landlord shall be due and payable within ten (10) business days after
receipt by Tenant of such statement. If the amounts paid by Tenant exceed
the actual Operating Expenses for the previous calendar year, the difference
shall be credited by Landlord against the Rent next due and owing from
Tenant; provided that, if the term of this Lease has expired, Landlord shall
accompany such statement with payment for the amount of such difference.
7.6 MONTHLY PRORATION. Any amount due for Operating Expenses
attributable to any period which is less than a full month shall be prorated
(based on a thirty (30) day month) for such fractional month.
7.7 AUDIT. Tenant shall have the annual right, at Tenant's expense,
upon reasonable notice during reasonable business hours, to have a Certified
Public Accountant or other authorized representative of Tenant inspect the
portion of Landlord's records, invoices, and other data relating to the
Project for the prior calendar year and used in the preparation of the
statement of actual Operating Expenses for such year, provided any request
for such review shall be furnished within one hundred eighty (180) days of
Tenant's receipt of such statement as to the prior year's Operating Expenses.
If the amount of Operating Expenses relating to the Demised Premises
identified on such annual statement are found to exceed the actual Operating
Expenses of the Demised Premises, Landlord shall, within ten (10) days after
Tenant's request therefor, refund to Tenant the amount of overpayment by
Tenant. In addition, if such audit reveals that the Operating Expenses paid
by Tenant in any year exceed one hundred four percent (104%) of the actual
Operating Expenses which should have been paid by Tenant in such year,
Landlord shall reimburse Tenant for the reasonable cost of such audit. Tenant
shall not engage any person or entity to perform such audit for compensation
related to any cost savings resulting from such audit.
7.8 CONTINUATION. The responsibility of Tenant for Operating Expenses
attributable to the Demised Premises shall continue to the latest of (i) the
date of termination of this Lease, or (ii) the date Tenant has fully vacated
the Demised Premises.
7.9 ANNUAL PRORATION. Operating Expenses attributable for any portion
of the Demised Premises for the calendar year in which Tenant's obligation to
reimburse Landlord therefor commences and for the calendar year in which such
obligation ceases shall be prorated. Expenses such as taxes, assessments and
insurance premiums which are incurred for an extended time period shall be
prorated based upon time periods to which such items are applicable, so that
the amounts attributed to the Demised Premises relate in a reasonable manner
to the time period in which Tenant has an obligation to pay for Operating
Expenses.
8. RENTABLE AREA.
8.1 RENTABLE AREA. The term "Rentable Area" refers to the agreed upon
respective square footages upon which Rent shall be charged and Common Area
expenses shall
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be allocated for the Demised Premises and the Building. Such areas include
the floor areas of such portions of the Building measured to (i) the outside
finished surface of permanent outer Building walls, where such walls
intersect or join each floor (or if the floors do not actually intersect or
join such wall, projected to the exterior finished surface of the Building),
and (ii) the center of all interior demising walls separating the Demised
Premises from Common Areas (as shown on EXHIBIT A-3) or spaces to be occupied
by other lessees, plus a portion of the Common Area (as shown on EXHIBIT A-3)
within the Building allocated to Tenant based on Tenant's Share. Such
measurement was made without deduction for columns, projections or vertical
penetrations such as stairs, elevator shafts, flues, pipe shafts, vertical
ducts and the like and their enclosed walls.
8.2 AGREEMENT REGARDING RENTABLE AREA. The number of square feet of
Rentable Area (i) in the total Building is agreed to be sixty-four thousand
eight hundred (64,800) square feet, and (ii) in the Demised Premises is
agreed to be nine thousand one hundred fifty-seven (9,157) square feet.
9. USE.
9.1 USE. Tenant shall at all times use the Demised Premises in
accordance with all of the terms and conditions of this Lease (including but
not limited to the provisions of Section 15) and only for the purpose set
forth in Section 2.6; and Tenant shall not use the Demised Premises, or
permit or suffer the Demised Premises to be used, for any other purpose
without the prior written consent of Landlord. Except as expressly set forth
in this Lease, Tenant shall have twenty-four (24) hour access to the Demised
Premises at all times during the term of this Lease.
9.2 COMPLIANCE WITH LAW. Tenant shall conduct its business operations
and use the Demised Premises in compliance with all current or future
federal, state and local laws and regulations, and all covenants, conditions
and restrictions applicable to the Land, including the CC&Rs and the PID
Permit. Tenant shall not use or occupy the Demised Premises in violation of
any law, regulation or covenant, condition or restriction applicable to the
Land, including the CC&Rs and the PID Permit, or the certificate of occupancy
issued for any portion of the Demised Premises or the Building and shall,
immediately upon written notice from Landlord, discontinue any use of the
Demised Premises which is unlawful whether or not declared by any
governmental authority having jurisdiction to be a violation of law or of
such certificate of occupancy. Tenant shall, at its expense, timely comply
with any directive of any governmental authority having jurisdiction which
shall, by reason of the nature of Tenant's use of the Demised Premises,
impose any duty upon Tenant or Landlord with respect to the Demised Premises
or with respect to the use thereof. Tenant shall not be deemed to be in
breach of the foregoing obligation if it has the right to appeal such
directive and Tenant prosecutes such appeal in a timely fashion and in a
manner that does not impose or threaten to impose any lien, charge or other
obligation on Landlord or any portion of the Project.
9.3 INSURANCE REQUIREMENTS. The insurance to be initially carried by
Landlord and Tenant pursuant to the provisions of Section 19 shall be
consistent with the actual use of the Project. Thereafter, if the use of the
Demised Premises changes to another use permitted under Section 2.6, such
insurance shall, to the extent available, be consistent with such changed
use. Tenant shall not do or permit to be done anything which will invalidate
or increase the cost of any fire, extended coverage or any other insurance
policy covering the Project. Tenant shall comply with all rules, orders,
regulations and requirements of the insurers of the Project. Tenant shall
promptly, upon demand, reimburse Landlord for one hundred percent (100%) of
any additional premium charged for any policy by reason of Tenant's
particular use of the Demised
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Premises or the Common Area, or as a result of Tenant's failure to comply
with the provisions of this Section.
9.4 KEY TO PREMISES. Tenant shall make available to Landlord on a
twenty-four (24) hours per day basis keys to locks to doors in the Demised
Premises for the purpose of emergency access. Additionally, if requested by
Landlord, or required by a governmental agency, Tenant agrees to provide keys
to be maintained in a fire department controlled lock box located on the
Demised Premises.
9.5 LOAD RATING. No equipment weighing in excess of the load per
square foot which such floor was designed to carry, or which is allowed by
law, shall be placed upon the Demised Premises. Tenant shall not make
connection to the utilities except by or through existing outlets. Tenant
shall not install or use machinery or equipment in or about the Demised
Premises that uses water, gas, chilled water or electricity in excess of the
capacity specifications for such utility or service as provided to the
Demised Premises as a part of Landlord's Work, nor may Tenant suffer or
permit any act that causes any use of water, gas, chilled water or
electricity in excess of the capacity specifications for such utility or
service as provided to the Demised Premises as a part of Landlord's Work.
Tenant shall not use the utilities or services provided for the Demised
Premises for any purpose other than their intended use. Tenant shall
reimburse Landlord for any actual excess expenses or costs that may arise out
of a br
9.6 UNLAWFUL PURPOSE. Tenant shall not allow the Demised Premises
to be used for unlawful purposes, nor shall Tenant cause, maintain or permit
any nuisance or waste in or on the Project. Landlord shall attempt in good
faith to prevent any other tenants of the Building from using their
respective premises for unlawful purposes or causing, maintaining or
permitting any nuisance or waste in or on the Project.
9.7 ADDITIONAL LIMITATIONS. Without in any way limiting the
provisions of Section 37 or any other provision of this Lease, Tenant
acknowledges and agrees that:
(a) Tenant acknowledges that the acid neutralization system
serving the Demised Premises will be shared in common with one or more
tenants occupying other portions of the Building. The types and quantities
of materials that may be discharged into the acid neutralization system
servicing the Demised Premises are as set forth in EXHIBIT G attached hereto.
Tenant shall not discharge any materials into the acid neutralization system
which is in violation thereof. Tenant shall indemnify, defend and hold
harmless Landlord from any breach hereunder.
(b) The Demised Premises have been designed as a "B-Occupancy"
under the Uniform Building Code in effect as of the date of commencement
and/or completion of Landlord's Work with Hazardous Material storage capacity
equal to one-half (1/2) of what would be allowed in one "control zone." Tenant
shall not exceed such storage capacity. Tenant shall indemnify, defend and
hold harmless Landlord from any breach hereunder. Upon Tenant's written
request, Landlord shall make available to Tenant (at no cost to Tenant) a
concrete pad of not more than one hundred (100) square feet outside the
Building for Tenant to install, at Tenant's sole cost, a self contained
Hazardous Material storage bunker pursuant to all the provisions of this
Lease, including but not limited to Sections 15, 16 and 37. If installed,
such area upon which the bunker is located shall be deemed to be part of the
Demised Premises. Such bunker shall be constructed and installed by Tenant
in compliance with all laws, the CC&Rs, the PID Permit and sound industry
practices, and shall be of a first class condition and appearance
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and shall not in any way detract from the appearance of the Project.
9.8 ACCESS TO DEMISED PREMISES. Landlord and Landlord's agents
shall have the right to enter the Demised Premises at reasonable times upon
twenty-four (24) hours' notice (except in an emergency) for the purpose of
inspecting the same and showing the same to perspective purchasers, lenders
or tenants. Landlord may at any time place on or about the Demised Premises
or the Building any "for sale" signs, and Landlord may at any time during the
last one hundred fifty (150) days of the term hereof place on or about the
Demised Premises any "for lease" signs. Landlord hereby agrees to use
reasonable efforts not to interfere with Tenant's access to, or use of, the
Demised Premises. All activities of Landlord pursuant to this Section shall
be without abatement of Rent, and Landlord shall have no liability to Tenant
for the same, except for any damages, liabilities, expenses or costs incurred
by Tenant as a result of the gross negligence or willful misconduct of
Landlord or Landlord's Agents.
10. BROKERS.
10.1 TENANT'S REPRESENTATION. Tenant represents, warrants and
covenants that it has had no dealings, and it shall have no dealings, with
any real estate broker or agent who will be entitled to a commission in
connection with (i) procuring or negotiating this Lease, or (ii) the options
to extend the term of this Lease, to lease the Joint Service Space or to
purchase the Project as contained herein, other than The Irving Hughes Group,
Inc. Tenant knows of no real estate broker or agent who is or might now or
in the future be entitled to a commission in connection with this Lease or
such options, other than The Irving Hughes Group, Inc. Tenant shall
indemnify, defend and hold harmless Landlord from any such commission arising
from Tenant's actions or statements, other than the commission due The Irving
Hughes Group, Inc., which commission shall be paid by Landlord, pursuant to a
separate commission agreement between such broker and Landlord.
10.2 LANDLORD'S REPRESENTATION. Landlord represents, warrants and
covenants that it has had no dealings, and it shall have no dealings, with
any real estate broker or agent to whom Tenant might be liable for a
commission in connection with (i) procuring or negotiating this Lease, or
(ii) the options to extend the term of this Lease, to lease the Joint Service
Space or to purchase the Project. Landlord knows of no real estate broker or
agent, other than The Irving Hughes Group, Inc., who is or might now or in
the future be entitled to a commission from Tenant in connection with this
Lease or the options contained herein. Landlord shall indemnify, defend and
hold harmless Tenant from any such commissions arising from Landlord's
actions or statements.
11. HOLDING OVER.
11.1 HOLDING OVER WITH CONSENT. If Tenant remains in possession of
all or any part of the Demised Premises after the expiration or earlier
termination of this Lease, with Landlord's prior written consent, Tenant
shall be deemed a month-to-month tenant upon the date of such expiration or
earlier termination and, in such case, Tenant shall continue to pay the Basic
Rent (as adjusted from time to time as set forth in this Lease), Operating
Expenses in accordance with Section 7, and any other amount of Rent due
Landlord pursuant to the terms of this Lease, and such month-to-month tenancy
shall be subject to every other term, covenant and agreement contained herein.
11.2 HOLDING OVER WITHOUT CONSENT. If Tenant remains in possession
of the Demised Premises after the expiration or earlier termination of the
term hereof without the express written consent of Landlord, Tenant shall
become a tenant at sufferance upon all the
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terms of this Lease applicable to a tenant at sufferance, except that the
monthly installments of Basic Rent shall be equal to one hundred fifty
percent (150%) of the monthly installment of the Basic Rent in effect during
the immediately preceding thirty (30) days. If at the end of the term of
this Lease Tenant has vacated the Demised Premises but Tenant has not left
the Demised Premises in substantially the condition required by this Lease,
or Landlord is for any reason prevented from allowing another tenant to have
possession of the Demised Premises as a result of any act or omission of
Tenant, Tenant shall be deemed to be holding over without consent and Tenant
shall also be liable for any other damages Landlord may suffer.
11.3 NO RENEWAL. Acceptance by Landlord of Rent after such
expiration or earlier termination of this Lease shall not result in a renewal
or reinstatement of this Lease.
11.4 NO WAIVER. The foregoing provisions of this Section 11 are in
addition to and do not affect Landlord's right to re-entry or any other
rights of Landlord hereunder or as otherwise provided by law.
12. TAXES ON TENANT'S PROPERTY.
12.1 PAYMENT OF TAXES. Tenant shall pay not less than five (5)
days before delinquency, all taxes levied against any personal property or
trade fixtures in or about the Demised Premises.
12.2 ADVANCE BY LANDLORD. If any such taxes on Tenant's personal
property or trade fixtures are levied against Landlord or Landlord's property
or, if the assessed valuation of the Project is increased by the inclusion
therein of a value attributable to Tenant's personal property or trade
fixtures, and if Landlord, after written notice to Tenant, elects to pay the
taxes based upon such increase in assessed value, then Tenant shall, upon
receipt of satisfactory evidence of such tax increase repay to Landlord the
taxes so levied against Landlord.
13. CONDITION OF DEMISED PREMISES.
13.1 LANDLORD'S WORK. Landlord warrants to Tenant that (i) the
Building systems serving the Demised Premises will be in good working order
as of the Lease Commencement Date and (ii) Landlord's Work will be free from
material structural defects. Based solely in reliance upon Landlord's
receipt of a certificate of occupancy for the Demised Premises, Landlord
represents to Tenant that Landlord's Work will as of the Lease Commencement
Date comply with all applicable covenants and restrictions of record,
statutes, ordinances, codes, rules, regulations, orders and regiments,
including Title 24 of the California Administrative Code and the Americans
With Disabilities Act. In the event it is determined that the foregoing
warranties have been violated, then it shall be the obligation of Landlord,
after written notice from Tenant, to promptly rectify any such violation. In
the event Tenant does not give to Landlord written notice of the violation of
any of the foregoing warranties within one (1) year of the Term
13.2 AS IS CONDITION. Except as expressly set forth in this Lease
and in the Construction Exhibit, Tenant is leasing the Demised Premises, and
accepts the condition of the Demised Premises (including Landlord's Work upon
completion thereof), the Project and the Subdivision, in their "as is"
condition. Except as expressly set forth in this Lease and in the
Construction Exhibit, Tenant shall assume all risks with respect to any
defects, liabilities or other matters related to or in any way affecting the
condition of the Demised Premises (including
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Landlord's Work upon completion thereof), the Project or the Subdivision
including, without limitation, (i) latent defects; (ii) all restrictions,
obligations, benefits and burdens whatsoever regarding the occupancy and use
of the Demised Premises; and (iii) the presence of Hazardous Materials.
Tenant acknowledges that Landlord has provided to Tenant (without any
warranty as to accuracy) an environment report prepared by Dames & Moore
dated January 17, 1996, whi
13.3 NO REPRESENTATION. Tenant acknowledges that, except as
expressly set forth in this Lease, Landlord and Landlord's agents have not
made any representations or warranties, express or implied, with respect to
(i) the condition of the Demised Premises or the Building and Land, including
Landlord's Work, (ii) the suitability of the Demised Premises for the conduct
of Tenant's business, (iii) the location, use, design, merchantability,
fitness for use for a particular purpose, condition or durability of the
Demised Premises or the Building and Land, including Landlord's Work, (iv)
the existence of Hazardous Materials (as defined in Section 37.7) on the
Demised Premises or in the Project except as set forth in Section 37.4 below,
or (v) the quality of the material or workmanship in the Demised Premises or
the Building and Land; and all risks incidental to the Demised Premises shall
be borne by Tenant. Except as expressly provided in this Lease or in the
Construction Exhibit, in the event of any defect or d
13.4 DISCLOSURE. Without limiting the provisions of Section 13.1
above, Landlord and Tenant acknowledge that (i) the HVAC system which
services another tenant's premises located on the roof of the Building may
violate Coastal Commission Regulations regarding height restrictions, and
(ii) asbestos containing materials may be present in the Building. Tenant
acknowledges that, if such action is allowed by law, any asbestos may be
"encapsulated" in place. Landlord will be responsible for any remedial
action (including such encapsulation) required by law with respect to the
foregoing, including paying the cost thereof, which cost shall not be an
Operating Expense. Except for the foregoing, the cost of any action
necessary to remediate any violations of law, including the foregoing,
relating to the Demised Premises shall be an Operating Expense, and if the
cost of any action is an Operating Expense and constitutes a capital
improvement, the cost shall be a portion of the Operating Expenses relating
to capita
13.5 WALK THROUGH INSPECTION. As specified in the Construction
Exhibit, Landlord and Tenant shall conduct walk through inspections of the
work performed by Landlord to the Demised Premises and prepare a punch list
of those construction items for Landlord's Work which require remedial
action. The taking of possession of the Demised Premises by Tenant shall
establish conclusively that the Demised Premises and the Building existed at
such time in good, sanitary and satisfactory condition and repair, except for
punch list items to be corrected by Landlord.
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14. UTILITIES AND SERVICES.
14.1 UTILITIES AND SERVICES. To the extent reasonably possible,
Tenant shall enter into contracts directly with suppliers of, and pay
directly to such suppliers for, all water, gas, electricity, telephone, trash
removal, janitorial and cleaning services and all other utilities and
services supplied to the Demised Premises, together with any taxes thereon.
To the extent any such services or utilities are not separately metered or
supplied to the Demised Premises by the supplier thereof, Tenant shall pay
Tenant's Share of the cost thereof as an Operating Expense unless Landlord
has installed separate meters or measuring devices for the determination of
Tenant's actual use of such utility or service. In such case, Tenant shall
pay as an Operating Expense the actual cost of that portion of the utility or
service actually used by Tenant, and Landlord shall not otherwise include the
cost paid by Tenant as an Operating Expense.
14.2 NO LIABILITY. Except to the extent caused by Landlord's
grossly negligent or willful acts or omissions (and in such event, only after
written notice to Landlord and the failure of Landlord to correct such
situation within a reasonable time), Landlord shall not be liable for, nor
shall any eviction of Tenant result from, the failure of any such utility or
service to be furnished to the Demised Premises when such failure is caused
by accident, breakage, repairs, civil disturbances, strikes, lockouts or
other labor disturbances or labor disputes of any character, governmental
regulation, moratorium or other governmental action, the inability to furnish
such utility or service despite the exercise of reasonable diligence by
Landlord or by any other cause beyond Landlord's reasonable control,
excluding only interruptions of service caused by Landlord's Default. In the
event of such failure, Tenant shall not be entitled to any abatement or
reduction of Rent, nor shall Tenant be relieved from the operation
14.3 NO INCREASE IN REQUIREMENTS. Tenant shall not, without the
prior written consent of Landlord, use any device in the Demised Premises,
including, without limitation, special equipment or machines, which will in
any way materially increase the amount of heating, air conditioning,
electricity or water available to the Demised Premises over that initially
provided. Tenant shall pay to Landlord as Additional Rent an amount equal to
all actual costs reasonably incurred by Landlord to provide any such excess
services and utilities, which payment shall be made within thirty (30) days
after Tenant receives written evidence that Landlord has incurred such costs.
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15. ALTERATIONS.
15.1 NO ALTERATIONS. Without Landlord's prior written consent,
which consent shall not be unreasonably withheld or delayed, Tenant shall
make no alterations, additions or improvements in or to the Demised Premises,
other than alterations, additions or improvements which satisfy each of the
following criteria: (i) no structural component of the Building is affected;
(ii) no electrical system, plumbing system or mechanical system is affected;
(iii) the total cost for a single alteration, addition or improvement does
not exceed Five Thousand Dollars ($5,000) and the total costs for all
alterations, additions or improvements during any twelve (12) month period do
not exceed Twenty-Five Thousand Dollars ($25,000); (iv) such alterations do
not reduce the fair rental value or fair market value of the Demised
Premises, impair the use thereof or reduce the useful life thereof; (v) such
alterations do not impair the use of the Project as a biotech or biomedical
facility; (vi) such alterations do not alter the floor plan of the Demised
Premises; and (vii) such alterations do not involve the removal of any
biotech related equipment or any equipment installed by Landlord as part of
Landlord's Work, including any fume hoods supplied by Tenant and installed by
Landlord (or any replacement of such equipment) unless, in Landlord's
reasonable judgment, such equipment is replaced with equipment of equal or
greater value and utility to a biotech facility. All such alterations,
additions or improvements, whether or not requiring Landlord's consent, shall
be made only by licensed and qualified contractors or mechanics. Tenant's
contractor for performing any alterations, additions or improvements shall be
subject to Landlord's reasonable approval and shall maintain appropriate
insurance as reasonably approved by Landlord.
15.2 SERVICE FACILITIES. Tenant agrees that there shall be no
construction of partitions or placement of other obstructions within the
Common Areas which might interfere with free access to other areas within the
Project or required exits, including, without limitation, mechanical
installations or service facilities of the Building (including freight
elevators and loading areas) or interfere with the moving of Landlord's
equipment to or from the enclosures containing such installations or
facilities. Furthermore, any work by Tenant shall be accomplished in such a
manner as to permit any fire sprinkler system and fire water supply lines to
remain fully and properly operable at all times.
15.3 EXTERIOR CHANGES. Tenant shall make no changes to the
exterior of the Building without the prior written approval of Landlord,
which approval may be withheld in Landlord's discretion. Further, Tenant
shall make no changes visible from the exterior of the Building without the
prior written approval of Landlord, which approval may not be unreasonably
withheld by Landlord.
15.4 SIGNS. No sign, advertisement or notice which is visible
outside the Building shall be exhibited, painted or affixed by Tenant on any
part of the Demised Premises, or on any part of the exterior of the Building,
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing, subject to
Landlord's reasonable approval and all applicable laws, the PID Permit and
the CC&R's, Tenant shall be entitled to display an exterior sign identifying
Tenant on a monument provided by Landlord or, at Landlord's option, on the
Building exterior. Tenant may also install at Tenant's sole cost a sign on
the interior common wall adjacent to the entrance of the Demised Premises.
Such signs shall be installed at Tenant's sole cost, and the cost of removing
such signs and repairing any damage caused by such removal at the end of the
term of this Lease shall be paid by Tenant.
15.5 COMPLIANCE WITH LAW. Tenant covenants and agrees that all
work done by
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Tenant shall be performed in full compliance with all laws, rules, orders,
ordinances, directions, regulations and requirements of all governmental
agencies, offices, departments, bureaus and boards having jurisdiction and in
full compliance with the rules, orders, directions, regulations and
requirements of any applicable fire rating bureau. Tenant shall provide
Landlord with "as-built" plans showing any material changes in the Demised
Premises.
15.6 PRIOR NOTICE. Before commencing any material work, Tenant
shall give Landlord at least ten (10) business days' prior written notice of
the proposed commencement of such work.
15.7 PROPERTY OF LANDLORD. Except as provided in Section 15.4,
all alterations, decorations, fixtures, equipment, additions and improvements
attached to or built into the Demised Premises, made by either party, shall,
unless Landlord elects otherwise at any time, become the property of Landlord
upon the expiration or earlier termination of the term of this Lease and
shall remain upon and be surrendered with the Demised Premises as a part
thereof. If Landlord elects to have such alterations removed (provided
Landlord made such election at the time Landlord consented to such
alterations), Tenant shall do so and shall repair and restore the Demised
Premises to the condition they were in prior to such alterations, all at
Tenant's sole cost. Landlord's consent to any alteration shall not be
implied to be an election hereunder. Any such election must be express and
must be in writing.
15.8 REMOVAL. Tenant shall repair any damage to the Demised
Premises caused by Tenant's removal of any property from the Demised
Premises; and Tenant shall only be entitled to remove property from the
Demised Premises as expressly provided in this Lease. During any such
restoration period, Tenant shall pay Rent to Landlord as provided herein as
if such space were otherwise occupied by Tenant.
15.9 PERSONAL PROPERTY. All articles of Tenant's personal
property which have not been attached to the Demised Premises, including
furniture and movable partitions which are owned by Tenant and installed by
Tenant at its own expense in the Demised Premises, shall be and remain the
property of Tenant and may be removed by Tenant at any time during the term
of this Lease provided that Tenant shall not remove any personal property in
which Landlord has a security interest pursuant to Section 5.9 of this Lease
unless Tenant first obtains Landlord's written consent, which consent
Landlord may withhold in its sole discretion whenever there exists a Default
by Tenant under this Lease or a condition or event which, with the giving of
notice or the passing of time or both, would constitute a Default by Tenant
(a "Conditional Default"). Without limiting the foregoing, under no
circumstances shall Tenant be entitled to remove any equipment, item or
improvement which was provided as part of Landlord's Work. Upon completion
of Landlord's Work, Landlord and Tenant shall prepare a list of personal
property items paid for as part of Landlord's Work and each shall execute the
same. From time to time, Landlord and Tenant may mutually agree to make
additions to such personal property list. If Tenant shall fail to remove all
of its effects from the Demised Premises upon the termination of this Lease,
then Landlord may, at its option, remove the same in any legal manner, and
Landlord may remove and store such effects without liability to Tenant for
loss thereof or damage thereto, except for loss or damage caused by the gross
negligence or willful act of Landlord or Landlord's Agents, and Tenant agrees
to pay Landlord upon demand any reasonable expenses incurred in such removal
and storage or Landlord may, at its option, with notice to Tenant satisfying
the requirements of California Civil Code Section 1983, sell such property or
any of the same, at private sale and without legal process, for such price as
Landlord may obtain; and Landlord may apply the proceeds of such sale against
any amounts due under this Lease from Tenant to Landlord and against any
expenses incident to the removal, storage and sale of such personal property,
with any balance of the sales proceeds to be delivered to Tenant.
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16. REPAIRS AND MAINTENANCE.
16.1 LANDLORD'S OBLIGATION.
(a) Landlord shall repair, replace and maintain the Building
foundation, the structural components of the exterior walls and the
structural components of the roof of the Building. Landlord's costs for such
repair, replacement and maintenance shall not constitute an Operating Expense.
(b) Except as provided in Section 16.2, Landlord shall
repair, maintain and replace all portions of the Common Area, including,
without limitation, all portions of the HVAC, plumbing, mechanical and
electrical supply systems located outside the boundaries of the Demised
Premises which are provided as a part of Landlord's Work as defined in the
Construction Exhibit and all portions of the acid neutralization system
serving the Demised Premises past the point of connection with those portions
of the system exclusively serving other portions of the Building. Landlord's
costs for such repair, replacement and maintenance shall constitute an
Operating Expense unless the need for such repair, replacement or maintenance
was caused by any negligent or intentional act or omission of Tenant or
Tenant's Agents, in which case Tenant shall pay to Landlord on demand the
cost of such repair or replacement. Landlord's obligations shall include
restorations, replacements or renewals, including capital expenditures for
restorations, replacements or renewals which will have a useful life beyond
the term of this Lease, when necessary to keep the Common Area and all
improvements thereon or a part thereof in good order, condition and repair
and in compliance with all applicable laws.
16.2 TENANT'S SOLE COST. Except for Landlord's obligations
pursuant to Section 16.1 above, Tenant shall, at Tenant's sole cost and
expense, keep the Demised Premises and every part thereof (structural and
nonstructural, including capital expenditures and improvements with an
expected life beyond the term of this Lease, whether or not such portion of
the Demised Premises needing repairs, or the means of repairing the same, are
reasonably or readily accessible to Tenant, and whether or not the need for
such repairs occurs as a result of Tenant's use, any prior use, the elements
or the age of such portion of the Demised Premises), together with those
portions of any common acid neutralization system solely serving the Demised
Premises, and all portions of the HVAC, electrical, mechanical, exhaust and
plumbing systems to such point that such item solely serves the Demised
Premises and all portions of all fume hoods and other exhaust systems or
plumbing vents (collectively, "Tenant's Utility Systems"), in a first class
condition. Tenant's obligations shall include restorations, replacements or
renewals, including capital improvements for restorations, replacements or
renewals which will have an expected life beyond the term of this Lease, when
necessary to keep the Demised Premises and all improvements thereon or a part
thereof and Tenant's Utility Systems in good order, condition and repair and
in compliance with all applicable laws (which capital improvements for such
restorations, replacements or renewals when not (i) necessitated by Tenant's
negligence in the maintenance of the Demised Premises or any part thereof or
(ii) arising from the operation of Tenant's business from the Demised
Premises or Tenant's alterations to the Demised Premises, may be collectively
referred to as "Necessary Capital Replacements"); provided, however, any cost
incurred by Tenant for Necessary Capital Replacements in excess of Ten Thousand
Dollars ($10,000) in any calendar year during the initial term of this Lease
(and in excess of Twenty Thousand Dollars ($20,000) in any calendar year
during the Extended Term, if any) shall be shared between Landlord and Tenant
whereby Tenant's share shall be determined based on the ratio of the number
of months remaining in the term of this Lease (including any Extended Term)
to the number of months constituting the expected life of the Necessary
Capital Replacement and Landlord's share shall be the balance of
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the cost not attributable to Tenant. Except as expressly set forth in this
Lease, it is intended by the parties hereto that Landlord shall have no
obligation, in any manner whatsoever, to repair or maintain the Demised
Premises, the improvements located therein or the equipment therein, or
Tenant's Utility Systems whether structural or nonstructural, all of which
obligations are intended to be the expense of Tenant, whether or not such
repairs, maintenance or restoration shall have an expected life extending
beyond the term of this Lease. Tenant's maintenance of the HVAC, mechanical,
plumbing and electrical systems shall comply with the manufacturers'
recommended operating and maintenance procedures. Tenant shall enter into and
pay for maintenance contracts for the HVAC, mechanical, electrical and
plumbing systems, satisfactory to Landlord in its good faith discretion, and
maintaining such systems in accordance with the manufacturers' recommended
operating and maintenance procedures. Tenant shall be solely responsible for
the cost of all alterations to the Demised Premises or Tenant's Utility
Systems required by law to the extent such alterations (i) are necessitated
by Tenant's negligence in the maintenance of the Demised Premises or any part
thereof, or (ii) arise from the operation of Tenant's business from the
Demised Premises or Tenant's alterations to the Demised Premises (regardless
of whether such alterations required hereunder have an expected useful life
beyond the term of this Lease or are of a capital nature), which alterations
shall become the property of Landlord upon the expiration of this Lease.
Tenant shall, upon the expiration or sooner termination of the term hereof,
surrender the Demised Premises and Tenant's Utility Systems to Landlord in a
first class condition.
16.3 NOTICE AND LANDLORD'S RIGHT TO REPAIR, REPLACE AND MAINTAIN
THE DEMISED PREMISES. Prior to making any material repair or replacement to
the Demised Premises or Tenant's Utility Systems, Tenant shall give to
Landlord written notice of the need for such repair or replacement. Landlord
shall have the right, but not the duty, to make all necessary repairs or
replacements to the Demised Premises or Tenant's Utility Systems whether or
not notice of the need for such repair or replacement has been given to
Landlord. If Landlord elects to make such repairs or replacements, the cost
thereof shall be paid by Tenant within ten (10) days of receipt of invoice.
If Landlord does not elect to make such repairs or replacements to the
Demised Premises or Tenant's Utility Systems within a reasonable time of
notice thereof, Tenant shall make such repair or replacement at its own cost
and expense. In addition, if Landlord determines, in its reasonable
discretion that Tenant is not adequately maintaining Tenant's Utility Systems
or any portion of the Demised Premises pursuant to Section 16.2, Landlord may
contract to maintain such system at Tenant's sole cost after providing to
Tenant thirty (30) days prior written notice.
16.4 NO LIABILITY. Landlord shall not be liable for any failure to
make any repairs or replacements or to perform any maintenance which is an
obligation of Landlord unless such failure shall persist for an unreasonable
time after written notice of the need of such repairs or maintenance is given
to Landlord by Tenant. There shall be no abatement of Rent and no liability
of Landlord by reason of any injury to or interference with Tenant's business
arising from the making of any repairs, alterations or improvements in or to
any portion of the Project or the Demised Premises or in or to fixtures,
appurtenances and equipment therein other than a material injury or
interference resulting from Landlord's grossly negligent or willful act or
omission. Tenant waives any rights under Sections 1941 and 1942 of the
California Civil Code or under any law, statute or ordinance now or hereafter
in effect to make repairs at Landlord's expense.
16.5 DAMAGE OR DESTRUCTION. Notwithstanding any of the foregoing,
in the event of fire, earthquake, flood, war or similar cause of damage or
destruction, this Section 16 shall not be applicable and the provisions of
Section 20 entitled "Damage or Destruction" shall apply and control.
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17. LIENS.
17.1 NO LIENS. Tenant shall keep the Demised Premises free from
any liens arising out of work performed, materials furnished and obligations
incurred by Tenant. Tenant covenants and agrees that any mechanic's lien
filed against the Demised Premises for work claimed to have been done for, or
materials claimed to have been furnished to Tenant, will be discharged by
Tenant, by bond or otherwise, within thirty (30) days after the filing
thereof, at the cost and expense of Tenant.
17.2 ADVANCE BY LANDLORD. Should Tenant fail to discharge any such
lien, Landlord may, at Landlord's election, pay such claim or post a bond or
otherwise provide security to eliminate the lien as a claim against title,
and the cost thereof shall be immediately due from Tenant as Additional Rent.
17.3 FINANCING STATEMENTS. In the event Tenant shall lease or
finance the acquisition of equipment or other personal property in which
Landlord has a security interest under Section 5.9 of this Lease and such
equipment or other personal property is of a removable nature utilized by
Tenant in the operation of Tenant's business and which may be removed by
Tenant upon the termination of this Lease as provided herein, Tenant warrants
that any Uniform Commercial Code financing statement executed by Tenant will,
upon its face or by exhibit thereto, indicate that the collateral for such
financing statement is located within the Demised Premises and will clearly
identify the same. In no event shall the address or other description of the
Land or the Building be furnished on the statement without qualifying
language as to applicability of the lien only to removable personal property
therein. Each such financing statement shall be subject to the reasonable
prior approval of Landlord. Should any holder of a financing statement
executed by Tenant record or place of record a financing statement which
appears to constitute a lien against any interest of Landlord, including any
lien against equipment which may not be removed by Tenant under this Lease,
Tenant shall, within ten (10) days after filing such financing statement,
cause (i) copies of the security agreement or other documents to which the
financing statement pertains to be furnished to Landlord to show that such
lien is not applicable to Landlord's interest, and (ii) its lender to amend
documents of record so as to clarify that such lien is not applicable to any
interest of Landlord. Landlord shall execute such documents as are reasonably
required by Tenant or Tenant's lenders or equipment lessors provided the same
do not in any way alter the rights of Landlord under this Lease.
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18. INDEMNIFICATION AND EXCULPATION.
18.1 INDEMNIFICATION BY TENANT. Tenant agrees to indemnify
Landlord and its lenders, partners, members, shareholders, directors,
officers, managers, agents and employees (collectively "Landlord's Agents")
against, and to defend and save them harmless from, all demands, claims,
causes of action or judgments, and all reasonable expenses incurred in
investigating or resisting the same (including reasonable professional fees,
including, without limitation, fees for attorneys, architects, engineers, and
environmental consultants), arising out of Tenant's failure to fully perform
under this Lease or for death of, or injury to, any person or damage to
property, including any injury to any other tenant(s) of the Project or the
property of such tenant(s) occurring in, upon or about the Demised Premises,
the Common Areas or any other portion of the Project, (i) arising from or out
of Tenant's use and/or occupancy of the Demised Premises, the Common Areas or
any other portion of the Project, or (ii) arising from or out of any act or
omission of Tenant, its agents, contractors, employees, servants and
subtenants ("Tenant's Agents") in or about the Demised Premises, the Common
Areas or any other portion of the Project, regardless of whether the same
arises from the passive or active negligence of Landlord or Landlord's Agent
except if such death of or injury to, any person, or damage to property is
caused by the grossly negligent or willful act or omission of Landlord or
Landlord's Agents. Tenant's obligation under this Section 18.1 shall survive
the expiration or earlier termination of this Lease.
18.2 INDEMNIFICATION BY LANDLORD. Except as otherwise provided in
this Section 18, Landlord agrees to indemnify Tenant and its lenders,
partners, members, shareholders, directors, officers, managers, agents and
employees against, and to defend and save them from all demands,
claims, causes of action or judgments, and all reasonable expenses incurred
in investigating or resisting the same (including reasonable professional
fees, including, without limitation, fees for attorneys, architects,
engineers and environmental consultants), arising out of Landlord's default
of its obligations under this Lease or for death of, or injury to, any person
or damage to property, including any injury to any other tenant(s) of the
Project or the property of such tenant(s) occurring in, upon, or about the
Demised Premises, the Common Areas or any other portion of the Project during
the term of this Lease arising from or out of the grossly negligent or
willful acts or omissions of Landlord or Landlord's Agents. Landlord's
obligation under this Section 18.2 shall survive the expiration of earlier
termination of this Lease.
18.3 NO LIABILITY OF LANDLORD. Notwithstanding any provision of
Sections 18.1 and 18.2 to the contrary, except to the extent caused by
Landlord's grossly negligent or willful acts or omissions, (i) Landlord shall
not be liable to Tenant or any other party for, and Tenant assumes all risk
of, damage to personal property, including loss of records kept within the
Demised Premises, and (ii) Tenant further waives any claim for injury to
Tenant's business or loss of income relating to any such damage or
destruction of personal property, including any loss of records.
Furthermore, except to the extent caused by Landlord's grossly negligent or
willful acts or omissions, Landlord shall not be liable to Tenant or any
other party, and Tenant assumes all risk of damage to Tenant, Tenant's Agents
and any of their respective property as a result of any actions of any other
tenants of the Project or their agents, contractors, employees, servants,
invitees or other persons.
18.4 ASSUMPTION OF RISK. Additionally, except to the extent caused
by Landlord's gross negligence or willful acts or omissions, Landlord shall
not be liable to Tenant or any other party for, and Tenant assumes all risk
of, damage and liability (other than as may be covered by insurance or by a
third party) resulting from any defect or malfunction of any
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Building system or component of a Building system (such as HVAC, mechanical,
plumbing, electrical, waste disposal or sewer) other than as set forth in
Section 16.1 above.
18.5 SECURITY DEVICES. Security devices provided for the Building,
while intended to deter crime, may not in given instances prevent theft or
other criminal acts, and it is agreed that Landlord shall not be liable for
injuries or losses caused by criminal acts of third parties unless such
injuries or losses result from the grossly negligent or willful acts or
omissions of Landlord. The risk that any security device may malfunction or
otherwise be circumvented by a criminal is assumed by Tenant. Tenant shall,
at Tenant's cost, obtain applicable insurance coverages to the extent Tenant
desires protection against such criminal acts.
19. INSURANCE - WAIVER OF SUBROGATION.
19.1 LANDLORD'S INSURANCE. Landlord shall carry insurance upon the
Project, in an amount equal to full replacement cost (without reference to
depreciation taken by Landlord upon its books or tax returns), or such
greater insurance Landlord's mortgage lender requires Landlord to maintain.
Such insurance shall provide protection against any peril generally included
within the classification "Fire and Extended Coverage," together with
insurance against sprinkler damage (if applicable), vandalism and malicious
mischief. Landlord shall also obtain rental loss insurance for a period of
up to twelve (12) months. Landlord, subject to availability thereof, may
further insure, as Landlord or its lender reasonably deems appropriate,
against flood and/or earthquake, loss or failure of building equipment,
Hazardous Material risks, workers' compensation insurance and fidelity bonds
for employees employed to perform services. The deductible limits of the
"Fire and Extended Coverage" policy shall not exceed Twenty-Five Thousand
Dollars ($25,000) but may, in Landlord's sole discretion, be less than such
amount. Landlord shall also obtain and keep in force during the term of this
Lease a policy of combined single limit bodily injury and property damage
insurance in an amount satisfactory to Landlord in its sole discretion
insuring Landlord, but not Tenant, against any liability arising out of the
ownership, use, occupancy or maintenance of the Project in an amount
determined by Landlord in its sole discretion. The cost of all such insurance
(including the cost of earthquake coverage) shall be an Operating Expense
which shall be reimbursed by Tenant as Additional Rent, provided, however,
Tenant's Share of Operating Expenses attributable to the insurance premium
for earthquake coverage will not exceed the sum of Ten Thousand Dollars
($10,000) in the first full calendar year of this Lease ("Tenant's Earthquake
Insurance Expense Stop") and in the succeeding calendar years, Tenant's
Earthquake Insurance Expense Stop shall be increased annually by ten percent
(10%) of the prior year's Tenant Earthquake Insurance Expense Stop. Landlord
shall furnish to Tenant a copy of such insurance policy.
19.2 TENANT'S INSURANCE. Tenant, at its own cost, shall procure
and continue in effect, from the date of execution of this Lease by Landlord
and Tenant, and continuing throughout the term of this Lease and thereafter
until Tenant has fully and finally surrendered the Demised Premises to
Landlord, comprehensive public liability insurance with limits of not less
than Two Million Dollars ($2,000,000) per occurrence for death, bodily injury
or property damage, hazardous material insurance in an amount appropriate in
light of Tenant's use of the Demised Premises, insurance on all of its
personal property in an amount not less than the full replacement value
thereof. The deductible amounts of such policy of insurance shall not exceed
Five Thousand Dollars ($5,000). All such policies shall be written on an
"occurrence" and not a "claims made" basis, and shall include specific
coverage of contractual liability, and severability of interests and cross
liability endorsements.
19.3 ADDITIONAL INSUREDS. The aforesaid insurance required of
Tenant shall name as additional insureds Landlord, Landlord's members and
Landlord's property manager,
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construction manager, agents and representatives for the Project. Such
insurance shall be with companies having a policyholder rating of not less
than A and financial category rating of Class IX in "Best's Insurance Guide."
Tenant shall cause any insurance companies issuing policies to Tenant to
furnish certificates evidencing such coverage to Landlord. No such policies
shall be cancelable or subject to reduction of coverage or cancellation
except after thirty (30) days' prior written notice to Landlord from the
insurer. All such policies shall be written as primary policies, not
contributing with and not in excess of the coverage which Landlord may carry.
Any of Tenant's policies may be in the nature of a "blanket policy" which
specifically provides that the amount of insurance shall not be prejudiced by
other losses covered by the policy. Tenant shall, at least twenty (20) days
prior to the expiration of any such policies, furnish Landlord with renewals
or binders. Tenant agrees that if Tenant fails to procure and maintain such
insurance, Landlord may (but shall not be required to) procure such coverage
for and on behalf of Landlord and charge Tenant the premiums for any such
policies payable upon demand.
19.4 FIXTURES AND OTHER ITEMS. Except to the extent caused by the
grossly negligent or willful acts or omissions of Landlord or Landlord's
Agents, Tenant assumes the risk of damage to any fixtures, goods, inventory,
merchandise, equipment and personal property of any kind. Except to the
extent caused by the grossly negligent or willful acts or omissions of
Landlord or Landlord's Agents, Landlord shall not be liable for injury to
Tenant's business or any loss of income therefore relative to damage to such
items.
19.5 LENDER AND OTHERS. If any policy of insurance is to name
Landlord as additional insured, Tenant shall, upon written request of
Landlord, also designate as an additional insured, and furnish certificates
evidencing Landlord as an additional insured to, (i) any lender to Landlord
holding a security interest in the Building or, and/or (ii) Landlord under
any lease wherein Landlord is or shall become a tenant under a ground lease
for the Land rather than that of fee owner, and/or (iii) Landlord's property
manager, construction manager, agents and representatives.
19.6 WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive
any and all rights of recovery against the other, or against the officers,
employees, agents and representatives of the other, on account of loss or
damage occasioned to such waiving party or its property or the property of
others under its control to the extent that such loss or damage is insured
against under any fire and extended coverage insurance policy which either
party may have in force at the time of such loss or damage, such waivers to
continue as long as their respective insurers so permit. Any termination of
such a waiver shall be by written notice of circumstances as hereinafter set
forth. Landlord and Tenant, upon obtaining the policies of insurance
required or permitted under this Lease, shall give notice to the insurance
carrier or carriers that the foregoing mutual waiver of subrogation is
contained in this Lease. If such policies are unobtainable with such waiver
or obtainable only at premium over that chargeable without such waiver, the
party seeking such policy shall notify the other thereof, and the latter shall
have ten (10) days thereafter to either (i) procure such insurance in
companies reasonably satisfactory to the other party or (ii) agree to pay
such additional premium. If neither (i) nor (ii) are done, this Section 19.6
shall have no effect during such time as such policies are unobtainable or
the party in whose factor a waiver of subrogation is desired shall refuse to
pay the additional premium. If such policies shall at any time be
unobtainable, but subsequently shall be obtainable, neither party shall be
subsequently liable for a failure to obtain such insurance until a reasonable
time after notification thereof by the other party. If the release of either
Landlord or Tenant, as set forth in the first sentence of this Section shall
contravene any law with respect to exculpatory agreements, the liability of
the party in question shall be deemed not released but shall be secondary to
the other's insurer.
19.7 INCREASES IN INSURANCE. At reasonable times, Landlord may
require
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insurance policy limits to be raised to conform with reasonable requirements
of Landlord's lender or to bring coverage limits to the level then being
required of similar tenants of similar properties; provided, however, that
Landlord may, in any event, require insurance policy limits to be increased
in proportion to any increase in the Consumer Price Index from the date of
this Lease to the date of the requested adjustments.
20. DAMAGE OR DESTRUCTION.
20.1 PARTIAL DESTRUCTION. In the event of a partial destruction of
the Building by fire or other perils covered by extended coverage insurance,
not exceeding fifteen percent (15%) of the full insurable value thereof, and
the damage is such that the Demised Premises are rendered unusable, and if
the damage is such that Landlord estimates that the Building may be repaired,
reconstructed or restored within a period of one hundred twenty (120) days
from the date of the happening of such casualty, Landlord shall commence and
proceed diligently with the work of repair, reconstruction and restoration
and this Lease shall continue in full force and effect, provided, however, if
such repair, reconstruction and restoration takes longer than one hundred
fifty (150) days from the date of such casualty, Tenant may, upon written
notice to Landlord delivered within fifteen (15) days of the end of such one
hundred fifty (150) day period, terminate this Lease effective as of the date
of such notice and Landlord shall have no liability therefor.
20.2 OTHER DESTRUCTION. In the event of any damage to, or
destruction of, the Building, other than as provided in Section 20.1 above,
such that the cost to repair such damage or destruction is equal to or
greater than fifteen percent (15%) of the insurable value of the Building, or
restoration will, in the opinion of Landlord, require more than one hundred
eighty (180) days, then Landlord may, at its option, elect to repair,
reconstruct and restore the Building, in which case this Lease shall continue
in full force and effect, provided, however, if such repair, reconstruction
and restoration takes longer than two hundred forty (240) days from the date
of such casualty, Tenant may, upon written notice to Landlord delivered
within fifteen (15) days of the end of such two hundred forty (240) day
period, terminate this Lease effective as of the date of such notice and
Landlord shall have no liability therefor. If Landlord elects not to repair,
reconstruct and restore the Building, then this Lease shall terminate as of
the date of destruction.
20.3 UNINSURED DAMAGE. In the event of any uninsured damage to or
destruction of the Building which is not covered by Sections 20.1 or 20.2
above, Landlord may, at its option, by written notice to Tenant within sixty
(60) days of the damage or destruction, elect to repair, reconstruct and
restore the Building, and this Lease shall continue in full force and effect,
provided, however, if such repair, reconstruction and restoration takes
longer than eighteen (18) months from the date of such casualty, Tenant may,
upon written notice to Landlord given within fifteen (15) days of the end of
such eighteen (18) month period, terminate this Lease effective as of the
date of such notice and Landlord shall have no liability therefor. If
Landlord elects not to so repair, reconstruct or restore the Building, then
this Lease shall terminate as of the date of destruction. In the event that
any uninsured damage to or destruction of the Building is caused by the
negligent or willful acts of Tenant or its employees, agents, or invitees,
Tenant shall pay (i) the cost of such repair, reconstruction and restoration,
if Landlord so elects to repair, reconstruct and restore, (ii) the cost to
repair, reconstruct or restore if less than fifty percent (50%) of the
insurable value of the Building has been destroyed and Landlord does not
elect to repair, reconstruct and restore, and (iii) the full replacement
value of the Building in the event that more than 50 percent (50%) of the
insurable value of the Building has been destroyed and Landlord does not so
elect to repair, reconstruct and restore. Notwithstanding the foregoing,
Tenant shall not be liable for any such loss if such loss was not
insured as a result of Landlord's failure to maintain the insurance required
under this Lease.
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20.4 ELECTION NOT TO REPAIR. If Landlord elects not to repair,
reconstruct or restore the Building, Landlord promptly shall give written
notice to Tenant of such election, but in no event shall such notice be given
later than forty-five (45) days after the date of damage or destruction.
20.5 RELEASE. Upon any termination of this Lease under any of the
provisions of this Section 20, the parties each shall be released thereby
without further obligation to the other from the date of damage or
destruction, except for any liabilities or obligations theretofore incurred
or arising from matters which have theretofore occurred (including any
liability related to the damage or destruction).
20.6 ABATEMENT OF RENT. Except for an uninsured casualty under
Section 20.3 caused by Tenant, in the event of repair, reconstruction or
restoration as herein provided, Rent to be paid under this Lease shall be
abated (but shall be paid by the rental loss insurance required pursuant to
this Lease to the extent of proceeds available therefrom). Tenant shall not
be entitled to any compensation or damages from Landlord occasioned by any
such damage, repair, reconstruction or restoration, except to the extent such
damage, repair, reconstruction or restoration results from the grossly
negligent or willful act or omission of Landlord or Landlord's Agents.
20.7 TENANT'S PROPERTY. If Landlord is obligated to or elects to
repair or restore as herein provided, Landlord shall be obligated to repair
or restore only those portions of the Building and the Demised Premises which
were originally provided at Landlord's expense, and, with respect to Sections
20.1 and 20.2, only to the extent insurance proceeds are available to pay the
costs to repair or restore. The repair and restoration of Tenant's personal
property shall be the obligation of Tenant, except to the extent such damage,
repair, reconstruction or restoration results from the grossly negligent or
willful act or omission of Landlord or Landlord's Agents.
20.8 DAMAGE AT END OF TERM. Notwithstanding anything to the
contrary contained in this Section 20, Landlord shall have no obligation
whatsoever to repair, reconstruct or restore the Demised Premises when the
damage resulting from any casualty covered under this Section 20 occurs
during the last twelve (12) months of the initial term of this Lease (or the
last thirty-six (36) months of the term of this Lease, if the initial term of
this Lease is extended as set forth in EXHIBIT F). In the event Landlord
elects not to repair, reconstruct or restore the Demised Premises when the
damage resulting from any casualty covered under this Section 20 occurs
during the last twelve (12) months of the initial term of this Lease (or the
thirty-six (36) months of the term of this Lease, if the initial term of this
Lease is extended as set forth in EXHIBIT F), Tenant may, by written notice
delivered to Landlord within ten (10) business days after receipt by Tenant
of Landlord's notice of its election not to repair, reconstruct or restore
the Demised Premises, elect to terminate this Lease.
21. EMINENT DOMAIN.
21.1 TAKING. In the event the whole of the Demised Premises, or
such critical and essential parts thereof as shall deprive Tenant of the
usefulness of the Demised Premises, be taken for any public or quasi-public
purpose by any lawful power or authority by exercise of the right of
appropriation, condemnation or eminent domain, or sold to prevent such
taking, Tenant or Landlord may terminate this Lease effective as of the date
possession is required to be surrendered to such authority.
21.2 RESTORATION. Upon any taking, if this Lease is not terminated
pursuant to
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Section 21.1 above, then Landlord promptly shall proceed to restore the
Demised Premises to substantially their same condition, to the extent
reasonably possible, prior to such partial taking. After the date of any
taking, Basic Rent shall be abated proportionately based on the Rentable Area
of the Demised Premises after such taking as compared to the Rentable Area of
the Demised Premises prior to such taking.
21.3 AWARD. Tenant shall be entitled to any award which is
specifically awarded as compensation for the taking of Tenant's personal
property and fixtures, including excess tenant improvements which were
installed at Tenant's expense and for costs of Tenant moving to a new
location. All other compensation awarded for such taking shall belong to
Landlord.
22. DEFAULTS AND REMEDIES.
22.1 LATE CHARGE. Late payment by Tenant to Landlord of Rent or
other sums due will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of which is extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges,
attorneys' charges, late payment charges on a mortgage, and so forth. In the
event that Tenant shall fail to pay within five (5) business days of when due
Rent or any other sums owing under this Lease, Tenant shall pay to Landlord a
service charge in an amount equal to five percent (5%) of the delinquent sum
for each month that a monthly installment of Rent remains unpaid, which
Landlord and Tenant agree is not a penalty but is a reasonable estimate of
the expenses Landlord may incur as a result of such late payment. In the
event of any such late payment, in addition to the foregoing service charge,
the amount unpaid shall bear interest at the higher of (i) Bank of America's
"reference rate" plus three percent (3%) per annum, or (ii) twelve percent
(12%) per annum, but in no event shall such interest exceed the maximum rate
allowed by law. Such interest shall be calculated from the date such amount
was due and payable until the same shall have been fully paid. Further, if
Landlord incurs any reasonable attorneys' fees in excess of Eight Hundred
Dollars ($800) with respect to all Defaults in any calendar year, then Tenant
shall pay as an additional late charge the sum of all such reasonable
attorneys' fees in excess of Eight Hundred Dollars ($800). The foregoing late
payment charges and interest shall accrue without the need for Landlord to
give Tenant any reminder notice or Default notice as to the unpaid amount
owing.
22.2 NO WAIVER. No payment by Tenant or receipt by Landlord of a
lesser amount than that due shall be deemed to be other than on account of
the amount due, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice
to Landlord's right to recover the balance or pursue any other remedy
provided. If at any time a dispute shall arise as to any amount or sum of
money to be paid by Tenant to Landlord, Tenant shall have the right to make
payment "under protest" and such payment shall not be regarded as a voluntary
payment, and Tenant shall have the right to institute suit for recovery of
the payment paid under protest.
22.3 PERFORMANCE BY LANDLORD. If Tenant fails to perform any act
on its part to be performed under this Lease, Landlord may, without waiving
or releasing Tenant from any obligations of Tenant or waiving any Default
hereunder, perform such act on behalf of Tenant after providing Tenant
written notice of Landlord's intent to perform such act and a reasonable
opportunity under the circumstances for Tenant to perform (or such other
period of time as may be expressly set forth elsewhere in this Lease).
22.4 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute a "Default" hereunder by Tenant:
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(a) The failure by Tenant to make any payment of Rent, including
any sums due under EXHIBIT B, as and when due where such failure continues
for five (5) calendar days thereafter;
(b) Failure by Tenant to keep and perform any term, covenant,
condition or obligation under Sections 5.8 (as to Tenant's obligation to
restore the Security Deposit within ten (10) days after written request
therefor), 17, 19, 23, 27, 33 or 37 as and when such performance is due;
(c) The failure by Tenant to observe or perform any obligation
under this Lease other than described in Sections 22.4(a) and (b) above, to
be performed by Tenant where such failure shall continue for a period of
thirty (30) days after written notice thereof from Landlord to Tenant. Such
notice shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure Section 1161; provided that, if the nature
of Tenant's failure is such that it reasonably requires more than thirty (30)
days to cure, then such failure shall not be a Default if Tenant shall
commence such cure within such thirty (30) day period and thereafter
diligently prosecute the same to completion within ninety (90) days of such
written notice;
(d) Tenant makes an assignment for the benefit of creditors;
(e) Tenant files a voluntary petition under any chapter of the
Bankruptcy Code;
(f) Tenant makes a voluntary assignment for the benefit of
creditors;
(g) A receiver, trustee or custodian is appointed to, or does,
take title, possession or control of all, or substantially all, of Tenant's
assets, or any involuntary petition if filed against Tenant under any chapter
of the Bankruptcy Code, and such petition or receiver, trustee or custodian
is not dismissed within thirty (30) days; or
(h) Tenant's interest in this Lease is attached, executed
upon or otherwise judicially seized and such action is not released within
thirty (30) days of the action.
Notices given under this Section shall specify the alleged default. No such
notice shall be deemed a forfeiture or a termination of this Lease unless
Landlord elects otherwise in such notice.
22.5 REMEDIES. In the event of a Default and at any time thereafter,
with or without notice or demand and without limiting Landlord in the
exercise of any other right or remedy which Landlord may have at law or in
equity, Landlord shall be entitled to terminate Tenant's right to possession
of the Demised Premises by any lawful means, in which case this Lease shall
terminate and Tenant shall immediately surrender possession of the Demised
Premises to Landlord. In such event, Landlord shall have the immediate right
to re-enter and remove all persons and property, and such property may be
removed and stored in a public warehouse or elsewhere at the cost of and for
the account of Tenant, all without service of notice or resort to legal process
and without being deemed guilty of trespass or becoming liable for any loss
or damage which may be occasioned thereby, unless caused by the gross
negligence or willful misconduct of Landlord or Landlord's Agents. In the
event that Landlord shall elect to so terminate this Lease, then Landlord
shall be entitled to recover from Tenant all damages incurred by Landlord and
proximately caused by reason of Tenant's default, including:
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(a) The worth at the time of award of any unpaid Rent which had
been earned at the time of such termination; plus
(b) The worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time of
award exceeds the amount of rental loss that Tenant proves could have been
reasonably avoided; plus
(c) The worth at the time of award of the amount by which the
unpaid Rent for the balance of the term after the time of award exceeds the
amount of such rental loss which Tenant proves could have been reasonably
avoided; plus
(d) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would
be likely to result therefrom, including but not limited to the cost of
restoring the Premises to the condition required under the terms of this
Lease, tenant improvement costs, building modifications, leasing commissions
and marketing expenses, operating expenses, and debt service obligations
incurred or reasonably anticipated to be incurred by Landlord in re-leasing
of the Demised Premises; plus
(e) At Landlord's election, such other amounts in addition to or
in lieu of the foregoing as may be permitted from time to time by applicable
law.
As used in subsections (a) and (b) above, "worth at the time of award"
shall be computed by allowing interest at the rate specified in Section 22.1
above. As used in subsection (c) above, the "worth at the time of award"
shall be computed by determining the present value of such amount using the
discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus one percentage point.
22.6 RIGHT OF RE-ENTRY. In the event of a Default, and at any time
thereafter, with or without terminating this Lease, and with or without
notice or demand and without limiting Landlord in the exercise of any right
or remedy which Landlord may have, Landlord shall have the immediate right to
re-enter and remove all persons and property (provided such re-entry and
removal is not a breach of the peace), and such property may be removed and
stored in a public warehouse or elsewhere at the cost of and for the account
of Tenant, all without service of notice or resort to legal process and
without being deemed guilty of trespass or becoming liable for any loss or
damage which may be occasioned thereby, unless such loss or damage is caused
by the gross negligence or willful misconduct of Landlord or Landlord's
Agents. No such re-entry shall be considered or construed to be a forcible
entry by Landlord. If Landlord does not elect to terminate this Lease as
provided in this Section, then Landlord may, from time to time, recover all
Rent as it becomes due under this Lease pursuant to California Civil Code
Section 1951.4. At any time thereafter, Landlord may elect to terminate this
Lease and to recover damages to which Landlord is entitled.
22.7 PROCEEDS OF RELETTING. In the event Landlord elects to
terminate this Lease and relet the Premises, it may execute any new lease in
its own name. Tenant hereunder shall have no right or authority whatsoever
to collect any rent or other sums from such tenant. The proceeds of any such
reletting shall be applied as follows:
(a) First, to the payment of any indebtedness other than Rent
due hereunder from Tenant to Landlord, including but not limited to storage
charges or brokerage commissions owing from Tenant to Landlord as the result
of such reletting;
(b) Second, to the payment of the reasonable costs and
expenses of
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reletting the Premises, including alterations and repairs which Landlord
deems reasonably necessary and advisable, and reasonable attorneys' fees
incurred by Landlord in connection with the retaking of the Premises and such
reletting;
(c) Third, to the payment of Rent and other charges due and
unpaid hereunder; and
(d) Fourth, to the payment of future Rent and other damages
payable by Tenant under this Lease.
22.8 NON-EXCLUSIVE. All rights, options and remedies of Landlord
contained in this Lease shall be construed and held to be non-exclusive and
cumulative. Landlord shall have the right to pursue any or all of such
remedies or any other remedy or relief which may be provided by law, whether
or not stated in this Lease. No waiver of any Default hereunder shall be
implied from the acceptance by Landlord of any Rent or other payments due
hereunder or any omission by Landlord to take any action on account of such
Default if such Default persists or is repeated, and no express waiver shall
affect Defaults other than as specified in such waiver.
22.9 NO RELIEF. Termination of this Lease or Tenant's right to
possession by Landlord shall not relieve Tenant from any liability to
Landlord which has theretofore accrued or shall arise based upon events which
occurred prior to the later of (i) the date of Lease termination, or (ii) the
date possession of Demised Premises is surrendered to Landlord.
23. ASSIGNMENT OR SUBLETTING.
23.1 ASSIGNMENT OR SUBLETTING. Except as hereinafter provided,
Tenant shall not, either voluntarily or by operation of law, sell,
hypothecate or transfer this Lease, or sublet the Demised Premises or any
part hereof, or permit or suffer the Demised Premises or any part thereof to
be used or occupied as work space, storage space, mailing privileges,
concession or otherwise by anyone other than Tenant or Tenant's employees,
without the prior written consent of Landlord in each instance, which consent
shall not be unreasonably withheld nor delayed (provided Tenant complies with
the notice requirements described in Section 23.2 below). One or more
transfers, in the aggregate, of more than thirty percent (30%) of the equity
ownership of Tenant shall constitute a prohibited assignment; provided,
however, this provision shall not be applicable if such transfers occurred on
a public stock exchange.
23.2 NOTICE. In the event Tenant desires to assign, sublease,
hypothecate or otherwise transfer this Lease or sublet the Demised Premises,
or part thereof, then at least twenty-five (25) days, but not more than one
hundred twenty (120) days, prior to the date when Tenant desires the
assignment or sublease to be effective (the "Assignment Date"), Tenant shall
give Landlord written notice ("the Assignment Notice") which shall set forth
the name, address and business of the proposed assignee or sublessee,
information (including references) concerning the character of the proposed
assignee or sublessee, the Assignment Date, any ownership or commercial
relationship between Tenant and the proposed assignee or sublessee, the
consideration and all other material terms and conditions of the proposed
assignment or sublease, and a copy of the sublease or assignment documents,
all in such detail as Landlord shall reasonably require. Additionally,
Tenant shall furnish to Landlord a copy of the audited financial statements
for the most recently past fiscal year, as well as the most recent unaudited
quarterly financial statements for Tenant, the proposed assignee or sublessee
and any proposed guarantor associated therewith.
23.3 APPROVAL.
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(a) Landlord, in making its determination as to whether
consent should be given to a proposed assignment or sublease, may give
consideration to, among other things, the reputation in the community of a
proposed successor, the financial strength of such successor (notwithstanding
the assignor or sublessor remaining liable for Tenant's performance), any
proposed material modifications to the Demised Premises and any material
change in use which such successor proposes to make in use of the Demised
Premises. In no event shall Landlord be deemed to be unreasonable hereunder
or under subsection (c) below for declining to consent to a transfer to a
successor of poor reputation, lacking financial qualification or seeking a
modification to the Demised Premises or a change in use, or conditioning its
consent to a proposed assignment upon the proposed assignee or sublessee
delivering to Landlord an additional security deposit in an amount and on
conditions reasonably acceptable to Landlord. Landlord may also withhold
consent pursuant to the terms of Section 37.3 concerning Hazardous Material.
(b) In the event Landlord's withholding of consent to a
proposed assignment or subletting is found to be unreasonable by any court of
competent jurisdiction, Tenant's sole remedy shall be to have the proposed
assignment or subletting declared valid as if Landlord's consent had been
given.
(c) Any of the foregoing notwithstanding, in no event shall
any assignee or subtenant further assign or sublet any portion of the Demised
Premises without the prior written consent of Landlord.
23.4 EXCESS RENT. In the event Tenant assigns or subleases the
Demised Premises or any portion thereof, Tenant shall pay to Landlord, at the
time Tenant receives the same, fifty percent (50%), of all sums received by
Tenant from any such assignee or sublessee (whether such sums are for rent of
the Demised Premises, use of Tenant's personal property or for any other
reason) in excess of the Rent to be paid by Tenant to Landlord for such
portion of the Demised Premises so assigned or sublet, after deducting all
brokers' commissions, attorneys' fees and advertising fees actually incurred
by Tenant in connection with such assignment or sublease.
23.5 TRANSFER VOID. Any sale, assignment, hypothecation or
transfer of this Lease or subletting of Demised Premises, or part thereof,
that is not in compliance with the provisions of this Section 23 shall be
void, and shall, at the option of Landlord, be a breach of this Lease.
23.6 FURTHER ASSIGNMENT. The consent by Landlord to an assignment
or subletting shall not relieve Tenant or any assignee of this Lease or
sublessee of the Demised Premises from obtaining the consent of Landlord to
any further assignment or as releasing Tenant or any assignee or sublessee of
Tenant from full and primary liability.
23.7 NO WAIVER. Notwithstanding any subletting or assignment,
Tenant shall remain fully and primarily liable for the payment of all Rent
and other sums due, or to become due, hereunder, and for the full performance
of all other terms, conditions and covenants to be kept and performed by
Tenant hereunder. The acceptance of Rent or any other sum due hereunder, or
the acceptance of performance of any other term, covenant or condition
hereof, from any other person or entity shall not be deemed to be a waiver of
any of the provisions of this Lease or a consent to any subletting or
assignment of the Demised Premises.
23.8 HAZARDOUS MATERIALS TEST. Upon the commencement and
termination of any
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assignment or sublease, the assignee or subtenant and Tenant shall comply
with the provisions of Sections 37.5.1 and 37.5.2 for the premises assigned
or sublet.
23.9 ASSUMPTION. Any proposed assignee shall execute and deliver
to Landlord an assumption of this Lease in form and content reasonably
acceptable to Landlord. In the event of any assignment, Tenant shall not be
released thereby.
24. ATTORNEYS' FEES.
24.1 ATTORNEYS' FEES. If either party hereto becomes a party to
any litigation with any person or entity which is not a party to this Lease
concerning this Lease (including any bankruptcy proceeding), the Demised
Premises, or the Project, by reason of any act or omission of the other party
to this Lease or its authorized representatives, and not by any act or
omission of the party that becomes a party to that litigation or any act or
omission of its authorized representatives, the party that causes the other
party to become involved in the litigation shall be liable to that party for
reasonable attorneys' fees and court costs incurred by it in the litigation.
24.2 ACTION. If either party hereto commences an action against
the other party arising out of or in connection with this Lease, including
any proceeding in bankruptcy or any arbitration proceeding, the most
prevailing party shall be entitled to have and recover from the losing party
reasonable attorneys' fees and costs of suit or arbitration.
25. BANKRUPTCY. In the event a debtor, trustee or
debtor-in-possession under the Bankruptcy Code, or other person with similar
rights, duties and powers under any other law, proposes to cure any breach of
Tenant under this Lease or to assume or assign this Lease and is obliged to
provide adequate assurance to Landlord that (i) a breach will be cured, (ii)
Landlord will be compensated for its damages arising from any breach of this
Lease, or (iii) future performance under this Lease will occur, then adequate
assurance shall include any or all of the following, as reasonably determined
by Landlord:
(a) Those acts specified in the Bankruptcy Code or other laws
as included within the meaning of adequate assurance, even if this Lease does
not concern a facility described in such laws;
(b) A prompt cash payment to compensate Landlord for any
monetary breaches or damages arising from a breach of this Lease;
(c) A cash deposit in an amount reasonable under the
circumstances for similar properties in Torrey Pines used for similar
purposes by tenants with a similar credit rating;
(d) The reasonable creditworthiness and desirability, as a
tenant, of the person assuming this Lease or receiving an assignment of this
Lease, at least equal to Landlord's customary and usual creditworthiness
requirements and desirability standards in effect at the time of the
assumption or assignment; and
(e) The assumption or assignment of all of Tenant's interest
and obligations under this Lease.
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26. LANDLORD.
26.1 LANDLORD. The term "Landlord" as used in this Lease, so far
as covenants or obligations on the part of Landlord are concerned, shall be
limited to mean and include only Landlord or the successor-in-interest of
Landlord under this Lease at the time in question. In the event of any
transfer, assignment or the conveyance of Landlord's title or leasehold,
Landlord herein named (and in case of any subsequent transfers or
conveyances, the then grantor) shall be automatically freed and relieved from
and after the date of such transfer, assignment or conveyance of all
liability for the performance of any covenants or obligations contained in
this Lease thereafter to be performed by Landlord and, without further
agreement, the transferee of such title or leasehold shall be deemed to have
assumed and agreed to observe and perform any and all obligations of Landlord
hereunder during its ownership or ground lease of the Demised Premises.
Landlord may transfer its interest in the Demised Premises or this Lease
26.2 LIMIT ON LANDLORD'S LIABILITY. Tenant shall look only to
Landlord's right, title and interest in and to the Project and to the
consideration from the sale or other disposition of all or any part of
Landlord's right, title or interest in the Project for the satisfaction of
Tenant's remedies for the collection of a judgment (or other judicial
process) requiring the payment of money by Landlord in the event of any
default by Landlord under this Lease, and no other property or assets of
Landlord (nor of any member, trustee, officer, employee, shareholder,
partner, tenant in common of or with Landlord or any other person or entity
related to or having an interest in Landlord) shall be subject to any
execution or other enforcement procedure for the satisfaction of Tenant's
remedies under or with respect to this Tenant's use or occupancy of the
Demised Premises or the Project. The provisions of this Section 26.2 shall
not be construed to permit any setoff against Rent or other sums due
hereunder.
26.3 RIGHT TO CURE. Landlord shall not be in default hereunder
unless Landlord fails to perform an obligation required of Landlord within a
reasonable time, but in no event later than fifteen (15) business days after
written notice by Tenant specifically identifying the obligation Landlord has
failed to perform; provided, however, that if the nature of Landlord's
obligation is such that more than fifteen (15) business days are required for
performance, then Landlord shall not be in default if Landlord commences
performance within such fifteen (15) business day period and thereafter
diligently prosecutes the same to completion.
26.4 LENDER'S RIGHT TO CURE. In the event of any default on the
part of Landlord, Tenant shall give notice, by registered or certified mail,
at any address provided to Tenant, to any beneficiary of a deed of trust or
mortgagee of a mortgage covering the Building or Demised Premises whose
address shall have been furnished to Tenant and Tenant shall offer such
beneficiary or mortgagee a reasonable opportunity to cure the default, not to
exceed Landlord's cure period plus thirty (30) days.
27. ESTOPPEL CERTIFICATE. From time to time as reasonably requested by
Landlord, Tenant shall, within ten (10) days of written notice from Landlord,
execute, acknowledge and deliver to Landlord a statement in writing
substantially in the form attached to this Lease as EXHIBIT C with the blanks
filled in, and on any other form reasonably requested by a proposed lender or
purchaser, (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and
certifying that this Lease as so modified is in full force and effect) and
the dates to which the Rent and other charges are paid in advance, if any,
(ii) acknowledging that there are not, to Tenant's knowledge, any uncured
Defaults or
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Conditional Defaults on the part of Landlord hereunder or specifying such
Defaults or Conditional Defaults if any are claimed, and (iii) setting forth
such further reasonable information with respect to this Lease or the Demised
Premises as may be requested thereon.
28. JOINT AND SEVERAL OBLIGATIONS. If more than one person executes
this Lease as Tenant:
(a) Each of them is jointly and severally liable for the keeping,
observing and performing all of the terms, covenants, conditions, provisions
and agreements of this Lease to be kept, observed and performed by Tenant; and
(b) The term "Tenant" shall mean and include each of them jointly and
severally. The act of, notice from, notice to, refund to or the signature of
any one or more of them, with respect to this Lease, including but not
limited to any renewal, extension, expiration, termination or modification of
this Lease, shall be binding upon each and all of the persons executing this
Lease as Tenant with the same force and effect as if each and all of them had
so acted, so given or received such notice or refund or so signed.
29. LIMITATION OF LANDLORD'S LIABILITY.
29.1 LIMITATION. If Landlord is a limited partnership or joint
venture, the limited partners of such partnership shall not be personally
liable and no limited partner of Landlord shall be sued individually or named
individually as a party in any suit or action or shall service of process be
made against any limited partner of Landlord. If Landlord is a corporation
or limited liability company, the shareholders, members, directors, officers,
managers, employees and/or agents of such corporation shall not be personally
liable and no shareholder, member, director, officer, manager, employee or
agent of Landlord shall be individually sued or named as a party in any suit
or action arising out of, or in any way connected to, this Lease, including,
without limitation, Landlord's obligations under this Lease or Tenant's
possession of the Demised Premises, or service of process be made against any
shareholder, member, director, officer, officer, manager, employee or agent
of Landlord. No limited partner, shareho
29.2 APPLICABILITY. Each of the covenants and agreements of this
Section 29 shall be applicable to any covenant or agreement either expressly
contained in this Lease or imposed by statute or by common law.
30. DEMISED PREMISES CONTROL BY LANDLORD. Landlord reserves full
control over the Building and the Demised Premises to the extent not
inconsistent with Tenant's quiet enjoyment and use of Demised Premises. This
reservation includes but is not limited to right of Landlord to grant
easements and licenses to others and the right to maintain or establish
ownerships of the Building separate from fee title to the Land, provided any
grant of an easement by Landlord does not interfere with Tenant's quiet
enjoyment and use of the Demised Premises, except to the extent the grant of
any such easement is approved by Tenant, required by law or permitted
pursuant to the terms of this Lease.
31. QUIET ENJOYMENT. So long as there is no uncured Default, Landlord
covenants
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that Landlord or anyone acting through or under Landlord will not
disturb Tenant's occupancy of the Demised Premises, except as permitted by
the provisions of this Lease.
32. QUITCLAIM DEED. Tenant shall execute and deliver to Landlord on the
expiration or termination of this Lease, immediately upon Landlord's request,
a quitclaim deed to the Demised Premises or other document in recordable form
suitable to evidence of record termination of this Lease.
33. SUBORDINATION AND ATTORNMENT.
33.1 SUBORDINATION. This Lease shall be subject and subordinate to
the lien of any mortgage or deed of trust encumbering Landlord's interest in
the Demised Premises or the Project or any lease in which Landlord is the
tenant, now or hereafter in force against the Demised Premises, and to all
advances made or hereafter to be made upon the security thereof without the
necessity of the execution and delivery of any further instruments on the
part of Tenant to effectuate such subordination; provided the holder of any
such mortgage, deed of trust or lease executes, acknowledges and delivers to
Tenant upon Tenant's request a non-disturbance agreement providing that so
long as Tenant performs all of its obligations under this Lease, Tenant's
quiet enjoyment and use of the Demised Premises shall not be disturbed,
except as permitted by the provisions of this Lease.
33.2 ADDITIONAL INSTRUMENTS. Notwithstanding the foregoing, Tenant
shall execute and deliver within ten (10) days of demand a subordination
agreement in the form attached as EXHIBIT E or such further instrument or
instruments evidencing such subordination of this Lease to the lien of any
such mortgages, deeds of trust or leases as may be required by Landlord.
However, if any such mortgagee, beneficiary or landlord under a lease wherein
Landlord is tenant so elects, this Lease shall be deemed prior in lien to any
such lease, mortgage or deed of trust upon or including the Demised Premises,
regardless of date, and Tenant shall execute and deliver within ten (10) days
of demand a statement in writing to such effect at Landlord's request.
33.3 ATTORNMENT. In the event any proceedings are brought for
foreclosure, or in the event of the exercise of the power of sale under any
mortgage or deed of trust covering the Demised Premises, Tenant shall, at the
election of purchaser at such foreclosure or sale, attorn to such purchaser
and recognize such purchaser as Landlord under this Lease, provided such
purchaser provides to Tenant reasonable assurances that its tenancy will not
be disturbed so long as it is not in Default under this Lease.
33.4 AMENDMENT. If Landlord obtains a loan commitment from a
lender for the financing or refinancing of the Demised Premises and/or the
Project, and such loan commitment requires some amendment(s) to this Lease,
then Tenant shall cooperate reasonably with Landlord in executing such
amendment(s), so long as the amendment(s) do not materially adversely affect
any of the material rights or obligations of Tenant under this Lease.
34. SURRENDER.
34.1 NO RELEASE. No surrender of possession of any part of the
Demised Premises shall release Tenant from any of its obligations hereunder
unless accepted by Landlord.
34.2 ASSIGNMENT. The voluntary or other surrender of this Lease by
Tenant shall not work a merger, unless Landlord consents, and shall, at the
option of Landlord, operate as an assignment to it of any or all subleases or
subtenancies.
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34.3 NO MERGER. The voluntary or other surrender of any ground or
underlying lease that now exists or may hereafter be executed affecting the
Building or Demised Premises, or a mutual cancellation thereof or of
Landlord's interest therein, shall not work a merger and shall, at the option
of the successor of Landlord's interest in the Land, the Building or the
Demised Premises, operate as an assignment of this Lease.
35. WAIVER AND MODIFICATION. No provision of this Lease may be
modified, amended or added to except by an agreement in writing executed by
Landlord and Tenant. The waiver by Landlord or Tenant of any breach of any
term, covenant or condition herein contained shall not be deemed to be a
waiver of any subsequent breach of the same or any other term, covenant or
condition herein contained.
36. WAIVER OF JURY TRIAL. THE PARTIES HERETO SHALL AND DO HEREBY WAIVE
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF
THE PARTIES HERETO AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF
OR IN ANY WAY CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND
TENANT, TENANT'S USE OR OCCUPANCY OF THE DEMISED PREMISES AND/OR ANY CLAIM OF
INJURY OR DAMAGE.
__________ _________
Landlord's Tenant's
Initials Initials
37. HAZARDOUS MATERIAL.
37.1 PROHIBITION/COMPLIANCE. Tenant, at its sole cost, shall
comply with all federal, state and local laws, statutes, ordinances, codes,
regulations and orders relating to Tenant's and its agent's, employee's,
contractor's and invitee's receiving, handling, use, storage, accumulation,
transportation, generation, spillage, migration, discharge, release and
disposal of any Hazardous Material as defined in this Section 37. Tenant
shall not cause or permit any Hazardous Material (as hereinafter defined) to
be brought upon, kept or used in or about the Demised Premises or the Project
by Tenant, its agents, employees, contractors or invitees in a manner or for
a purpose (i) prohibited by any federal, state or local law, rule or
regulation, (ii) in violation of any insurance policies on the Demised
Premises or the Project, (iii) inconsistent with good biotechnology industry
practices, or (iv) inconsistent with the requirements of any lender with a
deed of trust or mortgage on the Project or any part thereof. The disposal of
Hazardous Material shall be in approved cantainers and removed from the
Demised Premises by duly licensed carriers. Tenant shall be immediately
provide Landlord with telephonic notice, which shall promptly be confirmed by
written notice, of any and all spillage, discharge, release and disposal of
Hazardous Material onto or within the Demised Premises of the Project, which
by law must be reported to any federal, state or local agency, and any
injuries or damages resulting directly or indirectly therefrom. A failure of
Tenant to give to Landlord the notices required in this Section 37.1 shall
constitute a Default under this Lease. Further, Tenant shall deliver to
Landlord cach and every notice or order received from any federal, state or
local agency concerning Hazardous Material and the possession, use/or
disposal thereof promptly upon receipt of each such notice or order.
Tenant shall be responsible for, and shall indemnify,
protect, defend and hold harmless Landlord and its agents, employees,
representatives, directors and officers from,
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<PAGE>
any and all claims, costs, penalties, fines, losses (including, without
limitation, (i) temporary or permanent diminution in value of the Demised
Premises or the Project, (ii) damages for the temporary or permanent loss or
restriction on use of rentable or usable space or of any amenity of the
Demised Premises or the Project, and (iii) sums paid in settlement of
claims), consultant fees and expert fees, liabilities, attorneys' fees,
damages, injuries, causes of action, judgments and expenses, which arise
during or after the term of this Lease and which directly or indirectly (a)
result from Tenant's use and occupancy of the Demised Premises or any other
portion of the Project, or (b) result from Tenant's or its agent's,
employee's, contractor's and invitee's receiving, handling, use, storage,
accumulation, transportation, generation, spill
37.1.1 The indemnifications of Landlord and indemnities by Tenant
pursuant to Section 37.1 above include, to the extent Tenant is responsible
for such costs and expenses under the provisions of Section 37.1 above, but
without limiting the generalities thereof, reasonable costs incurred in
connection with any investigation of site conditions or any cleanup,
remedial, removal or restoration work lawfully required by any federal, state
or local governmental agency or political subdivision because of any
Hazardous Material present in the soil, subsoil, ground water, or elsewhere
at, on or under the Demised Premises or the Building. Without limiting the
foregoing, if the presence of any Hazardous Material at, on or under the
Demised Premises or the Building caused or permitted by Tenant results in the
Demised Premises or the Building becoming in violation of law, Tenant
promptly shall take all actions at its expense as are necessary to return the
Demised Premises or the Building to the condition existing prio
37.1.2 Landlord acknowledges that it is not the intent of this
Section 37 to prohibit Tenant from operating its business as described in
Section 2.6 above or to unreasonably interfere with the operation of Tenant's
business. Tenant may operate its business according to the custom of the
industry so long as the use, presence and disposal of Hazardous Material is
strictly and properly monitored according to all applicable governmental
requirements. As a material inducement to Landlord to allow Tenant to
lawfully use Hazardous Material in connection with its business, Tenant
agrees to deliver to Landlord prior to the Term Commencement Date a list
identifying each type of Hazardous Material to be present in or upon the
Demised Premises and setting forth any and all governmental approvals or
permits required in connection with the presence of such Hazardous Material
on the Demised Premises ("Hazardous Materials List") and a copy of the
Hazardous Material business plan prepared pursuant to Health and Safety Code
Section 25500, ET SEQ. Tenant shall deliver to Landlord an updated Hazardous
Material List at least once every (12) months. Tenant shall deliver to
Landlord true and correct copies of the following documents (hereinafter
referred to as the "Documents"), relating to handling, storage, disposal and
emission of Hazardous Material prior to the Term Commencement Date or, if
unavailable at that time, concurrent with the receipt from or submission to a
governmental agency: (i)permits; (ii)approvals; (iii)reports and
correspondence; (iv)storage and management plans; (v)notice of violations of
any laws; (vi)plans relating to the installation of any storage tanks or
containers to be installed in the Demised Premises (provided, such
installation of tanks or containers only shall be permitted after
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Landlord has given Tenant its written consent to do so, which consent may be
withheld in Landlord's sole discretion); and (vii) all closure plans or any
other documents required by any and all federal, state and local governmental
agencies and authorities for any storage tanks installed in, on or under the
Demised Premises. Tenant shall not be required, however, to provide Landlord
with that portion of any document which contains information of a proprietary
nature and which, in and of itself, does not contain a reference to any
Hazardous Material or hazardous activities which are not otherwise identified
to Landlord in such documentation, unless any such Document names Landlord as
an "Owner" or "Operator" of the facility in which Tenant is conducting its
business. It is not the intent of this Section 37 to provide Landlord with
information which could be detrimental to Tenant's business should such
information become possessed by Tenant's competitors. Landlord shall treat
all such proprietary information furnished by Tenant to Landlord as
confidential and shall not disclose such information to any person or entity
without Tenant's prior written consent (which consent Tenant shall not
unreasonably withheld), except as required by law, by insurance carriers, or
by applicable governmental agencies.
37.2 TERMINATION OF LEASE.
(a) Notwithstanding the provisions of this Section 37, Landlord
shall have the right to terminate this Lease in this event that (i) Tenant
uses the Demised Premises for the generation, storage, use, treatment or
disposal of Hazardous Material in a manner or for a purpose prohibited by
applicable law (and Tenant fails to diligently pursue and achieve within a
reasonable period compliance therewith) after written notice of such
noncompliance from either Landlord or any federal, state or local
governmental agency or political subdivision, (ii) Tenant has been required
by any governmental authority to take remedial action in connection with
Hazardous Material contaminating the Demised Premises or the Building if the
contamination resulted from Tenant's action or use of the Demised Premises
and such remedial action has a material adverse effect on Landlord, the
Demised Premises or the Building and Tenant fails to commence the remedial
action immediately and diligently prosecute the same to completion within
ninety (90) days, or (iii) Tenant is subject to an enforcement order issued
by any governmental authority in connection with the use, disposal or storage
of a Hazardous Material on the Demised Premises and such enforcement order
has a material adverse effect on Landlord, the Demised Premises or the
Building and Tenant fails to obtain a revocation, rescission or cancellation
of the enforcement order witin sixty (60) days after the date upon which such
enforcement order is issued. Each of the foregoing events shall be deemed to
be a material Default by Tenant under this Lease.
(b) In the event that a portion of the Building or the Project is
contaminated by Hazardous Material such that the Demised Premises may not
lawfully be used by Tenant for a period of longer than ninety (90) days, and
such contamination was caused by Hazardous Material used by Landlord or
another tenant of the Building, Tenant may, upon written notice delivered to
Landlord within fifteen (15) days of the determination that the Demised
Premises may not be used for a period longer than ninety (90) days, terminate
this Lease as of such date of notice. Landlord shall have no liability with
respect to such contamination except to the extent caused by the grossly
negligent or willful acts or omissions of Landlord. Tenant shall have no
other right to abate Rent or terminate this Lease as a result of any
contamination of the Demised Premises.
37.3 ASSIGNMENT AND SUBLETTING. Notwithstanding the provisions of
Section 23 above, if (i) any anticipated use of the Demised Premises by any
proposed assignee or sublessee involves the generation or storage, use,
treatment or disposal of Hazardous Material in any manner or for a purpose
prohibited hereunder or by any applicable law, (ii) the proposed assignee or
sublessee has been required by any governmental authority to take remedial
action in
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<PAGE>
connection with a Hazardous Material if the contamination resulted from such
party's action or use of the property in question and has failed to take such
action, or (iii) the proposed assignee or sublessee is subject to an
enforcement order issued by any governmental authority in connection with the
use, disposal or storage of a Hazardous Material by such proposed assignee or
sublessee and of a type such proposed assignee or sublessee intends to use
in, on or at the Demised Premises and the proposed assignee or sublessee has
failed to fully comply with such enforcement order, it shall not be
unreasonable for Landlord to withold its consent to an assignment or
subletting to such proposed assignee or sublessee.
37.4 CONDITION. Landlord represents and warrants that, to the best of
its knowledge, as of the date of this Lease, except as set forth in Section
13.3 above or as disclosed in that certain Environment Assessment report
prepared by Dames & Moore dated January 17, 1996, a copy of which has been
provided to Tenant, there are no Hazardous Material on the Demised Premises.
If Landlord discovers that any other Hazardous Material exists in, on or
about the Demised Premises, then Landlord promptly shall give Tenant written
notice of such condition and shall, except to the extent Tenant is
responsible therefor, use its best efforts to have such Hazardous Material
cleaned up in conformance with this Lease and brought in compliance with
applicable laws.
37.5 PERFORM TESTS.
37.5.1 At any time prior to the expiration of the term of this
Lease, Landlord shall have the right to enter (no more than twice in any
calendar year unless any contamination in excess of legally permissible
levels has occurred or Landlord reasonably believes that any contamination
may have occurred) upon the Demised Premises at all reasonable times, and at
reasonable intervals, upon forty eight (48) hours' prior notice, and
accompanied by an authorized representative of Tenant, if Tenant so elects,
in order to conduct appropriate tests to determine whether contamination in
excess of permissible levels has occurred as a result of Tenant's use of the
Demised Premises. Landlord shall deliver to Tenant written notice of the
results of such tests. Tenant shall pay the reasonable costs of any test
conducted pursuant to this Section which demonstrates that contamination in
excess of legally permissible levels has occurred and such contamination was
caused by Tenant's use of the Demised Premises. Additionally, Tenant shall
pay for all costs necessary to clean up or remedy any contamination caused by
Tenant's use of the Premises.
37.5.2 Upon the expiration or upon any early termination of this
Lease, Tenant shall furnish to Landlord, at Tenant's sole cost, a report and
certification from a qualified environmental engineer, verifying that the
Demised Premises are free from any Hazardous Material or contamination in
excess of legally permissible levels. If such report indicates that there
are any impermissible levels of Hazardous Material on the Demised Premises,
then Tenant shall pay for all costs necessary to clean up and remedy such
impermissible levels of Hazardous Material; and Tenant shall also continue to
pay Rent for the Demised Premises (including monthly installments of Basic
Rent at a rate equal to one hundred fifty percent (150%) of the monthly
installment of Basic Rent in effect immediately prior to such expiration or
termination of this Lease) less the amount of any rent for the Demised
Premises actually received by Landlord until such time as the impermissible
levels of Hazardous Material are cleaned up and remedied.
37.6 TENANT'S OBLIGATIONS. Tenant's obligations under this Section 37
shall survive the termination of this Lease. During any period of time
employed by Tenant after the termination of this Lease to complete the
removal from the Demised Premises or the Building of any such Hazardous
Material, Tenant shall continue to pay the full Rent in accordance with this
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<PAGE>
Lease.
37.7 DEFINITION OF HAZARDOUS MATERIAL. As used herein, the term
"Hazardous Material(s)" means any hazardous or toxic substance, material or
waste which is or becomes regulated by any local governmental authority, the
State of California or the United States Government, and includes, without
limitation, any material or substance which is (i) defined as a "hazardous
waste," "extremely hazardous waste" or "restricted hazardous waste" under
Sections 25115, 25117 or 25122.7 or listed pursuant to Section 25140 of the
California Health and Safety Code, Division 20, Chapter 6.5 (Hazardous Waste
Control Law); (ii) defined as a "hazardous substance" under Section 25316 of
the California Health and Safety Code, Division 2, Chapter 6.8
(Carpenter-Presly-Tanner Hazardous Substance Account Act); (iii) defined as a
"hazardous material," "hazardous substance" or "hazardous waste" under
Section 25501 of the California Health and Safety Code, Division 20, Chapter
6.95 (Hazardous Substances); (v) petroleum; (vi) asbestos; (vii) listed under
Aritlce 9 and defined as hazardous or extremely hazardous pursuant to Article
11 of Title 22 of the California Administrative Code, Division 4, Chapter 20;
(viii) designated as a "hazardous substance" pursuant to Section 311 of the
Federal Water Pollution Control Act (33 U.S.C. Section 1317); (ix) defined as
a "hazardous waste" pursuant to Section 1004 of the Federal Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, ET SEQ. (42 U.S.C.
Section 6903); or (x) defined as a "hazardous substance" pursuant to Section
101 of the Comprehensive Environmental Response Compensation Liability Act,
42 U.S.C. Section 9601, ET SEQ. (42 U.S.C. Section 9601).
38. MISCELLANEOUS.
38.1 TERMS AND HEADINGS. Where applicable in this Lease, the
singular includes the plural and the masculine or neuter includes the
masculine, feminine and neuter. The headings used in this Lease are not a
part hereof and shall have no effect upon the construction or interpretation
of any part hereof.
38.2 EXAMINATION OF LEASE. Submission of this Lease for
examination or signature by Tenant does not constitute a reservation of, or
option for, lease, nor is it effective as a lease or otherwise until
execution by, and delivery to, both Landlord and Tenant.
38.3 TIME. Time is of the essence with respect to the performance
of every provision of this Lease in which time of performance is a factor.
38.4 COVENANTS AND CONDITIONS. Each provision of this Lease
performable by Landlord or Tenant shall be deemed both a covenant and a
condition.
38.5 CONSENTS. Whenever consent or approval of either party is
required, that party shall not unreasonably withhold such consent or
approval, except as may be expressly set forth to the contrary.
38.6 ENTIRE AGREEMENT. This Lease (together with its exhibits) is
intended by the parties as a final expression of their agreement with respect
to the terms as are included herein, and all prior agreements,
understandings, representations and statements, oral or written, are merged
herein, excepting only for written agreements signed contemporaneously with
the signing of this Lease.
38.7 SEVERABILITY. Any provision of this Lease which shall be
deemed or prove to be invalid, void or illegal shall in no way affect, impair
or invalidate any other provision hereof,
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<PAGE>
and all such other provisions shall remain in full force and effect.
38.8 RECORDING. Tenant shall be permitted to record a memorandum
of this Lease, provided Tenant obtains Landlord's written approval, not to be
unreasonably withheld, of the form and content of any memorandum.
38.9 IMPARTIAL CONSTRUCTION. The language in all parts of this
Lease shall be in all cases construed as a whole according to its fair
meaning and not strictly for or against either Landlord or Tenant. As both
parties participated in the drafting and review of this Lease with separate
and independent legal counsel, any ambiguity in the language will not be
constructed against either Party as the drafter of that language.
38.10 INUREMENT. Each of the covenants, conditions and agreements
herein contained shall inure to the benefit of and shall apply to and be
binding upon the parties hereto and their respective heirs, legatees,
devisees, executors, administrators, successors, assigns, sublessees or any
person who may come into possession of the Demised Premises or any part
thereof in any manner whatsoever. Nothing contained in this Section shall in
any way alter the provisions against assignment or subletting provided in
this Lease.
38.11 FORCE MAJEURE. If either party cannot perform any of its
obligations under any portion of this Lease other than EXHIBIT B due to
events beyond the obligated party's reasonable control (including, without
limitation, Landlord's obligations to repair, reconstruct or restore pursuant
to Sections 20.1, 20.2 or 20.3 but excluding any monetary obligations of
Tenant), the time provided for performing such obligations shall be extended
by a period of time equal to the duration of such events. Events beyond a
party's control include, but are not limited to, acts of God, war, civil
commotion, labor disputes, strikes, fire, flood or other casualty, shortages
of labor or material, government regulation or restriction and weather
conditions. This provision shall not apply to EXHIBIT B, which shall be
governed by its own provision regarding force majeure.
38.12 NOTICES. Any notice, consent, demand, bill, statement or
other communication required or permitted to be given hereunder shall be in
writing and shall be deemed duly delivered upon personal delivery, or as of
the second business day after mailing by United States mail, postage prepaid,
return receipt requested, or upon the next business day if delivered by
overnight courier or similar overnight delivery system, addressed to Tenant,
or Landlord, at the addresses shown in Section 2.7 herein. Either party may,
by notice to the other given pursuant to this Section, specify additional or
different addresses for notice purposes.
38.13 EXHIBITS. All exhibits and schedules referred to herein and
attached hereto are a part hereof, and incorporated herein by this reference.
Any termination of this Lease shall likewise constitute a termination of any
rights of Tenant under any exhibits or schedules hereto.
38.14 MODIFICATION. No modification, waiver, amendment, discharge
or change of this Lease shall be valid unless the same is in writing and
signed by the party against which the enforcement of such modification,
waiver, amendment, discharge or change is or may be sought.
38.15 PERIODS OF TIME. All periods of time referred to in this
Lease shall include all Saturdays, Sundays and state or United States
holidays, unless the period of time specifies business days, provided that if
the date or last date to perform any act or give any notice with respect to
this Lease shall fall on a Saturday, Sunday or state or national holiday,
such act or notice may be timely performed or given on the next succeeding
day which is not a Saturday,
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Sunday or state or national holiday.
38.16 CHOICE OF LAW. This Lease shall be construed and enforced
in accordance with the laws of the State of California, and venue for any
legal action under this Lease shall be San Diego County, California.
38.17 INTERPRETATION. In the event any conflict exists between
the provisions of this Lease, the order of priority in the interpretation
hereof shall be as follows: (a) any lease amendment or addendum signed
simultaneously with the signing of this Lease, (b) Construction Exhibit, (c)
exhibits (except the Construction Exhibit), (d) Basic Lease provisions, and
(e) the general provisions of this Lease.
38.18 MERGER. There shall be no merger of the leasehold estate
created by this Lease with the fee interest in any of the Demised Premises by
reason of the fact that the same person may acquire or hold or own, directly
or indirectly, (a) the leasehold estate created hereby or any part thereof or
interest therein, and (b) the fee estate in any of the Demised Premises or
any part thereof or interest therein.
38.19 FINANCIAL STATEMENTS. Tenant shall provide to Landlord
within ten (10) days of request, financial statements of Tenant for the most
recent final year or quarter then publicly available. Annual statements
shall be audited by an independent certified public accountant and all other
quarterly statements shall be certified by the chief financial officer of
Tenant, as the case may be, as being complete and accurate in all respects.
Tenant shall not be required to provide such financial information more than
once per quarter.
39.CONTINGENCIES.
39.1 LENDER. The rights and obligations of both Landlord and
Tenant under this Lease are contingent upon (i) Landlord obtaining approval
of this Lease from Landlord's lender holding a deed of trust on the Project
within thirty (30) days after the date of execution of this Lease or such
longer period as the parties may mutually approve in writing and (ii) Tenant
and such lender executing a subordination, non-disturbance and attornment
agreement in substantially the form of EXHIBIT E hereto. If such condition
is not satisfied prior to such date, then either Landlord or Tenant may
terminate this Lease by giving written notice of such party's intention to
terminate this Lease to the other party, and if such contingency has not been
satisfied or waived within five (5) business days thereafter, by thereafter
giving written notice of termination to the other party any time prior to
receiving written notice that such condition has been satisfied or waived.
Neither party shall have any further rights, obligation or liabilities under
this Lease after this Lease is terminated pursuant to this Section.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the dates set forth below next to their respective signatures.
LANDLORD:
DM SPECTRUM LLC, a California limited
liability company
By: DMSK LLC, a California limited
liability company
Date of Execution: December 6, 1996 By: /s/ Robert D. Tomlinson
-----------------------
Title: Managing Member
---------------
TENANT:
MAXIM PHARMACEUTICALS, INC., a
Delaware corporation
Date of Execution: December 4, 1996 By: /s/ Larry G. Stambaugh
----------------------
Title: CEO
---
By: /s/ Dale A. Sander
------------------
Title: CFO
---
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<PAGE>
Exhibit 11.1
Maxim Pharmaceuticals, Inc.
Statement Regarding Computation of Loss Per Share
<TABLE>
<CAPTION>
Year Ended September 30
---------------------------------------------------------------------------------
1996
---------------------------------------------------------------------------------
Prior to
Effective Subsequent Total
Date of IPO to IPO For Year 1995 1994
----------- --------- --------- ---- ----
(10/1/95 - (7/11/96 -
7/10/96) 9/30/96)
<S> <C> <C> <C> <C> <C>
Weighted average shares
outstanding excluding common
shares issued in accordance
with SAB 83 438,229 6,671,437 438,229 189,764
Number of common shares
issued and stock options and
warrants granted in
accordance with SAB 83 2,668,374 2,668,374 2,668,374
Convertible preferred stock 102,866 102,866 102,866
----------------------------------------------- -----------------------------
Total shares outstanding 3,209,469 6,671,437 4,074,961 3,209,469 2,961,004
----------------------------------------------- -----------------------------
----------------------------------------------- -----------------------------
Net income (loss) ($2,378,298) $1,544,810 ($833,488) ($2,790,122) ($2,432,623)
----------------------------------------------- -----------------------------
----------------------------------------------- -----------------------------
Net loss per share ($0.20) ($0.87) ($0.82)
-------------- -----------------------------
-------------- -----------------------------
</TABLE>
<PAGE>
MAXIM
PHARMACEUTICALS, INC.
1996 Annual Report
<PAGE>
MAXIM PHARMACEUTICALS, INC.
Maxim Pharmaceuticals is developing novel therapeutics and
vaccines for the prevention and treatment of cancer and
infectious diseases.
The company's lead platform technology, MAXAMINE-TM-, has
demonstrated effectiveness in Phase II clinical trials for the
treatment of malignant melanoma and of acute myelogenous
leukemia. Pivotal trials are planned for these first two
indications, and additional clinical trials in other cancer
types and in certain infectious diseases.
The company's second platform technology, MAXVAX-TM-, utilizes a
mucosal vaccine carrier/adjuvant system intended to establish a
new class of oral and topical vaccines against a broad range of
infectious diseases.
MAXAMINE COMMERCIALIZATION STATUS
<TABLE>
<CAPTION>
Prevalence in Initial Pivotal
Indication U.S. Research Preclinical Clinical(s) Clinical Market
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Malignant Melanoma 130,000 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX=========
Acute Myelogenous Leukemia 10,000 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX=========
Renal Cell Carcinoma 70,000 XXXXXXXXXXXXXXXXXXXXXXXX============
Multiple Myeloma 40,000 XXXXXXXXXXXXXXXXXXXXXXXX============
Hepatitis C 4,000,000 XXXXXXXXXXXXXXXXXXXXXXXX============
Prostate Adenocarcinoma 250,000 XXXXXXXXXXXXXXXXXXXXXXXX============
X Completed
= In-process or planned for 1997
</TABLE>
MAXAMINE-TM-, MAXVAX-TM- and the MAXIM logo are trademarks of Maxim
Pharmaceutical, Inc.
<PAGE>
DEAR SHAREHOLDERS AND ASSOCIATES:
Fiscal 1996 was a landmark year for Maxim Pharmaceuticals -- our first as a
public company -- as we made important progress in a number of critical
areas. MAXAMINE, our proprietary immunotherapeutic targeted for the
treatment of cancer and infectious diseases, emerged with further significant
favorable results in human clinical trials. In addition, we advanced the
development of MAXVAX, our mucosal vaccine carrier/adjuvant technology for
the treatment of infectious diseases.
Another significant achievement during the fiscal year was an initial public
offering, which, in combination with earlier private placements, provided
more than $25 million in cash to fund current and future operations. This
capital enables us to more fully advance our promising clinical trials,
research programs and commercialization efforts. Simultaneously, we expanded
the depth of our clinical and business expertise, providing Maxim with the
resources to consistently build value as -- over time -- we reach our full
potential.
CLINICAL MOMENTUM
An article published in the BRITISH JOURNAL OF HEMATOLOGY in March 1996, and
updated by Maxim in September 1996, announced results of an ongoing Phase IIb
trial of MAXAMINE in acute myelogenous leukemia (AML) patients in Sweden. In
the study, MAXAMINE, when coadministered with the cytokine interleukin-2
(IL-2), extended the duration of remission in patients suffering from AML.
The Company also announced in October 1996 that MAXAMINE, coadministered with
cytokines IL-2 and interferon-alpha (IFN-) significantly improved survival
rates in patients with malignant melanoma. This malignant melanoma study,
part of an ongoing Phase II human clinical trial, is also being conducted in
Sweden. In 1997, the Company plans to commence pivotal studies in the U.S.
and Europe.
Insert Picture
Larry G. Stambaugh
Chairman of the Board,
President and Chief Executive Officer
<PAGE>
INCREASED MANAGEMENT AND CLINICAL DEPTH
Three key management team members have joined Maxim: Kurt R. Gehlsen, Ph.D.,
Vice President, Development and Chief Technical Officer, is a seasoned
pharmaceutical executive with successful drug and business development
background as an researcher at Pharmacia and as former Chief Executive
Officer and founder of Trauma Products, Inc. Dale A. Sander, Chief Financial
Officer, brings over 15 years of experience in biotech and the medical device
industry and in senior management at Ernst & Young. Hal Handley, Jr., Ph.D.,
Director, Vaccine Research, is an experienced scientist with successful
record in the development of key technologies at Hybritech and IDEC
Pharmaceuticals.
We also strengthened our Board with the election of G. Steven Burrill and
Per-Olof Martensson as directors. Steve, well known to the biotechnology
community and pharmaceutical industry, is a founder and the chief executive
officer of Burrill & Company. Per-Olof has over 30 years of drug-development
and commercialization experience in top management in the pharmaceutical
industry, both in the U.S. and Europe.
In November 1996, we added three accomplished physicians to our Clinical
Advisory Board in order to provide ongoing clinical guidance to the Company.
These included: Paul A. Bunn, Jr., M.D., a highly regarded clinical
oncologist with extensive regulatory experience; Bengt Simonsson, M.D.,
Ph.D., a talented physician and scientist with a special research interest in
myelogenous leukemia; and J. Paul Waymack, M.D., Sc.D. a skillful clinician
with a broad range of relevant clinical and regulatory experience.
STRATEGIES FOR LONG-TERM SUCCESS
As we move forward prudently, yet determinedly, we have several goals for the
upcoming fiscal year. Key among these are the development of one or more
corporate collaborations; the initiation of international (including U.S.)
pivotal multi-center trials for MAXAMINE; continued rigorous control of our
burn rate, and; a strong drive toward our first product launch and revenues.
While we are proud of our achievements to date, relying on the talents of our
dedicated employees and collaborators, we will strive to advance our
technologies and build further shareholder value in the next year. We thank
you, our shareholders, for your continued loyalty, interest and support.
Sincerely,
Larry G. Stambaugh
Chairman and Chief Executive Officer
<PAGE>
MAXAMINE-TM- THERAPY FOR CANCER AND INFECTIOUS DISEASES
The Company's proprietary MAXAMINE therapy has demonstrated effectiveness in
treating patients with certain advanced-stage cancers in human clinical
trials. MAXAMINE, when coadministered with cytokines such as interleukin-2
(IL-2) and interferon-alpha (IFN-a), is intended to boost the ability of the
body's immune system to fight cancer and infectious diseases.
Clinical Studies of MAXAMINE Therapy in
Acute Myelogenous Leukemia (AML) Patients
Mean Remission Time
CR1Patients:
Normal Course of Disease 12 months
Treatment with MAXAMINE & IL-2 25+months
CR2+Patients:
Normal Course of Disease 6 months
Treatment with MAXAMINE & IL-2 23+months
CANCER - CRITICAL NEED FOR MORE EFFECTIVE THERAPY
In 1985, the American Cancer Society estimated that approximately 1.25
million new cancer cases were diagnosed and that there were approximately
550,000 deaths from the disease in the United States. Traditional methods of
treating cancer generally include surgery, radiation therapy and
chemotherapy. Despite the successes which have been achieved with these
traditional therapies, the high number of cancer-related deaths indicate the
need for more efficacious and less toxic therapies.
To be effective, cancer treatment must target not only the primary site
and/or tumor, but also tumor cells that have disseminated or metastasized to
other sites. In recent years, research has focused on immunotherapy --
capitalizing upon and improving the immune system's innate ability to combat
cancer and infectious diseases. Immunotherapy has included the
<PAGE>
administration of certain biological response modifiers, such as the
cytokines, in an attempt to stimulate the response of specific immune cells
like natural killer cells (NK-cells). Since the early 1980's, IL-2 and IFN-
have been studied for the treatment of certain cancers and other diseases,
but the outcomes of human clinical cancer trials with these cytokines have
largely been disappointing. For example, only 10-15% of patients with
melanoma or renal cell carcinoma treated with IL-2 have realized significant
objective regression of tumor burden. Moreover, IL-2 produces severe adverse
side-effects at high doses.
MAXAMINE - BOOSTING THE BODY'S IMMUNE SYSTEM
The Company's lead product, MAXAMINE, was designed as a combination therapy
to strengthen and assist the activity of cytokines and may provide more
effective therapy for treating certain cancers and infectious diseases. The
Company's investigators have described an interaction between phagocytes, a
white blood cell prevalent in tumors and in bone marrow, and NK-cells which
may explain the generally low efficacy rates of cytokines in humans. As
illustrated below, specific signals transmitted by phagocytes cause NK-cells
to initiate apoptosis (programmed cell death) thereby destroying their
cytotoxic (anti-tumor) capability. The administration of cytokines,
regardless of the dosage, can not reverse apoptosis.
Programmed Cell Death of NK-Cells Without MAXAMINE
(insert illustration)
The release of H-subscript 2-O-subscript 2- by phagocytes results in
apoptosis (programmed cell death) of NK-cells, thereby destroying their
cytotoxic capability and rendering cytokine therapy largely ineffective.
A corresponding discovery, illustrated below, is that H-subscript 2- receptor
agonists "block" the phagocyte signal that leads to NK-cell death, thereby
allowing the NK-cells to retain cytotoxic (tumor killing) function in the
presence of phagocytic cells. The Company's proprietary MAXAMINE therapy is
based on the administration of an H-subscript 2- receptor agonist which, when
<PAGE>
administered in combination with NK-cell-activating cytokines such as IL-2
and IFN-a, has the potential of effectively combating cancer and infectious
diseases. The Company owns worldwide exclusive rights to the Maxamine
technology.
MAXAMINE Anti-Tumor and Anti-Infective Technology
(insert illustration)
MAXAMINE, an H-subscript 2- receptor agonist, prevents the release of
H-subscript 2-O-subscript 2- thereby allowing a stimulatory cytokine,
such as interleukin-2, to more fully activate NK-cell-mediated killing
of tumor cells or virally infected cells.
EFFECTIVENESS OF MAXAMINE IN HUMAN CLINICAL TRIALS
PHASE II CLINICAL TRIALS IN MALIGNANT MELANOMA: In Phase II clinical trials
conducted in Sweden, fifteen patients with advanced Stage IV metastatic
malignant melanoma were treated with a high-dose regimen of IL-2 and IFN-a.
Eight of these patients were also given MAXAMINE injections in combination
with the cytokines while the other seven served as controls. Mean survival
in the patients treated with Maxamine was more than double that of the
patients treated only with the cytokines as illustrated below. It is also
noteworthy that in the MAXAMINE-treated patients, metastatic lesions
significantly responded or disappeared at most or all sites. Even more
notable results included two cases with complete resolution of metastatic
melanoma in the liver.
Maxamine Therapy in Stage IV Malignant Melanoma Patients
First Clinical Study -- High-Dose Cytokines
Mean Survival Time
Control Group 7 months
Maxamine and high-dose IL-2/IFN-a 15 months
<PAGE>
A follow-on study was undertaken in Sweden to determine if
a lower-dose regimen of the same cytokines (IL-2 and IFN-a)
in combination with the same doses of MAXAMINE would retain
the level of efficacy seen previously while reducing the
toxicity and side effects of the cytokine portion of the
treatment. In addition to survival, one of the goals of
MAXAMINE therapy is to lower toxicity of immunotherapy and
thus, enhance patients' quality of life (lowering the doses
of the cytokines reduces, or eliminates, the side effects
of these drugs, thereby facilitating tolerance of the
therapy and even allowing self-administration of the drugs
at home). The mean survival time of patients with advanced
(stage IV) malignant melanoma using conventional treatments
is reported to be 7 months. In the ongoing low-dose
malignant melanoma study, 11 patients have been evaluated
and currently have a mean survival time of 15 months, more
than double the rate generally reported for the normal
course of the disease and paralleling the high-dose study
described above. It is expected that the mean survival
time under the low-dose study will ultimately exceed the
high-dose study - i.e., the survival time under the low-
dose study will continue to increase as some or all of the
current patients continue to survive.
Maxamine Therapy in Stage IV Malignant Melanoma Patients
Second Clinical Study -- Low-Dose Cytokines
Mean Survival Time
Normal course - Conventional Treatment 7 months
Maxamine and Low-Dose IL-2/IFN-a 15 months
PHASE II CLINICAL STUDIES IN ACUTE MYELOGENOUS LEUKEMIA
(AML): In Phase II clinical trials conducted in Sweden,
twenty-five patients with AML in first, second or third
complete remission (CR) have been enrolled to date in a
clinical trial wherein they have been given outpatient
therapy with MAXAMINE plus IL-2. Mean remission time for
all patients enrolled in the study were significantly
improved over the normal course of the disease: CR-1
patients treated with Maxamine plus IL-2 had a mean
remission time of 25 months compared to the 12 months
<PAGE>
generally reported for the normal course of the disease;
patients in their second or greater remission treated with
Maxamine plus IL-2 had a mean remission time of 23 months
compared to the 6 months generally reported for the normal
course of AML.
Over 4,000 injections of MAXAMINE have been administered
without an adverse reaction or hospitalization. In all
clinical trials, MAXAMINE treatment was well-tolerated, and
in the lower-dose studies, the patients were able to treat
themselves at home with subcutaneous injections.
COMMERCIAL OPPORTUNITY FOR MAXAMINE
The Company believes that MAXAMINE is a novel and valuable
treatment which will combine compelling pharmacoeconomics
and disease-management benefits, including:
- - Outpatient administration
- - Improved clinical efficacy
- - Reduced toxicity
- - Lower cost of administration
The success with clinical trials conducted to date,
together with the March 29, 1996 announcement by the FDA
related to its intentions to speed development and approval
of cancer drugs, makes the Company optimistic about the
potential of has relatively near-term initial
commercialization of MAXAMINE.
The Company's strategy for marketing the MAXAMINE includes
the combination of corporate partnering relationships with
the Company's direct marketing efforts.
<PAGE>
MAXVAX-TM- MUCOSAL VACCINE TECHNOLOGY
MAXVAX is a mucosal vaccine carrier/adjuvant technology in
preclinical development for a wide variety of diseases.
MAXVAX enhances the immune response at the mucosal
membranes (the linings of the eyes, nose, mouth,
respiratory tract, gastrointestinal tract and urogenital
tract). Potential indications for MaxVax include adult
vaccines for sexually transmitted diseases, major
respiratory infections and gastrointestinal tract diseases.
The mucosal membranes represent the body's first line of
defense against infections and are the sites where most
infectious agents enter the body as highlighted in the
following illustration.
MAXVAX-TM- Mucosal Vaccine Technology
Potential Target Pathogens
(insert illustration)
The MAXVAX technology is based on the "B" subunit of
cholera toxin (CTB). Traditional vaccines are designed to
induce systemic immunity. However, these products fail to
stimulate mucosal immunity, treating or preventing
infection only when the infecting organism has successfully
penetrated the blood stream or deep tissues of the body.
CTB is designed to elicit both mucosal and systemic
immunity by delivering antigens or genes directly to the
mucosal system.
The Company's current strategy for the commercialization of
MAXVAX is to develop corporate partnering arrangements with
companies possessing antigens and genes which can be
effectively coupled with the CTB carrier. The market need
for effective vaccine products is highlighted by the broad
range of infectious diseases for which no effective
vaccines and/or therapies currently exist.
<PAGE>
CORPORATE INFORMATION
EXECUTIVE OFFICERS CORPORATE HEADQUARTERS
Larry G. Stambaugh 3099 Science Park Road, Suite 150
CHAIRMAN OF THE BOARD, San Diego, California 92121
PRESIDENT AND CHIEF EXECUTIVE OFFICER 619-453-4040
Kurt R. Gehlsen, Ph.D. 10-K AVAILABILITY
VICE PRESIDENT, DEVELOPMENT AND A copy of the company's annual
CHIEF TECHNICAL OFFICER report to the Securities and
Exchange Commission on Form 10-K
Dale A. Sander for the fiscal year ended September
VICE PRESIDENT, FINANCE, 30, 1996, without exhibits, will be
CHIEF FINANCIAL OFFICER made available to any Stockholder
AND CORPORATE SECRETARY upon written request to:
Maxim Pharmaceuticals, Inc.
3099 Science Park Road, Suite 150
DIRECTORS San Diego, California 92121
Larry G. Stambaugh
CHAIRMAN OF THE BOARD, STOCK LISTING
PRESIDENT AND CHIEF EXECUTIVE OFFICER The shares of the company's common
stock and redeemable common stock
Colin B. Bier, Ph.D. purchase warrants are traded on the
MANAGING DIRECTOR American Stock Exchange under the
ABA BIORESEARCH symbols "MMP" and "MMP.WS,"
respectively.
G. Steven Burrill
CHIEF EXECUTIVE OFFICER TRANSFER AGENT
BURRILL & COMPANY American Stock Transfer & Trust
Company
Per-Olof Martensson 40 Wall Street
PRINCIPAL New York, New York 10005
POM ADVISORY SERVICES AB
CORPORATE COUNSEL
F. Duwaine Townsen Cooley Godward LLP
MANAGING PARTNER 4365 Executive Drive, Suite 1200
VENTANA GROWTH FUNDS San Diego, California 92121
INDEPENDENT AUDITORS
KMPG Peat Marwick LLP
750 B Street, Suite 3000
San Diego, California 92101
THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER "RISK
FACTORS" AND ELSEWHERE IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED SEPTEMBER 30, 1996, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
INCLUDING THE UNCERTAINTIES ASSOCIATED WITH PRODUCT DEVELOPMENT, THE RISK THAT
PRODUCTS THAT APPEARED PROMISING IN EARLY CLINICAL TRIALS DO NOT DEMONSTRATE
EFFICACY IN LARGER-SCALE CLINICAL TRIALS, THE RISK THAT CLINICAL TRIALS WILL
NOT COMMENCE WHEN PLANNED, THE RISK THAT THE COMPANY WILL NOT BE ABLE TO
COMPLETE CORPORATE COLLABORATIONS AND SPECIFICALLY THE FOLLOWING RISK FACTORS:
NO ASSURANCE OF REGULATORY APPROVAL, AND; NO ASSURANCE OF SUCCESSFUL PRODUCT
DEVELOPMENT.
<PAGE>
MAXIM
PHARMACEUTICALS, INC.
FINANCIAL STATEMENTS FOR YEARS ENDED
SEPTEMBER 30, 1996, 1995 AND 1994
(To be inserted in inside back cover of Annual Report)
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
From inception
(October 23,1989)
through
Year ended September 30 September 30
-----------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1994 1993 1992 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Research grant revenue $ - $ - $ - $ - $ 8 $ 2,946
Research and development expenses 1,609 985 999 3,416 1,794 10,001
General and administrative expenses 1,355 1,117 1,023 627 124 7,588
Net loss (833) (2,790) (2,433) (4,239) (2,445) (13,937)
Net loss per share of common stock (0.20) (0.87) (0.82) (1.48) (0.88)
As of September 30
-----------------------------------------------------
1996 1995 1994 1993 1992
-----------------------------------------------------
Cash, cash equivalents and investments $19,144 $ 513 $ 119 $ 335 $ 74
Total assets 21,255 2,454 1,878 2,688 428
Long-term liabilities - 247 287 7,395 1,777
Stockholders equity (deficit) 20,124 (3,644) 2,513 6,568 1,177
- -------------------------------------------------------------------------------------------------
</TABLE>
INDEX
BALANCE SHEETS.................................................1
STATEMENTS OF OPERATIONS.......................................2
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)...................3
STATEMENTS OF CASH FLOW........................................4
NOTES TO FINANCIAL STATEMENTS..................................5
AUDITORS' REPORT..............................................13
MANAGEMENT'S DISCUSSION AND ANALYSIS..........................14
MARKET FOR COMMON STOCK.......................................16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
As of September 30
---------------------------
1996 1995
----------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,070,089 $512,928
Short-term investments in marketable securities 12,563,622 -
Accrued interest and other current assets 709,285 13,676
------------ ------------
Total current assets 17,342,996 526,604
Investments in marketable securities 2,510,366 -
Patents and licenses, net 1,367,235 1,619,591
Property and equipment, net 31,037 142,292
Receivable from related party - 147,803
Other assets 3,397 17,611
------------ ------------
Total assets $ 21,255,031 $ 2,453,901
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 405,760 $ 335,556
Accrued expenses 478,623 349,204
Current portion of long-term debt 247,000 353,000
Notes payable to bank - 2,250,000
Note payable to stockholder - 250,000
Note payable to Swedish governmental agency - 2,312,853
------------ ------------
Total current liabilities 1,131,383 5,850,613
Long-term debt, less current portion - 247,000
Commitments and contingencies - Note 9
Stockholders' equity (deficit)
Preferred stock, $.001 par value, 5,000,000 shares
authorized, 250,000 shares issued and outstanding
at September 30, 1995 - 250
Common stock, $.001 par value, 20,000,000 shares
authorized, 6,671,237 and 2,082,821 shares issued
and outstanding at September 30, 1996 and 6,672 2,083
1995, respectively
Additional paid-in capital 34,172,618 9,768,370
Deficit accumulated during the development stage (13,936,903) (13,103,415)
Deferred compensation (118,739) -
Common stock subscriptions receivable - (311,000)
------------ ------------
Total stockholders' equity (deficit) 20,123,648 (3,643,712)
------------ ------------
Total liabilities and stockholders'
equity (deficit) $ 21,255,031 $ 2,453,901
------------ ------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
1
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Maxim Pharmaceuticals, Inc. (A Development Stage Company)
<TABLE>
<CAPTION> From Inception
(October 23, 1989)
Year Ended September 30 Through
----------------------------------------- September 30,
1996 1995 1994 1996
------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Operating expenses:
Research and development $1,608,931 $ 984,778 $ 999,439 $ 10,001,258
General and administrative 1,355,197 1,116,714 1,023,256 7,587,807
---------- ---------- ---------- ------------
Total operating expenses 2,964,128 2,101,492 2,022,695 17,589,065
Other income (expense):
Gain on sale of subsidiary 2,288,474 - - 2,288,474
Investment income 259,625 5,590 8,712 287,730
Interest expense (197,028) (486,671) (688,568 (1,903,809)
Foreign exchange gain (loss) (95,217) (208,520) (75,036 23,426
Other income (expense) (125,214) 971 (4,158 (125,214)
Research grant revenue - - - 2,946,001
---------- ---------- ---------- ------------
Total other income (expense) 2,130,640 (688,630) (759,050 3,516,608
---------- ---------- ---------- ------------
Loss from continuing operations (833,488) (2,790,122) (2,781,745 (14,072,457)
Discontinued operations:
Loss from operations of
discontinued diagnostic division - - (134,040 (347,608)
Gain on sale of diagnostic division - - 483,162 483,162
---------- ---------- ---------- ------------
Net loss $ (833,488) $(2,790,122) $(2,432,623) $(13,936,903)
---------- ---------- ---------- ------------
Loss from continuing operations
per share of common stock $ (0.20) $ (0.87) $ (0.94)
---------- ---------- ----------
Net loss per share of common stock $ (0.20) $ (0.87) $ (0.82)
---------- ---------- ----------
Weighted average shares outstanding 4,074,961 3,209,469 2,961,004
---------- ---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
Subscription
Preferred Stock Common Stock Additional Receivable/
---------------- ---------------- Paid-In Accumulated Deferred
Shares Amount Shares Amount Capital Deficit Compensation Total
------ ------ ------ ------ ---------- ----------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 23, 1989 (inception) - $ - - $ - $ - - $ - $ -
Issuance of common stock at $.001 - - 1,000 8,029 - - - 8,029
Net income - - - - - 44 - 44
------- ------ --------- ------ ---------- ----------- ------------ -----------
Balance at December 31, 1989 - - 1,000 8,029 - 44 - 8,073
Net income - - - - - 751 - 751
------- ------ --------- ------ ---------- ----------- ------------ -----------
Balance at December 31, 1990 - - 1,000 8,029 - 795 - 8,824
Net income - - - - - 272 - 272
------- ------ --------- ------ ---------- ----------- ------------ -----------
Balance at December 31, 1991 - - 1,000 8,029 - 1,067 - 9,096
Additional funding - - 42 - 1,259,249 - - 1,259,249
Net loss - - - - - (2,445,184) - (2,445,184)
------- ------ --------- ------ ---------- ----------- ------------ ----------
Balance at December 31, 1992 - - 1,042 8,029 1,259,249 (2,444,117) - (1,170,839)
Net effect of reorganization and
issuance of common stock to account
for reverse acquisition - - 173,977 (7,854) 53,009 (1,197,822) - (1,152,887)
Net loss - - - - - (4,238,731) - (4,238,731)
------- ------ --------- ------ ---------- ----------- ------------ ----------
Balance at September 30, 1993 - - 175,019 175 1,312,258 (7,880,670) - (6,568,237)
Issuance of common stock at $60 per share
for consulting and professional services - - 1,098 1 65,999 - - 66,000
Issuance of Series A preferred stock
for cash at $3.00 per share 250,000 250 - - 487,250 - - 487,250
Issuance of common stock to convert
bridge debt financing at prices from
$52.50 to $75 per share - - 112,440 113 5,933,894 - - 5,934,007
Net loss - - - - - (2,432,825) - (2,432,623)
------- ------ --------- ------ ---------- ----------- ----------- ----------
Balance at September 30, 1994 250,000 250 288,557 289 7,799,401 (10,313,383) - (2,513,353)
Issuance of common stock at $3.00 per
share upon conversion of debt - - 553,254 553 1,659,210 - - 1,859,763
Issuance of common stock pursuant to
anti-dilutive provisions in previous
bridge debt financing - - 1,137,343 1,137 (1,137) - - -
Issuance of common stock at $3.00 per
share for subscription receivable - - 103,667 104 310,896 - (311,000) -
Net loss - - - - - (2,790,122) - (2,780,122)
------- ------ --------- ------ ---------- ----------- ----------- -----------
Balance at September 30, 1995 250,000 250 2,082,821 2,083 9,768,370 (13,103,416) (311,000) (3,643,712)
Issuance of common stock at $3.00 per
share in exchange for repayment of
note payable to bank - - 744,646 745 2,249,255 - - 2,250,000
Receipt of subscription receivable - - - - - - 311,000 311,000
Issuance of common stock and warrants
at $3.75 per unit for cash - - 465,504 465 1,740,033 - - 1,740,498
Issuance of common stock at $4.50 per
share for cash - - 400,000 400 1,799,600 - - 1,800,000
Exercise of common stock options - - 400 1 2,999 - - 3,000
Issuance of common stock at $7.50 per
share and warrants at $.10 per warrant
in initial public offering - - 2,875,000 2,875 18,217,215 - - 18,220,090
Conversion of preferred stock to
common stock (250,000) (250) 102,866 103 147 - - -
Options granted to employees - - - - 394,999 - (163,124) 231,875
Amortization of deferred compensation - - - - - - 44,385 44,385
Net loss - - - - - (833,488) - (833,488)
------- ------ --------- ------ ---------- ----------- ----------- -----------
Balance at September 30, 1996 $ - $ - $6,671,237 $ 6,672 $34,172,618 (13,938,903) $(118,739) $20,129,648
------- ------ --------- ------ ---------- ----------- ----------- -----------
------- ------ --------- ------ ---------- ----------- ----------- -----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
From Inception
(October 23, 1989)
Year Ended September 30 Through
------------------------------------------- September 30,
1996 1995 1994 1996
----------- ------------ ----------- ------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (833,488) $(2,790,122) $(2,432,623) $(13,936,903)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 128,719 53,581 42,916 781,144
Stock options issued as compensation 276,260 - - 276,260
Gain on sale of subsidiary (2,288,474) - - (2,288,474)
Loss on write-off of patents 189,068 - - 189,068
Loss on disposal of property and equipment 128,248 - - 128,248
Loss on write-off of receivable from related party 147,803 - - 147,803
Other 27,032 - - 27,032
Write-off of obsolete inventory - 24,669 - 24,669
Gain on sale of diagnostic division - - (483,162) (483,162)
Loss on write-off of purchased
research and development - - - 2,646,166
Cumulative effect of reorganization - - - 1,152,667
Changes in operating assets and liabilities:
Accrued interest and other current assets (695,609) 1,779 68,800 (709,285)
Other assets 14,214 46,966 37,944 (151,200)
Accounts payable 70,204 42,089 (281,559) 405,760
Accrued expenses 150,629 17,105 (263,504) 499,833
----------- ---------- ---------- -----------
Net cash used in operating activities (2,685,394) (2,603,933) (3,311,188) (11,290,374)
INVESTING ACTIVITIES:
Purchases of marketable securities (15,073,988) - - (15,073,988)
Additions to patents (213,196) (274,901) (473,401) (1,842,787)
Purchases of property and equipment (23,524) - - (808,241)
Cash acquired in acquisition of business - - - 985,356
Proceeds from sale of diagnostic division - - 496,555 496,555
----------- ---------- ---------- -----------
Net cash used in investing activities (15,310,708) (274,901) 23,154 (16,243,105)
FINANCING ACTIVITIES:
Payments on notes payable and long-term debt (2,603,000) - - (2,770,505)
Payments on notes payable to related parties (250,000) (1,079,885) - (1,329,885)
Proceeds from issuance of notes payable
and long-term debt 81,675 3,427,992 1,588,178 4,576,423
Proceeds from issuance of notes payable
to related parties - 925,000 930,000 4,982,169
Net proceeds from issuance of common stock
and warrants 24,324,588 - 66,000 25,657,866
Net proceeds from issuance of preferred stock - - 487,500 487,500
----------- ---------- ---------- -----------
Net cash provided by investing activities 21,553,263 3,273,107 3,071,678 31,603,568
----------- ---------- ---------- -----------
Net increase (decrease) in cash 3,557,161 394,273 (216,356) 4,070,089
----------- ---------- ---------- -----------
Cash and cash equivalents at beginning of period 512,928 118,655 335,011 -
----------- ---------- ---------- -----------
Cash and cash equivalents at end of period $ 4,070,089 $ 512,928 $ 118,655 $ 4,070,089
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
1. NATURE OF OPERATIONS AND BASIS FOR PRESENTATION
Maxim Pharmaceuticals, Inc. (the "Company") was incorporated in Delaware in
1954 under the name "Wilco Oil & Minerals, Corp." and has existed under
various names since then. From 1987 to 1993, the Company operated as a
medical diagnostics products company under the name "General Biometrics,
Inc." In 1993, the Company merged with Syntello Vaccine Development AB
("SVD"), a Swedish biopharmaceutical company, in an exchange of stock
accounted for as a reverse acquisition. Upon completion of the reverse
acquisition the Company changed its name to "Syntello, Inc." and commenced
its operations as a biopharmaceutical company. The Company sold its medical
diagnostic division in 1994 and sold SVD in July 1996 as described in Note
12. Since December 1995 the Company has operated under the name "Maxim
Pharmaceuticals, Inc." The consolidated statements of operations'
inception-to-date information reflects the cumulative operations of SVD from
the date of its inception (October 23, 1989). The consolidated statement of
stockholders' equity (deficit) for the periods from inception to the date of
the 1993 reverse acquisition reflects the equity activity of SVD.
The Company has devoted substantially all of its efforts to research and
development of proprietary technologies targeting the prevention and
treatment of cancer and infectious diseases. To date, the Company has
conducted the majority of its research and development in university
laboratories and at clinical sites through consulting arrangements with its
collaborative scientists; a significant portion of such work has been
performed in Sweden. Oversight and coordination of these programs has been
managed by the Company's personnel from its administrative offices located in
San Diego, California.
The Company expects to incur losses as it expands its research and
development activity and sponsorship of clinical trials. The future success
of the Company is likely to be dependent on its ability to obtain additional
capital to develop and commercialize its proposed products and, ultimately,
upon its ability to attain future profitable operations. There can be no
assurance that the Company will be successful in obtaining such financing, or
that it will attain positive cash flow from operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE - The Company has not earned significant revenues from
planned principal operations. Accordingly, the Company's activities have been
accounted for as those of a "Development Stage Enterprise" as set forth in
Financial Accounting Standards Board Statement No. 7 ("FAS 7"). Among the
disclosures required by FAS 7 are that the Company's financial statements be
identified as those of a development stage company, and that the consolidated
statements of operations, stockholders' equity (deficit) and cash flows
disclose activity since the date of the Company's inception.
CONCENTRATION OF CREDIT RISK - The Company invests its excess cash in U.S.
government securities and other highly liquid debt instruments of financial
institutions and corporations with strong credit ratings. The Company has
established guidelines relative to diversification and maturities to maintain
safely an adequate level of liquidity.
CASH EQUIVALENTS AND INVESTMENTS - The Company has classified all investments
as held-to-maturity securities. Investments are carried at cost, which
approximates market. The Investments mature at various dates through March
1998. Investments with original maturities of less than 90 days are
considered cash equivalents, and all other investments which mature within
one year are classified as short-term investments.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation on property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets, generally five years.
PATENTS AND LICENSES - The Company capitalizes certain legal costs and
acquisition costs related to patents and licenses. Accumulated costs are
amortized over the lesser of the legal lives or the estimated economic lives
of the proprietary rights, generally seven to ten years, using the
straight-line method and commencing at the time the patents are issued or the
license is acquired. Capitalized costs are written off to expense at the
time the underlying proprietary rights are deemed to have no continuing value.
CAPITAL STOCK - On January 5, 1996, the Company effected a 1-for-2000 reverse
stock split and changed the par value of the common stock from $.0001 per
share to $.001 per share and changed the par value of the preferred stock
from $.01 per share to $.001 per share.
<PAGE>
On May 9, 1996, the Company effected a 100-for-1 stock split. On July 10,
1996, upon the effective date of its initial public offering (Note 7), the
Company effected a 2-for-3 reverse stock split of its common stock. All
common and preferred stock share amounts, par values and the additional
paid-in capital amounts have been restated to reflect the above transactions.
LOSS PER SHARE OF COMMON STOCK - Loss per share of common stock is computed
by dividing the net loss by the weighted average number of shares of common
stock outstanding during the period. In accordance with Securities and
Exchange Commission Staff Accounting Bulletin No. 83, for periods preceding
the effective date of the initial public offering all common and common
equivalent shares issued during the twelve-month period prior to the
effective date have been included in the calculation as if they were
outstanding for all such periods, using the treasury stock method and the
public offering price of common stock. For periods subsequent to the initial
public offering, common stock equivalents have not been included as they are
antidilutive.
FOREIGN CURRENCY TRANSLATION - The Company accounts for translation of
foreign currency in accordance with Statement of Financial Accounting
Standards No. 52 "Foreign Currency Translation." During the periods in which
the Company owned SVD, the U.S. dollar was considered the functional currency
of this Swedish subsidiary. Monetary assets and liabilities were translated
using the exchange rate in effect at the balance sheet date, and non-monetary
assets and liabilities were translated at historical rates. Revenue and
expense accounts were translated at the average rates in effect during the
year. All translation adjustments and transaction gains and losses were
recognized in operations as other income or expense.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires that fair values be disclosed for the Company's financial
instruments. The carrying amount of cash and cash equivalents, accounts
payable and accrued expenses are considered to be representative of their
respective fair values because of the short-term nature of these financial
instruments. The carrying amount of the notes payable and long-term debt are
reasonable estimates of fair value as the loans bear interest based on market
rates currently available for debt with similar terms.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of expenses during the reporting period. Actual results
could differ from these estimates.
RECLASSIFICATIONS - Certain amounts in the prior years' financial statements
have been reclassified to conform with current year classifications.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30
1996 1995
---- ----
Furniture, fixtures and equipment $56,187 $ 32,661
Laboratory equipment - 689,517
---- -------
56,187 722,178
Less accumulated depreciation (25,150) (579,886)
-------- --------
$31,037 $142,292
-------- --------
-------- --------
During the year ended September 30, 1996, the Company transferred laboratory
equipment with a net book value of $128,248 to a former Swedish collaborating
scientist and former director of the Company.
4. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
From Inception
Year Ended September 30 Through
-----------------------------------
1996 1995 1994 September 30,1996
---- ---- ---- ------------------
<S> <C> <C> <C> <C>
Noncash investing and
financing activities:
Issuance of common stock
to convert debt $ - $1,659,763 $5,934,007 $7,593,770
<PAGE>
Sale of subsidiary:
Net patents sold 154,296 - - 154,296
Other liabilities transferred (121,210) - - (121,210)
Note payable transferred (2,421,560) - - (2,421,560)
Other accruals 100,000 - - 100,000
Acquisition of subsidiary:
Assets acquired - - - 4,917,359
Liabilities assumed - - - (5,911,481)
Net equity effect of acquisition - - - (994,122)
Supplemental disclosure of cash
flow information:
Cash paid for interest 341,126 202,627 266,819 1,393,124
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
September 30
1996 1995
---- ----
Professional fees $201,179 $ -
Collaborator fees 100,000 -
Compensation 79,868 137,498
Interest 5,605 149,703
Other 91,971 62,003
-------- --------
$478,623 $349,204
-------- --------
-------- --------
6. NOTES PAYABLE AND LONG-TERM DEBT
NOTES PAYABLE - In 1991 the Company's subsidiary, SVD, arranged a Swedish
Industrial Fund loan from the Swedish government for the purpose of funding
research and development. In connection with the loan, the Swedish
government acquired a security interest in certain technology rights of SVD,
such security interest to remain in place until repayment of the loan.
Certain stockholders of the Company pledged as collateral to the Swedish
Industrial Fund loan a portion of their personal equity interest in the
Company. The interest rate on the loan was based on the Swedish discount
rate plus 5%. The Swedish Industrial Fund loan became due December 31, 1994
and was in default at the time that the Company sold SVD in July 1996. As a
result of the sale of SVD, described in Note 12, the Company has no remaining
liability or obligation in connection with the loan.
In August 1994, the Company obtained a bank line of credit in the amount of
$2,000,000, bearing interest at 6.9% and maturing February 25, 1996. In May
1995, the Company obtained a second bank line of credit, in the amount of
$250,000 bearing interest at 6.9% and maturing December 31, 1995. These bank
lines of credit were secured by $2,250,000 of certificates of deposit pledged
by certain stockholders of the Company. On December 7, 1995, the
certificates of deposit were assigned to the Company in exchange for the
issuance of common stock at a rate of $3.00 per share; the proceeds of these
certificates of deposit were used to pay off the bank lines of credit.
In March 1995, the Company issued a demand promissory note to a stockholder
in the amount of $250,000 bearing interest at prime plus 2%. This note was
secured by all the tangible and intangible assets of the Company. The note
and accrued interest of $39,056 were repaid on September 19, 1996.
LONG-TERM DEBT - Long-term debt consists of the following:
September 30
1996 1995
---- ----
Note payable with interest at prime plus 2%
per annum, secured by a priority interest
in certain technology and rights $247,000 $600,000
Less current portion (247,000) (353,000)
------- -------
$ - $247,000
------- -------
------- -------
<PAGE>
In July 1993, the Company issued the above note payable to a company, owned
in part by a former collaborating scientist and former director of the
Company, for $600,000 in partial consideration for certain worldwide
exclusive rights related to its cancer technology as described in Note 10.
The note was originally due December 31, 1995. In December 1995 the Company
and the note holder entered into an agreement to extend the term of the note;
under the amended terms, the Company made payments of principal aggregating
$353,000 during the year ended September 30, 1996, and the remaining $247,000
is payable on June 30, 1997.
7. STOCKHOLDERS' EQUITY
JULY 1996 INITIAL PUBLIC OFFERING - During July 1996 the Company completed
an initial public offering in which it sold 2,875,000 shares of common stock
and 2,875,000 detachable warrants to purchase common stock ("Redeemable
Warrants"). The Company received net proceeds of $18,220,090 after
underwriting discounts and other issuance costs of $3,629,910.
STOCK OPTIONS - In 1993, the Company established a stock option plan (the
"1993 Plan") under which incentive and nonqualified stock options have been
granted to key employees, directors and consultants of the Company. Under the
1993 Plan, options may be granted to purchase up to 800,000 shares of common
stock; options that are granted generally vest over five years and have a
maximum term of ten years. Option activity for the fiscal years ended
September 30, 1994, 1995 and 1996 was as follows:
Number Exercise Price
of Shares Per Share
--------- ---------
Outstanding September 30, 1993 12,754 $60.00
Granted 33,533 $7.50
Exercised - -
Canceled (12,220) $7.50 - $60.00
---------
Outstanding September 30, 1994 34,067 $7.50 - $60.00
Granted 3,333 $7.50
Exercised - -
Canceled (533) $60.00
---------
Outstanding September 30, 1995 36,867 $7.50
Granted 527,334 $3.75
Exercised (400) $7.50
Canceled (53,134) $3.75 - $7.50
---------
Outstanding September 30, 1996 510,667 $3.75
---------
---------
At September 30, 1996, options for 314,132 shares of common stock are
exercisable and the remaining 196,535 become exercisable at various dates
through September 30, 2000. Each of the options expire May 2, 2003.
In May 1996, the Company issued options to purchase 526,665 shares of common
stock under the 1993 Plan at an exercise price of $3.75 per share to members
of management, directors and consultants. Concurrently, the Company also
canceled previously issued options held by certain of these persons. Of the
options issued, 305,833 were immediately exercisable with the remaining
options vesting over a period of two to five years. In accordance with
Accounting Principles Board Opinion No. 25, as a result of the issuance the
Company expects to record compensation expense of approximately $395,000 over
the vesting period of the options. Such compensation expense recorded during
the fiscal year ended September 30, 1996 totaled $276,260.
WARRANTS - At September 30, 1996, warrants to purchase 3,707,642 shares of
the Company's common stock at a weighted average exercise price of $9.73 per
share are outstanding, of which warrants to purchase 672,584 shares are
exercisable.
Included in the above total warrants outstanding are 2,875,000 Redeemable
Warrants issued in connection with the aforementioned initial public
offering. Each Redeemable Warrant allows the holder thereof to purchase one
share of common stock at an exercise price of $10.50. The Redeemable
Warrants may be exercised at any time during the period commencing July 10,
1997 and terminating July 10, 2001. Commencing January 10, 1998, the
Company may redeem the Class A Warrants at $0.01 per warrant upon 30 days
prior written notice to the holders if the average closing bid price of the
common stock equals or exceeds $12.00 per share for any 20 trading days
within a period of 30 consecutive trading days ending on the fifth trading
day prior to the date of the notice of redemption. In connection with the
initial public offering the Company also issued warrants to the underwriter
under which the underwriter may purchase up to
<PAGE>
250,000 shares of common stock at a price of $9.00 per share and up to
250,000 Redeemable Warrants at a price of $0.12 per Redeemable Warrant.
The Company has also issued warrants to purchase common stock to certain
consultants of the Company and in connection with private placements of
equity securities. These warrants generally have terms ranging from five to
seven years, and some include vesting provisions. Such warrants to purchase
332,642 shares of the Company's common stock at an exercise price of $3.00
per share were outstanding at September 30, 1996, of which warrants to
purchase 172,584 shares were exercisable.
8. INCOME TAXES
The Company has deferred income taxes which have been fully reserved as follows:
September 30
1996 1995
---- ----
Deferred tax assets:
Net operating loss carryforwards $7,434,000 $5,526,000
General business credit carryforwards 276,000 284,000
Other 87,000 24,000
--------- ---------
Total net deferred tax assets 7,797,000 5,834,000
Valuation allowance for deferred tax
assets (7,797,000) (5,834,000)
--------- ---------
Net deferred tax assets $ 0 $ 0
--------- ---------
--------- ---------
At September 30, 1996, the Company has federal and California tax net
operating loss carryforwards of approximately $21,865,000 and $4,375,000,
respectively. The federal tax loss carryforwards will begin expiring in 2000
unless previously utilized. The California tax loss carryforwards will begin
expiring in 1997.
As a result of the "change in ownership" provisions of the Tax Reform Act of
1986, utilization of the Company's tax net operating loss carryforwards and
tax credit carryforwards are subject to an annual limitation in future
periods. As a result of the annual limitation, a portion of these
carryforwards may expire before ultimately becoming available to reduce
future taxable income.
<PAGE>
9. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS - The Company leases an office facility under a
non-cancelable operating lease agreement that expires in July 1997. In
November 1996 the Company entered into a five-year operating lease commencing
December 1996 for laboratory and administrative office facilities. Future
minimum lease commitments approximate the following:
Year Ended
September 30
------------
1997 $ 326,000
1998 374,000
1999 385,000
2000 397,000
2001 409,000
Thereafter 69,000
----------
$1,960,000
----------
----------
Total rent expense for the fiscal years ended September 30, 1996, 1995 and
1994 was $87,456, $78,449 and $180,090, respectively.
CONTINGENCY - In April 1996, the Company received a demand letter from an
attorney representing the former President and Chief Operating Officer and
Chief Financial Officer of the Company (the "Former Employees"). In the
letter, the Former Employees made claims for certain specified and
unspecified damages in contract and in tort arising out of the termination of
the Former Employees' employment with the Company. The aggregate amount of
economic damages claimed by the Former Employees exceeds $400,000. In
addition, the Former Employees asserted possible punitive damages and damages
based on emotional distress. The Former Employees also claimed the right to
vested options of the Company's common stock, which options have subsequently
terminated. Although the Company intends to contest such claims vigorously,
there can be no assurances as to the eventual outcome of such claims or their
effect on the Company's financial condition and results of operations. In
addition, an adverse determination in any litigation arising from these
claims or the settlement of such claims could have a material adverse effect
on the Company, its financial condition and its results of operations. The
Company has not received further communication from the Former Employees
regarding their claims since April 1996.
10. LICENSES AND COLLABORATIVE AGREEMENTS
The Company's strategy for development of its technologies involves the
licensing of technologies and the establishment of collaborative
relationships with university, governmental and other entities. Material
licensing and collaborative agreements are described below.
In 1993, the Company entered into a technology transfer agreement with Estero
Anstalt, a Swedish corporation, pursuant to which the Company purchased the
core intellectual property and patent rights related to its MAXAMINE-TM-
cancer and infectious disease immunotherapy technology. The total purchase
price under the agreement was $700,000, of which $600,000 was paid pursuant
to a promissory note issued by the Company and secured by the MAXAMINE
technology as described in Note 6 above. At September 30, 1996, $247,000
remains payable under the note and is due June 30, 1997. The technology
transfer agreement also requires that the Company pay certain royalty
obligations to Drs. Kristoffer Hellstrand and Svante Hermodsson, the two
inventors of the technology.
In 1993, the Company entered into an agreement with Vitec AB and SBL Vaccin
AB ("SBL"), pursuant to which the Company obtained an exclusive, worldwide
license to technology, including two patent applications, related to use of
the MAXVAX-TM- vaccine technology for the treatment of Chlamydia. Under the
agreement, the Company is required to use its best efforts to engage SBL to
manufacture any products which result from the application of the licensed
technology. The Company has made payments of $150,000 to Vitec AB under this
agreement, and has agreed to make royalty payments on the net sales of
products using the licensed technology and to make additional license and
milestone payments to Vitec AB upon the execution of any sublicenses.
In 1994, the Company entered into a second license agreement with Vitec AB
and SBL for an exclusive, worldwide license to technology rights related to
the MAXVAX technology for all infectious diseases with the exception of (i)
Chlamydia (governed by the agreement discussed above), (ii) HIV (governed by
a sublicense agreement held by the Company as described below) and (iii)
cholera and travelers' diarrhea. Under the agreement, the Company has agreed
to use its best efforts to engage SBL to manufacture any products which
result from the application of licensed technology, and both Vitec AB and the
Company shall receive a percentage of any profits that SBL derives from
manufacturing such products. The Company paid an initial license fee of
$100,000 under the agreement, and has agreed to make a
<PAGE>
minimum milestone payment of $400,000 by December 31, 1996 to extend the
exclusivity on the license. If the Company fails to make the minimum
milestone payment by such date, the Company's rights to the technology shall
convert to a non-exclusive license; if the Company fails to make the minimum
payment by December 31, 1998, the licensors shall have the right to terminate
the agreement. The agreement also requires the Company to make royalty
payments based on net sales of products which utilize the licensed technology.
In 1995, the Company entered into a license agreement with Drs. Jan Holmgren
and Cecil Czerkinsky, inventors of the core technology underlying MAXVAX (the
"CTB" technology), and their affiliated companies, Duotol AB and Triotol AB,
for an exclusive, worldwide license to patent applications and related
technology rights with respect to the therapeutic and anti-inflammatory
properties of CTB. Under the agreement, the Company has agreed to make
royalty payments based on net sales of certain products which utilize the
licensed technology for the treatment of infectious diseases. Triotol AB has
agreed to make royalty payments to the Company based on net sales of certain
other products which utilize the licensed products for the treatment of
certain autoimmune diseases. Duotol AB may terminate the agreement upon a
material breach by the Company and the agreement will terminate automatically
if the Company is liquidated.
11. RELATED PARTY TRANSACTIONS
In February 1996, the Company entered into an agreement with a business
consulting firm to provide strategic planning and advisory services for
$10,000 per month for three years, and warrants to purchase up to 173,333
shares of common stock at an exercise price of $3.00 per share vesting over
36 months. In April 1996, the chief executive officer of this firm was
elected as a director of the Company. The Company made payments totaling
$80,000 in connection with the consulting agreement during the year ended
September 30, 1996.
As described in Note 6, in September 1996 the Company repaid a $250,000 note
payable, and paid interest in the amount of 39,056, to a shareholder of the
Company.
As described in Note 12, in July 1996 the Company sold its ownership interest
in a subsidiary to a former director and shareholder of the Company for
$1.00, and recorded a gain on the disposal of $2,288,474. As described in
Note 3, during the year ended September 30, 1996 the Company transferred
laboratory equipment with a net book value of $128,248 to this former
director.
As part of its program of research and development, the Company has retained
certain Swedish scientists and other consultants to consult with the Company
and perform research and development services. Certain of these consultants
were considered related parties as they were holders of the Company's common
stock (or warrants, or options, to purchase common stock), and one such
consultant was formerly a director of the Company.
12. DISPOSAL OF CERTAIN OPERATIONS
SALE OF SVD SUBSIDIARY - On July 5, 1996, the Company sold its ownership
interest in its Swedish subsidiary, SVD, to a former Swedish collaborating
scientist and former director and shareholder of the Company for $1.00. The
Company recorded a gain on the disposal of SVD of $2,288,474, representing
the excess of SVD's liabilities over its assets as of the date of sale.
SVD's primary liability at the date of sale was a $2,421,560 Swedish
Industrial Fund loan from the Swedish government described in Note 6. SVD's
assets consisted primarily of capitalized patent costs. The sale transferred
certain technology rights related to certain peptides for use in vaccination
and induction of neutralizing antibodies against HIV. In connection with the
sale, the Company received a non-exclusive sublicense to the MAXVAX mucosal
vaccine carrier for development of vaccines for the treatment of HIV
infection.
DISCONTINUED OPERATIONS - During fiscal 1994 the Company disposed of its
diagnostic division and certain assets and liabilities for cash of $496,555
and the assumption of $700,000 of debt by the buyer. The loss on
discontinued operations and gain on disposition of the division was accounted
for as discontinued operations. Revenue for the diagnostic division was
$1,273,170 in 1994.
13. QUARTERLY RESULTS (UNAUDITED)
Summarized quarterly results of operations for the years ended September 30,
1996 and 1995 were as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
Year ended September 30, 1996
---------------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Research and development expenses $219,388 $593,896 $341,777 $453,870
Net income (loss) (570,879) (922,009) (885,410) 1,544,810
Net income (loss) per share of
common stock (0.12) (0.16) (0.14) 0.25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended September 30, 1995
---------------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
Research and development expenses 422,102 105,743 175,787 $281,146
Net (loss) (777,565) (591,899) (554,406) (866,252)
Net (loss) per share of common
stock (0.26) (0.20) (0.19) (0.24)
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Maxim Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of Maxim
Pharmaceuticals, Inc. and subsidiary (a development stage company) as of
September 30, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the
years in the three-year period ended September 30, 1996 and for the period
from inception (October 23, 1989) through September 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Maxim
Pharmaceuticals, Inc. and subsidiary (a development stage company) as of
September 30, 1996 and 1995, and the results of their operations and their
cash flows for each of the years in the three-year period ended September 30,
1996 and for the period from inception (October 23, 1989) through September
30, 1996, in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
San Diego, California
November 27, 1996
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS.
OVERVIEW
During the periods encompassed by this Annual Report, Maxim Pharmaceuticals,
Inc. (the Company) has devoted substantially all of its efforts to research
and development of proprietary technologies targeting the prevention and
treatment of cancer and infectious diseases. To date the Company has
conducted the majority of its research and development in university
laboratories and at clinical sites through consulting arrangements with its
collaborative scientists; a significant portion of such work has been
performed in Sweden. Oversight and coordination of these programs has been
managed by the Company's personnel from its administrative offices located in
San Diego, California.
The Company expects to continue to incur losses as it expands its research
and development activity and sponsorship of clinical trials. The future
success of the Company is likely to be dependent on its ability to obtain
additional capital to develop and commercialize its proposed products and,
ultimately, upon its ability to attain future profitable operations. There
can be no assurance that the Company will be successful in obtaining such
financing, or that it will attain positive cash flow from operations.
RESULTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
RESEARCH AND DEVELOPMENT EXPENSES - The Company's research and development
expenses consist primarily of payments to consultants and collaborators
engaged in development of the Company's proposed products and expenses
related to the Company's sponsorship of clinical trials. For the year ended
September 30, 1996, research and development expenses increased $624,000, or
63%, to $1,608,931. This increase was primarily attributable to a $382,000
increase in research funding to certain universities due to increased
activity in cancer clinical trials of the Company's Maxamine-TM- therapy, and
increased funding of preclinical projects for its MaxVax-TM- mucosal vaccine
technology. For the years ended September 30, 1995 and 1994, research and
development expenses remained relatively constant at approximately $985,000
and $999,000, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES - The Company's general and
administrative expenses consist of salaries paid to the Company's executive
officers, professional fees paid to consultants and service providers,
occupancy expenses, travel expenses and administrative support salaries. For
the year ended September 30, 1996, general and administrative expenses
increased $238,000, or 21%, to $1,355,000 over the prior year. This increase
is primarily the result of $276,000 in deferred compensation recognized in
the current fiscal year related to stock options issued to management,
directors and consultants; no such expense was incurred in the prior year.
For the years ended September 30, 1995 and 1994, general and administrative
expenses remained relatively constant at $1,117,000 and $1,023,000,
respectively.
OTHER INCOME (EXPENSE) - During the year ended September 30, 1996 the
Company recorded a gain of $2,288,000 from the sale of a subsidiary of the
Company. Investment income increased to $260,000 for the year ended
September 30, 1996, compared to $6,000 for the prior year, due to income on
the proceeds of the Company's initial public offering. Current year interest
expense decreased $290,000, or 60%, to $197,000 compared to the prior year
due to the repayment of approximately $2.85 million of notes payable and
long-term debt. Interest expense for the year ended September 30, 1995 was
$487,000, a decrease of $202,000, or 29%, from the prior year due to the
conversion of approximately $1.7 million of debt into equity and the
repayment of approximately $1.1 million of notes payable.
DISCONTINUED OPERATIONS - During the year ended September 30, 1994, the
Company sold its medical diagnostic operations recording a gain of $483,000.
This gain was offset by a loss of $134,000 in fiscal 1994 from the operations
of the diagnostic division.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the sale of its
equity securities, including an initial public offering of common stock and
redeemable common stock purchase warrants in July 1996 which provided
approximately $18.2 million, net of financing costs, to the Company.
As of September 30, 1996, the Company had cash, cash equivalents and
investments totaling approximately $19.1 million. For the years ended
September 30, 1996, 1995 and 1994, net cash used in the Company's operating
activities was approximately $2.7 million, $2.6 million and $3.3 million
respectively. The Company expects its cash requirements to increase
significantly in future periods as it conducts additional research and
development activities including internal product research, development and
testing, preclinical studies and clinical testing of its potential products
and to market any products that are developed.
The Company's cash requirements may vary materially from those now planned
because of the results of research, development and clinical trials, the time
and costs involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights, competing technological and market developments, changes in
the Company's existing research relationships, the ability of the Company to
establish collaborative arrangements and the development of the Company's
product commercialization activities. As a result of these factors, it is
difficult to predict accurately the timing and amount of the Company's cash
requirements.
In order to successfully commercialize any of its products, the Company
expects that it will ultimately be required to seek additional funds through
public or private financings or collaborative arrangements with corporate
partners. The issuance of additional equity securities could result in
substantial dilution to the Company's stockholders. There can be no
assurance that additional funding will be available on terms acceptable to
the Company, if at all. The failure to fund its capital requirements would
have a material adverse effect on the Company's business.
The Company has never paid a cash dividend and does not contemplate the
payment of cash dividends in the foreseeable future.
NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standard Board issued SFAS 123,
Accounting for Stock-Based Compensation," effective for fiscal years
beginning after December 15, 1995. Under the provisions of SFAS 123, the
Company is encouraged, but not required, to measure compensation costs
related to its employee stock compensation under the fair value method. If
the Company elects not to recognize compensation expense under this method,
it is required to disclose the pro forma effects based on the SFAS 123
methodology. The Company anticipates adopting the pro forma method of
disclosure under SFAS 123.
IMPACT OF INFLATION
The impact of inflation on the operations of the Company for the years ended
September 30, 1996, 1995 and 1994 was not material.
<PAGE>
MARKET FOR COMMON STOCK
MAXIM PHARMACEUTICALS, INC. (A DEVELOPMENT STAGE COMPANY)
The Company's common stock began trading on the American Stock Exchange under
the symbol "MMP" on July 10, 1996. Prior to the Company's initial public
offering on July 10, 1996, there was no established public trading for the
Company's common stock. During the period July 10, 1996 to September 30,
1996, the high and low sales prices per share of common stock reported by
AMEX were $10.88 and $8.25, respectively. As of December 23, 1996, there
were approximately 850 stockholders of record of the Company's common stock
with 6,671,237 shares outstanding. The Company has never paid a dividend and
does not expect to pay any dividends in the foreseeable future.
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Board of Directors
Maxim Pharmaceuticals, Inc.
We consent to incorporation by reference in the registration statement (No.
333-11375) on Form S-8 of Maxim Pharmaceuticals, Inc. of our report dated
November 27,1996, relating to the consolidated balance sheets of Maxim
Pharmaceuticals, Inc. and subsidiary (a development stage company) as of
September 30,1996 and 1995, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the
years in the three-year period ended September 30,1996, and from the period
from inception (October 23, 1989) through September 30, 1996, which report
appears in the September 30,1996 annual report on Form 10-K of Maxim
Pharmaceuticals, Inc.
/s/ KPMG PEAT MARWICK LLP
San Diego, California
December 23, 1996
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 4,070,089
<SECURITIES> 12,563,622
<RECEIVABLES> 46,792
<ALLOWANCES> 45,876
<INVENTORY> 0
<CURRENT-ASSETS> 17,342,996
<PP&E> 56,187
<DEPRECIATION> 25,150
<TOTAL-ASSETS> 21,255,031
<CURRENT-LIABILITIES> 1,131,383
<BONDS> 0
0
0
<COMMON> 6,672
<OTHER-SE> 20,116,976
<TOTAL-LIABILITY-AND-EQUITY> 21,255,031
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,608,931
<LOSS-PROVISION> 45,876
<INTEREST-EXPENSE> 125,958
<INCOME-PRETAX> (833,488)
<INCOME-TAX> 0
<INCOME-CONTINUING> (833,488)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (833,488)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Maxim Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of Maxim
Pharmaceuticals, Inc. and subsidiary (a development stage company) as of
September 30, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the
years in the three-year period ended September 30, 1996 and for the period
from inception (October 23, 1989) through September 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Maxim
Pharmaceuticals, Inc. and subsidiary (a development stage company) as of
September 30, 1996 and 1995, and the results of their operations and their
cash flows for each of the years in the three-year period ended September 30,
1996 and for the period from inception (October 23, 1989) through September
30, 1996, in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
San Diego, California
November 27, 1996
27
