<PAGE> 1
AS FILED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION ON MAY 7,
1999
REGISTRATION NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VAXGEN, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 2834 94-3236309
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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1000 MARINA BOULEVARD, SUITE 200
BRISBANE, CALIFORNIA 94005
(650) 624-1000
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT C. NOWINSKI, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
1000 MARINA BOULEVARD, SUITE 200
BRISBANE, CALIFORNIA 94005
TEL (650) 624-1000
FAX (650) 624-1001
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
AGENT FOR SERVICE)
COPIES TO:
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BENJAMIN F. STEPHENS SUSAN L. PRESTON
WILLIAM W. BARKER KATHRYN A. WALKER
MARK F. HOFFMAN COOLEY GODWARD LLP
GRAHAM & JAMES LLP/RIDDELL WILLIAMS P.S. 4205 CARILLON POINT
1001 FOURTH AVENUE PLAZA, SUITE 4500 KIRKLAND, WASHINGTON 98033
SEATTLE, WASHINGTON 98154 TEL: (425) 893-7700
TEL: (206) 624-3600 FAX: (425) 893-7777
FAX: (206) 389-1708
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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Common Stock, $0.01 par value......................... $53,475,000 $14,866
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(1) Estimated pursuant to Rule 457(o) under the Securities Act solely for the
purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
DESCRIPTION OF ARTWORK
Inside Front Cover:
Introductory text: Preventing HIV infection with AIDSVAX
Graphics on blue background depicting:
(1) gp120 molecule, arrow pointing to gp120
TEXT: HIV virus, gp120
(2) creation of synthetic gp120
TEXT: Synthetic gp120 created by genetic engineering
(3) Injection of AIDSVAX in arm of vaccinee
TEXT: AIDSVAX vaccine, AIDSVAX induces antibodies in blood
(4) binding of antibodies to gp120
TEXT: Protection, Antibodies to gp120 block HIV infection
<PAGE> 3
DESCRIPTION OF ARTWORK
INSIDE BACK COVER:
Graphic depicting: Colored map of the world on blue background with vertical
bars indicating number of people living with HIV/AIDS.
TEXT: People Living with HIV/AIDS
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North America 890,000
Caribbean 330,000
Latin America 1,400,000
North Africa, Middle East 210,000
Western Europe 500,000
Sub Saharan Africa 22,500,000
South and South-East Asia 6,700,000
Eastern Europe, Central Asia 270,000
East Asia and Pacific 560,000
Australia and New Zealand 12,000
Total: 33.4 million
</TABLE>
Source: UNAIDS, AIDS Epidemic Update, Dec. 1998
<PAGE> 4
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. VAXGEN
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION -- MAY 7, 1999
PROSPECTUS
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3,100,000 Shares
[VAXGEN LOGO]
Common Stock
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VaxGen, Inc. is offering 3,100,000 shares of its common stock in an initial
public offering. Prior to this offering, there has been no public market for
VaxGen's common stock.
VaxGen is developing preventive vaccines for worldwide use against HIV. We are
conducting two large-scale Phase III clinical trials, one in North America and
one in Thailand.
It is anticipated that the public offering price will be between $13.00 and
$15.00 per share. The shares of VaxGen will be quoted, subject to approval, in
the Nasdaq National Market under the symbol "VXGN".
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Per Share Total
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Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to VaxGen........................ $ $
</TABLE>
SEE "RISK FACTORS" ON PAGES 6 TO 10 FOR FACTORS THAT SHOULD BE CONSIDERED BEFORE
INVESTING IN THE SHARES OF VAXGEN.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
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The underwriters may, under certain circumstances, purchase up to 465,000
additional shares from VaxGen at the public offering price, less underwriting
discounts and commissions. Delivery and payment for the shares will be on
.
PRUDENTIAL SECURITIES PUNK, ZIEGEL & COMPANY
, 1999
<PAGE> 5
[GRAPHICS TO BE DETERMINED]
DESCRIPTION OF ARTWORK
Inside Front Cover:
Introductory text: Preventing HIV infection with AIDSVAX Graphics on blue
background depicting:
(1) gp120 molecule, arrow pointing to gp120
TEXT: HIV virus, gp120
(2) creation of synthetic gp120
TEXT: Synthetic gp120 created by genetic engineering
(3) Injection of AIDSVAX in arm of vaccinee
TEXT: AIDSVAX vaccine, AIDSVAX induces antibodies in blood
(4) binding at antibodies to gp120
TEXT: Protection, Antibodies to gp120 block HIV infection
<PAGE> 6
TABLE OF CONTENTS
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PAGE
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Prospectus Summary................. 3
Risk Factors....................... 6
Forward Looking Statements......... 10
Use of Proceeds.................... 11
Dividend Policy.................... 11
Dilution........................... 12
Capitalization..................... 13
Selected Financial Data............ 14
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 15
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PAGE
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Business........................... 19
Management......................... 39
Certain Transactions............... 45
Principal Stockholders............. 46
Description of Capital Stock....... 47
Shares Eligible for Future Sale.... 49
Underwriting....................... 50
Legal Matters...................... 51
Experts............................ 51
Where You Can Find More
Information...................... 51
Index to Financial Statements...... F-1
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The terms "VaxGen", "Company", "we", "our" and "us" refer to VaxGen, Inc. unless
the context suggests otherwise. The term "Genentech" refers to Genentech, Inc.
The term "you" refers to a prospective investor.
AIDSVAX(R) is a registered trademark of VaxGen. Our web site address is
www.vaxgen.com. Information contained on our web site is not a part of this
prospectus.
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any jurisdiction where the offer or sale
is not permitted. You should not assume that the information contained in this
prospectus is accurate as of any date other than the date on the front cover of
this prospectus.
2
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that
investors should consider before investing in the common stock of VaxGen.
Investors should read the entire prospectus carefully.
THE COMPANY
We are developing preventive vaccines for worldwide use against HIV. We are
conducting two large-scale Phase III clinical trials of our AIDSVAX vaccines,
one principally in North America and one in Thailand. To date, we are the only
company to advance an HIV vaccine into Phase III clinical trials. If the Phase
III clinical trials are successful, we will apply to the United States Food and
Drug Administration and foreign regulatory authorities for licenses to
manufacture and sell AIDSVAX in the United States and abroad.
Initial development of AIDSVAX was funded by Genentech at a cost of over
$50 million during a period of nearly ten years. We were formed in November 1995
to complete the development of, and commercialize, AIDSVAX in partnership with
Genentech. Genentech licensed to us the technology necessary for development and
commercialization of AIDSVAX.
The HIV/AIDS Epidemic
HIV/AIDS is one of the largest epidemics in human history. According to the
World Health Organization and UNAIDS:
- in just two decades, over 47 million people have been infected with HIV
worldwide;
- 14 million lives have been claimed by AIDS;
- each day approximately 16,000 individuals become infected with HIV; and
- AIDS is one of the top five fatal diseases worldwide.
We believe that, because of the magnitude and severity of the epidemic, an
HIV vaccine would have one of the largest population-based markets in the
history of modern medicine.
Our Vaccines
Our vaccines are designed to prevent infection by HIV, rather than treat
established infection. Because AIDSVAX contains synthetic copies of proteins
from the surface of HIV, it is incapable of causing HIV infection. Humans
vaccinated with AIDSVAX form antibodies against HIV which, in laboratory tests,
bind to the virus and neutralize its infectivity. Vaccination with AIDSVAX also
stimulates immune memory, training the immune system to mobilize rapidly in the
event of future exposure to HIV.
We believe that AIDSVAX will be successful for the following reasons:
- EFFICACY: In Phase II clinical trials, all human volunteers vaccinated
with AIDSVAX developed neutralizing antibodies to HIV. In chimpanzees,
vaccination with AIDSVAX protected chimps against infection upon
subsequent injection with infectious HIV. The level of neutralizing
antibodies in humans vaccinated with AIDSVAX equaled or exceeded that
observed in vaccinated chimps.
- SAFETY: In Phase I/II clinical trials, none of the 2,000 human volunteers
vaccinated with AIDSVAX had serious side effects.
- HIV COVERAGE: AIDSVAX is designed to neutralize the majority of HIV
subtypes and strains encountered during natural infection in the regions
where we are conducting Phase III clinical trials.
- BROAD USE: AIDSVAX has no clinical impact on people previously infected
with HIV. We believe, therefore, that AIDSVAX will be used without
requiring the prescreening of recipients. This is particularly
advantageous in populations where there is a high rate of HIV-infected
people.
- MANUFACTURING: Genentech has manufactured AIDSVAX in commercial
quantities.
- VACCINE RATIONALE: The design of AIDSVAX follows that of previous
successful vaccines, such as hepatitis B vaccine. The blocking of HIV
infection by neutralizing antibody conforms with generally accepted
principles of vaccinology.
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Our Clinical Trials
We are conducting Phase III clinical trials of AIDSVAX to determine whether
AIDSVAX protects humans from HIV infection by sexual transmission or injection
drug use. The North American Phase III trial is designed for 5,400 volunteers.
It is being conducted in 56 clinics across the United States. It is also being
tested in one clinic in Puerto Rico, one clinic in Canada and one clinic in The
Netherlands. In Thailand, the Phase III clinical trial is designed for 2,500
volunteers and is being conducted in 17 clinical sites in Bangkok.
To gain regulatory approval for AIDSVAX, we believe the vaccine must reduce
the level of HIV infection by 30% or more. This is based on meetings and
documented discussions we have had with the FDA and its Vaccines and Related
Biological Products Advisory Committee.
Our clinical protocol provides for two opportunities to measure efficacy:
- An independent monitoring board will conduct an interim analysis
approximately midway through the observation period of each clinical
trial. Should AIDSVAX meet the 30% threshold, the independent monitoring
board will stop the trial and we will submit an application for
regulatory approval.
- If the 30% threshold is not met at the interim analysis, we will have a
second opportunity to determine the vaccine's efficacy at the completion
of the trial.
Our Strategic Relationships
We intend to use Genentech as our partner to manufacture and distribute
AIDSVAX. Genentech has exclusive options to manufacture and market AIDSVAX on
specified financial terms. If Genentech does not exercise its options, we have
the right to pursue third party arrangements, with Genentech providing the
transfer of technology necessary to manufacture AIDSVAX.
We will work with two federal agencies in relation to our North American
Phase III trial: the Centers for Disease Control and Prevention and the National
Institute for Allergy and Infectious Diseases. The Centers for Disease Control
and Prevention have proposed to co-sponsor the Phase III trial and to fund $8.0
million over a period of four years. The National Institute for Allergy and
Infectious Diseases is working with us on a $4.6 million program related to the
Phase III clinical trial. The purpose of this program is to obtain and store
specimens for studies on the immune system.
We also intend to work selectively with other companies that are developing
vaccines for HIV. For example, we are working with Pasteur Merieux Connaught to
co-develop an alternative HIV vaccine. This vaccine will combine technologies
and components provided by Pasteur Merieux Connaught and us. We anticipate that
such a combination vaccine could enter Phase III clinical trials by 2001.
We believe we have a strong competitive lead in the development of an HIV
vaccine. We are the only company worldwide with Phase III clinical trials of an
HIV vaccine underway. In addition to having the advantage of lead-time, we also
have an exclusive license from Genentech to a portfolio of U.S. and foreign
patents on AIDSVAX and associated technology, consisting of 52 issued patents
and 44 pending patent applications.
Our Management Team
Our management team, together with Genentech, has extensive experience in
the international arena of HIV research, public health policy, and the practical
aspects of developing, manufacturing and marketing biological products. Our
President is Donald Francis, M.D. During his 20-year tenure at the Centers for
Disease Control, he was involved in the control or eradication of several
epidemics, including a major epidemic of cholera in Africa, smallpox in India
and the first known outbreak of the Ebola virus. He subsequently was the lead
clinician for the Phase III trial of the hepatitis B vaccine. Our Chairman of
the Board and Chief Executive Officer is Robert Nowinski, Ph.D. Dr. Nowinski is
a pioneering executive in the biotechnology industry, having founded three
publicly-traded biotechnology companies (Genetic Systems Corp., 1981, ICOS
Corp., 1989, and PathoGenesis Corp., 1991). Our Senior Vice President, Research
& Development is Phillip Berman, Ph.D., who is an inventor of AIDSVAX and a
former senior scientist at Genentech.
VaxGen, Inc. was incorporated in Delaware in November 1995. Our principal
executive offices are located at 1000 Marina Boulevard, Suite 200, Brisbane, CA
94005, and our telephone number is (650) 624-1000.
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THE OFFERING
Shares offered by VaxGen.................... 3,100,000 shares
Total shares outstanding after this
offering.................................... 10,785,161 shares(1)
Use of proceeds............................. To complete Phase III clinical
trials of AIDSVAX in North
America and Thailand, develop
data management systems, apply
for regulatory approval and for
working capital and other
general corporate purposes.
Proposed Nasdaq National Market symbol...... VXGN
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(1) Reflects a one-for-two reverse stock split effective on April 9, 1999, and
does not include: (a) 891,671 shares of common stock issuable on exercise of
stock options outstanding at April 15, 1999 at a weighted average exercise
price of $8.33 per share; (b) 861,150 shares of common stock reserved for
future issuance under our 1996 stock option plan; (c) 28,929 shares of
common stock reserved for future issuances under our 1998 Director Stock
Option Plan; (d) 309,825 shares of common stock issuable on exercise of
warrants at April 15, 1999 at a weighted average exercise price of $7.73 per
share; and (e) exercise of the underwriters' over-allotment option.
SUMMARY FINANCIAL INFORMATION
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<CAPTION>
PERIOD FROM
NOVEMBER 27, 1995 YEAR ENDED THREE MONTHS ENDED
(INCEPTION) TO DECEMBER 31, MARCH 31,
DECEMBER 31, ---------------------------- -------------------
1995 1996 1997 1998 1998 1999
----------------- ------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Loss from operations.......... $(30) $(2,054) $(3,946) $(10,176) $(1,163) $(4,044)
Net loss...................... $(30) $(2,082) $(3,060) $ (9,163) $ (857) $(3,760)
==== ======= ======= ======== ======= =======
Net loss per share -- basic
and diluted................. $ -- $ (1.90) $ (0.60) $ (1.48) $ (0.14) $ (0.49)
==== ======= ======= ======== ======= =======
Weighted average shares
outstanding -- basic and
diluted..................... -- 1,093 5,096 6,185 6,066 7,619
</TABLE>
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AT AT MARCH 31, 1999
DECEMBER 31, -------------------------
1998 ACTUAL AS ADJUSTED(1)
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(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash, cash equivalents and investment securities....... $19,468 $20,607 $59,707
Working capital........................................ 17,866 19,318 58,418
Total assets........................................... 21,472 22,693 61,793
Stockholders' equity................................... 19,398 20,896 59,996
</TABLE>
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(1) As adjusted to give effect to the estimated net proceeds from the sale of
the 3,100,000 shares of common stock to be sold in this offering at an
assumed initial public offering price of $14.00 per share.
5
<PAGE> 10
RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information set forth in this prospectus, before purchasing shares of
common stock of VaxGen. Each of these risk factors could adversely affect our
business, operating results and financial condition, as well as adversely affect
the value of an investment in our common stock.
OUR SUCCESS IS ENTIRELY DEPENDENT UPON OUR ONLY PRODUCT CANDIDATE,
AIDSVAX. AIDSVAX is our only product candidate. We do not know whether AIDSVAX
will be effective in preventing HIV infection. Our success will depend entirely
on the success of AIDSVAX. In particular, we must be able to:
- establish the safety and efficacy of AIDSVAX in humans;
- obtain regulatory approvals for AIDSVAX; and
- successfully commercialize AIDSVAX through collaborative relationships.
If AIDSVAX does not obtain regulatory approval, we do not have other
products from which to derive revenue.
WE CANNOT BE CERTAIN WHEN OUR PHASE III CLINICAL TRIALS WILL BE COMPLETED, OR
WHETHER THEY WILL BE SUCCESSFUL. We must provide the FDA and foreign regulatory
authorities with clinical data that demonstrate the safety and efficacy of
AIDSVAX before it can be approved for commercial sale. Clinical testing is a
long, expensive and uncertain process. We cannot assure you that our clinical
trials will be completed on schedule, that the clinical data will be adequate
for regulatory submission or that regulatory authorities will approve AIDSVAX.
Our trials could be delayed for a variety of reasons, including:
- delays in enrolling volunteers;
- lower than anticipated retention rate of volunteers in the trial; or
- serious adverse events related to the vaccine.
Results of previous animal trials may not be relevant for determining the
protective effect of AIDSVAX against HIV infection in humans. Preclinical and
clinical data can be interpreted in different ways, which could delay, limit or
prevent regulatory approval. Serious adverse events related to the vaccine
during the trial could cause the trial to be prematurely terminated. Negative or
inconclusive results could cause the trial to be unacceptable for submission to
regulatory authorities.
WE ARE SUBJECT TO EXTENSIVE REGULATIONS BY DOMESTIC AND FOREIGN REGULATIONS.
AIDSVAX is subject to extensive government regulations related to: development,
clinical trials, manufacturing and commercialization. The process of obtaining
FDA and other regulatory approvals is costly, time consuming, uncertain and
subject to unanticipated delays. With regard to the clinical trials, we cannot
assure you that clinical data will be acceptable to regulatory authorities, if
at all. We cannot assure you that regulatory authorities will approve AIDSVAX at
our protocol established minimum efficacy threshold of 30%.
The FDA may refuse to approve an application if it believes that applicable
regulatory criteria are not satisfied. The FDA may also require additional
testing for safety and efficacy. Moreover, if regulatory approval of a product
is granted, the approval may be limited to specific indications. For instance,
the FDA may approve the licenses for only high risk populations. Foreign
regulatory authorities may apply similar limitations or may refuse to grant any
approval.
There can be no assurance that the FDA will approve AIDSVAX manufacturing
processes and facilities. Should Genentech elect not to manufacture AIDSVAX, we
must secure a third party manufacturer. We cannot assure you that we will
successfully identify a third party manufacturer or that such third party
manufacturing process and facilities will be granted FDA approval. At a minimum,
the FDA will require equivalence testing between Genentech produced AIDSVAX and
third party produced AIDSVAX. Depending upon differences in manufacturing
processes, the FDA may also require additional
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clinical studies for safety and efficacy. Any failure to obtain or delay in
obtaining such approvals would have a material adverse effect on our business,
financial condition and results of operation.
Even after regulatory approval for AIDSVAX is obtained, the AIDSVAX
manufacturing facilities are subject to continual review and periodic
inspection. Domestic manufacturing facilities are subject to preapproval and
biennial inspections by the FDA and must comply with the FDA's Good
Manufacturing Priorities regulations. In complying with these regulations,
manufacturers must spend funds, time and effort in the area of production and
quality control to ensure full technical compliance. The FDA stringently applies
regulatory standards for manufacturing.
WE DO NOT EXPECT AIDSVAX TO BE COMMERCIALLY AVAILABLE FOR AT LEAST FOUR
YEARS. AIDSVAX has not received regulatory approval for commercial sale. The
Phase III clinical testing necessary before we can file an application with the
FDA for product approval will take at least 36 months from the date of this
prospectus. The FDA review process could take at least six months. We anticipate
that it will take at least six months after obtaining regulatory approval for
Genentech or another third party to begin commercialization of AIDSVAX. As a
result, we do not believe that AIDSVAX will be on the market before 2003.
WE HAVE ONLY A LIMITED OPERATING HISTORY AND WE EXPECT TO CONTINUE TO GENERATE
LOSSES. To date we have engaged primarily in research, development and clinical
testing. At March 31, 1999, we had an accumulated deficit of approximately $18.1
million. We sustained net losses of approximately $2.1 million in 1996, $3.1
million in 1997 and $9.2 million in 1998, and $3.8 million for the three months
ended March 31, 1999. We expect to incur substantial losses for at least an
additional four to five years.
WE MAY NEED ADDITIONAL FUNDS. We cannot be certain that our existing capital
resources, together with the net offering proceeds and anticipated funding from
the Centers for Disease Control and Prevention and the National Institutes of
Health, will be sufficient to support our current and planned operations for at
least the next four years. We may need to raise additional funds if:
- AIDSVAX is not sufficiently effective to commercialize in its current
formulation;
- our Phase III clinical trials are delayed, are not successful or are more
costly than currently estimated;
- commercialization of AIDSVAX is delayed for any other reason;
- additional trials are required; or
- we do not receive the anticipated funding from the Centers for Disease
Control or the National Institutes of Health.
We cannot assure you that we will be able to raise sufficient funds in the
future.
WE RELY ON GENENTECH FOR THE MANUFACTURE OF AIDSVAX. OUR INABILITY TO
MANUFACTURE AIDSVAX, AND OUR DEPENDENCE ON GENENTECH, MAY ADVERSELY IMPACT OUR
BUSINESS. We have no manufacturing facilities. We are entirely dependent on
third parties to produce AIDSVAX. To date, we have relied on Genentech for this
purpose. Genentech currently has an exclusive option to manufacture AIDSVAX. We
believe that Genentech is the manufacturer best able to produce AIDSVAX. Our
license agreement with Genentech does not specify the price we will be required
to pay Genentech for AIDSVAX.
If Genentech does not manufacture AIDSVAX, we will need to locate and
engage another manufacturer. The cost and time to establish manufacturing
facilities to produce AIDSVAX would be substantial. As a result, using a
manufacturer other than Genentech could delay bringing AIDSVAX to market. This
delay could require us to raise additional funds.
We cannot assure you that we will be able to enter into an agreement with a
third party to manufacture AIDSVAX. We also have no way to determine the price
we would be charged by a third party to manufacture AIDSVAX if Genentech does
not manufacture AIDSVAX. Any manufacturer other
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<PAGE> 12
than Genentech would have to prove both to us and to the FDA and to other
regulatory authorities that its manufacturing process complies with government
regulations.
WE RELY ON GENENTECH FOR THE SALE, MARKETING AND COMMERCIALIZATION OF AIDSVAX.
OUR LACK OF SALES AND MARKETING PERSONNEL, AND OF DISTRIBUTION RELATIONSHIPS,
MAY ADVERSELY IMPACT OUR BUSINESS. We have no sales, marketing or
commercialization capability. Genentech currently has an exclusive option to
market and distribute AIDSVAX. We intend to rely on Genentech to provide an
established distribution system and sales force to market AIDSVAX. If Genentech
does not elect to exercise its option to market and distribute the product, we
will need to locate and engage another partner to market and commercialize
AIDSVAX. We cannot assure you that we will be able to establish marketing or
commercialization arrangements with third parties on favorable terms.
POLITICAL OR SOCIAL FACTORS MAY DELAY OR ADVERSELY AFFECT OUR ABILITY TO BRING
AIDSVAX TO MARKET. Products developed for use in addressing the HIV/AIDS
epidemic have been, and will continue to be, subject to competing and changing
political and social pressures. The political and social response to the
HIV/AIDS epidemic has been politically charged and unpredictable. These
pressures can transcend national barriers. They may delay or cause resistance to
bringing our product to market or limit pricing of our product.
IF WE LOSE OUR LICENSE AGREEMENT WITH GENENTECH, OUR BUSINESS WILL BE
ADVERSELY AFFECTED. We cannot conduct our business without the technology we
license from Genentech. Our license agreement with Genentech permits Genentech
to terminate the agreement, or terminate the exclusivity of our license, if we:
- fail to use due diligence in developing, seeking regulatory approval for,
marketing or commercializing products covered by the Genentech license
agreement;
- fail to file the first market approval application for AIDSVAX with the
FDA prior to May 2002, subject to potential extension for up to two years
in certain circumstances, any other extension being Genentech's sole
decision;
- breach the license agreement and fail to cure the breach within the time
period provided in the agreement;
and we are not able to cure these breaches within the period provided in the
Genentech license agreement. Genentech may also terminate the agreement at any
time if we fail to maintain a tangible net worth of at least $1 million.
VACCINES ARE DIFFICULT TO DEVELOP. Vaccine development is inherently
difficult. It is often characterized by incremental, methodical advances before
a highly effective vaccine is available. The HIV epidemic has occurred in a
period of two decades. Consequently, the overall scientific knowledge of HIV is
limited. While our research has indicated that gp120 is a critical protein in
developing a preventive vaccine, other proteins may be necessary to develop a
more potent vaccine. Also, we have selected alum as adjuvant for our vaccine.
Other formulations of the vaccine may prove to be superior.
FAILURE TO RETAIN KEY MANAGEMENT EMPLOYEES COULD ADVERSELY AFFECT OUR
BUSINESS. We are highly dependent on our senior management and scientific staff,
particularly Dr. Donald Francis, our President, Dr. Robert Nowinski, our
Chairman and Chief Executive Officer, and Dr. Phillip Berman, our Senior Vice
President, Research & Development. These individuals have played a critical role
in developing the vaccine, raising financing and conducting clinical trials. The
loss of the services of any of these key members of senior management may
prevent us from achieving our business objectives.
8
<PAGE> 13
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY OR OPERATE OUR
BUSINESS WITHOUT INFRINGING INTELLECTUAL PROPERTY RIGHTS OF OTHERS. We rely on
patent and other intellectual property protection to prevent our competitors
from manufacturing and marketing AIDSVAX. Our technology, including technology
licensed from Genentech, will be protected from unauthorized use by others only
to the extent that it is covered by valid and enforceable patents or effectively
maintained as trade secrets. As a result, our success depends on our ability,
and Genentech's ability, to:
- obtain patents;
- protect trade secrets;
- operate without infringing upon the proprietary rights of others; and
- prevent others from infringing on our proprietary rights.
We cannot be certain that our patents or patents that we license from
Genentech will be enforceable and afford protection against competitors. We
cannot assure you that our operations or technology will not infringe
intellectual property rights of others.
A FORMER BOARD MEMBER HAS MADE ALLEGATIONS AND CLAIMS AGAINST US. Mr. Daniel
Reiner was a member of our board of directors from March 1998 to April 1999.
After being notified that he would not be renominated to the board of directors
in 1999, he notified our board of directors that he believed that:
- we had entered into an employment agreement with him;
- we were in breach of the alleged employment agreement;
- we breached an agreement to keep him on the board of directors;
- management of VaxGen had wasted corporate assets; and
- members of management made misrepresentations of fact in connection with
our private placement in 1997.
In response to Mr. Reiner's allegations, we formed a special committee of
the board of directors, consisting entirely of non-employee directors, to
investigate his claims. As part of its investigation, the special committee
interviewed several officers and board members, including Mr. Reiner. The
special committee presented its findings to the board of directors on March 11,
1999. The special committee concluded that it was not necessary for the board of
directors to take any action in response to any of the claims made.
We believe Mr. Reiner's claims are without merit. However, there can be no
assurance that Mr. Reiner will not continue to pursue these claims. Nor can
there be any assurance that if he did pursue these claims further that they
would be resolved in our favor. If Mr. Reiner pursues these claims further, we
intend to vigorously defend the claims.
WE MAY BECOME SUBJECT TO PRODUCT LIABILITY CLAIMS. We face an inherent risk of
exposure to product liability suits in connection with AIDSVAX vaccines being
tested in human clinical trials and products that may be sold commercially. We
may be subject to a product liability suit if AIDSVAX causes injury, or if
vaccinated individuals subsequently become infected with HIV. Product liability
claims may result in decreased demand for a vaccine, even if the claims have no
merit. A liability claim, regardless of merit or eventual outcome, could
materially adversely affect our business, results of operation and financial
condition.
THIS OFFERING'S NET PROCEEDS MAY BE ALLOCATED IN WAYS WITH WHICH YOU AND
OTHER STOCKHOLDERS MAY NOT AGREE. Management will have significant flexibility
in applying the net proceeds of this offering. See "Use of Proceeds" for a
discussion of our intended uses of the net proceeds of this offering.
PURCHASERS OF COMMON STOCK IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND
SUBSTANTIAL DILUTION. Investors in this offering will contribute $43,400,000 of
the total amount paid by all investors in our company but will own only
3,100,000 of the shares outstanding.
9
<PAGE> 14
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR OUR COMMON
STOCK. AFTER THIS OFFERING, ITS MARKET PRICE MAY FLUCTUATE WIDELY. The factors
that could cause the market price of our common stock to fluctuate include:
- future announcement concerning us or our competitors;
- quarterly fluctuations in operating results;
- changes in earnings estimates or recommendations by analysts; or
- unsubstantiated reports concerning us or the status of our trials.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD LOWER OUR STOCK
PRICE AND IMPAIR OUR ABILITY TO RAISE FUNDS IN NEW STOCK OFFERINGS. The market
price of our common stock could drop due to sales of a large number of shares of
our common stock or the perception that these sales could occur. These factors
could also make it more difficult to raise funds through future offerings of
common stock.
After this offering, we will have 10,785,161 shares of common stock
outstanding. If the underwriters exercise their over-allotment option in full,
we will have 11,250,161 shares outstanding. The 3,100,000 shares of common stock
(3,565,000 shares if the underwriters exercise their over-allotment option in
full) sold in this offering will be freely tradeable without restrictions under
the securities act, except for any shares purchased by one of our affiliates,
which will be limited by Rule 144 under the Securities Act. Our officers and
directors and stockholders have entered into lock-up agreements pursuant to
which they have agreed not to offer or sell any shares of common stock for a
period of 180 days after this offering. Also, Prudential Securities may, at any
time and without notice, waive the terms of these lock-up agreements. Upon
expiration of this lock-up period shares may be sold in the future without
registration. See Underwriting for a more detailed discussion. The remaining
7,685,161 shares are "restricted securities" within the meaning of Rule 143.
Holders of these shares generally will be entitled to sell them in the public
market without registration. See Shares Eligible for Future Sale for a more
detailed discussion.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements largely on our current expectations and projections
about future events and financial trends affecting the financial condition of
our business. These forward-looking statements are subject to a number of risks,
uncertainties and assumptions about VaxGen, including, among other things:
- general economic and business conditions;
- our expectations and estimates concerning future financial performance,
financing plans and the impact of competition;
- anticipated trends in our business;
- existing and future regulations affecting our business; and
- other risk factors set forth under "Risk Factors" in this prospectus.
In addition, in this prospectus, the words "believe", "may", "will",
"estimate", "continue", "anticipate", "intend", "expect" and similar
expressions, as they relate to VaxGen, our business or our management, are
intended to identify forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus may not occur and actual results
could differ materially from those anticipated or implied in the forward-looking
statements.
10
<PAGE> 15
USE OF PROCEEDS
The net proceeds to VaxGen from the sale of the common stock in this
offering, assuming a public offering price of $14.00 per share, are estimated to
be $39.1 million ($45.1 million if the underwriters exercise their
over-allotment option in full), after deducting underwriting discounts and
commissions and offering expenses. We intend to use these net proceeds as
follows:
- to complete Phase III clinical trials of AIDSVAX, including the costs to
engage medical clinics to perform the clinical trials;
- development and operation of laboratory and data management systems;
- costs of obtaining regulatory approvals; and
- administrative costs and general corporate purposes.
We have not determined the amount of net proceeds to be used for each of
the specific purposes indicated. Accordingly, we will have broad discretion to
use the proceeds as we see fit. Pending such uses, we may invest the net
proceeds temporarily in short-term, investment grade, interest-bearing
securities or guaranteed obligations of the United States government.
DIVIDEND POLICY
We have not declared or paid dividends. We do not anticipate declaring or
paying dividends in the foreseeable future.
11
<PAGE> 16
DILUTION
Purchasers of common stock will experience immediate and substantial
dilution in the net tangible book value of the common stock from the initial
public offering price. Net tangible book value per share is equal to the amount
of total net tangible assets less total liabilities divided by the number of
outstanding shares. After giving effect to the application of the sale of
3,100,000 shares of common stock at an assumed initial public offering price of
$14.00 per share and after the deduction of underwriting discounts and
commissions and estimated offering expenses, VaxGen would have had a net
tangible book value per share at March 31, 1999 of $60.0 million, or $5.56 per
share. This is an immediate increase in net tangible book value of $2.84 per
share to existing stockholders and an immediate and substantial dilution of
$8.44 per share to new investors purchasing common stock in this offering. The
following table illustrates the per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price.............................. $14.00
Net tangible book value at March 31, 1999................. $2.72
Increase attributable to new investors.................... 2.84
-----
Net tangible book value after the offering......................... 5.56
------
Dilution in net tangible book value to new investors............... $ 8.44
======
</TABLE>
The following table summarizes, at March 31, 1999, the differences between
existing stockholders and new investors in this offering with respect to the
number of shares of common stock purchased from VaxGen, the total consideration
paid to VaxGen, and the average consideration paid per share before the
deduction of underwriting discounts and commissions and estimated offering
expenses paid by VaxGen.
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 7,685,161 71.3% $42,239,000 49.3% $ 5.50
New investors...................... 3,100,000 28.7% $43,400,000 50.7% $14.00
---------- ----- ----------- -----
Total.................... 10,785,161 100.0% $85,639,000 100.0% $ 7.94
========== ===== =========== =====
</TABLE>
- ---------------
(1) If the underwriters' over-allotment option is exercised in full, the number
of shares purchased by investors in the offering will be increased to
3,565,000.
12
<PAGE> 17
CAPITALIZATION
The following table sets forth at March 31, 1999, the capitalization of
VaxGen on an actual basis and as adjusted to reflect the application of
estimated net proceeds of $39,100,000 from the sale of 3,100,000 shares of
common stock offered by us at an assumed initial public offering price of $14.00
per share. This table should be read in conjunction with the financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and investment securities............ $ 20,607 $ 59,707
Long-term obligations....................................... 66 66
Stockholders' equity:
Preferred stock, $0.01 par value, 20,000,000 shares
authorized, none outstanding........................... -- --
Common stock, $0.01 par value; 20,000,000 shares
authorized, 7,685,161 shares issued and outstanding,
actual; 10,785,161 shares issued and outstanding, as
adjusted(1)............................................ 77 108
Additional paid-in capital................................ 38,886 77,955
Accumulated other comprehensive income.................... 28 28
Deficit accumulated during the development stage.......... (18,095) (18,095)
-------- --------
Total stockholders' equity.................................. 20,896 59,996
-------- --------
Total capitalization........................................ $ 20,962 $ 60,062
======== ========
</TABLE>
- ---------------
(1) Reflects a one-for-two reverse stock split effective on April 9, 1999, and
does not include: (a) 891,671 shares of common stock issuable on exercise of
stock options outstanding at April 15, 1999 at a weighted average exercise
price of $8.33 per share; (b) 861,150 shares of common stock reserved for
future issuance under our 1996 stock option plan; (c) 28,929 shares of
common stock reserved for future issuances under our 1998 Director Stock
Option Plan; (d) 309,825 shares of common stock issuable on exercise of
warrants at April 15, 1999 at a weighted average exercise price of $7.73 per
share; and (e) exercise of the underwriters' over-allotment option.
13
<PAGE> 18
SELECTED FINANCIAL DATA
This selected financial information should be read with the financial
statements, related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere in this prospectus. The
statement of operations data for the years ended December 31, 1996, 1997 and
1998 and the balance sheet data at December 31, 1996, 1997 and 1998 are derived
from our audited financial statements. The statement of operations data and
balance sheet data for and at the periods ended December 31, 1995 and March 31,
1999 and for the period ended March 31, 1998 are derived from our unaudited
financial statements.
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 27,
1995
(INCEPTION) THREE MONTHS
THROUGH YEAR ENDED DECEMBER 31, ENDED MARCH 31,
DECEMBER 31, ---------------------------- -----------------
1995 1996 1997 1998 1998 1999
------------ ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses
Research and development........ $ (3) $(1,683) $(3,146) $ (6,831) $ (716) $(3,038)
General and administrative...... (27) (371) (800) (3,345) (447) (1,006)
---- ------- ------- -------- ------- -------
Loss from operations............... (30) (2,054) (3,946) (10,176) (1,163) (4,044)
Total other income (expense),
net............................. -- (28) 886 1,013 306 284
---- ------- ------- -------- ------- -------
Net loss........................... $(30) $(2,082) $(3,060) $ (9,163) $ (857) $(3,760)
==== ======= ======= ======== ======= =======
Net loss per share -- basic and
diluted......................... $ -- $ (1.90) $ (0.60) $ (1.48) $ (0.14) $ (0.49)
==== ======= ======= ======== ======= =======
Weighted average shares
outstanding -- basic and
diluted......................... -- 1,093 5,096 6,185 6,066 7,619
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT
---------------------------------- MARCH 31,
1995 1996 1997 1998 1999
---- ------- ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investment
securities.................................. $ -- $ 38 $23,880 $19,468 $20,607
Working capital (deficiency).................. (15) (1,458) 19,843 17,866 19,318
Total assets.................................. 11 229 24,301 21,472 22,693
Long-term obligations......................... 15 795 -- -- 66
Total stockholders' equity (deficit).......... (30) (2,069) 19,882 19,398 20,896
</TABLE>
14
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the "Selected Financial Data," financial statements and related notes included
elsewhere in this prospectus.
OVERVIEW
Initial development of AIDSVAX was funded by Genentech at a cost of over
$50 million over a period of nearly ten years. In November 1995, we were formed
to continue development of AIDSVAX in partnership with Genentech. In connection
with our formation, Genentech licensed to us the technology necessary for
completing development and commercialization of AIDSVAX.
Since our formation, we have focused on developing and testing AIDSVAX. We
recently commenced two Phase III clinical trials, one principally in North
America and one in Thailand to determine efficacy of AIDSVAX. The North American
Phase III clinical trial is being conducted in 59 clinical centers and is
designed for 5,400 trial volunteers. The Thai Phase III clinical trial is being
conducted in 17 clinical centers in Bangkok and is designed for 2,500 trial
volunteers.
In 1996, we entered into two agreements with Genentech: a services
agreement and a license agreement. The services agreement defines the parties'
day-to-day working relationship. Pursuant to this agreement, Genentech provides
limited research and development, regulatory filings, and other administrative
assistance. The services agreement was extended in January 1999 for two years.
Under the license agreement, among other things, Genentech has committed to
make limited amounts of AIDSVAX, and may elect to manufacture more AIDSVAX.
Genentech has an option to manufacture AIDSVAX on specified financial terms. If
Genentech does not exercise its option to manufacture, then we have the right to
pursue third party arrangements. Genentech also has a marketing option,
exercisable for 90 days after we submit our first filing with the FDA to obtain
an exclusive worldwide license to use, market and sell AIDSVAX. If Genentech
exercises the option, we will share net profits from the sale and license of
AIDSVAX. If Genentech does not exercise the marketing option, then we will pay
Genentech a royalty on all sales of AIDSVAX.
To date, we have generated no operating revenues. We anticipate only modest
revenues from government or other grants or from collaborations with other
entities over the next three to five years. We have incurred losses since
inception as a result of research and development and general and administrative
expenses in support of our operations. As of March 31, 1999, we had a deficit
accumulated during the development stage of $18,095,000. We anticipate incurring
substantial losses over at least the next four to five years as we complete our
clinical trials, apply for regulatory approvals, continue development of our
technology and expand our operations.
We believe that the net proceeds from this offering will be sufficient to
complete our Phase III clinical trials, apply for regulatory approval in the
United States and Thailand, and bring AIDSVAX to market. However, we may require
additional funds. We do not currently have other sources of financing. Our
future capital requirements depend on several factors, including:
- the progress of our Phase III clinical trials;
- the progress of other internal research and development projects;
- the need for leasehold improvements to facilities and the purchase of
additional capital equipment;
- the availability of government research grants; and
- the timing of revenue from AIDSVAX is delayed.
15
<PAGE> 20
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1998
Research and development expense
Research and development expense increased 324% from $716,000 for the three
months ended March 31, 1998 to $3,038,000 for the three months ended March 31,
1999. This increase was primarily due to the ramping up of our North American
and Thai Phase III clinical trials, including fees paid to third parties
associated with conducting the trials and an increase in our internal staff for
the purposes of working on the trials.
General and administrative expense
General and administrative expense increased 125% from $447,000 for the
three months ended March 31, 1998 to $1,006,000 for the three months ended March
31, 1999. This increase was primarily due to additional personnel, professional
service fees and costs associated with maintaining our larger office facilities.
Total other income (expense), net
Other income (expense), net, consisting primarily of interest income,
decreased slightly from $306,000 for the three months ended March 31, 1998 to
$284,000 for the three months ended March 31, 1999. This was primarily
attributable to lower average balances of cash, cash equivalents and investment
securities.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Our activities in 1998 were focused on preparing for and commencing our
Phase III clinical trials of AIDSVAX, developing data management systems,
continuing research and development of AIDSVAX, and private financing
activities.
Research and development expense
Research and development expense increased 117% from $3,146,000 in 1997 to
$6,831,000 in 1998. This increase was primarily due to additional personnel,
retaining consultants and contracting with clinics to facilitate the North
American Phase III clinical trial that began in June 1998. The increase was
partially offset by decreased vaccine production costs, as no vaccine production
was required in 1998.
General and administrative expense
General and administrative expense increased 318% from $800,000 in 1997 to
$3,345,000 in 1998. This increase was primarily due to an additional $900,000 in
costs associated with efforts to increase public awareness of the North American
Phase III clinical trial, an additional $800,000 in compensation expense
associated with additional personnel and, an additional $345,000 in higher rent
and related insurance costs associated with our move to larger facilities in
September 1998.
Total other income (expense), net
Other income (expense), net, consisting primarily of interest income
increased 14% from $886,000 in 1997 to $1,013,000 in 1998. This increase was due
to higher average balances of cash, cash equivalents, and investment securities
throughout the year resulting from our private placement completed in May 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Our activities in 1997 were focused on working with Genentech to develop
and produce bivalent vaccine for use in our AIDSVAX clinical trials and our
private financing activities.
16
<PAGE> 21
Research and development expense
Research and development expense increased 87% from $1,683,000 in 1996 to
$3,146,000 in 1997. This increase was primarily due to an additional $913,000 in
payments to Genentech for development and production of bivalent vaccine, an
additional $319,000 in compensation expense as we added clinical and data
management personnel in preparation of human clinical trials, and an additional
$155,000 in costs associated with Phase I and Phase II clinical trials for our
bivalent AIDSVAX vaccine.
General and administrative expense
General and administrative expense increased 116% from $371,000 in 1996 to
$800,000 in 1997. This increase was primarily due to higher compensation expense
associated with additional personnel necessary to support operations.
Total other income (expense), net
Other income (expense), net in 1996 of ($28,000) represents interest
expense on outstanding long term debt. In 1997, we earned other income
(expense), net of $886,000, which represents primarily income earned on
investments of cash, cash equivalents and investment securities.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and investment securities were $20,607,000 at March
31, 1999. We have financed our operations since inception through capital
commitments from Genentech and private placements of equity securities. In the
quarter ended March 31, 1999, we received net proceeds of $5,273,000 from
private financing activities. In 1998, we received net proceeds of $8,604,000
from private financing activities. In 1997, we received net proceeds of
$25,001,000 from private financing activities. To date, inflation has not had a
material effect on our business.
Since our inception, investing activities, other than purchases and sales
of investment securities, have consisted entirely of equipment acquisitions. At
March 31, 1999, our investment in equipment and leasehold improvements was
$1,508,000, and we had committed to the expenditure of more than $1,400,000 for
leasehold improvements and equipment to develop laboratory space. Net cash used
in the three months ended March 31, 1999 for operating activities was
$3,999,000. Net cash used in 1998 for operating activities was $11,810,000.
Expenditures in both periods were a result of increased research and development
costs and general and administrative expenses.
We anticipate that the net proceeds from this offering and other sources of
capital will enable us to meet our anticipated expenditures over the next three
years, including, among other things:
- expanding our facilities;
- supporting our clinical trial efforts; and
- continuing internal research and development.
At December 31, 1998, we had net operating loss carryforwards of
approximately $14,000,000 to offset any future federal taxable income. If not
utilized, the tax net operating loss carryforwards will begin to expire in 2010.
We also had research and development tax credit carryforwards at December 31,
1998, of approximately $440,000 for federal income tax purposes.
YEAR 2000 COMPLIANCE
Many computer systems and software products are coded to accept only two
digit entries in the date code field. Beginning in the year 2000 these date code
fields will need to accept four digit entries to distinguish 21st century dates
from 20th century dates. Systems that are not year 2000 compliant may cease to
function. As a result, in less than one year computer systems and software used
by many companies may need to be upgraded to be year 2000 compliant.
17
<PAGE> 22
We have completed the process of determining whether there are any critical
areas of our business that are not year 2000 compliant. We presently estimate
that the total cost of addressing any year 2000 problems will be less than
$5,000. In arriving at this conclusion, we assumed that the year 2000
assessment, remediation and contingency plans of our third party suppliers will
be fulfilled in a timely manner and without significant cost to us.
We have contacted Genentech, our only material third party supplier as part
of our year 2000 assessment to determine whether their year 2000 compliance
might have a material adverse effect on us. Based on our discussions with
Genentech, we do not believe that their year 2000 compliance will have a
material adverse effect on us.
18
<PAGE> 23
BUSINESS
We were formed in November 1995 to complete the development of, and
commercialize, AIDSVAX, a preventive HIV vaccine. The original AIDSVAX
technology was developed by Genentech and then licensed exclusively to us. We
are currently testing AIDSVAX in humans in two large-scale Phase III clinical
trials. These are the first Phase III clinical trials ever conducted for an HIV
vaccine. If the Phase III clinical trials are considered successful, we plan to
apply to the FDA and foreign regulatory authorities for licenses to manufacture
and sell AIDSVAX in the United States and abroad.
Our vaccine is designed to prevent infection by HIV, rather than treat
established infection. AIDSVAX contains synthetic copies of the proteins from
the surface of HIV. Since the vaccine contains no genetic material, vaccination
with AIDSVAX is incapable of causing HIV infection. Instead, humans vaccinated
with AIDSVAX form antibodies against HIV. Our laboratory tests demonstrate that
these antibodies bind to the virus and neutralize its infectivity. Vaccination
with AIDSVAX stimulates immune memory, training the immune system to mobilize
rapidly upon exposure to HIV.
We are conducting two Phase III clinical trials of AIDSVAX to determine if
AIDSVAX will prevent infection by HIV. Our North American Phase III clinical
trial of AIDSVAX is being conducted in 56 clinics across the United States, as
well as in one clinic in Puerto Rico, one clinic in Canada and one clinic in The
Netherlands. This trial is designed for 5,400 volunteers. In Thailand, we are
conducting a second Phase III clinical trial designed for 2,500 volunteers in 17
clinical sites in Bangkok. Based on meetings and documented discussions with the
FDA and its Vaccines and Related Biological Products Advisory Committee, we
believe that the minimum threshold for regulatory approval is a 30% reduction,
at statistical significance, of HIV infection in volunteers vaccinated with
AIDSVAX.
Our strategy is to develop, test and obtain regulatory approval for various
formulations of AIDSVAX. We intend to use Genentech as our partner for
manufacturing and distribution. Genentech has exclusive options to manufacture
and market AIDSVAX products. If Genentech does not exercise its options, we have
the right to pursue third party arrangements, with Genentech providing the
transfer of technology necessary for manufacturing the vaccine.
VACCINES
Vaccines are preventive, not curative. As a result, vaccines are
particularly suited to address epidemics, even those the magnitude of HIV/AIDS.
Vaccines prevent infection by activating the immune system to neutralize
infectious viruses. The immune system's initial response to a virus is to
produce antibodies. The antibodies bind to the virus and prevent it from
entering cells. If a virus cannot enter a cell, it is unable to multiply and
dies within a few hours in the host. This protection against infection is called
neutralization.
Most virus infections cause lifelong immunity after natural infection. This
is because the immune system remembers that it has seen the virus before. Upon a
subsequent encounter, it mounts such a rapid immune response that it kills the
virus before it can establish a productive infection.
Vaccines also induce long term memory against viruses. The immune system is
trained by vaccination with viral proteins or live viruses to rapidly respond to
and prevent subsequent viral infection.
HIV AND AIDS
HIV is the virus that causes AIDS, a lethal disease characterized by the
gradual deterioration of the human immune system. Although the disease is
manifested in many ways, the problem common to all patients is the destruction
of essential immune cells known as T lymphocytes, or T cells. Destruction of
these T cells by HIV makes the body particularly vulnerable to opportunistic
infections and cancers that typify AIDS and ultimately cause death. Blocking HIV
infection would prevent AIDS.
19
<PAGE> 24
HIV is transmitted by three predominant means. One is sexual contact. The
second is exposure to blood from an infected person, such as sharing needles in
drug use. The third is transmission from infected mothers to their newborns.
The HIV/AIDS epidemic is one of the largest epidemics in human history. Its
spread across the world has been documented by UNAIDS and the World Health
Organization. All statistics presented below are from their 1998 reports.
- in 1998, 1.1% of the world's adult population was living with HIV/AIDS;
- approximately 16,000 new infections occur each day worldwide;
- in Sub Saharan Africa, 8.0% of the adult population is infected with HIV;
and
- in several African countries, HIV has infected between 20% and 26% of the
adult population.
In Thailand, initial infections with HIV were not reported until the
mid-1980s. It is now estimated that almost 800,000 people (2.3% of the country's
adult population) have already been infected. HIV infection has now penetrated
China, India and Indonesia, some of the most populated areas of the world. AIDS
is currently one of the top five fatal diseases worldwide.
An estimated 860,000 people in North America are currently infected with
HIV. In North America, 44,000 new infections occur each year. According to an
earlier independent report, AIDS is one of the leading causes of death in adults
ages 25 to 44 in the United States.
Table 1 presents the UNAIDS/WHO estimates on total population, adults, and
estimated number of HIV infections throughout the world. These statistics lead
us to believe that a market for an HIV vaccine could reach three billion people.
Should this market include pediatric use, the number could exceed four billion.
TABLE 1. REPORT ON GLOBAL HIV/AIDS EPIDEMIC
<TABLE>
<CAPTION>
POPULATION
----------------------------------------
ADULTS ESTIMATED HIV
1997 TOTAL 15-49 INFECTION
---------- --------- -------------
(THOUSANDS)
<S> <C> <C> <C>
GEOGRAPHICAL AREA
North America.......................................... 302,000 156,000 860
Latin America.......................................... 455,000 241,000 1,300
Western Europe......................................... 400,000 201,000 480
Eastern Europe & Central Asia.......................... 373,000 193,000 190
East Asia & Pacific.................................... 1,452,000 815,000 420
South & Southeast Asia................................. 1,860,000 955,000 5,800
North Africa & Middle East............................. 322,000 164,000 210
Sub Saharan Africa..................................... 593,000 268,000 21,000
--------- --------- ------
WORLD TOTAL............................................ 5,757,000 2,993,000 30,260
</TABLE>
- ---------------
Source: "The Report on Global HIV Epidemic," UNAIDS, the Joint United Nations
Programme on HIV/AIDS and the World Health Organization, June 1998.
Progress has recently been made in treating HIV infection. Current
therapies, combining the use of reverse transcriptase inhibitors with protease
inhibitors, slow multiplication of the virus and delay onset of AIDS. They do
not cure HIV infection or AIDS. Costs of these drugs generally exceed $15,000
per year per patient. Considering costs, difficulties in compliance with complex
drug regimens and the development of resistance to these drugs, we believe such
therapies will be available only to a small fraction of the
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HIV-infected population. Thus, we believe they will probably have a minimal
impact on the worldwide epidemic.
THE HIV INFECTION PROCESS
A virus cannot replicate without entering a host cell. To make new
infectious virus particles, a virus must enter a cell and overtake its metabolic
machinery. If a virus cannot gain entry into a cell, it is incapable of
surviving for more than a few hours in the body.
Viruses are varied in their structure and use different ways to enter
cells. HIV is a spherical virus that maintains its genetic information inside
its protein core. This core is surrounded by an outer coat called the envelope
(Figure 1). The envelope has protein projections, called glycoproteins, that
extend out from its surface. Glycoproteins enable HIV to bind to, and
subsequently enter, human cells. The principal glycoprotein on the envelope of
HIV is called gp120. To present the proper orientation for infection, the gp120
proteins are organized on the virus surface in clusters of three.
FIGURE 1. DIAGRAMMATIC REPRESENTATION OF HIV
[GRAPHIC DEPICTING HIV VIRUS WITH GP120 PROTEINS]
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HIV uses gp120 to bind to the surface of cells through a specific sequence
of interactions between the virus and its target cell (Figure 2). This involves
a two-step "lock and key" mechanism. The first step in this process involves the
attachment of gp120 onto a part of the target cell's surface called the CD4
receptor (Panel 2, below). A second step occurs soon thereafter, as the gp120
protein changes shape and then interacts with another target cell molecule
called the chemokine receptor (Panel 3). When this two-step process has been
completed, the virus gains entry by fusing through the target cell membrane
(Panel 4).
FIGURE 2. INFECTION OF CELLS BY HIV
[FOUR GRAPHICS DEPICTING THE STAGES OF INFECTION OF CELLS BY HIV]
Once inside the cell, the viral envelope opens and the core of the virus is
released. The release of the viral core into the cell initiates a replication
cycle that produces thousands of new virus particles per infected cell. As it
multiplies, HIV kills infected T cells and releases new infectious virus into
fluid or blood surrounding the cell. This cycle of: (1) T cell infection; (2)
viral multiplication; (3) T cell death; and (4) re-infection of new T cells
leads to the destruction of an essential line of immunologic defense.
Substantial reduction of T cells ultimately causes increased susceptibility to
the opportunistic infections and cancers that are characteristic of AIDS.
In addition to T cells, HIV also infects, and may reside in, blood
scavenger cells called macrophages. While infection of macrophages is not a
primary cause of AIDS, it is important in the biology of HIV and in our strategy
to prevent infection by the virus.
GENETIC VARIATION IN HIV
AIDS is a single disease throughout the world. At the beginning of the
epidemic, probably all HIV was limited to Africa. HIV, like any other virus,
underwent mutation to create distinct subtypes. People infected with a single
subtype of HIV then exported their infection to other places, such that
different subtypes became predominant in different geographical areas.
Subsequently, HIV underwent further mutation to create individual strains of
each subtype.
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Although the potential genetic variation in HIV might appear limitless,
only a small number of mutations confer advantage to the virus. As a result,
there are a limited number of viral subtypes and strains. We believe these fall
into particular patterns providing a logical basis to formulating a vaccine for
HIV. We also believe that the major subtypes of gp120 have been identified.
Although minor subtypes are identified periodically, no new major subtypes have
been identified in the last 15 years.
SUBTYPES. There are five major subtypes of HIV. These are labeled "A"
through "E," according to their order of discovery. The major difference between
each subtype is a genetic variation in a region of the gp120 protein known as
the chemokine-binding site.
The major subtypes of HIV tend to be distributed along geographical lines.
This is consistent with the general understanding of how HIV has spread
throughout the world. Virtually all HIV in the Americas, Europe, the Caribbean
and Australia is subtype B. The vast majority of HIV in Thailand and in the
Pacific Rim countries is subtype E. Subtype C virus has emerged as the most
rapidly expanding HIV in Africa, China and India. The remaining subtypes A and D
occur primarily in Africa and in limited areas around the world.
STRAINS. Each subtype of HIV is further subdivided into strains. Four
strains arise from two mutations in specific regions of the gp120 protein: a
subregion in the chemokine-binding site and a subregion in the CD4-binding site.
These strains are of key importance in that they have different patterns of
infection and they each react with different antibodies.
- Chemokine-binding site. HIV has mutated at the chemokine-binding site to
yield two distinct strains. Each strain binds to a chemokine receptor on
a target cell. The gp120 protein of T-tropic strains binds to a chemokine
receptor on T cells. The gp120 protein of M-tropic strains binds to a
chemokine receptor found on macrophages, as well as on T cells.
- CD4-binding site. HIV has also mutated at the CD4-binding site to yield
two additional strains. Each of these strains binds to a counterpart CD4
receptor which occurs on human T cells. The gp120 protein of one viral
strain binds to the CD4(a) receptor on T cells, while the gp120 protein
of the other strain binds to the alternative form of the CD4 receptor,
CD4(b), which is also on T cells.
SUBTYPE/STRAIN COMBINATIONS. In summary, there are five major worldwide
subtypes of HIV (A through E). Each subtype has two different strains that bind
to chemokine receptors on different cells (T cells and macrophages). These
strains are further subdivided by two variations in the CD4-binding site on T
cells. Each of these strains requires different antibodies for neutralization.
As shown in Figure 3, a single subtype of HIV (e.g. subtype B) may have as
many as four different strains. We believe other subtypes of HIV have similar
types of variations at their receptor-binding sites.
FIGURE 3. GENETIC VARIATION IN SUBTYPE B HIV THAT INFLUENCE INFECTION
[Graphic depicting subtype B strains]
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To construct a successful vaccine, we need to consider the entire range of
variation in gp120 and assure that we cover each of the sites on the gp120
protein that are open to attack by antibodies. Fortunately, as indicated above,
most of the variable sites on gp120 have only one or two principal forms. By
careful examination, we have been able to identify pairs of HIV viruses whose
gp120 proteins, when combined together in a vaccine, enhance the overall
antibody response. We believe this antibody response covers virtually the entire
range of HIV genetic variations currently known in North America and in
countries of South Asia and the Pacific Rim.
THE DESIGN OF AIDSVAX
AIDSVAX is designed to stimulate antibodies to cell receptor-binding sites
on gp120. Figure 4 shows how we believe antibodies block the HIV infection
process. As depicted in Panels 2 and 3 below, there are several sites on gp120
that bind to individual cell receptors. The attachment of antibodies to these
specific gp120 sites blocks the binding of the virus to these receptors on the
cell surface (Panels 3 and 4). The result is that HIV cannot attach to the cell
surface and its infectivity is neutralized.
FIGURE 4. DEPICTION OF ANTIBODIES BLOCKING HIV INFECTION
[Four graphics depicting the stages of antibodies blocking HIV infection]
In 1992, Genentech genetically engineered a version of the gp120 protein.
Antibodies to this gp120 protein bound to a neutralizing site found on 65% of
subtype B viruses. This virus was labeled B(MN) and was believed to represent
the majority of HIV in the United States.
Subsequently, synthetic gp120 of HIV B(MN) was incorporated into a
monovalent AIDSVAX formulation. Genentech used this AIDSVAX B formulation to
vaccinate humans in Phase I and Phase II clinical trials. Antibodies obtained
from 100% of those vaccinated with AIDSVAX B neutralized the B(MN) virus in
laboratory tests. Further tests demonstrated that these antibodies bound to the
gp120 protein of all HIV subtype B viruses tested. However, in laboratory tests
and Phase II clinical trials, antibodies to B(MN) neutralized, to a greater
extent, HIV of T-tropic strains as compared to HIV of M-tropic strains.
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<PAGE> 29
To improve the breadth of the immune response, we identified a second
virus, B(GNE8), from the M-tropic strain, and a synthetic version of its gp120
protein was added to the vaccine. The resulting bivalent vaccine, AIDSVAX B/B9,
considerably expanded the vaccine's breadth of neutralization. While the
monovalent vaccine could stimulate the production of four different types of
antibodies that reacted with binding-sites to cell receptors, the bivalent
vaccine could stimulate the production of seven. We believe that these seven
antibodies cover virtually all known strains of HIV in North America.
As a general strategy, we plan to develop AIDSVAX formulations that will
stimulate antibodies against multiple binding sites on gp120. Our goal is to
expand the range of antibodies that are stimulated by a vaccine to neutralize a
broader group of HIV. A practical application of this strategy has been the
conversion of AIDSVAX from a monovalent to a bivalent formulation.
STATISTICAL MODEL OF MONOVALENT AND BIVALENT AIDSVAX
We generated a statistical model based on the known distribution of the
four receptor-binding sites on gp120 and their frequency in different HIV
strains in the United States (Figure 5). A comparison was then made between the
neutralizing antibodies which could be stimulated by vaccination with either a
monovalent or bivalent formulation of AIDSVAX.
FIGURE 5. RELATIVE ADVANTAGE OF BIVALENT VS. MONOVALENT VACCINES
[GRAPHIC DEPICTING NEUTRALIZATION OF MONOVALENT VACCINES (B(MN) AND B(GNE8)) AND
BIVALENT VACCINE (B(MN) PLUS B(GNE8))]
Each pie chart in Figure 5 represents the statistical equivalent of 100% of
currently known HIV (i.e., the virus population) in the United States. Each
chart also reflects the calculated frequency at which antibodies stimulated by
the monovalent or bivalent vaccines would bind with HIV in this virus
population. According to this statistical model, the percentage of HIV in the
virus population that would fail to bind antibody is depicted by the white area.
The percentage of HIV which would bind one neutralizing antibody is lightly
shaded, while viruses which would bind two, three or four different neutralizing
antibodies are shown in darker shaded areas.
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This analysis indicates that the monovalent B(MN) vaccine would fail to
stimulate antibodies against 14% of HIV in the statistical virus population. The
bivalent vaccine, which combines the gp120 proteins from B(MN) and B(GNE8),
covers more than 99% of the statistical virus population, with at least two
different neutralizing antibodies binding to each virus particle. According to
this model, over 50% of the HIV viruses would react with four neutralizing
antibodies, each antibody stimulated against different cell-binding sites on
gp120 proteins.
While the statistical model indicates that bivalent AIDSVAX would induce a
broader range of antibodies than monovalent AIDSVAX, there can be no assurance
that the stastical model will predict the actual efficacy of AIDSVAX in human
trials.
FORMULATIONS OF AIDSVAX
AIDSVAX consists of two biologically active ingredients: (1) the antigens,
which are synthetic gp120 proteins, to which neutralizing antibodies are
directed, and (2) the adjuvant, which is aluminum hydroxide, or alum, in which
the antigens are suspended. Alum activates the immune response by attracting
immune cells into the region where the vaccine is injected. Since the vaccine
contains only a synthetic fragment of the virus and no genetic material, it is
incapable of causing HIV infection.
Three different formulations of the AIDSVAX vaccine have been developed and
clinically tested in Phase I/II trials. These include: monovalent AIDSVAX B for
HIV infections in North America and Europe bivalent AIDSVAX B/B' for HIV
infections in North America and Europe, and bivalent AIDSVAX B/E for HIV
infections in Southeast Asia.
INITIAL TESTING OF AIDSVAX IN CHIMPANZEES
The chimpanzee is the only laboratory animal susceptible to HIV infection.
In the initial protection trials conducted by Genentech, chimpanzees were
vaccinated with three doses of monovalent AIDSVAX B. The vaccinated animals,
along with unvaccinated control animals, were then injected intravenously with
high doses of infectious HIV. None of the AIDSVAX vaccinated animals was
infected. All of the unvaccinated control chimpanzees became infected with HIV.
In subsequent trials, chimpanzees were vaccinated with AIDSVAX B(MN) and
then infected with a different strain of HIV known as B(SF2). Despite this
difference, vaccination with AIDSVAX B(MN) conferred immunity and protection
against infection with the B(SF2) strain, while vaccination of control animals
with a placebo had no protective effect. The cross-protection observed in this
experiment documented that AIDSVAX could successfully protect animals from
infectious HIV having a genetic composition distinctly different from the virus
used to make the vaccine. Based on the results of the chimpanzee trials,
Genentech sought and received regulatory approval to commence human clinical
trials to test the safety and efficacy of AIDSVAX in humans.
HUMAN CLINICAL TRIALS
Human clinical trials for vaccines involve three steps:
- Phase I -- tests for dosage and safety;
- Phase II -- larger-scale tests for safety, as well as a determination
of whether the vaccine stimulates antibodies and immune memory; and
- Phase III -- multi-center, placebo-controlled, double-blind tests to
determine protection conferred by vaccination. These efficacy tests
are performed in volunteers who have a high risk of HIV infection.
PHASE I TRIALS -- DOSAGE AND SAFETY, MONOVALENT AIDSVAX B
Phase I trials with monovalent AIDSVAX B vaccine were conducted by
Genentech. AIDSVAX B was clinically evaluated in 671 HIV-negative volunteers and
662 HIV-positive volunteers. None of the
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vaccines had serious side effects. Some vaccinees occasionally experienced pain
at the injection site, as is common with many vaccines.
AIDSVAX B was tested at three doses: 100 eg, 300 eg and 600 eg of gp120.
The 300 eg dose was consistently found to be most effective, stimulating a
higher antibody response without serious side effects.
The clinical trial results also indicated that monovalent AIDSVAX B, at all
three doses tested, did not alter the progression of ongoing HIV infection. We
intend to apply to the FDA for broad use of the vaccine in high-risk groups
without prescreening for HIV infection.
PHASE II TRIALS -- ANTIBODY STIMULATION, MONOVALENT AIDSVAX B
One hundred forty HIV-negative volunteers were vaccinated and boosted three
times with monovalent AIDSVAX B vaccine (given at time 0, 1 month and 6 months
with an additional booster at 12 or 15 months). Antibodies stimulated by
vaccination with AIDSVAX B were measured for their ability to neutralize HIV in
culture tests. All of the vaccinated volunteers produced antibody in their blood
that neutralized infectivity of HIV B(MN). These neutralization tests were
considered of key importance since they measured the actual biological activity
of the vaccine-stimulated antibodies.
Memory of the immune response to HIV in the same volunteers was measured by
examination of neutralizing antibody levels stimulated by sequential booster
shots. All vaccine recipients produced high levels of neutralizing antibody with
boosting. These antibody levels gradually declined with time. Each booster shot,
however, resulted in a rapid antibody response of even higher concentration,
demonstrating a memory recall of the antibody response. This is strong evidence
of immune memory being stimulated by the vaccine. We believe that such memory
will be key for protection, enabling the educated immune system to ward off HIV
infection before it establishes itself.
PHASE I/II TRIALS -- BIVALENT AIDSVAX
We believe that, since an antibody to a single receptor-binding site can
cause neutralization, antibodies to multiple receptor-binding sites will result
in yet broader neutralization. On this basis we developed and tested two
formulations of bivalent AIDSVAX.
We conducted two Phase II trials in the United States and Thailand in 214
HIV-negative volunteers. The trials used two bivalent formulations of AIDSVAX.
The volunteers were vaccinated and then given one booster one month later. The
vaccine tested in the United States was AIDSVAX B/B'. The vaccine tested in
Thailand was AIDSVAX B/E. Each of the vaccines was selected for the known
prevalence of these virus subtypes in the particular countries tested. The
trials were also designed to compare the results of bivalent AIDSVAX to those of
monovalent AIDSVAX. Four factors were monitored:
- safety;
- dosage;
- antibody stimulation; and
- production of antibodies that would neutralize strains used in bivalent
AIDSVAX.
The vaccine did not cause any serious side effects. Vaccinees occasionally
experienced pain at the injection site, as is common with many vaccines. In a
dose response study, the bivalent AIDSVAX demonstrated the same results as those
observed with the monovalent vaccine.
The Phase II studies also demonstrated the stimulation of antibodies to
receptor-binding sites on gp120 proteins that were contained in the respective
vaccines. AIDSVAX B/B' stimulated antibodies to M-tropic and T-tropic HIV found
in the United States. AIDSVAX B/E stimulated antibodies to M-tropic and T-tropic
HIV found in Thailand. In contrast, the monovalent vaccine stimulated a narrower
range of antibodies primarily to T-tropic strains.
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We believe these findings support our hypothesis that a combination of
gp120 proteins in the bivalent vaccine would stimulate antibodies to a broad
range of HIV strains.
PHASE III CLINICAL TRIAL FOR AIDSVAX
In May 1998, the FDA informed us that the data from our Phase I/II studies
were acceptable and that we could proceed to Phase III clinical trials
principally in North America. The first volunteers in the Phase III clinical
trial were vaccinated in June 1998.
The Thai FDA is the governmental body involved in final approval to
manufacture and market medical products. As part of the Thai FDA review, the
Thai Ministry of Public Health has several subcommittees involved in making key
decisions. In the area of HIV/AIDS, this includes the Technical Subcommittee on
AIDS Vaccine, the Ethical Review Committee of the Research Committee, Ministry
of Public Health, and Institutional Review Boards from the participating
institutions in the clinical trial.
In May 1998, we outlined our plans for Phase III clinical trials in
Thailand and in February 1999, we received an import license from the Thai FDA
with approval to begin Phase III clinical trials. In March 1999, the first
volunteers in Bangkok were vaccinated, initiating the Phase III clinical trial.
Based on discussions with the FDA and its Vaccine Advisory Boards and
Related Biological Products Advisory Committee, we believe that the minimum
threshold for regulatory approval is 30% reduction, at statistical significance,
of HIV infection in volunteers vaccinated with AIDSVAX.
Trial Design
We are currently conducting two large, placebo-controlled, double-blind,
Phase III clinical trials, one principally in North America and the other in
Thailand. The test group of volunteers receives AIDSVAX while the placebo group
receives a comparable-appearing placebo containing alum alone. All vials of
vaccine and placebo are coded. During the trials, neither volunteers nor
researchers know which volunteers are given the vaccine or placebo until the
Phase III clinical trials are completed or stopped by the independent review
board. Each volunteer is vaccinated a total of seven times (six boosters) during
a 30-month period. The purpose of the six boosters, one each six months, is to
stimulate high antibody levels throughout the entire trial period. During each
visit, the volunteers receive counseling on how to avoid the risk of HIV
infection. Follow-up with volunteers will continue for at least six months after
the last vaccination is administered.
Volunteers in North America consist of HIV-negative homosexual men and
HIV-negative women who have HIV-infected sexual partners or high risk sexual
behavior. Volunteers in Thailand consist of HIV-negative intravenous drug users
with a high risk for blood-borne transmission of HIV. In both North America and
Thailand, the volunteers are recruited, vaccinated and monitored by clinics with
HIV expertise and experience with these particular population groups.
The size of each Phase III clinical trial was established by a statistical
model that included: (1) the probability of measuring a protective endpoint of
30% inhibition of HIV infection; (2) the rate of infection of the volunteer
group; and (3) assumptions concerning the rate of retention of the volunteers in
the trial for a 36 month clinical observation period.
Within these parameters, the clinical trial in North America is designed
for 5,400 volunteers, randomized 2:1 for vaccine:placebo recipients. The trial
in Thailand is designed for 2,500 volunteers, randomized 1:1 for vaccine:placebo
recipients. The trial in North America is occurring in 56 clinical sites across
the United States. It is also being conducted in one clinic in Puerto Rico, one
clinic in Canada and one clinic in The Netherlands. The trial in Thailand is
occurring in 17 methadone clinics under direction of the Bangkok Metropolitan
Administration.
Each Phase III clinical trial is conducted in two overlapping steps: (1)
recruitment of volunteers during an estimated 12 to 14 month period; and (2) a
36 month clinical observation period. For each individual, the 36 month
observation period begins on the day of their first vaccination. As a result,
the
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entire clinical trial will be completed upon recruitment of the volunteers and
completion of their collective 36 month observation periods.
As part of the study design, an interim efficacy analysis will be performed
in each clinical trial. In the Thai trial, the interim analysis will be
conducted 18 months after recruitment has been completed. In our North American
trial, the interim analysis will be conducted 24 months after recruitment has
been completed (Figure 6).
FIGURE 6. DESIGN OF THE PHASE III CLINICAL TRIALS OF BIVALENT AIDSVAX
[GRAPHIC DEPICTING TIMING OF PHASE III CLINICAL TRIALS]
Enlistment of Clinical Sites and Volunteers
We enlist clinical sites based on their ability to perform clinical trials,
and to recruit the appropriate type and number of volunteers for the Phase III
clinical trials. Our North American trial calls for approximately 1,700
HIV-negative volunteers to be recruited from an already established group of
at-risk individuals at 12 clinical centers. These centers, currently sponsored
by the National Institutes of Health as part of a vaccine preparedness trial,
have over the past four years established a system for the recruitment of
at-risk volunteers. The trial design further calls for the remaining 3,700
HIV-negative volunteers to be recruited by the 47 additional clinical sites.
Based on experience at the 12 clinical centers, we are assuming an incidence of
1.5% HIV infection per year, and a retention rate of at least 80% for volunteers
for the entire 36 month observation period.
In Thailand, a group of injection drug users is being recruited through a
combined effort of the Bangkok Metropolitan Administration, Mahidol University
and the Centers for Disease Control and Prevention. The trial design calls for
an estimated 600 HIV-negative volunteers to be recruited from an already
established group and for the remaining 1,900 HIV-negative volunteers to be
recruited from injection drug users in the Bangkok population. Based on prior
experience, we are assuming a 6% to
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8% incidence of HIV in these groups, with a retention rate of over 75% during
the 36 month observation period.
Conduct of the Phase III Clinical Trials
We have a clinical team of 24 full-time employees who assist and monitor
the 59 clinical sites that are engaged in the North American AIDSVAX trials.
This clinical team organizes and monitors: (1) the clinical testing sites; (2)
data management; (3) the central contract laboratory for HIV testing; (4) sample
handling and shipping; and (5) biostatistics. Audit and monitoring functions are
conducted under contract to a clinical research organization, which audits the
clinical sites for compliance with the Phase III procedures, data recording,
medical records and the use of good clinical practice, as defined by the FDA.
In Thailand, we have employed or have on contract a full-time staff of
three. Our Bangkok office is directed by a project manager and a Thai physician
who provide interface between us and Thai institutions involved in the Phase III
clinical trials. In addition, through a grant to the Bangkok Municipal
Authority, we support a nurse, clerk and social worker at each of the 17
clinical sites, for a total of 51 contract staff.
Each clinical site has agreed to conduct its activities according to the
United States and Thai FDA-reviewed Phase III protocol. The protocol sets
standard procedures for all sites and laboratories. Following each visit of
volunteers to the clinical site, data are recorded in both the volunteers'
permanent medical chart, as well as on a case report form, which is forwarded to
us. The trial design calls for over 500,000 case report forms to be gathered and
entered into the database for the North American Phase III clinical trial alone.
The Phase III protocol also requires clinical sites to report any serious
adverse event to us within 24-hours. Any serious adverse events are to be
immediately examined in detail by our clinical monitors. If deemed a serious
event related to the vaccine, the event is to be promptly reported to the FDA.
The protocol requires all other adverse events to be recorded on the case report
forms and provided to the FDA for review on a periodic basis.
Interim Analysis and Completion of the Phase III Clinical Trials
A single independent data and safety monitoring board oversees the clinical
trials in North America and Thailand. The ten-person monitoring board consists
of prominent clinicians, AIDS specialists, vaccinologists and statisticians. The
board contains seven members from the United States and three from Thailand. A
former Deputy Director of the Centers for Disease Control and Prevention serves
as Director of the monitoring board.
The monitoring board will periodically evaluate the safety of the trial at
6, 12, 24 and 36 months. The initial six-month safety review was conducted in
March 1999. No serious adverse events related to the vaccine were observed.
If efficacy is observed at the time of a scheduled interim efficacy
analysis, the monitoring board will recommend termination of the trial and
vaccination of the placebo group in order to conform with ethical requirements.
If the interim efficacy analysis does not demonstrate sufficient statistical
power to halt the trial, it will continue until its scheduled completion.
Following the close of the Phase III clinical trials, either at the time of
the interim efficacy analysis or at the conclusion of the complete trial, the
code for vaccine/placebo will be released. Analysis of the database will be
performed independently by the external statistician. In addition to examining
the data, the external statistician will prepare the final report which will be
entered into the biologic license application.
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Determination of Efficacy
The primary endpoint of the Phase III clinical trials will be to determine
the quantitative effect of AIDSVAX in high risk volunteers. Based on meetings
and documented discussions with the FDA, we believe that the threshold of
success is a 30% reduction of infection at statistical significance.
To determine efficacy, we will compare the rate of infection in the placebo
group and the vaccine group. An example of how efficacy is calculated is as
follows: if in Thailand the placebo group has 100 HIV infections after 36
months, while the vaccine group has 50 HIV infections during the same period,
the protection conferred by the vaccine would be 50%. In the North American
trial, the determination is similar, although the calculation is adjusted for
the 2:1 ratio of vaccine:placebo.
A secondary endpoint of the Phase III clinical trials will be to determine
qualitative effects of AIDSVAX on potential HIV infections. This is performed in
case the vaccine induces meaningful immunity, but the immune response is not of
sufficient strength to fully prevent infection. For this purpose, multiple blood
samples are drawn from each volunteer throughout the Phase III clinical trials.
This allows us to determine more precisely the time of infection. Each of the
blood samples also can be examined for levels of circulating virus, or viral
load. From this, we can determine if vaccinated individuals have suppressed
their HIV infections relative to those in the placebo group.
If the infection is transient, or if the level of HIV is maintained in
vaccine recipients at low levels, this might indicate that the vaccine is
slowing the progression of HIV infection. In therapeutic studies it is known
that suppression of viral load correlates with an extension of life. Therefore,
should we find that AIDSVAX causes a qualitative reduction in HIV infection, we
might submit this data to support our primary regulatory application or, if
justified, as a stand-alone submission.
In addition to HIV antibody testing of all blood samples, a subset of
volunteers, 5% of the total, will be monitored throughout the trial period with
a variety of immunological tests. These tests will be performed to determine
details of the immune response, with the goal of identifying an immune correlate
of protection against infection. Such a correlate might include, for example, a
determination of the minimum antibody level required to obtain protection. We
believe the finding of a correlate of protection both supports the scientific
rationale of the vaccine and provides a measurement by which the vaccine may be
improved. We believe finding a correlate of protection would be viewed favorably
in the review of our regulatory applications submitted to the FDA.
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THE MARKET FOR AIDSVAX
We have developed formulations of AIDSVAX which focus on HIV found in major
regions of the world. Our first bivalent vaccine, AIDSVAX B/B9, is directed
against the predominant HIV subtype in the Americas, Europe, the Caribbean and
Australia. Our second bivalent vaccine, AIDSVAX B/E, is directed against the
predominant HIV subtypes in Southeast Asia, the Pacific Rim, Indonesia and
southern portions of China (Figure 7). Based on the populations of these
regions, the market for the two current formulations of AIDSVAX could cover
approximately half of the world's population, or nearly three billion people.
FIGURE 7. POTENTIAL MARKETS FOR THE AIDSVAX B/B' AND AIDSVAX B/E VACCINES
[GRAPHIC DEPICTING MAP OF THE WORLD AND WORLDWIDE MARKETS FOR AIDSVAX B/B' AND
AIDSVAX B/E]
We also have plans to develop two additional AIDSVAX vaccines -- one for
subtype C virus, which would be directed against viruses in China, India and
Africa, and one for subtype A and D viruses, which are commonly found in Sub
Saharan Africa and parts of South America. We believe that four vaccines
directed against the A, B, C, D and E subtypes of HIV would effectively address
the worldwide spread of the HIV/AIDS epidemic.
Influence of Vaccine Improvements
Our ability to address geographically defined markets is enhanced by our
ability to rapidly develop new formulations of AIDSVAX. This process provides
for a continued basis of product improvement. We have accomplished this with our
two bivalent formulations of AIDSVAX. The change from a monovalent to a bivalent
formulation was accomplished in less than 24 months.
With successive formulations of AIDSVAX, we expect to improve product
efficacy, as well as the breadth of protection against different HIV subtypes.
In addition, we will seek to create vaccines that require fewer booster shots
and that can be used over larger areas of the world. Thus, we expect that an
initial vaccine will be gradually enhanced, resulting in corresponding increases
in the size of the market for the vaccine.
On the basis of our ongoing discussions with the FDA, we believe that
improvements will be accomplished as amendments to our initial regulatory
license, rather than as applications for entirely new
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products. This approach, if successful, would result in considerable savings of
time and cost associated with future product development.
Comparison to Other Vaccines
We believe that hepatitis B vaccine serves as a useful model to predict
demand for a prospective HIV vaccine. Hepatitis B is one of the most recent
vaccines to be introduced on a worldwide basis. The pattern of infection and the
at-risk groups with hepatitis B are comparable to those with HIV. Hepatitis B
and HIV are transmitted by sexual contact and blood products. In the United
States, the highest risk groups for hepatitis B and HIV are injection drug users
and homosexual men.
When initially introduced, the hepatitis B vaccine was used primarily by
those with occupational risk of infection due to exposure to blood products. The
average price of the initial vaccine was $200 per vaccine recipient. Within this
population, the vaccine had a market of $100 million to $200 million per year.
As demand for the vaccine increased, the price per dose dropped, further fueling
demand. Recently, hepatitis B vaccine was recommended for standard pediatric use
in the United States. The price of the vaccine is now approximately $15 per
dose. The worldwide market for hepatitis B vaccine currently exceeds $1 billion
annually. By the year 2002, it is likely that use of hepatitis B vaccine will
exceed 300 million doses annually.
We believe that, given the relative healthcare needs, the market for an HIV
vaccine will be considerably larger than the market for hepatitis B vaccine.
Further, we believe that adoption of an HIV vaccine will occur more rapidly,
both domestically and worldwide. This conclusion is supported by a UNAIDS study,
which predicts that, within a decade, the worldwide need for HIV vaccine will
exceed 650 million doses annually.
SALES AND MARKETING
We intend to rely on third parties for sales and marketing of AIDSVAX. We
believe that our resources are better utilized developing new formulations of
AIDSVAX, rather than developing and maintaining a sales and marketing
organization. Genentech currently has an option to obtain an exclusive worldwide
license to use, market and sell AIDSVAX. If AIDSVAX is approved for sale and
Genentech does not exercise its option to market AIDSVAX, we intend to enter
into agreements for marketing and distribution with other partners and will pay
a predetermined royalty to Genentech.
We anticipate that AIDSVAX will be sold by Genentech or a licensed third
party through existing vaccine distribution channels in the United States and
the rest of the world. This would result in several tiers of pricing that range
from private reimbursement in the United States to government reimbursement in
Europe to purchase by the World Health Organization for distribution to nations
with underdeveloped economies. In the United States, vaccine distribution is
further divided among pediatricians, general practitioners and the public health
service (as provided by the Centers for Disease Control and Prevention).
Currently 83% of children worldwide receive the basic schedule of pediatric
vaccines through a network of for-profit and non-profit institutions. We expect
that an efficacious HIV vaccine will also be broadly distributed worldwide in a
similar manner.
Apart from distribution, a number of variables will influence price,
including: (1) efficacy of the vaccine; (2) safety; (3) manufacturing cost; (4)
recommendations from expert medical panels; (5) the perceived need in a
particular population; and (6) in some cases, government regulations requiring
vaccination. Due to these and other factors, we have not yet determined a
pricing schedule for AIDSVAX.
Several non-profit and government organizations have begun efforts to
prepare for the eventual distribution of an HIV vaccine. For example, the State
of California placed an open purchase order for one million doses of HIV vaccine
if and when developed. In addition, the International AIDS Vaccine Initiative
has started a campaign to fund the development and purchase of an HIV vaccine
for the
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developing world. In meetings with us, the World Bank has indicated that it is
exploring the potential for low-interest loans to support the purchase of
vaccines in the developing world.
MANUFACTURING
We do not have any manufacturing facilities of our own. We intend to rely
on third parties to manufacture AIDSVAX. We believe that our resources are
better utilized developing new vaccines, rather than entering into the capital
intensive business of manufacturing.
Our license agreement with Genentech gives Genentech an option to
manufacture any AIDSVAX formulation supplied beyond those it has already agreed
to supply. If Genentech does not exercise its option to manufacture AIDSVAX, the
license agreement allows us to enter into manufacturing agreements with third
parties and pay a predetermined royalty to Genentech. If we utilize a third
party, the license agreement provides that Genentech must transfer the required
manufacturing technology and know-how to the third party.
Genentech has developed a proprietary method for producing synthetic gp120
protein. This method has enabled Genentech to clone and express gp120 genes from
two dozen HIV strains. Utilizing genetic engineering, a fragment of coding
information from HIV, consisting of the gp120 gene, is cloned from HIV into
mammalian cells. We have an exclusive license from Genentech to all of these
genes and the technical know-how to produce the synthetic gp120 proteins.
Specifically, for any formulation of AIDSVAX, the gp120 gene is inserted
into Chinese hamster ovary cells which act as cellular factories that can
produce commercial quantities (i.e., kilograms) of gp120 protein. The production
of gp120 in Chinese hamster ovary cells assures both genetic consistency and
structural integrity of the synthetic product. As a result, the synthetic form
is virtually identical to the natural form of gp120 that occurs in HIV viral
particles. Since only a fragment of HIV is used in this process, there is no
production of infectious HIV, and the final product is incapable of causing
infection or disease. In addition, Genentech's proprietary purification system
provides us with gp120 protein that has purity exceeding 99.9%, which markedly
decreases the likelihood of vaccine side effects caused by contaminating
substances.
LICENSE AND SERVICES AGREEMENTS WITH GENENTECH
We have entered into a license agreement with Genentech which in part
defines the working relationship between the companies. Genentech has granted us
an exclusive license to all patents and proprietary know-how that Genentech is
free to license or sublicense. Such licensed technology relates to the
development of a vaccine based on, containing, incorporating or using the
recombinant gp120 subunit protein developed by Genentech for use to prevent, but
not treat, HIV infection and/or AIDS. Certain of the licensed technology is
sublicensed to us under licenses from third parties to Genentech. We, as the
exclusive licensee of Genentech, have assumed all of Genentech's obligations
under these third-party license agreements. The initial term of the license
agreement is 15 years from the commercial introduction date of a licensed
product and will be determined on a country-by-country, product-by-product
basis.
In addition to granting us rights to use Genentech's gp120 technology and
certain adjuvant technology for developing a licensed product, the license
agreement provides for Genentech to have rights to elect to manufacture and
supply AIDSVAX for clinical testing and commercial sale. In addition to its
rights to elect to manufacture vaccine, Genentech supplied us, cost-free, with
its stock (approximately 300,000 doses) of the B(MN) gp120 protein for testing
in our Phase III clinical trials. We will use the B(MN) gp120 protein following
successful completion of formulation with alum, vialing and quality
assurance/control testing, for which we will bear Genentech's costs and
expenses. Genentech also supplied us with agreed-upon amounts of up to two
additional gp120 proteins, B(GNE8) and E(244) for use in combination with the
currently manufactured B(MN) gp120 for clinical trials. For the additional
antigens, we paid Genentech its fully burdened manufacturing costs.
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The license agreement provides for flexibility related to manufacturing.
Should Genentech elect not to manufacture any vaccine supplies beyond those it
has already agreed to supply, we may elect to use a third party for our
manufacturing requirements. If we utilize a third party, Genentech must transfer
the required manufacturing technology and know-how to the third party.
Genentech also has an option, exercisable for 90 days after we make our
first filing with the FDA for market approval of a licensed product, to obtain
an exclusive worldwide license to use, market and sell licensed products. If
Genentech exercises the marketing option: (1) Genentech is required to pay us a
fee equal to 33% of our total development costs (including clinical testing) to
date for the licensed product; (2) we and Genentech will share net profits from
sales of the licensed products, 30% and 70%, respectively, for sales within the
United States and 70% and 30%, respectively, for sales outside the United
States; (3) future developmental costs (e.g., clinical trials) will be
apportioned between the parties based on their respective profit share in a
particular country; and (4) the parties will establish a committee with an equal
number of representatives from each company to oversee the development and
commercialization of additional licensed products. In the event that Genentech
does not exercise the marketing option, then, in lieu of sharing net profits
from the licensed products, we will pay Genentech a royalty on all sales of
licensed products equal to: (1) 25% of our net sales and our sublicensees' net
sales of the licensed products worldwide, so long as any commercial vaccine
component has been manufactured and supplied by Genentech; or otherwise (2) 15%
of our total net sales and our sublicensees' net sales of the licensed products
worldwide.
Under the license agreement, we are required to use due diligence in
developing, seeking regulatory approval for, marketing and commercializing
licensed products. Development and commercialization of licensed products will
be our sole business goal. In connection with reaching this goal, we are
required to achieve the filing of the first market approval for a licensed
product with the FDA no later than the fifth anniversary of the closing of our
1997 private placement. If we are unable to meet this milestone due to certain
agreed-upon events or circumstances, we may request an extension from Genentech
and we and Genentech can agree to a new date for the milestone, subject to a
two-year limit on such extensions. If we are unable to meet a milestone for any
reason other than the agreed-upon events or circumstances, any extension granted
will be at Genentech's sole discretion. If we fail to exercise our due
diligence, Genentech has the right to convert our exclusive license to a
non-exclusive license, and may be entitled to terminate the license.
Either party may terminate the license agreement upon the other party's
default or bankruptcy. In addition, Genentech may terminate the license
agreement if we fail to: (1) maintain a tangible net worth of at least $1
million; or (2) to meet a due diligence milestone (see above) within two years
of the date originally set for such milestone, unless Genentech waives such
two-year limit in its sole discretion.
We have also entered into a services agreement with Genentech pursuant to
which Genentech has agreed to provide us with administrative, research, process
science, manufacturing, clinical and regulatory support, primarily by making the
services of certain Genentech personnel available to us. We will reimburse
Genentech for all of Genentech's costs and expenses relating to the provision of
these services. Either party may terminate the services agreement upon a breach
which continues uncured for more than 60 days or upon the occurrence of
bankruptcy or similar events. In addition, the services agreement will
automatically terminate upon any termination of the license agreement. The term
of the services agreement was recently extended until December 31, 2000.
LICENSED PATENTS
Under the license agreement, we have licensed or sublicensed from Genentech
exclusive rights to a portfolio of six issued United States patents and eight
pending United States patent applications. The licensed portfolio also includes
46 granted foreign patents and 36 pending foreign applications arising from the
United States patents and applications. The technology claimed in these patents
and applications involves a range of HIV vaccine product development activities,
including the cloning and expression of recombinant virus glycoproteins for use
as vaccine products and sustained release formulations of HIV gp120. Also
claimed by patent filings are specific compositions of matter for the components
of our
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vaccine products, and proprietary production, recovery and purification process
technology. Together, these filings provide intellectual property that we
believe will enhance the value of our products.
Under the license agreement, Genentech has retained title to the licensed
patents and patent applications and other licensed technology, while we will
retain title to any improvements developed by us. Both parties will jointly own
any improvements to the licensed patents and patent applications or other
licensed technology developed or invented jointly. Genentech will remain
responsible for the filing, prosecution and maintenance of all licensed patent
rights, in consultation with us, at our expense.
We have been informed that Chiron Corporation has filed oppositions against
two of Genentech's European patents that are licensed to us. Genentech, with our
assistance, has filed responses to both oppositions, but the outcome of each
opposition has yet to be determined. We have also been informed by the United
States Department of Health that we may need to obtain a license under one or
more of its United States and foreign patents involving molecular clones of
HIV-1 viral strains MN-STI and BA-L. We are currently exploring the advisability
of obtaining such a license. In the interim, we have recently filed an
opposition to a European equivalent of the United States Department of Health
patent and are awaiting the outcome of the opposition.
GOVERNMENT COLLABORATIONS
We have collaborative activities with two federal government agencies:
(1) The Centers for Disease Control and Prevention; and (2) National Institute
of Allergy and Infectious Diseases.
Our collaboration with the Centers for Disease Control and Prevention is
conducted in both the United States and Thailand. In the United States, the
Centers for Disease Control have proposed to co-sponsor our Phase III clinical
trial, starting in the Fall of 1999. The Centers for Disease Control will fund
$8.0 million over four years to support our Phase III clinical trial sites, as
well as to provide funds for new research into our HIV vaccine trials. In
Thailand, the Centers for Disease Control are assisting in the measurement of
viral loads in vaccinees and placebos, as well as examining HIV subtypes and
strains in the at-risk population.
The National Institute of Allergy and Infectious Disease is forming a
collaboration with us to obtain and store clinical specimens from our North
American Phase III clinical trial. It will provide $4.6 million of funding for
this program. We also have an ongoing collaboration with the AIDS Vaccine
Evaluation Group, a clinical consortium financed by the National Institute of
Allergy and Infectious Disease. In this collaboration we are providing AIDSVAX
to clinical sites for Phase I/II clinical trials of new combination vaccines.
COMMERCIAL RELATIONSHIP WITH PASTEUR MERIEUX CONNAUGHT
On April 10, 1998, we signed a non-binding letter of intent with Pasteur
Merieux Connaught to co-develop an alternative vaccine regimen, called the
prime/boost. The letter of intent has recently been extended through November
1999. The prime/boost utilizes two independent vaccines administered
sequentially. A Pasteur Merieux Connaught vaccine would be administered
initially, followed by a bivalent gp120 vaccine. Should it prove efficacious,
the alternative vaccine regimen would be developed, clinically tested, and if
approved by regulatory agencies, marketed by Pasteur Merieux Connaught. We would
serve as a scientific co-developer and a source for bivalent formulations of
AIDSVAX, a critical component of the regimen. We would share significantly in
profits made from the sale of both vaccine components -- the Pasteur Merieux
Connaught vaccine, as well as AIDSVAX.
Phase I human trials of the initial Pasteur Merieux Connaught prime/boost
vaccine regimen have been conducted by the AIDS Vaccine Evaluation Group, an
NIH-sponsored clinical consortium. In early studies of the Pasteur Merieux
Connaught product, the combination vaccine incorporated monovalent gp120
provided by Chiron Vaccines as the boost. Subsequently, Pasteur Merieux
Connaught and the AIDS Vaccine Evaluation Group altered their plans and
requested us to provide our formulations of
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bivalent gp120 as a replacement for the Chiron product. From this request arose
the letter of intent and a plan to co-develop a new vaccine regimen.
Currently, we and Pasteur Merieux Connaught are planning collaborative
studies with our respective vaccines. During this time we are also negotiating a
long-term co-development agreement with Pasteur Merieux Connaught. Should an
agreement be reached on final terms, we will supply 100% of Pasteur Merieux
Connaught's requirements for our bivalent gp120. Pasteur Merieux Connaught would
pay our fully burdened costs plus 10% for all vaccines purchased from us. In
addition, Pasteur Merieux Connaught would pay a royalty to us from Pasteur
Merieux Connaught's sales of both vaccines in the regimen.
Genentech holds exclusive options for the manufacture and marketing of
AIDSVAX. The non-binding letter of intent with Pasteur Merieux Connaught has
certain conflicts with our license agreement with Genentech. This conflict will
require resolution between us and Genentech. The issue is now under discussion,
and we will resolve it prior to our entering a final business agreement with
Pasteur Merieux Connaught. Upon resolution of the business issues with Genentech
and the Pasteur Merieux Connaught agreement, Genentech will then join us in
negotiations with Pasteur Merieux Connaught.
COMPETITION
We estimate that approximately 30 other companies have been engaged in
research to produce an HIV vaccine. Only AIDSVAX and a vaccine once developed by
our former competitor, Chiron Vaccines, have progressed to, and completed, Phase
II testing. Chiron Vaccines has since abandoned that particular vaccine effort.
Subsequently, a combination vaccine developed by Chiron Vaccines and Pasteur
Merieux Connaught, also competitors of ours, entered Phase I/II testing in 1997.
That vaccine effort, too, has since been terminated.
Two other notable efforts at producing HIV vaccines have failed as well. A
collaboration between Merck & Co., Inc. and Repligen Corporation was terminated
because their vaccine failed to protect chimpanzees from live HIV infection.
Similarly, MicroGeneSys, Inc. designed a vaccine that failed in early stage
human testing. It appears that the principal differences between these vaccines
and ours has been the choice of viral protein as antigen or the methods used for
manufacturing.
We believe that we now lead all competitors worldwide in the development of
an HIV preventive vaccine. Of the two HIV vaccines that have reached human
clinical trials, we have full control of the leading product (AIDSVAX) and plan
to become a partner in the second (the Pasteur Merieux Connaught/VaxGen
combination regimen).
GOVERNMENT REGULATION
AIDSVAX is subject to federal regulation, by the federal government,
principally by the FDA under the Food, Drug & Cosmetic Act and other laws,
including the Public Health Services Act, and by state and local governments.
Such regulations govern or influence, among other things, the testing,
manufacture, safety, efficacy, labeling, storage, record keeping, approval,
advertising and promotion of such products.
AIDSVAX is classified by the FDA as a biologic product. The steps
ordinarily required before a biological product may be marketed in the United
States include: (1) preclinical testing; (2) the submission to the FDA of an
Investigative New Drug Application, which must become effective before clinical
trials may commence; (3) adequate and well-contained clinical trials to
establish the safety and efficacy of the biological; (4) the submission to the
FDA of a Biologics License Application; and (5) FDA approval of the application,
including approval of all product labeling.
Preclinical testing includes laboratory evaluation of product chemistry,
formulation and stability, as well as animal studies to assess the potential
safety and efficacy of each product. Preclinical safety tests must be conducted
by laboratories that comply with FDA regulations regarding Good Laboratory
Practices. The results of the preclinical tests together with manufacturing
information and analytical data are submitted to the FDA as part of the
Investigative New Drug Application and are reviewed by the FDA before the
commencement of clinical trials. Unless the FDA objects to an Investigative New
Drug
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Application, the Investigative New Drug Application will become effective 30
days following its receipt by the FDA.
Clinical trials involve the administration of the investigational product
to humans under the supervision of a qualified principal investigator. Clinical
trials are conducted in accordance with Good Clinical Practices under protocols
submitted to the FDA as part of the Investigative New Drug Application. In
addition, each clinical trial is approved and conducted under the auspices of an
institutional review board and with patient informed consent. The institutional
review board will consider, among other things, ethical factors, the safety of
human subjects and possibility of liability of the institutions conducting the
trial.
Clinical trials are conducted in three sequential phases; however, the
phases may overlap. The goal of a Phase I clinical trial is to establish initial
data about safety and tolerance of the biologic agent in humans. In Phase II
clinical trials, evidence is sought about the desired immune response of a
biological agent in a limited number of patients. Additional safety data are
also gathered from these studies. The Phase III clinical trial program consists
of expanded, large-scale, multi-center studies of persons who are susceptible to
the targeted disease. The goal of these studies is to obtain definitive
statistical evidence of the efficacy and safety of the proposed product and
dosage regimen. Our Phase III clinical trials of AIDSVAX are being conducted on
persons at risk for HIV infection but who test HIV negative prior to enrollment
in the trial.
All data obtained from this comprehensive program are submitted in a
biologics license application to the FDA for review and approval for the
manufacture, marketing and commercial shipments of AIDSVAX. FDA approval of the
biologics license application is required before marketing may begin in the
United States. Similar types of regulatory processes will be encountered as
efforts are made to market the vaccine internationally. We will be required to
assure product performance and manufacturing processes from one country to
another.
For commercialization of AIDSVAX, our manufacturing processes and the
manufacturing facility must receive FDA approval for sale within the United
States. If Genentech does not exercise its option to manufacture AIDSVAX, we
must pursue third party manufacturing arrangements. For marketing outside the
United States, we will be subject to the regulatory requirements of other
countries, which vary from country to country. The regulatory approval process
in other countries includes requirements similar to those associated with the
FDA approval described above.
EMPLOYEES
As of April 15, 1999, we had 52 employees. None of our employees is subject
to a collective bargaining agreement, and we believe that our relations with our
employees are good. Five employees are bound by employment agreements with us
that provide for employment of three years or more.
FACILITIES
Our executive offices are located in Brisbane, California, in an office
building in which we lease approximately 16,000 square feet. The lease agreement
terminates in July 2005, and we have an option to renew for a successive
five-year period. For fiscal year 1999, our monthly rent is $45,785. We also
lease approximately 10,000 square feet of laboratory space in South San
Francisco under a lease agreement that terminates in March 2006. We have an
option to renew for a successive five-year period. For fiscal year 1999, our
monthly rent is $17,854. We believe that our facilities are sufficient to
support our operations for at least the next 24 months.
In Thailand, we lease office space at Mahidol University and at Taksin
Hospital in Bangkok. We will lease this space through the duration of the Thai
Phase III clinical trials.
LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings or claims.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTOR NOMINEES AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert C. Nowinski(1)(4)............... 52 Chairman, Chief Executive Officer
Donald P. Francis(1)(4)................ 56 President, Director
Phillip W. Berman(4)................... 49 Senior Vice President, Research &
Development -- Director
John G. Curd........................... 53 Senior Vice President, Medical Affairs
Carter A. Lee.......................... 46 Senior Vice President, Finance & Administration
Stephen C. Francis(3)(4)............... 58 Director
Roberta R. Katz(5)..................... 51 Director Nominee
William D. Young(1)(2)(3).............. 54 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
(4) Member of the Genentech Contract Committee
(5) Ms. Katz is a director nominee who has agreed to join the board of directors
shortly after consummation of the offering. We anticipate Ms. Katz will
become a member of the Compensation, Audit and Genentech Contract
Committees.
ROBERT C. NOWINSKI, PH.D. Dr. Nowinski co-founded VaxGen in November 1995
and has served as a director and Chairman of the Board since inception and our
Chief Executive Officer since April 1999. In 1991, Dr. Nowinski founded
PathoGenesis, Inc., a publicly-held biotechnology company and served as Chairman
of the Board until 1995. In 1989, Dr. Nowinski founded ICOS Corporation, a
publicly-held biotechnology company, where, from 1989 through 1991, Dr. Nowinski
served as Chief Executive Officer and President. In 1981, Dr. Nowinski founded
Genetic Systems Corporation, a publicly-held biotechnology company, where, from
1981 to 1985, Dr. Nowinski held various executive positions including Chairman
of the Board, Chief Executive Officer, President and Scientific Director.
Following the merger of Genetic Systems Corporation with Bristol-Meyers Company,
from 1988 to 1989, Dr. Nowinski served as Vice-President of New Technology for
Bristol-Meyers Company at its headquarters in New York. Prior to such time, Dr.
Nowinski was a Professor of Microbiology and Immunology at the University of
Washington and Head of the Virology Program at the Fred Hutchinson Cancer
Research Center in Seattle, Washington. During his academic career, Dr. Nowinski
authored over 100 scientific publications. Dr. Nowinski received a B.S. from
Beloit College and a Ph.D. in immunology from Cornell University Sloan-Kettering
Division.
DONALD P. FRANCIS, M.D., D.SC. Dr. Francis co-founded VaxGen in November
1995 and has served as our President and as a director since inception. From
1993 to 1995, Dr. Francis directed HIV vaccine clinical research at Genentech.
Prior to joining Genentech, Dr. Francis served from 1973 to 1993 in various
positions at the Centers for Disease Control. During this period, Dr. Francis
established and directed the HIV laboratory for the Centers for Disease Control
and served as an Assistant Director, Viral Diseases Program. At that time, he
was also a principal investigator in one of the two Phase III clinical trials
that led to licensure of the hepatitis B vaccine in the United States. In 1976,
Dr. Francis was the lead epidemiologist on the first clinical team to encounter
and control Ebola virus. Prior to such time, Dr. Francis had a central role in
the World Health Organization's smallpox eradication program, which eradicated
smallpox from the world. Dr. Francis received an M.D. from Northwestern
University and completed his training in pediatrics at Los Angeles County/USC
Medical Center. Dr. Francis received a doctorate in virology from the Harvard
School of Public Health. Dr. Francis is the brother of Stephen Francis.
PHILLIP W. BERMAN, PH.D. Dr. Berman has served as our Senior Vice
President, Research & Development since April 1999. Dr. Berman served as our
Vice President of Research & Development from November 1997 to April 1999, and
has served as a director since October 1997. From 1982 to 1997,
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Dr. Berman served in various capacities with Genentech, including Senior
Scientist, Molecular Biology Department, and Staff Scientist, Department of
Immunology and also Department of Process Sciences. Since 1984, Dr. Berman has
had research responsibilities in Genentech's AIDS Vaccine Project and is an
inventor of AIDSVAX. Dr. Berman received an A.B. in biology from the University
of California, Berkeley, a Ph.D. in biochemistry from Dartmouth College and
performed post doctoral research at the Neurobiology Laboratory of the Salk
Institute and the Department of Biochemistry and Biophysics at the University of
California, San Francisco.
JOHN G. CURD, M.D. Dr. Curd has served as our Senior Vice President,
Medical Affairs, since April, 1999. From 1991 to April 1999, Dr. Curd held
various positions at Genentech, including Director,
Immunology/Oncology/Infectious Disease, Senior Director and Head of Clinical
Science and Vice President of Clinical Development. From 1978 to 1991, Dr. Curd
held several research and clinical positions at The Scripps Clinic, a
world-renowned research foundation and medical clinic, including Head, Division
of Rheumatology and Vice Chairman, Department of Medicine. He received a B.A.
from Princeton University and an M.D. from Harvard Medical School.
CARTER A. LEE Mr. Lee has served as General Manager and Senior Vice
President, Finance & Administration since September 1998. From 1991 to 1997, Mr.
Lee served as Senior Vice President and Chief Financial Officer of Diefenbach
Elkins International, Inc., a corporate branding consultancy. From 1990 to 1991,
Mr. Lee served as Vice President, Finance & Administration of EDAW, Inc., a
landscape architecture and planning firm. From 1987 to 1990, Mr. Lee served as
Vice President and Corporate Controller of Landor Associates, a strategic design
consulting firm. Prior to such time, Mr. Lee served in various positions at
Coopers & Lybrand, including Senior Accountant and Supervising Consultant. Mr.
Lee received a B.A. from the University of California, Berkeley, and an M.B.A.
from California State University, Hayward.
STEPHEN C. FRANCIS Mr. Francis has served as a director since October 1996.
Mr. Francis has served as Vice-Chairman and Chief Risk Oversight Officer at
Fischer, Francis, Trees & Watts, an investment management firm which he
co-founded in 1972. Mr. Francis is a member and former chairman of the Treasury
Borrowing Committee, which advises the United States Treasury, and is a member
of the Stanford University Graduate School of Business Advisory Council. Mr.
Francis received an A.B. from Dartmouth College and an M.B.A. from Stanford
University. Mr. Francis is the brother of Donald Francis.
ROBERTA R. KATZ Ms. Katz is a director nominee who will be elected shortly
after consummation of the offering. Commencing in June 1999, Ms. Katz will
become the Chief Executive Officer of The Technology Network. Ms. Katz joined
Netscape Communications Corporation in May 1995 as Vice President, General
Counsel and Secretary. From January 1996 to April 1999, Ms. Katz served as
Senior Vice President, General Counsel and Secretary of Netscape, where she was
a member of the team that negotiated the Netscape/America Online merger. From
March 1993 until joining Netscape, Ms. Katz served as Senior Vice President and
General Counsel of McCaw Cellular Communications, where she was a member of the
team that negotiated the AT&T/McCaw merger. In addition, from March 1992 until
joining Netscape, Ms. Katz served as Senior Vice President and General Counsel
of LIN Broadcasting Company, a subsidiary of McCaw. In March 1998, Ms. Katz was
named as one of the 50 Most Influential Women Attorneys in America by the
National Law Journal. She is an author of Justice Matters: Rescuing the Legal
System for the 21st Century. Ms. Katz received a B.A. from Stanford University,
a Ph.D. in anthropology from Columbia University and a J.D. from the University
of Washington School of Law.
WILLIAM D. YOUNG Mr. Young has served as a director since November 1995.
Since 1980, Mr. Young has served in various positions at Genentech, most
recently as the Chief Operating Officer. Prior to such time, Mr. Young served in
various positions at Eli Lilly and Co. for 14 years in the United States and
Puerto Rico. In 1993, Mr. Young was elected to the United States National
Academy of Engineering. Mr. Young serves on the board of directors of Energy
Biosystems Corporation, a public company applying biotechnological advances to
the field of energy utilization and environmental control. Mr. Young received a
B.S. in chemical engineering from Purdue University and an M.B.A. from Indiana
University.
40
<PAGE> 45
BOARD OF DIRECTORS AND OFFICERS
The size of the board of directors is currently set at six members.
Directors hold office until the next annual meeting at which time their terms
expire and their successors are elected. Officers are appointed by the board of
directors for one year terms.
AUDIT COMMITTEE
The audit committee makes recommendations to the board of directors about
the selection of independent auditors, reviews the results and scope of the
audit and other services provided by our independent auditors, and evaluates our
internal controls. The audit committee consists of Mr. Stephen Francis and Mr.
William Young. Upon joining the board of directors, Ms. Katz will become a
member of this committee.
COMPENSATION COMMITTEE
The compensation committee reviews and approves the compensation and
benefits for our executive officers, administers our stock option plans and
makes recommendations to the board of directors about compensation matters. The
compensation committee consists of Mr. William Young. Upon joining the board of
directors, Ms. Katz will become a member of this committee.
EXECUTIVE COMMITTEE
The executive committee may act on behalf of the board of directors on all
matters except those concerning filling vacancies on the board, executive
compensation, audits or individual contracts or financial obligations exceeding
$3,000,000. The executive committee consists of Dr. Robert Nowinski, Dr. Donald
Francis and Mr. William Young.
GENENTECH CONTRACT COMMITTEE
The Genentech contract committee considers matters relating to agreements
with Genentech. The Genentech contract committee consists of Dr. Robert
Nowinski, Dr. Donald Francis, Dr. Phillip Berman and Mr. Stephen Francis. Upon
joining the board of directors, Ms. Katz will become a member of this committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Decisions about executive compensation are made by the compensation
committee. No member of the compensation committee or executive officer of our
company has an interlocking relationship with executive officers or directors of
another company.
41
<PAGE> 46
EXECUTIVE COMPENSATION
The following table depicts amounts paid during the last fiscal year as
compensation to our chief executive officer and our three most highly
compensated executive officers (other than the chief executive officer) who were
serving as executive officers at the end of fiscal 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------- --------------------------------
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) SECURITIES UNDERLYING OPTIONS(#)
--------------------------- --------- -------- --------------------------------
<S> <C> <C> <C>
Robert C. Nowinski, Chairman(1)............. $250,000 $ -- 60,000
Donald P. Francis, President................ 250,000 75,000 15,000
Phillip W. Berman, Vice President, Research
& Development(2).......................... 175,000 35,000 15,000
Robert F. Pacquer, Vice President,
Finance(3)................................ 150,730 -- 200,000
</TABLE>
- ---------------
(1) Dr. Nowinski was appointed Chief Executive Officer on April 22, 1999.
(2) Dr. Berman was appointed Senior Vice President, Research & Development on
April 22, 1999.
(3) Mr. Pacquer resigned from VaxGen as of March 15, 1999.
The following table depicts stock option plan activity during the fiscal
year ended December 31, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
------------------------------------------------------------ AT ASSUMED ANNUAL
% OF TOTAL RATES OF
NUMBER OF OPTIONS EXERCISE STOCK PRICE
SECURITIES GRANTED TO OR APPRECIATION
UNDERLYING EMPLOYEES BASE FOR OPTION TERM
OPTIONS IN PRICE EXPIRATION ---------------------
NAME GRANTED(#) 1998 ($/SH) DATE 5%($) 10%($)
---- ------------------ ------------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert C. Nowinski............... -- -- -- -- -- --
Donald P. Francis................ -- -- -- -- -- --
Phillip W. Berman................ -- -- -- -- -- --
Robert F. Pacquer(1)............. 200,000(2) 45.7 7.00 1/2/08 880,000 2,231,000
</TABLE>
- ---------------
(1) Mr. Pacquer resigned from VaxGen as of March 15, 1999.
(2) Under the terms of Mr. Pacquer's employment agreement, he received an option
to purchase 200,000 shares. Under the terms of Mr. Pacquer's resignation,
this amount was reduced as follows: (a) as of March 15, 1999, 77,500 of Mr.
Pacquer's options were exercisable until March 31, 2000; and (b) if we
complete our initial public offering by September 1, 1999, an additional
10,000 shares will become exercisable until March 31, 2000. The balance of
Mr. Pacquer's options have terminated.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT
(#) FISCAL YEAR-END ($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------------------------- -------------------------
<S> <C> <C>
Robert C. Nowinski............................ --/-- --/--
Donald P. Francis............................. --/-- --/--
Phillip W. Berman............................. 50,000/150,000 125,000/375,000
Robert F. Pacquer(1).......................... 50,000/150,000 125,000/375,000
</TABLE>
- ---------------
(1) Mr. Pacquer resigned from VaxGen as of March 15, 1999.
42
<PAGE> 47
EMPLOYMENT AGREEMENTS
Dr. Nowinski's employment agreement provides for a base annual salary of
$250,000 through 2002. On April 22, 1999, our board of directors approved an
increase in Dr. Nowinski's annual salary to $300,000. Dr. Nowinski will receive
a performance bonus of 125,000 shares of common stock if either the market value
of our common stock reaches an average of $28.00 per share over a 30-day period
or we are acquired in an acquisition that results in a purchase price of at
least $28.00 per share. In the event of a change of control or termination prior
to the end of the term of his employment agreement, we may be required to pay
all salary due to Dr. Nowinski. Upon termination of employment, Dr. Nowinski has
agreed not to compete with us for one year.
Dr. Francis' employment agreement provides for a base salary of $250,000
through 2002. On April 22, 1999, our board of directors approved an increase in
Dr. Francis' annual salary to $275,000. Dr. Francis may receive an annual bonus
of up to 30% of his base salary as determined in the discretion of the board of
directors. Dr. Francis will also receive a performance bonus of 125,000 shares
of common stock if either the market value of our common stock reaches an
average of $28.00 per share over a 30-day period or we are acquired in an
acquisition that results in a purchase price of at least $28.00 per share. In
the event of a change of control or termination of employment prior to the end
of the five-year term, we may be required to pay all salary due to Dr. Francis.
Upon termination of employment, Dr. Francis has agreed not to compete with us
for one year.
Dr. Berman's employment agreement provides for a base salary of $175,000
through November 2000. On April 22, 1999, our board of directors approved an
increase in Dr. Berman's annual salary to $200,000. Dr. Berman may receive an
annual bonus of up to 20% of his base salary as determined in the discretion of
the board of directors. In the event of a change of control, Dr. Berman may
receive a one-time bonus of 75,757 shares of common stock. In the event of
termination of employment prior to the expiration of the three-year term, we may
be required to pay Dr. Berman's base salary for twelve months following his
termination. Upon termination of employment, Dr. Berman has agreed not to
compete with us for one year.
Dr. Curd's employment agreement provides for an annual base salary of
$225,000 through May 2003. Dr. Curd may also receive an annual bonus of up to
30% of his base salary and up to 10,000 shares of stock options with an exercise
price equal to fair market value, as determined in the discretion of the board
of directors. We have agreed to pay Dr. Curd a bonus of up to $50,000, to be
paid over the period of his four-year contract. We have also agreed to assume
Dr. Curd's loan for $96,822 outstanding with Genentech and accept an
interest-free promissory note from Dr. Curd. Dr. Curd agrees to retire the
outstanding loan by the termination of this agreement. Dr. Curd has received an
option to purchase up to 125,000 shares of common stock that vests over a
four-year period. In the event of a change of control, Dr. Curd may receive a
one-time bonus of 37,500 shares of common stock. In the event of termination
prior to the expiration of the four-year term, we may be required to pay Dr.
Curd's base salary for twelve months following his termination. Upon termination
of employment, Dr. Curd has agreed not to compete with us for one year.
Mr. Lee's employment agreement provides for a base salary of $185,000
through March 2003. Mr. Lee may also receive an annual bonus of up to 20% of his
base salary, and 10,000 shares of stock options (exercise price at market
value), as determined in the discretion of the board of directors. Mr. Lee has
received an option to purchase up to 125,000 shares of common stock that vests
over a four-year period. In the event of a change of control, Mr. Lee may
receive a one-time bonus of 37,500 shares of common stock. In the event of
termination prior to the expiration of the four-year term, we may be required to
pay Mr. Lee's base salary for twelve months following his termination. Upon
termination of employment, Mr. Lee has agreed not to compete with us for one
year.
DIRECTOR COMPENSATION
We reimburse directors for out-of-pocket and travel expenses incurred while
attending board of director and committee meetings. Directors are also paid
$1,000 per meeting attended in person and
43
<PAGE> 48
$500 for participation by conference call. Directors who are not also employees
receive an annual option to purchase up to the lesser of: (1) $20,000 worth of
common stock at an exercise price equal to the fair market value of the stock on
the date of grant; and (2) 2,857 shares of common stock. Employee directors are
also eligible to receive option grants.
1996 STOCK OPTION PLAN
We adopted a 1996 stock option plan for our officers, directors, key
employees and consultants. Options to purchase shares of common stock are
authorized to be issued to participants through either incentive stock options
or nonqualified stock options. On April 1, 1999, our shareholders approved an
increase of 1,250,000 in the number of shares reserved for issuance under the
1996 plan, to a total of 1,750,000 shares of common stock reserved for issuance;
options are subject to adjustment. The 1996 plan is administered by our board of
directors but may also be administered by a committee appointed by our board of
directors. The exercise price of options is not less than the fair market value
of the common stock on the date of grant, except that the exercise price of
nonqualified stock options shall not be less than 85% of the fair market value
at the date of the grant. Options granted under the 1996 plan have a maximum
term of ten years. Options vest at a rate of 25% per year over a four-year
period unless otherwise provided by the board of directors. In no event may the
board of directors specify a vesting schedule that permits an option to vest at
a rate less than 20% per year, however. Nonqualified stock options granted to
non-employee directors will vest at the rate of 40% on the date of grant and 60%
on the first anniversary of the date of grant. The 1996 plan expires ten years
from the date of adoption, unless sooner terminated by the board of directors.
As of April 15, 1999, there were a total of 883,100 options outstanding under
the 1996 plan.
1998 DIRECTORS STOCK OPTION PLAN
We adopted a 1998 director stock option plan for our non-employee
directors. The plan provides for the issuance of 37,500 shares of common stock
to non-employee directors through annual options. Options are subject to
adjustment. The plan provides for grant of initial options to non-employee
directors on May 6, 1998. Annual option grants will automatically be made to
non-employee directors on the annual meeting date in each subsequent year. The
exercise price of the initial options is $7.00 per share. The exercise price of
the each annual option is the fair market value of our common stock on the
annual grant date. Each initial option is fully vested upon grant. Each annual
option fully vests on the first anniversary of its grant date, subject to
certain meeting attendance requirements. The board of directors may terminate
the 1998 director plan at any time. As of April 15, 1999, there were a total of
8,571 options outstanding under the 1998 director plan.
401(K) PLAN
We maintain a 401(k) profit sharing benefit plan intended to qualify under
Section 401 of the Internal Revenue Code of 1986, as amended. The plan covers
all employees who satisfy certain minimum age eligibility requirements. Under
the profit sharing portion of the plan, we may make an annual contributions for
the benefit of eligible employees in an amount determined by us. Under the
401(k) portion of the plan, eligible employees may make pretax elective
contributions of their compensation, subject to maximum limits on contributions
prescribed by law.
44
<PAGE> 49
CERTAIN TRANSACTIONS
The following is a summary of certain related party transactions since
January 1996 to which we were or are a party or in which certain of our
executive officers, directors or stockholders had or have a direct or indirect
material interest. We believe that each of these agreements was made on terms at
least as fair to us as could have been obtained from unaffiliated third parties.
We issued 1,150,000 shares of common stock to Genentech, 500,000 shares of
common stock to Dr. Donald P. Francis, and 250,000 shares of common stock to Dr.
Robert C. Nowinski on April 10, 1996 for a purchase price of $0.02 per share. We
also issued 133,333 shares of common stock to Dr. Francis, 66,666 shares of
common stock to Dr. Nowinski, and 20,000 shares of common stock to Stephen C.
Francis on October 29, 1996 for a purchase price of $0.02 per share.
We entered into a services agreement dated January 1, 1996 with Genentech
under which Genentech agreed to provide us with administrative and other
services. Under the services agreement Genentech has provided us with expertise
in process sciences, regulatory affairs, virology and the manufacturing of
clinical supplies of AIDSVAX. We paid Genentech $1,442,000, $2,352,000 and
$690,000 in years 1996-1998. The initial services agreement expired December 31,
1998 but was renewed through December 31, 2000.
We entered into a license agreement dated May 1, 1996 with Genentech under
which Genentech granted us an exclusive license to specified patents and
proprietary know-how relating to the development of a vaccine to prevent HIV
infection and/or AIDS. The Genentech license agreement is described in further
detail in "Business -- License and Services Agreement with Genentech."
We entered into a warrant agreement with Genentech on March 15, 1996 under
which Genentech can purchase that number of shares of our common stock necessary
to maintain Genentech's 25% ownership on a fully-diluted basis. The purchase
price for any shares purchased under this agreement would be market price. The
warrant expired January 11, 1999, at the completion of our 1998 private
placement. We have granted Genentech registration rights with respect to all of
its securities. They do not hold any further rights to acquire our common stock.
We entered into a sublease agreement dated September 3, 1997 with Genentech
covering office space located on the premises leased by Genentech in South San
Francisco. We are no longer occupying this space. Under the sublease we paid
Genentech a monthly rental of $5,985.
45
<PAGE> 50
PRINCIPAL STOCKHOLDERS
The following table sets forth information about the beneficial ownership
of common stock of:
- each director, director nominee, our chief executive officer and our
three most highly compensated executive officers;
- directors and executive officers as a group; and
- 5% beneficial owners.
The information is this table is as of April 15, 1999 and as adjusted to
reflect the sale of common stock in the offering.
<TABLE>
<CAPTION>
BENEFICIALLY OWNED SHARES(1)
--------------------------------------
PRIOR TO OFFERING AFTER OFFERING
-------------------- --------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT PERCENT
------------------------------------ --------- ------- -------
<S> <C> <C> <C>
Genentech, Inc............................................. 1,522,354 19.8% 14.1%
1 DNA Way
South San Francisco, California 94080
Donald P. Francis.......................................... 633,333 8.2 5.9
c/o VaxGen, Inc.
1000 Marina Boulevard, Suite 200
Brisbane, California 94005
Robert C. Nowinski......................................... 309,166 4.0 2.9
Phillip W. Berman(2)....................................... 50,000 * *
Stephen C. Francis(3)...................................... 42,857 * *
Roberta R. Katz(4)......................................... -- -- --
William D. Young(5)........................................ 1,522,354 19.8 14.1
All executive officers and directors as a group (6
persons)(6).............................................. 2,557,710 33.1 23.6
</TABLE>
- ---------------
* Less than 1%.
(1) Includes shares underlying options or warrants exercisable within 60 days of
April 15, 1999. Except as indicated, persons named in the table have sole
voting and investment power with respect to all shares of common stock owned
by them.
(2) Includes 50,000 shares issuable on exercise of outstanding options
exercisable within 60 days of April 15, 1999.
(3) Includes 2,857 shares issuable upon exercise of outstanding options
exercisable within 60 days of April 15, 1999.
(4) Ms. Katz is a director nominee who has agreed to join the board of directors
shortly after consummation of the offering. Ms. Katz will be granted an
option to purchase up to 20,000 shares of common stock upon her commencement
of service on the board of directors. The stock option vests over four
years.
(5) Mr. Young is Executive Vice President of Genentech. Mr. Young disclaims any
beneficial ownership of Genentech shares except to the extent of any
pecuniary interest therein.
(6) Includes an aggregate of 52,857 shares of common stock issuable on exercise
of outstanding options exercisable within 60 days of April 15, 1999.
46
<PAGE> 51
DESCRIPTION OF CAPITAL STOCK
The following is a description of the material terms of our capital stock
and charter documents. While complete in material respects, this description is
nonetheless a summary and is qualified in each instance by reference to the full
text of these documents.
Our certificate of incorporation authorizes 40,000,000 shares of capital
stock, consisting of 20,000,000 shares of common stock, $0.01 par value, and
20,000,000 shares of preferred stock, $0.01 par value.
COMMON STOCK
We have 20,000,000 shares of common stock authorized, of which 7,685,161
shares are outstanding as of April 15, 1999. There are approximately 768
stockholders of record. Holders of common stock are entitled to one vote per
share. There are no cumulative voting or preemptive rights. Holders of common
stock are entitled to receive their share of any dividends declared by the board
of directors. In the event of liquidation, dissolution or winding up, holders of
common stock are entitled to their share of remaining assets following payment
to creditors. All the outstanding shares of common stock are fully paid, validly
issued and non-assessable. As of April 15, 1999, we had outstanding options to
purchase 891,671 shares of common stock.
PREFERRED STOCK
The board of directors is authorized to issue 20,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences and
privileges of those shares without further action by stockholders. Any shares of
preferred stock so issued may have priority over the common stock with respect
to dividend, liquidation and other rights. No preferred stock has been issued.
WARRANTS
As of April 15, 1999, there are outstanding warrants to purchase 309,825
shares of common stock. All of these warrants are currently exercisable.
In connection with our 1997 financing we granted a contractual right to one
private unaffiliated investor to maintain his proportionate stock ownership
position. This right will expire March 31, 2002.
ANTI-TAKEOVER PROVISIONS IN CHARTER DOCUMENTS
Our certificate of incorporation does not provide for cumulative voting in
connection with the election of directors. Genentech is currently our largest
single stockholder, owning approximately 20% of our common stock. Our officers
and directors as a group own approximately 33% of our common stock. While these
percentages will decrease after this offering, Genentech and our officers and
directors acting together could influence the direction and control of our
business.
Our bylaws provide that special meetings of stockholders may be called only
by the board of directors, the Chairman of the Board, the President, or any
holder or holders of at least 10% of our voting stock. The bylaws also provide
that stockholders seeking to bring business before an annual or special meeting
must provide timely notice in writing. To be timely, a stockholder's notice must
be transmitted: (1) not less than 20 days nor more than 60 days before a meeting
to act on a plan of merger or consolidation or a proposed sale, lease, exchange
or other disposition of our assets; or (2) not less than 10 days nor more than
60 days before any other meeting. The bylaws also contain specific requirements
for the form of a stockholder's notice. These provisions have anti-takeover
effects that may deter a change in control of our company even if it is in the
best interest of the stockholders.
47
<PAGE> 52
REGISTRATION RIGHTS
In connection with our prior private financings, we granted registration
rights with respect to (1) 3,607,047 shares of common stock sold in the 1997
private placement; (2) 1,570,010 shares of common stock sold in the 1998 private
placement; and (3) 372,354 shares of common stock sold to Genentech. These
registration rights generally grant to the holders up to three "piggyback"
registrations and two "demand" registrations, subject to customary cutback
provisions.
DELAWARE LAW
VaxGen is subject to Section 203 of the Delaware General Corporation Law,
which prevents an "interested stockholder" (a person who owns or within three
years did own 15% or more of a corporation's outstanding voting stock), from
engaging in a business combination with a publicly-held Delaware corporation for
three years following the date that person became an interested stockholder. An
exception is made where the business combination is approved in a prescribed
manner. A corporation may at its option exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws by action or
its stockholders. We did not elect to exclude ourselves.
DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
Our certificate of incorporation eliminates the personal liability of
directors to us or our stockholders for money damages resulting from breaches of
their fiduciary duty to the fullest extent permitted by Delaware General
Corporation Law. This provision does not eliminate the liability of directors
for (1) acts or omissions not in good faith that involve intentional misconduct
or a knowing violation of law; (2) improper declarations of dividends; (3)
transactions from which a director derived an improper personal benefit; or (4)
breaches of directors' duty of loyalty to us or our stockholders. Our bylaws
contain provisions requiring the indemnification of our directors to the fullest
extent permitted by applicable law. We also have the ability to indemnify
officers, employees and agents to the same extent as directors. Our bylaws also
permit us to secure insurance on behalf of any director, officer, employee or
other agent for any liability arising out of his or her actions in such
capacity, regardless of whether the bylaws permit such indemnification. The
employment agreements of Drs. Nowinski and Francis contain indemnification
provisions. We have entered into an indemnification agreement with Ms. Katz, a
director nominee, under which we have agreed to indemnify Ms. Katz with respect
to any liability in connection with this offering.
TRANSFER AGENT
The transfer agent for the common stock is ChaseMellon Shareholder
Services, Seattle, Washington.
48
<PAGE> 53
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that such sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.
After this offering, 10,785,161 shares of common stock will be outstanding
(11,250,161 shares if the underwriters exercise their over-allotment option in
full). Of these shares, the 3,100,000 shares (3,565,000 shares if the
underwriters exercise their over-allotment option in full) sold in this offering
will be freely tradable without restriction under the Securities Act except for
any shares purchased by "affiliates" of the Company as defined in Rule 144 under
the Securities Act. The remaining 7,685,161 shares are "restricted securities"
within the meaning of Rule 144 under the Securities Act. The restricted
securities generally may not be sold unless they are registered under the
Securities Act or sold pursuant to an exemption from registration, such as the
exemption provided by Rule 144 under the Securities Act.
Our officers and directors and [ ] of our shareholders have entered
into lock-up agreements pursuant to which they have agreed not to offer or sell
any shares of common stock for a period of 180 days after the date of this
prospectus without the prior written consent of Prudential Securities, on behalf
of the underwriters. Prudential Securities may, at any time and without notice,
waive any of the terms of these lock-up agreements specified in the underwriting
agreement. Following the lock-up period, these shares will not be eligible for
sale in the public market without registration under the Securities Act unless
such sales meet the conditions and restrictions of Rule 144 as described below.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for a period of at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of: (1)
1% of the then-outstanding shares of common stock; and (2) the average weekly
trading volume in the common stock during the four calendar weeks immediately
preceding the date on which the notice of such sale on Form 144 is filed with
the SEC. Sales under Rule 144 are also subject to certain provisions relating to
notice and manner of sale and the availability of current public information
about the Company. In addition, a person (or persons whose shares are
aggregated) who has not been an affiliate of the Company at any time during the
90 days immediately preceding a sale, and who has beneficially owned the shares
for at least two years, would be entitled to sell such shares under Rule 144(k)
without regard to the volume limitation and other conditions described above.
The foregoing summary of Rule 144 is not intended to be a complete description.
As soon as practicable following the consummation of this offering, the
Company intends to file a registration statement under the Securities Act to
register the shares of common stock available for issuance pursuant to its stock
option plans after the effective date of such registration statement will be
available for sale in the open market subject to the lock-up period and, for
affiliates of the Company, subject to certain conditions and restrictions of
Rule 144.
49
<PAGE> 54
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below, for whom Prudential Securities Incorporated and Punk, Ziegel & Company
L.P. are acting as representatives. We are obligated to sell, and the
underwriters are obligated to purchase, all of the shares offered on the cover
page of this prospectus, if any are purchased. Subject to conditions specified
in the underwriting agreement, each underwriter has severally agreed to purchase
the shares indicated opposite its name:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
UNDERWRITERS ---------
<S> <C>
Prudential Securities Incorporated..........................
Punk, Ziegel & Company L.P..................................
---------
Total....................................................... 3,100,000
=========
</TABLE>
The underwriters may sell more than the total number of shares offered on
the cover page of this prospectus and they have, for a period of 30 days from
the date of this prospectus, an over-allotment option to purchase up to 465,000
additional shares from us. If any additional shares are purchased, the
underwriters will severally purchase the shares in the same proportion as per
the table above.
The representatives of the underwriters have advised us that the shares
will be offered to the public at the offering price indicated on the cover page
of this prospectus. The underwriters may allow to selected dealers a concession
not in excess of $ per share and these dealers may reallow a concession not
in excess of $ per share to certain other dealers. After the shares are
released for sale to the public, the representatives may change the offering
price and the concessions. The representatives have informed us that the
underwriters do not intend to sell shares to any investor who has granted them
discretionary authority.
We have agreed to pay the underwriters the following fees, assuming both no
exercise and full exercise of the underwriters' over-allotment option to
purchase additional shares:
<TABLE>
<CAPTION>
TOTAL FEES
---------------------------------------------
FEE WITHOUT EXERCISE OF FULL EXERCISE OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by us................................ $ $ $
</TABLE>
In addition, we estimate that we will spend approximately $ in
expenses for this offering. We have agreed to indemnify the underwriters against
liabilities, including liabilities under the Securities Act or contribute to
payments that the underwriters may be required to make in respect of these
liabilities.
We, our officers and directors, and [ ] shareholders of VaxGen
have entered into lock-up agreements, under which we and they agreed not to
offer or sell any shares of common stock or securities convertible into or
exchangeable or exercisable for shares of common stock for a period of 180 days
from the date of this prospectus without the prior written consent of Prudential
Securities on behalf of the underwriters. Prudential Securities may, at any time
and without notice, waive the terms of these lock-up agreements specified in the
underwriting agreement.
Prior to this offering, there has been no public market for the common
stock of our Company. The public offering price, negotiated between the Company
and the representatives, is based upon various factors such as our financial and
operating history and condition, its prospects, the prospects for the industry
we are in and prevailing market conditions.
50
<PAGE> 55
Prudential Securities, on behalf of the underwriters, may engage in the
following activities in accordance with applicable securities rules:
- Over-allotments involving sales in excess of the offering size, creating
a short position. Prudential Securities may elect to reduce this short
position by exercising some or all of the over-allotment option.
- Stabilizing and short covering: stabilizing bids to purchase the shares
are permitted if they do not exceed a specified maximum price. After the
distribution of shares has been completed, short covering purchases in
the open market may also reduce the short position. These activities may
cause the price of the shares to be higher than would otherwise exist in
the open market.
- Penalty bids permitting the representatives to reclaim commissions from a
syndicate member for the shares purchased in the stabilizing or short
covering transactions.
Such activities, which may be commenced and discontinued at any time, may
be effected on the Nasdaq National Market, NYSE in the over-the-counter market
or otherwise.
Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:
- the Public Offers of Securities Regulations 1995;
- the Financial Services Act 1986; and
- the Financial Services Act 1986 (Investment Advertisements) (Exemptions),
Order 1996 (as amended).
We have asked the underwriters to reserve shares for sale at the same
offering price directly to our employees and other business affiliates or
related third parties. The number of shares available for sale to the general
public in the offering will be reduced to the extent such persons purchase the
reserved shares.
LEGAL MATTERS
Graham & James LLP/Riddell Williams P.S., Seattle, Washington, passed on
the validity of the shares. Principals of Graham & James LLP/Riddell Williams
P.S. beneficially own 22,000 shares. Cooley Godward LLP, Kirkland, Washington,
passed on legal matters for the underwriters. The Roman Arch Fund L.P. and The
Roman Arch Fund II L.P., an internal employee private equity fund of Prudential
Securities Incorporated, own an aggregate of 16,000 shares.
EXPERTS
The financial statements of VaxGen as of December 31, 1997 and 1998, and
for each of the years in the three-year period ended December 31, 1998 and for
the period from November 27, 1995 (inception) through December 31, 1998, have
been included herein and in the registration statement in reliance upon the
report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We filed a registration statement on Form S-1 with the SEC covering sale of
the common stock, of which this prospectus is a part. This prospectus does not
contain all of the information in the registration statement, portions of which
are omitted as permitted by SEC rules. Statements in this prospectus about
documents filed as exhibits, while complete in material respects, are
nonetheless summaries. Reference is made to each exhibit for a full description.
In each case, summary descriptions are qualified by reference to complete
exhibits. You may read or copy any document filed by us at the SEC's Public
Reference Room located at 450 5th Street, NW, Washington, D.C. 20549. You may
obtain information about the Public Reference Room by calling the SEC for
further information at 1-800-SEC-0330. Our filings are also available at the
SEC's web site at www.sec.gov.
51
<PAGE> 56
VAXGEN, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity (Deficit) and
Comprehensive Loss........................................ F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
The Board of Directors
VaxGen, Inc.:
We have audited the accompanying balance sheets of VaxGen, Inc. (a
development stage enterprise) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity (deficit) and comprehensive loss,
and cash flows for each of the years in the three-year period ended December 31,
1998 and the period from November 27, 1995 (inception) through December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of VaxGen, Inc. (a development
stage enterprise) as of December 31, 1997 and 1998, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1998 and the period from November 27, 1995 (inception)
through December 31, 1998, in conformity with generally accepted accounting
principles.
Seattle, Washington
February 5, 1999, except as to note 8(b),
which is as of April 1, 1999
F-2
<PAGE> 58
VAXGEN, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1997 1998 1999
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents....................... $ 641,000 $ 6,818,000 $ 7,931,000
Investment securities........................... 23,239,000 12,650,000 12,676,000
Interest receivable............................. 152,000 112,000 148,000
Prepaid expenses and other current assets....... 230,000 360,000 294,000
----------- ------------ ------------
Total current assets.................... 24,262,000 19,940,000 21,049,000
Property and equipment, net....................... 33,000 1,258,000 1,423,000
Other assets...................................... 6,000 274,000 221,000
----------- ------------ ------------
Total assets............................ $24,301,000 $ 21,472,000 $ 22,693,000
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to Genentech............................ $ 3,792,000 $ 260,000 $ 500,000
Accounts payable................................ 237,000 1,483,000 248,000
Accrued liabilities............................. 390,000 331,000 963,000
Current portion of long-term obligations........ -- -- 20,000
----------- ------------ ------------
Total current liabilities............... 4,419,000 2,074,000 1,731,000
----------- ------------ ------------
Long-term obligations............................. -- -- 66,000
Stockholders' equity:
Preferred stock, $0.01 par value. Authorized
20,000,000 shares; none issued or
outstanding.................................. -- -- --
Common stock, $0.01 par value. Authorized
20,000,000 shares; issued and outstanding
6,109,401 shares at December 31, 1997,
7,101,248 shares at December 31, 1998 and
7,685,161 shares at March 31, 1999........... 61,000 71,000 77,000
Additional paid-in capital...................... 24,985,000 33,619,000 38,886,000
Accumulated other comprehensive income --
unrealized gain on investment securities..... 8,000 43,000 28,000
Deficit accumulated during the development
stage........................................ (5,172,000) (14,335,000) (18,095,000)
----------- ------------ ------------
Total stockholders' equity.............. 19,882,000 19,398,000 20,896,000
Commitments and contingencies
----------- ------------ ------------
Total liabilities and stockholders'
equity................................ $24,301,000 $ 21,472,000 $ 22,693,000
=========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 59
VAXGEN, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
NOVEMBER 27, NOVEMBER 27,
1995 1995
(INCEPTION) THREE MONTHS (INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH ENDED MARCH 31, THROUGH
--------------------------------------- DECEMBER 31, ------------------------- MARCH 31,
1996 1997 1998 1998 1998 1999 1999
----------- ----------- ----------- ------------ ----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating expenses:
Research and
development............. $(1,683,000) $(3,146,000) $(6,831,000) $(11,663,000) $ (716,000) $(3,038,000) $(14,701,000)
General and
administrative.......... (371,000) (800,000) (3,345,000) (4,543,000) (447,000) (1,006,000) (5,549,000)
----------- ----------- ----------- ------------ ----------- ----------- ------------
Loss from operations.... (2,054,000) (3,946,000) (10,176,000) (16,206,000) (1,163,000) (4,044,000) (20,250,000)
Other income (expense), net:
Investment income, net.... -- 905,000 1,013,000 1,918,000 306,000 285,000 2,203,000
Interest expense.......... (28,000) (19,000) -- (47,000) -- (1,000) (48,000)
----------- ----------- ----------- ------------ ----------- ----------- ------------
Total other income
(expense), net........ (28,000) 886,000 1,013,000 1,871,000 306,000 284,000 2,155,000
Net loss................ $(2,082,000) $(3,060,000) $(9,163,000) $(14,335,000) $ (857,000) $(3,760,000) $(18,095,000)
=========== =========== =========== ============ =========== =========== ============
Basic and diluted loss per
share..................... $ (1.90) $ (0.60) $ (1.48) $ (0.14) $ (0.49)
=========== =========== =========== =========== ===========
Weighted average shares used
in computing basic and
diluted loss per share.... 1,093,000 5,096,000 6,185,000 6,066,000 7,619,000
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 60
VAXGEN, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE OTHER TOTAL
-------------------- PAID-IN DEVELOPMENT COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE INCOME EQUITY (DEFICIT)
--------- ------- ----------- ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at inception (November
27, 1995)..................... -- $ -- $ -- $ -- $ -- $ --
Net and total comprehensive loss
for the period from inception
to December 31, 1995.......... -- -- -- (30,000) -- (30,000)
--------- ------- ----------- ------------ -------- -----------
Balance at December 31, 1995.... -- -- -- (30,000) -- (30,000)
Shares issued at $0.02 per share
from April through October
1996:
Genentech for technology...... 1,150,000 11,000 12,000 -- -- 23,000
Other founders for cash....... 980,000 10,000 10,000 -- -- 20,000
Net and total comprehensive
loss.......................... -- -- -- (2,082,000) -- (2,082,000)
--------- ------- ----------- ------------ -------- -----------
Balance at December 31, 1996.... 2,130,000 21,000 22,000 (2,112,000) -- (2,069,000)
Sale of shares in private
placement at $7.00 per share
from March through June 1997
for cash, net of issue costs
of $2,248,000................. 3,607,047 36,000 22,965,000 -- -- 23,001,000
Sale of shares to Genentech
concurrent with private
placement in March 1997 at
$7.00 per share for cash...... 285,714 3,000 1,997,000 -- -- 2,000,000
Genentech exercise of warrants
at $0.02 per share in October
1997 for cash................. 86,640 1,000 1,000 -- -- 2,000
Comprehensive loss:
Net loss...................... -- -- -- (3,060,000) -- (3,060,000)
Unrealized gain on investment
securities.................. -- -- -- -- 8,000 8,000
--------- ------- ----------- ------------ -------- -----------
Total comprehensive
loss.................. -- -- -- -- -- (3,052,000)
--------- ------- ----------- ------------ -------- -----------
Balance at December 31, 1997.... 6,109,401 61,000 24,985,000 (5,172,000) 8,000 19,882,000
Exercise of employee stock
options at $7.00 per share in
June and July 1998 for cash... 5,750 -- 40,000 -- -- 40,000
Sale of shares in private
placement in December 1998 at
$9.50 per share for cash, net
of issue costs of $764,000.... 986,097 10,000 8,594,000 -- -- 8,604,000
Comprehensive loss:
Net loss...................... -- -- -- (9,163,000) -- (9,163,000)
Unrealized gain on investment
securities.................. -- -- -- -- 35,000 35,000
--------- ------- ----------- ------------ -------- -----------
Total comprehensive
loss.................. -- -- -- -- -- (9,128,000)
--------- ------- ----------- ------------ -------- -----------
Balance at December 31, 1998.... 7,101,248 71,000 33,619,000 (14,335,000) 43,000 19,398,000
Sale of shares in private
placement in January 1999 at
$9.50 per share for cash, net
of issue costs of $264,000
(unaudited)................... 583,913 6,000 5,267,000 -- -- 5,273,000
Comprehensive loss (unaudited):
Net loss...................... -- -- -- (3,760,000) -- (3,760,000)
Net unrealized loss on
investment securities....... -- -- -- -- (15,000) (15,000)
--------- ------- ----------- ------------ -------- -----------
Total comprehensive
loss.................. -- -- -- -- -- (3,775,000)
--------- ------- ----------- ------------ -------- -----------
Balance at March 31, 1999
(unaudited)................... 7,685,161 $77,000 $38,886,000 $(18,095,000) $ 28,000 $20,896,000
========= ======= =========== ============ ======== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 61
VAXGEN, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
NOVEMBER 27, NOVEMBER 27,
1995 1995
(INCEPTION) THREE MONTHS (INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH ENDED MARCH 31, THROUGH
----------------------------------------- DECEMBER 31, ------------------------- MARCH 31,
1996 1997 1998 1998 1998 1999 1999
----------- ------------ ------------ ------------ ----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.................. $(2,082,000) $ (3,060,000) $ (9,163,000) $(14,335,000) $ (857,000) $(3,760,000) $(18,095,000)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation and
amortization........ 3,000 4,000 92,000 99,000 4,000 80,000 179,000
Amortization of
discounts on
investment
securities.......... -- (229,000) (154,000) (383,000) (75,000) (39,000) (422,000)
Changes in assets and
liabilities:
Interest
receivable........ -- (152,000) 40,000 (112,000) (5,000) (36,000) (148,000)
Prepaid expenses and
other current
assets............ (2,000) (228,000) (130,000) (360,000) 35,000 66,000 (294,000)
Other assets........ -- (1,000) (150,000) (162,000) -- 53,000 (109,000)
Payable to
Genentech......... 1,442,000 2,350,000 (3,532,000) 260,000 (3,608,000) 240,000 500,000
Accounts payable and
accrued
liabilities....... 35,000 566,000 1,187,000 1,814,000 1,644,000 (603,000) 1,211,000
----------- ------------ ------------ ------------ ----------- ----------- ------------
Net cash used in
operating
activities........ (604,000) (750,000) (11,810,000) (13,179,000) (2,862,000) (3,999,000) (17,178,000)
----------- ------------ ------------ ------------ ----------- ----------- ------------
Cash flows from investing
activities:
Purchases of investment
securities.............. -- (28,957,000) (25,600,000) (54,557,000) (4,996,000) (3,097,000) (57,654,000)
Sales of investment
securities.............. -- 5,955,000 36,378,000 42,333,000 7,883,000 3,095,000 45,428,000
Purchases of property and
equipment............... -- (34,000) (1,315,000) (1,349,000) (44,000) (159,000) (1,508,000)
Long-term lease
deposits................ -- -- (120,000) (120,000) -- -- (120,000)
----------- ------------ ------------ ------------ ----------- ----------- ------------
Net cash provided by
(used in)
investing
activities........ -- (23,036,000) 9,343,000 (13,693,000) 2,843,000 (161,000) (13,854,000)
----------- ------------ ------------ ------------ ----------- ----------- ------------
Cash flows from financing
activities:
Stock issuances:
Issued to Genentech..... 23,000 1,002,000 -- 1,025,000 -- -- 1,025,000
Issued to other
founders.............. 15,000 5,000 -- 20,000 -- -- 20,000
Private placements...... -- 25,249,000 9,368,000 34,617,000 -- 5,537,000 40,154,000
Issuance costs of
private placements.... (176,000) (2,072,000) (764,000) (3,012,000) -- (264,000) (3,276,000)
Exercise of employee
stock options......... -- -- 40,000 40,000 -- -- 40,000
Loans from Genentech...... 780,000 205,000 -- 1,000,000 -- -- 1,000,000
----------- ------------ ------------ ------------ ----------- ----------- ------------
Net cash provided by
financing
activities........ 642,000 24,389,000 8,644,000 33,690,000 -- 5,273,000 38,963,000
----------- ------------ ------------ ------------ ----------- ----------- ------------
Increase in cash and
cash
equivalents....... 38,000 603,000 6,177,000 6,818,000 (19,000) 1,113,000 7,931,000
Cash and cash equivalents at
beginning of period....... -- 38,000 641,000 -- 641,000 6,818,000 --
----------- ------------ ------------ ------------ ----------- ----------- ------------
Cash and cash equivalents at
end of period............. $ 38,000 $ 641,000 $ 6,818,000 $ 6,818,000 $ 622,000 $ 7,931,000 $ 7,931,000
=========== ============ ============ ============ =========== =========== ============
Supplemental schedule of
noncash financing
activities:
Issuance of stock through
conversion of Genentech
note payable............ $ -- $ 1,000,000 $ -- $ 1,000,000 $ -- $ -- $ 1,000,000
=========== ============ ============ ============ =========== =========== ============
Equipment acquired through
capital leases
(unaudited)............. $ -- $ -- $ -- $ -- $ -- $ 86,000 $ 86,000
=========== ============ ============ ============ =========== =========== ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 62
VAXGEN, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) NATURE OF DEVELOPMENT STAGE ACTIVITIES
VaxGen, Inc. ("Company") is a development stage biotechnology company
formed to develop a vaccine (AIDSVAX) intended to eradicate HIV. The Company was
incorporated on November 27, 1995 and since that date its principal activities
have included defining and conducting research programs, conducting animal and
human clinical trials, raising capital and recruiting scientific and management
personnel.
The Company's development activities involve inherent risks. These risks
include, among others, dependence on key personnel and determination of
patentability of the Company's products and processes. In addition, the Company
has only one product candidate which has not yet obtained Food and Drug
Administration approval. Successful future operations depend upon the Company's
ability to obtain approval for and commercialize AIDSVAX.
(B) INTERIM FINANCIAL STATEMENTS
The financial information as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 is unaudited. These interim financial statements
have been prepared on substantially the same basis as the audited financial
statements and in the opinion of management, contain all adjustments, consisting
only of normal recurring adjustments, necessary for the fair presentation of the
financial information set forth therein.
(C) CASH EQUIVALENTS
All short-term investments with an original maturity at date of purchase of
three months or less are considered to be cash equivalents. Cash equivalents
consisting of commercial paper amounted to $572,000 and $6,490,000 at December
31, 1997 and 1998, respectively.
(D) INVESTMENT SECURITIES
Investment securities are classified as available-for-sale and carried at
market value with unrealized gains and losses excluded from the statement of
operations and reported as other comprehensive income. Realized gains and losses
on sales of investment securities are determined on the specific identification
method and are included in investment income, net.
(E) PROPERTY AND EQUIPMENT
Equipment, consisting of computers and other office equipment, is
depreciated using the straight-line method over the assets' estimated useful
lives of three to ten years. Leasehold improvements are amortized using the
straight-line method over the shorter of the assets' estimated useful lives or
the remaining term of the lease.
(F) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
(G) INCOME TAXES
Deferred income taxes are provided based on the estimated future tax
effects of temporary differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
F-7
<PAGE> 63
VAXGEN, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates that are expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date. A valuation allowance is established to reduce deferred tax assets to the
amount expected to be realized.
(H) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has financial instruments other than cash and investment
securities, consisting of interest receivable, accounts payable, and a payable
to Genentech. The fair value of these financial instruments approximates their
carrying amount due to their short-term nature.
(I) STOCK-BASED COMPENSATION
The Company accounts for its stock option plans for employees in accordance
with the provisions of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, compensation expense related to employee stock options is recorded
if, on the date of grant, the fair value of the underlying stock exceeds the
exercise price. The Company applies the disclosure only requirements of
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, which allows entities to continue to apply the
provisions of APB 25 for transactions with employees, and to provide pro forma
results of operations disclosures for employee stock option grants as if the
fair-value-based method of accounting in SFAS 123 had been applied to these
transactions.
(J) COMPREHENSIVE LOSS
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income (Statement 130),
which establishes new rules for the reporting and display of comprehensive
income and its components. Statement 130 requires companies to report, in
addition to net income or loss, other components of comprehensive income or
loss. Unrealized gain on securities included in comprehensive loss for 1998 is
net of the reclassification adjustment for realized losses included in net loss
of $6,000. Adoption of Statement 130 had no effect on the Company's results of
operations or financial position as reported in the financial statements.
(K) LOSS PER SHARE
Basic loss per share is computed on the basis of the weighted average
number of shares outstanding for the reporting period. Diluted loss per share is
computed on the basis of the weighted average number of common shares plus
dilutive potential common shares outstanding using the treasury stock method.
Potential dilutive common shares consist of shares issuable to holders of
unexercised employee stock options and warrants outstanding. Options and
warrants to purchase, in the aggregate, approximately 419,000, 751,000, 419,000
and 751,000 shares of common stock outstanding at December 31, 1997 and 1998 and
March 31, 1998 and 1999 (unaudited), respectively, were not included in the
calculation of diluted loss per share because the representative share
increments would be antidilutive. No options or warrants were outstanding at
December 31, 1996.
(L) 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
F-8
<PAGE> 64
VAXGEN, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(M) IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of their carrying amount or fair value less costs
to sell.
(N) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1998
presentation.
(O) BUSINESS SEGMENTS
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131 (SFAS 131), Disclosures about Segments of an Enterprise and Related
Information. SFAS 131 requires an enterprise to report segment information based
on how management internally evaluates the operating performance of its business
units (segments). The Company's operations are confined to one business segment,
the discovery and development of vaccines that immunize against certain
infectious diseases.
(2) INVESTMENT SECURITIES
The following summarizes the Company's investment securities at December
31:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1997:
Commercial paper............................ $17,733,000 $ 4,000 $-- $17,737,000
Government obligations...................... 5,498,000 4,000 -- 5,502,000
----------- ------- --- -----------
$23,231,000 $ 8,000 $-- $23,239,000
=========== ======= === ===========
1998:
Commercial paper............................ $ 3,962,000 $ 4,000 $-- $ 3,966,000
Government obligations...................... 8,645,000 39,000 -- 8,684,000
----------- ------- --- -----------
$12,607,000 $43,000 $-- $12,650,000
=========== ======= === ===========
</TABLE>
Amortized cost and market value of investment securities at December 31,
1998 by contractual maturity are shown below. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or prepare
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED MARKET
MATURITIES COST VALUE
---------- ----------- -----------
<S> <C> <C>
Due in 1 year or less..................................... $10,613,000 $10,637,000
Due between 1 year to 5 years............................. 1,994,000 2,013,000
----------- -----------
$12,607,000 $12,650,000
=========== ===========
</TABLE>
F-9
<PAGE> 65
VAXGEN, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Investment income, net, includes interest of $0, $905,000 and $1,005,000
earned on investments and gains of $0, $0 and $8,000 realized upon the sale of
investments for 1996, 1997 and 1998, respectively.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
------- ----------
<S> <C> <C>
Furniture and equipment..................................... $34,000 $1,057,000
Leasehold improvements...................................... -- 292,000
------- ----------
34,000 1,349,000
Less accumulated depreciation and amortization.............. 1,000 91,000
------- ----------
$33,000 $1,258,000
======= ==========
</TABLE>
(4) RELATIONSHIP WITH GENENTECH
The Company was founded in 1995 to develop and commercialize an HIV vaccine
in partnership with Genentech. In 1996, in return for an equity interest
(1,150,000 shares or 54% of the then outstanding and subscribed shares) in the
Company, rights to maintain 25% ownership of the Company's common stock (through
common stock warrants), a seat on the Board of Directors and certain
manufacturing and marketing rights to the vaccine, Genentech granted the Company
an exclusive license to certain technology.
Genentech financed the formation of the Company by means of a $1,000,000
line of credit. Additionally, Genentech and the Company entered into an
agreement whereby Genentech could convert the line of credit plus additional
capital totaling $2,000,000 into shares of the Company's common stock concurrent
with an initial private placement in March 1997. The conversion resulted in the
issuance of 285,714 shares of common stock. Upon the final closing of the
private placement, Genentech exercised its option to retain a 25% common stock
ownership interest and thereby acquired an additional 86,640 shares of common
stock for cash. At December 31, 1998, Genentech retained warrants for the
exercise of additional common stock in the event of a second private placement
in excess of $10 million or an Initial Public Offering (IPO). Such warrants were
exercisable at the issue price per share of the additional capital raised and
would allow Genentech to maintain its 25% ownership interest. The warrants
expired unexercised at the completion of the Company's 1998 private placement in
January 1999. Genentech has no rights beyond the second financing (whether by
private placement or IPO) to maintain its 25% ownership position.
The license agreement between the Company and Genentech, in part, defines
the working relationship between the companies. Genentech has granted the
Company an exclusive license to all patents and proprietary know-how that
Genentech is free to license or sublicense related to the development of a
vaccine to prevent HIV infection. Certain of the licensed technology is
sublicensed or assigned to the Company under licenses from third parties to
Genentech. The Company, as the exclusive licensee of Genentech, has assumed all
of Genentech's obligations under these third-party license agreements. The
initial term of the license agreement is 15 years from the commercial
introduction date of a licensed product and will be determined on a
country-by-country, product-by-product basis. In addition, upon entering the
agreement, Genentech transferred to the Company 300,000 doses of the vaccine.
Under the license agreement, the Company is required to use due diligence (as
defined in the agreement) in developing, seeking regulatory approval for, and
marketing and commercializing the vaccine.
F-10
<PAGE> 66
VAXGEN, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In connection with reaching this goal, the Company is required to achieve
the filing of the first market approval for a product with the FDA not later
than the fifth anniversary of the closing of the 1997 private placement, which
occurred in March 1997. The Company and Genentech can agree to extend this
requirement, subject to a two-year limit. If the Company fails to exercise due
diligence, Genentech has the right to convert the exclusive license to a
non-exclusive license, and may be entitled to terminate the license. Genentech
may terminate the license agreement if the Company fails to: (1) maintain a
tangible net worth of at least $1,000,000; or (2) meet certain due diligence
milestones within two years of the date originally set for such milestones.
As part of the license agreement, Genentech has an option to manufacture
the vaccine and a one-time option to be responsible for marketing the vaccine
worldwide. Should Genentech exercise its marketing option, Genentech will pay a
license fee to the Company equal to 33% of the Company's developmental costs of
the initial AIDSVAX product (including the Phase III clinical trials and
regulatory submissions), as well as a percentage of ongoing profits on the sales
of the vaccine. If Genentech does not elect its marketing option, it will
receive a royalty on product sales; the royalty rate depends on whether
Genentech elects to manufacture the vaccine being sold commercially.
The Company has a service contract with Genentech originally expiring
December 31, 1998, whereby Genentech supplies research, vaccine production, and
administrative and regulatory support to the Company. Expenses incurred by
VaxGen for 1996, 1997 and 1998 were $1,442,000, $2,352,000 and 690,000,
respectively, under the contract. In excess of 95% of costs represent research
and development expenses in each period and the remainder are general and
administrative expenses. The contract has been extended under similar terms
through December 31, 2000.
Prior to September 1998, the Company leased office space from Genentech.
Rent expense under this lease was $0, $18,000, and $80,000 in 1996, 1997, and
1998, respectively.
(5) STOCK OPTIONS AND WARRANTS
(A) STOCK OPTION PLANS
1996 Stock Option Plan
The Company's 1996 Stock Option Plan (the Plan) has 500,000 shares of
common stock reserved for grant. Options granted under the Plan may be
designated as qualified or nonqualified at the discretion of the compensation
committee of the Board of Directors. At December 31, 1998, 61,750 shares were
available for grant under the Plan.
Generally, options granted under the Plan vest and may be exercised over a
four-year period in increments of 25% each year beginning one year from the date
of grant; however, options can vest upon grant. All options expire no later than
ten years from the date of grant. Qualified stock options are exercisable at not
less than the fair market value of the stock at the date of grant and
nonqualified stock options are exercisable at prices determined at the
discretion of the Board of Directors, but not less that 85% of the fair market
value of the stock at the date of grant. All Board approved options have been
granted at an exercise price of $7.00 per share.
1998 Director Stock Option Plan
In 1998, the Board of Directors approved the 1998 Director Stock Option
Plan (the Director Plan) for nonemployee directors. Under the Director Plan,
37,500 shares of common stock are reserved for grant. On May 6, 1998,
nonemployee directors were granted options to purchase 8,571 shares of the
Company's
F-11
<PAGE> 67
VAXGEN, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
common stock at an exercise price of $7.00 per share. Such options vested
immediately. Under the Director Plan, options will automatically be granted to
nonemployee directors on the date of the annual shareholders' meeting. The
exercise price of each annual option grant is to be the fair market value of the
Company's common stock on the grant date. Each annual option grant fully vests
on the first anniversary of its grant date, subject to certain meeting
attendance requirements. At December 31, 1998, 28,929 shares were available for
grant under the Director Plan.
A summary of stock option plans follows:
<TABLE>
<CAPTION>
STOCK OPTIONS
-------------------------
WEIGHTED
AVERAGE
EXERCISE PRICE
SHARES PER SHARE
------- --------------
<S> <C> <C>
Outstanding at
December 31, 1996......................................... -- $ --
Granted................................................... 200,000 7.00
Exercised................................................. -- --
Canceled.................................................. -- --
------- -----
Outstanding at
December 31, 1997......................................... 200,000 7.00
Granted................................................... 271,071 7.00
Exercised................................................. (5,750) 7.00
Canceled.................................................. (24,250) 7.00
------- -----
Outstanding at
December 31, 1998......................................... 441,071 $7.00
======= =====
</TABLE>
At December 31, 1998, options to purchase 116,696 shares were vested and
exercisable under stock option plans. The weighted average remaining contractual
life of stock options outstanding at December 31, 1998 is 9.0 years.
Had compensation cost for the plan been determined consistent with SFAS
123, the Company's net loss and loss per share would have been adjusted to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
Net loss -- as reported................................... $(3,060,000) $(9,163,000)
Net loss -- pro forma..................................... $(3,005,000) $(9,333,000)
Loss per share -- basic and diluted, as reported.......... $(0.60) $(1.48)
Loss per share -- basic and diluted, pro forma............ $(0.60) $(1.51)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions used for grants in 1997
and 1998: expected dividend yield of 0%; expected volatility of 0%; risk-free
interest rate of 6.0%; and expected lives of four years. Using these
assumptions, the fair value of options granted in 1997 and 1998 was estimated as
$0.74 per share.
During 1998, the Board of Directors approved for grant options to purchase
174,925 shares of the Company's common stock at an exercise price of $7.00 per
share and 302,900 shares at an exercise price of $9.50 per share. However, since
the grant of such options would cause the number of shares outstanding to exceed
the number of shares reserved for grant under the Plan, the Company's
shareholders must approve an increase in the number of shares reserved for grant
under the Plan. Because the shareholders
F-12
<PAGE> 68
VAXGEN, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
must first approve an increase in the number of shares reserved for grant, the
financial effect of the grants, if any, has not been reported in these financial
statements (note 8b).
(B) COMMON STOCK WARRANTS
In connection with the Company's 1997 private placement, certain
consultants were issued warrants to purchase approximately 219,000 shares of the
Company's common stock exercisable at $7.00 per share through June 2007. No
warrants have been exercised to date.
The Company similarly agreed to issue warrants to purchase approximately
91,000 shares of the Company's common stock exercisable at $9.50 per share to
certain consultants in connection with the Company's 1998 private placement.
Such warrants were earned in December 1998 and January 1999. The warrants are to
be exercisable through 2009. No warrants have been exercised to date.
Additionally, in connection with the 1997 private placement, the Company
granted an unrelated party a first option to maintain its approximately 4.8%
interest in the Company. Such right allows the party, at any subsequent private
placement or IPO through March 31, 2002, the option to acquire a proportionate
number of shares at an equivalent price to maintain its ownership percentage.
The party exercised its option in connection with the 1998 private placement.
(6) INCOME TAXES
The Company has reported no income tax benefits due to limitations on the
recognition of deferred tax assets for financial reporting purposes.
The tax effects of temporary differences and carryforwards that give rise
to deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Research and experimentation credit carryforwards......... $ 195,000 $ 440,000
Net operating loss carryforwards.......................... 1,705,000 4,758,000
Other..................................................... 49,000 50,000
---------- ----------
Total gross deferred tax assets................... 1,949,000 5,248,000
Less valuation allowance.................................. 1,949,000 5,248,000
---------- ----------
Net deferred tax assets........................... $ -- $ --
========== ==========
</TABLE>
The increases in the valuation allowance for deferred tax assets of
$1,203,000 in 1997 and $3,299,000 in 1998 are primarily attributable to
increases in net operating loss and tax credit carryforwards whose utilization
cannot reasonably be assured.
At December 31, 1998 the Company had net operating loss carryforwards of
approximately $13,995,000 and research and experimentation credit carryforwards
of approximately $440,000 which are available to offset future Federal taxable
income and income taxes, respectively, if any, and expire beginning in 2010.
(7) COMMITMENTS
(A) LEASES
The Company leases office facilities under cancelable operating leases,
which expire from 1999 to 2005. Until September 1998, the Company also leased
office space from Genentech.
F-13
<PAGE> 69
VAXGEN, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In August 1998, the Company commenced a lease for office space at Mahidol
University in Bangkok, Thailand, ending at the conclusion of Phase III clinical
trials in Thailand. The lease requires monthly payments of $2,000. Additionally,
the Company began renovation of project office space at Taksin Hospital, also in
Bangkok. The Company is required to pay up to $100,000 for renovations, for
which the Company will receive use of the facility for a five-year term at no
additional cost.
The Company entered into a 62-month laboratory lease commencing January 1,
1999 which requires the Company to expend a minimum of $500,000 in leasehold
improvements, in addition to its scheduled lease payments.
Minimum annual payments, excluding required leasehold improvements and
renovations, under the foregoing leases, are as follows:
<TABLE>
<S> <C>
1999...................................................... $571,000
2000...................................................... 625,000
2001...................................................... 650,000
2002...................................................... 652,000
2003...................................................... 677,000
Thereafter................................................ 877,000
</TABLE>
Rent expense for 1996, 1997 and 1998 was $12,000, $66,000 and $353,000,
respectively.
(B) EMPLOYMENT AGREEMENTS
The Company has employment contracts with its Chairman and President ending
in 2002. Such agreements provide for discretionary bonuses and annual increases
in compensation as determined by the Board of Directors. Minimum compensation
under these two contracts aggregates $500,000 annually. Such contracts also
provide for the issuance of 125,000 shares of the Company's common stock to both
the Chairman and President of the Company once the per share value of the
Company's common stock has reached $28.00 over a 30 day period. This represents
four times the per share value of the Company's common stock based on the 1997
private placement, or upon a change in control. If the shares are issued as a
result of the common stock reaching an average value of $28 per share, the
Company will record an immediate non-cash charge of $7,000,000 to expense.
(C) CLINICAL TRIALS
In connection with Phase III clinical trials, the Company has contracted
with or will contract for the services of 50 to 60 medical clinics. The clinics
will provide the location, clinicians, oversight, and volunteers for the three
year testing of the Company's vaccine. Payment will be made over the period
based on the number of volunteers vaccinated, the number of return visits and
the subsequent testing and follow-up of these volunteers. Total commitments will
aggregate approximately $25,000,000, of which the Company had paid approximately
$2,400,000 as of December 31, 1998.
(8) SUBSEQUENT EVENTS
(A) In connection with the Company's 1998 private placement, the final
closing and issuance of 583,913 shares of common stock for proceeds of
$5,273,000, net of issue costs of $264,000, occurred on January 11, 1999.
(B) On April 1, 1999, the shareholders concurrently approved a one-for-two
reverse split of the number of shares of issued and outstanding common stock of
the Company effective April 9, 1999 and a
F-14
<PAGE> 70
VAXGEN, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
reduction in the number of common shares authorized from 30,000,000 to
20,000,000. These financial statements and the notes thereto reflect these
changes for all periods presented.
Additionally, on April 1, 1999, the shareholders of the Company approved an
increase in the number of shares reserved for grant under the 1996 stock option
plan to 1,750,000 shares. This represents the measurement date for previously
granted but unapproved options (note 5a). As a result, the Company recorded
deferred compensation in the amount of $437,000 representing the excess of the
fair market value of the common shares on April 1, 1999 ($9.50 per share) over
the exercise price of the options. Additionally, the Company recorded an
immediate charge to expense of $100,000 for the portion of the vesting period
elapsed at April 1. The deferred compensation will be amortized to expense over
the remaining vesting period.
F-15
<PAGE> 71
- --------------------------------------------------------------------------------
Until ___ , all dealer effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
[VAXGEN LOGO]
PRUDENTIAL SECURITIES
PUNK, ZIEGEL & COMPANY
- --------------------------------------------------------------------------------
<PAGE> 72
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee*........ $ 14,866
NASD filing fee............................................. 5,848
Nasdaq listing fee.......................................... 78,875
Legal fees and expenses..................................... 300,000
Accountants' fees and expenses.............................. 100,000
Printing and engraving expenses............................. 150,000
Transfer agent and registrar fees........................... 10,000
Directors' and officers' insurance expenses................. 350,000
Miscellaneous expenses...................................... 290,411
----------
Total............................................. $1,300,000
==========
</TABLE>
- ---------------
* All expenses other than the SEC registration fee, the NASD filing fee and the
Nasdaq listing fee are estimates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933. Our amended and restated
certificate of incorporation and amended and restated bylaws provide for
indemnification of directors, officers, employees and other agents to the
maximum extent permitted by Delaware General Corporation Law. The underwriting
agreement also provides for cross-indemnification among VaxGen and the
underwriters with respect to certain matters, including matters arising under
the federal securities laws. We have entered into an indemnification agreement
with Ms. Katz, a director nominee, under which we have agreed to indemnify Ms.
Katz with respect to any liability in connection with this offering.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since November 27, 1995, we have issued and sold the following unregistered
securities (adjusted to reflect the one-for-two reverse split):
(1) On April 10, 1996, we issued 1,150,000 shares of common stock to
Genentech, 500,000 shares of common stock to Donald P. Francis, and 250,000
shares of common stock to Robert C. Nowinski, at a purchase price of $0.02
per share for an aggregate purchase price of $38,000. Each of these
purchases are insiders of VaxGen. We relied on Section 4(2) and Rule 701
for exemption.
(2) On October 29, 1996, we issued an aggregate of 230,000 shares of
common stock to certain accredited investors at a purchase price of $0.02
per share for an aggregate purchase price of $4,600; including 133,333
shares to Donald P. Francis, 66,666 shares to Robert C. Nowinski, and
20,000 shares to Stephen C. Francis. We relied on Section 4(2) and Rule 506
for exemption.
(3) From March 12, 1997 through December 31, 1997, we issued an
aggregate of 3,607,047 shares of common stock to certain accredited
investors at a price of $7.00 per share for an aggregate amount of
$25,249,329; including 6,414 shares to Robert C. Nowinski. We also issued
an aggregate of 372,354 shares of common stock to Genentech at an average
price of $5.38 per share for an aggregate amount of $2,002,000. We relied
on Section 4(2) and Rule 506 for exemption.
II-1
<PAGE> 73
(4) From December 4, 1998 through January 11, 1999, we issued an
aggregate of 1,570,010 shares of common stock to certain accredited
investors at a price of $9.50 per share for an aggregate amount of
$14,915,095; including 20,000 shares to Stephen C. Francis. We relied on
Section 4(2) and Rule 506 for exemption.
(5) From November 17, 1997 through April 30, 1998, we granted options
to employees under the 1996 stock option plan to purchase an aggregate of
637,425 shares of common stock at an exercise price of $7.00 per share. We
relied on Rule 701 for exemption.
(6) From January 1, 1999 through April 15, 1999, we granted options to
employees and consultants under the 1996 stock option plan to purchase an
aggregate of 452,875 shares of common stock at an exercise price of $9.50
per share. We relied on Rule 701 for exemption.
(7) On April 1, 1999 we granted options to employees under the 1996
stock option plan to purchase an aggregate of 8,000 shares of common stock
at an exercise price of $13.40 per share. We relied on Rule 701 for
exemption.
(8) On May 6, 1998 we granted options to three directors under the
1998 director stock option plan to purchase an aggregate of 8,571 shares of
common stock at an exercise price of $7.00 per share. We relied on Rule 701
for exemption.
(9) On July 25, 1997 we issued aggregate warrants to purchase up to
218,947 shares of common stock in connection with our 1997 private
placement. We relied on Section 4(2) and Rule 506 for exemption.
(10) We issued aggregate warrants to purchase up to 90,878 shares of
common stock in connection with our 1998 private placement to consultants.
We relied on Section 4(2) and Rule 506 for exemption.
(11) As of April 15, 1999 we have issued an aggregate of 5,750 shares
of common stock to employees on exercise of options. We received an
consideration of $40,250 for such shares. We relied on Rule 701 for
exemption.
No underwriters were engaged in connection with these issuances and sales.
II-2
<PAGE> 74
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation
3.2* Amended and Restated Bylaws
4.1* Specimen stock certificate
5.1* Opinion of Graham & James LLP/Riddell Williams P.S.
10.1 Registration Rights Agreement between VaxGen and Genentech,
dated as of May 5, 1997
10.2 1996 Registration Rights Agreement between VaxGen and
certain stockholders
10.3 1998 Registration Rights Agreement between VaxGen and
certain stockholders
10.4 1996 Stock Option Plan
10.5 1998 Director Stock Option Plan
10.6 Form of stock option agreement
10.7 Form of common stock warrant
10.8 Right of First Option Agreement between VaxGen and Leon A.
Greenblatt, dated March 14, 1997
10.9 Amended and Restated Employment Agreement between VaxGen and
Robert C. Nowinski, dated January 1, 1998
10.10 Amended and Restated Employment Agreement between VaxGen and
Donald P. Francis, dated January 1, 1998
10.11 Employment Agreement between VaxGen and Phillip W. Berman,
dated as of October 10, 1997
10.12 Employment Agreement between VaxGen and John G. Curd, dated
as of May 3, 1999
10.13 Employment Agreement between VaxGen and Carter A. Lee, dated
as of April 1, 1999
10.14 License Agreement with Genentech, dated as of May 1, 1996
10.15 Services Agreement with Genentech, dated as of January 1,
1999
10.16 Letter of Intent for Supply Development Agreement between
VaxGen and Pasteur Merieux Serums et Vaccins (Pasteur
Merieux Connaught), dated April 10, 1998
10.16.1 Amendment to Letter of Intent for Supply Development
Agreement between VaxGen and Pasteur Merieux Serums et
Vaccins (Pasteur Merieux Connaught), dated May 3, 1999
10.17 Form of trial clinic agreement
10.18 Lease Agreement between VaxGen and Oyster Point Tech Center
LLC, dated October 26, 1998
10.19 Lease Agreement between VaxGen and Spieker Properties, L.P.,
dated May 20, 1998.
23.1 Consent of Graham & James LLP/Riddell Williams P.S.
(included in Exhibit 5.1)
23.2 Consent of KPMG LLP
23.3 Consent of Roberta R. Katz
24.1 Power of attorney (included on page II-5)
27.1 Financial data schedule
</TABLE>
- ---------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULE
II-3
<PAGE> 75
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Seattle, Washington on May 7, 1999.
VAXGEN, INC.
By: /s/ Robert C. Nowinski
------------------------------------
Robert C. Nowinski, Chairman of
the Board and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Donald
P. Francis and Robert C. Nowinski, and each of them, as his or her true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement and a new registration statement
filed pursuant to Rule 462(b) under the Securities Act of 1933 and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the United States Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the foregoing, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert C. Nowinski Chairman of the Board and Chief May 7, 1999
- ----------------------------------------------------- Executive Officer (Principal
Robert C. Nowinski Executive Officer)
/s/ Donald P. Francis President and Director May 7, 1999
- -----------------------------------------------------
Donald P. Francis
/s/ Carter A. Lee Senior Vice President, Finance & May 7, 1999
- ----------------------------------------------------- Administration (Principal
Carter A. Lee Financial Officer)
/s/ Phillip W. Berman Senior Vice President, Research & May 7, 1999
- ----------------------------------------------------- Development, Director
Phillip W. Berman
/s/ Stephen C. Francis Director May 7, 1999
- -----------------------------------------------------
Stephen C. Francis
/s/ William D. Young Director May 7, 1999
- -----------------------------------------------------
William D. Young
</TABLE>
II-5
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
VAXGEN, INC.
VaxGen, Inc., a corporation organized and existing under the General Corporation
Law of the State of Delaware (the "Corporation"), hereby certifies as follows:
FIRST: The name of the Corporation is VaxGen, Inc. The Corporation was
originally incorporated under the name "Genenvax, Inc." and the
Corporation's original Certificate of Incorporation was filed
with the Delaware Secretary of State on November 27, 1995. A
Certificate of Amendment of Certificate of Incorporation was
filed with the Delaware Secretary of State on October 30, 1996.
SECOND: The Amended and Restated Certificate of Incorporation of the
Corporation, in the form attached hereto as Exhibit A, restates,
integrates and further amends the provisions of the Corporation's
Certificate of Incorporation and has been duly adopted in
accordance with the provisions of Sections 242 and 245 of the
General Corporation Law of the State of Delaware by the Board of
Directors and stockholders of the Corporation.
THIRD: The Amended and Restated Certificate of Incorporation so adopted
reads in full as set forth in Exhibit A attached hereto and
hereby incorporated by reference.
IN WITNESS WHEREOF, VaxGen, Inc. has caused this Amended and Restated
Certificate of Incorporation to be signed by its Chairman this 7th day of April,
1999.
VAXGEN, INC.
By /s/ ROBERT C. NOWINSKI
----------------------------------
Robert C. Nowinski, Chairman
<PAGE> 2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
VAXGEN, INC.
-----------------------------------------------
ARTICLE 1
NAME
The name of the corporation is VaxGen, Inc.
ARTICLE 2
REGISTERED OFFICE/REGISTERED AGENT
The address of the corporation's registered office in Delaware is 1013
Centre Road, Wilmington, New Castle County, Delaware 19805. The name of the
corporation's registered agent at such address is The Prentice-Hall Corporation
System, Inc.
ARTICLE 3
PURPOSE
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
ARTICLE 4
CAPITAL STOCK
4.1. The total number of shares of stock that the corporation is
authorized to issue is 40,000,000, consisting of 20,000,000 shares of common
stock, par value $0.01 per share, and 20,000,000 shares of preferred stock, par
value $0.01 per share. The common stock will be subject to the rights and
preferences of the preferred stock as set forth in this Amended and Restated
Certificate of Incorporation and the resolution or resolutions providing for the
issue of any such stock adopted by the board of directors.
4.2. Shares of stock within the class of either common or preferred
stock may be issued from time to time in one or more series in any manner
permitted by law and
<PAGE> 3
the provisions of this Amended and Restated Certificate of Incorporation. The
corporation's classes or series of stock may have such voting powers, full or
limited, or no voting powers; such designations, preferences and relative,
participating, optional or other special rights; and such qualifications,
limitations or restrictions on the same, as may be stated or expressed in the
resolution or resolutions providing for the issue of such stock adopted by the
board of directors.
4.3. Any of the voting powers, designations, preferences, rights and
qualifications, limitations or restrictions of any such class or series of stock
may be made dependent upon "facts" (within the meaning of Section 151(a) of the
Delaware General Corporation Law, as the same may be amended from time to time)
ascertainable outside of the resolution or resolutions providing for the issue
of such stock adopted by the board of directors, provided, that the manner in
which such facts shall operate upon the voting powers, designations,
preferences, rights and qualifications, limitations or restrictions of such
class or series of stock is set forth in the resolution or resolutions providing
for the issue of such stock adopted by the board of directors.
4.4. The preferred stock may be made subject to redemption by the
corporation at such price, in such amount, on such terms and conditions and at
such times as shall be stated in the resolution or resolutions providing for the
issue of such stock adopted by the board of directors. Preferred stock in any
event may be repurchased by the corporation to the extent legally permissible.
4.5. The holders of preferred stock shall be entitled to receive
dividends at such rates, on such terms and conditions and at such times as shall
be stated in the resolution or resolutions providing for the issue of such stock
adopted by the board of directors. Such dividends shall be payable in preference
or such other relation to the dividends payable on any other class or series of
stock as shall be so stated and expressed. If such dividends on preferred stock
are cumulative, then, if dividends shall not have been paid, the deficiency
shall be fully paid or provided for as required by the terms under which the
series was issued prior to payment of any dividend on common stock.
4.6. Holders of preferred stock shall be entitled to such rights upon
dissolution, or upon any distribution of the assets, of the corporation as shall
be stated in the resolution or resolutions providing for the issue of such stock
adopted by the board of directors.
4.7. Stock of any class or series may be made convertible into, or
exchangeable for, shares of any other class or classes or any other series of
the same or any other class or classes of stock of the corporation, at the
option of either the holder or the corporation or upon the happening of a
specified event, at such price or prices or at such rate or rates or exchange
and with such adjustments as shall be stated in the resolution or resolutions
providing for the issuance of such stock adopted by the board of directors.
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<PAGE> 4
4.8 Upon the effectiveness of this Amended and Restated Certificate of
Incorporation following its filing with the Secretary of State of the State of
Delaware, every two shares of issued and outstanding common stock, par value
$0.01 per share, of the corporation, shall be changed and reclassified into one
share of common stock, par value $0.01 per share, of the corporation, thereby
giving effect to a one-for-two split. The total number of shares of authorized
stock of the corporation set forth in Section 4.1 of this Article IV sets forth
the total authorized stock of the corporation after giving effect to this
one-for-two reverse stock split. No fractional shares resulting from the reverse
split of common stock shall be issued; instead, the corporation shall pay to the
holder of each fractional share an amount in cash as determined by the board of
directors, in its sole discretion.
ARTICLE 5
LIMITATION OF DIRECTORS' LIABILITY; INDEMNIFICATION
5.1 To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or as may hereafter be amended, no director of the
corporation shall be personally liable to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director.
5.2 To the extent permitted by applicable law, the corporation is also
authorized to provide indemnification of (and advancement of expenses to) agents
(and any other persons to which Delaware law permits the corporation to provide
indemnification) through bylaw provisions, agreements with such agents or other
persons, vote of stockholders or disinterested directors or otherwise, in excess
of the indemnification and advancement otherwise permitted by Section 145 of the
Delaware General Corporation Law, subject only to limits created by applicable
Delaware law (statutory or non-statutory), with respect to actions for breach of
duty to the corporation, its stockholders and others.
5.3 Neither any amendment nor repeal of this Article, nor the adoption
of any provision of this Amended and Restated Certificate of Incorporation
inconsistent with this Article, shall eliminate or reduce the effect of this
Article in respect of any matter occurring, or any cause of action, suit or
claim that, but for this Article, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE 6
UNANIMOUS WRITTEN CONSENTS
At any time when the corporation is subject to the reporting
requirements of Section 13 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the stockholders shall not have the right to take any
action required or permitted by the Delaware General Corporation Law by a
written consent or consents.
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<PAGE> 5
ARTICLE 7
AMENDMENT; BYLAWS
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation in
any manner now or hereafter prescribed by law. Any and all rights and powers
conferred on stockholders and directors in this Amended and Restated Certificate
of Incorporation are subject to this reserved power. The directors of the
corporation shall have the power to adopt, amend or repeal the bylaws of the
corporation, subject to the right of the stockholders to do the same.
4
<PAGE> 1
EXHIBIT 10.1
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of May 5, 1997, by and between VAXGEN, INC., a Delaware corporation (the
"Company"), and GENENTECH, INC., a Delaware corporation and a holder (the
"Holder") of the common stock of the Company issued pursuant to that certain
Stock Subscription Agreement, dated as of March 15, 1996, pursuant to that
certain Stock Subscription Agreement, dated as of May 5, 1997 and that certain
Confidential Placement Memorandum, dated as of November 1, 1996 (the "Placement
Memorandum"), and of certain warrants to purchase common stock of the Company
pursuant to the Warrant Agreement (as defined below in Section 1).
In consideration of the mutual covenants set forth in this Agreement and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Undersigned each hereby agree as
follows:
1. DEFINITIONS
For purposes of this Agreement:
(a) The term "Commission" shall mean the U.S. Securities and
Exchange Commission or any U.S. federal agency at the time administering the
Securities Act;
(b) The term "Common Stock" shall mean the common stock of the
Company;
(c) The term "Exchange Act" shall mean the U.S. Securities
Exchange Act of 1934, as amended, or any similar United States federal statutes,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time;
(d) The term "Genentech" shall mean Genentech, Inc., a Delaware
corporation;
(e) The term "Holders" shall mean, collectively, this Holder
and/or other holders of Common Stock issued pursuant to the Placement
Memorandum;
(f) The term "Initiating Holder" shall have the meaning given in
Section 2(b) hereof;
(g) The terms "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(h) The term "Registrable Securities" shall mean Common Stock
that has not been registered for sale to the public under the Securities Act
and/or was issued pursuant to that certain Stock Subscription Agreement, dated
as of March 15, 1996, pursuant to that certain Stock Subscription
<PAGE> 2
Agreement, dated as of May 5, 1997 and pursuant to the Placement Memorandum, and
Common Stock issued or issuable to Holder under the Warrant Agreement;
(i) The term "Registration Expenses" and "Selling Expenses" shall
mean the expenses described in Section 7 hereof;
(j) The term "Securities Act" shall mean the U.S. Securities Act
of 1933, as amended, or any similar United States federal statute, and the rules
and regulations of the Commission thereunder, all as the same shall be in effect
at the time; and
(k) The term "Warrant Agreement" shall mean that certain warrant
agreement by and between the Company and Genentech, dated effective as of March
15, 1996.
2. DEMAND REGISTRATION.
(a) At any time (i) following the fourth anniversary of the final
closing of the offering of securities pursuant to the Placement Memorandum and
before the filing date of the Company's initial public offering of its Common
Stock, if the Company receives a written request from the holders of at least
sixty percent (60%) of the Registrable Securities outstanding, that the Company
file a registration statement under the Securities Act covering the registration
of Registrable Securities, or (ii) after twelve (12) months from the effective
date of the Company's initial registration statement under the Securities Act,
if the Company is entitled to use Form S-3 (or any successor short-form
registration statement adopted by the Commission for the resale of securities)
and the Company receives a written request from the holders of at least forty
percent (40%) of the Registrable Securities outstanding that the Company file a
registration statement under the Securities Act covering the registration of
Registrable Securities, then the Company shall promptly give written notice of
such request (together with a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under the applicable state
securities laws) to all Holders. As soon as practicable (but in no event later
than ninety (90) days after receipt by the Company of a request pursuant to the
preceding clause (i) or sixty (60) days after receipt by the Company of a
request pursuant to the preceding clause (ii)), and subject to the limitations
of Subsection 2(b) hereof, the Company shall file a registration statement in
accordance with Section 5 hereof, with respect to the registration under the
Securities Act of all Registrable Securities which the Holders may specify in
such request in writing within twenty (20) days after receipt of such notice
from the Company.
(b) If the Holders initiating the registration request (the
"Initiating Holders") intend to distribute the Registrable Securities covered by
their request by means of an underwriting, they shall so advise the Company as a
part of their request,
and the Company shall include such information in the written notice referred to
in Subsection 2(a) hereof. In such event, the right of any Holder to include
securities in such registration shall be conditioned upon the inclusion of such
securities in the underwriting (unless otherwise mutually agreed by a majority
in interest of the Initiating Holders) as provided in this Section 2.
(c) If other Holders request inclusion in such registration, the
Initiating Holders shall offer to such Holders the opportunity to include
Registrable Securities held by them in the underwriting, and may condition such
offer on the acceptance by such other Holders of Registrable Securities of the
further provisions of this Section 2. All Holders proposing to distribute their
securities
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<PAGE> 3
through such underwriting shall enter into an underwriting agreement in
customary form with the representative of the underwriter(s) selected for such
underwriting by a majority in interest of the Initiating Holders and reasonably
acceptable to the Company.
(d) If, in the written opinion of the managing underwriter of any
such offering, a limitation of the number of shares to be underwritten is
required, the Initiating Holders shall so advise all holders of Registrable
Securities, and the number of Registrable Securities to be included in the
underwriting will be allocated among all such Holders in proportion, as nearly
as practicable, to the respective amounts of Registrable Securities that would
otherwise be entitled to inclusion in such registration statement; provided,
however, in the event that less than fifty percent (50%) of the Registrable
Securities requested to be registered are permitted by the managing underwriter
be included in such registration statement, then a majority in interest of the
Initiating Holders may withdraw their request to register Registrable Securities
and their request shall not count as a registration for the purpose of
Subsection 2(e) hereof. No Registrable Securities excluded from the underwriting
by reason of the underwriter's marketing limitation shall be included in such
registration. If any holder of securities to be included in such registration,
disapproves of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, the underwriter and the Initiating
Holders. The securities so withdrawn shall also be withdrawn from registration.
If the underwriter has not limited the number of Registrable Securities or other
securities to be underwritten, the Company may include its securities for its
own account in such registration with the prior agreement of the underwriter,
provided the number of Registrable Securities and other securities which would
otherwise have been included in such registration and underwriting will not
thereby be limited.
(e) The Company is obligated to effect two (2) such registrations
at the request of the Holders pursuant to this Section 2.
(f) Notwithstanding the foregoing, if the Company shall furnish
to the Initiating Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be detrimental to the Company and its shareholders for such
registration statement to be filed, the Company shall have the right to defer
such filing for a period of not more than one hundred twenty (120) days after
receipt of the request from the Initiating Holders;
provided, however, that the Company may not utilize this right more than once in
any twelve (12) month period.
3. PIGGY-BACK REGISTRATION.
(a) If the Company proposes to register any of its capital stock
or other securities under the Securities Act in connection with the public
offering of such securities (other than in connection with the Company's initial
public offering or a registration on Form S-8 or any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the public sale of Common Stock), the Company
shall, each such time, promptly give each Holder written notice of such
registration, together with a list of the jurisdictions in which the Company
intends to attempt to qualify such securities under applicable state securities
laws. Upon the written request of each Holder given within thirty (30) days
after mailing of such written notice from the Company in accordance with this
Section 3, the Company shall, subject to the provisions of Section 3(b) and
Section 9 hereof, include in such registration all of the Registrable Securities
that each such Holder has requested to be registered.
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<PAGE> 4
(b) Notwithstanding the foregoing, in the event the proposed
registration is in whole or in part an underwritten public offering, the Company
shall so advise the Holders as part of the written notice under Subsection 3(a).
If the managing underwriter determines and advises the Company in writing that
the inclusion of such shares of requesting Holders, together with all shares of
the Company's capital stock to be offered by the Company, would materially
adversely affect the successful marketing of such securities, then (i) the
Company shall immediately provide all Holders requesting inclusion in such
registration with a copy of such written advice, and (ii) the number of shares
of capital stock otherwise to be included in the registration statement by
Holders shall be reduced pro rata among such Holders requesting inclusion of
their shares in such registration statement in proportion to the number of
shares of the Company's capital stock then owned by each with respect to which
it has registration rights. The parties agree that in any registration for a
public offering the managing underwriter may reduce the number of shares on a
pro rata basis to be included by Holders but in no event shall the shares to be
offered by the Holders be reduced to below fifteen percent (15%) of the total
number of shares to be included in the registration statement, or such lesser
number of shares as are requested to be included by the Holders. If any Holder
disapproves of the terms of such underwriting, such Holder may elect to withdraw
therefrom by written notice to the Company and the managing underwriter.
(c) The Company is obligated to effect up to three (3) such
registrations at the request of the Holders pursuant to this Section 3.
4. SHELF REGISTRATION.
Upon expiration of a period of twelve (12) months following completion,
if it occurs, of an initial public offering by the Company, and at any other
time that the
Company receives from any Holder a written request that the Company effect a
registration on Form S-3 (or any successor short-form registration statement
adopted by the Commission for the resale of securities) or any related
qualification or compliance with respect to all or a part of the Registrable
Securities, the Company will:
(a) Promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders.
(b) As soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of the Registrable
Securities as are to be covered by the registration statement and are requested
by Holders to be included, all as specified in a written request from Holders
given within thirty (30) days after such written notice by the Company under
Subsection 4(a).
(c) The Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 4: (i) if the
Company is not qualified as a registrant entitled to use Form S-3 (or any
similar successor form of registration statement); (ii) except for the first S-3
registration statement filed pursuant to this Section 4, or unless all
Registration Expenses are borne by requesting Holders. if the Holders propose to
sell Registrable Securities in an aggregate amount less than two million
($2,000,000); or (iii) subject to the next sentence, if the Company shall
furnish to the Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 or similar registration to be effected at such time. In the
case of
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<PAGE> 5
the circumstances described in the preceding clause (iii), the Company shall
have the right to defer the filing of the registration statement for a period of
not more than one hundred twenty (120) days after receipt of the request of the
Holder under this Section 4; provided, however, that the Company shall not
utilize this right more than once in any twelve (12) month period.
(d) Registrations effected pursuant to this Section 4 shall not
be counted as demands for registration or registrations effected pursuant to
Section 2 hereof.
5. OBLIGATIONS TO THE COMPANY.
Whenever required under this Agreement to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become and remain effective until the first to
occur of (i) twelve (12) months, in the case of the first of any S-3
registration statements filed pursuant to Section 4 hereof; (ii) one hundred
eighty (180) days, in the case of any other registration statement; or (iii) the
completion of the distribution described in the registration statement.
(b) Respond promptly to any comments of the Commission related to
the registration statement and prepare and file with the Commission such
amendments (including post-effective amendments) and supplements to the
registration statement, and to the prospectus used in connection with the
registration statement, as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
covered by the registration statement.
(c) Furnish to the Holders of Registrable Securities and to the
underwriters of the securities being registered such numbers of copies of the
registration statement, the prospectus, including a preliminary prospectus and a
final prospectus, and all amendments (including post-effective amendments) and
supplements thereto, in conformity with the requirements of the Securities Act,
and such other documents as they may reasonably request, in order to facilitate
the disposition of their Registrable Securities covered by the registration
statement.
(d) Use its best efforts to register and qualify the Registrable
Securities covered by such registration statement under the securities laws of
such states as shall be reasonably requested by the selling Holders of such
securities or underwriters; provided, however, that the Company shall not be
required to take action to effect such registration in any particular
jurisdiction in which the Company would be required to file a general consent to
service of process in any such state in effecting such registration unless the
Company is already subject to service of process in such jurisdiction and except
as may be required by the Securities Act; and provided, further, that (anything
in this Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if applicable law in any state in which the Registrable Securities
shall be qualified shall require that all or any portion of the Registration
Expenses (as defined in Section 7) be borne by selling Holders, then to the
extent required by that state, such Registration Expenses shall be payable by
the selling Holders pro rata.
(e) Keep each Holder of Registrable Securities covered by a
registration statement under this Agreement generally advised in writing as to
the initial filing of each registration, qualification and compliance and as to
the completion thereof.
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<PAGE> 6
(f) In the event of an underwritten public offering, enter into
and perform its obligations under the underwriting agreement with the managing
underwriter of such offering. Each Holder participating in such underwriting
shall also enter into and perform its obligations under such underwriting
agreement.
(g) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number of all such
Registrable Securities, in each case not later than the effective date of such
registration.
(h) In the event of a public offering, on the closing date
thereof if such Registrable Securities are being sold through underwriters, or,
if such securities are not being sold through underwriters, on the date that the
registration statement with respect to such Registrable Securities becomes
effective, the Company shall furnish (i) an opinion dated such date, of counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders of
Registrable Securities requesting registration of Registrable Securities, to the
effect that (A) the registration statement has become effective under the
Securities Act and, to the best knowledge of such counsel, no stop order or
proceedings with respect thereto are threatened or pending, and (B) the
registration statement and each prospectus forming a part thereof and supplement
or amendment thereto (except for the financial statements and schedules)
complies in all material respects with the Securities Act, and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of such
Registrable Securities.
(i) Notwithstanding the above, no Holder of Registrable
Securities shall be entitled to include such Registrable Securities in any
registration pursuant to this Agreement unless such selling Holder shall furnish
to the Company such information regarding such Holder, the securities held by
such Holder, and the intended method of disposition of such Registrable
Securities held by such Holder, as shall be required to effect the registration
of such securities held by such Holder.
6. FURNISH INFORMATION.
It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Agreement with respect to any selling Holder
that such selling Holder shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of such securities as shall be required to effect the registration
of its Registrable Securities and to execute such documents in connection with
such registration as the Company may reasonably request, and in any case only as
shall be necessary to allow the Company to comply with the provisions hereof.
7. DEFINITION OF EXPENSES.
(a) 1. "Registration Expenses" shall mean all expenses, incurred
by the Company in complying with Sections 2, 3, 4 and 5 hereof, including,
without limitation, registration and filing fees, printing expenses, accounting
fees and disbursements of counsel for the Company, blue
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<PAGE> 7
sky fees and expenses, and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees) of the Company which would be paid in any event by the Company) and
the fees and disbursements of one special counsel for the participating Holders
designated by the majority in interest thereof.
2. "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of the securities registered, and
all fees and disbursements of separate counsel for any Holder other than as set
forth in Section 7(a)(1).
8. EXPENSES OF REGISTRATION.
All Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant Sections 2 and 3 of this Agreement shall be
borne by the Company and all Registration Expenses incurred in connection with
the initial and up to four (4) additional registrations or qualifications
pursuant Section 4 of this Agreement shall be borne by the Company, except as
provided in Subsection 5(d) hereof to the extent required by applicable state
securities laws. All Selling Expenses shall be borne by the Holders of the
securities so registered pro rata on the basis of the number of shares so
registered.
9. UNDERWRITING REQUIREMENTS.
The right of any Holder to registration pursuant to Section 3 hereof
shall be conditioned upon the Holder's participation in the underwriting and the
inclusion of the Holder's Registrable Securities in the underwriting to the
extent provided therein and herein. All Holders proposing to distribute their
Registrable Securities through the underwriting shall (together with the Company
and the other Holders distributing their Registrable Securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter(s). Notwithstanding any other provision of Section 3 hereof and this
Section 9, if the managing underwriter determines that marketing factors require
a limitation of the number of shares to be underwritten, then the managing
underwriter may (subject to the allocation priority set forth in Subsection 3(b)
hereof) exclude some or all Registrable Securities from such registration and
underwriting. The Company shall so advise all holders requesting registration of
any such limitations imposed by the managing underwriter.
10. INDEMNIFICATION.
In the event any Registrable Securities are included in a registration
statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder of any such Registrable Securities included
therein, each underwriter (if any), each of the partners, affiliates, officers,
agents, employees and directors of each Holder and underwriter and each person,
if any, who controls such Holder or underwriter within the meaning of the
Securities Act, against any and all losses, claims, damages, liabilities, costs
or expenses (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law (including any of
the foregoing incurred in settlement of any litigation commenced or threatened),
insofar as such losses, claims, damages, liabilities, costs or expenses (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omission or violations (collectively, a "Violation"):
(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final
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prospectus, offering circular or other document, or any amendments or
supplements thereto, incident to any such registration, qualification or
compliance.
(ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
or
(iii) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any state or federal securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
state or federal securities law;
and the Company will reimburse each such Holder, underwriter, partner, officer,
agent, affiliate, employee or director or controlling person, subject to the
provisions of Section 10(c), for any legal and any other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld, nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by, or on behalf of, any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each other Holder with Registrable
Securities included therein, each of the officers, directors, agents and
employees of each of the foregoing persons with Registrable Securities included
therein, and each person, if any, who controls the Company, or an underwriter or
another Holder within the meaning of the Securities Act, against any losses,
claims, damages or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by, or on behalf of, such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company, other Holder(s) with Registrable Securities included therein (or any
partner, agent, employee, director, officer, or controlling person of such
person) and underwriters, in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 10(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this
Section 10 of notice of the commencement of any action (including any
governmental action) or other actual knowledge of any claim as to which
indemnity may be sought hereunder, such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
10 deliver to the indemnifying party a written notice thereof and the
indemnifying party shall, jointly with any other
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<PAGE> 9
indemnifying party similarly notified, assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if, in the opinion of counsel for the
indemnifying party, representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential conflict of interest between such indemnified party and any other
party represented by such counsel in such proceeding, it is understood, however,
that the indemnifying parties shall, in connection with any one such action,
suit or proceeding or separate but substantially similar or related actions,
suits or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
only one separate firm of attorneys at any time for all indemnified persons. The
failure to deliver written notice to the indemnifying party within a reasonable
period of time of the commencement of any such action shall relieve such
indemnifying party of any liability to the indemnified party under this Section
10 solely to the extent that such failure is materially prejudicial to its
ability to defend such action, but the omission so to deliver written notice to
the indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 10.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in this Section 10
is for any reason held to be unenforceable by a court of competent jurisdiction
although applicable in accordance with its terms, the Company and the selling
Holders shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by such indemnity agreement incurred by
the Company and the selling Holders, in such proportion as is appropriate to
reflect the relative fault of and benefits to the Company on the one hand and
the selling Holders on the other (in such proportions that the selling Holders
are severally, not jointly, responsible for the balance), in connection with the
statements or omissions that resulted in such losses, claims damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits to the indemnifying party and indemnified parties shall be
determined by reference to, among other things, the total proceeds received by
the indemnified party and indemnified parties in connection with the offering to
which such losses, claims, damages, liabilities or expenses relate. The relative
fault of the indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether the action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or the indemnified parties, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 10 were determined by pro rata allocation
or by any other method if such allocation does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 10, if the total price at which
the Registrable Securities of a selling Holder were offered to the public
exceeds the amount of any damages which such selling Holder would otherwise have
been required to pay by reason of an untrue statement or omission, such selling
Holder shall not be required to contribute any amount in excess of the total
price at which the Registrable Securities of such selling Holder were offered to
the public.
Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who
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<PAGE> 10
was not guilty of such fraudulent misrepresentation. For purpose of this Section
10, each person, if any, who controls a Holder within the meaning of Section 15
of the Securities Act and directors and officers of a Holder shall have the same
rights to contribution as such Holder, and each director of the Company, each
officer of the Company who signed the registration statement and each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act shall have the same rights to contribution as the Company.
11. REPORTS UNDER THE SECURITIES ACT.
With a view to making available to the Holders the benefits of Rule 144
under the Securities Act and any other rule or regulation of the Commission that
may at any time permit a Holder to sell securities of the Company to the public
without registration, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after 90 days after the effective date of the first registration statement filed
by the Company for the offering of its securities to the general public;
(b) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon written request (i) a written statement
by the Company that it has complied with the reporting requirements of Rule 144
under the Securities Act (at any time after 90 days after the effective date of
the first registration statement filed by the Company), the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information in the
possession of or owned by the Company as may be reasonably requested in availing
any Holder of any rule or regulation of the Commission that permits the selling
of any such securities without registration or pursuant to such form.
12. AMENDMENTS AND WAIVERS.
The provisions of this Agreement, including the provisions of this
sentence, may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given without the written
consent of the Company and the Holders of a majority of the then-outstanding
Registrable Securities; provided, however, that no amendment, modification,
supplement, waiver, or consent, with respect to the provisions of Sections 2, 3,
4, 9, 10, 11 or 12 hereof shall be effective as against any Holder of
Registrable Securities unless consented to in writing by such Holder of
Registrable Securities. Notice of any amendment, modification or supplement to
this Agreement adopted in accordance with this Section 12 shall be provided by
the Company to each Holder of Registrable Securities at least thirty (30) days
prior to the effective date of such amendment, modification or supplement.
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<PAGE> 11
13. NOTICES.
All notices and other communications provided for or permitted hereunder
shall be made in writing by hand-delivery, registered first-class mail, telex,
telecopier, or any courier guaranteeing overnight delivery, (i) if to a Holder,
at the most current address given by such Holder to the Company by means of a
notice given in accordance with the provisions of this Section 13, which address
initially is, with respect to each Holder, the address set forth next to such
Holder's name attached hereto, or (ii) if to the Company, at 460 Pt. San Bruno
Blvd., South San Francisco, CA 94080, Attention: President, or such other
address as the Company shall notify the Holders in writing.
All such notices and communications shall be deemed to have been duly
given at the time delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; upon written confirmation of receipt by the telecopy machine
or when receipt is acknowledged, if telecopied; or at the time delivered if
delivered by an air courier guaranteeing overnight delivery.
14. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors, assigns and transferees of each of the parties, including, without
limitation and without the need for an express assignment, subsequent Holders.
If any successor, assignee or transferee of any Holder shall acquire Registrable
Securities, in any manner, whether by operation of law or otherwise, such
Registrable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities such person
shall be entitled to receive the benefits hereof and shall be conclusively
deemed to have agreed to be bound by all of the terms and provisions hereof.
Notwithstanding the foregoing provisions of this Section 14, a transferee of
Registrable Securities shall not be deemed to be a party to, and shall not be
bound by or entitled to the benefits of, the provisions of this Agreement, if
immediately following the transfer of the Registrable Securities to such
transferee, the further disposition of such Registrable Securities by the
transferee is not restricted under the Securities Act.
15. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
16. HEADINGS.
The headings in this Agreement are for convenience of reference only and
shall not limited or otherwise affect the meaning hereof.
17. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW
PROVISIONS THEREOF.
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<PAGE> 12
18. SPECIFIC PERFORMANCE.
The parties hereto acknowledge that there would be no adequate remedy at
law if any party fails to perform any of its obligations hereunder, and
accordingly agree that each party, in addition to any other remedy to which it
may be entitled at law or in equity, shall be entitled to compel specific
performance of the obligations of any other party under this Agreement in
accordance with the terms and conditions of this Agreement in any court of the
United States or any State thereof having jurisdiction.
19. ENTIRE AGREEMENT.
This Agreement is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
20. SEVERABILITY.
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement, and
the balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
VAXGEN, INC GENENTECH, INC.
/s/ ROBERT NOWINSKI /s/ W.D. YOUNG
- ---------------------------------- -------------------------------
By: Robert Nowinski By: W.D. Young
------------------------------ ---------------------------
Its: Chairman Its: COO
----------------------------- --------------------------
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<PAGE> 1
EXHIBIT 10.2
EXHIBIT A
TO
VAXGEN, INC.
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
FORM OF
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of ____ , 199_, by and among VAXGEN, INC., a Delaware corporation (the
"Company"), and the holders (the "Holders") of the Common Stock issued pursuant
to that certain Confidential Placement Memorandum dated as of (the "Placement
Memorandum").
In consideration of the mutual covenants set forth in this Agreement and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Undersigned each hereby agree as
follows:
1. DEFINITIONS
For purposes of this Agreement:
(a) The term "Commission" shall mean the U.S. Securities and
Exchange Commission or any U.S. federal agency at the time administering the
Securities Act;
(b) The term "Common Stock" shall mean the common stock of the
Company;
(c) The term "Initiating Holder" shall have the meaning given in
Section 2(b) hereof;
(d) The terms "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(e) The term "Registrable Securities" shall mean Common Stock
that has not been registered for sale to the public under the Securities Act and
was issued pursuant to the Placement Memorandum, and Common Stock issued or
issuable to Genentech under the Warrant Agreement;
(f) The term "Registration Expenses" and "Selling Expenses" shall
mean the expenses described in Section 7 hereof;
(g) The term "Securities Act" shall mean the U.S. Securities Act
of 1933, as amended, or any similar United States federal statute, and the rules
and regulations of the Commission thereunder, all as the same shall be in effect
at the time;
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(h) The term "Exchange Act" shall mean the U.S. Securities
Exchange Act of 1934, as amended, or any similar United States federal statutes,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time;
(i) The term "Holder" means any person owning or having the right
to acquire Registrable Securities who is a party to this Agreement and any
assignee thereof in accordance with this Agreement;
(j) The term "Genentech" shall mean Genentech, Inc., a Delaware
corporation; and
(k) The term "Warrant Agreement" shall mean that certain warrant
agreement by and between the Company and Genentech, dated effective as of March
15, 1996.
2. DEMAND REGISTRATION.
(a) At any time (i) following the fourth anniversary of the final
closing of the offering of securities pursuant to the Placement Memorandum and
before the filing date of the Company's initial public offering of its Common
Stock ("IPO"), if the Company receives a written request from the holders of at
least sixty percent (60%) of the Registrable Securities outstanding, that the
Company file a registration statement under the Securities Act covering the
registration of Registrable Securities, or (ii) after twelve (12) months from
the effective date of the IPO, if the Company is entitled to use Form S-3 (or
any successor short-form registration statement adopted by the Commission for
the resale of securities) and the Company receives a written request from the
holders of at least forty percent (40%) of the Registrable Securities
outstanding that the Company file a registration statement under the Securities
Act covering the registration of Registrable Securities, then the Company shall
promptly give written notice of such request (together with a list of the
jurisdictions in which the Company intends to attempt to qualify such securities
under the applicable state securities laws) to all Holders. As soon as
practicable (but in no event later than ninety (90) days after receipt by the
Company of a request pursuant to the preceding clause (i) or sixty (60) days
after receipt by the Company of a request pursuant to the preceding clause
(ii)), and subject to the limitations of Subsection 2(b) hereof, the Company
shall file a registration statement in accordance with Section 5 hereof, with
respect to the registration under the Securities Act of all Registrable
Securities which the Holders may specify in such request in writing within
twenty (20) days after receipt of such notice from the Company.
(b) If the Holders initiating the registration request (the
"Initiating Holders") intend to distribute the Registrable Securities covered by
their request by means of an underwriting, they shall so advise the Company as a
part of their request, and the Company shall include such information in the
written notice referred to in Subsection 2(a) hereof. In such event, the right
of any Holder to include securities in such registration shall be conditioned
upon the inclusion of such securities in the underwriting (unless otherwise
mutually agreed by a majority in interest of the Initiating Holders) as provided
in this Section 2.
(c) If other Holders request inclusion in such registration, the
Initiating Holders shall offer to such Holders the opportunity to include
Registrable Securities held by them in the underwriting, and may condition such
offer on the acceptance by such other Holders of Registrable Securities of the
further provisions of this Section 2. All Holders proposing to
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distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the representative of the
underwriter(s) selected for such underwriting by a majority in interest of the
Initiating Holders and reasonably acceptable to the Company.
(d) If, in the written opinion of the managing underwriter of any
such offering, a limitation of the number of shares to be underwritten is
required, the Initiating Holders shall so advise all holders of Registrable
Securities, and the number of Registrable Securities to be included in the
underwriting will be allocated among all such Holders in proportion, as nearly
as practicable, to the respective amounts of Registrable Securities that would
otherwise be entitled to inclusion in such registration statement; provided,
however, in the event that less than fifty percent (50%) of the Registrable
Securities requested to be registered are permitted by the managing underwriter
be included in such registration statement, then a majority in interest of the
Initiating Holders may withdraw their request to register Registrable Securities
and their request shall not count as a registration for the purpose of
Subsection 2(e) hereof. No Registrable Securities excluded from the underwriting
by reason of the underwriter's marketing limitation shall be included in such
registration. If any holder of securities to be included in such registration,
disapproves of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, the underwriter and the Initiating
Holders. The securities so withdrawn shall also be withdrawn from registration.
If the underwriter has not limited the number of Registrable Securities or other
securities to be underwritten, the Company may include its securities for its
own account in such registration with the prior agreement of the underwriter,
provided the number of Registrable Securities and other securities which would
otherwise have been included in such registration and underwriting will not
thereby be limited.
(e) The Company is obligated to effect two (2) such registrations
at the request of the Holders pursuant to this Section 2.
(f) Notwithstanding the foregoing, if the Company shall furnish
to the Initiating Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be detrimental to the Company and its shareholders for such
registration statement to be filed, the Company shall have the right to defer
such filing for a period of not more than one hundred twenty (120) days after
receipt of the request from the Initiating Holders; provided, however, that the
Company may not utilize this right more than once in any twelve (12) month
period.
3. PIGGY-BACK REGISTRATION.
(a) If the Company proposes to register any of its capital stock
or other securities under the Securities Act in connection with the public
offering of such securities (other than in connection with the IPO or a
registration on Form S-8 or any form which does not include substantially the
same information as would be required to be included in a registration statement
covering the public sale of Common Stock), the Company shall, each such time,
promptly give each Holder written notice of such registration, together with a
list of the jurisdictions in which the Company intends to attempt to qualify
such securities under applicable state securities laws. Upon the written request
of each Holder given within thirty (30) days after mailing of such written
notice from the Company in accordance with this Section 3, the Company shall,
subject to the provisions of Section 3(b) and Section 9 hereof, include in such
registration all of the Registrable Securities that each such Holder has
requested to be registered.
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(b) Notwithstanding the foregoing, in the event the proposed
registration is in whole or in part an underwritten public offering, the Company
shall so advise the Holders as part of the written notice under Subsection 3(a).
If the managing underwriter determines and advises the Company in writing that
the inclusion of such shares of requesting Holders, together with all shares of
the Company's capital stock to be offered by the Company, would materially
adversely affect the successful marketing of such securities, then (i) the
Company shall immediately provide all Holders requesting inclusion in such
registration with a copy of such written advice, and (ii) the number of shares
of capital stock otherwise to be included in the registration statement by
Holders shall be reduced pro rata among such Holders requesting inclusion of
their shares in such registration statement in proportion to the number of
shares of the Company's capital stock then owned by each with respect to which
it has registration rights. The parties agree that in any registration for a
public offering the managing underwriter may reduce the number of shares on a
pro rata basis to be included by Holders but in no event shall the shares to be
offered by the Holders be reduced to below fifteen percent (15%) of the total
number of shares to be included in the registration statement, or such lesser
number of shares as are requested to be included by the Holders. If any Holder
disapproves of the terms of such underwriting, such Holder may elect to withdraw
therefrom by written notice to the Company and the managing underwriter.
(c) The Company is obligated to effect up to three (3) such
registrations at the request of the Holders pursuant to this Section 3.
4. SHELF REGISTRATION. Upon expiration of a period of twelve (12)
months following completion, if it occurs, of an IPO, and at any other time that
the Company receives from any Holder a written request that the Company effect a
registration on Form S-3 (or any successor short-form registration statement
adopted by the Commission for the resale of securities) or any related
qualification or compliance with respect to all or a part of the Registrable
Securities, the Company will:
(a) Promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders.
(b) As soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of the Registrable
Securities as are to be covered by the registration statement and are requested
by Holders to be included, all as specified in a written request from Holders
given within thirty (30) days after such written notice by the Company under
Subsection 4(a).
(c) The Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 4: (i) if the
Company is not qualified as a registrant entitled to use Form S-3 (or any
similar successor form of registration statement); (ii) if the Holders propose
to sell Registrable Securities in an aggregate amount less than two million
($2,000,000), except for the S-3 registration statement filed after the
expiration of a period of twelve (12) months after the IPO pursuant to this
Section 4 (the "Initial S-3"), or unless all Registration Expenses are borne by
requesting Holders; or (iii) subject to the next sentence, if the Company shall
furnish to the Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 or similar
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registration to be effected at such time. In the case of the circumstances
described in the preceding clause (iii), the Company shall have the right to
defer the filing of the registration statement for a period of not more than one
hundred twenty (120) days after receipt of the request of the Holder under this
Section 4; provided, however, that the Company shall not utilize this right more
than once in any twelve (12) month period.
(d) Registrations effected pursuant to this Section 4 shall not
be counted as demands for registration or registrations effected pursuant to
Section 2 hereof.
5. OBLIGATIONS TO THE COMPANY. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become and remain effective until the first to
occur of (i) twelve (12) months, in the case of the Initial S-3; (ii) one
hundred eighty (180) days, in the case of any other registration statement; or
(iii) the completion of the distribution described in the registration
statement.
(b) Respond promptly to any comments of the Commission related to
the registration statement and prepare and file with the Commission such
amendments (including post-effective amendments) and supplements to the
registration statement, and to the prospectus used in connection with the
registration statement, as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
covered by the registration statement.
(c) Furnish to the Holders of Registrable Securities and to the
underwriters of the securities being registered such numbers of copies of the
registration statement, the prospectus, including a preliminary prospectus and a
final prospectus, and all amendments (including post-effective amendments) and
supplements thereto, in conformity with the requirements of the Securities Act,
and such other documents as they may reasonably request, in order to facilitate
the disposition of their Registrable Securities covered by the registration
statement.
(d) Use its best efforts to register and qualify the Registrable
Securities covered by such registration statement under the securities laws of
such states as shall be reasonably requested by the selling Holders of such
securities or underwriters; provided, however, that the Company shall not be
required to take action to effect such registration in any particular
jurisdiction in which the Company would be required to file a general consent to
service of process in any such state in effecting such registration unless the
Company is already subject to service of process in such jurisdiction and except
as may be required by the Securities Act; and provided, further, that (anything
in this Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if applicable law in any state in which the Registrable Securities
shall be qualified shall require that all or any portion of the Registration
Expenses (as defined in Section 7) be borne by selling Holders, then to the
extent required by that state, such Registration Expenses shall be payable by
the selling Holders pro rata.
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(e) Keep each Holder of Registrable Securities covered by a
registration statement under this Agreement generally advised in writing as to
the initial filing of each registration, qualification and compliance and as to
the completion thereof.
(f) In the event of an underwritten public offering, enter into
and perform its obligations under the underwriting agreement with the managing
underwriter of such offering. Each Holder participating in such underwriting
shall also enter into and perform its obligations under such underwriting
agreement.
(g) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number of all such
Registrable Securities, in each case not later than the effective date of such
registration.
(h) In the event of a public offering, on the closing date
thereof if such Registrable Securities are being sold through underwriters, or,
if such securities are not being sold through underwriters, on the date that the
registration statement with respect to such Registrable Securities becomes
effective, the Company shall furnish (i) an opinion dated such date, of counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders of
Registrable Securities requesting registration of Registrable Securities, to the
effect that (A) the registration statement has become effective under the
Securities Act and, to the best knowledge of such counsel, no stop order or
proceedings with respect thereto are threatened or pending, and (B) the
registration statement and each prospectus forming a part thereof and supplement
or amendment thereto (except for the financial statements and schedules)
complies in all material respects with the Securities Act, and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of such
Registrable Securities.
(i) Notwithstanding the above, no Holder of Registrable
Securities shall be entitled to include such Registrable Securities in any
registration pursuant to this Agreement unless such selling Holder shall furnish
to the Company such information regarding such Holder, the securities held by
such Holder, and the intended method of disposition of such Registrable
Securities held by such Holder, as shall be required to effect the registration
of such securities held by such Holder.
6. FURNISH INFORMATION.
It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Agreement with respect to any selling Holder
that such selling Holder shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of such securities as shall be required to effect the registration
of its Registrable Securities and to execute such documents in connection with
such registration as the Company may reasonably request, and in any case only as
shall be necessary to allow the Company to comply with the provisions hereof.
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7. DEFINITION OF EXPENSES.
(a) "Registration Expenses" shall mean all expenses, incurred by
the Company in complying with Sections 2, 3, 4 and 5 hereof, including, without
limitation, registration and filing fees, printing expenses, accounting fees and
disbursements of counsel for the Company, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees) of the Company which would
be paid in any event by the Company) and the fees and disbursements of one
special counsel for the participating Holders designated by the majority in
interest thereof.
(b) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of the securities registered, and all
fees and disbursements of separate counsel for any Holder other than as set
forth in Section 7(a).
8. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant Sections
2 and 3 of this Agreement shall be borne by the Company, and all Registration
Expenses incurred in connection with the Initial S-3 and up to four (4)
additional registrations or qualifications, all pursuant Section 4 of this
Agreement, shall be borne by the Company, except as provided in Subsection 5(d)
hereof to the extent required by applicable state securities laws. All Selling
Expenses shall be borne by the Holders of the securities so registered pro rata
on the basis of the number of shares so registered.
9. UNDERWRITING REQUIREMENTS. The right of any Holder to
registration pursuant to Section 3 hereof shall be conditioned upon the Holder's
participation in the underwriting and the inclusion of the Holder's Registrable
Securities in the underwriting to the extent provided therein and herein. All
Holders proposing to distribute their Registrable Securities through the
underwriting shall (together with the Company and the other Holders distributing
their Registrable Securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter(s).
Notwithstanding any other provision of Section 3 hereof and this Section 9, if
the managing underwriter determines that marketing factors require a limitation
of the number of shares to be underwritten, then the managing underwriter may
(subject to the allocation priority set forth in Subsection 3(b) hereof) exclude
some or all Registrable Securities from such registration and underwriting. The
Company shall so advise all holders requesting registration of any such
limitations imposed by the managing underwriter.
10. INDEMNIFICATION.
In the event any Registrable Securities are included in a registration
statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder of any such Registrable Securities included
therein, each underwriter (if any), each of the partners, affiliates, officers,
agents, employees and directors of each Holder and underwriter and each person,
if any, who controls such Holder or underwriter within the meaning of the
Securities Act, against any and all losses, claims, damages, liabilities, costs
or expenses (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law (including any of
the foregoing incurred in settlement of any litigation commenced or threatened),
insofar as such losses, claims, damages, liabilities, costs or
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expenses (or actions in respect thereof) arise out of or are based upon any of
the following statements, omission or violations (collectively, a "Violation"):
(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including
any preliminary prospectus or final prospectus, offering circular
or other document, or any amendments or supplements thereto,
incident to any such registration, qualification or compliance,
(ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make
the statements therein, in light of the circumstances in which
they were made, not misleading, or
(iii) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any state or federal
securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state or federal
securities law;
and the Company will reimburse each such Holder, underwriter, partner, officer,
agent, affiliate, employee or director or controlling person, subject to the
provisions of Section 10(c), for any legal and any other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld, nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by, or on behalf of, any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each other Holder with Registrable
Securities included therein, each of the officers, directors, agents and
employees of each of the foregoing persons with Registrable Securities included
therein, and each person, if any, who controls the Company, or an underwriter or
another Holder within the meaning of the Securities Act, against any losses,
claims, damages or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by, or on behalf of, such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company, other Holder(s) with Registrable Securities included therein (or any
partner, agent, employee, director, officer, or controlling person of such
person) and underwriters, in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 10(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld.
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(c) Promptly after receipt by an indemnified party under this
Section 10 of notice of the commencement of any action (including any
governmental action) or other actual knowledge of any claim as to which
indemnity may be sought hereunder, such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
10 deliver to the indemnifying party a written notice thereof and the
indemnifying party shall, jointly with any other indemnifying party similarly
notified, assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if, in the opinion of counsel for the indemnifying party,
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflict of
interest between such indemnified party and any other party represented by such
counsel in such proceeding. It is understood, however, that the indemnifying
parties shall, in connection with any one such action, suit or proceeding or
separate but substantially similar or related actions, suits or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys at any time for all indemnified persons. The failure
to deliver written notice to the indemnifying party within a reasonable period
of time of the commencement of any such action shall relieve such indemnifying
party of any liability to the indemnified party under this Section 10 solely to
the extent that such failure is materially prejudicial to its ability to defend
such action, but the omission so to deliver written notice to the indemnifying
party will not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 10.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in this Section 10
is for any reason held to be unenforceable by a court of competent jurisdiction
although applicable in accordance with its terms, the Company and the selling
Holders shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by such indemnity agreement incurred by
the Company and the selling Holders, in such proportion as is appropriate to
reflect the relative fault of and benefits to the Company on the one hand and
the selling Holders on the other (in such proportions that the selling Holders
are severally, not jointly, responsible for the balance), in connection with the
statements or omissions that resulted in such losses, claims damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits to the indemnifying party and indemnified parties shall be
determined by reference to, among other things, the total proceeds received by
the indemnified party and indemnified parties in connection with the offering to
which such losses, claims, damages, liabilities or expenses relate. The relative
fault of the indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether the action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or the indemnified parties, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action.
The parties hereto agree that it would not be just or equitable
if contribution pursuant to this Section 10 were determined by pro rata
allocation or by any other method if such allocation does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 10, if the total price at which
the Registrable Securities of a selling Holder were offered to the public
exceeds the amount of any damages which such selling Holder would otherwise have
been required to pay by reason of an
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untrue statement or omission, such selling Holder shall not be required to
contribute any amount in excess of the total price at which the Registrable
Securities of such selling Holder were offered to the public.
Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purpose of this Section 10, each person, if
any, who controls a Holder within the meaning of Section 15 of the Securities
Act and directors and officers of a Holder shall have the same rights to
contribution as such Holder, and each director of the Company, each officer of
the Company who signed the registration statement and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act
shall have the same rights to contribution as the Company.
11. REPORTS UNDER THE SECURITIES ACT.
With a view to making available to the Holders the benefits of Rule 144
under the Securities Act and any other rule or regulation of the Commission that
may at any time permit a Holder to sell securities of the Company to the public
without registration, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after 90 days after the effective date of the first registration statement filed
by the Company for the offering of its securities to the general public;
(b) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon written request (i) a written statement
by the Company that it has complied with the reporting requirements of Rule 144
under the Securities Act (at any time after 90 days after the effective date of
the first registration statement filed by the Company), the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information in the
possession of or owned by the Company as may be reasonably requested in availing
any Holder of any rule or regulation of the Commission that permits the selling
of any such securities without registration or pursuant to such form.
12. AMENDMENTS AND WAIVERS.
The provisions of this Agreement, including the provisions of this
sentence, may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given without the written
consent of the Company and the Holders of a majority of the then-outstanding
Registrable Securities; provided however, that no amendment, modification,
supplement, waiver, or consent, with respect to the provisions of Sections 2, 3,
4, 9, 10, 11 or 12 hereof shall be effective as against any Holder of
Registrable Securities unless consented to in writing by such Holder of
Registrable Securities. Notice of any
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amendment, modification or supplement to this Agreement adopted in accordance
with this Section 12 shall be provided by the Company to each Holder of
Registrable Securities at least thirty (30) days prior to the effective date of
such amendment, modification or supplement.
13. NOTICES.
All notices and other communications provided for or permitted hereunder
shall be made in writing by hand-delivery, registered first-class mail, telex,
telecopier, or any courier guaranteeing overnight delivery, (i) if to a Holder,
at the most current address given by such Holder to the Company by means of a
notice given in accordance with the provisions of this Section 13, which address
initially is, with respect to each Holder, the address set forth next to such
Holder's name attached hereto, or (ii) if to the Company, at 460 Pt. San Bruno
Blvd., South San Francisco, CA 94080, Attention: President, or such other
address as the Company shall notify the Holders in writing.
All such notices and communications shall be deemed to have been duly
given at the time delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; upon written confirmation of receipt by the telecopy machine
or when receipt is acknowledged, if telecopied; or at the time delivered if
delivered by an air courier guaranteeing overnight delivery.
14. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors, assigns and transferees of each of the parties, including, without
limitation and without the need for an express assignment, subsequent Holders.
If any successor, assignee or transferee of any Holder shall acquire Registrable
Securities, in any manner, whether by operation of law or otherwise, such
Registrable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities such person
shall be entitled to receive the benefits hereof and shall be conclusively
deemed to have agreed to be bound by all of the terms and provisions hereof.
Notwithstanding the foregoing provisions of this Section 14, a transferee of
Registrable Securities shall not be deemed to be a party to, and shall not be
bound by or entitled to the benefits of, the provisions of this Agreement, if
immediately following the transfer of the Registrable Securities to such
transferee, the further disposition of such Registrable Securities by the
transferee is not restricted under the Securities Act.
15. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
16. HEADINGS.
The headings in this Agreement are for convenience of reference only and
shall not limited or otherwise affect the meaning hereof.
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17. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW
PROVISIONS THEREOF.
18. SPECIFIC PERFORMANCE.
The parties hereto acknowledge that there would be no adequate remedy at
law if any party fails to perform any of its obligations hereunder, and
accordingly agree that each party, in addition to any other remedy to which it
may be entitled at law or in equity, shall be entitled to compel specific
performance of the obligations of any other party under this Agreement in
accordance with the terms and conditions of this Agreement in any court of the
United States or any State thereof having jurisdiction.
19. ENTIRE AGREEMENT.
This Agreement is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
20. SEVERABILITY.
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement, and
the balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
THE COMPANY:
VAXGEN, INC.
By: _________________________________
Its: Chairman
INVESTORS:
SEE INVESTORS SIGNATURE PAGES
ATTACHED HERETO
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EXHIBIT 10.3
EXHIBIT A
TO
VAXGEN, INC.
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
FORM OF
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of ____________, 199____, by and among VAXGEN, INC., a Delaware corporation (the
"Company"), and the holders of the Common Stock issued pursuant to that certain
Confidential Placement Memorandum dated as of November 2, 1998 (the "Placement
Memorandum").
In consideration of the mutual covenants set forth in this Agreement and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Undersigned each hereby agree as
follows:
1. DEFINITIONS
For purposes of this Agreement:
(a) The term "Commission" shall mean the U.S. Securities and
Exchange Commission or any U.S. federal agency at the time administering the
Securities Act;
(b) The term "Common Stock" shall mean the common stock of the
Company;
(c) The term "Initiating Holder" shall have the meaning given in
Section 2(b) hereof;
(d) The terms "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(e) The term "Registrable Securities" shall mean Common Stock
that has not been registered for sale to the public under the Securities Act and
was issued pursuant to the Placement Memorandum;
(f) The term "Registration Expenses" and "Selling Expenses" shall
mean the expenses described in Section 7 hereof;
(g) The term "Securities Act" shall mean the U.S. Securities Act
of 1933, as amended, or any similar United States federal statute, and the rules
and regulations of the Commission thereunder, all as the same shall be in effect
at the time;
(h) The term "Exchange Act" shall mean the U.S. Securities
Exchange Act of 1934, as amended, or any similar United States federal statutes,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the time; and
(i) The term "Holder" means any person owning or having the right
to acquire Registrable Securities who is a party to this Agreement and any
assignee thereof in accordance with this Agreement.
2. DEMAND REGISTRATION.
(a) At any time (i) following the fourth anniversary of the final
closing of the offering of securities pursuant to the Placement Memorandum and
before the filing date of the Company's initial public offering of its Common
Stock ("IPO"), if the Company receives a written request from the holders of at
least sixty percent (60%) of the Registrable Securities outstanding, that the
Company file a registration statement under the Securities Act covering the
registration of Registrable Securities, or (ii) after twelve (12) months from
the effective date of the IPO, if the Company is entitled to use Form S-3 (or
any successor short-form registration statement adopted by the Commission for
the resale of securities) and the Company receives a written request from the
holders of at least forty percent (40%) of the Registrable Securities
outstanding that the Company file a registration statement under the Securities
Act covering the registration of Registrable
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Securities, then the Company shall promptly give written notice of such request
(together with a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable state securities laws)
to all Holders. As soon as practicable (but in no event later than ninety (90)
days after receipt by the Company of a request pursuant to the preceding clause
(i) or sixty (60) days after receipt by the Company of a request pursuant to the
preceding clause (ii)), and subject to the limitations of Subsection 2(b)
hereof, the Company shall file a registration statement in accordance with
Section 5 hereof, with respect to the registration under the Securities Act of
all Registrable Securities which the Holders may specify in such request in
writing within twenty (20) days after receipt of such notice from the Company.
(b) If the Holders initiating the registration request (the
"Initiating Holders") intend to distribute the Registrable Securities covered by
their request by means of an underwriting, they shall so advise the Company as a
part of their request, and the Company shall include such information in the
written notice referred to in Subsection 2(a) hereof. In such event, the right
of any Holder to include securities in such registration shall be conditioned
upon the inclusion of such securities in the underwriting (unless otherwise
mutually agreed by a majority in interest of the Initiating Holders) as provided
in this Section 2.
(c) If other Holders request inclusion in such registration, the
Initiating Holders shall offer to such Holders the opportunity to include
Registrable Securities held by them in the underwriting, and may condition such
offer on the acceptance by such other Holders of Registrable Securities of the
further provisions of this Section 2. All Holders proposing to distribute their
securities through such underwriting shall enter into an underwriting agreement
in customary form with the representative of the underwriter(s) selected for
such underwriting by a majority in interest of the Initiating Holders and
reasonably acceptable to the Company.
(d) If, in the written opinion of the managing underwriter of any
such offering, a limitation of the number of shares to be underwritten is
required, the Initiating Holders shall so advise all holders of Registrable
Securities, and the number of Registrable Securities to be included in the
underwriting will be allocated among all such Holders in proportion, as nearly
as practicable, to the respective amounts of Registrable Securities that would
otherwise be entitled to inclusion in such registration statement; provided,
however, in the event that less than fifty percent (50%) of the Registrable
Securities requested to be registered are permitted by the managing underwriter
be included in such registration statement, then a majority in interest of the
Initiating Holders may withdraw their request to register Registrable Securities
and their request shall not count as a registration for the purpose of
Subsection 2(e) hereof. No Registrable Securities excluded from the underwriting
by reason of the underwriter's marketing limitation shall be included in such
registration. If any holder of securities to be included in such registration
disapproves of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, the underwriter and the Initiating
Holders. The securities so withdrawn shall also be withdrawn from registration.
If the underwriter has not limited the number of Registrable Securities or other
securities to be underwritten, the Company may include its securities for its
own account in such registration with the prior agreement of the underwriter,
provided the number of Registrable Securities and other securities which would
otherwise have been included in such registration and underwriting will not
thereby be limited.
(e) The Company is obligated to effect no more than two (2) such
registrations at the request of the Holders pursuant to this Section 2.
(f) Notwithstanding the foregoing, if the Company shall furnish
to the Initiating Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be detrimental to the Company and its shareholders for such
registration statement to be filed, the Company shall have the right to defer
such filing for a period of not more than one hundred twenty (120) days after
receipt of the request from the Initiating Holders; provided, however, that the
Company may not utilize this right more than once in any twelve (12) month
period.
3. PIGGY-BACK REGISTRATION.
(a) if the Company proposes to register any of its capital stock
or other securities under the Securities Act in connection with the public
offering of such securities (other than in connection with the IPO or a
registration on Form S-8 or any form which does not include substantially the
same information as would be
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required to be included in a registration statement covering the public sale of
Common Stock), the Company shall, each such time, promptly give each Holder
written notice of such registration, together with a list of the jurisdictions
in which the Company intends to attempt to qualify such securities under
applicable state securities laws. Upon the written request of each Holder given
within thirty (30) days after mailing of such written notice from the Company in
accordance with this Section 3, the Company shall, subject to the provisions of
Section 3 (b) and Section 9 hereof, include in such registration all of the
Registrable Securities that each such Holder has requested to be registered. In
the event that the Company completes an IPO prior to the first anniversary of
the final closing of the offering of securities pursuant to the Placement
Memorandum (the "Private Placement"), the Company will permit Holders to include
up to 50% of the Registrable Securities acquired in the Private Placement in the
IPO subject to the provisions of Section 3(b) and Section 9 hereof.
(b) Notwithstanding the foregoing, in the event the IPO or
proposed registration is in whole or in part an underwritten public offering,
the Company shall so advise the Holders as part of the written notice under
Subsection 3(a). If the managing underwriter determines and advises the Company
in writing that the inclusion of such shares of requesting Holders, together
with all shares of the Company's capital stock to be offered by the Company, and
shares to be included pursuant to other registration rights, would materially
adversely affect the successful marketing of such securities, then (i) the
Company shall immediately provide all Holders requesting inclusion in such
registration with a copy of such written advice, and (ii) the number of shares
of capital stock otherwise to be included in the registration statement by
Holders shall be reduced pro rata among such Holders requesting inclusion of
their shares in such registration statement in proportion to the number of
shares of the Company's capital stock then owned by each with respect to which
it has registration rights. The parties agree that in any registration for an
IPO or a public offering the managing underwriter may reduce the number of
shares on a pro rata basis to be included by Holders but in no event shall the
shares to be offered by the Holders be reduced to below fifteen percent (15%) of
the total number of shares to be included in the registration statement, or such
lesser number of shares as are requested to be included by the Holders. If any
Holder disapproves of the terms of such underwriting, such Holder may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter.
(c) The Company is not obligated to include Holders' Securities
in more than three (3) such registrations.
4. SHELF REGISTRATION.
Upon expiration of a period of twelve (12) months following completion
of an IPO, if it occurs, and at any later time that the Company receives from
any Holder a written request that the Company effect a registration on Form S-3
(or any successor short-form registration statement adopted by the Commission
for the resale of securities) or any related qualification or compliance with
respect to all or a part of the Registrable Securities, the Company will:
(a) Promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders.
(b) As soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of the Registrable
Securities as are to be covered by the registration statement and are requested
by Holders to be included, all as specified in a written request from Holders
given within thirty (30) days after such written notice by the Company under
Subsection 4(a).
(c) The Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 4: (i) if the
Company is not qualified as a registrant entitled to use Form S-3 (or any
similar successor form of registration statement); (ii) if the Holders propose
to sell Registrable Securities in an aggregate amount less than two million
($2,000,000), except for the S-3 registration statement filed after the
expiration of a period of twelve (12) months after the IPO pursuant to this
Section 4 (the "Initial S-3"), or unless all Registration Expenses are borne by
requesting Holders; or (iii) subject to the next sentence, if the Company shall
furnish to the Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 or similar registration to be effected at such time. In the
case
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of the circumstances described in the preceding clause (iii), the Company
shall have the right to defer the filing of the registration statement for a
period of not more than one hundred twenty (120) days after receipt of the
request of the Holder under this Section 4; provided, however, that the Company
shall not utilize this right more than once in any twelve (12) month period.
(d) Registrations effected pursuant to this Section 4 shall not
be counted as demands for registration or registrations effected pursuant to
Section 2 hereof.
5. OBLIGATIONS TO THE COMPANY.
Whenever required under this Agreement to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become and remain effective until the first to
occur of (i) twelve (12) months, in the case of the Initial S-3; (ii) one
hundred eighty (180) days, in the case of any other registration statement; or
(iii) the completion of the distribution described in the registration
statement.
(b) Respond promptly to any comments of the Commission related to
the registration statement and prepare and file with the Commission such
amendments (including post-effective amendments) and supplements to the
registration statement, and to the prospectus used in connection with the
registration statement, as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
covered by the registration statement.
(c) Furnish to the Holders of Registrable Securities and to the
underwriters of the securities being registered such numbers of copies of the
registration statement, the prospectus, including a preliminary prospectus and a
final prospectus, and all amendments (including post-effective amendments) and
supplements thereto, in conformity with the requirements of the Securities Act,
and such other documents as they may reasonably request, in order to facilitate
the disposition of their Registrable Securities covered by the registration
statement.
(d) Use its best efforts to register and qualify the Registrable
Securities covered by such registration statement under the securities laws of
such states as shall be reasonably requested by the selling Holders of such
securities or underwriters; provided, however, that the Company shall not be
required to take action to effect such registration in any particular
jurisdiction in which the Company would be required to file a general consent to
service of process in any such state in effecting such registration unless the
Company is already subject to service of process in such jurisdiction and except
as may be required by the Securities Act; and provided, further, that (anything
in this Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if applicable law in any state in which the Registrable Securities
shall be qualified shall require that all or any portion of the Registration
Expenses (as defined in Section 7) be borne by selling Holders, then to the
extent required by that state, such Registration Expenses shall be payable by
the selling Holders pro rata.
(e) Keep each Holder of Registrable Securities covered by a
registration statement under this Agreement generally advised in writing as to
the initial filing of each registration, qualification and compliance and as to
the completion thereof.
(f) In the event of an underwritten public offering, enter into
and perform its obligations under the underwriting agreement with the managing
underwriter of such offering. Each Holder participating in such underwriting
shall also enter into and perform its obligations under such underwriting
agreement.
(g) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number of all such
Registrable Securities, in each case not later than the effective date of such
registration.
(h) In the event of a public offering, on the closing date
thereof if such Registrable Securities are being sold through underwriters, or,
if such securities are not being sold through underwriters, on the date that the
registration statement with respect to such Registrable Securities becomes
effective, the Company shall furnish (i) an opinion dated such date, of counsel
representing the Company for the purposes of such
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<PAGE> 5
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders of Registrable Securities requesting registration of Registrable
Securities, to the effect that (A) the registration statement has become
effective under the Securities Act and, to the best knowledge of such counsel,
no stop order or proceedings with respect thereto are threatened or pending, and
(B) the registration statement and each prospectus forming a part thereof and
supplement or amendment thereto (except for the financial statements and
schedules) complies in all material respects with the Securities Act, and (ii) a
letter dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of such
Registrable Securities.
(i) Notwithstanding the above, no Holder of Registrable
Securities shall be entitled to include such Registrable Securities in any
registration pursuant to this Agreement unless such selling Holder shall furnish
to the Company such information regarding such Holder, the securities held by
such Holder, and the intended method of disposition of such Registrable
Securities held by such Holder, as shall be required to effect the registration
of such securities held by such Holder.
6. FURNISH INFORMATION.
It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Agreement with respect to any selling Holder
that such selling Holder shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of such securities as shall be required to effect the registration
of its Registrable Securities and to execute such documents in connection with
such registration as the Company may reasonably request, and in any case only as
shall be necessary to allow the Company to comply with the provisions hereof.
7. DEFINITION OF EXPENSES.
(a) "Registration Expenses" shall mean all expenses, incurred by
the Company in complying with Sections 2, 3, 4 and 5 hereof, including, without
limitation, registration and filing fees, printing expenses, accounting fees and
disbursements of counsel for the Company, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees) of the Company which would
be paid in any event by the Company) and the fees and disbursements of one
special counsel for the participating Holders designated by the majority in
interest thereof.
(b) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of the securities registered, and all
fees and disbursements of separate counsel for any Holder other than as set
forth in Section 7(a).
8. EXPENSES OF REGISTRATION.
All Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant Sections 2 and 3 of this Agreement shall be
borne by the Company, and all Registration Expenses incurred in connection with
the Initial S-3 and up to four (4) additional registrations or qualifications,
all pursuant Section 4 of this Agreement, shall be borne by the Company, except
as provided in Subsection 5 (d) hereof to the extent required by applicable
state securities laws. All Selling Expenses shall be borne by the Holders of the
securities so registered pro rata on the basis of the number of shares so
registered.
9. UNDERWRITING REQUIREMENTS.
The right of any Holder to registration pursuant to Section 3 hereof
shall be conditioned upon the Holder's participation in the underwriting and the
inclusion of the Holder's Registrable Securities in the underwriting to the
extent provided therein and herein. All Holders proposing to distribute their
Registrable Securities through the underwriting shall (together with the Company
and the other Holders distributing their Registrable Securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter(s). Notwithstanding any other provision of Section 3 hereof and this
Section 9, if the managing underwriter determines that marketing factors require
a limitation of the number of shares to be
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underwritten, then the managing underwriter may (subject to the allocation
priority set forth in Subsection 3(b) hereof) exclude some or all Registrable
Securities from such registration and underwriting. The Company shall so advise
all Holders requesting registration of any such limitations imposed by the
managing underwriter.
10. INDEMNIFICATION.
In the event any Registrable Securities are included in a registration
statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder of any such Registrable Securities included
therein, each underwriter (if any), each of the partners, affiliates, officers,
agents, employees and directors of each Holder and underwriter and each person,
if any, who controls such Holder or underwriter within the meaning of the
Securities Act, against any and all losses, claims, damages, liabilities, costs
or expenses (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law (including any of
the foregoing incurred in settlement of any litigation commenced or threatened),
insofar as such losses, claims, damages, liabilities, costs or expenses (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omission or violations (collectively, a "Violation"):
(i) any untrue statement or alleged untrue statement of
a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus,
offering circular or other document, or any amendments or
supplements thereto, incident to any such registration,
qualification or compliance,
(ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances in
which they were made, not misleading, or
(iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any state or federal
securities law or any role or regulation promulgated under the
Securities Act, the Exchange Act or any state or federal
securities law;
and the Company will reimburse each such Holder, underwriter, partner, officer,
agent, affiliate, employee or director or controlling person, subject to the
provisions of Section I0 (c), for any legal and any other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld, nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by, or on behalf of, any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each other Holder with Registrable
Securities included therein, each of the officers, directors, agents and
employees of each of the foregoing persons with Registrable Securities included
therein, and each person, if any, who controls the Company, or an underwriter or
another Holder within the meaning of the Securities Act, against any losses,
claims, damages or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by, or on behalf of, such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company, other Holder(s) with Registrable Securities included therein (or any
partner, agent, employee, director, officer, or controlling person of such
person) and underwriters, in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 10(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action
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if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this
Section 10 of notice of the commencement of any action (including any
governmental action) or other actual knowledge of any claim as to which
indemnity may be sought such hereunder, such indemnified party will, if a claim
in respect thereof is to be made against any indemnifying party under this
Section 10 deliver to the indemnifying party a written notice thereof and the
indemnifying party shall, jointly with any other indemnifying party similarly
notified, assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if, in the opinion of counsel for the indemnifying party,
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflict of
interest between such indemnified party and any other party represented by such
counsel in such proceeding. It is understood, however, that the indemnifying
parties shall, in connection with any one such action, suit or proceeding or
separate but substantially similar or related actions, suits or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys at any time for all indemnified persons. The failure
to deliver written notice to the indemnifying party within a reasonable period
of time of the commencement of any such action shall relieve such indemnifying
party of any liability to the indemnified party under this Section 10 solely to
the extent that such failure is materially prejudicial to its ability to defend
such action, but the omission so to deliver written notice to the indemnifying
party will not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 10.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in this Section 10
is for any reason held to be unenforceable by a court of competent jurisdiction
although applicable in accordance with its terms, the Company and the selling
Holders shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by such indemnity agreement incurred by
the Company and the selling Holders, in such proportion as is appropriate to
reflect the relative fault of and benefits to the Company on the one hand and
the selling Holders on the other (in such proportions that the selling Holders
are severally, not jointly, responsible for the balance), in connection with the
statements or omissions that resulted in such losses, claims damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits to the indemnifying party and indemnified parties shall be
determined by reference to, among other things, the total proceeds received by
the indemnified party and indemnified parties in connection with the offering to
which such losses, claims, damages, liabilities or expenses relate. The relative
fault of the indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether the action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or the indemnified parties, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 10 were determined by pro rata allocation
or by any other method if such allocation does not take account of the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 10, if the total price at which
the Registrable Securities of a selling Holder were offered to the public
exceeds the amount of any damages which such selling Holder would otherwise have
been required to pay by reason of an untrue statement or omission, such selling
Holder shall not be required to contribute any amount in excess of the total
price at which the Registrable Securities of such selling Holder were offered to
the public.
Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purpose of this Section 10, each person, if
any, who controls a Holder within the meaning of Section 15 of the Securities
Act and directors and officers of a Holder shall have the same rights to
contribution as such Holder, and each director of the Company, each officer of
the Company
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<PAGE> 8
who signed the registration statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act shall have the
same rights to contribution as the Company.
11. REPORTS UNDER THE SECURITIES ACT.
With a view to making available to the Holders the benefits of Rule 144
under the Securities Act and any other rule or regulation of the Commission that
may at any time permit a Holder to sell securities of the Company to the public
without registration, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after 90 days after the effective date of the first registration statement filed
by the Company for the offering of its securities to the general public;
(b) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon written request (i) a written statement
by the Company that it has complied with the reporting requirements of Rule 144
under the Securities Act (at any time after 90 days after the effective date of
the first registration statement filed by the Company), the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information in the
possession of or owned by the Company as may be reasonably requested in availing
any Holder of any role or regulation of the Commission that permits the selling
of any such securities without registration or pursuant to such form.
12. AMENDMENTS AND WAIVERS.
The provisions of this Agreement, including the provisions of this
sentence, may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given without the written
consent of the Company and the Holders of a majority of the then outstanding
Registrable Securities; provided however, that no amendment, modification,
supplement, waiver, or consent, with respect to the provisions of Sections 2, 3,
4, 9, 10, 11 or 12 hereof shall be effective as against any Holder of
Registrable Securities unless consented to in writing by such Holder of
Registrable Securities. Notice of any amendment, modification or supplement to
this Agreement adopted in accordance with this Section 12 shall be provided by
the Company to each Holder of Registrable Securities at least thirty (30) days
prior to the effective date of such amendment, modification or supplement.
13. NOTICES.
All notices and other communications provided for or permitted hereunder
shall be made in writing by hand-delivery, registered first-class mail, telex,
telecopier, or any courier guaranteeing overnight delivery, (i) if to a Holder,
at the most current address given by such Holder to the Company by means of a
notice given in accordance with the provisions of this Section 13, which address
initially is, with respect to each Holder, the address set forth next to such
Holder's name attached hereto, or (ii) if to the Company, at 1420 Fifth Avenue,
Suite 2200, Seattle, WA 98101, Attention: Chairman, or such other address as the
Company shall notify the Holders in writing.
All such notices and communications shall be deemed to have been duly
given at the time delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; upon written confirmation of receipt by the telecopy machine
or when receipt is acknowledged, if telecopied; or at the time delivered if
delivered by an air courier guaranteeing overnight delivery.
14. SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors, assigns and transferees of each of the parties, including, without
limitation and without the need for an express assignment,
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subsequent Holders. If any successor, assignee or transferee of any Holder shall
acquire Registrable Securities, in any manner, whether by operation of law or
otherwise, such Registrable Securities shall be held subject to all of the terms
of this Agreement, and by taking and holding such Registrable Securities such
person shall be entitled to receive the benefits hereof and shall be
conclusively deemed to have agreed to be bound by all of the terms and
provisions hereof. Notwithstanding the foregoing provisions of this Section 14,
a transferee of Registrable Securities shall not be deemed to be a party to, and
shall not be bound by or entitled to the benefits of, the provisions of this
Agreement, if immediately following the transfer of the Registrable Securities
to such transferee, the further disposition of such Registrable Securities by
the transferee is not restricted under the Securities Act.
15. TERMINATION.
This Agreement shall terminate on the fifth anniversary of the Company's
IPO, and shall terminate with respect to each Holder at such time as the
Registrable Securities held by Holder may be sold pursuant to Rule 144(k) under
the Securities Act.
16. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
17. HEADINGS.
The headings in this Agreement are for convenience of reference only and
shall not limited or otherwise affect the meaning hereof.
18. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW
PROVISIONS THEREOF.
19. SPECIFIC PERFORMANCE.
The parties hereto acknowledge that there would be no adequate remedy at
law if any party fails to perform any of its obligations hereunder, and
accordingly agree that each party, in addition to any other remedy to which it
may be entitled at law or in equity, shall be entitled to compel specific
performance of the obligations of any other party under this Agreement in
accordance with the terms and conditions of this Agreement in any court of the
United States or any State thereof having jurisdiction.
20. ENTIRE AGREEMENT.
This Agreement is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
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21. SEVERABILITY.
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement, and
the balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
THE COMPANY
VaxGen, Inc.
By:_____________________________
Its Chairman
INVESTORS:
SEE INVESTORS SIGNATURE PAGES ATTACHED HERETO
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<PAGE> 1
EXHIBIT 10.4
VAXGEN, INC.
1996 STOCK OPTION PLAN
This 1996 Stock Option Plan (this "Plan") provides for the grant of
options to acquire shares of common stock, $0.01 par value (the "Common Stock"),
of VaxGen, Inc., a Delaware corporation (the "Company"). Stock options granted
under this Plan that qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), are referred to in this
Plan as "Incentive Stock Options." Incentive Stock Options and stock options
that do not qualify as such under Section 422 of the Code ("Non-Qualified Stock
Options") granted under this Plan are referred to as "Options."
1. PURPOSES.
The purposes of this Plan are to retain the services of non-employee
directors, valued key employees and consultants of the Company, to encourage
such persons to acquire a greater proprietary interest in the Company, thereby
strengthening their incentive to achieve the objectives of the stockholders of
the Company, and to serve as an aid and inducement in the hiring of new
employees and to provide an equity incentive to directors, consultants and other
persons selected by the Board of Directors in accordance with Section 3 below.
2. ADMINISTRATION.
This Plan shall be administered by the full Board of Directors of the
Company (the "Board") or if the Board so desires, by a committee designated by
the Board and composed of two (2) or more "Non-Employee Directors" (as defined
below). The term "Non-Employee Directors" shall have the meaning assigned to it
under Rule 16b-3 (as amended from time to time) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). In the event that the Company is
or becomes subject to the provisions of Section 16 of the Exchange Act, the
Board shall attempt to provide for administration of the Plan, insofar as it
relates to the participation of officers, directors or stockholders of the
Company who at the time in question are subject to the reporting and liability
provisions of Section 16 of the Exchange Act (the "Insiders"), in a manner which
shall qualify the grant, exercise, expiration or surrender of options under this
Plan for the treatment afforded by Rule 16b-3 under the Exchange Act, as amended
from time to time, or any successor rule or regulatory requirement. The term
"Board" when used in any provision of this Plan other than Section 5(n) shall be
deemed to refer to the Board or any committee thereof appointed to administer
this Plan.
Subject to the provisions of this Plan, and with a view to effecting its
purpose, the Board shall have sole authority, in its absolute discretion, to (a)
construe and interpret this Plan; (b) define the terms used in this Plan; (c)
prescribe, amend and rescind rules and regulations relating to this Plan; (d)
correct any defect, supply any omission or reconcile any inconsistency in this
Plan; (e) grant Options under this Plan (other than pursuant to Section 6); (f)
determine the individuals to whom Options shall be granted under this Plan and
whether the Option is an Incentive Stock Option or a Non-Qualified Stock Option;
(g) determine the time or times at which Options shall be granted under this
Plan; (h) determine the number of shares of Common Stock subject to each Option,
the exercise price of each Option, the duration of each Option and the times at
which each Option shall become exercisable; (i) determine all other terms and
conditions of Options; and (j) make all other determinations necessary or
advisable for the administration of this Plan. All decisions, determinations and
interpretations made by the Board shall be binding and conclusive on all
participants in this Plan and on their legal representatives, heirs and
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<PAGE> 2
beneficiaries.
The Board shall have no authority, discretion or power to select the
persons who will receive Options under Section 6 hereof or to set the number of
shares to be covered by such Options, the exercise price of such options, the
timing of the grant of such Options or the period within which such Options may
be exercised.
3. ELIGIBILITY.
Incentive Stock Options may be granted to any individual who, at the
time the Option is granted, is an employee of the Company or any Related
Corporation (as defined below), including employees who are directors of the
Company ("Employees"). Non-Qualified Stock Options may be granted to Employees,
Non-Employee Directors and consultants. Options may be granted in substitution
for outstanding options of another corporation in connection with the merger,
consolidation, acquisition of property or stock or other reorganization between
such other corporation and the Company or any subsidiary of the Company. Options
also may be granted in exchange for outstanding Options. Any person to whom an
Option is granted under this Plan is referred to as an "Optionee." Any person
who is the owner of an Option is referred to as a "Holder."
As used in this Plan, the term "Related Corporation," shall mean any
corporation that is a "Parent Corporation" of the Company or "Subsidiary
Corporation" of the Company, as those terms are defined in Sections 424(e) and
424(f), respectively, of the Code (or any successor provisions), and the
regulations thereunder (as amended from time to time).
4. STOCK.
The Board is authorized to grant Options to acquire up to a total of
1,000,000 shares of the Company's authorized but unissued, or reacquired, Common
Stock. The number of shares with respect to which Options may be granted
hereunder is subject to adjustment as set forth in Section 5(m) hereof. In the
event that any outstanding Option expires or is terminated for any reason, the
shares of Common Stock allocable to the unexercised portion of such Option may
again be subject to an Option to the same Optionee (subject to the next
sentence) or to a different person eligible under Section 3 of this Plan. Any
canceled Options will be counted against the maximum number of shares with
respect to which Options may be granted to the person previously holding the
canceled Options.
5. TERMS AND CONDITIONS OF OPTIONS.
Each Option granted under this Plan shall be evidenced by a written
agreement approved by the Board (the "Agreement"). Agreements may contain such
provisions, not inconsistent with this Plan, as the Board in its discretion may
deem advisable. All Options also shall comply with the following requirements:
(a) Number of Shares and Type of Option.
Each Agreement shall state the number of shares of Common Stock to which
it pertains and whether the Option is intended to be an Incentive Stock Option
or a Non-Qualified Stock Option. In the absence of action to the contrary by the
Board in connection with the grant of an Option, all Options shall be
Non-Qualified Stock Options. The aggregate fair market value (determined at the
Date of Grant, as defined below) of the stock with respect to which Incentive
Stock Options are exercisable for the first
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time by the Optionee during any calendar year (granted under this Plan and all
other Incentive Stock Option plans of the Company, a Related Corporation or a
predecessor corporation) shall not exceed $100,000, or such other limit as may
be prescribed by the Code as it may be amended from time to time. Any portion of
an Option which exceeds the annual limit shall not be void but rather shall be a
Non-Qualified Stock Option.
(b) Date of Grant.
Each Agreement shall state the date the Board has deemed to be the
effective date of the Option for purposes of this Plan (the "Date of Grant").
(c) Exercise Price.
Each Agreement shall state the price per share of Common Stock at which
it is exercisable. Options granted in substitution for outstanding options of
another corporation in connection with the merger, consolidation, acquisition of
property or stock or other reorganization involving such other corporation and
the Company or any subsidiary of the Company may be granted with an exercise
price equal to the exercise price for the substituted option of the other
corporation, subject to any adjustment consistent with the terms of the
transaction pursuant to which the substitution is to occur.
(i) The per share exercise price for an Incentive Stock Option shall
not be less than the fair market value per share of the Common Stock at the Date
of Grant as determined by the Board in good faith. With respect to Incentive
Stock Options granted to greater-than-ten percent (> 10%) stockholders of the
Company (as determined with reference to Section 424(d) of the Code), the
exercise price per share shall not be less than one hundred ten percent (110%)
of the fair market value per share of the Common Stock at the Date of Grant as
determined by the Board in good faith.
(ii) The per share exercise price for a Non-Qualified Stock Option
shall not be less than eighty-five percent (85%) of the fair market value per
share of the Common Stock at the Date of Grant as determined by the Board in
good faith. With respect to Non-Qualified Stock Options granted to any person
who owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company, the exercise price per
share shall not be less than one hundred ten percent (110%) of the fair market
value per share of the Common Stock at the Date of Grant as determined by the
Board in good faith.
(d) Duration of Options.
At the time of the grant of the Option, the Board shall designate,
subject to paragraph 5(g) below, the expiration date of the Option. The
expiration date of any Incentive Stock Option granted to a greater-than-ten
percent (> 10%) stockholder of the Company (as determined with reference to
Section 424(d) of the Code) shall not be later than five years from the Date of
Grant. The expiration date of any other Incentive Stock Option shall not be
later than ten (10) years from the Date of Grant. With respect to all other
Options, in the absence of action to the contrary by the Board in connection
with the grant of a particular Option, all Options granted under this Section 5
shall expire ten (10) years from the Date of Grant.
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(e) Vesting Schedule.
No Option shall be exercisable until it has vested. The vesting schedule
for each Option may be specified by the Board at the time of grant of the Option
prior to the provision of services with respect to which such Option is granted,
but in no event shall the Board specify a vesting schedule which permits an
Option to vest at a rate less than twenty percent (20%) per year. If no vesting
schedule is specified at the time of grant, the Option shall vest according to
the following schedule:
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF YEARS TOTAL
FOLLOWING DATE OF GRANT OPTION VESTED
<S> <C>
One 25%
Two 50%
Three 75%
Four 100%
</TABLE>
The Board may specify a vesting schedule for all or any portion of an
Option based on the achievement of performance objectives established in advance
of the commencement by the Optionee of services related to the achievement of
the performance objectives. Performance objectives may be expressed in terms of
one or more of the following: return on equity, return on assets, share price,
market share, sales, earnings per share, costs, net earnings, net worth,
inventories, cash and cash equivalents, gross margin, the Company's performance
relative to its internal business plan or such other basis as determined by the
Board. Performance objectives may be in respect of the performance of the
Company as a whole (whether on a consolidated or unconsolidated basis), a
Related Corporation, or a subdivision, operating unit, product or such other
basis. Performance objectives may be absolute or relative and may be expressed
in terms of a progression or a range. An Option which is exercisable (in whole
or in part) upon the achievement of one or more performance objectives may be
exercised only following written notice to the Optionee from the Board that the
performance objective has been achieved.
(f) Acceleration of Vesting.
The vesting of one or more outstanding options may be accelerated by the
Board at such times and in such amounts as it shall determine in its sole
discretion. The vesting of Options also shall be accelerated under the
circumstances described in Sections 5(m) and 5(n) below.
(g) Term of Option.
Vested Options shall terminate, to the extent not previously exercised,
upon the first to occur of the following events: (i) the expiration of the
Option; (ii) the date of an Optionee's termination of employment or service as a
director or consultant with the Company or any Related Corporation for cause (as
determined in the sole discretion of the Board); (iii) the expiration of ninety
(90) days from the date of an Optionee's termination of employment or service as
a director or consultant with the Company or any Related Corporation for any
reason whatsoever other than cause, death or Disability (as defined below)
unless, the exercise period is extended by the Board until a date not later than
the expiration date of the Option; or (iv) the expiration of one year from (A)
the date of death of the Optionee or (B) cessation of an Optionee's employment
or contractual relationship by reason of Disability (as defined below) unless,
the exercise period is extended by the Board until a date not later than the
expiration date of the Option. If an Optionee's employment or contractual
relationship is terminated by death, any Option held by the Optionee shall be
exercisable only by the person or persons to whom such Optionee's
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<PAGE> 5
rights under such Option shall pass by the Optionee's will or by the laws of
descent and distribution of the state or county of the Optionee's domicile at
the time of death. For purposes of the Plan, unless otherwise defined in the
Agreement, "Disability" shall mean any physical, mental or other health
condition which substantially impairs the Optionee's ability to perform his or
her assigned duties for one hundred twenty (120) days or more in any two hundred
forty (240) day period or that can be expected to result in death. The Board
shall determine whether an Optionee has incurred a Disability on the basis of
medical evidence acceptable to the Board. Upon making a determination of
Disability, the Board shall, for purposes of the Plan, determine the date of an
Optionee's termination of employment or contractual relationship.
Unless accelerated in accordance with Section 5(f) above, unvested
Options shall terminate immediately upon termination of employment of the
Optionee by the Company for any reason whatsoever, including death or
Disability. For purposes of this Plan, transfer of employment between or among
the Company and any Related Corporation, or among Related Corporations shall not
be deemed to constitute a termination of employment with the Company or any
Related Corporation. For purposes of this subsection with respect to Incentive
Stock Options, employment shall be deemed to continue while the Optionee is on
military leave, sick leave or other bona fide leave of absence (as determined by
the Board). The foregoing notwithstanding, employment shall not be deemed to
continue beyond the first ninety (90) days of such leave, unless the Optionee's
re-employment rights are guaranteed by statute or by contract.
(h) Exercise of Options.
Options shall be exercisable, either all or in part, at any time after
vesting, until termination. If less than all of the shares included in the
vested portion of any Option are purchased, the remainder may be purchased at
any subsequent time prior to the expiration of the Option term. If the vested
portion of any Option is less than one hundred (100) shares, it may be exercised
with respect to all shares for which it is vested. In all other cases, no
portion of any Option for less than one hundred (100) shares (as adjusted
pursuant to Section 5(m) below) may be exercised. Only whole shares may be
issued pursuant to an Option, and to the extent that an Option covers less than
one (1) share, it is unexercisable.
Options or portions thereof may be exercised by giving written notice to
the Company, which notice shall specify the number of shares to be purchased,
and be accompanied by payment in the amount of the aggregate exercise price for
the Common Stock so purchased, which payment shall be in the form specified in
Section 5(i) below. The Company shall not be obligated to issue, transfer or
deliver a certificate of Common Stock to the Holder of any Option, until
provision has been made by the Holder, to the satisfaction of the Company, for
the payment of the aggregate exercise price for all shares for which the Option
shall have been exercised and for satisfaction of any tax withholding
obligations associated with such exercise. During the lifetime of an Optionee,
Options are exercisable only by the Optionee or a transferee who takes title to
the Option in the manner permitted by Section 5(1) hereof.
(i) Payment upon Exercise of Option.
Upon the exercise of any Option, the aggregate exercise price shall be
paid to the Company in cash or by certified or cashier's check. In addition, the
Holder, at its or the Company's option, may pay for all or any portion of the
aggregate exercise price by complying with one or more of the following
alternatives:
(1) by delivering to the Company shares of Common Stock
previously held by such
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<PAGE> 6
Holder which shares of Common Stock received shall have a fair market value at
the date of exercise (as determined by the Board) equal to the aggregate
exercise price to be paid by the Optionee upon such exercise;
(2) by delivering a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds to pay the exercise price;
(3) by delivering a full recourse promissory note for all or
part of the aggregate exercise price, payable on such terms and bearing such
interest rate as determined by the Board (but in no event less than the minimum
interest rate specified under the Code at which no additional interest would be
imputed and in no event more than the maximum interest rate allowed under
applicable usury laws), which promissory note may be either secured or unsecured
in such manner as the Board shall approve (including, without limitation, by a
security interest in the shares of the Company);
(4) by delivering a combination of (1), (2) and (3) above.
(j) Net Issue Exercise.
Notwithstanding the provisions of Paragraph (i), above, if, at the date
of making the calculation set forth below, the fair market value of one share of
Common Stock is greater than the exercise price of the Option, then in lieu of
exercising the Option for cash, the Holder may elect to convert the Option and
receive Common Stock equal to the value (as determined below) of the Option (or
the portion thereof being exercised) by surrender of the Option together with a
notice of the Holder's election to proceed pursuant to this Paragraph (j). In
such an event, the Company shall issue to the Holder that number of shares of
Common Stock derived utilizing the following formula:
Y (A-B)
-------
X=
A
Where X = the number of shares of Common Stock to be
issued to the Holder pursuant to election under
this Section 5(j)
Y = the number of shares of Common Stock
purchasable under the Option or, if only a
portion of the Option is being exercised,
the portion of the Option being converted
and canceled (at the date of such
calculation)
A = the fair market value of one share of
Common Stock (at the date of such
calculation)
B = the exercise price (as adjusted to the
date of such calculation).
For purposes of the above calculation, the "fair market value" of one share of
Common Stock shall equal:
(i) In the event the Option is exercised in connection with the
Company's initial public offering of Common Stock, the per share offering price
to the public in such public offering.
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<PAGE> 7
(ii) In other circumstances in which a public market exists for the
Common Stock at the time of such exercise, the average of the closing bid and
asked prices of the Common Stock quoted in the Over-The-Counter Market Summary
or the last quoted sale price of the Common Stock or the closing price quoted on
the Nasdaq National Market or on any exchange on which the Common Stock is
listed, whichever is applicable, as published in The Wall Street Journal for the
five (5) trading days prior to the date of determination of the fair market
value.
(iii) In all other circumstances, such value as is established by
the Board acting in good faith.
(k) Rights as a Stockholder.
A Holder shall have no rights as a stockholder with respect to any
shares covered by an Option until such Holder becomes a record holder of such
shares, irrespective of whether such Holder has given notice of exercise.
Subject to the provisions of Sections 5(m) and 5(n) hereof, no rights shall
accrue to a Holder and no adjustments shall be made on account of dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights declared on, or created in, the Common Stock for
which the record date is prior to the date the Holder becomes a record holder of
the shares of Common Stock covered by the Option, irrespective of whether such
Holder has given notice of exercise.
(l) Transfer of Option.
No Option granted under this Plan shall be assignable or otherwise
transferable by the optionee except by will or by the laws of descent and
distribution. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of any Option or of any right or privilege conferred by this
Plan contrary to the provisions hereof, or upon the sale, levy or any attachment
or similar process upon the rights and privileges conferred by this Plan, such
Option shall thereupon terminate and become null and void. During the life of
the optionee, an Option shall be exercisable only by the optionee.
(m) Securities Regulation and Tax Withholding.
(1) Shares shall not be issued with respect to an Option
unless the exercise of such Option and the issuance and delivery of such shares
shall comply with all relevant provisions of law, including, without limitation,
any applicable state securities laws, the Securities Act of 1933, as amended,
the Exchange Act, the rules and regulations hereunder and the requirements of
any stock exchange upon which such shares may then be listed, and such issuance
shall be further subject to the approval of counsel for the Company with respect
to such compliance, including the availability of an exemption from registration
for the issuance and sale of such shares. The inability of the Company to obtain
from any regulatory body the authority deemed by the Company to be necessary for
the lawful issuance and sale of any shares under this Plan, or the
unavailability of an exemption from registration for the issuance and sale of
any shares under this Plan, shall relieve the Company of any liability with
respect to the non-issuance or sale of such shares.
As a condition to the exercise of an Option, the Board may require the
Holder to represent and warrant in writing at the time of such exercise that the
shares are being purchased only for investment and without any then-present
intention to sell or distribute such shares. At the option of the Board, a
stop-transfer order against such shares may be placed on the stock books and
records of the Company, and a legend indicating that the stock may not be
pledged, sold or otherwise transferred unless an opinion of counsel is provided
stating that such transfer is not in violation of any applicable law or
regulation,
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<PAGE> 8
may be stamped on the certificates representing such shares in order to assure
an exemption from registration. The Board also may require such other
documentation as may from time to time be necessary to comply with federal and
state securities laws. THE COMPANY HAS NO OBLIGATION TO UNDERTAKE REGISTRATION
OF OPTIONS OR THE SHARES OF STOCK ISSUABLE UPON THE EXERCISE OF OPTIONS.
(2) The Holder shall pay to the Company by certified or
cashier's check, promptly upon exercise of an Option or, if later, the date that
the amount of such obligations becomes determinable, all applicable federal,
state, local and foreign withholding taxes that the Board, in its discretion,
determines to result upon exercise of an Option or from a transfer or other
disposition of shares of Common Stock acquired upon exercise of an Option or
otherwise related to an Option or shares of Common Stock acquired in connection
with an Option. Upon approval of the Board, a Holder may satisfy such obligation
by complying with one or more of the following alternatives selected by the
Board:
(A) by delivering to the Company shares of Common
Stock previously held by such Holder or by the Company
withholding shares of Common Stock otherwise deliverable
pursuant to the exercise of the Option, which shares of
Common Stock received or withheld shall have a fair market
value at the date of exercise (as determined by the Board)
equal to the tax obligation to be paid by the Optionee upon
such exercise; provided that if the Holder is an Insider or
if beneficial ownership of the shares issuable upon exercise
of the Option is attributable to an Insider pursuant to the
regulations under Section 16 of the Exchange Act, the grant
of such Option to such Holder was specifically approved (or,
in the case of clause (b), ratified) (i) by the entire Board
or a committee of the Board composed solely of two or more
Non-Employee Directors (as defined in Rule 16b-3(b)(3)(i) of
the Exchange Act) or (ii) in compliance with Section 14 of
the Exchange Act by the holders of a majority of the
securities of the Company present, or represented, and
entitled to vote at a meeting duly held in accordance with
the laws of the state of incorporation of the Company, or
the written consent of the holders of a majority of the
securities of the Company entitled to vote, so long as such
ratification occurred no later than the date of the next
annual meeting of stockholders; or
(B) by executing appropriate loan documents
approved by the Board by which the Holder borrows funds from
the Company to pay the withholding taxes due under this
Paragraph 2, with such repayment terms as the Board shall
select.
(3) The issuance, transfer or delivery of certificates of
Common Stock pursuant to the exercise of Options may be delayed, at the
discretion of the Board, until the Board is satisfied that the applicable
requirements of the federal and state securities laws and the withholding
provisions of the Code have been met.
(n) Stock Dividend, Reorganization or Liquidation.
(1) If (i) the Company shall at any time be involved in a
transaction described in Section 424(a) of the Code (or any successor provision)
or any "corporate transaction" described in the regulations thereunder; (ii) the
Company shall declare a dividend payable in, or shall subdivide or combine, its
Common Stock or (iii) any other event with substantially the same effect shall
occur, the Board shall, with respect to each outstanding Option, proportionately
adjust the number of shares of Common Stock subject to such Option, the exercise
price per share or both so as to preserve the rights of the Holder substantially
proportionate to the rights of the Holder prior to such event, and to the extent
that such action shall include an increase or decrease in the number of shares
of Common Stock subject
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<PAGE> 9
to outstanding Options, the number of shares available under Section 4 of this
Plan and the number of shares of Common Stock underlying Options to be granted
pursuant to Section 6 hereof shall automatically be increased or decreased, as
the case may be, proportionately, without further action on the part of the
Board, the Company, the Company's stockholders, or any Holder.
(2) If the Company shall at any time declare an
extraordinary dividend with respect to the Common Stock, whether payable in cash
or other property, the Board may, in the exercise of its sole discretion and
with respect to each outstanding Option, proportionately adjust the number of
shares of Common Stock subject to such Option, the exercise price per share or
both so as to preserve the rights of the Holder substantially proportionate to
the rights of the Holder prior to such event, and to the extent that such action
shall include an increase or decrease in the number of shares of Common Stock
subject to outstanding Options, the number of shares available under Section 4
of this Plan and the number of shares of Common Stock underlying Options to be
granted pursuant to Section 6 hereof shall automatically be increased or
decreased, as the case may be, proportionately, without further action on the
part of the Board, the Company, the Company's stockholders, or any Holder.
(3) If the Company is liquidated or dissolved, the Board may
allow the Holders of any outstanding Options to exercise all or any part of the
unvested portion of the Options held by them, provided they do so prior to the
effective date of such liquidation or dissolution. If the Holders do not
exercise their Options prior to such effective date, each outstanding Option
shall terminate as of the effective date of the liquidation or dissolution.
(4) The foregoing adjustments in the shares subject to
Options shall be made by the Board, or by any successor administrator of this
Plan, or by the applicable terms of any assumption or substitution document.
(5) The grant of an Option shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge,
consolidate or dissolve, to liquidate or to sell or transfer all or any part of
its business or assets.
(o) Change in Control.
(1) Any and all Options that are outstanding under the Plan
at the time of occurrence of any of the events described in Subparagraphs (A),
(B), (C) and (D) below (an "Eligible Option") shall become immediately vested
and fully exercisable for the periods indicated (each such exercise period
referred to as an "Acceleration Window"):
(A) For a period of forty-five (45) days beginning
on the day on which any Person together with all Affiliates
and Associates (as such terms are defined below) of such
Person shall become the Beneficial Owner (as defined below)
of fifty percent (50%) or more of the shares of Common Stock
then outstanding, but shall not include the Company, any
subsidiary of the Company, any employee benefit plan of the
Company or of any subsidiary of the Company, or any Person
or entity organized, appointed or established by the Company
for or pursuant to the terms of any such employee benefit
plan;
(B) Beginning on the date that a tender or exchange
offer for Common Stock by any Person (other than the
Company, any subsidiary of the Company, any employee benefit
plan of the Company or of any subsidiary of the Company, or
any Person or entity organized, appointed
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<PAGE> 10
or established by the Company for or pursuant to the terms
of any such employee benefit plan) is first published or
sent or given within the meaning of Rule 14d-2 under the
Exchange Act and continuing so long as such offer remains
open (including any extensions or renewals of such offer),
unless by the terms of such offer the offeror, upon
consummation thereof, would be the Beneficial Owner of less
than fifty percent (50%) of the shares of Common Stock then
outstanding;
(C) For a period of twenty (20) days beginning on
the day on which the stockholders of the Company (or, if
later, approval by the stockholders of any Person) duly
approve any merger, consolidation, reorganization or other
transaction providing for the conversion or exchange of more
than fifty percent (50%) of the outstanding shares of Common
Stock into securities of any Person, or cash, or property,
or a combination of any of the foregoing, unless the holders
of the voting stock of the Company immediately prior to such
transaction hold not less than fifty percent (50%) of the
voting rights in the surviving entity; or
(D) For a period of twenty (20) days beginning on
the day on which, at any meeting of the stockholders of the
Company involving a contest for the election of directors,
individuals constituting a majority of the Board who were
not the Board's nominees for election immediately prior to
the meeting are elected; provided, however, that with
respect to the events specified in Subparagraphs (A), (B)
and (C) above, such accelerated vesting shall not occur if
the event that would otherwise trigger the accelerated
vesting of Eligible Options has received the prior approval
of a majority of all of the directors of the Company,
excluding for such purposes the votes of directors who are
directors or officers of, or have a material financial
interest in any Person (other than the Company) who is a
party to the event specified in Subparagraph (A), (B) or (C)
above which otherwise would trigger acceleration of vesting
and provided, further, that no Option which is to be
converted into an option to purchase shares of Exchange
Stock as stated at item (3) below shall be accelerated
pursuant to this Section 5(n).
(2) The exercisability of any Eligible Option which remains
unexercised following expiration of an Acceleration Window shall be governed by
the vesting schedule and other terms of the Agreement representing such Option.
(3) If the stockholders of the Company receive shares of
capital stock of another Person ("Exchange Stock") in exchange for or in place
of shares of Common Stock in any transaction involving any merger,
consolidation, reorganization or other transaction providing for the conversion
or exchange of all or substantially all outstanding shares of Common Stock into
Exchange Stock, then at the closing of such transaction all Options granted
hereunder shall be converted into options to purchase shares of Exchange Stock
unless the Company (by the affirmative vote of a majority of all of the
directors of the Company, excluding for such purposes the votes of directors who
are directors or officers of, or have a material financial interest in the
Person issuing the Exchange Stock and any Affiliate of such Person), in its sole
discretion, determines that any or all such Options granted hereunder shall not
be so converted but instead shall terminate. The amount and price of converted
Options shall be determined by adjusting the amount and price of the Options
granted hereunder in the same proportion as used for determining the shares of
Exchange Stock the holders of the Common Stock received in such merger,
consolidation, reorganization or other transaction. Unless altered by the Board,
the vesting schedule set forth in the Agreement shall continue to apply to the
Options granted for Exchange Stock.
For the purposes of this Section 5(n): (i) "Person" shall include any
individual, firm, corporation, partnership or other entity; (ii) "Affiliate" and
"Associate" shall have the meanings assigned to them in
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<PAGE> 11
Rule 12b-2 under the Exchange Act; and (iii) "Beneficial Owner" shall have the
meaning assigned to it in Rule 16a-I under the Exchange Act.
6. NON-INSIDER DIRECTOR GRANTS.
In the event and beginning at such time as the Company is or becomes
subject to the provisions of Section 16 of the Exchange Act, Directors who are
not also employees of the Company ("Non-Insider Directors") shall only be
eligible to receive Options under the Plan in accordance with the terms and
conditions of this Section 6, unless the Board, in its sole discretion, grants
Options to the Non-Insider Director under the other provisions of the Plan in
addition to, or in lieu of, Options granted under this Section 6. Directors who
are employees of the Company shall remain eligible to receive Options under the
other provisions of the Plan.
(a) Number of Shares and Date of Grant.
Concurrent with his or her first election to the Board, and so long as
shares are available for grant pursuant to Section 4, each Non-Insider Director
shall automatically receive a Non-Qualified Stock Option to purchase 50,000
shares of Common Stock, subject to adjustment as set forth in Section 5(m)
hereof. The Date of Grant of each Non-Qualified Stock Option shall be the date
of such Non-Insider Director's first election or appointment to the Board.
(b) Option Price.
The exercise price of Options granted under this Section 6 shall be the
fair market value of the Company's Common Stock on the Date of Grant, determined
as provided in Section 5(j).
(c) Vesting.
In order to ensure that the Company will receive the benefits
contemplated in exchange for the Options, no option granted under this Section 6
shall be exercisable until it has vested. Options granted pursuant to this
Section 6 shall vest and become exercisable as follows: forty percent (40%) on
the Date of Grant and sixty percent (60%) on the first anniversary of the Date
of Grant.
(d) Term of Option.
Options shall terminate, to the extent not previously exercised, upon
the occurrence of the first of the following events:
(i) ten (10) years from the Date of Grant;
(ii) the expiration of ninety (90) days from the date of Optionee's
termination as a Non-Insider Director of the Company for any reason other than
death or Disability (as defined below); or
(iii) the expiration of one (1) year from the date of death of
Optionee or the cessation of Optionee's service as a Non-Insider Director by
reason of Disability (as defined below).
For purposes of this Section 6, unless otherwise defined in the
Agreement, "Disability" shall mean any physical, mental or other health
condition which substantially impairs the Optionee's ability
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<PAGE> 12
to perform his or her duties as a director of the Company for one hundred twenty
(120) days or more in any two hundred forty (240) day period or that can be
expected to result in death.
(e) Other Terms.
Except as otherwise provided in this Section 6, all Options granted to
Non-Employee Directors shall be subject to the provisions of the Plan, including
Section 5.
(f) Amendments.
The provisions of this Section 6 shall not be amended more than once
every six (6) months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act, or the rules thereunder.
7. EFFECTIVE DATE; TERM.
This Plan shall be effective as of September 1, 1996. Incentive Stock
Options may be granted by the Board from time to time thereafter until the tenth
anniversary of such date. Non-Qualified Stock Options may be granted until this
Plan is terminated by the Board in its sole discretion. Termination of this Plan
shall not terminate any Option granted prior to such termination. Any Options
granted by the Board prior to the approval of this Plan by the stockholders of
the Company shall be granted subject to ratification of this Plan by the
stockholders of the Company within twelve (12) months after this Plan is adopted
by the Board. The Board may require any stockholder approval that it considers
necessary for the Company to comply with or to avail the Company and/or the
Optionees of the benefits of any securities, tax, market listing or other
administrative or regulatory requirement. If such stockholder ratification is
sought within twelve (12) months after this Plan is adopted by the Board and
such stockholder ratification is not obtained, each and every Option granted
under this Plan shall be null and void and shall convey no rights to the Holder
thereof.
8. NO OBLIGATIONS TO EXERCISE OPTION.
The grant of an Option shall impose no obligation upon the Optionee to
exercise such Option.
9. NO RIGHT TO OPTIONS OR TO EMPLOYMENT.
Except for the grant of options pursuant to Section 6 hereof, whether or
not any Options are to be granted under this Plan shall be exclusively within
the discretion of the Board, and nothing contained in this Plan shall be
construed as giving any person any right to participate under this Plan. The
grant of an Option shall in no way constitute any form of agreement or
understanding binding on the Company or any Related Corporation, express or
implied, that the Company or any Related Corporation will employ or contract
with an Optionee for any length of time, nor shall it interfere in any way with
the Company's or, where applicable, a Related Corporation's right to terminate
Optionee's employment at any time, which right is hereby reserved.
10. APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Common Stock
issued upon the exercise of Options shall be used for general corporate
purposes, unless otherwise directed by the Board.
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<PAGE> 13
11. INDEMNIFICATION OF BOARD.
In addition to all other rights of indemnification they may have as
members of the Board, directors shall be indemnified by the Company for all
reasonable expenses and liabilities of any type or nature, including attorneys'
fees, incurred in connection with any action, suit or proceeding to which they
or any of them are a party by reason of, or in connection with, this Plan or any
Option granted under this Plan, and against all amounts paid by them in
settlement thereof (provided that such settlement is approved by independent
legal counsel selected by the Company), except to the extent that such expenses
relate to matters for which it is adjudged that such director is liable for
willful misconduct; provided, that within fifteen (15) days after the
institution of any such action, suit or proceeding, the director involved
therein shall, in writing, notify the Company of such action, suit or
proceeding, so that the Company may have the opportunity to make appropriate
arrangements to prosecute or defend the same.
12. FINANCIAL INFORMATION.
The Company shall provide to each Holder during the period such Holder
holds an outstanding Option, and to each holder of Common Stock acquired upon
exercise of Options granted under the Plan for so long as such person is a
holder of such Common Stock, annual financial statements of the Company as
prepared either by the Company or independent certified public accountants of
the Company. Such financial statements shall include, at a minimum, a balance
sheet and an income statement, and shall be delivered as soon as practicable
following the end of the Company's fiscal year.
13. AMENDMENT OF PLAN.
Except as set forth in Section 6 hereof, the Board may, at any time,
modify, amend or terminate this Plan or modify or amend Options granted under
this Plan, including, without limitation, such modifications or amendments as
are necessary to maintain compliance with applicable statutes, rules or
regulations; provided, however, no amendment with respect to an outstanding
Option which has the effect of reducing the benefits afforded to the Holder
thereof shall be made over the objection of such Holder; provided further, that
the events triggering acceleration of vesting of outstanding Options may be
modified, expanded or eliminated without the consent of Holders. The Board may
condition the effectiveness of any such amendment on the receipt of stockholder
approval at such time and in such manner as the Board may consider necessary for
the Company to comply with or to avail the Company, the Optionees or both of the
benefits of any securities, tax, market listing or other administrative or
regulatory requirement which the Board determines to be desirable. Without
limiting the generality of the foregoing, the Board may modify grants to persons
who are eligible to receive Options under this Plan who are foreign nationals or
employed outside the United States to recognize differences in local law, tax
policy or custom.
Date Approved by Board of Directors of Company:
Date Approved by Stockholders of Company:
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<PAGE> 1
EXHIBIT 10.5
VAXGEN, INC.
1998 DIRECTOR STOCK OPTION PLAN
VAXGEN, INC., a Delaware corporation (the "Company"), hereby establishes
and sets forth the terms of the Vaxgen, Inc. 1998 Director Stock Option Plan
(the "Plan"), effective as of May 6, 1998 (the "Effective Date").
1. DEFINITIONS. Capitalized terms used in the Plan have the meanings
given those terms in the attached Appendix A or in the section of the Plan
referenced therein.
2. PURPOSE OF PLAN. The purpose of the Plan is to assist the Company in
attracting and retaining outside directors of the highest caliber to serve on
the Board. The Plan seeks to achieve this purpose by providing for automatic
grants of Options to certain outside directors on each Annual Meeting Date and
at certain other times.
3. ADMINISTRATION OF THE PLAN. The Board shall have full power and
authority, subject only to the provisions of the Plan (a) to administer or
supervise the administration of the Plan; (b) to interpret the provisions of the
Plan and the agreements evidencing Options; (c) to correct any defect, supply
any information and reconcile any inconsistency in such manner and to such
extent as it determines to be necessary or advisable to carry out the purpose of
the Plan; and (d) to take such other actions in connection with the Plan as it
determines to be necessary or advisable. The Board is authorized to adopt, amend
and rescind such rules, regulations and procedures not inconsistent with the
provisions of the Plan as it determines to be necessary or advisable for the
proper administration of the Plan, and each Option shall be subject to all such
rules, regulations and procedures (whether the Option was granted before or
after adoption thereof). Each action and determination made or taken by the
Board, including but not limited to any interpretation of the Plan and the
agreements evidencing Options, shall be final, conclusive and binding for all
purposes and upon all persons. The Board shall have all powers necessary or
appropriate to accomplish its duties under the Plan.
4. SHARES AVAILABLE FOR OPTIONS. The aggregate number of shares of
Common Stock reserved for issuance upon exercise of Options granted under the
Plan will be Seventy-five Thousand (75,000) (subject to any adjustment required
or permitted under Section 9 or Section 10), and Options may be granted under
this Plan only with respect to the shares so reserved. If an Option terminates
for any reason without having been exercised in full, the shares of Common Stock
for which the Option has not been exercised shall again be available for
purposes of the Plan.
5. GRANTS OF OPTIONS
5.1 Effective as of the Effective Date, each Eligible Director
will receive an Option (an "Initial Option") to acquire five thousand seven
hundred fifteen (5,715) shares of Common Stock.
-1-
<PAGE> 2
5.2 On the Annual Meeting Date in 1999 and in each subsequent
year so long as Available Shares remain under this Plan (each such date will be
referred to as an "Annual Grant Date"), each individual who is an Eligible
Director on the Annual Grant Date will receive an Option (an "Annual Option") to
acquire the lesser of -
(a) That number of shares of Common Stock calculated by dividing
(i) Twenty Thousand Dollars ($20,000), by (ii) the Fair Market Value of
the Common Stock on the Annual Grant Date (and rounding the result to
the nearest whole number); and
(b) Five thousand seven hundred fifteen (5,715) shares of Common
Stock.
If there are insufficient Available Shares for the grant of the Annual Options
as provided above, each such Eligible Director shall instead receive an Annual
Option to acquire the largest whole number of shares of Common Stock as can then
be granted without exceeding the Available Shares.
5.3 Each grant of an Option shall occur automatically without
further action of the Board other than, to the extent necessary, its
determination of (a) the Fair Market Value on the Annual Grant Date of Annual
Options, and (b) any provisions that are to be included in the agreement
evidencing the Option pursuant to Section 8.1.
6. PURCHASE PRICE. The price at which each share of Common Stock may be
purchased upon exercise of an Initial Option shall be Three and 50/100 Dollars
($3.50), and the price at which each share of Common Stock may be purchased upon
exercise of an Annual Option shall be the Fair Market Value of the Common Stock
on the Annual Grant Date. The purchase price shall be paid in full at the time
of exercise (a) in cash, (b) by means of a transfer to the Company of shares of
Common Stock that have been outstanding for at least six (6) months and that
have a Fair Market Value equal to the purchase price to be paid, or (c) a
combination of cash and shares of Common Stock.
7. OTHER TERMS OF OPTIONS
7.1 Each Initial Option granted to an Eligible Director will be
immediately exercisable for all of the shares of Common Stock covered thereby.
7.2 An Annual Option granted to an Eligible Director will become
exercisable for all of the shares of Common Stock covered thereby on the first
(1st) anniversary of its Grant Date; PROVIDED, HOWEVER, the Option will not
become exercisable if (a) more than sixty (60) days prior to that anniversary
date, the Eligible Director ceases to be a director of the Company for any
reason other than his or her death; or (b) during the period from its Grant Date
to such anniversary date (or such portion of that period during which the
Eligible Director is serving as a director of the Company), the Eligible
Director does not attend at least seventy-five percent (75%) of the combined
number of meetings of the full Board and any
-2-
<PAGE> 3
committee(s) of the Board of which the Eligible Director is a member, or does
not attend at least fifty percent (50%) of such combined number of meetings in
person.
7.3 If an Annual Option does not become exercisable for shares
for which it is scheduled to become exercisable on the first (1st) anniversary
of its Grant Date, the Option shall automatically terminate. After an Option
becomes exercisable, the Option may be exercised for the shares covered thereby
in whole or in part at any time and from time to time prior to its termination
pursuant to Section 7.5.
7.4 For purposes of Section 7.2, if the Board takes action by
unanimous written consent, such consent shall be deemed to be a meeting of the
Board that all directors have attended in person.
7.5 Unless it terminates earlier under other provisions of this
Plan, an Option granted to an Eligible Director will terminate on the tenth
(10th) anniversary of its Grant Date.
8. OPTION AGREEMENT; NONTRANSFERABILITY OF OPTIONS; CERTIFICATES
8.1 Each Option will be evidenced by a written agreement executed
by the Company and the Eligible Director. Such agreement shall contain the terms
of the Option as specified in this Plan, together with such other provisions not
inconsistent with such terms as the Board deems advisable.
8.2 An Option will not be transferable by an Eligible Director
other than by will or by the laws of descent and distribution, will not be
involuntarily alienable by legal process or otherwise by operation of law, and
will be exercisable during the Eligible Director's lifetime only by the Eligible
Director. If an Eligible Director dies prior to full exercise of an Option, the
Option may be exercised by the person or persons to whom the rights of the
Eligible Director under the Option pass by will or by applicable laws of descent
and distribution. The Company may at any time, by written notice to the Eligible
Director or to the then holder of an Option, release in whole or in part the
restrictions under this Section 8.2.
8.3 Each certificate evidencing Common Stock issued upon exercise
of an Option shall bear such legends as the Company, upon advice of legal
counsel, determines to be necessary or appropriate.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. If the outstanding shares
of Common Stock are increased or decreased, or changed into or exchanged for a
different number or kind of shares or securities of the Company through a
reorganization, merger, recapitalization, reclassification, share exchange or
other material alteration in the capital structure of the Company, an
appropriate and proportionate adjustment shall be made to (a) the number and/or
kind of shares or securities reserved under Section 4 for issuance upon exercise
of Options granted under the Plan, and (b) the number and/or kind of shares or
securities as to which Options will thereafter automatically be granted. A
corresponding adjustment shall be made to the number and/or kind of shares or
securities allocated to each Option outstanding
-3-
<PAGE> 4
at the time of such event and to the purchase price of such shares or
securities; PROVIDED, HOWEVER, that such adjustment shall be made without
changing the total purchase price applicable to the unexercised portion of the
Option. For purposes of this Section 9, neither (i) the issuance of additional
shares of Common Stock or other securities of the Company in exchange for
adequate consideration (including services), nor (ii) the conversion into Common
Stock of any securities of the Company now or hereafter outstanding, shall be
deemed material alterations in the capital structure of the Company. If the
Board determines that the nature of a material alteration in the capital
structure of the Company is such that it is not feasible or advisable to make
adjustments to this Plan or to the Options granted under the Plan, such event
shall be subject to Section 10.
10. OTHER SIGNIFICANT EVENTS. In the event of (a) the acquisition by any
person, partnership, corporation or other entity of more than fifty percent
(50%) of the outstanding shares of Common Stock, (b) a sale of substantially all
of the assets of the Company, (c) the dissolution or liquidation of the Company,
or (d) a material change in the capital structure of the Company that is subject
to this Section 10 in accordance with the last sentence of Section 9, the Board
shall have the power to determine what effect, if any, such event shall have
upon the Plan and upon Options outstanding under the Plan, including but not
limited to the power to cause Options to be surrendered and canceled and
payments to be made to the holders in exchange therefor and to cause adjustments
to be made in the number and/or kind of shares or securities with respect to
which Options may be exercised and/or in the purchase prices and other terms and
conditions thereof. Upon such event, the Plan and all Options outstanding under
the Plan shall terminate, except to the extent the Board, pursuant to its
authority under this Section 10, has made provision for the continuation of the
Plan and outstanding Options or the substitution for outstanding Options of new
options or awards covering the stock or securities of a successor entity, in
which event the Plan and outstanding Options shall be subject to the terms so
provided.
11. AMENDMENT; TERMINATION
11.1 The Board may from time to time amend the Plan in any
respect whatsoever; PROVIDED, HOWEVER, that no amendment may have any material
adverse effect on the rights of any director or former director with respect to
any Option granted prior to the amendment, unless the director consents thereto.
11.2 The Board may terminate the Plan at any time. No Options
shall be granted following termination of the Plan, but the provisions of the
Plan shall continue in effect until all Options terminate or are exercised in
full and all rights of all persons with any interest in the Plan expire.
12. GOVERNING LAW. All determinations made and actions taken pursuant
hereto shall be governed by the laws of the State of Washington and construed
accordingly.
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<PAGE> 5
APPENDIX A
DEFINITIONS
"Annual Grant Date" is defined in Section 5.2.
"Annual Option" is defined in Section 5.2.
"Annual Meeting" means an annual meeting of stockholders of the Company.
"Annual Meeting Date" means the date of an Annual Meeting.
"Available Shares" means the number of shares of Common Stock from time
to time available under Section 4 for the grant of Options under this Plan.
"Board" means the Board of Directors of the Company.
"Common Stock" means the Common Stock, $.01 par value, of the Company.
"Company" is defined in the preamble of the Plan.
"Effective Date" is defined in the preamble of the Plan.
"Eligible Director" means each individual who on a Grant Date meets the
following requirements:
(a) The individual is a member of the Board at the close of
business on the Grant Date; and
(b) At no time during the calendar year in which the Grant Date
falls has the individual been an employee of the Company or any of its
direct or indirect subsidiaries.
"Fair Market Value" for the Common Stock (or any other security) on any
day means, if the Common Stock (or other security) is publicly traded, the last
sales price (or, if no last sales price is reported, the average of the high bid
and low asked prices) for a share of Common Stock (or unit of the other
security) on that day (or, if that day is not a trading day, on the next
preceding trading day), as reported by the principal exchange on which the
Common Stock (or other security) is listed, or, if the Common Stock (or other
security) is publicly traded but not listed on an exchange, as reported by The
Nasdaq Stock Market, or, if such prices or quotations are not reported by The
Nasdaq Stock Market, as reported by any other available source of prices or
quotations selected by the Committee. If the Common Stock (or other security) is
not publicly traded, or if the Fair Market Value is not determinable by any of
the foregoing means, the Fair Market Value on any day shall be determined in
good faith by the Board on the basis of such considerations as the Board deems
appropriate.
"Grant Date" means the Effective Date, in the case of an Initial Option,
and any Annual Grant Date, in the case of an Annual Option.
"Initial Option" is defined in Section 5.1.
"Option" means an Annual Option or an Initial Option.
"Plan" is defined in the preamble hereof.
<PAGE> 1
EXHIBIT 10.6
THE SECURITIES OFFERED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED OR QUALIFIED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE, AND ANY SALE OF SUCH SECURITIES IS SUBJECT TO COMPLIANCE WITH, OR THE
AVAILABILITY OF EXEMPTIONS FROM COMPLIANCE WITH, THE REGISTRATION AND
QUALIFICATION REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THIS INSTRUMENT DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON IN
ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY BE MADE.
TRANSFER OF THIS INSTRUMENT AND THE SECURITIES OFFERED HEREBY IS RESTRICTED AS
PROVIDED IN SECTIONS 7 AND 8 BELOW.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is entered into,
effective as of ______________________, by VAXGEN, INC., a Delaware corporation
(the "Company"), and [NAME OF HOLDER] (the "Holder").
RECITALS
A. The Company has adopted the VaxGen, Inc. 1996 Stock Option Plan (the
"Plan"), a copy of which is attached as Exhibit A. Capitalized terms that are
used but not defined in this Agreement will have the meanings given those terms
in the Plan.
B. The Holder has been designated to receive an option under the Plan.
NOW, THEREFORE, the Company and the Holder agree as follows:
1. GRANT OF THE OPTION. The Company grants to the Holder an option (the
"Option") to acquire from the Company _________________ (_____) shares of Common
Stock (the "Shares") at the price of $_______ per share (the "Purchase Price").
The Option is intended to be a [Non-Qualified] Stock Option.
2. TERM OF THE OPTION. Unless earlier terminated pursuant to the Plan,
the Option will terminate on the earliest to occur of the following: (a)
_________________; (b) the expiration of ninety (90) days following the date of
termination of the Holder's employment with the Company for any reason other
than death, Disability or cause; (c) the expiration of one (1) year following
the date of termination of the Holder's employment with the Company by reason of
death or Disability; and (d) the date of termination of the Holder's employment
with the Company for cause.
Option No. 96-__
<PAGE> 2
3. EXERCISABILITY. The Option will become exercisable in accordance with
the following schedule:
<TABLE>
<CAPTION>
CUMULATIVE NUMBER
OF SHARES FOR WHICH
DATE OPTION IS EXERCISABLE
<S> <C>
--/--/-- ---%
--/--/-- ---%
--/--/-- ---%
--/--/-- ---%
</TABLE>
The number of Shares for which the Option becomes exercisable on any date shall,
if necessary to eliminate a fractional share of Common Stock, be rounded down to
the nearest whole number. After the Holder's employment with the Company
terminates for any reason, the Option will thereafter be exercisable only for
the Shares for which it was exercisable on the date of termination.
4. PROVISIONS OF PLAN. The Option is subject to all of the provisions of
the Plan, including but not limited to Section 5(n) (which permits adjustments
to the Option upon the occurrence of certain corporate events such as stock
dividends and reorganizations) and Section 5(o) (which may apply upon the
occurrence of a change of control or certain other events affecting the
Company).
5. EXERCISE OF THE OPTION. In order to exercise the Option, the Holder
must do the following:
(a) deliver to the Company a written notice, substantially in the
form of the attached Exhibit B, specifying the number of Shares for which the
Option is being exercised;
(b) surrender this Agreement to the Company;
(c) tender payment to the Company of the aggregate Purchase Price
for the Shares for which the Option is being exercised, which amount may be paid
(i) in cash or by certified or cashier's check; or (ii) in any other manner
permitted by the Plan;
(d) pay, or make arrangements satisfactory to the Board for
payment to the Company of, all taxes required to be withheld by the Company in
connection with the exercise of the Option;
(e) if requested by the Board, deliver to the Company, at the
Holder's expense, a legal opinion, satisfactory in form and substance to the
Company, of legal counsel designated by the Holder and satisfactory, to the
Company, to the effect that exercise of the Option by the Holder, and the
acquisition of Shares pursuant thereto, may be effected without registration or
qualification of the
Option No. 96-__
2
<PAGE> 3
Shares under the Securities Act of 1933, as amended (the "1933 Act"), or any
applicable state securities laws; and
(f) execute and deliver to the Company any documents required
from time to time by the Board in order to promote compliance with the 1933 Act,
applicable state securities laws, or any other applicable law, rule or
regulation.
Unless the Option has terminated or been exercised in full, the Company shall
affix to this Agreement an appropriate notation indicating the number of Shares
for which the Option was exercised and return this Agreement to the Holder.
6. LEGENDS. Each certificate representing Shares issued upon exercise of
the Option shall, unless the Board otherwise determines, contain on its face the
notice "SEE TRANSFER RESTRICTIONS ON REVERSE" and on its reverse a legend in
form substantially as follows, together with any other legends that the Board
determines to be necessary or appropriate:
NOTICE: TRANSFER AND OTHER RESTRICTIONS
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED,
ENCUMBERED, OR OTHERWISE DISPOSED OF EXCEPT UPON SATISFACTION OF
CERTAIN CONDITIONS. INFORMATION CONCERNING THESE RESTRICTIONS MAY
BE OBTAINED FROM THE CORPORATION. ANY OFFER OR DISPOSITION OF
THESE SECURITIES WITHOUT SATISFACTION OF SAID CONDITIONS WILL BE
WRONGFUL AND WILL NOT ENTITLE THE TRANSFEREE TO REGISTER
OWNERSHIP OF THE SECURITIES WITH THE CORPORATION.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT
TO RESTRICTIONS ON TRANSFER OR OTHER RESTRICTIONS PURSUANT TO THE
PROVISIONS OF THE CORPORATION'S 1996 STOCK OPTION PLAN AND/OR AN
AGREEMENT BETWEEN THE HOLDER AND THE CORPORATION AND/OR AN
AGREEMENT AMONG THE SHAREHOLDERS OF THE CORPORATION. INFORMATION
CONCERNING THESE RESTRICTIONS MAY BE OBTAINED FROM THE
CORPORATION.
7. REPRESENTATIONS AND WARRANTIES. By executing this Agreement:
(a) The Holder accepts the Option and agrees to comply with and
be bound by all of the provisions of this Agreement and the Plan.
Option No. 96-__
3
<PAGE> 4
(b) The Holder acknowledges that no registration statement under
the 1933 Act, or under any state securities laws, has been filed with respect to
the Option or any Shares that may be acquired upon exercise of the Option, and
the Company is under no obligation to do so.
(c) The Holder represents and warrants that the Option, and any
Shares acquired upon exercise of the Option, will be acquired and held by the
Holder for the Holder's own account, for investment purposes only, and not with
a view towards the distribution or public offering thereof nor with any present
intention of reselling or distributing the same at any particular future time.
(d) The Holder agrees not to sell, transfer or otherwise dispose
of the Option except as specifically permitted by this Agreement, the Plan and
any applicable securities laws.
(e) The Holder agrees not to sell, transfer or otherwise dispose
of any Shares acquired upon exercise of the Option unless (i) there is an
effective registration statement under the 1933 Act covering the proposed
disposition and compliance with governing state securities laws, (ii) the Holder
delivers to the Company, at the Holder's expense, a "no-action" letter or
similar interpretative opinion, satisfactory in form and substance to the
Company, from the staff of each appropriate securities agency, to the effect
that such Shares may be disposed of by the Holder in the manner proposed, or
(iii) the Holder delivers to the Company, at the Holder's expense, a legal
opinion, satisfactory in form and substance to the Company, of legal counsel
designated by the Holder and satisfactory to the Company, to the effect that the
proposed disposition may be effected without registration or qualification of
such Shares under the 1933 Act or any applicable state securities laws.
(f) The Holder agrees that, in the event of an initial public
offering (the "Offering") by the Company of its Common Stock, for a period of
180 days after the effective date of the Registration Statement filed with the
Securities and Exchange Commission relating to the Offering, the Holder will not
directly or indirectly sell or offer to sell or otherwise dispose of any Shares,
or any securities convertible into or exchangeable for, or any rights to
purchase or acquire Common Stock owned by the Holder, whether owned on such
effective date or thereafter acquired, without the prior written consent of each
managing underwriter in the Offering, which consent may be withheld at the sole
discretion of any managing underwriter.
8. PROCEDURES UPON PERMITTED TRANSFER. Prior to any sale, transfer or
other disposition of any Shares acquired upon exercise of the Option, the Holder
agrees to give written notice to the Company of the Holder's intention to effect
such disposition. The notice must describe the circumstances of the proposed
transfer in reasonable detail and must specify the manner in which the
requirements of Section 7(d) above will be satisfied in connection with the
proposed disposition. After (a) legal counsel to the Company has determined that
the requirements of Section 7(d) above will be satisfied, (b) the Holder has
executed such documentation as may be necessary to effect the proposed
disposition, and (c) the Holder has paid, or made arrangements satisfactory to
Option No. 96-__
4
<PAGE> 5
the Board for the payment of any taxes, if any, required to be withheld by the
Company in connection with the proposed disposition, the Company will, as soon
as practicable, transfer such Shares in accordance with the terms of the notice.
Any stock certificate issued upon such transfer will bear a restrictive legend
in the form required by Section 6, unless in the opinion of legal counsel to the
Company such legend is not required.
9. ENTIRE AGREEMENT; AMENDMENTS; BINDING EFFECT. This Agreement,
together with the Plan, constitutes the entire agreement and understanding
between the Company and the Holder regarding the subject matter hereof. Except
as permitted by the Plan, no amendment of the Option or this Agreement, or
waiver of any provision of this Agreement or the Plan, shall be valid unless in
writing and duly executed by the Company and the Holder. The failure of any
party to enforce any of that party's rights against the other party for breach
of any of the terms of this Agreement or the Plan shall not be construed as a
waiver of such rights as to any continued or subsequent breach. This Agreement
shall be binding upon the Holder and his or her heirs, successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
"Company" VAXGEN, INC.
A DELAWARE CORPORATION
By__________________________________
"Holder" ____________________________________
[NAME OF HOLDER]
Option No. 96-__
5
<PAGE> 6
FORM OF EXERCISE OF OPTION
To: VAXGEN, INC.
1420 Fifth Ave., Ste. 2200
Seattle, WA 98101
The undersigned holds Option Number 96-____ (the "Option"), represented
by a Stock Option Agreement dated effective as of _________________ (the
"Agreement"), granted to the undersigned pursuant to the VaxGen, Inc. 1996 Stock
Option Plan (the "Plan"). The undersigned hereby exercises the Option and elects
to purchase ________________ shares (the "Shares") of Common Stock of VaxGen,
Inc. (the "Company") pursuant to the Option. This notice is accompanied by full
payment of the Purchase Price for the Shares in cash or by check or in another
manner permitted by Section 5(c) of the Agreement. The undersigned has also
paid, or made arrangements satisfactory to the Board for payment of, all taxes,
if any, required to be withheld by the Company in connection with the exercise
of the Option.
The undersigned acknowledges that no registration statement under the
1933 Act, or under any state securities laws, has been filed with respect to the
Shares, and the Company is under no obligation to do so. The undersigned
represents and warrants that the undersigned is acquiring and will hold the
Shares for the undersigned's own account, for investment purposes only, and not
with a view towards the distribution or public offering of the Shares nor with
any present intention of reselling or distributing the Shares at any particular
future time. The undersigned consents to the appearance of a restrictive legend,
in the form required by Section 6 of the Agreement, on the certificate for the
Shares.
Date: __________________, ____
____________________________________
Name of Holder
Option No. 96-__
6
<PAGE> 1
EXHIBIT 10.7
NEITHER THE SECURITY EVIDENCED BY THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
EXERCISE OF THIS WARRANT ("SECURITIES") HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES ACT
(COLLECTIVELY, THE "SECURITIES LAWS"). THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, OFFERED FOR SALE OR OTHERWISE TRANSFERRED UNLESS
THE SECURITIES (I) ARE REGISTERED UNDER THE SECURITIES LAWS OR (II) ARE EXEMPT
FROM REGISTRATION UNDER THE SECURITIES LAWS AND THE COMPANY IS PROVIDED AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
No. __ WARRANT TO PURCHASE _______
ISSUED: ____________, 199___ SHARES OF COMMON STOCK
HOLDER: ________________________
VAXGEN, INC.
COMMON STOCK WARRANT
THIS IS TO CERTIFY that, for value received and subject to the terms and
conditions of this Warrant, the person whose name appears as holder (the
"Holder"), is entitled, at any time before the termination of this Warrant as
provided in Section 4 (the "Exercise Period"), to subscribe for and purchase
upon exercise of this Warrant __________________________ (_______) fully paid
and nonassessable shares of Common Stock (the "Warrant Stock") of Vaxgen, Inc.,
a Delaware corporation (the "Company"), at a price of $_____ per share (the
"Exercise Price"). The Exercise Price and the number of shares of Warrant Stock
purchasable under this Warrant are subject to adjustment as provided in Section
5 of this Warrant.
This Warrant is subject to the following additional terms and
conditions:
1. Method of Exercise. This Warrant may be exercised in whole or in
part, but not as to a fractional share of Warrant Stock, by delivering to the
Company during the Exercise Period (i) the attached form of "Election to
Purchase," duly completed and executed by the Holder, (ii) this Warrant, and
(iii) payment of the Exercise Price in cash or cashier's check. In Addition, the
Holder, at its or the Company's option, may pay for all or any portion of the
aggregate exercise price by complying with one or more of the following
alternatives:
(a) by delivering to the Company shares of Common Stock
previously held by such Holder which shares of Common Stock received shall have
a fair market value at the date of exercise (as determined by the Board) equal
to the aggregate exercise price to be paid by the Holder upon such exercise;
(b) by delivering a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds to pay the exercise price;
1
<PAGE> 2
(c) by delivering a full recourse promissory note for all or
part of the aggregate exercise price, payable on such terms and bearing such
interest rate as determined by the Board (but in no event less than the minimum
interest rate specified under the Code at which no additional interest would be
imputed and in no event more than the maximum interest rate allowed under
applicable usury laws), which promissory note may be either secured or unsecured
in such manner as the Board shall approve (including, without limitation, by a
security interest in the shares of the Company);
(d) by delivering a combination of (a), (b) and (c) above.
(e) if, at the date of making the calculation set forth below,
the fair market value of one share of Common Stock is greater than the exercise
price of the warrant, then in lieu of exercising the warrant for cash, the
Holder may elect to convert the warrant and receive Common Stock equal to the
value (as determined below) of the warrant (or the portion thereof being
exercised) by surrender of the warrant together with a notice of the Holder's
election to proceed pursuant to this Paragraph (e). In such an event, the
Company shall issue to the Holder that number of shares of Common Stock derived
utilizing the following formula:
X= Y (A-B)
------
A
Where X= the number of shares of Common Stock to be issued to the
Holder pursuant to election under this Section 1(e)
Y= the number of shares of Common Stock purchasable under the
warrant or, if only a portion of the warrant is being exercised, the portion of
the warrant being converted and canceled (at the date of such calculation)
A= the fair market value of one share of Common Stock (at the
date of such calculation)
B= the exercise price (as adjusted to the date of such
calculation)
For purposes of the above calculation, the "fair market value" of one share of
common Stock shall equal:
(i) In the event the Warrant is exercised in connection with the
Company's initial public offering of Common Stock, the per share offering price
to the public in such public offering.
(ii) In other circumstances in which a public market
exists for the Common Stock at the time of such exercise, the average of the
closing bid and asked prices of the common Stock quoted in the Over-The-Counter
Market Summary or the last quoted sale price of the Common Stock or the closing
price quoted on the Nasdaq National Market or on any exchange on which the
Common Stock is listed, whichever is
2
<PAGE> 3
applicable, as published the The Wall Street Journal for the five (5) trading
days prior to the date of determination of the fair market value.
(iii) In all other circumstances, such value as is
established by the Board acting in good faith.
2. Delivery of Stock Certificates. Within ten (10) days after the
exercise of this Warrant, the Company at its expense (except for the payment of
any applicable issue taxes) shall issue in the name of and deliver to the Holder
a certificate or certificates for the number of fully paid and nonassessable
shares of Warrant Stock to which the Holder shall be entitled upon such
exercise, together with any other securities or property to which the Holder
hereof is entitled upon such exercise. The Holder shall for all purposes be
deemed to have become the holder of record of such shares of Warrant Stock on
the date on which this Warrant is surrendered and payment of the Exercise Price
is made (or immediately upon consummation of a Reorganization, in the case of an
exercise that is contingent upon such an event), irrespective of the date of
delivery of the certificate or certificates representing the Warrant Stock;
provided, that if the date of such surrender and payment is a date when the
stock transfer books of the Company are closed, such person shall be deemed to
have become the holder of record of such shares of Warrant Stock at the close of
business on the next succeeding date on which the stock transfer books are open.
Each certificate representing Warrant Stock to be delivered pursuant to this
Section 2 shall be in such denominations of Warrant Stock as may be requested by
the Holder hereof and shall be registered in the name of such Holder.
3. Covenants as to Warrant Stock. The Company covenants and agrees that
all shares of Warrant Stock issued pursuant to the terms of this Warrant will,
upon their issuance, be validly issued and outstanding, fully paid and
nonassessable and free from all preemptive rights and liens, other than liens
created by or imposed upon the Holder through no action of the Company. The
Company further covenants and agrees that the Company will at all times have
authorized and reserved a sufficient number of the shares to provide for the
exercise of the rights represented by this Warrant.
4. Exercise Period. This Warrant shall be exercisable from the date of
issuance until __________, unless sooner terminated pursuant to Section 4(b)
(the "Expiration Date").
5. Stock Dividend, Reorganization or Liquidation.
(a) If (i) the Company shall at any time be involved in a
transaction described in Section 424(a) of the Internal Revenue Code of 1986 as
amended (the "Code") or any "corporate transaction" described in the regulations
thereunder; (ii) the Company shall declare a dividend payable in, and shall
subdivide or combine, its Common Stock; or (iii) any other event with
substantially the same effect shall occur, the Board of Directors of the Company
shall, with respect to this Warrant, proportionately adjust the number of shares
of some Common Stock subject to this Warrant, the exercise price per share or
both so as to preserve the rights of the Holder
3
<PAGE> 4
substantially proportionate to the rights of the Holder prior to such event, and
to the extent that such action shall include an increase or decrease in the
number of shares of Common Stock subject to this Warrant, the number of shares
available shall automatically be increased or decreased, as the case may be,
proportionately, without further action on the part of the Board, the Company,
the Company's stockholders or the Holder.
(b) If the Company shall at any time declare an extraordinary
dividend with respect to the Common Stock, whether payable in cash or other
property, the Board may, in the exercise of its sole discretion and with respect
to this Warrant, proportionately adjust the number of shares of Common Stock
subject to this Warrant, the exercise price per share or both so as to preserve
the rights of the Holder substantially proportionate to the rights of the Holder
prior to such event, and to the extent that such action shall include an
increase or decrease in the number of shares of Common Stock, the number of
shares subject to this Warrant shall automatically be increased or decreased, as
the case may be, proportionately, without further action on the Board, the
Company, the Company's stockholders, or any Holder.
(c) If the Company is liquidated or dissolved, the Board may
allow the Holder to exercise all or any part of the Warrant, provided the Holder
does so prior to the effective date of liquidation or dissolution. If the Holder
does not exercise his, her or its rights prior to such effective date, then this
Warrant shall terminate as of the effective date of the liquidation or
dissolution.
(d) The foregoing adjustments in the shares subject to this
Warrant shall be made by the Board or by any applicable terms of any assumption
or substitution document.
(e) The grant of this Warrant shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge,
consolidate or dissolve, to liquidate or to sell or transfer all or any part of
its business or assets.
6. Change of Control.
(a) This Warrant shall be fully exercisable for the periods
indicated below (each such exercise referred to as an "Acceleration Window"):
(i) For a period of forty-five (45) days beginning on
the day on which any Person together with all Affiliates and Associates (as such
terms are defined below) of such Person shall become the Beneficial Owner (as
defined below) of fifty percent (50%) or more of the shares of Common Stock then
outstanding, but "Person" shall not include the Company, any subsidiary of the
Company, any employee benefit plan of the Company, or any subsidiary of the
Company or any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such employee benefit plan;
4
<PAGE> 5
(ii) Beginning on the date that a tender or exchange
offer for Common Stock by any Person (other than the Company, any subsidiary of
the Company, any employee benefit plan of the Company, or any subsidiary of the
Company or any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such employee benefit plan) is first
published or sent or given within the meaning of Rule 14d-2 under the Security
Exchange Act of 1934 (the "Exchange Act") and continuing so long as such offer
remains open (including any extension or renewals of such offer), unless by the
terms of such offer the offeror, upon consummation thereof, would be the
Beneficial Owner of less than fifty percent (50%) of the shares of Common Stock
then outstanding;
(iii) For a period of twenty (20) days beginning on the
day on which the stockholders of the Company (or, if later, approval by the
stockholders of any Person) duly approve any merger, consolidation,
reorganization or other transaction providing for the conversion or exchange of
more than fifty percent (50%) of the outstanding shares of Common Stock into
securities of any Person, or cash, or property, or a combination of any of the
foregoing, unless the holders of the voting stock of the Company immediately
prior to such transaction hold not less than fifty percent (50%) of the voting
rights in the surviving entity; or
(iv) For a period of twenty (20) days beginning on the
day on which, at any meeting of the stockholders of the Company involving a
contest for the election of directors, individuals constituting a majority of
the Board who were not the Board's nominees for election immediately prior to
the meeting are elected.
(b) The exercisability of the Warrant if unexercised following
expiration of an Acceleration Window shall be governed by the other terms of
this Agreement.
(c) If the stockholders of the Company receive shares of capital
stock of another Person ("Exchange Stock") in exchange for or in place of shares
of Common Stock in any transaction involving any merger, consolidation,
reorganization or other transaction providing for the conversion or exchange of
all or substantially all outstanding shares of Common Stock into Exchange Stock,
then at the closing of such transaction the Warrant granted hereunder shall be
converted into a Warrant to purchase shares of Exchange Stock unless the Company
(by the affirmative vote of a majority of all of the directors of the Company,
excluding for such purposes the votes of directors who are directors or officers
of, or have a material financial interest in the Person issuing the Exchange
Stock and any Affiliate of such Person), in its sole discretion, determines that
any portion of or all of the exercise rights granted hereunder shall not be so
converted but instead shall terminate. The amount and price of a converted
Warrant shall be determined by adjusting the amount and price of the
Warrants granted hereunder in the same proportion as used for consolidation,
reorganization or other transaction.
For purposes of this Section 6: (i) "Person shall include any
individual, firm, corporation, partnership or other entity; (ii) "Affiliate" and
"Associate" shall have the
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<PAGE> 6
meanings assigned to them in Rule 12b-2 under the Exchange Act; and (iii)
"Beneficial Owner" shall have the meaning assigned to it in Rule 16a-1 of the
Exchange Act.
7. Restrictions on Transfer. The Holder is acquiring this Warrant for
its own account for investment and not with a view to, or for sale in connection
with, any distribution or sale of any part thereof and with no present intention
of selling, granting participation in or otherwise distributing the same. The
Holder acknowledges that this Warrant and the underlying Warrant Stock have not
been registered under the Securities Act or qualified under applicable state
securities laws and confirms to the Company that it understands the restrictions
on resale imposed by the Securities Act. The Holder understands that the Warrant
is neither transferable nor assignable, except by will or by the laws of descent
and distribution, and therefore the Holder may never be able to sell or dispose
of this Warrant, unless an exemption from registration under the Securities Act
is available.
8. Legend. A legend setting forth or referring to the above restrictions
shall be placed on this Warrant, any replacement hereof and any certificate
representing a security issued pursuant to the exercise of this Warrant and a
stop transfer restriction or order may be placed on the books of the Company and
with any transfer agent until such securities may be legally sold or otherwise
transferred.
9. No Rights as Shareholder. This Warrant shall not entitle the Holder
to any voting rights or to any other rights as a shareholder of the Company or
to any other rights whatsoever except the rights stated herein; and no cash
dividend or interest shall be payable or shall accrue in respect of this Warrant
or the Warrant Stock purchasable hereunder unless, until and to the extent that
this Warrant shall be exercised. The Company shall provide each Holder during
the period such Holder holds this Warrant, and to each holder of Common Stock
acquired upon exercise of this Warrant for so long as such Person is a holder of
such Common Stock, annual financial statements of the Company as prepared either
by the Company or the independent certified public accountants of the Company.
Such financial statements shall include, at a minimum, a balance sheet and an
income statement, and shall be delivered as soon as practicable following the
end of the Company's fiscal year.
10. Construction. The validity and interpretation of the terms and
provisions of this Warrant shall be governed by the laws of the State of
Delaware. The descriptive headings of the several sections of this Warrant are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions thereof.
11. Expiration. This Warrant shall be void and all rights represented
hereby shall cease unless exercised on or before the Expiration Date. All
restrictions set forth herein on the shares of capital stock issued upon
exercise of any rights hereunder shall survive such exercise and expiration of
the rights granted hereunder.
12. Exchange of Warrant. This Warrant is exchangeable upon the surrender
hereof by the Holder at the office of the Company for new Warrants of like tenor
but of different denominations representing in the aggregate the rights to
subscribe for and
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<PAGE> 7
purchase the number of shares that may be subscribed for and purchased
hereunder, each of such new Warrants to represent the right to subscribe for and
purchase such number of shares as shall be designated by the Holder at the time
of such surrender.
13. Lost Warrant Certificate. If this Warrant is lost, stolen, mutilated
or destroyed, the Company shall issue a new Warrant of like denomination, tenor
and date as this Warrant, subject (a) in the case of any loss, theft or
destruction, to the Company's right to require the Holder to give the Company a
bond or other satisfactory security sufficient to indemnify the Company against
any claim that may be made against it (including any expense or liability) on
account of the alleged loss, theft or destruction of this Warrant or the
issuance of such new Warrant and (b) in the case of any mutilation, upon
surrender and cancellation of such Warrant.
14. Waivers and Amendments. This Warrant or any provision hereof may be
changed, waived, discharged or terminated only by a statement in writing signed
by the party against which enforcement of the change, waiver, discharge or
termination is sought.
15. Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be mailed by United States mail
first-class postage prepaid, or by registered or certified mail with return
receipt requested, addressed as follows:
If to the Holder:
To the address last furnished in writing to the Company by
the Holder.
If to the Company:
VaxGen, Inc.
1420 Fifth Avenue, Suite 2200
Seattle, WA 98101
Attention: Chief Financial Officer
Each of the foregoing parties shall be entitled to specify a different
address by giving five (5) days' advance written notice as aforesaid to the
other party.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.
VAXGEN, INC.
By
-----------------------------------
Its
-------------------------
7
<PAGE> 8
ELECTION TO PURCHASE
To: VAXGEN, INC.
(1) The undersigned hereby elects to purchase _____________ shares of
Common Stock of VAXGEN, INC. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price in full, together with all
applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
------------------------------------
(Name)
------------------------------------
(Address)
(3) The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares.
(4) The undersigned represents and warrants that the representations,
warranties and covenants set forth in Section 5 of the Agreement are true and
correct as of the date hereof.
By:
- ----------------------------------- ---------------------------------
(Date) (Signature)
---------------------------------
(Print or Type Name)
9
<PAGE> 1
EXHIBIT 10.8
[VaxGen Letterhead]
Mr. Leon A. Greenblatt
c/o Scattered Corporation
330 s. Wells Street
Chicago, IL 60606-7103
March 14, 1997
Re: Right First Option
Dear Mr. Greenblatt;
In connection with the VaxGen Private Placement described in the memorandum
dated November 1, 1996 (the "Private Placement"), VaxGen, Inc., ("VaxGen") will
offer to you a right of first option upon issuance by VaxGen of new shares of
common stock, $0.01 par value per share (the "Common Stock"), as are more fully
described below.
Subject to the terms and conditions contained in this letter and an investment
of $1.4 million in the Private Placement by you, VaxGen hereby offers to you the
right of first option to purchase a pro rata portion of any new shares of Common
Stock ("New Shares") which VaxGen may from time to time propose to issue and
sell in any offering for a period of five years from March 31, 1997. Your pro
rata portion, for purposes of this letter, is the ratio that the number of
shares of Common Stock held by you bears to the Common Stock issued and
outstanding immediately prior to the issuance of New Shares.
In the event that VaxGen proposes to issue New Shares, other than to an
affiliate of VaxGen, it shall give you written notice describing the amount and
terms of New Shares to be issued. The price and terms at which you will be
permitted to purchase your pro rata share of the New Shares shall be the same as
any other purchase of New Shares. You shall have seven (7) days from the date of
receipt of any such notice in which to agree to purchase your pro rata portion
of such New Shares by giving written notice to VaxGen and stating therein the
quantity of New Shares to be so purchased.
In the event that you fail to exercise its right of first option within such
seven (7) day period, VaxGen may sell or enter into an agreement to sell the New
Shares that you did not elect to purchase and you shall have no further rights
with respect to those New Shares.
<PAGE> 2
Please sign and return to us the enclosed duplicate of this letter, whereupon
this letter will become a binding agreement between the Company and you, in
accordance with its terms.
Very truly yours,
VaxGen, Inc.
/s/ ROBERT C. NOWINSKI
-----------------------------
Robert C. Nowinski
The foregoing agreement is hereby
confirmed and accepted as of the
date first above written.
Investor Signature:
/s/ LEON A. GREENBLATT
- ----------------------------------
Leon A. Greenblatt
<PAGE> 1
EXHIBIT 10.9
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT amends and restates, as
of January 1, 1998, that AGREEMENT made and entered into as of December 19,
1995, by and between Robert C. Nowinski, a resident of Washington ("Nowinski"),
VaxGen Inc., (formerly Genenvax Inc.), a Delaware corporation (the "Company"),
and Genentech, Inc., a Delaware corporation ("Genentech").
W I T N E S S E T H:
WHEREAS, the Company and Nowinski desire to set forth in writing the
terms of their amended agreement with respect to Nowinski's employment;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties agree as follows:
1. Employment. The Company hereby employs Nowinski as its Chairman of
the Board of Directors and Nowinski hereby accepts such employment upon the
terms and conditions set forth in this Agreement.
2. Term. Nowinski's employment, which began on November 22, 1995, will
continue for a term ending December 31, 2002. Thereafter, Nowinski's employment
will be automatically renewed for successive one-year terms, unless notice of
termination is given by either party to the other at least thirty days before
the expiration of the then-current term.
3. Business Plan. The Business Plan of the Company will be to develop,
test, and market a vaccine for human immune deficiency virus (HIV).
4. Duties. Nowinski will perform such executive and administrative
duties consistent with his position as Chairman of the Board of Directors of the
Company as are reasonably assigned to him by the Board and will be given such
executive and administrative powers and authority as may be needed to carry out
those duties, and as are consistent with the office of the Chairman of the Board
of Directors as set forth in the Charter and Bylaws of the Company. Nowinski
will be responsible as Chairman of the Board for corporate finance, supervision
of all securities related matters, including corporate finance and reporting
requirements to government agencies, and corporate shareholder and public
relations. Nowinski will also serve on the Scientific Advisory Board of the
Company and shall be the principal representative for VaxGen with its senior
shareholder, Genentech. The Company will provide to Nowinski an office and staff
in Seattle as are required for the performance of his duties. Nowinski agrees to
serve as Director of the Company and the Company agrees to cause Nowinski to be
elected to the Board of Directors and to be elected Chairman of the Board of
Directors.
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<PAGE> 2
5. Compensation. The Company will pay Nowinski an annual base salary of
$250,000, commencing January 1, 1998. Nowinski's annual base salary will be
payable in equal installments not less frequently than monthly.
6. Expenses. The Company will reimburse Nowinski for travel,
entertainment and other expenses reasonably incurred by him in connection with
his employment under this Agreement upon presentation of appropriate vouchers or
receipts.
7. Benefits. During the terms of his employment, Nowinski will be
entitled to the fringe benefits that are generally made available to all
employees of the Company.
8. Early Termination of Employment. Employment under this Agreement will
terminate prior to expiration of the term upon any of the following:
(a) Death. Nowinski's employment hereunder shall terminate upon
his death.
(b) Disability. The Company may terminate Nowinski's employment
hereunder if he has been unable to perform his duties hereunder for a period of
six consecutive months and if he has not resumed on a full-time basis the
performance of such duties within thirty days after written notice from the
Company of its intent to terminate his employment due to disability.
(c) Cause. The Company may terminate Nowinski's employment
hereunder for Cause. For purposes of this Agreement, the term "Cause" means (i)
willful and repeated failure by Nowinski to perform his duties hereunder which
is not remedied within thirty days after written notice from the Company, (ii)
conviction of Nowinski for a felony, or (iii) Nowinski's dishonesty that is
demonstrably and materially injurious to the Company.
(d) Termination by Nowinski. Nowinski may terminate his
employment hereunder for Good Reason. For purposes of this Agreement, the term
"Good Reason" shall mean (i) the Company substantially reducing Nowinski's
duties, position, authority or responsibility hereunder and not reinstating the
same within thirty days after written notice from Nowinski, or (ii) breach by
the Company of its obligations under paragraphs 4 through 8 hereof if not
remedied within thirty days after written notice from Nowinski, (iii) reduction
of Nowinski's compensation, (iv) change of control of the Company (see Section
18), (v) Nowinski's loss of board position.
(e) Termination without Cause. If termination by the Company
occurs without cause or with cause under Section 9(c)(i) (but not under Sections
9(c)(ii) or (iii)) or if termination by Nowinski for Good Reason occurs, the
Company shall be obligated to pay in full all compensation due for the remaining
duration of this contract within 10 days of the notice of termination.
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<PAGE> 3
9. Restrictive Covenants.
(a) Confidential Information. Nowinski acknowledges that, during
the course of his employment with the Company, he will have access to
confidential information and biological materials not generally known outside
the Company (whether conceived or developed by Nowinski or others) and
confidential information and biological materials entrusted to the Company by
third parties, including, without limitation, trade secrets, techniques,
formulae, biological materials, marketing and other business plans, data,
strategies and forecasts (collectively, "Confidential Information"). Any
Confidential Information conceived or developed by Nowinski during employment
will be the exclusive property of the Company. Except as may be necessary in
connection with the Company's business, Nowinski will not (during or after his
employment with the Company) disclose Confidential Information to any third
person, firm or entity or use Confidential Information for his own purposes or
for the benefit of any third person, firm or entity. In his work for the
Company, Nowinski will refrain from unauthorized use or disclosure of
information and biological materials owned by former employers or other third
parties.
(b) Inventions. Nowinski will promptly disclose to the Company
any discoveries, inventions, formulae and techniques, whether or not patentable,
made, conceived or first reduced to practice by him, either alone or together
with others, during his employment with the Company (collectively, the
"Inventions"). Nowinski hereby assigns to the Company all of his right, title
and interest in and to any Inventions. Nowinski will execute such documents and
take such other actions as may be reasonably requested by the Company (at the
Company's expense) to enable the Company to apply for, obtain, maintain and
enforce patents on any of the Inventions or to facilitate the transfer or
assignment of any of the Company's rights with respect to the Inventions and
patents.
NOTICE (REQUIRED BY WASHINGTON STATUTE): This subparagraph 9(b)
does not apply to an invention for which no equipment, supplies, facility or
trade secret information of the Company was used and which was developed
entirely on Nowinski's own time, unless (i) the invention relates (A) directly
to the business of the Company, or (B) to the Company's actual or demonstrably
anticipated research of development, or (ii) the invention results from any work
performed by Nowinski for the Company.
(c) Company Documents. Upon the termination of his employment,
Nowinski will deliver to the Company all documents and other tangible property
containing Confidential Information which are then in his possession or control.
(d) Covenant Not to Compete. Nowinski acknowledges that his
duties hereunder and the services he will provide to the Company are of a
special, unique, unusual and extraordinary character, which gives this Agreement
particular value to the Company, and that it would be difficult to employ any
individual or individuals to replace Nowinski in the performance of such duties
and services. Therefore, during
3
<PAGE> 4
employment and for a period of one year after the termination of his employment
with the Company, Nowinski will not, directly or indirectly, enter into,
organize, control, engage in, be employed by, serve as a consultant to, be an
officer or director of or have any direct or indirect investment in any
business, person, partnership, association, firm or corporation engaged in any
business activity (including, but not limited to, research, development,
manufacturing, selling, leasing, licensing or providing services) which is
competitive with the business and/or scientific activities that the Company is
developing or exploiting during Nowinski's employment with the Company. Nothing
contained in this Agreement shall be construed to prevent Nowinski from owning
at any time, directly or indirectly, as much as 5% of any class of equity
securities issued by any corporation or other entity which are publicly traded
and registered under the Securities and Exchange Act of 1934, as amended.
(e) Miscellaneous. The restrictive covenants set forth in the
preceding Section 9(d) will not be applicable or enforceable if Nowinski's
employment is terminated prior to the expiration of the term of this Agreement
either by the Company without Cause and for disability pursuant to subparagraph
8(b) or by Nowinski for Good Reason.
10. Indemnification. The Company will indemnify Nowinski to the fullest
extent permitted by law and will hold harmless from and against any claim,
liability or expense (including reasonable attorneys' fees) made against or
incurred by Nowinski in connection with his relationship with the Company. This
obligation will include, without limitation, prompt payment in advance of any
and all costs of defending the same, including attorney fees.
11. No Impediment to Agreement. Except as otherwise disclosed herein,
Nowinski hereby represents to the Company that he is not, as of the date hereof,
and will not be, during employment with the Company, employed under contract,
oral or written, by any other person, firm or entity and is not and will not be
bound by the provisions of any restrictive covenant or confidentiality agreement
which would constitute an impediment to, or restriction upon, his ability to
enter into this Agreement and to perform the duties of his employment.
12. Notices. Any notice under this Agreement must be in writing and will
be deemed to have been given when personally delivered or mailed by first-class
or express mail to the recipient at the following address (or such other address
as shall be specified by prior written notice):
To the Company: VaxGen, Inc.
501 Forbes Blvd.
So. San Francisco, CA 94080
Copy to:
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<PAGE> 5
To Dr. Robert C. Nowinski: 23210 Woodway Park Road
Edmonds, WA 98020
13. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law. If any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or the interpretation of this Agreement in any other jurisdiction.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the law of
conflicts.
15. Successors and Assigns. The services and duties to be performed by
Nowinski hereunder are personal and may not be assigned. This Agreement shall be
binding upon and inure to the benefit of the Company, its successors and
assigns, and Nowinski, his heirs and representatives.
16. Success Bonus. In recognition of the success of the Company,
Nowinski shall receive a one-time success bonus. Success shall be considered to
have been achieved if either of the following tests is met (either of which
shall be an Event of Success): (i) the public market valuation of a share of the
Company's stock as computed on a 30 day trailing average is equal to or greater
than 4 times the valuation of the initial private placement ($3.50 per share),
or (ii) there is an acquisition of the Company through tender offer or otherwise
in which all shareholders have the opportunity to participate and realize a
value equal to or greater than 4 times the valuation of the initial private
placement ($3.50 per share). The Company shall notify Nowinski when an Event of
Success has occurred. In either case Nowinski shall be entitled to receive a
success bonus of 250,000 shares of common stock which shall be delivered to
Nowinski at Nowinski's request within 24 months of becoming entitled to receive
such shares. The effective date of this section shall be the date on which the
transfer of control occurs.
17. Change of Control. In the event following the closing of the
original public offering or private financing, the Company undergoes a change of
control by virtue of any person or entity, or affiliated group of persons or
entities, increasing its shareholding in the Company to a level of 50% or more
of the voting stock of the Company, this Agreement shall terminate and (i) all
salary obligations to Nowinski outstanding in this Agreement shall be paid in
full.
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<PAGE> 6
18. Complete Agreement. This Agreement constitutes the entire
agreement between the parties concerning the subject matter hereof and
supersedes all prior agreements between the parties concerning the subject
matter hereof.
19. Waiver. Failure by either party to insist upon strict adherence
to any one or more of the provisions of this Agreement on one or more occasions
shall not be construed as a waiver, nor shall it deprive that party of the
right to require strict compliance thereafter.
20. Survival. The obligations set forth in paragraphs 10(a) and 11
shall survive termination of this Agreement.
21. Amendments. No amendment hereto, or waivers or releases of
obligations or liabilities hereunder, shall be effective unless agreed to in
writing by the parties hereto.
22. Withholding. The Company may deduct and withhold from the
payments to be made to Nowinski hereunder any amounts required to be deducted
and withheld by the Company under the provisions of any statute, law,
regulation or ordinance now or hereafter enacted.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
VaxGen, Inc.
By: /s/ DONALD FRANCIS
- ------------------------
Its: President
--------------------
/s/ ROBERT C. NOWINSKI
- ------------------------
Robert C. Nowinski
6
<PAGE> 1
EXHIBIT 10.10
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT amends and restates, as
of January 1, 1998, that AGREEMENT made and entered into as of December 19,
1995, by and between Donald Francis, a resident of California ("Francis"),
VaxGen, Inc. (formerly Genenvax Inc.), a Delaware corporation (the "Company"),
and Genentech Inc., a Delaware corporation ("Genentech").
WITNESSETH:
WHEREAS, the Company and Francis desire to set forth in writing the
terms of their amended agreement with respect to Francis's employment;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties agree as follows:
1. Employment. The Company hereby employs Francis as its President and
Francis hereby accepts such employment upon the terms and conditions set forth
in this Agreement.
2. Term. Francis's employment, which began on January 4, 1996, will
continue for a term ending December 31, 2002. Thereafter, Francis's employment
will be automatically renewed for successive one-year terms, unless notice of
termination is given by either party to the other at least thirty days before
the expiration of the then current term.
3. Business Plan. The Business Plan of the Company will be to develop,
test, and market a vaccine for human immune deficiency virus (HIV).
4. Duties. Francis will perform such executive and administrative duties
consistent with his position as President of the Company as are reasonably
assigned to him by the Board and will be given such executive and administrative
powers and authority as may be needed to carry out those duties, and as are
consistent with the office of the President as set forth in the Charter and
Bylaws of the Company. Francis will be responsible as President for scientific
strategy, clinical testing, regulatory activities, and day-to-day management of
the Company. Francis will also be Chairman of the Scientific Advisory Board to
the Company. The Company will provide to Francis an office and staff in South
San Francisco as are required for the performance of his duties. Francis agrees
to serve as Director of the Company and the Company agrees to cause Francis to
be elected to the Board of Directors.
5. Compensation. The Company will pay Francis an annual base salary of
$250,000, commencing January 1, 1998. Francis's annual base salary will be
payable in equal installments not less frequently than monthly. Francis will
have the opportunity for an annual bonus of up to 30% of annual salary, such
bonus to be determined by the
<PAGE> 2
Board of Directors. Payment of the bonus will occur within 30 days of the first
Board meeting of each calendar year.
6. Expenses. The Company will reimburse Francis for travel,
entertainment and other expenses reasonably incurred by him in connection with
his employment under this Agreement upon presentation of appropriate vouchers or
receipts.
7. Benefits. During the terms of his employment, Francis will be
entitled to the fringe benefits that are generally made available to all
employees of the Company.
8. Early Termination of Employment. Employment under this Agreement will
terminate prior to expiration of the term upon any of the following:
(a) Death. Francis's employment hereunder shall terminate upon
his death.
(b) Disability. The Company may terminate Francis's employment
hereunder if he has been unable to perform his duties hereunder for a period of
six consecutive months and if he has not resumed on a full-time basis the
performance of such duties within thirty days after written notice from the
Company of its intent to terminate his employment due to disability.
(c) Cause. The Company may terminate Francis's employment
hereunder for Cause. For purposes of this Agreement, the term "Cause" means (i)
willful and repeated failure by Francis to perform his duties hereunder which is
not remedied within thirty days after written notice from the Company, (ii)
conviction of Francis for a felony, or (iii) Francis's dishonesty that is
demonstrably and materially injurious to the Company.
(d) Termination by Francis. Francis may terminate his employment
hereunder for Good Reason. For purposes of this Agreement, the term "Good
Reason" shall mean (i) the Company substantially reducing Francis's duties,
position, authority or responsibility hereunder and not reinstating the same
within thirty days after written notice from Francis, or (ii) breach by the
Company of its obligations under paragraphs 4 through 8 hereof if not remedied
within thirty days after written notice from Francis, (iii) reduction of
Francis's compensation, (iv) change of control of the Company (see Section 18),
(v) Francis's loss of board position.
(e) Termination without Cause. The Company shall be obligated,
if termination by the Company occurs without cause or if termination by Francis
for Good Reason occurs, to pay in full all compensation due for the remaining
duration of this contract within 10 days of the notice of termination.
9. Restrictive Covenants.
(a) Confidential Information. Francis acknowledges that, during
the course of his employment with the Company, he will have access to
confidential
2
<PAGE> 3
information and biological materials not generally known outside the Company
(whether conceived or developed by Francis or others) and confidential
information and biological materials entrusted to the Company by third parties,
including, without limitation, trade secrets, techniques, formulae, biological
materials, marketing and other business plans, data, strategies and forecasts
(collectively, "Confidential Information"). Any Confidential Information
conceived or developed by Francis during employment will be the exclusive
property of the Company. Except as may be necessary in connection with the
Company's business, Francis will not (during or after his employment with the
Company) disclose Confidential Information to any third person, firm or entity
or use Confidential Information for his own purposes or for the benefit or any
third person, firm or entity. In his work for the Company, Francis will refrain
from unauthorized use or disclosure of information and biological materials
owned by former employers or other third parties.
(b) Inventions. Francis will promptly disclose to the Company
any discoveries, inventions, formulae and techniques, whether or not patentable,
made, conceived or first reduced to practice by him, either alone or together
with others, during his employment with the Company (collectively, the
"Inventions"). Francis hereby assigns to the Company all of his right, title and
interest in and to any Inventions. Francis will execute such documents and take
such other actions as may be reasonably requested by the Company (at the
Company's expense) to enable the Company to apply for, obtain, maintain and
enforce patents on any of the Inventions or to facilitate the transfer or
assignment of any of the Company's rights with respect to the Inventions and
patents.
(c) Company Documents. Upon the termination of his employment,
Francis will deliver to the Company all documents and other tangible property
containing Confidential Information which are then in his possession or control.
(d) Covenant Not to Compete. Francis acknowledges that his
duties hereunder and the services he will provide to the Company are of a
special, unique, unusual and extraordinary character, which gives this Agreement
particular value to the Company, and that it would be difficult to employ any
individual or individuals to replace Francis in the performance of such duties
and services. Therefore, during employment and for a period of one year after
the termination of his employment with the Company, Francis will not, directly
or indirectly, enter into, organize, control, engage in, be employed by, serve
as a consultant to, be an officer or director of or have any direct or indirect
investment in any business, person, partnership, association, firm or
corporation engaged in any business activity (including, but not limited to,
research, development, manufacturing, selling, leasing, licensing or providing
services) which is competitive with the business and/or scientific activities
that the Company is developing or exploiting during Francis's employment with
the Company. Nothing contained in this Agreement shall be construed to prevent
Francis from owning at any time, directly or indirectly, as much as 5% of any
class of equity securities issued by any corporation or other entity which are
publicly traded and registered under the Securities and Exchange Act of 1934, as
amended.
3
<PAGE> 4
(e) Miscellaneous. The restrictive covenants set forth in the
preceding Section 9(d) will not be applicable or enforceable if Francis's
employment is terminated prior to the expiration of the term of this Agreement
either by the Company without Cause and for disability pursuant to subparagraph
8(b) or by Francis for Good Reason.
10. Indemnification. The Company will indemnify Francis to the fullest
extent permitted by law and will hold harmless from and against any claim,
liability or expense (including reasonable attorneys' fees) made against or
incurred by Francis in connection with his relationship with the Company. This
obligation will include, without limitation, prompt payment in advance of any
and all costs of defending the same, including attorney fees.
11. No Impediment to Agreement. Except as otherwise disclosed herein,
Francis hereby represents to the Company that he is not, as of the date hereof,
and will not be, during employment with the Company, employed under contract,
oral or written, by any other person, firm or entity and is not and will not be
bound by the provisions of any restrictive covenant or confidentiality agreement
which would constitute an impediment to, or restriction upon, his ability to
enter into this Agreement and to perform the duties of his employment.
12. Notices. Any notice under this Agreement must be in writing and will
be deemed to have been given when personally delivered or mailed by first-class
or express mail to the recipient at the following address (or such other address
as shall be specified by prior written notice):
To the Company: VaxGen, Inc.
501 Forbes Blvd.
So. San Francisco, CA 94080
Copy to:
To Donald Francis: Dr. Donald Francis
VaxGen, Inc.
501 Forbes Blvd.
So. San Francisco, CA 94080
13. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law. If any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or the interpretation of this Agreement in any other jurisdiction.
4
<PAGE> 5
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the law of
conflicts.
15. Successors and Assigns. The services and duties to be performed by
Francis hereunder are personal and may not be assigned. This Agreement shall be
binding upon and inure to the benefit of the Company, its successors and
assigns, and Francis, his heirs and representatives.
16. Success Bonus. In recognition of the success of the Company, Francis
shall receive a one-time success bonus. Success shall be considered to have been
achieved if either of the followings tests is met (either of which shall be an
Event of Success): (i) the public market valuation of a share of the Company's
stock as computed on a 30 day trailing average is equal to or greater than 4
times the valuation of the initial private placement ($3.50 per share), or (ii)
there is an acquisition of the Company through tender offer or otherwise in
which all shareholders have the opportunity to participate and realize a value
equal to or greater than 4 times the valuation of the initial private placement
($3.50 per share). The Company shall notify Francis when an Event of Success has
occurred. In either case Francis shall be entitled to receive a success bonus of
250,000 shares of common stock which shall be delivered to Francis at Francis's
request within 24 months of becoming entitled to receive such shares. The
effective date of this section shall be the date on which the transfer of
control occurs.
17. Change of Control. In the event following the closing of the
original public offering or private financing, the Company undergoes a change of
control by virtue of any person or entity, or affiliated group of persons or
entities, increasing its shareholding in the Company to a level of 50% or more
of the voting stock of the Company, this Agreement shall terminate and (i) all
salary obligations to Francis outstanding in this Agreement shall be paid in
full.
18. Complete Agreement. This Agreement constitutes the entire agreement
between the parties concerning the subject matter hereof and supersedes all
prior agreements between the parties concerning the subject matter hereof.
19. Waiver. Failure by either party to insist upon strict adherence to
any one or more of the provisions of this Agreement on one or more occasions
shall not be construed as a waiver, nor shall it deprive that party of the right
to require strict compliance thereafter.
20. Survival. The obligations set forth in paragraphs 10(a) and 11 shall
survive termination of this Agreement.
21. Amendments. No amendment hereto, or waivers or releases of
obligations or liabilities hereunder, shall be effective unless agreed to in
writing by the parties hereto.
5
<PAGE> 6
22. Withholding. The Company may deduct and withhold from the payments
to be made to Francis hereunder any amounts required to be deducted and withheld
by the Company under the provisions of any statute, law, regulation or ordinance
now or thereafter enacted.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
VaxGen, Inc.
By: /s/ ROBERT C. NOWINSKI
- ----------------------------------
Its: Chairman
------------------------------
/s/ DONALD FRANCIS
- ----------------------------------
Donald Francis
6
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of October 10, 1997 by and
between Phillip Berman, a resident of California ("Berman"), and VaxGen, Inc. a
Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, the Company desires to employ Berman as the Vice President of
Research and Berman desires to be so employed.
WHEREAS, Berman is a current employee of Genentech, Inc.
WHEREAS, the Company and Berman desire to set forth in writing the terms
of their agreement with respect to Berman's employment and the termination of
Berman's employment with Genentech;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties agree as follows:
1. Term. Berman's employment, which began on November 15, 1997, will
continue for an initial term of three years. Thereafter, Berman's employment
will be automatically renewed for successive one-year terms, unless notice of
termination is given by either party to the other at least thirty days before
the expiration of the then current term. It is agreed that Berman may continue
with part-time employment at Genentech, Inc., during the initial six-month
period of this Agreement. Such part-time employment by Genentech shall not
exceed 50% of Berman's time and effort and shall be determined by mutual
agreement between Berman, the Company, and Genentech.
2. Duties. Berman will perform such executive and administrative duties
consistent with his position as Vice President of Research of the Company as are
reasonably assigned to him by the Board and will be given such executive and
administrative powers and authority as may be needed to carry out those duties.
Berman shall report directly to the President of VaxGen. Berman will be
responsible as Vice President of Research for all activities regarding research
in the basic sciences and in clinical research (including laboratory clinical
support) required for the Company's development of its HIV vaccine, as well as
other products. The Company will provide to Berman an office, laboratory space
and staff in South San Francisco as are required for the performance of his
duties. Berman agrees to serve as Director of the Company and the Company agrees
to cause Berman to be elected to the Board of Directors.
3. Compensation. The Company will pay Berman an annual base salary of
$175,000 for the first year of employment. Berman's annual base salary will be
payable in equal installments not less frequently than monthly. Berman shall be
entitled to an annual bonus of up to 20% of salary, such bonus to be determined
solely by the Company's Board of Directors. Berman's salary
1
<PAGE> 2
and bonus will be considered annually for potential increase by the Compensation
Committee of the Board of Directors.
4. Stock Options.
(a) Initial Stock Option Grant. Berman shall receive incentive
and non-qualified options to purchase 400,000 shares of Common Stock of VaxGen
at $3.50 per share (with as many shares allocated to an incentive stock option
as is permissible under applicable laws). The stock options will be administered
according to the VaxGen's Stock Option Plan and shall vest over time as
indicated in the Stock Option Plan; provided, however, that the option
agreements shall provide that the vesting of the options shall accelerate in
full immediately upon occurrence of any of the following events: (i) Change of
Control (as defined below) of VaxGen, (ii) full enrollment of Phase III clinical
trials of VaxGen B/E and B/B vaccines or (iii) termination of Berman's
employment without cause or by Berman for Good Reason (as defined below). Upon
an occurrence of event described in (iii) above, the right to exercise all
nonqualified stock options shall be extended to one year from the date of
termination.
(b) Change of Control. In the event the Company undergoes a
change of control (a "Change of Control") by virtue of (a) its sale or exchange
of stock (resulting in the shareholders of the Company holding less than 50% of
its outstanding equity and underlying options and warrants) in a transaction or
series of transactions occurring in any 12 month period, and/or (b) Genentech
increases its holding in the Company to a level of 50% or more of the Company's
outstanding equity, underlying options and warrants in a transaction or series
of transactions, in addition to the acceleration of vesting as described in
paragraph 4(a) above, Berman shall receive a one time bonus of 151,515 shares of
common stock.
5. Expenses. The Company will reimburse Berman for travel, entertainment
and other expenses reasonably incurred by him in connection with his employment
under this Agreement upon presentation of appropriate vouchers or receipts.
6. Benefits. Berman shall have the right, on the same basis as other
members of senior management of VaxGen, to participate in and to receive
benefits under any of VaxGen's employee benefit plans, in effect from time to
time. In addition, Berman shall be entitled to the benefits afforded to other
members of senior management under VaxGen's vacation, holiday and business
expense reimbursement policies.
7. Early Termination of Employment. Employment under this Agreement will
terminate prior to expiration of the term upon any of the following:
(a) Death. Berman's employment hereunder shall terminate upon his
death.
(b) Disability. The Company may terminate Berman's employment
hereunder if he has been unable to perform his duties hereunder for a period of
six consecutive months and if he has not resumed on a full-time basis the
performance of such duties within thirty days after written notice from the
Company of its intent to terminate his employment due to disability.
2
<PAGE> 3
(c) Cause. The Company may terminate Berman's employment
hereunder for Cause. For purposes of this Agreement, the term "Cause" means (i)
willful and repeated failure by Berman to perform his duties hereunder which is
not remedied within thirty days after written notice from the Company, (ii)
conviction of Berman for a felony, or (iii) Berman's dishonesty that is
demonstrably injurious to the Company.
(d) Termination by Berman. Berman may terminate his employment
hereunder for Good Reason. For purposes of this Agreement, the term "Good
Reason" shall mean (I) the Company substantially reducing Berman's duties,
position, authority or responsibility hereunder and not reinstating the same
within thirty days after written notice from Berman, or (ii) breach by the
Company of its obligations under this Agreement if not remedied within thirty
days after written notice from Berman.
8. Benefits Upon Termination.
(a) Voluntary Termination, Termination for Cause for Due to Death
or Disability. In the event of Berman's voluntary termination from employment
with VaxGen or termination of Berman's employment as a result of his death or
disability or for Cause, Berman shall be entitled to no compensation or benefits
from VaxGen other than those earned under paragraph 3 above through the date of
his termination or in the case of any stock options, vested through the date of
his termination.
(b) Termination Without Cause or For Good Reason: If Berman's
employment is terminated by VaxGen for any reason other than for cause or by
Berman for Good Reason, Berman shall be entitled to the following separation
benefits:
(i) all accrued compensation (including pro-rated target
bonus) and benefits through the date of termination;
(ii) continued payment of Berman's salary at his Base
Salary rate, less applicable withholding, for twelve (12) months following his
termination; and
(iii) acceleration of vesting of his options as provided
in paragraph 4(a) above.
9. Restrictive Covenants.
(a) Confidential Information. Berman acknowledges that, during
the course of his employment with the Company, he will have access to
confidential information and biological materials not generally known outside
the Company (whether conceived or developed by Berman or others) and
confidential information and biological materials entrusted to the Company by
third parties, including, without limitations, trade secrets, techniques,
formulae, biological materials, marketing and other business plans, data,
strategies and forecasts (collectively, "Confidential Information"). Any
Confidential Information conceived or developed by Berman during employment will
be the exclusive property of the Company. Except as may be necessary in
connection with the Company's business, Berman will not (during or after his
employment with the Company) disclose Confidential Information to any third
person, firm or entity or use
3
<PAGE> 4
Confidential Information for his own purposes or for the benefit or any third
person, firm or entity. In his work for the Company, Berman will refrain from
unauthorized use or disclosure of information and biological materials owned by
former employers or other third parties.
(b) Inventions. Berman will promptly disclose to the Company any
discoveries, inventions, formulae and techniques, whether or not patentable,
made, conceived or first reduced to practice by him, either alone or together
with others, during his employment with the Company (collectively, the
"Inventions"). Berman hereby assigns to the Company all of his right, title and
interest in and to any Inventions. Berman will execute such documents and take
such other actions as may be reasonably requested by the Company (at the
Company's expense) to enable the Company to apply for, obtain, maintain and
enforce patents on any of the Inventions or to facilitate the transfer or
assignment of any of the Company's rights with respect to the Inventions and
patents.
(c) Company Documents. Upon the termination of his employment,
Berman will deliver to the Company all documents and other tangible property
containing Confidential Information which are then in his possession or control.
(d) Covenant Not to Compete. Berman acknowledges that his duties
hereunder and the services he will provide to the Company are of a special,
unique, unusual and extraordinary character, which gives this Agreement
particular value to the Company, and that it would be difficult to employ any
individual or individuals to replace Berman in the performance of such duties
and services. Therefore, during employment with the Company, and for a one year
period following termination of employment, Berman will not, directly or
indirectly, enter into, organize, control, engage in, be employed by, serve as a
consultant to, be an officer or director of or have any direct or indirect
investment in any business, person, partnership, association, firm or
corporation engaged in any business activity (including, but not limited to,
research, development, manufacturing, selling, leasing, licensing or providing
services) which is competitive with the business and/or scientific activities
that the Company is developing or exploiting during Berman's employment with the
Company. Nothing contained in this Agreement shall be construed to prevent
Berman from owning at any time, directly or indirectly, as much as 5% of any
class of equity securities issued by any corporation or other entity which are
publicly traded and registered under the Securities and Exchange Act of 1934, as
amended.
10. Indemnification. The Company will indemnify Berman to the fullest
extent permitted by law and will hold him harmless from and against any claim,
liability or expense (including reasonable attorneys' fees) made against or
incurred by Berman in connection with his relationship with the Company. This
obligation will include, Without limitation, prompt payment in advance of any
and all costs of defending the same, including attorney fees.
11. No Impediment to Agreement. Except as otherwise disclosed herein,
Berman hereby represents to the Company that he is not, as of the date hereof,
and will not be, during employment with the Company, employed under contract,
oral or written, by any other person, firm or entity and is not and will not be
bound by the provisions of any restrictive covenant or confidentiality agreement
which would constitute an impediment to, or restriction upon, his ability to
enter into this Agreement and to perform the duties of his employment.
4
<PAGE> 5
12. Notices. Any notice under this Agreement must be in writing and will
be deemed to have been given when personally delivered or mailed by first-class
or express mail to the recipient at the following address (or such other address
as shall be specified by prior written notice):
To the Company: VaxGen, Inc.
Attn.: Donald P. Francis
501 Forbes Boulevard
South San Francisco, CA 94080
Copy to: Dr. Phillip Berman
95 Cheyenne Point
Portola Valley, CA 94028
13. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law. If any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or the interpretation of this Agreement in any other jurisdiction.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the law of
conflicts.
15. Successors and Assigns. The services and duties to be performed by
Berman hereunder are personal and may not be assigned. This Agreement shall be
binding upon and inure to the benefit of the Company, its successors and
assigns, and Berman, his heirs and representatives.
16. Complete Agreement. This Agreement constitutes the entire agreement
between the parties concerning the subject matter hereof and supersedes all
prior agreements between the parties concerning the subject matter hereof.
17. Waiver. Failure by either party to insist upon strict adherence to
any one or more of the provisions of this Agreement on one or more occasions
shall not be construed as a waiver, nor shall it deprive that party of the right
to require strict compliance thereafter.
18. Survival. The obligations set forth in paragraphs 9a and 10 shall
survive termination of this Agreement.
19. Amendments. No amendment hereto, or waivers or releases of
obligations or liabilities hereunder, shall be effective unless agreed to in
writing by the parties hereto.
20. Withholding. The Company may deduct and withhold from the payments
to be made to Berman hereunder any amounts required to be deducted and withheld
by the Company under the provisions of any statute, law, regulation or ordinance
now or hereafter enacted.
5
<PAGE> 6
19. Amendments. No amendment hereto, or waivers or releases of
obligations or liabilities hereunder, shall be effective unless agreed to in
writing by the parties hereto.
20. Withholding. The Company may deduct and withhold from the payments
to be made to Berman hereunder any amounts required to be deducted and withheld
by the Company under the provisions of any statute, law, regulation or ordinance
now or hereafter enacted.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
VaxGen, Inc.
By: /s/ DONALD FRANCIS 10 Oct. 97
- ---------------------------------------
Its: President
----------------------------
/s/ PHILLIP W. BERMAN
- ---------------------------------
Phillip Berman
6
<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into on May
3, 1999, by and between John Curd, M.D., a resident of California ("Curd"), and
VaxGen, Inc., a Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, the Company desires to employ Curd as Senior Vice President of
Medical Affairs, and Curd desires to be so employed;
WHEREAS, Curd is a current employee of Genentech, Inc. ("Genentech");
WHEREAS, the Company and Curd desire to set forth in writing the terms
of their agreement with respect to Curd's employment with the Company and the
termination of Curd's employment with Genentech;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties agree as follows:
1. Employment. The Company hereby employs Curd as its Senior Vice
President of Medical Affairs, and Curd hereby accepts such employment upon the
terms and conditions set forth in this Agreement.
2. Term. Curd's employment will begin on June 1, 1999 and will continue
for an initial term of four years ending May 31, 2003. Thereafter, Curd's
employment will be automatically renewed for successive one-year terms, unless
notice of termination is given by either party to the other at least thirty days
before the expiration of the then current term.
3. Duties. Curd will perform such executive and administrative duties
consistent with his position as Senior Vice President of Medical Affairs of the
Company as are reasonably assigned to him by the Board and will be given such
executive and administrative powers and authority as may be needed to carry out
those duties. Curd shall report directly to the President of the Company. Curd
will be responsible for the clinical, data management, biostatistics,
regulatory, and medical affairs of the Company. The Company will provide to Curd
an office and staff in Brisbane, CA as are required for the performance of his
duties.
4. Transition. It is agreed by Curd and the Company that appropriate
assistance will be provided to Genentech, to minimize the disruption that may
result due to Curd's departure and in the event that Genentech is required to
employ a replacement for Curd. The Company agrees, for a period of up to three
months, to allow Curd to assist Genentech by providing up to 50% of his time. It
is
<PAGE> 2
understood that Genentech would pay for the use of his time and that the Company
would pro-rate Curd's salary accordingly.
5. Compensation. The Company will pay Curd an annual base salary of
$225,000 for the first year of employment. Curd's annual base salary will be
payable semi-monthly. Curd will have the opportunity for an annual bonus of up
to 30% of annual salary and up to 10,000 options under the Company's stock
option plan, such bonuses to be determined solely by the Board of Directors.
Curd's salary and bonuses will be considered annually for potential increase by
the Compensation Committee of the Board of Directors.
Curd currently has an outstanding loan through Genentech, Inc., in the
amount of $96,822.00. The Company will assume said loan in behalf of Curd. Soon
after the effective date of this Agreement, Curd will execute an interest-free
promissory note with the Company, which will state the repayment terms and
schedule. The Company will impute a fair market interest on the loan and include
such interest as compensation on Curd's W-2. Curd agrees to retire the
outstanding loan by the termination of this Agreement.
6. College Tuition Reimbursement. The Company will provide to Curd a
college tuition reimbursement program for two of Curd's college-aged children,
Jonathan and Edward. The remaining years of college are two and three years,
respectively. The program will provide tuition reimbursement of up to $10,000
tuition per child per year starting in the year 1999-2000. Such tuition
reimbursement will be subject to the necessary federal and state withholdings.
7. Stock Options.
(a) Initial Stock Option Grant: Curd shall receive incentive and
non-qualified options to purchase 125,000 shares of Common Stock of VaxGen at
$9.50 per share (with as many shares allocated to an incentive stock option as
is permissible under applicable laws). The stock options will be administered
according to the VaxGen's Stock Option Plan and shall vest over time as
indicated in the Stock Option Plan. The options shall accelerate in full
immediately upon occurrence of any of the following events: (i) Change of
Control (as defined below) of VaxGen, or (ii) termination of Curd's employment
without cause or by Curd for Good Reason (as defined below). Upon an occurrence
of event described in (ii) above, the right to exercise all nonqualified stock
options shall be extended to one year from the date of termination.
(b) Change of Control. In the event the Company undergoes a change of
control (a "Change of Control") by virtue of (a) its sale or exchange of stock
(resulting in a shareholder of the Company holding less than 50% or more of its
outstanding equity and underlying options and warrants) in a transaction or
series of transactions occurring in any 12 month period, and/or (b) Genentech
increases
<PAGE> 3
its holding in the Company to a level of 50% or more of the Company's
outstanding equity, underlying options and warrants in a transaction or series
of transactions, Curd shall receive a one time bonus of 37,500 shares of common
stock.
8. Expenses. The Company will reimburse Curd for travel, entertainment
and other expenses reasonably incurred by him in connection with his employment
under this Agreement upon presentation of appropriate vouchers or receipts.
9. Benefits. Curd shall have the right, on the same basis as other
members of senior management of Company, to participate in and to receive
benefits under any of Company's employee benefit plans, in effect from time to
time. Specifically, Company will use its best efforts to obtain medical
insurance coverage for his condition of acoustic neuroma. In addition, Curd
shall be entitled to the benefits afforded to other members of senior management
under Company's paid time off, holiday and business expense reimbursement
policies.
10. Sabbatical. Curd shall be able, during the term of this Agreement,
to take a 6-week sabbatical, during which he will attend an intensive executive
management program of his choosing. The Company will pay for the cost of this
professional development program. During the sabbatical, Curd's salary and all
other benefit programs that he participates in will continue uninterrupted.
11. Early Termination of Employment. Employment under this Agreement
will terminate prior to expiration of the term upon any of the following:
(a) Death. Curd's employment hereunder shall terminate upon his
death.
(b) Disability. The Company may terminate Curd's employment
hereunder if he has been unable to perform his duties hereunder for a period of
six consecutive months and if he has not resumed on a full-time basis the
performance of such duties within thirty days after written notice from the
Company of its intent to terminate his employment due to disability.
(c) Cause. The Company may terminate Curd's employment hereunder
for Cause. For purposes of this Agreement, the term "Cause" means (i) willful
and repeated failure by Curd to perform his duties hereunder which is not
remedied within thirty days after written notice from the Company, (ii)
conviction of Curd for a felony, or (iii) Curd's dishonesty that is demonstrably
and materially injurious to the Company.
(d) Termination by Curd. Curd may terminate his employment
hereunder for Good Reason. For purposes of this Agreement, the term "Good
Reason" shall mean (i) the Company substantially reducing Curd's duties,
position, authority or responsibility hereunder and not reinstating the same
within thirty days after
<PAGE> 4
written notice from Curd, or (ii) breach by the Company of its obligations this
Agreement if not remedied within thirty days after written notice from Curd.
12. Benefits Upon Termination.
(a) Voluntary Termination, Termination for Cause for Due to
Death or Disability. In the event Curd's voluntary termination from employment
with Company or termination of Curd's employment as a result of his death or
disability or for Cause, Curd shall be entitled to no compensation or benefits
from Company other than those earned under paragraph 7 above through the date of
his termination or in the case of any stock options, vested through the date of
his termination.
(b) Termination Without Cause or for Good Reason. If Curd's
employment is terminated by Company for any reason other than for cause or by
Curd for Good Reason, Curd shall be entitled to the following separation
benefits:
(i) all accrued compensation (including pro-rated target
bonus) and benefits through the date of termination;
(ii) continued payment of Curd's salary at his Base Salary
rate, less applicable withholding, for twelve (12) months following his
termination; and
(iii) acceleration of vesting of his options as provided
in paragraph 7 above.
13. Restrictive Covenants.
(a) Confidential Information. Curd acknowledges that, during the
course of his employment with the Company, he will have access to confidential
information and biological materials not generally known outside the Company
(whether conceived or developed by Curd or others) and confidential information
and biological materials entrusted to the Company by third parties, including,
without limitation, trade secrets, techniques, formulae, biological materials,
marketing and other business plans, data, strategies and forecasts
(collectively, "Confidential Information"). Any Confidential Information
conceived or developed by Curd during employment will be the exclusive property
of the Company. Except as may be necessary in connection with the Company's
business, Curd will not (during or after his employment with the Company)
disclose Confidential Information to any third person, firm or entity or use
Confidential Information for his own purposes or for the benefit or any third
person, firm or entity. In his work for the Company, Curd will refrain from
unauthorized use or disclosure of
<PAGE> 5
information and biological materials owned by former employers or other third
parties.
(b) Inventions. Curd will promptly disclose to the Company any
discoveries, inventions, formulae and techniques, whether or not patentable,
made, conceived or first reduced to practice by him, either alone or together
with others, during his employment with the Company (collectively, the
"Inventions"). Curd hereby assigns to the Company all of his right, title and
interest in and to any Inventions. Curd will execute such documents and take
such other actions as may be reasonably requested by the Company (at the
Company's expense) to enable the Company to apply for, obtain, maintain and
enforce patents on any of the Inventions or to facilitate the transfer or
assignment of any of the Company's rights with respect to the Inventions and
patents.
(c) Company Documents. Upon the termination of his employment,
Curd will deliver to the Company all documents and other tangible property
containing Confidential Information which are then in his possession or control.
(d) Covenant Not to Compete. Curd acknowledges that his duties
hereunder and the services he will provide to the Company are of a special,
unique, unusual and extraordinary character, which gives this Agreement
particular value to the Company, and that it would be difficult to employ any
individual or individuals to replace Curd in the performance of such duties and
services. Therefore, during employment and for a period of one year after the
termination of his employment with the Company, Curd will not, directly or
indirectly, enter into, organize, control, engage in, be employed by, serve as a
consultant to, be an officer or director of or have any direct or indirect
investment in any business, person, partnership, association, firm or
corporation engaged in any business activity (including, but not limited to,
research, development, manufacturing, selling, leasing, licensing or providing
services) which is competitive with the business and/or scientific activities
that the Company is developing or exploiting during Curd's employment with the
Company. Nothing contained in this Agreement shall be construed to prevent Curd
from owning at any time, directly or indirectly, as much as 5% of any class of
equity securities issued by any corporation or other entity which are publicly
traded and registered under the Securities and Exchange Act of 1934, as amended.
14. Indemnification. The Company will indemnify Curd to the fullest
extent permitted by law and will hold harmless from and against any claim,
liability or expense (including reasonable attorneys' fees) made against or
incurred by Curd in connection with his relationship with the Company. This
obligation will include, without limitation, prompt payment in advance of any
and all costs of defending the same, including attorney fees.
<PAGE> 6
15. No Impediment to Agreement. Except as otherwise disclosed herein,
Curd hereby represents to the Company that he is not, as of the date hereof, and
will not be, during employment with the Company, employed under contract, oral
or written, by any other person, firm or entity and is not and will not be bound
by the provisions of any restrictive covenant or confidentiality agreement which
would constitute an impediment to, or restriction upon, his ability to enter
into this Agreement and to perform the duties of his employment.
16. Notices. Any notice under this Agreement must be in writing and will
be deemed to have been given when personally delivered or mailed by first-class
or express mail to the recipient at the following address (or such other address
as shall be specified by prior written notice):
To the Company VaxGen, Inc.
1000 Marina Blvd., Suite 200
Brisbane, CA 94005
Copy to: Ralph Pais, Esq.
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
To John Curd, M.D. Dr. John Curd
VaxGen, Inc.
1000 Marina Blvd., Suite 200
Brisbane, CA 94005
17. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law. If any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or the interpretation of this Agreement in any other jurisdiction.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the law of
conflicts.
19. Successors and Assigns. The services and duties to be performed by
Curd hereunder are personal and may not be assigned. This Agreement shall be
binding upon and inure to the benefit of the Company, its successors and
assigns, and Curd, his heirs and representatives.
<PAGE> 7
20. Complete Agreement. This Agreement constitutes the entire agreement
between the parties concerning the subject matter hereof and supersedes all
prior agreements between the parties concerning the subject matter hereof.
21. Waiver. Failure by either party to insist upon strict adherence to
any one or more of the provisions of this Agreement on one or more occasions
shall not be construed as a waiver, nor shall it deprive that party of the right
to require strict compliance thereafter.
22. Survival. The obligations set forth in paragraph 13 shall survive
termination of this Agreement.
23. Amendments. No amendment hereto, or waivers or releases of
obligations or liabilities hereunder, shall be effective unless agreed to in
writing by the parties hereto.
24. Withholding. The Company may deduct and withhold from the payments
to be made to Curd hereunder any amounts required to be deducted and withheld by
the Company under the provisions of any statute, law, regulation or ordinance
now or hereafter enacted.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
VaxGen, Inc.
By: /s/ ROBERT C. NOWINSKI
- ----------------------------------
Its: Chairman
- ----------------------------------
/s/ JOHN G. CURD, M.D.
- ----------------------------------
John Curd, M.D.
<PAGE> 1
Exhibit 10.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into on
April 1, 1999, by and between Carter A. Lee, a resident of California ("Lee"),
and VaxGen, Inc., a Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, the Company desires to employ Lee as Senior Vice President,
Finance and Administration, and Lee desires to be so employed;
WHEREAS, Lee is a current employee, serving as General Manager of
VaxGen;
WHEREAS, the Company and Lee desire to set forth in writing the terms of
their agreement with respect to Lee's employment with the Company;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties agree as follows:
1. Employment. The Company hereby employs Lee as its Senior Vice
President, Finance and Administration, and Lee hereby accepts such employment
upon the terms and conditions set forth in this Agreement.
2. Term. Lee's employment will begin on April 1, 1999, and will continue
for an initial term of four years ending May 31, 2003. Thereafter, Lee's
employment will be automatically renewed for successive one-year terms, unless
notice of termination is given by either party to the other at least thirty days
before the expiration of the then current term.
3. Duties. Lee will perform such executive and administrative duties
consistent with his position as Senior Vice President, Finance and
Administration of the Company as are reasonably assigned to him by the Board and
will be given such executive and administrative powers and authority as may be
needed to carry out those duties. Lee shall report directly to the President of
the Company. Lee will be responsible for the accounting, budgeting treasury,
external (SEC) reporting, purchasing, corporate/legal administration, human
resources, MIS, contract administration, facilities, communications, and the
general office administration of the Company. The Company will provide to Lee an
office and staff in Brisbane, CA as are required for the performance of his
duties.
<PAGE> 2
4. Compensation. The Company will pay Lee an annual base salary of
$185,000 for the first year of employment. Lee's annual base salary will be
payable semi-monthly. Lee will have the opportunity for an annual bonus of up to
20% of annual salary and up to 10,000 options under the Company's stock option
plan, such bonuses to be determined solely by the Board of Directors. Lee's
salary and bonuses will be considered annually for potential increase by the
Compensation Committee of the Board of Directors.
5. Stock Options.
(a) Initial Stock Option Grant: Lee shall receive incentive and
non-qualified options to purchase 125,000 shares of Common Stock of VaxGen at
$9.50 per share (with as many shares allocated to an incentive stock option as
is permissible under applicable laws). The Board has previously granted Lee
75,000 options on December 1, 1998. The stock options will be administered
according to the VaxGen's Stock Option Plan and shall vest over time as
indicated in the Stock Option Plan. The options shall accelerate in full
immediately upon occurrence of any of the following events: (i) Change of
Control (as defined below) of VaxGen, or (ii) termination of Lee's employment
without cause or by Lee for Good Reason (as defined below). Upon an occurrence
of event described in (ii) above, the right to exercise all nonqualified stock
options shall be extended to one year from the date of termination.
(b) Change of Control. In the event the Company undergoes a
change of control (a "Change of Control") by virtue of (a) its sale or exchange
of stock (resulting in a shareholder of the Company holding less than 50% or
more of its outstanding equity and underlying options and warrants) in a
transaction or series of transactions occurring in any 12 month period, and/or
(b) Genentech increases its holding in the Company to a level of 50% or more of
the Company's outstanding equity, underlying options and warrants in a
transaction or series of transactions, Lee shall receive a one time bonus of
37,500 shares of common stock.
6. Expenses. The Company will reimburse Lee for travel, entertainment
and other expenses reasonably incurred by him in connection with his employment
under this Agreement upon presentation of appropriate vouchers or receipts.
7. Benefits. Lee shall have the right, on the same basis as other
members of senior management of Company, to participate in and to receive
benefits under any of Company's employee benefit plans, in effect from time to
time. In addition, Lee shall be entitled to the benefits afforded to other
members of senior management under Company's paid time off, holiday and business
expense reimbursement policies.
8. Early Termination of Employment. Employment under this Agreement will
terminate prior to expiration of the term upon any of the following:
<PAGE> 3
(a) Death. Lee's employment hereunder shall terminate upon his
death.
(b) Disability. The Company may terminate Lee's employment
hereunder if he has been unable to perform his duties hereunder for a period of
six consecutive months and if he has not resumed on a full-time basis the
performance of such duties within thirty days after written notice from the
Company of its intent to terminate his employment due to disability.
(c) Cause. The Company may terminate Lee's employment hereunder
for Cause. For purposes of this Agreement, the term "Cause" means (i) willful
and repeated failure by Lee to perform his duties hereunder which is not
remedied within thirty days after written notice from the Company, (ii)
conviction of Lee for a felony, or (iii) Lee's dishonesty that is demonstrably
and materially injurious to the Company.
(d) Termination by Lee. Lee may terminate his employment
hereunder for Good Reason. For purposes of this Agreement, the term "Good
Reason" shall mean (i) the Company substantially reducing Lee's duties,
position, authority or responsibility hereunder and not reinstating the same
within thirty days after written notice from Lee, or (ii) breach by the Company
of its obligations this Agreement if not remedied within thirty days after
written notice from Lee.
9. Benefits Upon Termination.
(a) Voluntary Termination, Termination for Cause for Due to Death
or Disability. In the event Lee's voluntary termination from employment with
Company or termination of Lee's employment as a result of his death or
disability or for Cause, Lee shall be entitled to no compensation or benefits
from Company other than those earned under paragraph 5 above through the date of
his termination or in the case of any stock options, vested through the date of
his termination.
(b) Termination Without Cause or for Good Reason. If Lee's
employment is terminated by Company for any reason other than for cause or by
Lee for Good Reason, Lee shall be entitled to the following separation benefits:
(i) all accrued compensation (including pro-rated target
bonus) and benefits through the date of termination;
(ii) continued payment of Lee's salary at his Base Salary
rate, less applicable withholding, for twelve (12) months following his
termination; and
(iii) acceleration of vesting of his options as provided
in paragraph 5 above.
<PAGE> 4
10. Restrictive Covenants.
(a) Confidential Information. Lee acknowledges that, during the
course of his employment with the Company, he will have access to confidential
information and biological materials not generally known outside the Company
(whether conceived or developed by Lee or others) and confidential information
and biological materials entrusted to the Company by third parties, including,
without limitation, trade secrets, techniques, formulae, biological materials,
marketing and other business plans, data, strategies and forecasts
(collectively, "Confidential Information"). Any Confidential Information
conceived or developed by Lee during employment will be the exclusive property
of the Company. Except as may be necessary in connection with the Company's
business, Lee will not (during or after his employment with the Company)
disclose Confidential Information to any third person, firm or entity or use
Confidential Information for his own purposes or for the benefit or any third
person, firm or entity. In his work for the Company, Lee will refrain from
unauthorized use or disclosure of information and biological materials owned by
former employers or other third parties.
(b) Inventions. Lee will promptly disclose to the Company any
discoveries, inventions, formulae and techniques, whether or not patentable,
made, conceived or first reduced to practice by him, either alone or together
with others, during his employment with the Company (collectively, the
"Inventions"). Lee hereby assigns to the Company all of his right, title and
interest in and to any Inventions. Lee will execute such documents and take such
other actions as may be reasonably requested by the Company (at the Company's
expense) to enable the Company to apply for, obtain, maintain and enforce
patents on any of the Inventions or to facilitate the transfer or assignment of
any of the Company's rights with respect to the Inventions and patents.
(c) Company Documents. Upon the termination of his employment,
Lee will deliver to the Company all documents and other tangible property
containing Confidential Information which are then in his possession or control.
(d) Covenant Not to Compete. Lee acknowledges that his duties
hereunder and the services he will provide to the Company are of a special,
unique, unusual and extraordinary character, which gives this Agreement
particular value to the Company, and that it would be difficult to employ any
individual or individuals to replace Lee in the performance of such duties and
services. Therefore, during employment and for a period of one year after the
termination of his employment with the Company, Lee will not, directly or
indirectly, enter into, organize, control, engage in, be employed by, serve as a
consultant to, be an officer or director of or have any direct or indirect
<PAGE> 5
investment in any business, person, partnership, association, firm or
corporation engaged in any business activity (including, but not limited to,
research, development, manufacturing, selling, leasing, licensing or providing
services) which is competitive with the business and/or scientific activities
that the Company is developing or exploiting during Lee's employment with the
Company. Nothing contained in this Agreement shall be construed to prevent Lee
from owning at any time, directly or indirectly, as much as 5% of any class of
equity securities issued by any corporation or other entity which are publicly
traded and registered under the Securities and Exchange Act of 1934, as amended.
11. Indemnification. The Company will indemnify Lee to the fullest
extent permitted by law and will hold harmless from and against any claim,
liability or expense (including reasonable attorneys' fees) made against or
incurred by Lee in connection with his relationship with the Company. This
obligation will include, without limitation, prompt payment in advance of any
and all costs of defending the same, including attorney fees.
12. No Impediment to Agreement. Except as otherwise disclosed herein,
Lee hereby represents to the Company that he is not, as of the date hereof, and
will not be, during employment with the Company, employed under contract, oral
or written, by any other person, firm or entity and is not and will not be bound
by the provisions of any restrictive covenant or confidentiality agreement which
would constitute an impediment to, or restriction upon, his ability to enter
into this Agreement and to perform the duties of his employment.
13. Notices. Any notice under this Agreement must be in writing and will
be deemed to have been given when personally delivered or mailed by first-class
or express mail to the recipient at the following address (or such other address
as shall be specified by prior written notice):
To the Company VaxGen, Inc.
1000 Marina Blvd., Suite 200
Brisbane, CA 94005
Copy to: Ralph Pais, Esq.
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
To Carter Lee Carter A. Lee
VaxGen, Inc.
1000 Marina Blvd., Suite 200
Brisbane, CA 94005
<PAGE> 6
14. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law. If any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or the interpretation of this Agreement in any other jurisdiction.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the law of
conflicts.
16. Successors and Assigns. The services and duties to be performed by
Lee hereunder are personal and may not be assigned. This Agreement shall be
binding upon and inure to the benefit of the Company, its successors and
assigns, and Lee, his heirs and representatives.
17. Complete Agreement. This Agreement constitutes the entire agreement
between the parties concerning the subject matter hereof and supersedes all
prior agreements between the parties concerning the subject matter hereof.
18. Waiver. Failure by either party to insist upon strict adherence to
any one or more of the provisions of this Agreement on one or more occasions
shall not be construed as a waiver, nor shall it deprive that party of the right
to require strict compliance thereafter.
19. Survival. The obligations set forth in paragraph 10 shall survive
termination of this Agreement.
20. Amendments. No amendment hereto, or waivers or releases of
obligations or liabilities hereunder, shall be effective unless agreed to in
writing by the parties hereto.
21. Withholding. The Company may deduct and withhold from the payments
to be made to Lee hereunder any amounts required to be deducted and withheld by
the Company under the provisions of any statute, law, regulation or ordinance
now or hereafter enacted.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
VaxGen, Inc.
By: /s/ ROBERT C. NOWINSKI
- -----------------------------------------
Robert Nowinski, Chairman and CEO
/s/ CARTER A. LEE
- ----------------------------------------
Carter A. Lee
<PAGE> 1
EXHIBIT 10.14
LICENSE AND SUPPLY AGREEMENT BETWEEN
VAXGEN, INC.
AND
GENENTECH, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1.0 CERTAIN DEFINITIONS.............................................1
ARTICLE 2.0 LICENSE GRANT...................................................6
2.1 License Grant...................................................6
2.2 Sublicenses.....................................................7
ARTICLE 3.0 PRODUCT DEVELOPMENT AND COMMERCIALIZATION.......................7
3.1 Technology Transfer and Services to VaxGen......................7
3.2 Due Diligence...................................................8
3.3 Milestones......................................................8
3.4 Sale of Licensed Products by Genentech.........................10
ARTICLE 4.0 MANUFACTURE AND SUPPLY.........................................13
4.1 First Generation Clinical Vaccine..............................13
4.2 Newly Manufactured Clinical Vaccine(s).........................14
ARTICLE 5.0 PAYMENTS AND ACCOUNTING RECORDS................................17
5.1 Royalties......................................................17
5.2 Payments and Reports...........................................18
ARTICLE 6.0 INTELLECTUAL PROPERTY RIGHTS...................................20
6.1 Ownership......................................................20
6.2 Patent Filing, Prosecution and Maintenance.....................20
6.3 Patent Infringement............................................21
6.4 Third Party Patent Rights......................................22
ARTICLE 7.0 CONFIDENTIALITY................................................22
7.1 Confidentiality................................................22
7.2 Publications...................................................22
ARTICLE 8.0 REPRESENTATIONS AND WARRANTIES.................................23
8.1 Disclaimer.....................................................23
8.2 Representations and Warranties.................................23
ARTICLE 9.0 LIABILITY......................................................23
9.1 Limitation of Liability........................................23
9.2 Indemnification by VaxGen......................................23
9.3 Indemnification by Genentech ..................................23
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
9.4 Insurance......................................................24
ARTICLE 10.0 TERM AND TERMINATION...........................................24
10.1 Term...........................................................24
10.2 Termination for Default........................................25
10.3 Termination for Insolvency or Bankruptcy.......................25
10.4 Unilateral Termination.........................................25
10.5 Effect of Termination..........................................26
ARTICLE 11.0 GENERAL PROVISIONS.............................................27
11.1 Notices........................................................27
11.2 Governing Law..................................................28
11.3 Entire Agreement...............................................28
11.4 Binding Effect and Assignment..................................28
11.5 Dispute Resolution.............................................28
11.6 Waiver.........................................................29
11.7 Severability...................................................29
11.8 Publicity......................................................29
11.9 Counterparts...................................................29
11.10 No Other Rights................................................29
11.11 Force Majeure..................................................29
11.12 Headings.......................................................30
11.13 No Partnership.................................................30
EXHIBIT A LICENSED PATENT RIGHTS.............................................31
EXHIBIT B INFORMATION AND MATERIALS..........................................33
</TABLE>
ii
<PAGE> 4
LICENSE AND SUPPLY AGREEMENT
This License and Supply Agreement is entered into as of May 1, 1996
("Effective Date") by VaxGen, Inc. (formerly known as Genenvax, Inc.), a
Delaware corporation ("VaxGen"), and Genentech, Inc., a Delaware corporation
("Genentech") (each also singularly a "Party" and collectively the "Parties") as
follows:
WHEREAS, Genentech is the owner or licensee of certain patent rights and
knowhow relating to a vaccine (including used with adjuvants) against Human
lmmunodeficiency Virus ("HIV") infection and/or Acquired Immune Deficiency
Syndrome ("AIDS"), as well as the owner of certain biologic materials,
pre-clinical data, clinical data, protocols and other knowhow relating to the
therapeutic and/or prophylactic uses of such vaccine (including used with
adjuvants) in humans;
WHEREAS, VaxGen wishes to obtain an exclusive license to such
intellectual property of Genentech so that VaxGen may develop and commercialize
vaccine(s) against HIV; and
WHEREAS, Genentech is willing to grant such a license to VaxGen on the
terms set forth in this License and Supply Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the Parties agree as follows:
ARTICLE 1.0 CERTAIN DEFINITIONS.
The terms defined elsewhere in this Agreement shall have the meanings
specified herein. The following terms shall have the following meanings for
purposes of this Agreement:
1.1 "ADJUVANT" and "ADJUVANTS" shall mean:
(a) the adjuvant comprised of alum (aluminum hydroxide);
(b) the adjuvant comprised of QS-21 saponin extract, which was
licensed to Genentech by Cambridge Biotech Corporation, a Delaware corporation
CCBC") pursuant to that certain License and Supply Agreement between Genentech
and CBC dated as of June 28, 1992 (the "QS-21 License");
(c) the adjuvant comprised of biodegradable polylactide
(lactide-co-glycolide) copolymer microspheres encapsulating the Vaccine; and/or
(d) any fragment, derivative or variant of any of the foregoing.
1.2 "ADMINISTRATIVE COSTS" shall mean, as to each calendar quarter, ten
percent (10%) of the sum of a Party's own Marketing Costs and Sales Costs.
1.3 "AGREEMENT" shall mean this License Agreement, including any
exhibits or other
1
<PAGE> 5
attachments hereto, as the same may be validly amended by the Parties from time
to time.
1.4 "ALLOCABLE OVERHEAD" shall mean costs incurred by a Party or for its
account, and not reimbursed, which are attributable to a Party's supervisory,
services, occupancy costs, corporate bonus (to the extent not charged directly
to a department), and its payroll, information systems, human relations or
purchasing functions and which are allocated to company departments based on
space occupied, headcount, full-time equivalents or another activity-based
method. "Allocable Overhead" shall not include any costs attributable to general
corporate activities including, by way of example only, executive management,
investor relations, business development, and legal and government affairs, and
shall not include any costs or expenses which are reimbursed by the other Party
or any third party.
1.5 "CLINICAL VACCINE" or "CLINICAL VACCINES" shall mean: (a) the MN
isolate of the Vaccine manufactured and supplied by Genentech for use by VaxGen
or its sublicensees in a PLA-Enabling Clinical Trial or other clinical trial in
humans in compliance with Good Manufacturing Practices at the protein
concentration, formulation and fill volume produced by Genentech as part of its
normal manufacturing and fill process for the Vaccine (the "FIRST GENERATION
CLINICAL VACCINE"); and (b) each and every other clinical isolate, strain or
other variant of the Vaccine, if any (a "VACCINE VARIANT" or "VACCINE
VARIANTS"), which shall be covered by Genentech's option to manufacture and
supply under Article 4 below. The First Generation Clinical Vaccine and each
such Vaccine Variant (if any) are each also referred to hereinbelow singularly
as a "type" of Clinical Vaccine, and collectively as the "Clinical Vaccine(s).
1.6 "COMMERCIAL INTRODUCTION" shall mean, on a country-by-country and
Licensed Product-by-Licensed Product basis, the date of first commercial sale
(other than for purposes of obtaining market approval) of a Licensed Product by
a Party or its sublicensees in such country.
1.7 "COMMERCIAL VACCINE" or "COMMERCIAL VACCINES" shall mean: (a) the MN
isolate of the Vaccine manufactured and supplied by Genentech in compliance with
Good Manufacturing Practices at the protein concentration, formulation and fill
volume produced by Genentech as part of its normal manufacturing and fill
process for the Vaccine, as may be modified under such regulatory approvals as
are applicable and necessary for the sale of a Licensed Product by VaxGen during
the term of this Agreement (the "FIRST GENERATION COMMERCIAL VACCINE"); and (b)
each and every other Vaccine Variant (as defined in Section 1.5 above), which
shall be covered by Genentech's option to manufacture and supply under Article 4
below. The First Generation Commercial Vaccine and each such Vaccine Variant (if
any) are each also referred to hereinbelow singularly as a "type" of Commercial
Vaccine and collectively as the "Commercial Vaccine(s).
1.8 "CONSOLIDATED TANGIBLE NET WORTH" shall mean the consolidated
stockholders' equity of VaxGen and its subsidiaries, if any, determined and
consolidated in accordance with generally accepted accounting principles,
consistently applied, except that there shall be deducted all intangible assets
of VaxGen and its consolidated subsidiaries, if any (including but not limited
to goodwill, organization costs, patents, copyrights, trademarks, trade names,
franchises, and licenses) and all capitalized financing costs, unamortized debt
discount and expenses, deferred charges, capitalized
2
<PAGE> 6
research and development costs, capitalized start-up costs for equipment and
facilities and capitalized interest costs.
1.9 "COST OF SALES" shall mean (a) the cost of goods sold, defined as
the Fully Burdened Manufacturing Cost of Licensed Product sold, (b) royalties
owed by a Party to third parties as a result of manufacturing, use or sale of
Licensed Product (except for royalties included in Fully Burdened Manufacturing
Cost or reimbursed by a third party), and (c) outbound freight, customs and
duties includible in this category of costs in accordance with United States
generally accepted accounting principles and not reimbursed by the other Party
or any third party.
1.10 "CREDIT AGREEMENT" shall mean that certain Credit Agreement, dated
as of December 19, 1995, between the Parties and related Promissory Note dated
December 19, 1995.
1.11 "DEVELOPMENT COSTS" shall mean, in every case, costs (including
Allocable Overhead) incurred by a Party, and not reimbursed, as required to
develop and/or obtain the authorization and/or ability to manufacture,
formulate, fill, ship and/or sell a Licensed Product in commercial quantities in
the Territory. "Development Costs" shall include, without limitation, the cost
of studies on the toxicological, pharmacokinetic, metabolic or clinical aspects
of a Licensed Product conducted internally, or by individual investigators,
contract research organizations or consultants necessary for the purpose of
obtaining and/or maintaining approval of a Licensed Product by a government
authority in a country in the Territory, and costs for preparing, submitting,
reviewing or developing data or information for the purpose of submission to a
governmental authority to obtain and/or maintain approval of a Licensed Product
in a country in the Territory, as well as the costs of process development
scale-up and recovery (including plant costs). "Development Costs" shall also
include, without limitation, the cost of research and development of Vaccine
Variants (as defined in Section 1.5 above) as potential Licensed Products,
including, without limitation, research relating to the immunologic and
serologic properties of Vaccine Variants, cloning and expression, and research
and development of processes for expression and manufacture of Clinical
Vaccine(s) and/or Commercial Vaccine(s) including or consisting of Vaccine
Variants. "Development Costs" shall also include, without limitation, the cost
of post-approval studies in support of a Licensed Product in the Field in the
Territory, and the expenses for compensation, benefits and travel and other
employee-related expenses, data management, statistical designs and studies,
document preparation, and other expenses associated with the clinical testing of
a Licensed Product. "Development Costs" in any case shall not include any costs
or expenses which are reimbursed by the other Party or any third party.
1.12 "DISTRIBUTION COSTS" shall mean the costs (including Allocable
Overhead) of a Party specifically identifiable to distribution of a Licensed
Product, including, without limitation, order processing, invoicing and
collection, customer services, collection of data of sales to hospitals and
other end users, credit, handling returns and recalls of product, warehousing,
distribution, and inventory and receivables, but in any case not any costs or
expenses which are reimbursed by the other Party or any third party.
1.13 "FDA" shall mean the United States Food and Drug Administration.
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1.14 "FIELD OF USE" shall mean any human use of a Licensed Product for
the prevention, but not the treatment, of HIV infection and/or AIDS.
1.15 "FULLY BURDENED MANUFACTURING COST" shall mean the cost of
production by Genentech of Clinical Vaccine or Commercial Vaccine or, where
applicable, the cost of production by a Party of a Licensed Product, which in
any case shall be comprised of the sum of (a) the manufacturing cost of goods
produced as determined in accordance with United States generally accepted
accounting principles as applied by Genentech (in the case of Clinical Vaccine
or Commercial Vaccine) or as applied by a Party (in the case of a Licensed
Product), including, without limitation, direct labor, material and product
testing costs incurred in connection with the manufacture or quality control
testing of such product, as well as Allocable Overhead and shipping containers,
(b) the manufacturer's allocable intellectual property licensing and acquisition
costs paid to third parties which are necessary for the manufacture of such
product, and (c) any other costs borne by the manufacturer for the transport,
customs clearance and storage of such product (if necessary) at the request of
VaxGen or its sublicensees (i.e., freight, duty, insurance, and warehousing).
1.16 "GENENTECH REGULATORY FILINGS" shall mean, collectively,
Investigational New Drug Application No. 3613 covering the IIIB isolate of the
Vaccine with the Adjuvant alum, Investigational New Drug Application No. 4299
covering the MN isolate of the Vaccine with the Adjuvant alum, Master File No.
5024 covering the MN isolate of the Vaccine with the Adjuvant QS21 and without
the Adjuvant alum, and Investigational New Drug Application No. 5182 coveting a
skin test using the MN isolate of the Vaccine without the Adjuvant alum.
1.17 "GOOD MANUFACTURING PRACTICES" shall mean the current Good
Manufacturing Practices for Finished Pharmaceuticals pursuant to 21 C.F.R. 210
et seq., as amended from time to time.
1.18 "LICENSED KNOWHOW" shall mean all proprietary information, methods,
processes, techniques, data and biologic materials (including, without
limitation, the Vaccine) which are in the possession of or controlled by
Genentech presently or hereafter during the term of this Agreement, which
Genentech is free to license or sublicense, and which are specific and necessary
for any Licensed Product in the Field of Use or the manufacture, use or sale of
any Licensed Product in the Field of Use, including, without limitation, (a) any
Licensed Product that contains, incorporates or uses one or more Adjuvants, and
(b) the rights licensed to Genentech under the third- party license agreements
specified in EXHIBIT A attached hereto and incorporated herein, to the extent
such rights are necessary for any Licensed Product in the Field of Use or the
manufacture, use or sale of any Licensed Product in the Field of Use; provided,
however, that "Licensed Knowhow" shall not include any rights Genentech acquires
after the Effective Date under any third-party license agreement unless and
until the Parties agree in writing on binding terms and conditions for the
sublicense of such rights from Genentech to VaxGen.
1.19 "LICENSED PATENT RIGHTS" shall mean all patents and patent
applications, and all patents issuing therefrom, together with all extensions,
reissues, reexaminations, substitutions,
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renewals, divisions, continuations, continuations-in-part and foreign
counterparts thereof or therefor, that are in the possession of or controlled by
Genentech presently or hereafter during the term of this Agreement, and which
Genentech is free to license or sublicense, to the extent that any of the
foregoing specifically and directly relates to or claims any Licensed Product in
the Field of Use or the manufacture, use or sale of any Licensed Product in the
Field of Use, including, without limitation, (a) any Licensed Product that
contains, incorporates or uses one or more Adjuvants, (b) the patents and patent
applications listed in EXHIBIT A, and (c) the rights licensed to Genentech under
the third-party license agreements specified in EXHIBIT A, to the extent that
such rights are necessary for any Licensed Product in the Field of Use or the
manufacture, use or sale of any licensed Product in the Field of Use; provided,
however, that "Licensed Patent Rights" shall not include any rights Genentech
acquires after the Effective Date under any third-party license agreement unless
and until the Parties agree in writing on binding terms and conditions for the
sublicense of such rights from Genentech to VaxGen.
1.20 "LICENSED PRODUCT" shall mean any pharmaceutical formulation within
the Field of Use that is based upon, contains, incorporates or uses the Vaccine
(or any homolog, analog, fragment, derivative or variant of the Vaccine),
whether alone or containing, incorporating or using any other substance,
product, material or device (active or not), including, without limitation, one
(1) or more Adjuvants.
1.21 "MARKETING COSTS" shall mean, in every case, the costs (including
Allocable Overhead) incurred by a Party, and not reimbursed, of marketing,
promotion, advertising, professional education, product-related public
relations, relationships with opinion leaders and professional societies, market
research, health care economic studies and other similar activities directly
relating to a Licensed Product. "Marketing Costs" shall include internal costs
(e.g., salaries, benefits, supplies, materials, etc.) as well as outside
services and expenses (e.g., consultants, agency fees, meeting costs, etc.), in
any case specifically identifiable to a Licensed Product, and costs relating to
obtaining reimbursement from payers and sales and marketing data. "Marketing
Costs" shall not include the costs of activities which promote a Party's
business as a whole or that are not product-specific (e.g., corporate image
advertising, etc.), or any costs or expenses which are reimbursed by the other
Party or any third party.
1.22 "NET PROFITS" shall mean, as to each calendar quarter, the total
aggregate Net Sales in that calendar quarter less the following items for such
quarter: Cost of Sales, Marketing Costs, Sales Costs, Distribution Costs, and
Development Costs incurred after the first marketing approval of a Licensed
Product.
1.23 "NET SALES" shall mean, as to each calendar quarter, the aggregate
gross invoiced sales prices charged for all Licensed Products sold by a Party
and its sublicensees hereunder, after deduction of the following items paid by a
Party or its sublicensees during such calendar quarter with respect to such
sales of Licensed Products (regardless of the calendar quarter in which such
sales were made), provided and to the extent that such items are incurred, were
included in the price charged, and do not exceed reasonable and customary
amounts in the market in which such sales occurred:
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(a) trade and quantity discounts or rebates actually taken and allowed; (b)
credits or allowance given or made for rejection or return of, and for
uncollectible amounts on, previously sold Licensed Products or for retroactive
price reductions; (c) any tax, duty or government charge (including any tax such
as a value added or similar tax or government charge, but not including any
income tax) levied on the sale, transportation or delivery of a Licensed Product
and borne by the seller thereof without reimbursement from any third party; and
(d) any charges for freight or insurance directly related to distribution of a
Licensed Product. The sale of a Licensed Product shall be deemed to occur on the
earlier of (i) the date the product is shipped or (ii) the date of the invoice
to the purchaser of the product.
1.24 "PLA-ENABLING CLINICAL TRIAL" shall mean a study in humans of the
efficacy and safety of a Licensed Product which is prospectively designed to
demonstrate statistically whether the Licensed Product is effective for use in a
particular indication in a manner sufficient to obtain regulatory approval to
market that Licensed Product.
1.25 "PRIVATE PLACEMENT" shall mean the initial private financing by
VaxGen after its sales of founder's stock to Genentech and other founding
stockholders.
1.26 "SALES COSTS" shall mean, in every case, the costs (including
Allocable Overhead) of a Party specifically identifiable to the sales of a
Licensed Product in the Territory, including, without limitation, costs
associated with sales representatives, including training, compensation,
benefits and travel, supervision, sales meetings and other sales expenses.
"Sales Costs" shall not include the startup costs associated with a Party's
sales force, including recruiting, relocation and other similar costs, or any
costs or expenses which are reimbursed by the other Party or any third party.
1.27 "STOCK AGREEMENTS" mean, collectively, (a)-that certain Stock
Subscription Agreement, dated as of March 15, 1996, between the Parties, (b)
that certain Warrant Agreement, dated as of March 15, 1996, between the Parties,
and (c) any and all future agreements entered into between the Parties with
respect to the acquisition by Genentech of additional shares of stock or
securities of VaxGen (including, without limitation, in the Private Placement).
1.28 "TERRITORY" shall mean the world.
1.29 "VACCINE" shall mean the recombinant HIV surface glycoprotein gp
120 developed by Genentech.
ARTICLE 2.0 LICENSE GRANT.
2.1 LICENSE GRANT. Subject to the other terms and conditions of this
Agreement (including, with out limitation, Section 3.4, Article 4 and Article 10
below), Genentech hereby grants to VaxGen an exclusive license, even as to
Genentech, under the Licensed Patent Rights and Licensed Knowhow to develop,
make, have made, use and sell Licensed Products in the Field of Use in the
Territory; provided, however, that Genentech retains the right under the
Licensed Patent Rights and
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Licensed Knowhow, and to all improvements to the Licensed Patent Rights or
Licensed Knowhow that are solely or jointly owned by VaxGen (under Section 6.1
below), to perform research, including but not limited to research and
development of Clinical Vaccines for VaxGen, and to use Licensed Products for
such research purposes, and Genentech also retains manufacturing and marketing
rights to the extent set forth in Section 3.4 and Article 4 below.
2.2 SUBLICENSES. Provided Genentech has not timely exercised its rights
under Section 3.4 below, and not earlier than the later of (a) the time period
during which Genentech may exercise its rights under Section 3.4 below or (b)
ninety one (91) days after notice from VaxGen to Genentech the first filing for
market approval of a Licensed Product in the Field of Use with the FDA, VaxGen
may grant-sublicenses of its rights hereunder on thirty (30) days' prior notice
to Genentech, subject in any case to Genentech's prior approval (which shall not
be unreasonably withheld). Any sublicensee hereunder shall be subject to all
obligations of VaxGen hereunder, and VaxGen hereby guarantees to Genentech the
performance by any and all of its sublicensees of the obligations of VaxGen
hereunder.
ARTICLE 3.0 PRODUCT DEVELOPMENT AND COMMERCIALIZATION.
3.1 TECHNOLOGY TRANSFER AND SERVICES TO VAXGEN.
(a) Subject to the other terms and conditions of this Agreement
(including, without limitation, Article 10), VaxGen shall have the right to
require Genentech to transfer the Licensed Knowhow and Genentech Regulatory
Filings to VaxGen as provided in this Section 3.1(a). VaxGen may reasonably
request transfers by Genentech at any time during the Term of this Agreement,
provided that VaxGen has closed a Private Placement raising aggregate gross
proceeds of at least Twenty Million Dollars ($20,000,000) for VaxGen's business
operations:
(i) At VaxGen's expense, Genentech shall provide VaxGen
with the proprietary information, data and biologic materials listed in EXHIBIT
B attached hereto and incorporated herein.
(ii) At VaxGen's expense, Genentech shall provide VaxGen
with a complete copy of each of the Genentech Regulatory Filings, and shall take
such other steps as may be required on the part of Genentech under such
applicable laws and regulations to assign such Genentech Regulatory Filings to
VaxGen or consent to VaxGen's reference thereto, at Genentech's option. At its
own expense, VaxGen promptly shall submit to the FDA all such forms, assurances,
information and other documentation required on the part of VaxGen under such
applicable laws and regulations to effectuate such assignment to or reference by
VaxGen, including, without limitation, amendment of the Genentech Regulatory
Filings to reflect new ownership and submission of Forms FDA 1571 on the new
medical monitor for such Genentech Regulatory Filings;
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(b) In addition, the Parties shall agree upon and enter into a
separate agreement ("SERVICES AGREEMENT") whereby Genentech shall provide VaxGen
with various support services agreed on by the Parties, at VaxGen's expense,
including, without limitation, biostatistical support, regulatory advice and
support relating to clinical and manufacturing matters and submissions to and
approvals by the FDA and other agencies, office space and administrative support
at Genentech for Dr. Don Francis, and research and process science support
(including DNA sequencing of HIV isolates from vaccinated subjects in clinical
trials).
3.2 DUE DILIGENCE. During the term of this Agreement, VaxGen shall use
due diligence in developing, seeking regulatory approval for, marketing of and
commercializing Licensed Products in the Field of Use in the Territory. For
purposes of this Agreement, such "due diligence" shall mean that the development
and commercialization of Licensed Products shall be VaxGen's sole business goal,
with an expenditure of time, effort and funding that is commensurate with such
goal. As an objective measure of such due diligence efforts, VaxGen agrees to
the binding development milestones set forth in Section 3.3 below. Except as
otherwise provided in Sections 3.4 and Article 4 of this Agreement, VaxGen shall
be responsible for all aspects and costs of development and commercialization of
Licensed Products under this Agreement, including, without limitation, the
conduct of pre-clinical and clinical trials, regulatory filings, marketing
applications and approvals, and post-approval studies. The Parties shall consult
and agree upon (a) which Party is responsible for preparation and regulatory
submission of all or part of an establishment site license application, product
license application or equivalent application(s) under laws or regulations of
the FDA or comparable foreign agencies, with respect to the manufacture of
Commercial Vaccine by Genentech for VaxGen and its sublicensees, as well as (b)
which Party shall hold any such establishment, product or other regulatory
license(s) and other matters relating to manufacturing and commercialization
arrangements hereunder.
3.3 MILESTONES.
(a) VaxGen agrees to perform the development milestones (each
singularly a "MILESTONE" and collectively the "MILESTONES") set forth by the
dates hereinbelow, and shall notify Genentech promptly in writing upon
achievement of each Milestone:
<TABLE>
<CAPTION>
MILESTONE DATE
--------- ----
<S> <C>
Treatment of first patient in a PLA- Not later than twelve (12)
Enabling Clinical Trial for use of a months after the closing of
Licensed Product in the Field of Use the Private Placement
Filing for first market approval of Not later than five (5) years after
a Licensed Product in the Field the closing of the Private Placement
of Use with the FDA
</TABLE>
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(b) In connection with VaxGen's development and commercialization
of Licensed Products pursuant to this Agreement, commencing approximately ninety
(90) days after the Effective Date, and thereafter semi-annually on or about
each January 1 and July 1 of the term of this Agreement, VaxGen shall supply
Genentech with a brief but complete report on VaxGen's and its sublicensees'
development and commercialization programs for all Licensed Products in the
Field of Use in the Territory, which shall describe VaxGen's (and its
sublicensee's) progress in such programs in the prior six (6) months and planned
programs for the upcoming six (6) months. Each report shall include, for the
twelve (12)-month period it covers, (a) a summary of VaxGen's previous and
planned development efforts for each indication or use, including each clinical
trial, regulatory filing, application and approval with respect to Licensed
Products that VaxGen (or its sublicensees) have performed, sought or obtained or
will perform, seek or obtain, and (b) a summary of VaxGen's previous and planned
commercialization efforts for each indication and use. VaxGen will cooperate as
reasonably requested by Genentech in its review of each report, and in
connection therewith Genentech, shall have the right to visit VaxGen's or its
sublicensee's facilities, examine their records, discuss matters with key
officers and employees, and comment on Such development plans. At Genentech's
request during the term of this Agreement, the Parties shall meet to discuss
such development and commercialization plans; provided, however, that such
meetings shall not occur more frequently than semi-annually unless VaxGen agrees
otherwise.
(c) If VaxGen is unable to meet any Milestone due to (i) issues
raised by the FDA that are not within VaxGen's control and could not have been
reasonably anticipated by VaxGen, (ii) the occurrence of a serious and
unexpected adverse experience (as defined in 21 C.F.R. Section 312.32), the
principal cause of which is Clinical Vaccine and/or Commercial Vaccine
manufactured and supplied by Genentech under Article 4, and/or (iii) an event
solely within Genentech's control, including, without limitation, material delay
in the performance by Genentech of any of its material obligations hereunder
(e.g., the transfer of technology, regulatory filings, data or materials to
VaxGen hereunder), then VaxGen may notify Genentech in writing of such inability
and request an extension of time to complete the applicable Milestone. Provided
that VaxGen can demonstrate to Genentech's reasonable satisfaction that the
reason(s) for such inability to meet the applicable Milestone are solely as set
forth in clauses (i), (ii) and/or (iii) above, Genentech and VaxGen shall agree
in good faith on a new Milestone date (subject, however, to the two (2)-year
limit under Section 3.3(e) below). VaxGen shall not be entitled to request or
receive an extension of any Milestone that is not met due to any reason(s) other
than those set forth in clauses (i) through (iii) above, except in Genentech's
sole and absolute discretion. In connection with any request by VaxGen for an
extension hereunder, if VaxGen and Genentech cannot agree on the reason(s) for
such inability to meet any Milestone, the need for such an extension or the
appropriate duration of such extension, then such matter(s) (and only such
matter(s)) shall be referred to a committee of three (3) clinical investigators
for resolution. Such committee shall consist of a clinical investigator selected
by each of Genentech and VaxGen who shall not be an employee of either and who
shall have at least five (5) years' experience in conducting clinical
investigations. The two (2) investigators so selected shall promptly select a
third mutually agreeable investigator with like qualifications. The committee
shall render a written opinion to the Parties, within thirty (30) days after
selection of the third investigator, regarding the matter(s) at issue. Each
Party agrees to be bound by such written opinion. Each Party shall separately
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indemnify and hold harmless each member of the committee from any and all
claims, actions, liabilities, damages and expenses asserted against or incurred
by him or her as a result of providing his or her services pursuant to this
Section 3.3.
(d) Any disputes between the Parties hereunder that are not
matter(s) for resolution by the committee to be appointed under Section 3.3(c)
above shall be resolved in accordance with Section 11.5 below; provided,
however, that VaxGen shall have the burden of demonstrating its due diligence
hereunder. Subject to the foregoing, VaxGen's failure to exercise due diligence
hereunder, including, without limitation, its failure to meet a Milestone (or a
Milestone as extended in accordance with Section 3.3(c) above), shall be
considered a material default by VaxGen of this Agreement, giving Genentech the
right, in its sole discretion, to elect to convert VaxGen's exclusive license
hereunder to a non-exclusive license to VaxGen, effective thirty (30) days after
notice from Genentech to VaxGen, unless VaxGen shall have cured its default
(including, where VaxGen has failed to meet a Milestone, meeting such Milestone
within such thirty (30)-day period).
(e) Notwithstanding the foregoing or any other term of this
Agreement (and without the need to resort to Section 11.5 below), if VaxGen has
not met a Milestone (whether or not extended) within two (2) years after the
original date for such Milestone as set forth in Section 3.3 (a) above as of the
Effective Date, then Genentech shall have the right, in its sole discretion, to
terminate this Agreement under Section 10.2 below, effective on thirty (30)
days' prior notice from Genentech to VaxGen, unless VaxGen shall have met such
Milestone within such thirty (30)-day period. The two (2) year limit set forth
herein may be waived only in Genentech's sole and absolute discretion.
3.4 SALE OF LICENSED PRODUCTS BY GENENTECH. Subject to the other terms
and conditions of this Agreement (including, without limitation, Article 10),
VaxGen hereby grants to Genentech an exclusive option, exercisable in
Genentech's sole discretion, to exclusive marketing and sale rights to all
Licensed Products throughout the Territory on the following terms and
conditions:
(a) VaxGen shall notify Genentech promptly of the occurrence of
VaxGen's first filing, if any, with the FDA for market approval of Licensed
Product. Such notice from VaxGen shall include a detailed calculation of the
aggregate total of VaxGen's Development Costs through the date of such notice
for such first Licensed Product, and a copy of the application for marketing
approval filed with the FDA. Genentech's option hereunder must be exercised in a
notice of exercise from Genentech to VaxGen within ninety (90) days after such
notice (if any) from VaxGen to Genentech. Genentech shall have the right to
review the filed application with VaxGen and to audit VaxGen's Development Costs
in accordance with Section 5.3 below, and the ninety (90)-day period for
exercise of the option shall be extended by the number of days to completion of
the audit of Development Costs (if any). If Genentech does elect to exercise its
option hereunder, its notice of exercise to VaxGen shall be accompanied by
payment to VaxGen of an option fee (the "Option Fee") equal to thirty three
percent (33%) of the aggregate total of VaxGen's Development Costs for such
first Licensed Product through such date (subject to Section 5.3 below).
Genentech's license to use and sell Licensed Products hereunder shall become and
remain effective automatically upon such notice
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and payment from Genentech to VaxGen as provided for herein, subject to the
other terms of this Agreement.
(b) If Genentech timely exercises its option hereunder, Genentech
shall have an exclusive license (even as to VaxGen) under the Licensed Patent
Rights and Licensed Knowhow, to all improvements to the Licensed Patent Rights
or Licensed Knowhow that are solely or jointly owned by VaxGen (under Section
6.1 below), and to any other intellectual proprietary or proprietary information
of VaxGen that is within the Field of Use, to use, market and sell all Licensed
Products throughout the Territory during the term of this Agreement, with no
further consideration other than the Option Fee and sharing of Net Profits from
sales of such Licensed Products as provided below in this Section 3.4. Genentech
may sublicense its rights under this Section 3.4, effective upon notice to
VaxGen
(c) If Genentech timely exercises its option hereunder,
thereafter during the term of this Agreement commencing if and when the FDA
approves the filing for market approval of the first Licensed Product, Genentech
shall use due diligence in marketing and selling Licensed Products that receive
approval for marketing in the Territory. For purposes of this Agreement, such
"due diligence" shall mean the maximum commercial effort consistent with
Genentech's prudent business judgment, and consistent with the market potential
of Licensed Products relative to other products in Genentech's commercial
portfolio. In connection with the foregoing, within thirty (30) days after
Genentech's notice of exercise of its option under Section 3.4(a) above, the
Parties will establish a joint development and commercialization committee (the
"COMMERCIALIZATION COMMITTEE"), to be comprised of two (2) representatives
appointed and replaced by each Party. Such representatives will include
individuals with expertise and responsibilities in the areas of product
development and marketing, sales management or market research. The
Commercialization Committee will meet as requested by either Party by notice to
the other Party (but in any event not more frequently than semi-annually), at
such times and locations as are reasonably acceptable to the Parties. The
Commercialization Committee shall monitor and review the development and
commercialization of all Licensed Products and the Development Costs associated
therewith. The Commercialization Committee shall also monitor and review the
marketing and sale of Licensed Products by Genentech (and its sublicensees)
under this Section 3.4 (including, without limitation, annual marketing and
sales budgets, annual forecasts of sales and marketing plan, product positioning
and campaign strategies, pricing, managed care contract strategies and
trademarks). In addition, if VaxGen notifies Genentech that VaxGen believes, in
good faith, that Genentech is falling to exercise due diligence hereunder in a
specified portion or portion(s) of the Territory, the Commercialization
Committee shall review Genentech's due diligence hereunder. The
Commercialization Committee will operate by consensus, and if it is unable to
resolve a dispute regarding any issue presented to it, such dispute shall be
resolved in accordance with Section 11.5 below; provided, however, that VaxGen
shall have the burden of demonstrating Genentech's lack of due diligence
hereunder. Subject to the foregoing, Genentech's failure to exercise due
diligence hereunder shall be considered a material default by Genentech of this
Agreement, giving VaxGen the right, in its sole discretion, to elect to convert
Genentech's exclusive license to a non-exclusive license to Genentech, effective
thirty (30) days after notice from VaxGen to Genentech unless Genentech shall
have cured its default within such thirty
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(30)-day period. The Commercialization Committee (if any) automatically will
cease to operate upon the expiration of the term of this Agreement.
(d) If Genentech timely exercises its option hereunder, Genentech
and VaxGen thereafter shall share in the Net Profits in the Territory as
follows:
(i) to Genentech, seventy percent (70%) of the Net Profits
in the United States;
(ii) to VaxGen, thirty percent (30%) of the Net Profits in
the United States;
(iii) to Genentech, thirty percent (30%) of the Net
Profits outside the United States; and
(iv) to VaxGen, seventy percent (70%) of the Net Profits
outside the United States.
Notwithstanding the foregoing, if Genentech does not participate in the
development, manufacture of funding of any Clinical Vaccine other than the First
Generation Clinical Vaccine prior to the date that the Option Fee is due under
Section 3.4(a) above, the Parties shall share Net Profits throughout the
Territory on an equal basis (with fifty percent (50%) of such Net Profits to
each Party).
(e) In connection with the sharing of Net Profits contemplated
under this Section 3.4, within thirty (30) days after Genentech's notice of
exercise of its option under Section 3.4(a) above, the Parties will establish a
joint finance committee (the "FINANCE COMMITTEE"), to be comprised of two (2)
representatives appointed and replaced by each Party. Such representatives will
include individuals with expertise and
responsibilities in the areas of accounting, cost allocation, budgeting or
financial reporting. The Finance Committee will meet as requested by either
Party by notice to the other Party (but in any event not more frequently than
semi-annually), at such times and locations as are reasonably acceptable to the
Parties. The Finance Committee will operate by consensus, and if it is unable to
resolve a dispute regarding any issue presented to it, such dispute shall be
resolved in accordance with Section 11.5 below. The Finance Committee shall
address the financial, budgeting and accounting issues which arise in connection
with the sharing of Net Profits contemplated under Section 3.4(d) above
(including, without limitation, the Parties' respective cost structures and
generally acceptable accounting practices and other practical aspects of
implementation of the terms of this Agreement). The Finance Committee (if any)
automatically will cease to operate upon the expiration of the term of this
Agreement.
(f) After the expiration of the term of this Agreement, provided
that Genentech has timely exercised its option under this Section 3.4, Genentech
shall have a perpetual, fully paid-up, non-exclusive license under all
improvements to the Licensed Patent Rights or Licensed Knowhow that are solely
or jointly owned by VaxGen (under Section 6.1 below), to make, have made, use
and
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sell Licensed Products in the Territory.
ARTICLE 4.0 MANUFACTURE AND SUPPLY.
4.1 FIRST GENERATION CLINICAL VACCINE. In developing and commercializing
Licensed Products hereunder, VaxGen contemplates conducting one (1) or more
PLA-Enabling Clinical Trials including the First Generation Clinical Vaccine (as
defined in Section 1.5). Subject to the other terms and conditions of this
Agreement, Genentech shall supply VaxGen with First Generation Clinical Vaccine
for such PLA-Enabling Clinical Trials as set forth in this Section 4.1:
(a) VaxGen shall notify Genentech of the amount of First
Generation Clinical Vaccine that is needed by VaxGen for use in one (1) or more
PLA-Enabling Clinical Trials of the First Generation Clinical Vaccine. VaxGen's
notice must be sent at least six (6) months before the starting date of the
earliest such clinical trial to be conducted (and in any event before VaxGen
files its first application for market approval of a Licensed Product in the
Territory), and shall specify each such clinical trial, its starting date and
what estimated amount(s) of First Generation Clinical Vaccine will be needed for
it. VaxGen shall provide Genentech with additional information as reasonably
requested.
(b) Within twenty (20) days after VaxGen's notice under clause
(a), Genentech shall notify VaxGen of what amounts (if any) of previously
manufactured First Generation Clinical Vaccine Genentech has available that will
comply with the stability standards and other suitability criteria for use in
such clinical trial(s). Genentech shall supply such previously manufactured
First Generation Clinical Vaccine to VaxGen for use in such clinical trial(s)
without charge for manufacturing costs incurred before the Effective Date with
respect to such previously manufactured First Generation Clinical Vaccine, but
VaxGen shall reimburse Genentech for all costs and expenses incurred by
Genentech after the Effective Date to supply it hereunder, including, without
limitation, the costs and expenses for vialing and labeling, quality control
testing, record keeping, regulatory filings and responsibilities, and delivery.
VaxGen shall be entitled to have a third party perform quality control testing
of previously manufactured First Generation Clinical Vaccine supplied hereunder
if Genentech is unable to do so on a timely basis or at a price competitive with
such third party's services.
(c) To the extent Genentech cannot supply previously manufactured
First Generation Clinical Vaccine to VaxGen under clause (b) above, but subject
to the other terms and conditions of this Agreement, Genentech shall be
obligated to manufacture and supply VaxGen with the remaining amount of First
Generation Clinical Vaccine needed by VaxGen for use in the PLA-Enabling
Clinical Trial(s) specified by VaxGen in its notice under clause (a) above,
provided that notwithstanding the foregoing Genentech's manufacture and supply
obligation hereunder shall not exceed ten (10) grams of bulk First Generation
Clinical Vaccine, and Genentech shall have no further obligation hereunder after
the date VaxGen files its first application for market approval of a Licensed
Product in the Territory. The cost to VaxGen for such manufacture and supply
hereunder shall equal
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Genentech's Fully Burdened Manufacturing Cost. VaxGen shall be entitled to have
a third party perform fill and finish and/or quality control testing of First
Generation Clinical Vaccine supplied hereunder if Genentech is unable to do so
on a timely basis or at a price competitive with such third party's services,
and in such case Genentech's Fully Burdened Manufacturing Cost to VaxGen shall
be adjusted as appropriate.
4.2 NEWLY MANUFACTURED CLINICAL VACCINE(S). In developing and
commercializing Licensed Products hereunder, VaxGen contemplates conducting one
(1) or more PLA-Enabling Clinical Trials and other human clinical trials
including Vaccine Variants (as defined in Section 1.5) and/or First Generation
Clinical Vaccine. Subject to the other terms and conditions of this Agreement,
Genentech shall supply VaxGen with up to two (2) Vaccine Variants as Clinical
Vaccines for PLA-Enabling Clinical Trails, and beyond its supply obligations
under Section 4.1 and this Section 4.2, Genentech shall have an exclusive option
hereunder to manufacture and supply VaxGen (for itself and its sublicensees)
with additional First Generation Clinical Vaccine and/or Vaccine Variants, all
as set forth in this Section 4.2:
(a) VaxGen shall notify Genentech of all of the Vaccine Variants
selected by VaxGen as Clinical Vaccine(s) for one (1) or more PLA-Enabling
Clinical Trials of a Licensed Product. VaxGen's notice must be sent at least six
(6) months before the starting date of the earliest such clinical trial to be
conducted (and in any event before VaxGen files its first application for market
approval of a Licensed Product in the Territory), and shall specify each such
clinical trial, its starting date and what estimated amount(s) of which Vaccine
Variants will be needed for it. VaxGen shall provide Genentech with additional
information as reasonably requested. Subject to the other terms and conditions
of this Agreement, Genentech shall be obligated to manufacture and supply VaxGen
with up to two (2) Vaccine Variants as Clinical Vaccines for VaxGen for use in
the PLA-Enabling Clinical Trial(s) specify by VaxGen in its notice hereunder,
provided that notwithstanding the foregoing Genentech's manufacture and supply
obligation hereunder shall not exceed 10 grams of bulk Vaccine Variant for each
Vaccine Variant (or 20 grams total for both Vaccine Variants), and Genentech
shall have no further obligation hereunder after the date VaxGen files its first
application for market approval of a Licensed Product in the Territory. The cost
to VaxGen for such manufacture and supply hereunder shall equal Genentech's
Fully Burdened Manufacturing Cost. VaxGen shall be entitled to have a third
party perform fill and finish and/or quality control testing of First Generation
Clinical Vaccine supplied hereunder if Genentech is unable to do so on a timely
basis or at a price competitive with such third party's services, and in such
case Genentech's Fully Burdened Manufacturing Cost to VaxGen shall be adjusted
as appropriate.
(b) To the extent VaxGen (for itself or its sublicensees)
requires any amounts of any Clinical Vaccine (including any First Generation
Clinical Vaccine and any Vaccine Variants) in excess of Genentech's manufacture
and/or supply obligations under Sections 4.1 or 4.2(a) above, for use in any
PLA-Enabling Clinical Trial(s) or any other human clinical trial(s) in the
Territory, Genentech shall have an exclusive option under this Section 4.2(b) to
manufacture and supply VaxGen (for itself and its sublicensees) with any such
Clinical Vaccine. The cost to VaxGen for such manufacture and supply hereunder
shall be Genentech's Fully Burdened Manufacturing Cost applicable to the type(s)
of Clinical Vaccine being delivered. The Parties have further agreed as follows:
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(i) The option shall be exercisable by Genentech on a case
by case basis for the First Generation Clinical Vaccine and/or for each Vaccine
Variant that VaxGen (or any of its sublicensees) desires to test in a human
clinical trial.
(ii) VaxGen shall notify Genentech when VaxGen (or any of
its sublicensees) desires to obtain the first mount of a given type of Clinical
Vaccine (other than under Section 4.1 above) for use in any PLA-Enabling
Clinical Trial or other human clinical trial of a Licensed Product under this
Agreement. VaxGen's notice must be sent at least twelve (12) months before the
starting date of the earliest clinical trial to be conducted, and shall specify
each clinical trial and its starting date, each type of Clinical Vaccine needed,
and what estimated amounts of it will be needed for each clinical trial. VaxGen
shall provide Genentech with additional information as reasonably requested.
(iii) Within forty five (45) days after VaxGen's notice,
for each type of Clinical Vaccine specified in VaxGen's notice, Genentech must
notify VaxGen if Genentech is able and willing to manufacture and supply it.
Genentech may not elect to manufacture and supply First Generation Clinical
Vaccine or any Vaccine Variant hereunder unless Genentech can demonstrate to the
Parties' mutual and reasonable satisfaction that Genentech's manufacture and
supply can be undertaken on a cost effective basis compared to potential third
party suppliers.
(iv) Each time (if any) that Genentech elects to
manufacture and supply a given type of Clinical Vaccine under this Section 4.2,
it shall be entitled to supply one hundred percent (100%) of the requirements of
VaxGen and its sublicensees of such type so elected, subject to the other terms
and conditions of this Agreement and the Supply Agreement (as defined in Section
4.5 below). Notwithstanding the foregoing, VaxGen shall be entitled to have a
third party perform fill and finish and/or quality control testing of Clinical
Vaccine supplied hereunder if Genentech is unable to do so on a timely basis or
at a price competitive with such third party's services, and in such case
Genentech's Fully Burdened Manufacturing Cost charged to VaxGen shall be
adjusted as appropriate.
4.3 NEWLY MANUFACTURED COMMERCIAL VACCINE(S). In addition to any
Clinical Vaccine supplied by Genentech under Sections 4.1 or 4.2 above,
Genentech shall have an exclusive option under this Section 4.3 to manufacture
and supply VaxGen (for itself and its sublicensees) with newly manufactured
First Generation Commercial Vaccine (as defined in Section 1.7) and/or one (1)
or more Vaccine Variants for any Licensed Product for commercial sale in the
Territory. The cost to VaxGen for such manufacture and supply hereunder shall be
Genentech's Fully Burdened Manufacturing Cost applicable to the type(s) of
Commercial Vaccine being delivered. The Parties have agreed further as follows:
(a) The option shall be exercisable on a case by case basis for
the First Generation Commercial Vaccine and/or for each Vaccine Variant for any
Licensed Product for commercial sale.
(b) VaxGen shall notify Genentech when VaxGen (or any of its
sublicensees) desires to obtain the first lot of a given type of Commercial
Vaccine for a Licensed Product for commercial sale. VaxGen's notice must be sent
at least eighteen (18) months before the date of
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Commercial Introduction of the Licensed Product, and shall specify the date of
Commercial Introduction, each type of Commercial Vaccine needed, and what
estimated amounts of it will be needed for the first year after Commercial
Introduction. VaxGen shall provide Genentech with additional information as
reasonably requested.
(c) Within forty five (45) days after VaxGen's notice under
clause (b) above, for each type of Commercial Vaccine specified in VaxGen's
notice, Genentech must notify VaxGen if Genentech is able and willing to
manufacture and supply it. If the type of Commercial Vaccine is a Vaccine
Variant, Genentech may not elect to manufacture and supply hereunder unless
Genentech can demonstrate to the Parties' mutual and reasonable satisfaction
that Genentech's manufacture and supply can be undertaken on a cost effective
basis compared to potential third party suppliers; provided, however, that such
cost-effectiveness is presumed and need not be demonstrated for the First
Generation Commercial Vaccine.
(d) Each time (if any) that Genentech elects to manufacture and
supply a given type of Commercial Vaccine under this Section 4.3, it shall be
entitled to supply one hundred percent (100%) of the requirements of VaxGen and
its sublicensees of such type so elected, subject to the other terms and
conditions of this Agreement and the Supply Agreement (as defined in Section 4.5
below). Notwithstanding the foregoing, VaxGen shall be entitled to have a third
party perform fill and finish and/or quality control testing of Commercial
Vaccine supplied hereunder if Genentech is unable to do so on a timely basis or
at a price competitive with such third party's services, and in such case
Genentech's Fully Burdened Manufacturing Cost charged to VaxGen shall be
adjusted as appropriate.
4.4 ALTERNATE SUPPLY.
(a) In any case where Genentech elects not to manufacture and
supply a given type of Clinical Vaccine or Commercial Vaccine under Sections 4.2
or 4.3 above (including if Genentech elects to manufacture and supply a given
type of Clinical Vaccine under Section 4.2 above but elects not to manufacture
and supply that same type of Commercial Vaccine under Section 4.3 above), VaxGen
shall have the right to require Genentech, at VaxGen's expense, to transfer the
Licensed Patent Rights and Licensed Knowhow necessary for the manufacture and
supply of such type of Clinical Vaccine or Commercial Vaccine to VaxGen. In
connection with such transfer: (i) VaxGen automatically shall have a right and
license hereunder and under Section 2.1 above to make such type of Clinical
Vaccine or Commercial Vaccine; (ii) VaxGen shall be entitled to arrange for such
manufacture and supply with alternative supplier(s) at VaxGen's expense, and in
connection therewith may sublicense its right and license hereunder to such
alternate supplier(s), subject to Section 2.2 above; and (iii) VaxGen shall not
owe Genentech the Fully Burdened Manufacturing Cost for such alternate
manufacture and supply, but the other terms of this Agreement (including the
royalty and profit-sharing provisions) shall continue to apply. In any case
where cost effectiveness as required under Sections 4.2(c) or 4.3(c) above
cannot be demonstrated for a given type of Clinical Vaccine or Commercial
Vaccine, the foregoing provisions of this Section 4.4(a) shall also apply,
provided that VaxGen (for itself and/or its sublicensees) shall be entitled to
arrange for manufacture and supply only with alternate supplier(s) more cost
effective than Genentech.
(b) If Genentech fails to supply any type of Clinical Vaccine or
Commercial
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Vaccine requested by VaxGen hereunder on a timely basis in accordance
with this Agreement and the Supply Agreement, and such failure continues uncured
for at least twelve (12) months, VaxGen shall have the right to require
Genentech, at Genentech's expense, to transfer the Licensed Patent Rights and
Licensed Knowhow necessary for the manufacture and supply of such type of
Clinical Vaccine or Commercial Vaccine to VaxGen. In connection with such
transfer: (i) VaxGen automatically shall have a right and license hereunder and
under Section 2.1 above to make or have made such type of Clinical Vaccine or
Commercial Vaccine; (ii) VaxGen shall be entitled to arrange for such
manufacture and supply with alternative supplier(s) at VaxGen's expense, and in
connection therewith may sublicense its right and license hereunder to such
alternative supplier(s), not subject to Section 2.2 above (provided that VaxGen
shall notify Genentech of any such alternative supplier(s) or sublicense(s));
and (iii) VaxGen shall not owe Genentech the Fully Burdened Manufacturing Cost
for such type of Clinical Vaccine or Commercial Vaccine, but the other terms of
this Agreement (including the royalty and profit-sharing provisions) shall
continue to apply.
(c) Except to the extent otherwise provided in Sections 4.4(a) or
(b) above, Genentech shall have no obligation to transfer any Licensed Patent
Rights, Licensed Knowhow or other technology relating to manufacture of Clinical
Vaccine and/or Commercial Vaccine to VaxGen or any of its sublicensees or any
other third party. Genentech's rights, obligations and potential obligations to
manufacture and supply under this Agreement extend to Clinical Vaccine and
Commercial Vaccine, but do not include or cover any Adjuvants or any other
components (whether active or not) of any Licensed Product.
4.5 SUPPLY AGREEMENT. In anticipation of Genentech supply under Section
4.1 above, the Parties shall agree upon and enter into a separate supply
agreement ("Supply Agreement") setting forth the Parties' understandings with
respect to forecasting of expected requirements, ordering, scheduling of
manufacture and delivery, quality control testing, invoicing and payment, record
keeping, and regulatory responsibilities (including, without limitation, which
Party is responsible for preparation and regulatory submission of all or part of
an establishment site license application, product license application or
equivalent application(s) under laws and regulations of the FDA or comparable
foreign agency, with respect to the manufacture of any Commercial Vaccine by
Genentech hereunder, which Party shall hold any such establishment, product or
other regulatory license(s), and other matters relating to manufacturing
arrangements hereunder). The Supply Agreement may be amended as mutually agreed
upon by the Parties in connection with the implementation of any Genentech
manufacture and supply under Sections 4.2 or 4.3 above, or alternative supply
under Section 4.4 above.
ARTICLE 5.0 PAYMENTS AND ACCOUNTING RECORDS.
5.1 ROYALTIES. In consideration for the license granted to VaxGen
hereunder by Genentech, VaxGen shall pay royalties to Genentech as set forth
hereinbelow in connection with sales of each Licensed Product by VaxGen or its
sublicensees, unless Genentech has elected to exercise its worldwide marketing
rights with respect to Licensed Products under Section 3.4 above (in which case
the Parties will share Net Profits as specified therein). If elected by
Genentech, royalties shall be payable to Genentech on all Net Sales of Licensed
Products in all countries within the Territory by VaxGen and its sublicensees.
Such royalties shall equal (a) twenty five percent (25%) of
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aggregate total Net Sales of such Licensed Product in such country by VaxGen and
its sublicensees, provided that any Commercial Vaccine component of such
Licensed Product has been manufactured and supplied by Genentech hereunder, and
(b) fifteen percent (15%) of aggregate total Net Sales of such Licensed Product
in such country by VaxGen and its sublicensees if clause (a) does not apply.
Such royalties shall be payable to Genentech for any product that is a "Licensed
Product" under this Agreement, and the Parties intend and agree that such
royalties will not increase in the event of issuance of a valid patent included
within the Licensed Patent Rights. The intellectual property licensed to VaxGen
pursuant to this Agreement includes substantial Licensed Knowhow. There can be
no assurance that any patent will issue based on any patent applications within
the Licensed Patent Rights.
5.2 PAYMENTS AND REPORTS. Royalties owed by VaxGen to Genentech under
this Agreement, or, if applicable, profit-sharing amounts owed by Genentech to
VaxGen under Section 3.4 above, with respect to any Licensed Product shall
accrue during each calendar quarter (or portion thereof) during the term of this
Agreement after the Commercial Introduction of such Licensed Product, and shall
be due and payable for such calendar quarter within sixty (60) days after the
end of such quarter. VaxGen shall calculate the royalties owed or, if
applicable, Genentech shall calculate the profit-sharing owed, in any case in
accordance with and subject to the terms and conditions of this Agreement. Each
Party shall remit any such payment due to the other Party hereunder by bank wire
transfer in immediately available funds to a bank account designated by the
Party to whom such payment is owed, in any case free and clear of any taxes,
duties, levies, fees or charges thereon, and the Party remitting such payment
shall make any applicable withholding payments due on behalf of the other Party
and provide the other Party with written documentation of such withholding. For
sales of any Licensed Product that occur in a currency other than United States
dollars ("FOREIGN CURRENCY SALES"), the quarterly payment shall be calculated as
follows:
{A/B}xC = United States dollars royalty or profit-sharing payment on
foreign currency sales, where
A = foreign currency "Net Sales" or "Net Profits" per quarter,
B = foreign exchange conversion rate, expressed in local currency
per United States dollar (using as the applicable foreign
exchange conversion rate the rate published in the Wall Street
Journal, or any other source mutually agreed upon by the Parties,
for the last business day of the applicable calendar quarter);
and
C = the royalty rate or profit-sharing percentage applicable to
such sales under this Agreement.
Together with any royalty payment or profit-sharing payment on sales of
Licensed Products under this Agreement, remitting Party shall render to the
other Party an accounting for such calendar quarter showing (i) total gross
sales and total Net Sales by the remitting Party and its sublicensees in the
currency in which such Net Sales were made, (ii) total gross profits and Net
Profits by the remitting Party and its sublicensees in currency in which such
Net Profits were made, and (iii) a Licensed
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Product-by-Licensed Product and country-by-country calculation of the aggregate
total of royalty and/or profit-sharing mounts payable with respect to all such
sales of Licensed Products (including, in the case of foreign currency sales,
the calculations set forth hereinabove).
5.3 VAXGEN ACCOUNTING RECORDS. VaxGen shall keep full, true and accurate
books of account containing all particulars which may be necessary for the
purpose of showing Net Sales of all Licensed Products by VaxGen and its
sublicensees, and, in case Genentech exercises its option trader Section 3.4
above, showing VaxGen's Development Costs for the first Licensed Product.
VaxGen's complete books of account and supporting data therefor shall be kept at
its principal place of business for
at least three (3) years following the end of the calendar year to which they
pertain (and access shall not be denied thereafter, if reasonably available),
and shall be made available for inspection and copying during regular business
hours by an independent accountant retained by Genentech at Genentech's sole
expense (except as otherwise provided hereinbelow) and reasonably acceptable to
VaxGen; provided, however, that such inspection shall not take place more often
than once per year during the term of this Agreement; and provided further,
however, that any such independent accountant shall have previously entered into
a confidentiality agreement limiting its disclosure of such information to
authorized representatives of the Parties or as required under applicable law
(with advance notice to the Parties of such need for disclosure) or arbitration
or litigation between the Parties relating to this Agreement. Any such
inspection shall be for the purpose of verifying Net Sales on sales of Licensed
Products by VaxGen and its sublicensees, or VaxGen's Development Costs under
Section 3.4 above, as the case may be. Results of any inspection hereunder shall
be made available promptly to both Parties in writing. If any inspection reveals
a miscalculation of royalty amounts that results in an underpayment to
Genentech, or a miscalculation of Development Costs that results in an
overpayment by Genentech, VaxGen shall promptly and completely correct any such
miscalculation by payment to Genentech, and if such underpayment or overpayment
is by five percent (5%) or more VaxGen shall pay all costs and expenses of such
inspection.
5.4 GENENTECH ACCOUNTING RECORDS. Genentech shall keep full, true and
accurate books of account containing all particulars which may be necessary for
the purpose of showing its Fully Burdened Manufacturing Cost, and, if Genentech
exercises its option under Section 3.4 above, showing Net Profits of all
Licensed Products by Genentech and its sublicensees. Genentech's complete books
of account and supporting data therefor shall be kept at its principal place of
business for at least three (3) years following the end of the calendar year to
which they pertain (and access shall not be denied thereafter, if reasonably
available), and shall be made available for inspection during regular business
hours by an independent accountant retained by VaxGen at VaxGen's sole expense
(except as otherwise provided hereinbelow) and reasonably acceptable to
Genentech; provided, however, that such inspection shall not take place more
often than once per year during the term of this Agreement; and provided
further, however, that any such independent accountant shall have previously
entered into a confidentiality agreement limiting its disclosure of such
information to authorized representatives of the Parties or as required under
applicable law (with advance notice to the Parties of such need for disclosure)
or arbitration or litigation between the Parties relating to this Agreement. Any
such inspection shall be for the purpose of verifying Net Profits on sales of
Licensed Products by Genentech and its sublicensees under Section 3.4 above, or
Genentech's Fully
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Burdened Manufacturing Cost, as the case may be. Results of any inspection
hereunder shall be made available promptly to both Parties in writing. If any
inspection reveals a miscalculation of profit-sharing amounts that results in an
underpayment to VaxGen, or a miscalculation of Fully Burdened Manufacturing Cost
that results in an overpayment by VaxGen to Genentech, Genentech shall promptly
and completely correct any such miscalculation by payment to VaxGen, and if such
underpayment or overpayment is by five percent (5%) or more Genentech shall pay
all costs and expenses of such inspection.
ARTICLE 6.0 INTELLECTUAL PROPERTY RIGHTS.
6.1 OWNERSHIP. Genentech shall retain title to the Licensed Knowhow and
Licensed Patent Rights, including, without limitation, any Licensed Knowhow and
Licensed Patent Rights developed or invented by Genentech in the future. VaxGen
shall retain title to any improvements to the Licensed Knowhow or Licensed
Patent Rights developed or invented solely by VaxGen or its sublicensees. The
Parties shall own jointly any improvements to any Licensed Knowhow or Licensed
Patent Rights developed or invented by both Parties. Designation of inventor(s)
on any patent application is a matter of law, and shall be solely within the
discretion of qualified patent counsel of Genentech and VaxGen to determine in
accordance with United States laws of inventorship and competent written
evidence of the Parties.
6.2 PATENT FILING, PROSECUTION AND MAINTENANCE. Subject to the other
terms and conditions of this Agreement (including the remainder of this Section
6.2), during the term of this Agreement, Genentech shall be responsible for the
filing, prosecution and maintenance of all Licensed Patent Rights, in
consultation with VaxGen, and VaxGen agrees to reimburse all reasonable costs
and expenses incurred by Genentech for the benefit of VaxGen hereunder within
thirty (30) days of receipt of an invoice from Genentech setting forth such
costs and expenses, including a reasonable apportionment of such costs and
expenses for patent applications and patents within the Licensed Patent Rights
that contain claims outside of or overlapping with the scope of rights licensed
to VaxGen under this Agreement (hereinafter, "Broad Claims"). Genentech shall
keep VaxGen informed of the status of filing, prosecution and maintenance of
Licensed Patent Rights in each country in the Territory, by: (i) providing
VaxGen with a copy of each patent application filed by Genentech hereunder
promptly after filing; (ii) for each patent application and patent hereunder
that contains Broad Claims, providing VaxGen with Genentech's reasonable
apportionment of out-of-pocket costs and expenses to date and on a going-forward
basis therefor, which VaxGen may review with Genentech as reasonably requested;
(iii) updating VaxGen on a regular basis (and in any event not less frequently
than annually) regarding the status of the patent applications and patents
within the License Patent Rights by providing VaxGen with a then-current version
of EXHIBIT A to this Agreement and reviewing it with VaxGen as reasonably
requested; and (iv) notifying VaxGen of any interference, opposition,
re-examination request, nullity proceeding, appeal or other interparty action or
reissuance proceeding involving the Licensed Patent Rights. Genentech shall
determine in its sole discretion, but with consultation with VaxGen as provided
herein, whether or not to file, perfect, prosecute, maintain or take or not take
any other action with respect to any patent application or patent within the
Licensed Patent Rights generally or in a particular country or territory within
the
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Territory (including, without limitation, any interference, opposition,
re-examination request, nullity proceeding, appeal or other interparty action or
reissuance proceeding involving the Licensed Patent Rights). However, if
Genentech desires to take (or not take) any such action but VaxGen is not
prepared to reimburse Genentech therefor as required hereunder, in such case
Genentech shall be free to take (or not take) such action at its sole cost and
expense and, on notice from Genentech to VaxGen, the rights licensed to VaxGen
under this Agreement with respect to such patent application or patent shall
return to Genentech and thereafter be excluded from the Licensed Patent Rights;
provided, however, that VaxGen shall be entitled to re-license such rights later
on terms to be agreed upon by the Parties. The foregoing shall not preclude
Genentech from licensing such rights to a third party in the interim; provided,
however, that Genentech shall notify VaxGen if Genentech is interested in
licensing such rights and VaxGen shall have a right of first negotiation with
respect to such rights for thirty (30) days from such notice from Genentech.
Furthermore, if Genentech in its sole discretion elects not to file, perfect,
prosecute, maintain or take any other action with respect to any patent
application or patent within the Licensed Patent Rights generally or in a
particular country or territory within the Territory (including, without
limitation, any interference, opposition, reexamination request, nullity
proceeding, appeal or other interparty action or reissuance proceeding involving
the Licensed Patent Rights), VaxGen may elect to take such action at its own
expense. Genentech shall provide reasonable assistance to VaxGen and execute
such necessary documents as VaxGen may request in connection therewith, at
VaxGen's expense.
6.3 PATENT INFRINGEMENT.
(a) If either Party learns that a third party is infringing or
allegedly infringing any Licensed Patent Rights, it shall promptly notify the
other Party thereof. The Parties shall cooperate and use reasonable efforts to
stop such alleged infringement without litigation.
(b) Genentech shall have the first right (but not the obligation)
to take the appropriate steps to remove the infringement or alleged of Licensed
Patent Rights, including, without limitation, initiating a suit, proceeding or
other legal action. If Genentech determines in its sole discretion not to take
any steps within one hundred eighty (180) days of discovering or being notified
of the alleged infringement, VaxGen shall have the right (but not the
obligation) to do so. Any suit, proceeding or other legal action taken under
this Section 6.3 shall be at the expense of and controlled by the Party bringing
or undertaking it, who shall be entitled to all proceeds of any damages or costs
recovered in such suit, proceeding or other legal action. The other Party may
choose to be represented in any such suit, proceeding or other legal action by
counsel of its own choice, at its own expense. If either Party lacks standing to
bring any suit, proceeding or other legal action hereunder or finds its
necessary to join the other Party in it, the other Party shall execute papers
and perform such other actions as may be reasonably required; provided, however,
that neither Party shall be required to transfer any fight, rifle or interest in
or to any property to the other Party or any other party to confer standing on a
Party hereunder. Both Parties may elect to bring a suit, proceeding or other
legal action hereunder, and if so, before commencement thereof the Parties shall
agree on equitable apportionment of the costs and expenses and the damages to be
recovered from it.
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6.4 THIRD PARTY PATENT RIGHTS. If a notice of infringement is received
by, or a suit is initiated against, either Party with respect to any Licensed
Product, the Parties shall consult in good faith regarding the best response.
ARTICLE 7.0 CONFIDENTIALITY.
7.1 CONFIDENTIALITY. In the course of performance of this Agreement, one
Party may disclose to the other Party or receive from the other Party
information which is confidential information of the disclosing Party. In order
to be considered confidential information of the disclosing Party, such
information must be in writing and designated as confidential, or if disclosed
orally must be continued in writing to the other Party as confidential within
thirty (30) days after such oral disclosure ("Confidential Information"). In
addition, for the purposes of this Agreement, Confidential Information shall not
include information that (in each case as evidenced by written records or other
competent evidence):
(a) was known to the receiving Party at the time of disclosure
hereunder by the disclosing Party;
(b) was generally available to the public or was otherwise part
of the public domain at the time of disclosure hereunder, or became generally
available to the public or otherwise part of the public domain after disclosure
hereunder other than through any act or omission of the receiving Party in
breach of this Agreement;
(c) became known to the receiving Party after disclosure from a
source that had a lawful right to disclose such information to others; or
(d) was independently developed by the receiving Party without
the use of any Confidential Information of the disclosing Party.
Each Party shall protect and keep confidential and shall not use,
publish or otherwise disclose to any third party the other Party's Confidential
Information for a period of five (5) years from the date of disclosure
hereunder, except as otherwise permitted by this Agreement (including, without
limitation, under Section 7.2 below) or with the other Party's prior consent.
The foregoing notwithstanding, each Party may disclose Confidential Information
of the other Party during any official proceeding before a court or governmental
agency, or as a part of a patent application filed on inventions made under this
Agreement, provided that the Party whose Confidential Information is included in
such application shall have the opportunity to review such proposed disclosure
at least thirty (30) days prior to the date of such filing and does not object
in writing to such proposed disclosure. In the event of an objection the
consultation provisions of Section 7.2 below shall apply.
7.2 PUBLICATIONS. The Parties shall consult prior to the submission of
any manuscript for publication or other disclosure (e.g., abstract, poster,
presentation), to determine if the proposed disclosure contains any Confidential
Information of the other Party. In connection therewith, each Party shall
provide the other Party with a copy of the proposed disclosure at least thirty
(30) days prior to the first disclosure thereof (such as submission of an
abstract). In the course of such consultation, the Party whose Confidential
Information is proposed to be disclosed shall have the
22
<PAGE> 26
right to incorporate appropriate changes into the proposed disclosure and to
delete any of its Confidential Information which such Party does not agree to
the publication or other disclosure thereof.
ARTICLE 8.0 REPRESENTATIONS AND WARRANTIES.
8.1 DISCLAIMER. Except as expressly provided in this Agreement, the
Parties disclaim all other representations and warranties, express or implied,
including, without limitation, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, or NONINFRINGEMENT.
8.2 REPRESENTATIONS AND WARRANTIES. Each party represents and warrants
to the other Party that the representing and warranting Party, to its best
knowledge: is free to enter this Agreement, in so doing it will not violate any
other agreement to which it is party or subject, and currently has the right to
grant the licenses granted as set forth in this Agreement
ARTICLE 9.0 LIABILITY.
9.1 LIMITATION OF LIABILITY. Neither Party shall be liable to the other
for indirect, incidental, special or consequential damages arising out of or
resulting from any term or condition of this Agreement or with respect to their
performance or lack thereof.
9.2 INDEMNIFICATION BY VAXGEN. VaxGen shall indemnify, defend and hold
harmless Genentech and its directors, officers, employees, agents and affiliates
from and against all costs, claims, suits, liabilities, expenses (including
reasonable attorneys' fees) and damages arising out of or resulting from the
development, manufacture, administration, use or sale by VaxGen and its
sublicensees of any Licensed Product, Clinical Vaccine or Commercial Vaccine,
except where such cost, claim, suit, expense or damage arose or resulted solely
from (i) any willful or grossly negligent act or omission by Genentech or (ii)
any defect in the manufacture of any Clinical Vaccine or Commercial Vaccine by
Genentech which was not discovered or reasonably discoverable by VaxGen or its
sublicensees. VaxGen's indemnification obligations hereunder shall be
conditioned upon Genentech (i) giving reasonable notice to VaxGen of any such
claim or action, (ii) tendering the defense of such claim or action to VaxGen,
(iii) reasonably assisting VaxGen (at VaxGen's expense) in investigating and
defending such claim or action, and (iv) not compromising or settling such claim
or action without VaxGen's prior consent.
9.3 INDEMNIFICATION BY GENENTECH. Genentech shall indemnify, defend and
hold harmless VaxGen and its directors, officers, employees, agents and
affiliates from and against all costs, claims, suits, liabilities, expenses
(including reasonable attorney's fees) and damages arising out of or resulting
from any defect in the manufacture of any Clinical Vaccine or Commercial Vaccine
by Genentech that was not discovered or reasonably discoverable by VaxGen or its
sublicensees, except where such cost, claim, suit, expense or damage arose or
resulted solely from
23
<PAGE> 27
any willful or grossly negligent act or omission by VaxGen or its sublicensees.
Genentech's indemnification obligations hereunder shall be conditioned upon
VaxGen (i) giving reasonable notice to Genentech of any such claim or action,
(ii) tendering the defense of such claim or action to Genentech's, (iii)
reasonably assisting Genentech (at Genentech's expense) in investigating and
defending such claim or action, and (iv) not compromising or settling such claim
or action without Genentech's prior consent.
9.4 INSURANCE. Without limiting any indemnification obligations under
this Agreement, VaxGen shall obtain and maintain on an on-going basis for the
time period specified herein below comprehensive general liability and products
liability insurance (including contractual liability coverage of VaxGen's
indemnification obligations under this Agreement) in the amount of at least
Twenty Five Million Dollars ($25,000,000) per occurrence and annual aggregate
combined single limit for bodily injury and property damage liability, with such
insurance coverage to be maintained with an insurance company or companies
reasonably acceptable to Genentech and with a deductible or maximum self-insured
retention not to exceed Five Hundred Thousand Dollars ($500,000) per occurrence
and annual aggregate. This insurance shall not contain any exclusions or
limitations in are regard to liability relating to AIDS/HIV. VaxGen shall obtain
such insurance coverage no later than ninety (90) days prior to the commencement
of the first human clinical trial testing any Clinical Vaccine (including any
First Generation Clinical Vaccine or any Vaccine Variants), and thereafter shall
maintain such insurance coverage without interruption during the term of this
Agreement and for a period of at least ten (10) years after the expiration or
termination of this Agreement. Such insurance shall name Genentech as an
additional insured, shall state that it is primary to any valid and collectible
insurance available to Genentech which also covers the same loss for which
VaxGen has liability pursuant to the Agreement (including, without limitation,
under Article 9.0 of the Agreement), shall contain a cross-liability or
severability of interest clause, and shall state that Genentech will be provided
with at least thirty (30) days' advance written notice of any termination,
cancellation or material change in the insurance policy. VaxGen shall provide
Genentech with evidence of such insurance coverage as required under this
Agreement by no later than the deadline specified above for obtaining such
insurance coverage, and thereafter shall continue to provide Genentech with
evidence of such required insurance coverage on an annual basis (by not later
than each annual renewal date of such coverage) during the term of this
Agreement and for a period of at least ten (10) years after the expiration or
termination of this Agreement. VaxGen may satisfy its obligation to provide
evidence of such required insurance coverage by providing Genentech with
complete copies of the insurance policies themselves or certificates from its
insurance company or companies evidencing the coverage required hereunder. To
assist VaxGen in complying with the provisions of this Section 9.4, VaxGen may
consult as reasonably requested with Genentech's risk manager and insurance
brokers.
ARTICLE 10.0 TERM AND TERMINATION.
10.1 TERM. This Agreement shall commence on the Effective Date and,
unless earlier terminated in accordance herewith, shall expire on a
country-by-country and Licensed Product-by Licensed Product basis fifteen (15)
years from the date of Commercial Introduction of such Licensed Product in such
country. At the end of the applicable time period under the foregoing sentence,
24
<PAGE> 28
provided that the license to VaxGen hereunder has not already been terminated
under this Article 10, VaxGen shall have a perpetual, fully paid-up,
non-exclusive license under the Licensed Patent Rights and Licensed Knowhow to
make, have made, use and sell Licensed Products on a country-by-country basis in
the Territory, and if Genentech has timely exercised its option under Section
3.4 above, Genentech shall have a perpetual, fully paid-up, non-exclusive
license under all improvements to the Licensed Patent Rights or Licensed Knowhow
that are solely or jointly owned by VaxGen (under Section 6.1 above), to make,
have made, use and sell Licensed Products in the Territory.
10.2 TERMINATION FOR DEFAULT. Failure by either Party to comply with any
of its material obligations set forth in this Agreement shall entitle the
non-defaulting Party to give the defaulting Party a notice specifying the nature
of the default and requiring the defaulting Party to make good its default. If
such default is not cured within thirty (30) days after such notice, the
non-defaulting Party shall be entitled, without prejudice to any of its other
fights under this Agreement or available to it at law or in equity, to terminate
this Agreement effective upon a notice of termination to the defaulting Party.
10.3 TERMINATION FOR INSOLVENCY OR BANKRUPTCY. Either Party may, in
addition to any other remedies available to it by law or in equity, terminate
this Agreement, in whole or in part as the terminating Party may determine, by
notice to the other Party in the event the other Party shall have become
insolvent or bankrupt, or shall have made an assignment for the benefit of its
creditors, or there shall have been appointed a trustee or receiver of the other
Party or for all or a substantial part of its property, or there shall have been
issued a warrant of attachment, execution, distraint or similar process against
any substantial part of the property of the other Party, or any case or
proceeding shall have been commenced or other action taken by or against the
other Party in bankruptcy or seeking reorganization, liquidation, dissolution,
winding-up, arrangement, composition or readjustment of its debts or any other
relief under any bankruptcy, insolvency, reorganization or other similar act or
law of any jurisdiction now or hereafter in effect, provided that in any such
case such event shall have continued for sixty (60) days undismissed, unbonded
and undischarged. Furthermore, all rights and licenses granted under to this
Agreement are, and shall otherwise be deemed to be, for purposes of Section
365(n) of the Bankruptcy Code, licenses of rights to "intellectual property" as
defined under Section 101(56) of the United States Bankruptcy Code. The Parties
agree that in the event of the commencement of a bankruptcy proceeding by or
against one Party under the United States Bankruptcy Code, the other Party shall
be entitled to complete access to any such intellectual property, and all
embodiments of such intellectual property, pertaining to the rights granted in
the licenses hereunder of the Party by or against whom a bankruptcy proceeding
has been commenced.
10.4 UNILATERAL TERMINATION.
(a) Genentech shall have the right to terminate this Agreement,
in its sole discretion, effective on notice to VaxGen delivered by Genentech no
later than January 31, 1997, if a Private Placement raising aggregate gross
proceeds of at least Twenty Million Dollars ($20,000,000) for VaxGen's business
operations has not closed by December 1, 1996. In addition, during the term of
this Agreement, VaxGen shall provide Genentech with a brief but accurate written
calculation in reasonable detail of VaxGen's Consolidated Tangible Net Worth on
a periodic basis
25
<PAGE> 29
as provided in the next sentence, and VaxGen shall cooperate reasonably with
Genentech's review and evaluation of each such written calculation. VaxGen shall
provide such written calculation to Genentech on a semi-annual basis during the
term of this Agreement, commencing with the date that is six (6) months after
the Effective Date, and every six (6) months thereafter. Furthermore, if at any
time during the term of this Agreement VaxGen becomes aware that it has failed
to maintain a Consolidated Tangible Net Worth of at least the amounts set forth
below in this Section 10.4(a), VaxGen promptly shall notify Genentech thereof.
If VaxGen fails to maintain a Consolidated Tangible Net Worth of at least Five
Million Dollars ($5,000,000) during the term of this Agreement, the Parties
promptly will meet and discuss in good faith VaxGen's future plans for financing
and development of Licensed Products, to determine a mutually acceptable
business plan. If VaxGen fails to maintain a Consolidated Tangible Net Worth of
at least One Million Dollars ($1,000,000) during the term of this Agreement,
Genentech in its sole discretion may either terminate this Agreement or convert
VaxGen's license hereunder to a non-exclusive basis, effective upon notice from
Genentech to VaxGen.
(b) VaxGen shall have the right to terminate this Agreement, in
its sole discretion, on six (6) months' prior notice to Genentech. If VaxGen
terminates this Agreement pursuant to this Section 10.4(b), VaxGen agrees that
for the following five (5) years it will not develop, manufacture, use, sell or
acquire from any third party (whether by license or otherwise) any Licensed
Product in the Field of Use in the Territory.
10.5 EFFECT OF TERMINATION.
(a) Expiration or termination of this Agreement for any reason
shall be without prejudice to any rights which shall have accrued to the benefit
of either Party prior to such expiration or termination, and shall not relieve
either Party from its obligations which are expressly indicated to survive
expiration or termination of this Agreement; such rights and obligations
include, without limitation, those under Sections 5.2, 5.3, 5.4, 10.4(b), 10.5,
11.1 and 11.5, and under Articles 6, 7, 8 and 9, of this Agreement.
(b) No termination of this Agreement (except termination by
Genentech under Section 10.4 above), shall be construed as termination of any
sublicenses granted by VaxGen under Section 2.2 above or sublicensees granted by
Genentech under Section 3.4 above, in which case each such sublicensee shall be
thereafter a direct sublicensee of Genentech (or a direct sublicensee of VaxGen,
in the case of Genentech sublicensees), but only if each such sublicensee is
then in full compliance with all terms and conditions of its sublicense, all
payments owed under such sublicense to Genentech (or VaxGen, in the case of
Genentech sublicensees) have been paid, and the sublicensee agrees at least ten
(10) days prior to the effective termination of the main license to assume all
obligations of VaxGen (or all obligations of Genentech, in the case of Genentech
sublicensees) under this Agreement. Termination of this Agreement by Genentech
under Section 10.4(a) shall automatically terminate all sublicenses of VaxGen
hereunder.
(c) On any termination of this Agreement: (i) VaxGen promptly
shall return to Genentech all tangible Licensed Patent Rights, Licensed Knowhow
and other property owned by
26
<PAGE> 30
Genentech (whether solely or jointly with VaxGen) under Section 6.1 above that
are in VaxGen's possession or control, including, without limitation, all
biological materials, pre-clinical and clinical data, and applicable
improvements to Licensed Patent Rights or Licensed Knowhow; and (ii) VaxGen
promptly shall take all appropriate and necessary actions, including with the
FDA and other involved regulatory agencies, to effect the assignment or transfer
to Genentech (or to no longer permit further reference to by VaxGen) of all
Genentech Regulatory filings, as directed by Genentech. All such activities
shall be conducted in a prompt and orderly fashion such that the value of what
is being transferred is preserved, and shall be at VaxGen's expense if this
Agreement is terminated by Genentech or terminated by VaxGen under Section
10.4(b), and otherwise at Genentech's expense. In addition, on any termination
of this Agreement by Genentech, or any termination of this Agreement by VaxGen
under Section 10.4(b) above, Genentech automatically shall be granted a
non-exclusive, royalty-free license in the Territory to all improvements to
Licensed Patent Rights or Licensed Knowhow that are solely or jointly owned by
VaxGen (under Section 6.1 above), and VaxGen at its own expense promptly shall
transfer to Genentech all such improvements that are in VaxGen's possession or
control.
ARTICLE 11.0 GENERAL PROVISIONS.
11.1 NOTICES. Any notice, request, delivery, demand, report, accounting,
approval or consent required or permitted to be given under this Agreement shall
be in writing and shall be deemed sufficiently given on the same day as delivery
if delivered in person or transmitted by telecopier (with continued answer-back)
in any case by 5:00 p.m. local time, on the next business day if sent by
overnight courier service, and in three (3) business days if sent by registered
or certified mail, in any case addressed to the Party to whom it is directed at
its address shown below or such other address as such Party shall have last
given by notice to the other Party in accordance with this Section:
If to VaxGen, addressed to: VaxGen, Inc.
1000 Marina Boulevard
Brisbane, CA 94005-1841
Attn: Dr. Don Francis
Telecopy: (650) 624-1001
with a copy (not constituting notice) to: Robert C. Nowinski
VaxGen, Inc.
23210 Woodway Park Road
Edmonds, WA 98020
Telecopy: (206) 542-4432
If to Genentech, addressed to Genentech, Inc.
1 DNA Way
South San Francisco,
California 94080
Attn: Corporate Secretary
Telecopy: (650) 952-9881
27
<PAGE> 31
11.2 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California (other than its choice of
law principles).
11.3 ENTIRE AGREEMENT. Except for the Credit Agreement, the Services
Agreement, the Supply Agreement and the Stock Agreements, this Agreement is the
entire agreement and understanding between the Parties, and supersedes and
cancels any and all prior negotiations, correspondence, understandings and
agreements, whether written or oral, between the Parties respecting the subject
matter hereof, including, without limitation, that certain Letter of Intent
between the Parties dated as of November 17, 1995. No amendment or other
modification of this Agreement shall be binding on either Party unless reduced
to writing and signed by an authorized officer of each Party.
11.4 BINDING EFFECT AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties hereto and their respective permitted
successors and assigns, subject to the remainder of this Section. This Agreement
shall not be assignable by VaxGen in whole or in part without Genentech's prior
consent in its sole discretion. This Agreement shall not be assignable by
Genentech in whole or in part without VaxGen's consent in its sole discretion,
except that Genentech may assign this Agreement in whole or in part without
VaxGen's consent in connection with any consolidation, merger, redemption, put
or sale of stock, conveyance of substantially all of Genentech's assets, or
change-of-control transaction that involves Genentech, Genentech's parent
company F. Hoffmann La-Roche Ltd., a Swiss corporation, or their affiliates.
11.5 DISPUTE RESOLUTION. Except as otherwise expressly provided in this
Agreement (including Sections 3.3 or 3.4 above), in the event of any dispute,
controversy or claim arising out of or relating to this Agreement, the Parties
shall try to settle it amicably between themselves including first referring
such dispute, controversy or claim to a member of Genentech's Operations
Committee and VaxGen's Board of Directors for resolution. If the Parties are
unable to so settle such dispute, controversy or claim within sixty (60) days
after such referral, then either Party may, by notice to the other, have it
referred to their respective chief executive officers for attempted resolution
by good faith negotiations within thirty (30) days after such notice. In the
event the chief executive officers are not able to resolve it, either Party may
at any time after the thirty (30)-day period invoke the arbitration provisions
of this Section 11.5.
All arbitration proceedings shall be conducted in San Francisco,
California, under the procedural rules of the American Arbitration Association.
The Party requesting arbitration shall serve upon the other Party a demand for
arbitration stating the substance of the controversy, dispute or claim, and the
contention of the Party requesting arbitration. Within sixty (60) days after the
demand, the Parties shall each select one arbitrator, which arbitrators shall
together select a third arbitrator. The three arbitrators are to act as neutral
arbitrators and shall have no past, present or anticipated future affiliation
with the Parties which would unduly influence the independence of an arbitrator.
The decision of the arbitrators shall be in writing setting forth the basis
therefore.
Prior to the commencement of the arbitration proceeding, each Party
shall submit to the arbitrators its "best offer" to resolve the dispute,
controversy, or claim. The arbitrators shall
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<PAGE> 32
consider the "best offer" of each Party, communicate to the Parties their
respective "best offers" and after the arbitration proceeding select the "best
offer" of the Party which prevailed over the other Party based on the
arbitration proceeding. The arbitrators shall have the authority to award
compensatory damages, interest, tort damages (but not punitive or similar
damages) and specific performance and other equitable relief. The Parties shall
abide by the award rendered in such arbitration proceeding, and such award may
be enforced and executed upon in any court having jurisdiction over the Party
against whom enforcement of such award is sought. During such arbitration
proceedings, each Party shall pay its arbitrators' fees, administration charges
and related expenses of arbitration. The losing Party shall thereafter reimburse
the prevailing Party for all such costs incurred in connection with such
arbitration.
11.6 WAIVER. The waiver by either Party of any breach of or default
under any of the provisions of this Agreement or the failure of either Party to
enforce any of the provisions of this Agreement or to exercise any right
thereunder shall not be construed as a waiver of any other breach or default or
a waiver of any such rights or provisions hereunder.
11.7 SEVERABILITY. If any part of this Agreement shall be held invalid,
illegal or unenforceable by any court of authority having jurisdiction over this
Agreement or either Party, such part shall be ineffective only to the extent of
such invalidity, illegality or unenforceability, and shall be validly reformed
by addition or deletion of wording as appropriate to avoid such result and as
nearly as possible approximate the intent of the Parties. If unreformable, this
Agreement shall be divisible and deleted in such jurisdiction, but elsewhere
shall not be affected.
11.8 PUBLICITY. VaxGen and Genentech shall consult and obtain mutual
consent before making any public announcement concerning this Agreement, the
subject matter hereof or use of the other Party's name, except for information
that is already in the public domain or where the nature of such information has
been previously approved for disclosure (in which case this Section 11.8 will no
longer apply to that previously approved information).
11.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original for all purposes, but
all of which together shall constitute one and the same instrument.
11.10 NO OTHER RIGHTS. No rights or licenses, express or implied, are
granted to VaxGen by this Agreement to use in any manner any trade name or
trademark of Genentech, or any other intellectual property not expressly covered
by this Agreement.
11.11 FORCE MAJEURE. Neither Party shall be liable to the other for loss
or damages or shall have any right to terminate this Agreement (except as
otherwise provided in this Agreement) for any default or delay of the other
Party in its performance under this Agreement that is attributable to an act of
God, flood, fire, explosion, strike, lockout, labor dispute, casualty or
accident, war, revolution, civil commotion, act of public enemies, blockage or
embargo, injunction, law, order, proclamation, regulation, ordinance, demand or
requirement of any government or subdivision, authority or representative of any
such government, or any other cause beyond the reasonable control of the
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<PAGE> 33
affected Party, if the Party affected shall give prompt notice of any such cause
to the other Party. The Party giving such notice shall thereupon be excused from
such of its obligations hereunder for the period of time that it is so disabled.
11.12 HEADINGS. Headings are for the convenience of reference only and
shall not control the construction or interpretation of any of the provisions of
this Agreement.
11.13 NO PARTNERSHIP. Nothing in this Agreement is intended or shall be
deemed to constitute a partnership, agency, employer-employee, or joint venture
relationship between the Parties. Neither Party shall incur any debts or make
any commitments for the other Party.
IN WITNESS WHEREOF, the Parties each have caused this Agreement to be
duly executed by its duly authorized representative as of the date set forth
above.
GENENTECH, INC. VAXGEN, INC.
By: /s/ W.D. Young By: /s/ Donald Francis
------------------------ ----------------------------
Name: W.D. Young Name: Donald Francis
---------------------- --------------------------
Title: COO Title: President
--------------------- -------------------------
<PAGE> 34
EXHIBIT A
LICENSED PATENT RIGHTS
<TABLE>
<CAPTION>
SUBJECT COUNTRY STATUS APPLN. NO. APPLN. DT. PAT. NO. DATE GRANTED
- ------- ------- ------ ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Vaccine Australia Granted 51705/85 DEC 23 1985 600658 DEC 11 1990
Vaccine Canada Pending 498600 DEC 24 1985
Vaccine European Pending 85309454.8 DEC 23 1985
Vaccine Malaysia Granted PI8701924 SEP 24 1987 MY102030A FEB 29 1992
Vaccine Canada Granted 559508 FEB 22 1988 1330038 JUN 07 1994
Vaccine European Pending 88301425 FEB 19 1988
Vaccine Japan Pending 38459/88 FEB 20 1988
Vaccine United Pending 08/405616 MAR 15 1995
States
Vaccine Australia Granted 75847/91 APR 01 1991 647108 JUN 30 1994
Vaccine Austria Granted 91907077.1 APR 01 1991 527760 JUL 19 1995
Vaccine Belgium Granted 91907077.1 APR 01 1991 527760 JUL 19 1995
Vaccine Canada Pending 2078546-2 APR 01 1991
Vaccine Denmark Granted 91907077.1 APR 01 1991 527760 JUL 19 1995
Vaccine European Granted 91907077.1 APR 01 1991 527760 JUL 19 1995
Vaccine France Granted 91907077.1 APR 01 1991 527760 JUL 19 1995
Vaccine Germany Granted 91907077.1 APR 01 1991 527760 JUL 19 1995
Vaccine Great Granted 91907077.1 APR 01 1991 527760 JUL 19 1995
Britain
Vaccine Greece Granted 91907077.1 APR 01 1991 527760 JUL 19 1995
Vaccine Italy Granted 91907077.1 APR 01 1991 527760 JUL 19 1995
Vaccine Japan Pending 506683/91 APR 01 1991
Vaccine Luxembourg Granted 91907077.1 APR 01 1991 527760 JUL 19 1995
Vaccine Netherlands Granted 91907077.1 APR 01 1991 527760 JUL 19 1995
Vaccine New Pending 237666 APR 03 1991
Zealand
Vaccine Spain Granted 91907077.1 APR 01 1991 527760 JUL 19 1995
Vaccine Sweden Granted 91907077.1 APR 01 1991 527760 JUL 19 1995
Vaccine Switzerland Granted 91907077.1 APR 01 1991 527760 JUL 19 1995
(&LI)
Vaccine United Pending 08/226162 APR 11 1994
States
</TABLE>
<PAGE> 35
<TABLE>
<CAPTION>
SUBJECT COUNTRY STATUS APPLN. NO. APPLN. DT. PAT. NO. DATE GRANTED
- ------- ------- ------ ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Adjuvant PCT Pending PCT/US94/11753 OCT 13 1994
Adjuvant United Pending 08/365986 DEC 28 1994
States
Adjuvant United Pending 08/447291 MAY 22 1995
States
Vaccine Australia Pending 7047894 JUN 07 1994
Vaccine European Pending 94919281.9 JUN 07 1994
Vaccine New Pending 267838 JUN 07 1994
Zealand
Vaccine United Pending 08/448603 JUN 07 1995
States
Adjuvant PCT Pending PCT/US94/11674 OCT 13 1994
Adjuvant United Pending 08/460363 JUN 01 1995
States
Adjuvant Argentina Pending 329860 OCT 21 1994
Adjuvant Chile Pending 1544-94 OCT 21 1994
Adjuvant Mexico Pending 948028 OCT 17 1994
Adjuvant PCT Pending PCT/US94/11678 OCT 13 1994
Adjuvant United Pending 08/143313 OCT 25 1993
States
Adjuvant Uruguay Pending 23846 OCT 21 1994
Adjuvant Venezuela Pending 1650-94 OCT 27 1994
Process United Pending 08/650364 MAY 20
Vaccine United Pending GNE Docket JUL 8 1996
States P1008
</TABLE>
*Pending in 17 European countries.
THIRD PARTY AGREEMENTS
License and Supply Agreement, dated as of June 28, 1992, between
Genentech and Cambridge Biotech Corporation.
Sublicense Agreement, dated as of September 30, 1991, between Genentech
and Cambridge Biotech Corporation.
Letter agreement, dated November 28, 1995, between Genentech and Univax
Biologics.
<PAGE> 36
EXHIBIT 10.14
EXHIBIT B
INFORMATION AND MATERIALS
I. PROTOCOLS, DATA, RESULTS AND REPORTS FROM THE FOLLOWING PRECLINICAL STUDIES
OF THE VACCINE:
Non-clinical immunogenicity and efficacy studies:
<TABLE>
<CAPTION>
Study No. Study Title
- --------- -----------
<S> <C>
1180-02-86 Guinea pig dose response studies of rgp120/HIV-1 (IIIB) adsorbed to
aluminum hydroxide gel adjuvant
1180-001-87 Effect of dose and immunization interval on the immune response
of baboons to recombinant glycoprotein 120 of human
immunodeficiency virus (rgp 120/HIV- 1 (IIIB)); ref: J Inf Dis 160,
960-969 (1989)
AIDS-86-001 Evaluation of recombinant gp 120/HIV- 1 (IIIB) as a
vaccine to prevent primary HIV- 1 infection in
chimpanzees (Study 1); ref: Proc Natl Acad Sci USA
85, 5200-5204 (1988)
AIDS-88-002 Evaluation of recombinant gp 120/HIV- 1 (IIIB) and
recombinant soluble gp 160/HIV-1 IIIB as vaccines
to prevent primary HIV-l (IIIB) infection in
chimpanzees (Study 2); ref: Nature 345,
622-625-969 (1990)
AIDS-91-02 Evaluation of rgp120 as vaccine to prevent primary
infection by HIV-1 (Southwest Foundation Study
91-63) .
4-414/93-006 Efficacy of IIIB rgp120 vaccine against chimeric
SIV/HIV (SHIV) virus infection in Macaca Mulatta
(TSI Mason Laboratories Study)
</TABLE>
Non-clinical toxicology studies:
<TABLE>
<CAPTION>
Study No. Study Title
- --------- -----------
<S> <C>
1180-006-87-565 Pilot study: Acute toxicity of vaccine formulated recombinant
glycoprotein 120 (rgp120) of human immunodeficiency virus (HIV)
in baboons
</TABLE>
<PAGE> 37
<TABLE>
<S> <C>
90-048-1180 Acute intramuscular tolerance study with GN1180 in rabbits
90-049-1180 Acute intramuscular tolerance study with GN1180 in guinea pigs
91-327-1180 GN1180 (MN rgp120/HIV-1): Local tolerance and acute toxicity
study in guinea pigs
92-537-1180 Developmental toxicity (embryo-fetal toxicity and teratogenic
potential) study of GN1180 administered intramuscularly to
Crl:CD(R) BR VAF/Plus(R) female rats
92-540-1180 Acute intramuscular tolerance study with GN1180 in rabbits
92-541-1180 6-month intramuscular safety/adjuvant study with GN1180 in rabbits
92-620-1180 6-month intramuscular toxicity study with GN1180 in rats 93-508-1180
A dosage-range study of postnatal development in Crl:CD(R)BR
VAF/Plus(R) rats administered GN1180 or GN1180 adjuvant
subcutaneously during the neonatal period
93-509-1180 Developmental neurotoxicity study of GN1180 administered
subcutaneously to neonatal Crl:CD(R)BR VAF/Plus(R) rats
</TABLE>
2. THE GENENTECH REGULATORY FILINGS (AS DEFINED IN THE AGREEMENT).
3. PROTOCOLS, DATA, RESULTS AND REPORTS FROM THE FOLLOWING CLINICAL STUDIES OF
THE VACCINE:
Protocols, data, results and reports from each of the following clinical
studies of the Vaccine shall be provided to VaxGen, but only to the extent that
(a) such information is necessary for a Licensed Product or its development,
manufacture, use or sale under this Agreement, (b) VaxGen uses such information
solely for purposes of development and commercialization of Licensed Products
under this Agreement, (c) such information is then available at Genentech (or
can be obtained at VaxGen's expense), and (d) Genentech has the right to
transfer or provide such information to VaxGen (or can obtain such rights at
VaxGen's expense):
<TABLE>
<S> <C>
V0199g A Phase I study of the safety and immunogenicity of rgp120/HIV-1 (IIIB)
vaccine in healthy adult subjects
V0200g A Phase I study of the safety and immunogenicity of rgp120/HIV-1 (IIIB)
vaccine in HIV-1 seropositive volunteers
V0344g A Phase I study of the safety and immunogenicity of MN
rgp120/HIV-1 given alone, IIIB rgp 120/HIV-1 given
alone,
</TABLE>
<PAGE> 38
<TABLE>
<S> <C>
MN rgp 120/HIV-1 given concurrently with IIIB rgp 120/HIV-1, and MN rgp120/HIV-1 alternating with IIIB rgp
120/HIV-1 vaccines in HIV-1 seropositive subjects with CD4 cell counts greater than 500 cells/(mu)L
VO346g A Phase II multicenter study of the safety and efficacy of MN rgp 120/HIV-1 vaccine compared with placebo
in HIV-1 seropositive subjects with CD4 cell counts greater than 600 cells/mm(3)
V0385g A Phase I multicenter study of the safety and immunogenicity of MN rgp 120/HIV-1 vaccine given either
alone or in combination with IIIB rgp 120/HIV-1 vaccine in healthy adult subjects
V0413g A Phase I study of the safety and immunogenicity of IIIB rgp 120/HIV-1 and MN rgp 120/HIV-1 vaccines in
healthy adult subjects who have been immunized with IIIB rgp 120/HIV-1 on protocol V0199g (AVEG 006)
V0477g A placebo-controlled Phase I study of the safety and immunogenicity of MN rgp 120/HIV-1 given alone or
concurrently with IIIB rgp 120/HIV-1 vaccines in HIV-1 infected subjects with a known date of
seroconversion and with CD4 cell counts greater than 400 cells/(mu)L
V0530g A Phase I Study Providing Extended Immunization with MN rgp 120/HIV-1 Vaccine to Subjects Who Have
Previously Participated in Protocol V0344g
V0578g A Phase I Study of the Safety of MN rsgp120/HIV-1 Antigen for Use as a Skin Test Reagent
V0633g Evaluation of safety and immunogenicity (Phase I/II) of MN rgp 120/HIV-1 alum adjuvant candidate vaccine
in recovering intravenous drug users in Bangkok, Thailand
V0478s/ACTG209 A Phase I/II trial of vaccine therapy of HIV-1-infected individuals with 50-500 cells/mm(3)
V0508s/AVEG 016, 016A, A phase I, multicenter, randomized, double-blind, placebo-controlled HIV-1 vaccine trial to evaluate
016B the safety and of MN rsgp120/HIV-1 in combination with QS21 adjuvant and/or alum in healthy adults
</TABLE>
<PAGE> 39
<TABLE>
<S> <C>
V0515s/AVEG104 Phase I safety and immunogenicity trial of MNrgp120/HIV-1 vaccine in HIV-1 infected pregnant women with CD4
lymphocyte counts >= 400/mm(3)
V0516s A Phase I comparative blinded trial of several HIV-1 derived immunogens in infected individuals with >= 500
CD4 cells/mm(3)
V0517s/AVEG201 A Phase II trial to evaluate the immunogenicity and reactogenicity of the recombinant subunit HIV-1
envelope vaccines SF-2 rgp120 (Biocine/Chiron) in MF59 and MN rgp120 (Genentech) in alum in high risk
populations
V0518s/ACTG218 A placebo controlled Phase I clinical trial to evaluate the safety and immunogenicity of recombinant
envelope proteins of HIV-1 gp160 and gp120 in children >= 1 month old with asymptomatic HIV infection
V0519s/ACT230 A placebo controlled, phase I clinical trial to evaluate the safety and immunogenicity of recombinant
envelope proteins of HIV1 gp 160 and gp120 in children >= 1 month old with asymptomatic HIV infection
V0521s/AVEG010 A Multicenter, randomized trial to evaluate the safety and immunogenicity of a recombinant vaccinia-HIV
envelope vaccine (HIVAC1-e) in combination with a group of subunit recombinant HIV envelope vaccines in
vaccinia-naive individuals
V0535s Evaluation of the safety and immunogenicity of MN rgp120/HIV-1 vaccine in healthy seronegative subjects and
the identification and recovery of higher-titer source plasma with activity against HIV-1
V0600s/AVEG009x A phase I multicenter study of the safety and immunogenicity of MN rgp 120/HIV-1 vaccine given either alone
or in combination with IIIb rgp 120/HIV-1 vaccine in healthy adult subjects, Amendment II
V0601s/AVEG006x A phase I safety and immunogenicity trial of Genentech MN rgp 120 in HIV uninfected volunteers who have
previously received vaccinations with MN rgp120 and/or IIIB rgp120, Amendment II
V0635s/ACTG279 A Phase I trial of the safety and immunogenicity of MN rsgp 120/HIV-1 with the adjuvants QS-21 and alum
compared to MN rsgp 120/HIV-1 and QS-21 in infants born to HIV-1 infected women
V0707s Delayed type hypersensitivity responses in HIV-1 uninfected persons at low or high risk for acquiring HIV-1
infection
</TABLE>
<PAGE> 40
<TABLE>
<S> <C>
VO719s/AVEG015 A Phase I, randomized, double-blind, clinical trial to compare the safety and immunogenicity of
recombinant envelope protein SF-2 rgp120/HIV-1, individually combined with seven adjuvants, in healthy
HIV-1 uninfected individuals, Amendment II
</TABLE>
4. MANUFACTURED MATERIALS AND DOCUMENTATION FOR GENENTECH'S PREVIOUS MANUFACTURE
OF FIRST GENERATION CLINICAL VACCINE (AS DEFINED IN THE AGREEMENT):
First Generation Clinical Vaccine and, if elected, Clinical Vaccine
and/or Commercial Vaccine (potentially including Vaccine Variants),as set forth
in the Agreement.
Genentech manufacturing tickets and quality control testing procedures
and results for First Generation Clinical Vaccine supplied to VaxGen.
5. OTHER DRUG SUBSTANCES, REAGENTS, CELL LINES, PLASMIDS AND ADDITIONAL LICENSED
KNOWHOW:
Each of the following shall be provided to VaxGen in the mounts it
reasonably requests, but only to the extent that (a) such material is necessary
for a Licensed Product or its development, manufacture, use or sale under this
Agreement, Co) VaxGen uses such material solely for purposes of development and
commercialization of Licensed Products under this Agreement, (c) such material
is then available at Genentech (or can be obtained at VaxGen's expense), and (d)
Genentech has the right to transfer or provide such material to VaxGen (or can
obtain such rights at VaxGen's expense):
Bulk and/or vialed sCD4.
Bulk and/or vialed CD4-IgG.
Bulk and/or vialed IIIB isolate of the Vaccine, formulated with the
adjuvant aluminum hydroxide, as previously manufactured by Genentech, but only
in amounts sufficient for non-clinical research purposes unless Genentech elects
to provide clinical and/or commercial supplies of this version of the Vaccine as
provided in Section 4 of the Agreement.
Bulk and/or vialed adjuvant comprised of bulk aluminum hydroxide.
Bulk and/or vialed adjuvant comprised of biodegradable polylactide
(lactide-co-glycolide) copolymer microspheres encapsulating the Vaccine, but
only in amounts sufficient for non-clinical research purposes.
Bulk and/or vialed adjuvant comprised of QS-21, with or without aluminum
hydroxide.
Bulk and/or vialed soluble placebos in amounts necessary for human
clinical trials of the First Generation Clinical Vaccine.
<PAGE> 41
rgp120 Mabs and Fab's.
5B6 anti-herpes gD Mabs and Fab's.
xrgp120 immunoaffinity resins (5B6, IF12).
Patient plasma and data relating thereto licensed to Genentech by North
American Biologics, Inc. (formerly Univax).
Data and other knowhow relating to any of the Adjuvants.
Aliquots from rgp120 (IIIB isolate) master and working banks.
Aliquots from rgp120(MN isolate) master and working banks.
Research rgp120 cell lines.
rgp120 hybridomas and E.coli expressing Fab's.
HIV-related plasmids and Mab/Fab' plasmids.
anti-gp120 hydridoma and E.coli Mab/Fab' expression/production.
<PAGE> 42
XIII. LICENSED PATENTS
Under the License Agreement, VaxGen has licensed or sublicensed from Genentech
exclusive rights to use patents and patent applications relating to the HIV
gp120 vaccine formulations developed by Genentech and to certain adjuvant
technology, as such patents and patent applications have issued or have been
filed in the U.S. and various other countries. The patents and patent
applications cover the gp120 protein, its manufacture and its use as a vaccine,
including truncated viral glycoproteins which include the HIV gp120 protein,
gp120 protein from any HIV strain or substrain, fusion proteins useful in
recombinant DNA production of gp120, a preferred vaccine in which essentially
100% of the gp120 protein has an intact (non-proteolytically cleaved) principle
neutralizing determinant ("PND"), a method to produce PND-intact gp120 and a
method to use PND-intact gp120 as a vaccine. Rights to second generation
vaccines are further covered by patent applications relating to preferred, novel
gp120 proteins from certain HIV substrain and to multi-subunit vaccines
containing certain gp120 proteins from more than one HI strain or substrain. The
patents and patent applications also cover certain adjuvant technology,
including new adjuvant formulations and long-release adjuvants.
The collective group of 21 patents and 51 patent applications include 2 issued
U.S. patents, 19 issued foreign patents (covering 22 countries), of which four
are European patents (each covering the EEC countries). In addition, them are 16
patent applications pending with the U.S. Patent and Trademark Office and 35
patent applications pending with foreign patent agencies; five of the 35 foreign
patent applications are European applications. Presented below there is a
description of the patents currently licensed to the Company.
<TABLE>
<CAPTION>
SUBJECT COUNTRY STATUS APPLN. NO. APPLN. DT. PAT. NO. DATE GRANTED
- ------- ------- ------ ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Vaccine Denmark Pending 4122/84 08/29/84
Vaccine Greece Granted 80220 08/29/84 80220 NOV 15 1984
Vaccine South Africa Granted 84/6764 08/29/84 84/6764 APR 24 1995
Vaccine Canada Pending 617008 08/27/84
Vaccine Japan Pending 222311/95 08/30/84
Vaccine New Zealand Granted 230123 08/22/84 230123 DEC 13 1991
Vaccine Australia Granted 51705/85 08/22/84 600658 DEC 11 1990
Vaccine Hong Kong Granted 0139417 08/29/84 9870F1992 DEC 10 1992
Vaccine Ireland Granted 2210/84 08/29/84 58030 JUN 16 1993
Vaccine Canada Pending 498600 12/24/85
Vaccine Austria Granted 85309454.8 12/23/85 0187041 MAY 15 1996
Vaccine Belgium Granted 85309454.8 12/23/85 0187041 MAY 15 1996
Vaccine European Granted 85309454.8 12/23/85 0187041 MAY 15 1996
Vaccine France Granted 85309454.8 12/23/85 0187041 MAY 15 1996
Vaccine Germany Granted 85309454.8 12/23/85 0187041 MAY 15 1996
Vaccine Great Granted 85309454.8 12/23/85 0187041 MAY 15 1996
Britain
Vaccine Italy Granted 85309454.8 12/23/85 0187041 MAY 15 1996
Vaccine Luxembourg Granted 85309454.8 12/23/85 0187041 MAY 15 1996
Vaccine Netherlands Granted 85309454.8 12/23/85 0187041 MAY 15 1996
Vaccine Sweden Granted 85309454.8 12/23/85 0187041 MAY 15 1996
Vaccine Switzerland & Granted 85309454.8 12/23/85 0187041 MAY 15 1996
Liechtenstein
Vaccine Malaysia Granted PI8701924 09/24/87 MY102030A FEB 29 1992
Vaccine Canada Granted 559508 02/22/88 1330038 JUN 07 1994
Vaccine Austria Granted 88301425.0 02/19/88 0279688 APR 16 1997
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
SUBJECT COUNTRY STATUS APPLN. NO. APPLN. DT. PAT. NO. DATE GRANTED
- ------- ------- ------ ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Vaccine Belgium Granted 88301425.0 02/19/88 0279688 APR 16 1997
Vaccine European Granted 88301425.0 02/19/88 0279688 APR 16 1997
Vaccine France Granted 88301425.0 02/19/88 0279688 APR 16 1997
Vaccine Germany Granted 88301425.0 02/19/88 0279688 APR 16 1997
Vaccine Great Granted 88301425.0 02/19/88 0279688 APR 16 1997
Britain
Vaccine Greece Granted 88301425.0 02/19/88 0279688 APR 16 1997
Vaccine Italy Granted 88301425.0 02/19/88 0279688 APR 16 1997
Vaccine Luxembourg Granted 88301425.0 02/19/88 0279688 APR 16 1997
Vaccine Netherlands Granted 88301425.0 02/19/88 0279688 APR 16 1997
Vaccine Spain Granted 88301425.0 02/19/88 0279688 APR 16 1997
Vaccine Sweden Granted 88301425.0 02/19/88 0279688 APR 16 1997
Vaccine Switzerland & Granted 88301425.0 02/19/88 0279688 APR 16 1997
Liechtenstein
Vaccine Japan Pending 38459/88 02/20/88
Vaccine United Pending 08/953550 10/17/97
States
Vaccine Australia Granted 75847/91 04/1/91 647108 JUN 30 1994
Vaccine Canada Pending 2078546-2 04/1/91
Vaccine Japan Pending 506683/91 04/1/91
Vaccine Austria Granted 91907077.1 04/1/91 527760 JUL 19 1995
Vaccine Belgium Granted 91907077.1 04/1/91 527760 JUL 19 1995
Vaccine Denmark Granted 91907077.1 04/1/91 527760 JUL 19 1995
Vaccine European Granted 91907077.1 04/1/91 527760 JUL 19 1995
Vaccine France Granted 91907077.1 04/1/91 527760 JUL 19 1995
Vaccine Germany Granted 91907077.1 04/1/91 527760 JUL 19 1995
Vaccine Great Granted 91907077.1 04/1/91 527760 JUL 19 1995
Britain
Vaccine Italy Granted 91907077.1 04/1/91 527760 JUL 19 1995
Vaccine Luxembourg Granted 91907077.1 04/1/91 527760 JUL 19 1995
Vaccine Netherlands Granted 91907077.1 04/1/91 527760 JUL 19 1995
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
SUBJECT COUNTRY STATUS APPLN. NO. APPLN. DT. PAT. NO. DATE GRANTED
- ------- ------- ------ ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Vaccine Sweden Granted 91907077.1 04/1/91 527760 JUL 19 1995
Vaccine Switzerland & Granted 237666 04/03/91 23766 DEC 05 1997
Liechtenstein
New Zealand
Vaccine Australia Pending 7047894 06/07/94
Vaccine Canada Pending 2164505 06/07/94
Vaccine European* Pending 94919281.9 06/07/94
Vaccine New Zealand Pending 267838 06/07/94
Vaccine United Pending 08/357084 12/15/94
States
Vaccine United Pending 08/282,857 07/29/94
States
Vaccine Canada Pending 2172509 10/13/94
Vaccine United Pending 08/405616 03/15/95
States
Vaccine United Pending 08/447291 05/22/95
States
Vaccine United Pending 08/459141 06/02/95
States
Vaccine United Pending 08/459147 06/02/95
States
Vaccine United Pending 08/470107 06/06/95
States
Vaccine United Pending 08/448603 06/07/95
States
Vaccine European* Pending 94930794.6 10/13/95
Vaccine Japan Pending 512118/95 10/13/95
Vaccine United Pending 08/802361 02/19/97
States
Vaccine Argentina Pending P970102984 07/03/97
Vaccine India Pending 1266/CAL/97 07/03/97
Vaccine Indonesia Pending P972342 07/07/97
Vaccine South Africa Pending 97/5889 07/02/97
Vaccine Taiwan Pending 86109394 07/03/97
Vaccine Thailand Pending 038312 07/03/97
Vaccine PCT Pending PCT/US97/09690 07/03/97
Vaccine United Pending 08/88984 07/08/97
States
Adjuvant United Granted 08/460363 06/01/95 5843605 JUL 01 1997
States
</TABLE>
<PAGE> 45
<TABLE>
<CAPTION>
SUBJECT COUNTRY STATUS APPLN. NO. APPLN. DT. PAT. NO. DATE GRANTED
- ------- ------- ------ ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Adjuvant Canada Pending 2172507 10/13/94
Adjuvant European* Pending 94930768.0 10/13/94
Adjuvant Japan Pending 512073/95 10/13/94
Process Spain Granted 535554 08/30/84 535554 DEC 20 1985
Process Austria Granted 84305909.8 08/29/84 0139417 JUL 26 1989
Process Belgium Granted 84305909.8 08/29/84 0139417 JUL 26 1989
Process European Granted 84305909.8 08/29/84 0139417 JUL 26 1989
Process France Granted 84305909.8 08/29/84 0139417 JUL 26 1989
Process Germany Granted 84305909.8 08/29/84 0139417 JUL 26 1989
Process Great Granted 84305909.8 08/29/84 0139417 JUL 26 1989
Britain
Process Italy Granted 84305909.8 08/29/84 0139417 JUL 26 1989
Process Luxembourg Granted 84305909.8 08/29/84 0139417 JUL 26 1989
Process Netherlands Granted 84305909.8 08/29/84 0139417 JUL 26 1989
Process Sweden Granted 84305909.8 08/29/84 0139417 JUL 26 1989
Process Switzerland & Granted 84305909.8 08/29/84 P139417.4 JUL 26 1989
Liechtenstein
Process Spain Granted 552539 08/30/84 552539 MAR 06 1987
Process Mexico Granted 923719 06/29/92 178947 JUL 27 1995
Process United Granted 08/226162 04/11/94 5674984 OCT 07 1997
States
Process Argentina Pending 329860 10/21/94
Process Canada Pending 2172508 10/13/94
Process Chile Pending 1544-94 10/21/94
Process European* Pending 94931369.6 10/13/94
Process Japan Pending 512076/95 10/13/94
Process Mexico Pending 948028 10/17/94
Process Uruguay Pending 23846 10/21/94
Process Venezuela Pending 1650-94 10/27/94
Process United Pending 08/966850 11/07/97
States
</TABLE>
*Pending in 17 European countries.
<PAGE> 46
Under the License Agreement, Genentech has retained title to the licensed
patents and patent applications and other Licensed Technology, while the Company
will retain title to any improvements developed by it. Both parties will jointly
own any improvements to the licensed patents and patent applications or other
Licensed Technology developed or invented jointly. Genentech will remain
responsible for the filing, prosecution and maintenance of all Licensed Patent
Rights, in consultation with the Company, at the Company's expense (including a
reasonable apportionment of the costs and expenses incurred by Genentech
relating to patent applications or patents within the Licensed Patent Rights
that contain claims outside of, or overlapping with, the scope of the license to
the Company). See "Risk Factors, Dependence upon Patents and Proprietary
Technology."
<PAGE> 1
EXHIBIT 10.15
SERVICES AGREEMENT
This Services Agreement ("AGREEMENT") is entered into as of January 1,
1999 (the "EFFECTIVE DATE") by VaxGen, Inc. (formerly known as Genenvax, Inc.),
a Delaware corporation ("VAXGEN"), and Genentech, Inc., a Delaware corporation
("GENENTECH") (each also singularly a "PARTY" and collectively the "PARTIES") as
follows:
WHEREAS, the Parties have entered into that certain License Agreement,
dated as of May 1, 1996 (the "LICENSE AGREEMENT") whereby Genentech has licensed
proprietary technology to VaxGen for purposes of VaxGen's development and
commercialization of a Vaccine against HIV and/or AIDS;
WHEREAS, in connection with the License Agreement, the Parties entered
into that certain Services Agreement, dated as of January 1, 1996 (the "FIRST
SERVICES AGREEMENT"), under which Genentech provided research and other services
to VaxGen; and
WHEREAS, the First Services Agreement expired in accordance with its
terms effective December 31, 1998, and the Parties desired to enter into this
new Services Agreement, effective as of January 1, 1999, under which Genentech
shall continue to provide services to VaxGen as provided herein.
NOW, THEREFORE, in consideration of the foregoing, the Parties hereby
agree as follows:
ARTICLE 1.0 CERTAIN DEFINITIONS.
The terms defined elsewhere in this Agreement shall have the meanings
specified herein. Capitalized terms used herein without further definition shall
have the meanings ascribed thereto in the License Agreement.
ARTICLE 2.0 SERVICES.
Subject to the other terms and conditions of this Agreement and the
License Agreement, Genentech shall provide VaxGen with the services set forth in
Schedule 1 attached to this Agreement and incorporated herein. Services in
addition to those set forth in Schedule 1, if any, and the reimbursement rate
therefor shall be agreed upon by the Parties in a written amendment to this
Agreement.
ARTICLE 3.0 REIMBURSEMENT.
3.1 TRACKING OF COSTS AND EXPENSES. Genentech shall maintain project
codes for gp120/VaxGen, during the term of this Agreement, under Genentech's
internal systems, which track
1
<PAGE> 2
internal and out-of-pocket costs and expenses for company activities.
3.2 REIMBURSEMENT. During the term of this Agreement, Genentech shall be
entitled to pass through to VaxGen and VaxGen shall be obligated to reimburse
Genentech for any and all services provided to VaxGen hereunder, including one
hundred percent (100%) of the internally tracked costs and expenses coded to
gp120/VaxGen, as provided in Section 3.3 of this Agreement.
3.3 INVOICING AND PAYMENT. Genentech shall invoice VaxGen (attn: Don
Francis) for reimbursement as set forth in Section 3.2 not more frequently than
quarterly (on a calendar quarter basis) during the term of this Agreement, with
the final invoice to be delivered not later than sixty (60) days after
expiration or termination of this Agreement. Genentech' s invoices shall be
prepared using the methodology set forth in Schedule 2 attached to this
Agreement and incorporated herein, and shall be delivered to VaxGen together
with a copy of Genentech's internal cost tracking reports covering services
hereunder for the period under such invoice. VaxGen shall pay Genentech within
thirty (30) days of receipt of each invoice hereunder. VaxGen shall have the
right to review each invoice and the cost tracking reports attached thereto with
Genentech. If any such review or the examination indicates a miscalculation of
the costs and expenses covered by any invoice hereunder, the Parties shall
promptly correct such miscalculation in the case of overpayment, by Genentech
reimbursement of VaxGen, and in the case of underpayment, by additional VaxGen
payment to Genentech).
ARTICLE 4.0 TERM AND TERMINATION.
4.1 TERM. This Agreement shall commence on the Effective Date and,
unless earlier terminated in accordance herewith or extended by the Parties upon
mutual written agreement, shall expire on December 31, 2000.
4.2 TERMINATION OF LICENSE AGREEMENT. This Agreement shall terminate
automatically effective upon any termination of the License Agreement.
4.3 TERMINATION FOR DEFAULT. Failure by either Party to comply with any
of its material obligations set forth in this Agreement shall entitle the
non-defaulting Party to give the defaulting Party a notice specifying the nature
of the default and requiring the defaulting Party to make good its default. If
such default is not cured within sixty (60) days after such notice, the
non-defaulting Party shall be entitled, without prejudice to any of its other
rights under this Agreement or available to it at law or in equity, to terminate
this Agreement effective upon a notice of termination to the defaulting Party.
4.4 TERMINATION FOR BANKRUPTCY, ETC. Either Party may, in addition to
any other remedies available to it by law or in equity, terminate this
Agreement, in whole or in part as the terminating Party may determine, by notice
to the other Party in the event the other Party shall have become insolvent or
bankrupt, or shall have made an assignment for the benefit of its creditors, or
2
<PAGE> 3
there shall have been appointed a trustee or receiver of the other Party or for
all or a substantial part of its property, or there shall have been issued a
warrant of attachment, execution, distraint or similar process against any
substantial part of the property of the other Party, or any case or proceeding
shall have been commenced or other action taken by or against the other Party in
bankruptcy or seeking reorganization, liquidation, dissolution, winding-up,
arrangement, composition or readjustment of its debts or any other relief under
any bankruptcy, insolvency, reorganization or other similar act or law of any
jurisdiction now or hereafter in effect, provided that in any such case such
event shall have continued for sixty (60) days undismissed, unbonded and
undischarged.
4.5 EFFECT OF TERMINATION. Expiration or termination of this Agreement
for any reason shall be without prejudice to any rights which shall have accrued
to the benefit of either Party prior to such expiration or termination
(including payment to Genentech for any services provided to VaxGen hereunder
prior to any such expiration or termination of this Agreement), and shall not
relieve either Party from its obligations which are expressly indicated to
survive expiration or termination of this Agreement; such rights and obligations
shall include, without limitation, those under Sections 3.2, 3.3, 4.5, 5.1, 5.2
and 5.5 of this Agreement. On any termination of this Agreement where the
License Agreement has also been terminated, the provisions of Section 10.5(c) of
the License Agreement shall also apply.
ARTICLE 5.0 GENERAL PROVISIONS.
5.1 NOTICES. Any notice, request, delivery, demand, report, accounting,
approval or consent required or permitted to be given under this Agreement shall
be delivered in writing in accordance with Section 11.1 of the License
Agreement.
5.2 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California (other than its choice of
law principles).
5.3 ENTIRE AGREEMENT; GOVERNING AGREEMENT. Except for the License
Agreement, the Supply Agreement and the Stock Agreements, this Agreement is the
entire agreement and understanding between the Parties respecting the subject
matter hereof, and supersedes and cancels any and all prior negotiations,
correspondence, understandings and agreements, whether written or oral, between
the Parties respecting the subject matter hereof, including, without limitation,
that certain Letter of Intent between the Parties dated as of November 17, 1995.
No amendment or other modification of this Agreement shall be binding on either
Party unless reduced to writing and signed by an authorized representative of
each Party. In the event of any conflict between the provisions of this
Agreement and the License Agreement, the provisions of the License Agreement
shall control, except to the extent it has been expressly amended as set forth
in this Agreement.
5.4 BINDING EFFECT AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties hereto and their respective permitted
successors and assigns. This Agreement shall not be assignable by VaxGen in
whole or in part without Genentech's prior consent in its sole discretion. This
Agreement shall not be assignable by Genentech in whole or in part
3
<PAGE> 4
without VaxGen's consent in its sole discretion, except that Genentech may
assign this Agreement in whole or in part without VaxGen's consent in connection
with any consolidation, merger, redemption, put or sale of stock, conveyance of
substantially all of Genentech's assets, or change-of-control transaction that
involves Genentech, Genentech's parent company F. Hoffmann La-Roche Ltd., a
Swiss corporation, or their affiliates.
5.5 DISPUTE RESOLUTION. In the event of any dispute, controversy or
claim arising out of or relating to this Agreement, the provisions of Section
11.5 of the License Agreement shall apply.
5.6 WAIVER. The waiver by either Party of any breach of or default under
any of the provisions of this Agreement or the failure of either Party to
enforce any of the provisions of this Agreement or to exercise any right
thereunder shall not be construed as a waiver of any other breach or default or
a waiver of any such rights or provisions hereunder.
5.7 SEVERABILITY. If any part of this Agreement shall be held invalid,
illegal or unenforceable by any court of authority having jurisdiction over this
Agreement or either Party, such part shall be ineffective only to the extent of
such invalidity, illegality or unenforceability, and shall be validly reformed
by addition or deletion of wording as appropriate to avoid such result and as
nearly as possible approximate the intent of the Parties. If unenforceable, this
Agreement shall be divisible and deleted in such jurisdiction, but elsewhere
shall not be affected.
5.8 PUBLICITY. VaxGen and Genentech shall consult and obtain mutual
consent before making any public announcement concerning this Agreement, the
subject matter hereof or use of the other Party's name, except for information
that is already in the public domain or where the nature of such information has
been previously approved, for disclosure in which case this Section 5.8 will no
longer apply to that previously approved information).
5.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original for all purposes, but
all of which together shall constitute one and the same instrument.
5.10 NO OTHER RIGHTS. No rights or licenses, express or implied, are
granted to VaxGen by this Agreement to use in any manner any trade name or
trademark of Genentech, or any other intellectual property not expressly covered
by this Agreement.
5.11 FORCE MAJEURE. Neither Party shall be liable to the other for loss
or damages or shall have any right to terminate this Agreement (except as
otherwise provided in this Agreement) for any default or delay of the other
Party in its performance under this Agreement that is attributable to an act of
God, flood, fire, explosion, strike, lockout, labor dispute, casualty or
accident, war, revolution, civil commotion, act of public enemies, blockage or
embargo, injunction, law, order, proclamation, regulation, ordinance, demand or
requirement of any government or subdivision, authority or representative of any
such government, or any other cause beyond the reasonable control of the
affected Party, if the Party affected shall give prompt notice of any such cause
to the other Party.
4
<PAGE> 5
The Party giving such notice shall thereupon be excused from such of its
obligations hereunder for the period of time that it is so disabled.
5.12 HEADINGS. Headings are for the convenience of reference only and
shall not control the construction or interpretation of any of the provisions of
this Agreement.
5.13 NO PARTNERSHIP. Nothing in this Agreement is intended or shall be
deemed to constitute a partnership, agency, employer-employee, or joint venture
relationship between the Parties. Neither Party shall incur any debts or make
any commitments for the other Party.
IN WITNESS WHEREOF, the Parties each have caused this Agreement to be
duly executed by its duly authorized representative as of the Effective Date set
forth above.
GENENTECH, INC. VAXGEN, INC.
By: /s/ W.D. YOUNG By: /s/ DONALD FRANCIS
------------------------------ --------------------------
Name: W.D. YOUNG Name: DONALD FRANCIS
---------------------------- ------------------------
Title: COO Title: PRESIDENT
--------------------------- -----------------------
5
<PAGE> 6
Schedule 1
GENENTECH STAFF AND SERVICES ASSISTANCE TO VAXGEN
Where a specific Genentech employee has been identified hereinbelow,
Genentech will attempt to accommodate VaxGen's request for such Genentech
employee to provide services pursuant to this Agreement, but Genentech reserves
the right to have other employees or agents of Genentech perform services
hereunder. In no event shall Genentech's obligations to provide services under
this Agreement exceed the scope of work set forth hereinbelow (either in terms
of the groups or types of work specified or the percentages or other amounts of
time indicated), except with prior written amendment of this Agreement.
Notwithstanding the foregoing, if services exceeding the scope of work set forth
hereinbelow are provided, Genentech shall be entitled to full reimbursement
therefor as provided in Article 3.0 of this Agreement.
<TABLE>
<CAPTION>
PERCENTAGE OF SPECIFIED EMPLOYEE'S
GROUP / EMPLOYEE TIME SPENT ON gp120/VAXGEN
---------------- --------------------------
<S> <C>
PROCESS SCIENCE AND MANUFACTURING
Supervisory/Advisory Personnel 10%
Tim Gregory
</TABLE>
Research Assistant Staff
RA (Assay) (cell culture yield improvement process,
preclinical) Up to 1.3 FTEs
RA in Jeffrey Gorrell's group Up to .8 FTEs
RA in Gian Polastri's group Up to .5 FTEs
Manufacturing
Genentech's manufacture and supply of Clinical Vaccine and Commercial
Vaccine to VaxGen will be pursuant to the License Agreement, on the
reimbursement and other terms set forth therein.
Virology Lab
VaxGen personnel to have access to the lab until June 30, 1999, and
VaxGen to pay for 50% of the work performed in the lab through such date.
<PAGE> 7
Occasional Assistance (<5% of time of one employee in the specified group)
Nucleotide Synthesis
Peptide Synthesis
Hybridoma Assistance
Bioanalytical
QA/QC, ongoing stability
Production planning/distribution
Pharm R&D for adjuvant
development (Jeff Cleland)
Regulatory Affairs
Larry Davenport 5%
General Administrative Services
Occasional Assistance. (<5% of time of one employee in the specified group)
Finance/Controller
Corporate Communications
Library Services
Central Records
Information Technology (lab)
Product Development (Jim Vannice)
Security Operations
<PAGE> 8
SCHEDULE 2
INVOICING METHODOLOGY
For each invoice hereunder, using Genentech's internal cost tracking systems
Genentech will identify the total amount of wages and direct costs for services
provided to VaxGen during the period covered by the invoice.
Genentech will then multiply the aggregate total of such wages and direct costs
by the following factors (which may be reviewed and revised by Genentech on an
annual basis during the term of this Agreement):
A = Factor for benefits and uncoded direct costs = 1.40
B = Factor for project administration, supervision and technology = 1.57
C = Factor for overhead (including depreciation and utilities) = 1.63
A x B x C = 3.58 (subject to annual review as noted above).
Sample invoice from Genentech hereunder:
<TABLE>
<S> <C>
Wages = $500,000
Direct costs = $ 48,000
- -----------------------
Total $548,000
</TABLE>
$548,000 x 3.58 = $1,962,000 total under invoice.
<PAGE> 1
EXHIBIT 10.16
April 10, 1998
Dr. Charles de Taisne
Pasteur Merieux Connaught
1541 Avenue Marcel Merieux
Marcy-L'Etoile, France 69280
Re: Letter of Intent for Supply and Development Agreement
Dear Charles:
Based upon our discussions over the past month, and the information we have
exchanged, we are entering into this Letter of Intent for an agreement under
which VaxGen, Inc. ("VaxGen") will supply its HIV vaccines (the "VaxGen Bivalent
Vaccines") to Pasteur Merieux Serums et Vaccins ("PMC") for development,
clinical testing and commercial distribution of HIV vaccines (the "PMC
Combination Vaccines").
This Letter of Intent contemplates that the parties will negotiate the
definitive license, research and supply agreements (the "Agreements") and
complete such further due diligence as may be needed by not later than July 15,
1998. It is the intent of the parties that the parties will meet to begin
preparation of the Agreements by May 20, 1998.
This Letter of Intent is being entered into to confirm our understanding of the
principal terms and conditions of the transaction and our mutual willingness to
proceed in mutual good faith to work toward the definitive Agreements consistent
with these terms.
<PAGE> 2
Dr. Charles de Taisne
April 10, 1998
Page 2
The following is a summary of the assumptions we both agree we share as we go
forward:
ASSUMPTIONS
-----------
A. PMC is developing and clinically testing an HIV vaccine (the "PMC Vaccine").
The PMC Vaccine contains a prime (first immunization) inoculum of recombinant
vector, e.g. canary pox/HIV, and a boost (second or later immunization)
containing recombinant monovalent HIV gp120. In addition, PMC is also developing
other vectors and booster immunogens.
B. VaxGen is developing and clinically testing the VaxGen Bivalent Vaccines.
These vaccines contain a mixture of two recombinant HIV gp120s (Bivalent gp120).
The vaccine tested in the United States contains gp120 derived from two viruses
of the B clade (MN and GNE8); vaccine tested in Thailand contains gp120 derived
from one virus of the B clade and one of the E clade (MN and A244). It is
contemplated that VaxGen vaccines may include additional gp120 molecules in the
future.
C. PMC currently collaborates with Chiron Corporation on the PMC Vaccine. Chiron
supplies monovalent gp120 that PMC is testing as the boost. Entering into the
relationship contemplated by this Letter of Intent will not in any way breach
PMC agreements with Chiron.
<PAGE> 3
Dr. Charles de Taisne
April 10, 1998
Page 3
D. PMC desires to enter into commercial license and supply agreements with
VaxGen for Bivalent gp120. Bivalent gp120 will replace the current monovalent
gp120 that PMC obtains from Chiron.
E. VaxGen is willing to enter into such commercial license and supply agreements
with PMC, for VaxGen to supply the VaxGen Bivalent Vaccines to PMC for PMC's use
in creating new PMC Combination Vaccines. VaxGen is willing to supply PMC with
both its Bivalent B/B and B/E Vaccines.
F. The parties contemplate ongoing collaborative research and development
activities in the area of HIV vaccines.
G. VaxGen and PMC both plan to develop separately and market separately their
respective vaccines and acknowledge that they may become competitors in the
future.
TERMS AND CONDITIONS
--------------------
In light of the assumptions Listed above the Agreements will contain the
following terms and conditions:
1. Each party will be permitted to proceed independently in all aspects
of the development, clinical testing, regulatory submissions, manufacturing and
marketing of their vaccines: PMC for the PMC
<PAGE> 4
Dr. Charles de Taisne
April 10, 1998
Page 4
Combination Vaccines and VaxGen for the VaxGen Bivalent Vaccines. Each party
shall bear all of the costs and perform all of the planning and efforts to bring
to market their respective vaccines.
2. VaxGen will supply PMC with Bivalent gp120s for the development and
clinical testing of the PMC Combination Vaccines. Upon regulatory approval of
the PMC Combination Vaccines, VaxGen will supply manufactured Bivalent gp120s
for sale as a boost component for these vaccines.
3. PMC understands that VaxGen's gp120s will be provided in experimental
form for use by PMC to solely develop PMC Combination Vaccines. PMC acknowledges
that it has an independent, and potentially competitive, research program
on-going with Transgene on the use of HIV envelope proteins as potential vaccine
boosts. To protect the confidentiality of both parties, PMC shall have the
option to accept or decline use of VaxGen's gp120s. PMC will not use the VaxGen
gp120s for comparative tests with other envelope proteins in the same clinical
trial (using a common group of randomized subjects), with envelope proteins of
third parties, including Transgene. Notwithstanding the above, PMC and VaxGen
acknowledge their intent to conduct certain research studies on a collaborative
basis in the future, each such program to be described in writing between the
parties, and to be subject to the Agreements.
<PAGE> 5
Dr. Charles de Taisne
April 10, 1998
Page 5
4. It is the intent of the parties that VaxGen will supply PMC with 100%
of the Bivalent gp120s that PMC requires for development, clinical testing, and
commercial marketing of the PMC Combination Vaccines. VaxGen will provide PMC
with all required doses of Bivalent gp120s during the term of the Agreements.
PMC will notify VaxGen of its needs for clinical testing of Bivalent gp120s at
least six months before the starting date of its clinical trials. PMC will
notify VaxGen of its needs for Bivalent gp120s for the commercial sale of the
PMC Combination Vaccines at least 18 months before the commencement of
commercial sale and thereafter the amounts VaxGen is required to supply for
commercial sale under the Agreements will be based on 18 months' notice of the
amounts required, updated on a rolling basis bimonthly. These
notice periods shall be subject to adjustment based upon agreement among VaxGen,
PMC and Genentech which may be reached after this Letter of Intent has been
concluded.
5. The cost of Bivalent gp120s to PMC for any purpose shall be
equivalent to the Fully Burdened Cost ("FBC") of Bivalent gp120s to VaxGen plus
ten percent (10%) of FBC. FBC is defined as the fully burdened cost of the
Bivalent gp120s from VaxGen's supplier, Genentech.
6. PMC agrees that should it decide to use HIV envelope proteins, other
than those provided by VaxGen in its PMC Combination vaccines, VaxGen shall have
the exclusive right to manufacture any such
<PAGE> 6
Dr. Charles de Taisne
April 10, 1998
Page 6
HIV envelope proteins. This right shall be subject to VaxGen providing PMC with
such envelope proteins at competitive pricing within the agreed time frames and
complying with GMP conditions. In the event VaxGen cannot meet such
requirements, PMC shall have the right to use other manufacturers as a second
source for such envelope proteins. Should VaxGen develop different or additional
gp120 proteins, PMC shall have the first right of refusal to acquire such
proteins from VaxGen. Notwithstanding the foregoing, in the event that PMC
discovers a radically different form of envelope proteins (in a molecular form
that has substantially new properties, such as natural loss of glycosylation
sites or disulfide bonding, but not simple changes in amino acid structure due
to independent strain isolation), PMC shall have the right to manufacture such
molecule itself, but in the event that PMC out-sources manufacturing of such
gp120, it shall provide a first right of refusal to manufacture such gp120
molecule to VaxGen. The parties contemplate the co-development of combination
vaccines for worldwide use.
7. VaxGen will grant PMC a Worldwide license to sell Bivalent gp120s as
components of the PMC Combination Vaccines. The license to PMC will be limited
to the sale of Bivalent gp120s as components of PMC Combination Vaccines or to
such products as are mutually agreed, in writing, by VaxGen and PMC. The license
will not permit the sale by PMC of
<PAGE> 7
Dr. Charles de Taisne
April 10, 1998
Page 7
Bivalent gp120s as individual products. The parties will work to distinguish
products sold by VaxGen from those supplied by VaxGen to PMC.
8. As consideration for the worldwide license PMC will pay VaxGen a
royalty of seventeen percent (17%) of gross margin for the PMC Combination
Vaccines (including VaxGen gp120) that are sold in the United States, Canada,
Europe, Japan, and Australia, provided that the VaxGen gp120 has been registered
with the FDA. In the event the VaxGen gp120 is not approved by the FDA, the
royalty rate shall be eleven percent (11%) of gross margin. For purposes of this
Letter of Intent, gross margin shall mean revenue received by PMC from the sale
of PMC Combination Vaccines minus returns, applicable taxes and costs of goods
sold related to both the PMC vector and the VaxGen gp120. The Agreements will
define gross margin in such greater detail as may be appropriate and in
accordance with applicable accounting principles. While this does not preclude
either a 17% or 11% royalty rate (as contemplated above) in other countries or
regions of the world, it is understood that a lower royalty rate will be
required in certain other areas of the world (not specified herein) and that the
parties will negotiate, in good faith, an appropriate royalty rate in such
countries to assure a reasonable sharing of profit between PMC and VaxGen. It is
further understood that market dynamics, including any third party royalty
obligations which may arise, may lead to changes in selling price and profit
<PAGE> 8
Dr. Charles de Taisne
April 10, 1998
Page 8
margins as the Combination Vaccines gain worldwide use. The parties will in such
cases negotiate, in good faith, a reasonable sharing of profits between PMC and
VaxGen.
9. VaxGen and PMC may enter into a research and development program as
described in Exhibit B. VaxGen and PMC may, but are not obligated to, enter into
other joint research and development programs, each such program will be covered
by separate written agreement.
10. The parties have entered into a confidentiality agreement in the
form of the agreement attached as Exhibit A. The Agreements will contain similar
confidentiality provisions. Breach of the confidentiality provisions shall be
grounds for termination of the Agreements, but the parties shall have the other
remedies set forth in Exhibit A for enforcement of the confidentiality
provisions.
11. In addition to the standard default and termination provisions
contained in a commercial agreement, the following matters shall constitute a
default under the Agreements entitling the injured party to terminate the
Agreements as well as to seek damages:
(a) Commercial disparagement of the other party or its
products:
<PAGE> 9
Dr. Charles de Taisne
April 10, 1998
Page 9
(b) A party attempting to link in time or performance the
development, clinical testing, regulatory submission and
marketing of one party's vaccine with the other party's
vaccine;
(c) A party intentionally or otherwise delaying the
development, clinical testing, regulatory submission of
the other party's vaccine. If VaxGen, at any time prior to
full enrollment of its Phase III clinical trials,
determines that PMC is attempting to delay VaxGen's Phase
III trials, VaxGen may immediately terminate the
Agreements.
(d) The definitive Agreements will include customary
covenants, conditions, representations, warranties and
indemnities.
PROCEDURES AND OTHER MATTERS
----------------------------
Upon execution of this Letter of Intent the parties will provide each other with
copies of or access to the following Information:
(a) VaxGen will provide PMC a written summary of: (i) the
performance characteristics of its MNrgp120 compared to
the SF-2gp120 of Chiron; (ii) pre-clinical
<PAGE> 10
Dr. Charles de Taisne
April 10, 1998
Page 10
data on its current Bivalent gp120s; (iii) analysis of
VaxGen's view of patents related to HIV vaccines; and (iv)
preliminary information with respect to manufacturing of
the Bivalent gp120s.
(b) VaxGen will provide PMC with the opportunity to review a
written summary of the results of and excerpts from the
transcript of proceedings of a June 6, 1997 meeting among
representatives of VaxGen, members of the FDA, and members
of the FDA's Vaccine Advisory Committee.
(c) PMC will prepare and provide VaxGen with (i) a written
summary of clinical safety information concerning the
canary pox virus vector and the canary pox virus vector
with recombinant HIV genes; (ii) draft letters notifying
NIAID (to the attention of Tony Fauci) and to the FDA
(attention: Karen Goldenthal), notifying those agencies of
the state of our discussions.
(d) VaxGen will prepare and provide PMC with a draft letter
notifying AVEG (to the attention of Dr. Belshe)
<PAGE> 11
Dr. Charles de Taisne
April 10, 1998
Page 11
of the PMC/VaxGen collaboration and issues related to
providing bivalent gp120 and reagents to AVEG
investigators.
By April 10, 1998, PMC will execute this Letter of Intent (which will be
transmitted by facsimile) to VaxGen. Upon execution of this Letter of Intent and
not later than April 13, 1998, PMC will send the notice letters to NIAID and FDA
and VaxGen will send the notice letter to AVEG. It is understood by both parties
that additional items (e.g. information concerning existing agreements between
VaxGen and Genentech) will be required for due diligence prior to completion of
the Agreements. The parties will thereafter use their good faith, reasonable
efforts to complete the definitive Agreements and have them executed by their
authorized representatives within a reasonable period after April 10, 1998 but
in any event no later than July 15, 1998.
MATTERS OF IMMEDIATE AGREEMENT
------------------------------
The parties agree that the following matters are matters of immediate agreement
between the parties upon execution of this Letter of Intent:
(e) Exclusivity. Each party agrees that it will negotiate
exclusively concerning the matters described herein with
the other party from the date of this letter through
<PAGE> 12
Dr. Charles de Taisne
April 10, 1998
Page 12
the execution of the Agreements or the termination of this
Letter of Intent.
(f) Confidentiality. The parties have entered into a
confidentiality agreement which is attached hereto as
Exhibit A.
(g) Expenses. Each party will be solely responsible for paying
their own fees and expenses for legal counsel, advisors
and others in connection with this Letter of Intent and
the transactions contemplated hereunder.
(h) Ultimate Termination. If the definitive Agreements have
not been executed by the parties by July 15, 1998, this
Letter of Intent will terminate automatically, unless it
is extended by written agreement signed by duly appointed
representatives of both parties.
(i) Phase III Clinical Trials. Both parties acknowledge that
their candidate vaccines as herein described will enter
Phase III clinical trials at different times. VaxGen
represents that it will begin its Phase III trial in Q3
1998. PMC represents that it will not begin its Phase III
trial prior to Q4 1999, unless otherwise
<PAGE> 13
Dr. Charles de Taisne
April 10, 1998
Page 13
directed by a government agency with authority to direct
otherwise.
If your understanding is consistent with ours, please sign on the space provided
below and return this letter to me. We look forward to working with you to
complete this transaction.
Sincerely:
VAXGEN, INC.,
By /s/ ROBERT C. NOWINSKI
-------------------------------------
Robert C. Nowinski, Ph.D.
Chairman
AGREED:
PASTEUR MERIEUX CONNAUGHT
By /s/ (Signature illegible)
-------------------------------------
Its Senior Vice President Research and Development
<PAGE> 14
EXHIBIT B
DEVELOPMENT PROGRAM
1. The first clinical study between the parties shall be directed towards
the selection of a PMC vector, using Bivalent gp120 as boost. Upon
priming of a patient population with PMC vectors, VaxGen will then
provide GMP-grade bivalent gp120 for boosts of placebo and test groups.
2. Efforts to prepare homologous antigens for the PMC Combination Vaccine.
This includes plans to match envelope proteins from homologous viruses
in both canary pox/HIV vectors and gp120 boosts.
3. Efforts to develop vaccines for clade C viruses. PMC would market a
Combination Vaccine, while VaxGen would market a bivalent gp120 vaccine.
4. Development of adjuvants for use in subunit and combination vaccines.
5. VaxGen will provide PMC with gp120 proteins for purposes of studying the
effects of deglyco-sylation of the protein on immunogenicity.
6. PMC will provide DNA of a truncated gp160 to VaxGen. VaxGen will clone
and express the DNA in CHO cells. The purpose is to determine the
production levels of the protein, as well as to bypass the current PMC
process of heat inactivation of vaccinia virus.
<PAGE> 1
Exhibit 10.16.1
April 30, 1999
Dr. Charles de Taisne
Pasteur Merieux Connaught
1541 Avenue Marcel Merieux
Marcy L'Etoile, France 69280
Re: Letter of Intent for Supply and Development Agreement
Dear Charles:
Our April 10, 1998 Letter of Intent provided that we would negotiate and
finalize the necessary definitive agreements by no later than July 15, 1998. It
further provided that the Letter of Intent would be of no further force and
effect if we did not either finalize those agreements by July 15, 1998 or agree
in writing to some other date for finalizing the agreements. We entered into
subsequent agreements in writing which extended the date to finalize the Letter
of Intent to April 15, 1999.
Because the Phase III trials have consumed more of our time than expected, the
agreements cannot be finalized within the time period contemplated. Therefore,
we propose that the time for finalizing the definitive agreements be extended
through November 1, 1999. If the agreements have not been concluded by that
date, the Letter of Intent will be of no further force and effect unless
otherwise agreed in writing.
If the proposed extension is acceptable to you, please sign on the space
provided below and return this letter to me. In the meantime, this delay in
finalizing the agreements should not, in any way, interfere with the
cooperation that we are enjoying in practice. We look forward to working with
you to complete this transaction.
Sincerely:
VAXGEN, INC.
By: /s/ ROBERT C. NOWINKSI
------------------------------
Robert C. Nowinksi, Ph.D.
Date: April 30, 1999
----------------------------
AGREED:
PASTEUR MERIEUX CONNAUGHT
By: /s/ CHARLES DE TAISNE
------------------------------
Charles de Taisne
Date: May 3, 1999
----------------------------
cc: Ralph M. Pais, Esq.
<PAGE> 1
Exhibit 10.17
CLINICAL TRIAL AGREEMENT
This Agreement is entered into on _______________, 1999, by and between
VaxGen, Inc., 1000 Marina Boulevard, Brisbane, California 94005, a Delaware
Corporation ("VaxGen"), and ________________________________________,
________________________________________, a
_______________ corporation (the "Study Center").
WITNESSETH
WHEREAS, VaxGen will supply specified funds and Investigational New Drug,
AIDSVAX(TM), to Study Center for a clinical trial which will be conducted under
the oversight and in the clinic of Investigator;
WHEREAS, this is a double-blind, placebo-controlled, registrational clinical
trial, and the results of this trial will be submitted for review and approval
by the U.S. Food and Drug Administration;
WHEREAS, VaxGen has developed the Investigational New Drug (as hereinafter
defined) as a vaccine for the prevention of HIV;
WHEREAS, in order to comply with certain regulatory approval obligations, VaxGen
intends to conduct a multi-center clinical trial with respect to the
Investigational New Drug, of which the Study (as hereinafter defined) is a part;
WHEREAS, the Study Center is qualified to perform the Study and such performance
would further the Study Center's instructional and research objectives;
WHEREAS, VaxGen desires the Study Center to perform, and the Study Center
desires to so perform, the Study on the terms set forth herein;
NOW THEREFORE, in consideration of the promises and the mutual covenants and
conditions hereinafter recited, the parties do hereby agree as follows:
1.0 DEFINITIONS.
For purposes of this Agreement:
1.1 "CFR" means the United States Code of Federal Regulations.
1.2 "CRFs" means "Case Report Forms" as that term is defined in the
Protocol.
1.3 "Confidential Information" has the meaning set forth in Section
10.2.
1.4 "Discoveries" has the meaning set forth in Section 13.1.
1.5 "Effective Period" has the meaning set forth in Section 2.3.
1.6 "FDA" means the United States Food and Drug Administration.
<PAGE> 2
1.7 "HIV Laws" has the meaning set forth in Section 8.2.
1.8 "Informed Consent" has the meaning set forth in Section 5.1.
1.9 "Informed Consent Forms" has the meaning set forth in Section 5.1.
1.10 "Investigational New Drug" means "AIDSVAX(TM)", a vaccine
consisting of one or more gp120 antigens plus the adjuvant alum or placebo
containing adjuvant alum.
1.11 "Investigator" means the Principal Investigator, who is the real
person expressly engaged to directly perform or supervise the Study.
1.12 "Investigator Brochure" means the written document summarizing the
manufacturing, preclinical and clinical testing pertaining to the
Investigational New Drug.
1.13 "IRB" means the Study Center's Institutional Review Board.
1.14 "Protocol" has the meaning set forth in Section 2.1.
1.15 "Researchers" means the Investigator and any real persons who
shall, under the supervision of the Investigator or the Study Center, assist the
Study Center and the Investigator in performing the Study in accordance with
this Agreement.
1.16 "Rights" has the meaning set forth in Section 13.1.
1.17 "Study" means the clinical research trial to be performed by the
Investigator and any other Researchers at the Study Center in accordance with
this Agreement and the Protocol.
1.18 "Subject" means a human being who participates in the Study.
1.19 "VaxGen Property" means all property in which VaxGen has a
proprietary interest, including, but not limited to, (1) the Confidential
Information; (2) the Discoveries; (3) statistical data, evaluations, analyses
and specimens generated or collected by the Study Center in connection with the
conduct of the Study; (4) any quantities of the Investigational New Drug; (5)
the Protocol; (6) the Investigator Brochure; (7) CRFs and Informed Consent
Forms, whether or not completed; and (8) slides, study notes and other
documents, research supplies and any other related materials that are furnished
to the Study Center or the Researchers by or on behalf of VaxGen.
2.0 STUDY PERFORMANCE.
2.1 The Study shall be performed by the Study Center in accordance with
Protocol Number VAX 004 entitled "A Phase Ill Trial to Determine the Efficacy of
AIDSVAX(TM) B/B Vaccine in Adults at Risk of Sexually Transmitted HIV-1
Infection in the United States," attached hereto as Exhibit A, and any
subsequent amendments made thereto in accordance with Article 16.0 (the
"Protocol"). The Protocol is subject to approval by the IRB. The Informed
2
<PAGE> 3
Consent is subject to approval by VaxGen and the IRB. Any statement in the
Protocol that is inconsistent with this Agreement shall be superseded by this
Agreement.
2.2 The Study Center's Investigator shall be ____________________, M.D.
The Investigator shall be responsible, either directly or through other
Researchers, for the performance of the Study in accordance with the highest
standards of medical and clinical research practice. If for any reason the
Investigator is unable to continue to serve as Investigator and a successor,
acceptable to both the Study Center and VaxGen, is not available, this Agreement
shall be terminated as provided by Section 14.2.
2.3 The Study Center acknowledges that, with respect to the performance
of the Study, time is of the essence. The effective period of this Agreement
will commence on _______________, 1999 and shall expire on September 30, 2002
(the "Effective Period"). In the event that the Study Center does not fulfill
its obligations under this Agreement with respect to the Study during the
Effective Period, VaxGen may, at its sole option, extend the Effective Period by
one-month periods.
2.4 The Study Center shall enroll one hundred fifty (150) Subjects in
the Study. The Study Center shall use its best efforts to complete Subject
enrollment by February 28, 1999. In the event the Study Center is unable to
complete the enrollment by such date, VaxGen may reassign the Study Center's
enrollment slots, thereby reducing the number of Subjects the Study Center may
enroll in the Study. The Study Center acknowledges that the Study is part of a
multi-center clinical trial. When the enrollment goal of 5,000 subjects for the
clinical trial as a whole is reached, enrollment will be closed at all sites,
including the Study Center, regardless of whether the Study Center or any other
site has reached its individual enrollment goal.
2.5 The Study Center shall utilize the following clinical facilities for
the conduct of the Study: _________________________.
3.0 PAYMENT AND PAYMENT SCHEDULE.
3.1 As consideration for performance under the terms of this Agreement,
VaxGen shall pay the Study Center according to the Clinical Study Payment
Schedule attached hereto as Exhibit B. All payments outlined on Exhibit B shall
remain firm for the duration of the Study, unless otherwise agreed in writing by
the Study Center and VaxGen. Such payments are inclusive of all associated
costs, fees and charges, including any relevant or applicable overheads due any
party, entity or institution.
3.2 Payments made pursuant to this Article 3.0 shall be paid to the
Study Center, entity ____________________ (TAX ID) and sent to the following
address:
Name
Entity
Address
City, State ZIP
3.3 Payment as set forth in this Section 3 shall constitute full payment
for the Study and VaxGen shall have no other payment obligations hereunder.
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4.0 INVESTIGATIONAL NEW DRUG AND SPECIMENS.
4.1 VaxGen shall provide the Study Center with the Investigational New
Drug to be used solely for purposes of the performance of the Study by the Study
Center. The Study Center agrees to limit access to the Investigational New Drug
to only those individuals engaged in conducting [or participating in] the Study.
The Study Center shall not transfer the Investigational New Drug to any third
party. The Study Center shall maintain complete and accurate records of all
quantities of Investigational New Drug received and dispersed by the Study
Center, as indicated in Section 6.2 below.
4.2 The Investigational New Drug shall be shipped to the Study Center in
containers marked in accordance with 21 C.F.R Section 312.6. All used containers
of the Investigational New Drug shall be destroyed or otherwise disposed of in
accordance with the Study Center's Standard Operating Procedures. Written
certification of such destruction or disposal shall be provided to VaxGen by the
Study Center. All expired or unused Investigational New Drug shall be returned
to VaxGen at the completion of the Study or termination of this Agreement,
whichever occurs first.
4.3 The Study Center shall not collect specimens or use the
Investigational New Drug for use in any research without the prior written
permission of VaxGen. All specimens collected by the Study Center shall be
delivered to VaxGen by the Study Center in a timely manner throughout the
performance of this Study in accordance with the Protocol or as otherwise
provided by VaxGen, and in no event later than five (5) working days after the
date of termination of this Agreement or on which VaxGen otherwise requests
delivery of the specimens.
5.0 SUBJECTS.
5.1 Informed consent of each of the Subjects participating in the Study
shall be obtained in accordance with 21 C.F.R. Sections 50 and 56, including
completion of the VaxGen-approved Informed Consent Form, which has been approved
by the IRB (such activities to be referred to collectively as "Informed
Consent"). The Study Center shall administer the Investigational New Drug only
to Subjects from whom Informed Consent has been properly obtained by the Study
Center under this Section 5.0. The Study Center shall maintain adequate
documentation of its obtainment of the Informed Consent of each Subject.
5.2 The Study Center shall monitor the Subjects in accordance with the
Protocol. The Study Center shall require the Investigator to promptly report to
VaxGen all serious adverse experiences that may be associated with the
administration of the Investigational New Drug that occur during the course of
the Study. For purposes of this Section, "promptly" shall mean within
twenty-four (24) hours of the occurrence of any such serious adverse experience.
Failure to comply with this Section shall constitute reasonable grounds for
VaxGen to terminate this Agreement as provided in Section 14.2.
5.3 VaxGen agrees to assume responsibility for the direct reasonable and
necessary costs of treatment of any adverse reaction or injury to a Subject that
is a vaccine induced reaction to the Investigational New Drug that has been
administered in accordance with this Agreement, the Protocol and any other
written instructions of VaxGen, and are in no way attributable to the
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negligence or misconduct of any agent or employee of the Study Center. VaxGen
shall not be responsible for costs incurred for the treatment of HIV-1
infection.
5.4 VaxGen, the Study Center and the Researchers shall hold in
confidence the identity of the Subjects and shall comply with all applicable
laws regarding the confidentiality of their identities and their individual
medical records.
6.0 RECORDKEEPING, REPORTING AND ACCESS TO RECORDS.
6.1 VaxGen or its authorized representatives, and regulatory authorities
to the extent permitted by law, may, during regular business hours:
(1) Examine and inspect the Study Center's facilities used in
performance of the Study, including storage or use of the Investigational New
Drug;
(2) Observe conduct of the Study;
(3) Inspect and copy all data and work products relating to the
Study or the IRB, including CRFs, Subject medical records and Informed Consent
Forms and other Informed Consent documentation, required licenses, certificates
and accreditation; and
(4) Interview the Investigator, other Researchers and Study
Center or IRB personnel.
The Study Center shall, and shall cause the Investigator and any other
Researcher to, cooperate with any such inspection and shall ensure timely access
to requested records and data.
6.2 The Study Center, including the Investigator and any other
Researchers, shall perform the recordkeeping and reporting obligations described
in the Protocol and this Agreement and shall do so in accordance with all
applicable local, State and federal laws, regulations and guidelines. Such
recordkeeping shall be complete, current, accurate, organized and legible, and
shall be performed in a manner acceptable for the collection of data for
submission to, or review by, the FDA and in full compliance with such laws,
regulations, guidelines and in full compliance with the Protocol. These
recordkeeping and reporting obligations include, but are not limited to, the
following:
(1) maintaining written records, accounts, notes, reports and data relating to
the Study, including full case histories, as described in 21 CFR Section 312.62;
(2) completing original, authorized Informed Consent Forms and CRFs for each
Subject on a per visit basis; (3) maintaining adequate documentation of the
obtainment of Informed Consent from each Subject; (4) preparing and submitting
all safety, progress, interim and final reports; (5) maintaining records of the
receipt, use and disposition of the Investigational New Drug; (6) maintaining
copies of all correspondence with VaxGen, the IRB and the FDA; and (7)
maintaining other documents indicated by the Protocol or specified by VaxGen.
All such records shall be submitted to VaxGen upon request or upon completion of
the Study or as otherwise directed by VaxGen. All reports provided to VaxGen by
the Study Center must be in accordance with the Protocol and FDA requirements or
as otherwise instructed by VaxGen. Notwithstanding the foregoing, Study Center
may retain one copy of the records for archival purposes.
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6.3 The Study Center agrees to maintain all records required by this
Agreement and resulting from the Study for the time required by applicable
Federal, State and local laws and regulations and shall allow for inspections of
all such records by VaxGen or its authorized representatives during such period
of retention.
7.0 FDA ASSISTANCE.
7.1 At the request and expense of VaxGen, the Study Center shall, and
shall cause the Investigator to:
(1) assist VaxGen in the preparation and submission of
investigational new drug applications, and any other premarket applications
relating to the Study as may be required by the FDA; and
(2) attend meetings with the FDA and other regulatory agencies
regarding such applications and the associated approvals as requested by VaxGen.
7.2 The Study Center shall promptly inform VaxGen of any effort or
request by the FDA or other persons to contact the Study Center, the
Investigator or any other Researcher regarding the Study. The Study Center shall
promptly notify VaxGen in the event that the FDA or any other governmental
agency, either state or federal, issues the Study Center, the IRB, the
Investigator or any other Researcher any Notice of Inspectional Observations,
Warning Letters or other comparable documents citing allegedly improper or
inadequate research practices with respect to any activity of the Study Center,
the Investigator, other Researchers or the IRB. For purposes of this section,
"promptly" shall mean within three (3) business days of the receipt of any such
documents, efforts or requests by the Study Center, the Investigator or any
other Researcher.
8.0 COMPLIANCE WITH STATUTES.
8.1 The Study Center shall ensure that the Study is performed in
conformance with the standards of Good Clinical Practice acceptable to the FDA,
with the Protocol and other Written instructions provided by VaxGen, and with
all applicable local, State and Federal laws, regulations and guidelines,
including, but not limited to 21 CFR parts 312, 50 and 56.
8.2 In connection with any testing or other activity undertaken pursuant
to the Study with respect to determining the human immunodeficiency virus (HIV)
status of any Subject or potential Subject, the Study Center agrees to assume
full responsibility for complying with all federal, State, and local laws,
rules, and regulations as amended from time to time, directed to the HIV status
of individuals (collectively, "HIV Laws"), including, without limitation, HIV
Laws covering informed consent, screening, testing, counseling, reporting,
confidentiality, disclosure and record keeping.
9.0 WARRANTIES.
9.1 The Study Center warrants that the Study Center, the Investigator
and each of the other Researchers have all training, information, licenses,
approvals or certifications necessary for safely, adequately and lawfully
performing the Study, and the Study Center shall ensure that all such
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training, licenses, approvals or certifications are properly maintained
throughout the course of the Study. The Study Center further warrants to the
best of its knowledge that it, the Investigator and the other Researchers are
not subject to any conflicting obligation or legal impediment that might
interfere with the performance of the Study or that might impair the acceptance
of data resulting from the Study by the FDA, and that no such obligations or
conflicts will be incurred or permitted in the future without the prior written
approval of VaxGen.
9.2 The Study Center warrants that none of the Study Center, the
Investigator or the other Researchers have been or may be subject to debarment
under the provisions of the Generic Drug Enforcement Act of 1992, 21 U.S.C.
306(a) or (b), or have otherwise been disqualified or suspended from performing
the Study or otherwise subject to any restrictions or sanctions by the FDA or
any other governmental agency or professional body with respect to the
performance of scientific or clinical investigations. In the event that the
Study Center or any of the Researchers (1) becomes debarred; or (2) receives
notice of action or threat of action with respect to such debarment during the
term of this Agreement, the Study Center shall notify VaxGen immediately. In the
event that the Study Center or any of the Researchers become debarred during the
term of this Agreement, or the Study Center receives notice of any action or
threat of action as set forth in clause (2), VaxGen may, at its sole option,
automatically terminate the Agreement without any further action or notice by
either party.
9.3 The Study Center hereby certifies that it has not and will not use
in any capacity the services of any individual, corporation, partnership, or
association which has been debarred under 21 U.S.C. 306(a) or (b). In the event
that Study Center becomes aware of the debarment or threatened debarment of any
individual, corporation, partnership, or association providing services to Study
Center which directly or indirectly relate to Study Center's activities under
this Agreement, Study Center shall notify VaxGen immediately. VaxGen shall have
the right to terminate this Agreement immediately upon receipt of such notice.
9.4 The Study Center warrants that the Investigator or other Researchers
has not entered, and will not enter, into any contractual agreement or
relationship that would in any way conflict with or compromise any VaxGen
Property at the time of the execution of this Agreement or arising out of or
related to the performance thereunder.
9.5 The Investigational New Drug provided under this Agreement is not
for commercial use. VaxGen makes no representations or warranties, express or
implied, related to the Investigational New Drug, including without limitation
any warranty of merchantability or fitness for a particular purpose, or that the
use of the Investigational New Drug for purposes other than specified in this
Agreement will not infringe any patent or other proprietary right.
9.6 Any specimens collected by the Study Center and provided to VaxGen
in accordance with this Agreement shall be "as is" and the Study Center makes no
representation or warranty (express or implied) that the specimens are free from
harmful biological or infectious agents or organisms and are otherwise
merchantable or fit for a particular purpose or use.
10.0 CONFIDENTIALITY; PROTECTION OF VAXGEN PROPERTY.
10.1 The Study Center agrees that the Study Center and the Researchers
shall protect
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VaxGen Property from unauthorized use, access, duplication, disclosure, loss or
damage. In protecting VaxGen Property, the Study Center will take adequate
measures, including but not limited to the following: (1) limit access and use
of VaxGen Property to authorized Researchers for whom such access and use are
required for performance of the Study; (2) use VaxGen Property only for the
purposes described in the Protocol or other purposes as approved by VaxGen in
writing; (3) prevent transfer or disclosure of VaxGen Property to any other
person or entity without VaxGen's written approval; (4) prevent any unauthorized
duplication of VaxGen Property in written or electronic form and any
decompilation or modification of the Investigational New Drug; (5) use at least
the same degree of care and discretion it uses in maintaining the
confidentiality of its own Confidential Information; (6) upon completion or
termination of the Study, or on VaxGen's written request, return to VaxGen all
VaxGen Property and all written material that incorporates any VaxGen Property
and, if so requested, provide a written inventory showing the disposition of all
VaxGen Property received or developed by the Investigator. Return of VaxGen
Property shall include permanent removal of all VaxGen Property from all
computer or other electronic storage media that is not returned to VaxGen,
except as otherwise required by the FDA and/or local, state and federal laws,
regulations and guidelines or other governmental agencies.
10.2 The Study Center shall not, and shall obligate the Researchers not
to, disclose or use for any purpose other than performance of the Study, any
trade secret, privileged record or other confidential or proprietary information
(collectively, the "Confidential Information") disclosed to or developed by the
Study Center pursuant to this Agreement. Such Confidential Information includes
but is not limited to all information received by the Study Center or the
Investigator from VaxGen, the Investigator Brochure and the Protocol, the
Investigational New Drug and all information related to the Investigational New
Drug, all information developed during the Study, the CRFs and safety and
efficacy information, all data, results, reports, technical and economic
information, the existence or terms of this or other research agreements with
VaxGen, commercialization and research strategies, trade secrets and know-how
disclosed by VaxGen to the Study Center or any Researcher directly or
indirectly, whether in writing or orally, or developed under this Agreement.
Such Confidential Information shall be disclosed to the Study Center by VaxGen
hereunder in writing or if disclosed orally or in other than documentary form,
shall be reduced to writing within 30 days thereafter. Confidential Information
that is not in oral or written form, such as, but not limited to data tapes,
shall be designated in writing as confidential within thirty (30) days after
disclosure. The obligation of non-disclosure shall not apply to information
that:
(1) was known to Study Center or the Investigator, as evidenced
by prior written records, prior to receiving such information either directly or
indirectly from VaxGen, or
(2) is generally known to the public or that becomes generally
known to the public through no act or omission on the part of the Study Center
or the Investigator, or
(3) is disclosed to the Study Center or the Investigator on a
non-confidential basis at any time by a third party who has not obtained or
disclosed such information through improper or unlawful means.
10.3 The Study is intended to be conducted as a blind trial. The Study
Center shall not perform any independent assays for the purpose of unblinding
treatment assignment.
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10.4 In the event the Study Center or the Investigator is ordered to
provide Confidential Information by a lawful judicial or government order, the
Study Center shall promptly inform VaxGen and shall permit VaxGen to defend
against such order of disclosure and shall assist in such defense to the extent
permitted by law. In no other circumstances may the Study Center or the
Investigator disclose information without the consultation and prior written
consent of VaxGen.
11.0 PUBLICATION AND ADVERTISING.
11.1 The Study is being conducted as part of a multi-center clinical
trial. As stipulated in the Protocol, data from all such centers shall be pooled
and analyzed for publication in a final report (Primary Publication). Study
Center agrees that the Primary Publication to be coordinated by VaxGen will be
the first publication to present the pooled Study results.
Following the Primary Publication, or if the Primary Publication is not
published within one year of termination of this Agreement, the Study Center and
the Investigator shall have the right and be encouraged to publish or present
materials related to the Study. At least thirty (30) days prior to submission of
any material for publication or presentation by the Study Center or the
Investigator, the Study Center shall provide VaxGen with such material for its
review and comment. Expedited reviews of such materials may be arranged at
VaxGen's sole option. If requested in writing by VaxGen, the Study Center shall
withhold, or shall cause the Investigator to withhold, material from submission
for publication or presentation an additional sixty (60) days to allow for the
filing of a patent application, or the taking of such measures as VaxGen deems
appropriate, to establish and preserve its proprietary rights in the information
in the material being submitted for publication.
11.2 In the event VaxGen permits Study Center to conduct ancillary
research as provided in Section 4.3, Study Center and Investigator shall not
publish or make presentations with respect to the ancillary research until after
the primary data obtained from conducting this Study is published or publicly
presented.
11.3 VaxGen and the Study Center shall obtain prior written permission
from the other before using the name, insignia, symbol(s), trademarks or
logotypes associated with such party in any form of publicity in connection with
the Study; provided however that VaxGen may use the name associated with the
Study Center, or the names of the Researchers and Study Center employees to
identify the Study Center as the site at which the Study was conducted and to
identify those individuals responsible for conducting the Study. The disclosure
restrictions contained in this Section shall not apply to the extent such
disclosure is legally required.
11.4 VaxGen shall not use, nor authorize others to use, the name,
insignia, symbol(s), trademarks or logotypes of the Study Center or the
Researchers in any advertising, promotional or publicity material or make any
form of representation or statement in relation to the Study that would
constitute any express or implied endorsement by the Study Center of the
Investigational New Drug without prior written approval of the Study Center or
the Researchers.
11.5 Nothing contained herein shall prevent immediate public disclosure
of results by the Study Center or the Investigator to the extent necessary to
prevent or mitigate a serious health hazard.
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12.0 INDEMNIFICATION; LITIGATION.
12.1 VaxGen agrees to indemnify, and hold harmless the Study Center, its
officers, agents and employees, and each of the Researchers from any and all
liability, loss (including attorney's fees), or damage they may suffer as the
result of claims, demands, or judgments for bodily injury or death of a Subject
caused by the use of the Investigational New Drug during the course of the
Study, provided that:
(1) The Study was conducted in accordance with this Agreement,
the Protocol and all written instructions of VaxGen concerning the Study;
(2) Such claims, demands or judgments do not arise, in whole or
in part, from the negligent or willful acts or omissions or any misuse of the
Investigational New Drug by the Indemnitee, the Investigator or any other
Researcher or by any other person on the Study Center's property, exclusive of
VaxGen's employees;
(3) The Study was conducted in accordance with all applicable
federal, state or local laws, regulations and guidelines, including all HIV
Laws, and in conformance with the practices of reasonable and prudent clinical
investigators, physicians and medical institutions.
12.2 In the event that a claim or action is or may be asserted, the
Study Center shall have the right to select and obtain representation by
separate legal counsel. If the Study Center exercises such right, all costs and
expenses incurred by the Study Center for such separate counsel shall be borne
by the Study Center.
12.3 The Study Center agrees to indemnify and hold VaxGen harmless from
any and all liability, loss (including attorneys' fees), or damage it may suffer
as the result of claims, demands, or judgments which are, or are alleged to be,
arising out of:
(1) a failure to adhere to the terms of this Agreement, the
Protocol, any other written instruction of VaxGen;
(2) negligent or willful acts or omissions or any misuse of the
Investigational New Drug by the Study Center, the Investigator or any other
Researcher or by any other person on the Study Center's property, exclusive of
VaxGen's employees; or
(3) a breach of any applicable federal, state, or local laws,
regulations, or guidelines, including any HIV Laws, by the Study Center, the
Investigator or any other Researcher.
12.4 Each Party's agreement to indemnify and hold the other harmless is
conditioned on the indemnified party (i) providing written notice to the
indemnifying party of any claim, demand or action arising out of the indemnified
activities within ten (10) days after the indemnified party has knowledge of
such claim, demand or action, (ii) permitting the indemnifying party to assume
full responsibility to investigate, prepare for and defend against any such
claim or demand, (iii) assisting the indemnifying party, at the indemnifying
party's reasonable expense, in the investigation of, preparation for and defense
of any such claim or demand, and (iv) not compromising or settling such claim or
demand without the indemnifying party's written consent.
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12.5 VaxGen agrees to assume the risk of all liability in connection
with its use of any specimens delivered to it by the Study Center in connection
with the Study and, further agrees to indemnify, defend and hold Study Center,
its agents and employees harmless (including reasonable attorney's fees) arising
as a result of any injury or damages relating to the shipment, handling, use, or
subsequent transfer of the specimens by VaxGen, its agents and employees.
12.6 Regardless of whether indemnification is sought under this Section
12.0, the Study Center shall inform VaxGen of any allegation or threat of legal
action that it receives pertaining to the Study.
12.7 Unless the Study Center is self-insured or unless other terms of
insurance are required by law, the Study Center shall maintain during the
performance of this Agreement [and for three (3) years after the termination of
this Agreement], Commercial General Liability Insurance, including Products and
Professional Liability coverage, in amounts not less than $1,000,000 per
occurrence and $1,000,000 per accident for bodily injury and death and property
damage liability insurance with limits of not less than $1,000,000 per
occurrence and $1,000,000 per accident. Such insurance policies shall be issued
by insurers having an A.M. Best rating of at least A-VIII or be otherwise
acceptable to VaxGen. Upon request, the Study Center shall provide satisfactory
evidence of its insurance or self-insurance and unless the Study Center is
self-insured, shall provide to VaxGen thirty (30) days prior written notice of
any cancellation in its coverage. If other insurance is required by law, the
Study Center shall inform VaxGen of such legal requirements and shall certify in
writing that it complies with these requirements.
13.0 INVENTIONS AND DATA.
13.1 VaxGen shall exclusively own all rights, title and interests
(collectively "Rights") in and to any inventions, data (including Study results
and any clinical specimens or samples obtained from Subjects), discoveries,
know-how, patents, copyrights, moral rights, trade and service marks, and trade
secrets and other intellectual property, including but not limited to
inventions, discoveries and technology relating to the Investigational New Drug
or otherwise generated by the Study (collectively, the "Discoveries"). The Study
Center and the Researchers hereby irrevocably transfer and assign any and all
their Rights in any such Discoveries to VaxGen. The Discoveries will be the sole
property of VaxGen and VaxGen will have the right to determine the treatment of
any Discoveries, including the right to keep them as trade secrets, to file and
execute patent applications on it, to use and disclose it without prior patent
application, to file copyright and trademark applications on it or its own name,
or to follow any other procedure VaxGen deems appropriate.
13.2 The Study Center and the Researchers agree: (1) to disclose
promptly in writing to VaxGen all Discoveries including but not limited to the
surrender of all original lab books and other records; (2) to cooperate with and
assist VaxGen to apply for and to execute applications, assignments, affidavits,
or other documents, reasonably necessary to obtain any patent, copyright,
trademark or other statutory or other protection for Discoveries in VaxGen's
name as VaxGen deems appropriate; and (3) to otherwise treat all Discoveries as
Confidential Information.
13.3 Neither the Investigator nor the Study Center, including its
employees or agents, shall acquire any rights of any kind whatsoever with
respect to the Investigational New Drug as a
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result of performance under this Agreement or otherwise.
14.0 TERMINATION.
14.1 This Agreement may be terminated or suspended before the expiration
of the Effective Period by the mutual written consent of the parties.
14.2 This Agreement may be terminated or suspended by either party upon
immediate prior notice to the others if any of the following conditions occur:
(1) The authorization and approval to perform the Study in the
United States is permanently withdrawn by the FDA or the IRB or any other lawful
authority or authorization and is not restored within three months of
suspension.
(2) VaxGen deems termination appropriate upon reasonable grounds.
(3) The Investigator is unable to continue and an acceptable
successor is not agreed upon.
14.3 In the event this Agreement is terminated for any reason prior to
expiration of the Performance Period, the Study Center shall take all reasonable
steps required by VaxGen, including communicating with the Subjects, to
facilitate completion of the Study at an alternative clinical site designated by
VaxGen. In such event, VaxGen will reimburse Study Center for its reasonable
direct costs incurred in connection with such transfer, as well as for
reasonable non-reimbursed costs incurred and non-cancelable commitments made
prior to the receipt by the Study Center that the Agreement will be terminated.
14.4 Termination of this Agreement by either party shall not affect the
rights and obligations of the parties that have accrued prior to the effective
date of the termination.
15.0 CONFLICT OF INTEREST.
In order to avoid the potential for conflicts of interest as well as the
appearance of such, the Study Center agrees that the Investigator, during the
term of this Agreement, shall not hold any financial interest in VaxGen,
including but not limited to shares of stock of VaxGen or options to purchase
shares of stock of VaxGen, without the prior written consent of VaxGen, and that
the Investigator shall not purchase or sell, whether for his own account or the
account of any other person or entity, shares of VaxGen stock. The Study Center
shall ensure that the Investigator makes all other Researchers aware of this
provision and shall make such provision fully applicable to them.
16.0 CHANGES TO PROTOCOL.
If at a future date changes to the Protocol are desired, such changes
shall be made through prior written agreement between VaxGen and the Study
Center. If such changes affect the cost of the performance of the Study by the
Study Center, the Study Center shall submit a written estimate of such cost to
VaxGen for prior approval. If in the course of performing this Agreement,
however, generally accepted standards of clinical research and medical practice
affecting the safety of the
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Subjects require a deviation from the Protocol, such standards shall be
followed. In such case, the party aware of a need for a deviation shall
immediately inform the other party of the facts necessitating the deviation. Any
such changes or deviation from the Protocol shall be made in full compliance
with all applicable laws, regulations and guidelines.
17.0 GENERAL PROVISIONS.
17.1 Entire Agreement.
This Agreement represents the entire understanding as of the date hereof
between the parties with respect to the subject matter hereof, and supersedes
all prior agreements, negotiations, understandings, representations, statements,
and writings between the parties relating thereto. No modification, alteration,
wavier, or change in any of the terms of this Agreement shall be valid or
binding upon the parties hereto unless made in writing and duly executed by each
of the parties hereto.
17.2 Headings.
Article and section headings contained in this Agreement are included
for convenience only and form no part of the agreement between the parties.
17.3 Assignment.
(1) Study Center shall not assign this Agreement in whole or in
part to any other party and shall not appoint any other person as Investigator
without VaxGen's written consent. VaxGen may assign this Agreement in whole or
in part to any corporate parent, affiliate or subsidiary of VaxGen without Study
Center's consent.
(2) The Agreement shall inure to the benefit of, and be binding
upon, each party signatory hereto, its successors and permitted assigns. No
assignment shall relieve either party of the performance of any accrued
obligation which such party may at the time of assignment have under this
Agreement.
17.4 Independent Contractors.
The Study Center, including its agents and employees, shall be an
independent contractor at all times, and shall not be an agent of VaxGen and
shall have no actual, apparent or implied authority to bind VaxGen in any manner
or to any obligation whatsoever. The Investigator and the other Researchers
shall not be deemed to be employees of VaxGen and shall not be entitled to any
benefits available to employees of VaxGen.
17.5 Governing Law.
This Agreement is governed by the laws of the State of _______________,
not withstanding _______________'s, or any other jurisdiction's, choice of law
principles.
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17.6 Notices.
All notices or other communications that are required or permitted
hereunder shall be in writing and sufficient if delivered personally, sent by
prepaid air courier, sent by mail, or sent by facsimile transmission, to the
address set forth below or such other address as is subsequently specified in
writing:
Study Center: VaxGen, Inc.:
Name Joseph D. Robinson
Title Administrator, Contracts and Budgets
Study Center VaxGen, Inc.
Address 1000 Marina Blvd.
City, State ZIP Brisbane, CA 94005
000-000-0000 Telephone 650-624-1012 Telephone
000-000-0000 Facsimile 650-624-1013 Facsimile
Any such communication shall be deemed to have been given when delivered
if personally delivered, on the business day after dispatch if sent by air
courier, on the third business day following the date of mailing if sent by
mall; and on the date of facsimile transmission if sent by facsimile
transmission or electronic mail.
17.7 Severability.
If any one or more of the provisions of this Agreement shall be held to
be invalid, illegal or unenforceable, the validity, legality or enforceability
of the remaining provisions of this Agreement shall not in any way be affected
or impaired thereby.
17.8 Waiver.
The failure of any party hereto to insist upon strict performance of any
provision of this Agreement or to exercise any right hereunder will not
constitute a waiver of that provision or right.
17.9 Survival.
The rights and duties under Sections 1, 4.2, 5.3, 5.4, 7, 8, 9, 10, 11,
12, 13 and 17 shall survive the termination or expiration of this Agreement.
17.10 Integration.
Any Exhibits to this Agreement are incorporated into and made part of
this Agreement by reference.
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<PAGE> 15
The persons executing this Agreement represent and warrant that they
have the full power and authority to enter into this Agreement on behalf of the
persons or entities for whom they are signing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate counterpart original by their duly authorized
representatives to be effective as of the date of this Agreement.
Study Center: VaxGen, Inc.:
By: By:
------------------------------------- ---------------------------------
Print Name: Print Name: Donald P. Francis, M.D.
---------------------------- ------------------------
Title: Title: President
---------------------------------- ------------------------------
Date: Date:
----------------------------------- ------------------------------
I, ____________________, M.D., named as Investigator in this Agreement,
acknowledge that I have read this Agreement in its entirety and that I have
reviewed the obligations the Study Center has undertaken on my behalf. I agree
to use best efforts to assist the Study Center in meeting those obligations.
Investigator:
By:
-------------------------------------
Print Name:
-----------------------------
Title: Principal Investigator
----------------------------------
Date:
----------------------------------
15
<PAGE> 16
EXHIBIT B
VAXGEN, INC.
CLINICAL STUDY BUDGET AND PAYMENT SCHEDULE
PROTOCOL VAX004
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
PROTOCOL NO: VAX004
STUDY CENTER: Name
INVESTIGATOR: Investigator
COMMENCEMENT DATE: , 1999
ANTICIPATED COMPLETION DATE: September 30, 2002
COST PER SUBJECT: $ 3,750.00
ANTICIPATED ENROLLMENT: 150
PROJECTED TOTAL REIMBURSEMENT: $ 562,500.00
</TABLE>
BREAKDOWN OF PAYMENTS
I. INITIATION PAYMENT $ 37,500.00
------------------
The Initial Payment shall be made within thirty (30) days, once a signed copy of
the Agreement is returned to VaxGen, all regulatory documents have been received
and approved by VaxGen. The Initial Payment shall be credited against ten (10)
Per Subject Payments.
II. PAYMENT PER SUBJECT (a "Per Subject Payment") $ 3,750.00
------------------
Per Subject Payments shall be made for evaluable, eligible Subjects only. An
evaluable Subject is one for whom 16 CRFs, representing all visits by a Subject
for 36 months, have been completed in accordance with the Protocol, completed
the appropriate study procedures as set forth in the Protocol, and undergone the
evaluations required by the Protocol for assessment of efficacy and safety. An
eligible Subject is one that meets the inclusion/exclusion requirements of the
Protocol, that was enrolled by the Study Center and from whom Informed Consent
has been obtained. Per Subject Payments shall become due for each Subject upon
VaxGen's satisfactory review of all study documentation, including completed
CRFs and close-out audits. A completed CRF is one that is signed by the
Investigator and contains all complete verified information in accordance with
the procedures and scheduled assessments as stated in the Protocol.
Subsequent payments shall be made quarterly, upon VaxGen's receipt and
satisfactory review of completed case report forms. Quarterly payments shall be
determined by the total number of subject
16
<PAGE> 17
visits and case report forms received, reviewed and accepted by VaxGen within
the preceding three month period for each quarter ending March 31, June 30,
September 30 and December 31 during the term of this Agreement.
An amount equal to fifteen percent (15%) of all payments made during this
Agreement shall be withheld by VaxGen until all case report forms required to be
completed under the Protocol have been received by VaxGen and all Data
discrepancies have been resolved at the end of the trial. Once resolved, the
final payment is due within (30) days.
In the event that there are less than 16 completed CRFs for a Subject, VaxGen
shall only be obligated to make payment for such Subject on a pro-rated,
completed CRF basis contingent on the date of discontinuation from the Study in
accordance with the Protocol. Each completed CRF for enrolled and randomized
subjects who do not complete all study visits shall be reimbursed at a rate of
$234.38.
For those subjects who sero-convert during the course of the clinical trial,
they will rollover into the study schedule for HIV-1 infected subjects as
identified in Exhibit B-2 of the Protocol. Each completed CRF for enrolled
subjects who rollover into the study schedule for HIV-1 infected subjects will
be reimbursed at a rate of $250.00.
17
<PAGE> 1
Exhibit 10.18
BASIC LEASE INFORMATION
<TABLE>
<S> <C>
LEASE DATE: October 26, 1998
TENANT: VAXGEN, INC.
TENANT'S ADDRESS: Until the Term Commencement Date:
501 Forbes Boulevard
South San Francisco, CA 94080
Phone: (650) 225-7000
Fax: (650) 225-7057
After the Term Commencement Date:
347 Oyster Point Blvd., Suite 102
South San Francisco, CA 94080
LANDLORD: Oyster Point Tech Center LLC, a Delaware Limited
Liability Company
LANDLORD'S ADDRESS: c/o Trammell Crow NW, Inc.
1241 East Hillsdale Blvd., Ste. 200
Foster City, CA 94404
Phone: (650) 578-8100
Fax: (650) 345-2506
PROJECT: A two (2) building project totaling
approximately 104,780 square feet to be
constructed on approximately 5.52 acres of
land to be known as 347 and 349 Oyster Point
Blvd., South San Francisco, California 94080
which legal description is contained herein
in Exhibit A-1.
BUILDING: That approximately 39,780 square foot two
story building to be constructed as part of
the Project and to be known as 347 Oyster
Point Boulevard, South San Francisco,
California 94808, as approximately depicted
on the site plan attached as Exhibit A-2.
PREMISES: Approximately 9,651 square feet of the Building to be
known as 347 Oyster Point Boulevard, Suite
102, South San Francisco, California 94080
as shown herein Exhibit A-3.
PERMITTED USE: Office, laboratory, research and development facility
with wet chemistry and biology labs, clean rooms and
storage and use of Disclosed Hazardous Materials and use
of laboratory animals but only in the ordinary course of
Tenant's business (subject to the approval of the City
of South San Francisco and all other necessary
government agencies). The term "Disclosed Hazardous
Materials" as used in this Lease shall mean only those
chemical and biological materials and substances of the
types and quantities described in the inventory listing
that was delivered by Tenant to Landlord on or prior to
the date of execution of this Lease, a copy of which is
attached to this Lease as Exhibit F, and those other
materials and substances of which Tenant shall have
notified Landlord in writing and of which Landlord shall
have approved in writing from time to time pursuant to
this Lease.
PARKING DENSITY: 3 non-designated spaces per 1000 square foot of rentable area.
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
TERM COMMENCEMENT DATE: December 31, 1998
LENGTH OF TERM: Sixty-two (62) months
RENT:
Base Rent Months of Term Rent Per Square Foot Monthly Rent
-------------- -------------------- ------------
Month 1-2 -0-
Months 3-14 $1.50 psf per month $14,476.50
Months 15-26 $1.55 psf per month $14,959.00
Months 27-38 $1.60 psf per month $15,442.00
Month 39-50 $1.65 psf per month $15,924.00
Month 51-62 $1.70 psf per month $16,507.00
Estimated First Year Basic
Operating Cost $.30 psf per month, estimated at $2,895.00/mo.
SECURITY DEPOSIT: $17,371.50 plus secured first lien on Tenant's fixtures
and improvements
TENANT'S PROPORTIONATE
SHARE: Subject to change, but based on the rentable square feet
of the Premises divided by the total rentable square
feet of the Building and the Project, respectively,
estimated as follows:
Of Building: 23.85%
Of Project 9.21%
BROKER: Dean Givas
Trammell Crow NW, Inc.
1241 East Hillsdale Blvd., Suite 200
Foster City, CA 94404
</TABLE>
The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Defined terms in the Lease shall have the meanings ascribed to them
in the Basic Lease Information unless otherwise stated. Each reference in this
Lease to any of the Basic Lease Information shall mean the respective
information above and shall be construed to incorporate all of the terms
provided under the particular Lease paragraph pertaining to such information. In
the event of any conflict between the Basic Lease Information and the Lease, the
latter shall control. The term "days" as used in this Lease means "calendar
days" unless the specific term "business days" is used.
<PAGE> 3
Exhibit 10.19
LEASE
THIS LEASE is made as of this 26 day of October, 1998, by and between Oyster
Point Tech Center LLC, a Delaware limited liability company (hereinafter called
"Landlord") and VaxGen, Inc., a Delaware corporation (hereinafter called
"Tenant").
PREMISES 1. Landlord hereby leases to Tenant, and Tenant leases
from Landlord, the Premises, for the Term, at the
rental, and upon all of the terms and conditions set
forth in this Lease. The Premises is part of the
rentable area of 347 Oyster Point Boulevard (sometimes
referred to herein as the "Building") and is depicted
on Exhibit A-3. The Premises comprises 23.85% percent
of the rentable area of the Building. The Building is
part of the Project. The Building is outlined in yellow
on Exhibit A-2. Landlord shall, at its sole cost and
expense, construct the Building shell, parking lot,
exterior common areas, and landscaping approximately in
the manner depicted on Exhibit C hereto ("Initial
Project Specifications"). The Initial Project
Specifications shall include, without limitation, the
Building shell, roof, all exterior windows and doors,
fire sprinklers at the roof line, utilities, services
to the Building exterior, and Building Core as defined
in Exhibit B-1. Tenant shall perform Tenant's Work (as
defined in Exhibit B-1 hereto) for the Premises in the
manner described in Exhibit B-1 hereto.
TERM 2. The Term of this Lease ("Term") shall commence on
December 31, 1998 ("Term Commencement Date") and
continue in full force and effect for the number of
months specified as the Length of Term in the Basic
Lease Information or until this Lease is terminated as
otherwise provided herein. If the Term Commencement
Date is a date other than the first day of the calendar
month, the Term shall be the number of months of the
Length of Term in addition to the remainder of the
calendar month following the Term Commencement Date.
Within ten (10) days after requested by Landlord or
Tenant, Landlord and Tenant shall execute an amendment
to this Lease stating and confirming the Term
Commencement Date and Tenant's acceptance of the
Premises.
POSSESSION 3. Landlord shall deliver, and Tenant shall accept
delivery of, and take immediate possession of the
Premises on the Term Commencement Date. Landlord shall
have no liability to Tenant if the Term Commencement
Date is delayed by ninety (90) days or less, or to the
extent that any delay is the result of Force Majeure,
as defined in Paragraph 34. If Landlord is delayed by
more than ninety (90) days for reason other than Force
Majeure, Tenant's sole right and remedy shall be to
terminate this Lease. Landlord shall permit Tenant, or
Tenant's agents, to enter the Premises prior to the
Term Commencement Date ("Early Possession") for the
purpose of installing Tenant's equipment and fixtures
provided that such installation shall not interfere
with performance of Landlord's Work, as defined herein.
The term "Fixture" or "Trade Fixture" shall be defined
as anything attached in any manner to Landlord's
property. All portable, unattached items are Tenant's
property. Tenant and Landlord agree that Tenant does
not own any Trade Fixtures in the Premises except those
items listed in Exhibit B-3 or otherwise agreed to in a
separate writing between Landlord and Tenant. Landlord
owns all remaining Trade Fixtures. If Landlord permits
such Early Possession, from and after the date on which
Tenant or its agent first enters the Premises therefor,
all of the terms and conditions of this Lease
(including, but not limited to, insurance and indemnity
provisions) shall be applicable to Tenant's occupancy
save and except for the requirement to pay Base Rent
and Base Operating Costs.
USE 4. A. GENERAL. Tenant shall use the Premises for the
Permitted Use and for no other use or purpose. Tenant
shall control Tenant's employees, agents, customers,
visitors, invitees, licensees, contractors, assignees
and subtenants (collectively, "Tenant's Parties") in
such a manner that Tenant and Tenant's Parties
cumulatively do not exceed the Parking Density at any
time. Tenant and Tenant's Parties shall have the
nonexclusive right to use, in common with other parties
occupying the Building or the Project, the parking
areas and driveways of the Project, and other common
areas subject to such rules and regulations not in
conflict with
<PAGE> 4
this Lease as Landlord may from time to time prescribe.
B. LIMITATIONS. Tenant shall not permit any odors, smoke,
dust, gas, substances, noise or vibrations to emanate from
the Premises, nor take any action which would constitute a
nuisance or would disturb, obstruct or endanger any other
tenants of the Building or the Project or interfere with
their use of their respective premises. Storage outside the
Premises of materials, vehicles or any other items is
prohibited, with the exception of outside storage in areas
designated and approved in advance and in writing by
Landlord. Tenant may be required to provide screening for
such outside storage, at the discretion of Landlord. Tenant
shall not use or allow the Premises to be used for any
improper, immoral, unlawful or objectionable purpose, nor
shall Tenant cause or maintain or permit any nuisance in, on
or about the Premises or the Project. Tenant shall not
commit or suffer the commission of any waste in, on or about
the Premises or the Project. Tenant shall not allow any sale
by auction upon the Premises or the Project, or place any
loads upon the floors, walls or ceilings which endanger the
structure, or place any harmful liquids in the drainage
system of the Building or the Project. No waste, materials
or refuse shall be dumped upon or permitted to remain
outside the Premises except in trash containers placed
inside exterior enclosure designated for that purpose by
Landlord. Landlord shall not be responsible to Tenant for
the noncompliance by any other tenant or occupant of the
Building or the Project with any of the above-referenced
rules or any other terms or provisions of such tenant's or
occupant's lease or other contract. Landlord agrees not to
materially discriminate in the enforcement of any of the
above-referenced rules against Tenant only and not against
other tenants or occupants of the Project.
C. COMPLIANCE WITH REGULATIONS. By entering the Premises,
Tenant accepts the Premises in the condition existing as of
the date of such entry, subject to all existing or future
applicable municipal, state and federal and other
governmental statutes, regulations, laws and ordinances,
including zoning ordinances and regulations governing and
relating to the use, occupancy and possession of the
Premises and the use, storage, generation and disposal of
Hazardous Materials (hereinafter defined) in, on or under
the Premises (collectively "Regulations"). Except for
matters which occurred prior to the Term Commencement Date
and were not caused directly or indirectly by Tenant or by
any of the Tenant's Parties, Tenant shall, at Tenant's sole
expense, strictly comply with all Regulations now in force
or which may be hereafter in force relating to the Premises
and the use of the Premises and/or the use, storage,
generation of Hazardous Materials in, on and under the
Premises. Tenant shall at its sole cost and expense obtain
any and all licenses or permits necessary for Tenant's use
of the Premises. Tenant shall promptly comply with the
requirements of any board of fire underwriters or other
similar body now or hereafter constituted. Tenant shall not
do or permit anything to be done in, on, or about the
Premises or bring or keep anything which will in any way
increase the rate of any insurance paid for by Landlord upon
the Premises, the Building or the Project, or upon any
contents therein or cause a cancellation of said insurance
or otherwise affect said insurance in any manner without the
written consent of Landlord, which consent shall not be
unreasonably withheld, if reasonably related to the conduct
of Tenant's business within the Premises. In the event of
such written consent by Landlord, Tenant shall pay for any
increase in the rate of any insurance paid for by Landlord
as set forth above. Tenant shall indemnify, defend, protect
and hold Landlord harmless from and against any loss, cost,
expense, damage, attorneys' fees or liability arising out of
the failure of Tenant to comply with any Regulation or
comply with the requirements set forth herein. Nothing in
this section shall be construed to require Tenant to make
any structural alterations or modifications to the building
systems servicing the Premises, the Building, or the
Project, except to the extent such modification is required
as the consequence of Tenant's specific use of the Premises.
<PAGE> 5
D. HAZARDOUS MATERIALS. Tenant shall not cause, or allow any
of Tenant's Parties to cause, any Hazardous Materials to be
generated, stored, used, treated, removed, transported,
handled and disposed of on or about the Premises, the
Building or the Project without Landlord's prior written
approval, provided that, Tenant shall be permitted to use
the Disclosed Hazardous Materials in the ordinary course of
its business subject to the conditions and requirements of
this Lease. Landlord's conditional authorization of the
Disclosed Hazardous Materials shall be strictly limited to
the types of quantities described in Exhibit F, and shall
not be construed as an authorization for Tenant to generate,
store, use, treat, remove, transport, handle or dispose of
any additional quantities of Disclosed Hazardous Materials
or any other Hazardous Materials in, on, about or under the
Premises, Building or the Project. Tenant acknowledges that
any change in the types or quantities or Disclosed Hazardous
Materials described in Exhibit F, or any change in the means
and methods of generating, storing, treating, removing,
transporting, handling or disposing of such Disclosed
Hazardous Materials, shall require the prior written
approval of Landlord in each instance. Tenant represents and
warrants to Landlord that (a) prior to its use of Hazardous
Materials on the Premises, it will have received or obtained
issuance of, and will maintain in effect, all permits,
approvals, licenses, or other authorizations necessary for
Tenant's activities with respect to the Disclosed Hazardous
Materials, and (b) Tenant has not been cited, fined, or
otherwise found to be in violation of any governmental
requirement or fire, safety and insurance requirements or
regulations applicable to any Disclosed Hazardous Materials,
and (b) Tenant has not been cited, fined, or otherwise found
to be in violation of any governmental requirement or fire,
safety and insurance requirements or regulations applicable
to any Disclosed Hazardous Materials or any other Hazardous
Materials in any other leased premises. At least once during
each twelve (12) month of the Lease Term, Tenant shall
provide Landlord with an inventory list describing the
minimum and maximum quantities of each of the Disclosed
Hazardous Materials generated, stored, used, treated,
removed, transported, handled and disposed of on or about
the Premises, the Building or the Project the succeeding
twelve (12) months, and a copy of its Hazardous Materials
Management Plan ("HMMP") in the form submitted by Tenant to
the fire department. Tenant agrees to notify Landlord
immediately if Tenant receives notification or otherwise
becomes aware of: (a) any threatened or actual release,
spill or discharge of any other any Disclosed Hazardous
Materials in, on, about or under the Premises, the Building
or the Project, or (b) any threatened or actual lien,
action, or proceeding or notice that any Disclosed Hazardous
Materials or any other Hazardous Materials is not being
generated, stored, used, treated, removed, transported,
placed, manufactured, handled, or disposed of in strict
compliance with any and all governmental requirements and
regulations or applicable fire, safety or insurance
requirements and regulations. If Tenant or any of Tenant's
Parties is partially or wholly responsible or potentially
responsible for such condition, situation, lien, action or
notice, Tenant's notice to Landlord shall include a
statement as to the actions Tenant proposes to take in
response to such condition, situation, lien, action or
notice. As used in this Lease, "Hazardous Materials" shall
include, but not be limited to, hazardous, toxic and
radioactive materials and those substances defined as
"hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or other similar designations
in any federal, state, or local law, regulation, or
ordinance. Landlord shall have the right at all reasonable
times to inspect the Premises and to conduct tests and
investigations to determine whether Tenant is in compliance
with the foregoing provisions. The costs of all such
inspections, tests and investigations shall be borne by
Tenant provided that so long as Tenant is not in Default
hereunder Tenant shall not be responsible for the cost of
more than one (1) inspection per calendar year and Tenant's
liability for the cost of each such inspection shall not
exceed $5,000 per inspection. Tenant shall indemnify, defend
(by counsel selected by Landlord and approved by Tenant,
which approval shall not be unreasonably withheld), protect
and hold Landlord harmless from and against all liabilities,
losses, actually incurred costs and expenses, demands,
causes of action, claims or judgments directly or indirectly
arising out of the use, generation, storage or disposal of
Hazardous Materials by Tenant or any of Tenant's Parties,
which indemnity shall include, without limitation,
reasonable attorneys' and consultants' fees, the cost of any
required or necessary repair, cleanup or
<PAGE> 6
detoxification, and the preparation of any closure or other
required plans, whether such action is required or necessary
prior to or following the termination of this Lease. Neither
the written consent by Landlord to the use, generation,
storage or disposal of Hazardous Materials nor the strict
compliance by Tenant with all laws pertaining to Hazardous
Materials shall excuse Tenant from Tenant's obligation of
indemnification pursuant to this Paragraph 4.D. Tenant's
obligations pursuant to the foregoing indemnity shall
survive the termination of this Lease.
RULES AND
REGULATIONS 5. Tenant shall faithfully observe and comply with any rules
and regulations not in conflict with this Lease Landlord may
from time to time prescribe in writing for the purpose of
maintaining the proper care, cleanliness, safety, traffic
flow and general order of the Premises, the Building, or the
Project. Tenant shall cause Tenant's Parties to comply with
all such rules and regulations. Landlord shall not be
responsible to Tenant for the non-compliance by any other
tenant or occupant of the Building or the Project with any
of the rules and regulations.
RENT 6. A. BASE RENT. Base Rent for the Premises shall be calculated
on the basis of the rentable square feet of the Premises at
the rates specified in the Base Lease Information. Rentable
square feet shall include a load factor for core areas of
the Building as determined by Landlord's architect. Tenant's
obligation to pay Base Rent for the Premises shall commence
on the Term Commencement Date. Upon completion of Landlord's
Work, Landlord's architect shall certify to Landlord the
rentable square feet of the Premises, measured from the
outside of exterior walls, but including areas below the
"dripline" in the exterior entrances, to the midpoint of any
interior demising walls plus Tenant's proportionate share of
Building Core areas which include lobby areas, utility
rooms, mechanical shafts, elevator shafts, stairs in lobby,
etc. The calculation of the rentable square feet of the
Premises shall not include the stairs located within the
Premises which serve the second floor unit but shall include
an allocation for the exit corridor from the point of
Tenant's access to the corridor to the exterior exit. The
allocation to Tenant for the exit corridor shall be based on
the square footage of Tenant's interior Premises (excluding
core areas) divided by the square footage of interior
premises for all tenants having access to the corridor.
Landlord's architect shall also certify the rentable square
feet of the Building and the Project. Landlord's architect's
certification of rentable square feet for the Premises, the
Building and the Project shall be binding upon both Landlord
and Tenant for all purposes under this Lease. Landlord and
Tenant currently estimate that the rentable square feet of
the Premises and the Base Rent for the Premises will be as
stated in the Base Rent shall be determined and, if
requested by Landlord or Tenant, Landlord and Tenant shall
enter into an amendment of this Lease which states the
actual Base Rent as so determined. Upon determination of the
actual Base Rent for the Premises, Landlord and Tenant shall
adjust, if necessary, the Base Rent deposited by Tenant for
the first full month of the Term as provided in Paragraph
6.B. below, and Tenant's share of Operating costs, as
defined in Paragraph 7A. theretofore paid.
B. PAYMENTS. Tenant shall pay to Landlord, without demand
throughout the Term, Base Rent as specified in the Basic
Lease Information and finally determined as provided in
Paragraph 6.A., payable in monthly installments in advance
on or before the first day of each calendar month, in lawful
money of the United States, without deduction or offset
whatsoever, at the address specified in the Basic Lease
Information or to such other place as Landlord may from time
to time designate in writing. Base Rent and Estimated Basic
Operating Costs as defined in Paragraph 7.A. for the first
full month of the Term (based upon the estimated rentable
area as hereinabove provided) shall be paid by Tenant upon
Tenant's execution of this Lease. If the obligation for
payment of Base Rent commences on other than the first day
of month, then Base Rent (calculated at the rate applicable
to the second full month of the Term) for the partial month
shall be prorated on the basis of the actual number of days
in the month.
<PAGE> 7
C. ADDITIONAL RENT. All monies other than Base Rent required
to be paid by Tenant hereunder, including, but not limited
to, the interest and late charges described in Paragraph
26.D., any monies spent by Landlord pursuant to Paragraph
29., and Tenant's Proportionate Share of Basic Operating
Costs, as specified in Paragraph 7. of this Lease, shall be
considered additional rent ("Additional Rent"). "Rent" shall
mean Base Rent and Additional Rent.
BASIC 7. A. Basic Operating Cost. In addition to the Base Rent
OPERATING COST required to be paid hereunder, Tenant shall pay as
Additional Rent, Basic Operating Costs in the manner set
forth below. The Basic Operating Costs shall be calculated
on the basis of Landlord's architect's certification of the
rentable square feet of the Premises, the building and the
Project. The certification by Landlord's architect of the
rentable square feet of the Premises, the Building and the
Project shall be conclusive and binding upon both Landlord
and Tenant for all purposes of this Lease. Tenant's
obligation to pay Basic Operating Costs with respect to the
Premises, the Building and the Project shall commence on
March 1, 1999. Landlord shall account for each item of Basic
Operating Costs attributable to the Premises, the Building
and the Project, as determined by Landlord in Landlord's
sole discretion, and unless provided to the contrary in this
Lease, Tenant shall pay the Basic Operating Costs, as set
forth in the Basic Lease Information. "Basic Operating
Costs" shall mean all expenses and costs of every kind and
nature which Landlord shall pay or become obligated to pay
because of or in connection with the management,
maintenance, preservation and operation of the Building and
the Project (determined in accordance with generally
accepted accounting principles, consistently applied)
including but not limited to the following:
(1) TAXES. All real property taxes, possessory interest
taxes, business or license taxes or fees, service payments
in lieu of such taxes or fees, annual or periodic license or
use fees, excises, transit charges, housing fund
assessments, open space charges, assessments, levies, fees
or charges general and special, ordinary and extraordinary,
unforeseen as well as foreseen, of any kind (including fees
"in-lieu" of any such tax or assessment) which are assessed,
levied, charged, confirmed, or imposed by any public
authority upon the Project, its operations or the Rent (or
any portion or component thereof) (all of the foregoing
being hereinafter collectively referred to as "real property
taxes"), or any tax imposed in substitution, partially or
totally, of any tax previously included within the
definition of real property taxes, or any additional tax the
nature of which was previously included within the
definition of real property taxes, except (a) inheritance or
estate taxes imposed upon or assessed against the Project,
or any part thereof or interest therein, and (b) taxes
computed upon the basis of net income of Landlord or the
owner of any interest therein, except as otherwise provided
in the following sentence. Basic Operating Costs shall also
include any taxes, assessments, or any other fees imposed by
any public authority upon or measured by the monthly rental
or other charges payable hereunder, including, without
limitation, any gross income tax or excise tax levied by the
local governmental authority in which the Project is
located, the federal government, or any other governmental
body with respect to receipt of such rental, or upon, with
respect to or by reason of the development, possession,
leasing, operation, management, maintenance, alteration,
repair, use or occupancy by Tenant of the Premises or any
portion thereof, or upon this transaction or any document to
which Tenant is a party creating or transferring an interest
or an estate in the Premises. In the event that it shall not
be lawful for Tenant to reimburse Landlord for all or any
part of such taxes, the Base Rent payable to Landlord under
this Lease shall be revised to net to landlord the same net
rental after imposition of any such taxes on Landlord as
would have been payable to Landlord prior to the payment of
any such taxes. If Landlord at any time during the Term of
this Lease or within two (2) years after termination of this
Lease shall receive a refund of real property taxes
applicable to a period within the Term of this Lease for
which Tenant has paid real property taxes hereunder,
Landlord shall refund to Tenant Tenant's proportionate share
of said refund if Tenant is not then in Default or was not
in Default at the termination of the Lease, as the case may
be. If Tenant timely pays real property taxes to Landlord,
Landlord alone shall be responsible for any fines,
penalties, interest and other charges that result from
<PAGE> 8
any late payment of taxes by Landlord.
(2) INSURANCE. All insurance premiums and costs, including
but not limited to, any deductible amounts, premiums and
costs of insurance incurred by Landlord, as more fully set
forth in Paragraph 8.A. herein.
(3) REPAIRS AND IMPROVEMENTS. The cost of all repairs,
replacements and general maintenance for the Premises, the
Building and the Project (except for those repairs expressly
made the financial responsibility of Landlord pursuant to
the terms of this Lease, repairs to the extent paid for by
proceeds of insurance or by Tenant or other third parties,
and alterations attributable solely to tenants of the
Project other than Tenant). Tenant shall not be responsible
for the cost of repairs to tenant-occupied buildings which
are part of the Project other than the Building. Such
repairs, replacements, and general maintenance shall include
the cost of any capital improvements made to or capital
assets acquired for the Project, the Building, or the
Premises after the Term Commencement Date that are intended
by Landlord to reduce any other Basic Operating Cost, are
reasonably necessary for the health and safety of the
occupants of the Project, or are made to the Building by
Landlord after the date of this Lease are required under any
governmental law or regulation, such costs or allocable
portions thereof to be amortized over the useful life of the
improvement, as determined by the Landlord, together with
interest on the unamortized balance at the "prime rate"
charged at the time such improvements or capital assets are
constructed or acquired by Wells Fargo Bank, N.A. (San
Francisco) plus two (2) percentage points, but in no event
more than the maximum rate permitted by law.
(4) SERVICES. To the extent such expenses are not the
obligation of Tenant under the provisions of this Lease, all
expenses relating to maintenance, janitorial and service
agreements and services, and costs of supplies and equipment
used in operating and maintaining the Premises, the Building
and the Project and the equipment therein and the adjacent
sidewalks, driveways, parking and service areas, including,
without limitation, alarm service, window cleaning, elevator
maintenance, the Building exterior maintenance and Project
landscaping.
(5) UTILITIES. To the extent such expenses are not the
obligation of Tenant under other provisions of this Lease,
the cost of all utilities which benefit all or a portion of
the Premises, the Building or the Project.
(6) MANAGEMENT FEE. A management and accounting cost
recovery fee equal to three (3%) percent of the sum of Base
Rent and Basic Operating Cost.
(7) LEGAL AND ACCOUNTING. Legal and accounting expenses
relating to the Project other than legal expenses related to
negotiating leases with tenants and/or prospective tenants
in the Project, and any costs or expenses otherwise
reimbursable to Landlord, including, without limitation, any
costs or expenses reimbursed by policies of insurance
carried by Landlord or required to be carried by Landlord
under this Lease, and any cost or expenses reimbursable by
any tenant within the Building and/or the Project pursuant
to such tenant's lease in the Project. Accounting expense
shall be limited to preparation of annual reconciliation of
estimated and actual Operating Costs.
In the event that the Building is not fully occupied during
any fiscal year of the Term as determined by Landlord, an
adjustment shall be made in computing the Basic Operating
Costs for such year so that Tenant pays an equitable portion
of all variable items of Basic Operating Costs, as
reasonably determined by Landlord; provided, however, that
in no event shall Landlord be entitled to collect in excess
of one hundred (100%) percent of the total Basic Operating
Costs from all of the tenants in the Building including
Tenant.
Basic Operating Costs shall not include specific costs
incurred for the account of, separately
<PAGE> 9
billed to and paid by specific tenants. Notwithstanding
anything herein to the contrary, in any instance wherein
Landlord, in Landlord's sole discretion, deems Tenant to be
responsible for any amounts greater than Tenant's
Proportionate Share, Landlord shall have the right to
allocate costs in any manner Landlord reasonably deems
appropriate.
B. PAYMENT OF ESTIMATED BASIC OPERATING COSTS. "Estimated
Basic Operating Costs" for any particular year shall mean
Landlord's estimate of the Basic Operating Cost for such
fiscal year made prior to commencement of such fiscal year
as hereinafter provided. Landlord shall have the right from
time to time to revise its fiscal year and interim
accounting periods so long as the periods as so revised are
reconciled with prior periods in accordance with generally
accepted accounting principles applied in a consistent
manner. During the last month of each fiscal year during the
Term, or as soon thereafter as practicable, Landlord shall
give Tenant written notice of the Estimated Basic Operating
Costs for the ensuing fiscal year. Tenant shall pay Tenant's
Proportionate Share of the Estimated Basic Operating Cost
with installments of Base Rent for the fiscal year to which
the Estimated Basic Operating Cost applies in monthly
installments on the first day of each calendar month during
such year, in advance. If at any time during the course of
the fiscal year, Landlord determines that Basic Operating
Cost is projected to vary from the then Estimated Basic
Operating Cost by more than ten (10%) percent, Landlord may,
by written notice to Tenant, revise the Estimated Basic
Operating cost for the balance of such fiscal year, and
Tenant's monthly installments for the remainder of such year
shall be adjusted so that by the end of such fiscal year
Tenant has paid to Landlord Tenant's Proportionate Share of
the revised Estimated Basic Operating Cost for such year.
Upon execution of this Lease, Tenant shall pay to Landlord
the Estimated Basic Operating Cost for such year. Upon
execution of this Lease, Tenant shall pay to Landlord the
Estimated Basic Operating Cost for the Premises (calculated
on the estimated rentable square feet) for the first full
month of the Term. Upon final determination of the rentable
square feet, Landlord and Tenant shall adjust such estimated
payment.
C. COMPUTATION OF BASIC OPERATING COST ADJUSTMENT. "Basic
Operating Cost Adjustment" shall mean the difference between
Estimated Basic Operating Cost and Basic Operating Cost for
any fiscal year determined as hereinafter provided. Within
one hundred twenty (120) days after the end of each fiscal
year, as determined by Landlord, or as soon thereafter as
practicable, Landlord shall deliver to Tenant a statement of
Basic Operating Cost for the fiscal year just ended,
accompanied by a computation of Basic Operating Cost
Adjustment. If such statement shows that Tenant's payment
based upon Estimated Basic Operating Cost is less than
Tenant's Proportionate Share of Basic Operating Cost, then
Tenant shall pay to Landlord the difference within twenty
(20) days after receipt of such statement. If such statement
shows that Tenant's payments of Estimated Basic Operating
Cost exceed Tenant's Proportionate Share of Basic Operating
Cost, then (provided that Tenant is not in Default under
this Lease) Landlord shall credit the difference against the
Estimated Basic Operating Cost payment next due. If this
Lease has been terminated or the Term hereof has expired
prior to the date of such statement, then the Basic
Operating Cost Adjustment shall be paid by the appropriate
party within twenty (20) days after the date of delivery of
the statement and this obligation shall survive termination
of the Lease. Should this Lease commence or terminate at any
time other than the first day of the fiscal year, Tenant's
Proportionate Share of the Basic Operating Cost adjustment
shall be prorated by reference to the exact number of
calendar days during such fiscal year that this Lease is in
effect.
D. NET LEASE. This shall be a net Lease and Base Rent shall
be paid to Landlord absolutely net of all costs and
expenses, except as specifically provided to the contrary in
this Lease. The provisions for payment of Basic Operating
Cost and the Basic Operating Cost Adjustment are intended to
pass on to Tenant and reimburse Landlord for all costs and
expenses of the nature described in Paragraph 7.A. incurred
in connection with the management, maintenance, preservation
and operation of the Building or the Project and such
additional facilities now and in subsequent years as may be
determined by Landlord to
<PAGE> 10
be necessary to the Building or the Project.
E. TENANT AUDIT. In the event that Tenant shall dispute the
amount set forth in any statement provided by Landlord under
Paragraph 7.B. or 7.C. above, Tenant shall have the right,
not later than sixty (60) days following the receipt of such
statement and upon the condition that Tenant shall have paid
Landlord the full amount that has been invoiced, to cause
Landlord's books and records with respect to Basic Operating
Cost for such fiscal year to be audited by certified public
accountants selected by Tenant and subject to Landlord's
reasonable right of approval. The Basic Operating Cost
Adjustment shall be appropriately adjusted on the basis of
such audit and the appropriate party shall pay to the other
all amounts found by such audit to be owing within thirty
(30) days. If such audit discloses a liability for a refund
in excess of five (5%) percent of Tenant's Proportionate
Share of the Basic Operating Cost Adjustment previously
reported, the cost of such audit shall be borne by Landlord;
otherwise the cost of such audit shall be paid by Tenant. If
Tenant shall not request an audit in accordance with the
provisions of this Paragraph 7.E. within sixty (60) days
after receipt of Landlord's statement provided pursuant to
Paragraph 7.B. or 7.C., such statement shall be final an
binding for all purposes hereof.
INSURANCE AND 8. A. Landlord's Insurance. Landlord agrees to maintain
INDEMNIFICATION insurance insuring the Building against fire, lightning,
vandalism and malicious mischief (including, if Landlord
elects, "All Risk" coverage, earthquake, and/or flood
insurance), in an amount of not less than one hundred (100%)
percent of the current replacement cost thereof, except
where commercially unreasonable, with deductibles and the
form and endorsements of such coverage as selected by
Landlord. Such insurance may also include, at Landlord's
option, insurance against loss of Base Rent and Additional
Rent, in an amount equal to the amount of Base Rent and
Additional Rent payable by Tenant for a period of at least
twelve (12) months commencing on the date of loss. Such
insurance shall be for the sole benefit of Landlord and
under Landlord's sole control. Landlord shall not be
obligated to insure any furniture, equipment, machinery,
goods or supplies which Tenant may keep or maintain in the
Premises, or any leasehold improvements, additions or
alterations within the Premises. Landlord may also carry
such other insurance as Landlord may deem prudent or
advisable, including, without limitation, liability
insurance in such amounts and on such terms as Landlord
shall determine.
B. TENANT'S INSURANCE.
(1) PROPERTY INSURANCE. Tenant shall procure at Tenant's
sole cost and expense and keep in effect from the date of
this Lease and at all times until the end of the Term,
insurance on all personal property, Fixtures and all
improvements made by or for Tenant to the Premises, insuring
such property for the full replacement value of such
property, exclusive of reasonable deductibles.
(2) LIABILITY INSURANCE. Tenant shall procure at Tenant's
sole cost and expense and keep in effect from the date of
this Lease and at all times until the end of the Term either
Comprehensive General Liability insurance or Commercial
General Liability insurance applying to the use and
occupancy of the Premises and the Building, and any part of
either, and any areas adjacent thereto, and the business
operated by Tenant, or by any other occupant on the
Premises. Such insurance shall include Broad Form
Contractual Liability insurance coverage insuring all of
Tenant's indemnity obligations under this Lease. Such
coverage shall have a minimum combined single limit of
liability of at least two million dollars ($2,000,000.00),
and a general aggregate limit of five million dollars
($5,000,000.00). All such policies shall be written to apply
to all bodily injury, property damage or loss, personal
injury and other covered loss, however occasioned, occurring
during the policy term, shall be endorsed to add Landlord,
Riggs Bank N.A., as trustee of Multi-Employer Trust, the
Multi-Employer Trust, Kennedy Associates Real Estate
Counsel, Inc., and the officers, agents and employees of
each of the foregoing entities, and any party of which
Tenant has been
<PAGE> 11
notified holding an interest to which this Lease may be
subordinated as an additional insured, and shall provide
that such coverage shall be primary as it pertains to the
Premises and that any insurance maintained by Landlord
pertaining to the Premises shall be excess insurance only.
Such coverage shall also contain endorsements: (i) deleting
any employee exclusion on personal injury coverage; (ii)
including employees as additional insureds; (iii) deleting
any liquor liability exclusion; and (iv) providing for
coverage of employer's automobile non-ownership liability.
All such insurance shall provide for severability of
interests; shall provide that an act or omission of one of
the named insureds shall not reduce or avoid coverage to the
other named insureds; and shall afford coverage for all
claims based on acts, omissions, injury and damage, which
claims occurred or arose (or the onset of which occurred or
arose) in whole or in part during the policy period. Said
coverage shall be written on an "occurrence" basis, if
available. If an "occurrence" basis form is not available,
Tenant must purchase "tail" coverage for the most number of
years available, and tenant must also purchase "tail"
coverage if the retroactive date of an "occurrence" basis
form is changed so as to leave a gap in coverage for
occurrences that might have occurred in prior years. If a
"claims made" policy is ever used, the policy must be
endorsed so that Landlord is given the right to purchase
"tail" coverage should Tenant for any reason not do so or if
the policy is to be cancelled for nonpayment of premium.
(3) GENERAL INSURANCE REQUIREMENTS. All coverages described
in this Paragraph 8.B. shall be endorsed to provide Landlord
with thirty (30) days' notice of cancellation or change in
terms. If at any time during the Term the amount or coverage
of insurance which Tenant is required to carry under this
Paragraph 8.B. is, in Landlord's reasonable judgment,
materially less than the amount or type of insurance
coverage typically carried by owners or tenants of
properties located in the general area in which the Premises
are located which are similar to and operated for similar
purposes as the Premises, Landlord shall have the right to
require Tenant to increase the amount or change the types of
insurance coverage required under this Paragraph 8.B. All
insurance policies required to be carried under this Lease
shall be written by companies rated A or better in "Best's
Insurance Guide" and authorized to do business in
California. Any deductible amounts under any insurance
policies required hereunder shall be subject to Landlord's
prior written approval. In any event deductible amounts
shall not exceed five thousand dollars ($5,000.00). Tenant
shall deliver to Landlord on or before the Term Commencement
Date, and thereafter at least thirty (30) days before the
expiration dates of the expiring policies, certified copies
of Tenant's insurance policies, or a certificate evidencing
the same issued by the insurer thereunder, showing that all
premiums have been paid for the full policy period; and, in
the event Tenant shall fail to procure such insurance, or to
deliver such policies or certificates, Landlord may, at
Landlord's option and in addition to Landlord's other
remedies in the event of a Default by Tenant hereunder,
procure the same for the account of Tenant, and the cost
thereof shall be paid to Landlord as Additional Rent.
C. INDEMNIFICATION. Landlord shall not be liable to Tenant
for any loss or damage to person or property caused by
theft, fire, acts of God, acts of a public enemy, riot,
strike, insurrection, war, court order, requisition or order
of governmental body or authority or for any damage or
inconvenience which may arise through repair or alteration
of any part of the Building or the Project or failure to
make any such repair, except as expressly otherwise provided
in Paragraph 10. Tenant shall indemnify, defend by counsel
reasonably acceptable to Landlord, protect and hold Landlord
harmless from and against any and all liabilities, losses,
costs, damages, injuries or expenses, including reasonable
attorneys' fees and court costs, arising out of or related
to: (1) claims of injury to or death of persons or damage to
property occurring or resulting directly or indirectly from
the use or occupancy of the Premises, or from activities of
Tenant or Tenant's Parties (2) claims for work or labor
performed, or for materials or supplies furnished to or at
the request of Tenant in connection with performance of any
work done for the account of Tenant within the Premises or
Project; and (3) claims arising from any breach or Default
on the part of Tenant in the performance of any covenant
contained in this Lease. The foregoing indemnity shall not
be applicable to claims arising from the gross negligence or
willful misconduct of Landlord and Landlord shall indemnify
<PAGE> 12
Tenant for any loss incurred by Tenant as a direct
consequence of any such gross negligence or willful
misconduct of Landlord. The provisions of this Paragraph
shall survive the expiration or termination of this Lease
with respect to any claims or liability occurring prior to
such expiration or termination.
WAIVER OF 9. To the extent permitted by law and without affecting the
SUBROGATION coverage provided by insurance to be maintained hereunder,
Landlord and Tenant each waive any right to recover against
the other for: (a) damages for injury to or death of
persons; (b) damages to property; (c) damages to the
Premises or any part thereof, and (d) claims arising by
reason of the foregoing due to hazards covered by insurance
to the extent of proceeds recovered therefrom. This
provision is intended to waive fully, and for benefit of
each party, any rights and/or claims which might give rise
to a right of subrogation in favor of any insurance carrier.
The coverage obtained by each party pursuant to this Lease
shall include, without limitation, a waiver of subrogation
by the carrier which conforms to the provisions of this
Paragraph.
LANDLORD'S 10. Landlord shall at Landlord's expense maintain the structural
REPAIRS soundness of the structural beams of the roof, the
foundations and exterior walls of the Building in good
repair, reasonable wear and tear excepted; provided that,
Landlord shall not be responsible for the cost of any
repairs resulting from damage, destruction or deterioration
which is caused by Tenant or Tenant's Parties. The term
"exterior walls" as used herein shall not include windows,
glass or plate glass, doors, special store fronts or office
entries. Landlord shall perform on behalf of Tenant and
other tenants of the Project, as an item of Basic Operating
Cost, the exterior maintenance of the Building, the Project,
and public and common areas of the Project, including but
not limited to the roof, pest extermination, the landscaped
areas, parking areas, driveways, the truck staging areas,
fire sprinkler systems, sanitary and storm sewer lines,
utility services, electric and telephone equipment servicing
the Building(s), exterior lighting, and anything which
affects the operation and exterior appearance of the
Project, which determination shall be at Landlord's sole
discretion. Except for the expenses directly involving the
items specifically described in the first sentence of this
Paragraph 10., Tenant shall reimburse Landlord for all such
costs in accordance with Paragraph 7. Any damage caused by
or repairs necessitated by any act of Tenant or Tenant's
Parties may be repaired by Landlord at Landlord's option and
at Tenant's expense. Tenant shall immediately give Landlord
written notice of any defect or need of repairs after which
Landlord shall have a reasonable opportunity to repair same.
Landlord's liability with respect to any defects, repairs,
or maintenance for which Landlord is responsible under any
of the provisions of this Lease shall be limited to the cost
of such repairs or maintenance. Except in case of emergency,
Landlord shall provide Tenant with reasonable notice before
entering the Premises to conduct repairs.
TENANT'S 11. Tenant shall at Tenant's expense throughout the Term of this
REPAIRS Lease maintain all parts of the Premises in a good, clean
and secure condition and promptly make all necessary repairs
and replacements, including but not limited to all windows,
glass, doors, walls and wall finishes, floor covering,
heating, ventilating and air conditioning systems, truck
doors, dock bumpers, dock plates and levelers, plumbing work
and Fixtures, roof (exclusive of structural beams),
downspouts, electrical and lighting systems, and fire
sprinklers. Tenant shall at Tenant's expense also perform
regular removal of trash and debris. If required by the
railroad company, Tenant agrees to sign a joint maintenance
agreement governing the use of the rail spur, if any. Tenant
shall, at Tenant's own expense, enter into a regularly
scheduled preventive maintenance/service contract with a
maintenance contractor for servicing all hot water, heating
and air conditioning systems and equipment within or serving
the Premises. The maintenance contractor and the contract
must be approved by Landlord. The service contract must
include all services suggested by the equipment manufacturer
within the operation/ maintenance manual and must become
effective and a copy thereof delivered to Landlord within
thirty (30) days after the Term Commencement Date. Tenant
shall not damage any demising wall or disturb the integrity
and support provided by any demising wall and shall, at its
sole expense, immediately repair any damage to any demising
wall caused
<PAGE> 13
by Tenant or Tenant's Parties. To the extent permitted by
applicable contracts or law, Landlord shall make available
to Tenant the benefits of any contractor warranties
applicable to items for which Tenant has repair, maintenance
or replacement responsibility hereunder, provided, however,
that Landlord shall not be obligated to incur any cost or
liability in so doing.
ALTERATIONS 12. Tenant shall not make, or allow to be made, any Alterations
or physical additions in, about or to the Premises without
obtaining the prior written consent of Landlord, except as
stated below, which consent shall not be unreasonably
withheld with respect to proposed alterations and additions
which: (a) comply with all applicable laws, ordinances,
rules and regulations; (b) are in Landlord's opinion
compatible with the Project and its mechanical, plumbing,
electrical, heating/ventilation/air conditioning systems,
(c) are constructed utilizing Union Labor as set forth in
Section 2.4. of Exhibit B-1; (d) will not interfere with the
use and occupancy of any other portion of the Building or
the Project by any other tenant or its invitees; (e) are
performed promptly and in a workman like manner; (f) the
Project remains lien free as a result of the construction;
and (g) are constructed using all new materials. The term
"Alteration" as used herein is defined as alterations,
additions, substitutions, installations, changes and
improvements, but excludes minor decorations. So long as
Tenant is not in Default under this Lease, Tenant shall have
the right to make up to fifteen thousand dollars ($15,000)
worth of Alterations to the Premises per year, which would
otherwise be permissible under the Lease and which do not
involve demolition or effect the structural parts or
exterior of the Building, without obtaining the prior
written consent of Landlord. Prior to commencing any
construction, Tenant shall nevertheless submit to Landlord
copies of its plans and specification, and Tenant's work
shall be performed pursuant to the other requirements of
this section. Specifically, but without limiting the
generality of the foregoing, Landlord shall have the right
of written consent for all plans and specifications for the
proposed Alterations or additions, construction means and
methods, all appropriate permits and licenses, any
contractor or subcontractor to be employed on the work of
Alteration or additions, and the time for performance of
such work. Tenant shall also supply to Landlord any
documents and information reasonably requested by Landlord
in connection with Landlord's consideration of a request for
approval hereunder. Tenant shall reimburse Landlord for all
costs which Landlord may incur in connection with granting
approval to Tenant for any such Alterations and additions,
including any costs or expenses which Landlord may incur in
electing to have outside architects and engineers review
said plans and specifications. All such Alterations,
physical additions or improvements shall remain the property
of Tenant until termination of this Lease, at which time
they shall be and become the property of Landlord if
Landlord so elects; provided, however, that Landlord may, at
Landlord's option, require that Tenant, at Tenant's expense,
remove any or all Alterations, additions, improvements and
partitions made by Tenant and restore the Premises by the
termination of this Lease, whether by lapse of time, or
otherwise, to their condition existing prior to the
construction of any such alterations, additions, partitions
or leasehold improvements, except for initial Tenant
Improvements made pursuant to Exhibit B-1. All such removals
and restoration shall be accomplished in a good and
workmanlike manner so as not to cause any damage to the
Premises or Project whatsoever. If Tenant fails to so remove
such alterations, additions, improvements and partitions or
Tenant's Trade Fixtures or furniture, Landlord may keep and
use them or remove any of them and cause them to be stored
or sold in accordance with applicable law, at Tenant's sole
expense. In addition to and wholly apart from Tenant's
obligation to pay Tenant's Proportionate Share or Basic
Operating Cost, Tenant shall be responsible for and shall
pay prior to delinquency any taxes or governmental service
fees, possessory interest taxes, fees or charges in lieu of
any such taxes, capital levies, or other charges imposed
upon, levied with respect to or assessed against its
personal property, on the value of the alterations,
additions or improvements within the Premises, and on
Tenant's interest pursuant to this Lease. To the extent that
any such taxes are not separately assessed or billed to
Tenant, Tenant shall pay the amount thereof as invoiced to
Tenant by Landlord.
<PAGE> 14
SIGNS 13. Subject to the provisions of this Section, Tenant may, at
Tenant's cost , erect a sign on the Premises. All signs,
notices, graphics and advertising balloons of every kind or
character, visible in or from public view or corridors, the
common areas or the exterior of the Premises, shall be
subject to Landlord's prior written approval. Landlord shall
provide, at Landlord's cost, monument signage on Oyster
Point Boulevard which identifies Tenant's business. Tenant
shall not place or maintain any banners whatsoever or any
window decor in or on any exterior window or window fronting
upon any common areas or service area or upon any truck
doors or man doors without Landlord's prior written
approval. Any installation of signs or graphics on or about
the Premises and Project shall be subject to any applicable
governmental laws, CC&Rs, ordinances, regulations and to any
other reasonable requirements imposed by Landlord. Tenant
shall remove all such signs and graphics prior to the
termination of this Lease. Such installations and removals
shall be made in such manner as to avoid injury or
defacement of the Premises, the Building or the Project and
any other improvements contained therein, and Tenant shall
repair any injury or defacement, including without
limitation, discoloration caused by such installation or
removal.
INSPECTION/ 14. After reasonable notice, except in emergencies where no such
POSTING NOTICES notice shall be required, Landlord, and Landlord's agents
and representatives, shall have the right to enter the
Premises to inspect the same, to clean, to perform such work
as may be permitted or required hereunder, to make repairs
or alterations to the Premises or Project or to other tenant
spaces therein, to deal with emergencies, to post such
notices as may be permitted or required by law to prevent
the perfection of liens against Landlord's interest in the
Project or to exhibit the Premises to prospective tenants,
purchasers, encumbrances or others, or for any other purpose
as Landlord may deem necessary or desirable; provided,
however, that Landlord shall use reasonable efforts not to
unreasonably interfere with Tenant's business operations.
Provided that Tenant is not in Default hereunder, Landlord
shall not advertise or show the Premises to prospective
successor tenants except during the last twelve (12) months
of the Lease term. Tenant shall not be entitled to any
abatement of Rent by reason of the exercise of any such
right of entry. At any time within six (6) months prior to
the end of the Term, Landlord shall have the right to erect
on the Premises and/or Project a suitable sign indicating
that the Premises are available for lease, but agrees not to
attach such sign directly to the Building. Tenant shall give
written notice to Landlord at least thirty (30) days prior
to vacating the Premises and shall meet with Landlord for a
joint inspection of the Premises at the time of vacating. In
the event of Tenant's failure to give such notice or
participate in such joint inspection, Landlord's inspection
at or after Tenant's vacating the Premises shall
conclusively be deemed correct for purposes of determining
Tenant's responsibility for repairs and restoration.
UTILITIES 15. Tenant shall pay directly for all water, gas, heat, air
conditioning, light, power, telephone, sewer, sprinkler
charges and other utilities and services used on or from the
Premises, together with any taxes, penalties, surcharges or
the like pertaining thereto, and maintenance charges for
utilities and shall furnish all electric light bulbs,
ballasts and tubes. If any such services are not separately
metered to Tenant, Tenant shall pay a reasonable proportion,
as determined by Landlord, of all charges jointly serving
other premises. Landlord shall not be liable for any damages
directly or indirectly resulting from nor shall the Rent or
any monies owed Landlord under this Lease herein reserved be
abated by reason of: (a) the installation, use or
interruption of use of any equipment used in connection with
the furnishing of any such utilities or services; (b) the
failure to furnish or delay in furnishing any such utilities
or services when such failure or delay is caused by acts of
God or the elements, labor disturbances of any character, or
any other accidents or other conditions beyond the
reasonable control of Landlord; or (c) the limitation,
curtailment, rationing or restriction on use of water,
electricity, gas or any other form of energy or any other
service or utility whatsoever serving the Premises or
Project. Landlord shall be entitled to cooperate voluntarily
and in a reasonable manner with the efforts of national,
state or local governmental agencies or utility suppliers in
reducing energy or other resource consumption. The
obligation to make services available hereunder shall be
subject to the limitations of any such voluntary, reasonable
program.
<PAGE> 15
SUBORDINATION 16. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a
subordination, this Lease shall be subject and subordinate
at all times to: (a) all ground leases or underlying leases
which may now exist or hereafter be executed affecting the
Premises and/or the land upon which the Premises and Project
are situated, or both; and (b) any mortgage or deed of trust
which may now exist or be placed upon said Project, land,
ground leases or underlying leases, or Landlord's interest
or estate in any of said items which is specified as
security. At the request of Tenant, Landlord will endeavor
to obtain from the secured party under any mortgage or deed
of trust which is senior to this Lease, a nondisturbance
agreement upon such lender's customary form therefor.
Notwithstanding the foregoing, Landlord shall have the right
to subordinate or cause to be subordinated any such ground
leases or underlying leases or any such lines to this Lease.
In the event that any ground lease or underlying lease
terminates for any reason or any mortgage or deed of trust
is foreclosed or a conveyance in lieu of foreclosure is made
for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant of the
successor in interest to Landlord at the option of such
successor in interest. Within ten (10) days after request by
Landlord, Tenant shall execute and deliver any additional
documents evidencing Tenant's attornment or the
subordination of this Lease with respect to any such ground
leases or underlying leases or any such mortgage or deed of
trust, in the form requested by landlord or by any ground
landlord, mortgagee, or beneficiary under a deed of trust.
FINANCIAL 17. At the request of Landlord, Tenant shall provide to Landlord
STATEMENTS Tenant's current financial statement or other information
discussing financial worth of Tenant within thirty (30) days
after the date of Landlord's request, which Landlord shall
use solely for purposes of this Lease and in connection with
the ownership, management and disposition of the Project.
ESTOPPEL 18. Tenant agrees from time to time, within ten (10) business
CERTIFICATE days after request of Landlord, to deliver to Landlord, or
Landlord's designee, an estoppel certificate per Exhibit D
or in an alternate form that the requesting party may
require stating that this Lease is in full force and effect,
the date to which Rent has been paid, the unexpired portion
of this Lease, and such other matters pertaining to this
Lease as may be reasonably requested by Landlord. Landlord
and Tenant intend that any statement delivered pursuant to
this Paragraph may be relied upon by any mortgagee,
beneficiary, purchaser or prospective purchaser of the
Project or any interest therein. The parties agree that
Tenant's obligation to furnish such estoppel certificates in
a timely fashion is a material inducement for Landlord's
execution of the Lease, and shall be an Event of Default if
Tenant fails to fully comply. Tenant acknowledges that
failure to provide the Estoppel Certificate to Landlord or
Landlord's designee within the time provided above may cause
Landlord to incur substantial damages. Tenant hereby agrees
to indemnify Landlord for any liabilities, losses, costs,
damages (including, without limitation, compensatory,
incidental and consequential damages), injuries or expenses
arising from the failure of Tenant to deliver the Estoppel
certificate in the manner provided in this Paragraph within
twenty (20) business days after requested by Landlord. In
addition to any other remedies Landlord may have at law and
equity, Landlord shall be entitled to specific performance
of this Paragraph. The provisions of this Paragraph shall
survive the expiration or termination of this Lease with
respect to any claims or liability occurring prior to such
expiration or termination.
SECURITY 19. Tenant agrees to deposit with Landlord upon execution of
DEPOSIT this Lease, a Security Deposit as stated in the
Basic Lease Information, which sum shall be held by
Landlord, without obligation for interest, as security for
the performance of Tenant's covenants and obligations under
this Lease. The Security Deposit is not an advance rental
deposit or a measure of damages incurred by Landlord in case
of Tenant's Default. Landlord is not required to keep all or
any part of the Security Deposit separate from its general
accounts. Upon the occurrence of any Event of Default by
Tenant, Landlord may, from time to time, without prejudice
to any other remedy provided herein or provided by law, use
such fund to the extent necessary to make good any arrears
of Rent or other payments due to Landlord hereunder, and any
other damage, injury, expense or liability caused by such
Event of Default, and
<PAGE> 16
Tenant shall pay to Landlord, on demand, the amount so
applied in order to restore the Security Deposit to its
original amount. Although the Security Deposit shall be
deemed the property of Landlord, any remaining balance of
such deposit shall be returned by Landlord to Tenant at such
time after termination of this Lease that all of Tenant's
obligation under this Lease have been fulfilled. Landlord
may use and commingle the Security Deposit with other funds
of Landlord. Tenant agrees, represents and warrants that all
of Tenant's Work will be free and clear of all liens and
encumbrances of any kind as and when installed, and shall
immediately become subject to Landlord's first lien security
interest in such work. As additional security, Tenant agrees
to execute and deliver to Landlord a Uniform Commercial Code
Financing Statement and Security Agreement on all Trade
Fixtures and improvements otherwise made pursuant to
Tenant's Work as set forth in Exhibit B in a form reasonably
satisfactory to the Landlord.
TENANT'S 20. The liability of Landlord to Tenant for any default by
REMEDIES Landlord under the terms of this Lease are not personal
obligations of the Landlord or other trustees, advisors,
partners, directors, officers and shareholders of Landlord,
and Tenant agrees to look solely to Landlord's interest in
the Project (including net revenues generated by the
Project) together with proceeds of sale, insurance proceeds,
and any award or settlement in eminent domain for the
recovery of any amount from Landlord, and shall not look to
other assets of Landlord nor seek recourse against the
assets of the Landlord or other trustees, advisors,
partners, directors, officers and shareholders of Landlord.
ASSIGNMENT AND 21. A. GENERAL. Tenant shall not assign this Lease or sublet the
SUBLETTING Premises or any part thereof without Landlord's
prior written approval. If Tenant desires to assign this
Lease, it must present the Landlord with an ERISA
Certificate in compliance with the provisions of Paragraph
37. of this Lease signed by the potential assignee,
demonstrate that the potential assignee has adequate credit,
demonstrate to the Landlord's satisfaction that the
potential assignee's proposed use of the Premises is
compatible with the Project and complies with all applicable
laws, ordinances, rules and regulations. If Tenant desires
to assign this Lease or sublet any or all of the Premises,
Tenant shall give Landlord written notice sixty (60) days
prior to the anticipated effective date of the assignment or
sublease. Landlord shall then have a period of fifteen (15)
days following receipt of such notice to notify Tenant in
writing whether Landlord elects to permit Tenant to assign
this Lease or sublet such space, subject, however, to
Landlord's prior written approval of the proposed assignee
or subtenant and of any related documents or agreements
associated with the assignment or sublease. Landlord's
consent to a proposed assignment of sublet shall not be
unreasonably withheld. Without limiting the other instances
in which it may be reasonable for Landlord to withhold
Landlord's consent to an assignment or subletting, Landlord
and Tenant acknowledge that it shall be reasonable for
Landlord to withhold Landlord's consent in the following
instances: The use of the Premises by such proposed assignee
or subtenant would not be a permitted use or would increase
the Parking Density of the Project; the proposed assignee or
subtenant is not of sound financial condition, as reasonably
determined by Landlord after receipt of the proposed
assignee's financial statements in form satisfactory to
Landlord; the proposed assignee or subtenant is a
governmental agency; the proposed assignee or subtenant does
not have a good reputation as a tenant of property; the
proposed assignee or subtenant is a person with whom
Landlord is negotiating to lease space in the Project; the
assignment of subletting would entail any alterations which
would lessen the value of the leasehold improvements in the
Premises; or if Tenant is in Default of any obligation of
Tenant under this Lease, or Tenant has defaulted under this
Lease on three (3) or more occasions during any twelve (12)
months preceding the date that Tenant shall request consent.
Failure by Landlord to approve a proposed assignee or
subtenant shall not cause a termination of this Lease.
Notwithstanding anything to the contrary in this Paragraph
21., Tenant shall have the right to assign the Premises to
any entity without first obtaining consent of Landlord
resulting from a merger or consolidation with Tenant, a
public offering and sale of some or all of Tenant's stock, a
transfer of shares of Tenant's stock on the public stock
exchange, or a transfer of the Lease in connection with the
sale of all or substantially all of Tenant's assets;
<PAGE> 17
provided that: (a) Tenant shall not be in Default of any of
its obligations under this Lease and shall not have
previously defaulted under this Lease on three (3) or more
occasions during any twelve (12) month period preceding the
date of such transaction, (b) Tenant shall give Landlord at
least sixty (60) days prior written notice of any such
proposed transaction, (c) the entity which results from the
merger, consolidation or other transaction of Tenant shall
have a net equity of at least Ten Million Dollars
($10,000,000) which has been demonstrated in appropriate
documentation delivered to Landlord prior to the occurrence
of such transaction, and (d) such entities shall execute an
ERISA Certificate as set forth in Paragraph 37. The right to
assign and/or sublet the Premises is personal to the Tenant
and shall not inure to the benefit of any assignee,
subtenant or successor of Tenant.
B. BONUS RENT. Any Rent or other consideration realized by
Tenant under any approved sublease or assignment in excess
of the Rent payable hereunder, after deducting on an
amortized basis Tenant's actual payment of a reasonable
brokerage commission, reasonable attorneys' fees, reasonable
marketing expenses related to the subletting, reasonable
costs of Tenant's improvements to the subleased or assigned
premises for the subtenant's use, and the unamortized
portion of Tenant's Work, as defined in Exhibit B-1,
attributed to the subleased or assigned premises in excess
of the Tenant Improvement Allowance, as defined in Exhibit
B-1, shall be divided and paid, fifty (50%) percent to
Tenant, fifty (50%) percent to Landlord. The deduction for
the unamortized portion of Tenant's Work shall be based on a
7 1/2 year amortization period at a rate of eleven percent
(11%) per annum. All other reasonable costs shall be fully
amortized over the term of the sublease at a rate of eleven
percent (11%) per annum.
C. CORPORATION. If Tenant is a corporation, a transfer of
corporate shares by sale, assignment, bequest, inheritance,
operation of law or other disposition (including such a
transfer to or by a receiver or trustee in federal or state
bankruptcy, insolvency or other proceedings), so as to
result in a change in the present control of such
corporation or any of its parent corporations by the person
or persons owning a majority of said corporate shares, shall
constitute an assignment for purposes of this Lease.
D. PARTNERSHIP. If Tenant is a partnership, joint venture or
other incorporated business form, a transfer of the interest
of persons, firms or entities responsible for managerial
control of Tenant by sale, assignment, bequest, inheritance,
operation of law or other disposition, so as to result in a
change in the present control of said entity and/or a change
in the identity of the persons responsible for the general
credit obligations of said entity shall constitute an
assignment for all purposes of this Lease.
E. LIABILITY. No assignment or subletting by Tenant shall
relieve Tenant of any obligation under this Lease. Any
assignment or subletting which conflicts with the provisions
hereof shall be void.
F. OPTIONS. Tenant must be in possession of the entire
Premises in order to exercise its options to renew and/or
expand, and/or expend under this Lease.
AUTHORITY 22. Landlord represents and warrants that it has full right and
OF PARTIES authority to enter into this Lease and to perform all of
Landlord's obligations hereunder. Tenant represents and
warrants that it has full right and authority to enter into
this Lease and to perform all of Tenant's obligations
hereunder.
<PAGE> 18
CONDEMNATION 23. A. CONDEMNATION RESULTING IN TERMINATION. If the whole or
any substantial part of the Premises, the Building, and/or
the Project of which the Premises are a part should be taken
or condemned for any public use under governmental law,
ordinance or regulation, or by right of eminent domain, or
by private purchase in lieu thereof, and the taking would
prevent or materially interfere with the Permitted Use of
the Premises, this Lease shall terminate and the Rent shall
abated during the unexpired portion of this Lease, effective
when the physical taking of said Premises shall have
occurred.
B. CONDEMNATION NOT RESULTING IN TERMINATION. If a portion
of the Project of which the Premises are a part should be
taken or condemned for any public use under any governmental
law, ordinance, or regulation, or by right of eminent
domain, or by private purchase in lieu thereof, and this
Lease is not terminated as provided in Paragraph 23.A.
above, this Lease shall not terminate, but the Rent payable
hereunder during the unexpired portion of the Lease shall be
reduced, beginning on the date when the physical taking
shall have occurred, to such amount as may be fair and
reasonable under all of the circumstances.
C. AWARD. Landlord shall be entitled to any and all payment,
income, rent, award, or any interest therein whatsoever
which may be paid or made in connection with such taking or
conveyance and Tenant shall have no claim against Landlord
or otherwise for the value of any unexpired portion of this
Lease. Notwithstanding the foregoing, any compensation
specifically awarded Tenant for loss of business, Tenant's
personal property, moving costs or loss of goodwill, shall
be and remain the property of Tenant and Tenant shall have
the right to make any claim for the value of its interest in
the Property, including, without limitation, the unamortized
value of Tenant Improvements paid for by Tenant, as set
forth in Exhibit B-1, including those items set forth in
Exhibit B-3.
CASUALTY 24. A. GENERAL. If the Premises or the Building should be
DAMAGE damaged or destroyed by fire, tornado, earthquake or other
casualty, Tenant shall give immediate written notice thereof
to Landlord. Within thirty (30) days after Landlord's
receipt of such notice, Landlord shall notify Tenant whether
in Landlord's reasonable opinion such repairs can reasonably
be made either: (1) within ninety (90) days; (2) in more
than ninety (90) days but in less than one hundred eight
(180) days; or (3) in more than one hundred eight (180) days
from the date of such notice. Landlord's determination shall
be binding on Tenant.
B. LESS THAN 90 DAYS. If the Premises or the Building should
be damaged by fire, tornado, earthquake or other casualty
but only to such extent that rebuilding or repairs can in
Landlord's estimation be reasonably completed within ninety
(90) days after the date of such damage, this Lease shall
not terminate, and provided that insurance proceeds are
available to fully repair the damage, Landlord shall proceed
to rebuild and repair the Premises in the manner determined
by Landlord, except that Landlord shall not be required to
rebuild, repair or replace any part of the partitions.
Fixtures, additions and other leasehold improvements which
may have been placed in, on or about the Premises. If the
Premises are untenantable in whole or in part following such
damage, the Rent payable hereunder during the period in
which they are untenantable shall be abated proportionately,
but only to the extent the Premises are unfit for occupancy.
C. GREATER THAN 90 DAYS. If the Premises or the Building
should be damaged by fire, tornado, earthquake or other
casualty but only to such extent that rebuilding or repairs
can in Landlord's estimation be reasonably completed in more
than ninety (90) days but in less than one hundred eighty
(180) days, then Landlord shall have the option of either:
(1) terminating the Lease effective upon the date of the
occurrence of such damage, in which event the Rent shall be
abated during the unexpired portion of the Lease; or (2)
electing to rebuild or repair the Premises to substantially
the condition in which they existed prior to such damage,
provided that insurance proceeds are available, to fully
repair the damage, except that Landlord shall not be
required to rebuild, repair or replace any part of the
partitions, Fixtures, additions and other improvements which
may have been placed in, on or about the Premises.
<PAGE> 19
If the Premises are untenantable in whole or in part
following such damage, the Rent payable hereunder during the
period in which they are untenantable shall be abated
proportionately, but only to the extent the Premises are
unfit for occupancy. In the event that Landlord should fail
to complete such repairs and rebuilding within one hundred
eight days (180) days after the date upon which Landlord is
notified by Tenant of such damage, such period of time to be
extended for delays caused by the fault or neglect of Tenant
or because of acts of God, acts of public agencies, labor
disputes, strikes, fires, freight embargoes, rainy or stormy
weather, inability to obtain materials, supplies or fuels,
or delays of the contractors or subcontractors or any other
causes or contingencies beyond the reasonable control of
Landlord, Tenant may at Tenant's option within ten (10) days
after the expiration of such one hundred eighty (180) day
period (as such may be extended), terminate this Lease by
delivering written notice of termination to Landlord as
Tenant's exclusive remedy, whereupon all rights hereunder
shall cease and terminate thirty (30) days after Landlord's
receipt of such termination notice.
D. GREATER THAN 180 DAYS. If the Premises or the Building
should be so damaged by fire, tornado, earthquake or other
casualty that rebuilding or repairs cannot in Landlord's
reasonable estimation be completed within one hundred eighty
(180) days after such damage, this Lease shall terminate and
the Rent shall be abated during the unexpired portion of
this Lease, effective upon the date of the occurrence of
such damage.
E. TENANT'S FAULT. If the Premises or any other portion of
the Building is damaged by fire or other casualty resulting
from the fault, negligence, or breach of this Lease by
Tenant or any of Tenant's Parties, Base Rent and Additional
Rent shall not be diminished during the repair of such
damage and Tenant shall be liable to Landlord for the cost
and expense is not covered by insurance proceeds.
F. UNINSURED CASUALTY. Notwithstanding anything herein to
the contrary, in the event that the Premises or the Building
is damaged or destroyed and are not fully covered by the
insurance proceeds received by Landlord or in the event that
the holder of any indebtedness secured by a mortgage or deed
of trust covering the Premises requires that the insurance
proceeds be applied to such indebtedness, then in either
case Landlord shall have the right to terminate this Lease
by delivering written notice of termination to Tenant within
thirty (30) days after the date of notice to Landlord that
said damage or destruction is not fully covered by insurance
or such requirement is made by any such holder, as the case
may be, whereupon all rights and obligations hereunder shall
cease and terminate.
G. WAIVER. Except as otherwise provided in this Paragraph
24., Tenant hereby waives the provisions of Sections
1932(a), 1933(4), 1941 and 1942 of the Civil Code of
California.
HOLDING OVER 25. If Tenant shall retain possession of the Premises or any
portion thereof without Landlord's consent following the
expiration of the Lease or sooner termination for any
reason, then Tenant shall pay to Landlord for each day of
such retention one hundred and fifty (150%) percent of the
amount of the daily rental as of the last month prior to the
date of expiration or termination. Tenant shall also
indemnify, defend, protect and hold Landlord harmless from
any loss, liability or cost, including reasonable attorneys'
fees, resulting from delay by Tenant in surrendering the
Premises, including, without limitation, any claims made by
any succeeding tenant founded on such delay. Acceptance of
Rent by Landlord following expiration or termination shall
not constitute a renewal of this Lease, and nothing
contained in this Paragraph 25. shall waive Landlord's right
of reentry or any other right. Unless Landlord consents in
writing to Tenant's holding over, Tenant shall be only a
Tenant at sufferance, whether or not Landlord accepts any
Rent from Tenant while Tenant is holding over without
Landlord's written consent. Additionally, in the event that
upon termination of the Lease, Tenant has not fulfilled its
obligation with respect to repairs and cleanup of the
Premises or any other Tenant obligations as set forth in
this Lease, then Landlord shall have the right to perform
any such obligations as it deems necessary at Tenant's sole
cost and expense, and any time required by Landlord to
complete such obligations shall be considered a period of
<PAGE> 20
holding over and the terms of this Paragraph 25. shall
apply.
DEFAULT 26. A. EVENTS OF DEFAULT. The occurrence of any of the following
shall constitute an event of default ("Event of Default" or
"Default") on the part of Tenant:
(1) ABANDONMENT. Abandonment of the Premises for a
continuous period in excess of thirty (30) business days
will not be an Event of Default so long as Tenant timely
performs all other monetary and non-monetary obligations
under this Lease and keeps the Premises locked and secured.
Tenant waives any right to notice Tenant may have under
Section 1951.3 of the Civil Code of the State of California,
the terms of this Paragraph 26.A. being deemed such notice
to Tenant as required by said Section 1951.3.
(2) NONPAYMENT OF RENT. Failure to pay any installment of
Rent or any other amount due and payable hereunder within
five (5) days following the date when said payment is due.
(3) OTHER OBLIGATIONS. Failure to perform any obligation,
agreement or covenant under this Lease other than those
matters specified in subparagraphs (1) and (2) of this
Paragraph 26.A., such failure continuing for fifteen (15)
days after written notice of such failure. In the event
Tenant has commenced to cure the failure of performance
within the fifteen (15) day period, but has not completed
the cure despite diligent attempts to do so, Tenant shall
have an additional period not to exceed thirty (30)
additional days after such fifteen (15) day period to
complete such cure so long as Tenant continues to diligently
pursue the cure to completion during such additional thirty
(30) day period.
(4) GENERAL ASSIGNMENT. A general assignment by Tenant for
the benefit of creditors.
(5) BANKRUPTCY. The filing of any voluntary petition in
bankruptcy by Tenant, or the filing of an involuntary
petition by Tenant's creditors, which involuntary petition
remains undischarged for a period of sixty (60) days. In the
event that under applicable law the trustee in bankruptcy or
Tenant has the right to affirm this Lease and continue to
perform the obligations of Tenant hereunder, such trustee or
Tenant shall, in such time period as may be permitted by the
bankruptcy court having jurisdiction, cure all Defaults of
Tenant hereunder outstanding as of the date of the
affirmance of this Lease and provide to Landlord such
adequate assurances as may be necessary to ensure Landlord
of the continued performance of Tenant's obligations under
this Lease.
(6) RECEIVERSHIP. The employment of a receiver to take
possession of substantially all of Tenant's assets or the
Premises, if such appointment remains undismissed or
undischarged for a period of sixty (60) days after the order
therefor.
(7) ATTACHMENT. The attachment, execution or other judicial
seizure of all or substantially all of Tenant's assets or
the Premises, if such attachment or other seizure remains
undismissed or undischarged for a period of sixty (60) days
after the levy thereof.
(8) DELAYS. Any delay in the construction of Landlord's Work
caused by Tenant or Tenant's Work as provided in Exhibit
B-1.
B. REMEDIES UPON DEFAULT.
(1) TERMINATION. In the event of the occurrence of any Event
of Default, Landlord shall have the right to give a written
termination notice to Tenant, and on the date specified in
such notice, Tenant's right to possession shall terminate,
and this Lease shall terminate unless on or before such date
all arrears of rental and all other sums payable by Tenant
under this Lease and all reasonable costs and expenses
incurred by or on behalf of Landlord hereunder shall have
been paid by Tenant and all other Events of Default of this
Lease by Tenant at the
<PAGE> 21
time existing shall have been fully remedied to the
satisfaction of Landlord. At any time after such
termination, Landlord may recover possession of the Premises
or any part thereof and expel and remove therefrom Tenant
and any other person occupying the same, by any lawful
means, and again repossess and enjoy the Premises without
prejudice to any of the remedies that Landlord may have
under this Lease, or at law or equity by reason of Tenant's
Default or of such termination.
(2) CONTINUATION AFTER DEFAULT. Even though an Event of
Default may have occurred, this Lease shall continue in
effect for so long as Landlord does not terminate Tenant's
right to possession under Paragraph 26.B.(1) hereof, and
Landlord may enforce all of Landlord's rights and remedies
under this Lease, including without limitation, the right to
recover Rent as it becomes due, and Landlord, without
terminating this Lease, may exercise all of the rights and
remedies of a landlord under Section 1951.4 of the Civil
Code of the State of California or any successor code
section. Acts of maintenance, preservation or efforts to
lease the Premises or the appointment of a receiver upon
application of Landlord to protect Landlord's interest under
this Lease shall not constitute an election to terminate
Tenant's right to possession.
C. DAMAGES AFTER DEFAULT. Should Landlord terminate this
Lease pursuant to the provisions of Paragraph 26.B.(1)
hereof, Landlord shall have the rights and remedies of a
Landlord provided by Section 1951.2 of the Civil Code of the
State of California, or successor code sections. Upon such
termination, in addition to any other rights and remedies to
which Landlord may be entitled under applicable law,
Landlord shall be entitled to recover from Tenant: (1) the
worth at the time of award of the unpaid Rent and other
amounts which had been earned at the time of termination,
(2) 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
such Rent loss that the Tenant proves could be reasonably
avoided; (3) 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 Rent loss that the
Tenant proves could be reasonably avoided; and (4) any other
amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform
Tenant's obligations under this Lease or which, in the
ordinary course of things, would be likely to result
therefrom. The "worth at the time of award" of the amounts
referred to in (1) and (2), above shall be computed at the
lesser of the "prime rate," as announced from time to time
by Wells Fargo, N.A. (San Francisco) plus five (5)
percentage points, or the maximum interest rate allowed by
law ("Applicable Interest Rate"). The "worth at the time of
award" of the amount referred to in (3) above shall be
computed by discounting such amount at the Federal Discount
Rate of the Federal Reserve Bank of San Francisco at the
time of the award plus one (1%) percent. If this Lease
provides for any periods during the Term during which Tenant
is not required to pay Base Rent or if Tenant otherwise
receives a Rent concession, then upon the occurrence of an
Event of Default, Tenant shall owe to Landlord the full
amount of such Base Rent or value of such Rent concession,
plus interest at the applicable Interest Rate, calculated
from the date that such Base Rent or Rent concession would
have been payable.
D. LATE CHARGE. If any installment of Rent is not paid
within five (5) business days from the date when due, such
amount shall bear interest at the Applicable Interest Rate
from the date on which said payment shall be due until the
date on which Landlord shall receive said payment. In
addition, Tenant shall pay Landlord a late charge equal to
five (5%) percent of the delinquency, to compensate Landlord
for the loss of the use of the amount not paid and the
administrative costs caused by the delinquency, the parties
agreeing that Landlord's damage by virtue of such
delinquencies would be difficult to compute and the amount
stated herein represents a reasonable estimate hereof. This
provision shall not relieve Tenant of Tenant's obligation to
pay Rent at the time and in the manner herein specified.
E. REMEDIES CUMULATIVE. All rights, privileges and elections
or remedies of the parties are
<PAGE> 22
cumulative and not alternative, to the extent permitted by
law and except as otherwise provided herein.
LIENS 27. Tenant shall keep the Premises free from liens arising out
of or related to work performed, materials or supplies
furnished or obligations incurred by Tenant or in connection
with work made, suffered or done by or on behalf of Tenant
in or on the Premises or Project. In the event that Tenant
shall not, within ten (10) business days following the
imposition of any such lien, cause the same to be released
of record by payment or posting of a proper bond, Landlord
shall have, in addition to all other remedies provided
herein and by law, the right, but not the obligation, to
cause the same to be released by such means as Landlord
shall deem proper, including payment of the claim giving
rise to such lien. All sums paid by Landlord on behalf of
Tenant and all expenses incurred by Landlord in connection
therefor shall be payable to landlord by Tenant on demand
with interest at the Applicable Interest Rate. Landlord
shall have the right at all times to post and keep posted on
the Premises any notices permitted or required by law, or
which Landlord shall deem proper, for the protection of
Landlord, the Premises, the Project and any other party
having an interest therein, from mechanics' and
materialmen's liens, and Tenant shall give Landlord not less
than five (5) business days prior written notice of the
commencement of any work in the Premises or Project which
could lawfully give rise to a claim for mechanics' or
materialmen's liens.
TRANSFERS BY 28. In the event of a sale or conveyance by Landlord of the
LANDLORD Building or the Project or a foreclosure by any creditor of
Landlord, the same shall operate to release Landlord from
any liability upon any of the covenants or conditions,
express or implied, herein contained in favor of Tenant, to
the extent required to be performed after the passing of
title to Landlord's successor-in-interest. In such event,
Tenant agrees to look solely to the responsibility of the
successor-in-interest of Landlord under this Lease with
respect to the performance of the covenants and duties of
"Landlord" to be performed after the passing of title to
Landlord's successor-in-interest. This Lease shall not be
affected by any such sale and Tenant agrees to attorn to the
purchaser or assignee. Landlord's successor(s)-in-interest
shall not have liability to Tenant with respect to the
failure to perform all of the obligations of "Landlord", to
the extent required to be performed prior to the date such
successor(s)-in-interest became the owner of the Building.
RIGHT OF 29. All covenants and agreements to be performed by Tenant under
LANDLORD TO any of the terms of this Lease shall be performed by Tenant
PERFORM TENANT'S at Tenant's sole cost and expense and without any abatement
COVENANTS of Rent. If Tenant shall fail to pay any sum of money, other
than Base Rent and Basic Operating cost, required to be paid
by Tenant hereunder or shall fail to perform any other act
on Tenant's part to be performed hereunder, and such failure
shall continue for five 95) days after notice thereof by
Landlord, Landlord may, but shall not be obligated to do so,
and without waiving or releasing Tenant from any obligations
of Tenant, make any such payment or perform any such act on
Tenant's part to be made or performed. All sums, so paid by
Landlord and all necessary incidental costs together with
interest thereon at the Applicable Interest Rate from the
date of such payment by Landlord shall be payable to
Landlord on demand, and Tenant covenants to pay such sums,
and Landlord shall have, in addition to any other right or
remedy of Landlord, the same right and remedies in the event
of the non-payment thereof by Tenant as in the case of
Default by Tenant in the payment of Base Rent and Basic
Operating Cost.
WAIVER 30. If either Landlord or Tenant waives the performance of any
term, covenant or condition contained in this Lease, such
waiver shall not be deemed to be a waiver of any subsequent
breach of the same or any other term, covenant or condition
contained herein. The acceptance of Rent by Landlord shall
not constitute a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease, regardless of
Landlord's knowledge of such preceding breach at the time
Landlord accepted such Rent. Failure by Landlord to enforce
any of the terms, covenants or conditions of this Lease for
any length of time shall not be deemed to waive or to
decrease the right of Landlord to insist thereafter upon
strict
<PAGE> 23
performance by Tenant. Waiver by Landlord of any term,
covenant or condition contained in this Lease may only be
made by a written document signed by Landlord.
NOTICES 31. Each provision of this Lease or of any applicable
governmental laws, ordinances, regulations and other
requirements with reference to sending, mailing or delivery
of any notice or the making of any payment by Landlord or
Tenant to the other shall be deemed to be complied with when
and if the following steps are taken:
A. RENT. All Rent and other payments required to be made by
Tenant to Landlord hereunder shall be payable to Landlord at
the address set forth in the Basic Lease Information, or at
such other address as Landlord may specify from time to time
by written notice delivered in accordance herewith. Tenant's
obligation to pay Rent and any other amounts to Landlord
under the terms of this Lease shall not be deemed satisfied
until such Rent and other amounts have been actually
received by Landlord.
B. OTHER. All notices, demands, consents and approvals which
may or are required to be given by either party to the other
hereunder shall be in writing and either personally
delivered, sent by commercial overnight courier, sent by
facsimile, or mailed, certified or registered, postage
prepaid, and addressed to the party to be notified at the
address for such party as specified in the Basic Lease
Information and, in the case of Tenant, at the Premises or
to such other place as the party to be notified may from
time to time designate by at least fifteen (15) days notice
to the notifying party. Notices shall be deemed served upon
receipt or refusal to accept delivery. Tenant appoints as
its agent to receive the service of all default notices and
notice of commencement of unlawful detainer proceedings the
person in charge of or apparently in charge of occupying the
Premises at the time.
ATTORNEYS' 32. In the event that Landlord places the enforcement of this
FEES Lease, or any part thereof, or the collection of any Rent
due, or to become due hereunder, or recovery of possession
of the Premises in the hands of an attorney, Tenant shall
pay to Landlord, upon demand, Landlord's reasonable
attorneys' fees and court costs. In any action which
Landlord or Tenant brings to enforce its respective rights
hereunder, the unsuccessful party shall pay all costs
incurred by the prevailing party including reasonable
attorneys' fees, to be fixed by the court, and said costs
and attorneys' fees shall be a part of the judgment in said
action.
SUCCESSORS 33. This lease shall be binding upon and inure to the benefit of
AND ASSIGNS Landlord, its successors and assigns, and shall be binding
upon and inure to the benefit of Tenant, its successors, and
to the extent assignment is approved by Landlord hereunder,
Tenant's assigns.
FORCE MAJEURE 34. In the event that Landlord shall be delayed, hindered in or
prevented from the performance of any act or obligation
required under this Lease by reason of acts of God, strikes,
lockouts, labor troubles or disputes, inability to procure
or shortage of materials or labor, failure of power or
utilities, delay in transportation, fire, vandalism,
accident, flood, severe weather, other casualty,
governmental requirements (including mandated changes in the
plans and specifications of Landlord's Work resulting from
changes in pertinent governmental requirements or
interpretations thereof), riot, insurrection, civil
commotion, sabotage, explosion, war, natural or local
emergency, acts or omissions of others, including Tenant, or
other reasons of a similar or dissimilar nature not solely
the fault of, or under the exclusive control of, Landlord
(individually and collectively, "Force Majeure"), then
performance of such act or obligation shall be excused for
the period of the delay and the period for the performance
of any such act or obligations shall be extended for the
period equivalent to the period of such delay.
BROKERAGE 35. Landlord shall pay a brokerage commission to Broker in
COMMISSION accordance with a separate agreement between Landlord and
Broker. Tenant warrants to Landlord that Tenant's sole
contact with Landlord or with the Premises in connection
with this transaction has been directly with Landlord and
Broker, and that no other broker or finder can properly
claim a right
<PAGE> 24
to a commission or a finder's fee based upon contacts
between the claimant and Tenant with respect to Landlord or
the Premises. Tenant shall indemnify, defend by counsel
acceptable to Landlord, protect and hold Landlord harmless
from and against any loss, cost or expense, including, but
not limited to, attorneys' fees and costs, resulting from
any claim for a fee or commission by any broker or finder in
connection with the Premises and this Lease other than
Broker.
MISCELLANEOUS 36. A. GENERAL. The terms "Tenant and/or Landlord" or any
pronoun used in place thereof shall indicate and include the
masculine or feminine, the singular or plural number,
individuals, firms or corporations, and their respective
successors, executors, administrators and permitted assigns,
according to the context thereof.
B. TIME. Time is of the essence regarding this Lease and all
of its provisions.
C. CHOICE OF LAW. This Lease shall in all respects be
governed by the laws of the State of California.
D. ENTIRE AGREEMENT. This Lease, together with its exhibits,
contains all the agreements of the parties hereto and
supersedes any previous negotiations. There have been no
representations made by the Landlord or understandings made
between the parties other than those set forth in this Lease
and its exhibits.
E. MODIFICATION. This Lease may not be modified except by a
written instrument signed by the parties hereto.
F. SEVERABILITY. If, for any reason whatsoever, any of the
provisions hereof shall be unenforceable or ineffective, all
of the other provision shall be and remain in full force and
effect.
G. RECORDATION. Tenant shall not record this Lease or a
short form memorandum hereof.
H. EXAMINATION OF LEASE. Submission of this Lease to Tenant
does not constitute an option or offer to lease and this
Lease is not effective otherwise until execution and
delivery by both Landlord and Tenant.
I. ACCORD AND SATISFACTION. No payment by Tenant of a lesser
amount than the Rent nor any endorsement on any check or
letter accompanying any check or payment of Rent shall be
deemed an accord and satisfaction of full payment of Rent,
and Landlord may accept such payment without prejudice to
Landlord's right to recover the balance of such Rent or to
pursue other remedies.
J. EASEMENTS. Landlord may grant easements on the Project and
dedicate for public use portions of the Project without
Tenant's consent; provided that no such grant or dedication
shall substantially interfere with Tenant's use of the
Premises. Upon Landlord's demand, Tenant shall execute,
acknowledge and deliver to Landlord documents, instruments,
maps and plats necessary to effectuate Tenant's covenants
hereunder.
K. DRAFTING AND DETERMINATION PRESUMPTION. The parties
acknowledge that this Lease has been agreed to by both the
parties, that both Landlord and Tenant have consulted with
attorneys with respect to the terms of this Lease and that
no presumption shall be created against Landlord because
Landlord drafted this Lease. Except as otherwise
specifically set forth in this Lease, with respect to any
consent, determination or estimation of Landlord required in
this Lease or requested of Landlord, Landlord's consent,
determination or estimation shall be made in Landlord's good
faith opinion, whether objectively reasonable or
unreasonable.
<PAGE> 25
L. EXHIBITS. Exhibits A through F attached hereto are hereby
incorporated herein by this reference.
M. NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or
shutting off of light, air or view by any structure which
may be erected on lands adjacent to or in the vicinity of
the Building shall in no way affect this Lease or impose any
liability on Landlord.
N. NO THIRD PARTY BENEFIT. This Lease is a contract between
Landlord and Tenant and nothing herein is intended to create
any third party benefit.
O. WAIVER OF JURY TRIAL. IF ANY ACTION OR PROCEEDING BETWEEN
LANDLORD AND TENANT TO ENFORCE THE PROVISIONS OF THIS LEASE
(INCLUDING AN ACTION OR PROCEEDING BETWEEN LANDLORD AND THE
TRUSTEE OR DEBTOR IN POSSESSION WHILE TENANT IS A DEBTOR IN
A PROCEEDING UNDER ANY BANKRUPTCY LAW) PROCEEDS TO TRIAL,
LANDLORD AND TENANT HEREBY WAIVE THERI RESPECTIVE RIGHTS TO
A JURY IN SUCH TRIAL. Landlord and Tenant agree that this
Paragraph constitutes a written consent to waiver of trial
by jury within the meaning of California Code of Civil
Procedure Section 631(a)(2), and Tenant does hereby
authorize and empower Landlord to file this Paragraph and or
this Lease, as required, with the clerk or judge of any
court of competent jurisdiction as a written consent to
waiver of jury trial.
P. COVENANT OF QUIET ENJOYMENT. So long as Tenant is not in
Default under this Lease, Tenant has the right to occupy and
enjoy the Premises during the Term of this Lease in peace
and without disturbance from Landlord or any other party
subject to Landlord's supervision or control.
ADDITIONAL 37. A. ERISA REPRESENTATIONS. Tenant represents to Landlord that
PROVISIONS with the exception of this Lease, neither the Tenant nor any
affiliate of the Tenant is a tenant under a lease or any
other tenancy arrangement (1) with (a) Riggs & Company, a
division of Riggs Bank N.A.., a trustee of the
Multi-Employer Trust; (b) Riggs Bank N.A., a trustee of the
Multi-Employer Property Trust; (c) the Multi-Employer
Property Trust; (d) the National Bank of Washington
Multi-Employer Property Trust, the previous name of the
Multi-Employer Property Trust; (e) The Riggs National Bank
of Washington, D.C., as trustee of the Multi-Employer
Property Trust; (f) the Harman International Business Campus
Joint Venture; (g) the Corporate Drive Corporation as
trustee of the Corporate Drive Nominee Realty Trust; (h)
Goldbelt Place Joint Venture; (i) Arboretum Lakes-1, L.L.C.,
a Delaware limited liability company; (j) Village Green of
Rochester Hills Associates L.L.C., a Michigan limited
liability company; (k) Pine Street Development, L.L.C., a
Washington limited liability company; (l) MEPT Realty LLC, a
New York limited liability company; (m) MEPT, L.L.C., a
Delaware limited liability company; (n) Cabrillo Properties
LLC, a Delaware limited liability company; (o) Valencia
L.L.C., a Delaware limited liability company; or (p) Mission
Trails L.L.C., a Delaware limited liability company; or (2)
involving any property in which any one or more of the
entities named in clauses (1)(a) through (p) are known by
the Tenant to have an ownership interest.
B. ANTI-DISCRIMINATION. There shall be no discrimination
against or segregation of any person or group of persons, on
account of race, color, creed, religious, sex, marital
status, national origin, or ancestry, in the leasing,
subleasing, transferring, use, occupancy, tenure or
enjoyment of the Premises, nor shall the Landlord or Tenant
or any person claiming under or through the Landlord or
Tenant, establish or permit any such practice or practices
of discrimination or segregation with reference to the
selection, location, number, use or occupancy of tenants,
sublessees, subtenants, or vendees in the Premises.
C. RIGHT OF FIRST OFFER. Provided that at the time of
Tenant's exercise there is no Default and no act or omission
of Tenant that would become a Default with the passage of
time or the giving of notice, Tenant shall have a one-time
right of first offer ("Right of First Offer") to lease
either or both of the other tenant spaces in the Building
comprised of approximately
<PAGE> 26
19,752 and 9,991 square feet, respectively. Right of First
Offer shall be on the terms and conditions set forth in this
section. Landlord shall provide Tenant with written notice
("First-Offer Notice") when Landlord determines at
Landlord's sole discretion that either of the spaces will
become available for lease to third parties ("Third
Parties"). Third Parties is defined as parties other than
the existing tenant. Provided that Tenant is not in Default
as of the time of exercise of the Right of First Offer, and
provided that as of such date there is no act or omission of
Tenant that would become a Default with the passage of time
or the giving of notice, if Tenant wishes to exercise its
Right of First Offer, Tenant shall within ten (10) business
days after delivery of the First-Offer Notice to Tenant,
deliver written notice to Landlord of its intention to
exercise its Right of First Offer on all of the space
offered in the First-Offer Notice. Tenant may not lease less
than all of the space so offered. If Tenant does not
exercise its Right of First Offer and elect to lease the
space so offered within the prescribed response period, the
Right of First Offer shall terminate as to such space and
the Landlord shall be free to lease the space to anyone on
any terms at any time during the Lease Term, without any
obligation to provide Tenant with a further right to lease
that space.
If Tenant timely and validly exercises the Right of First
Offer, Tenant and Landlord shall negotiate in good faith the
terms of the lease on the offered space. If Landlord and
Tenant cannot agree as to the terms of the lease within
twenty (20) days of Tenant's written notice exercising its
right of First Offer, Landlord shall be free to lease the
space or any portion thereof to anyone on any terms it deems
acceptable.
D. OPTION TO EXTEND TERM. Provided that Tenant is not in
Default as of the time of exercise of this option and the
commencement date of the First Option Period, and provided
that as of such date there is no act or omission of Tenant
that would become a Default with the passage of time or the
giving of notice, Tenant shall have an option ("First
Extension Option") to extend the Term of the Lease for the
Premises in "as is" condition at the expiration of the
original Lease Term for a period ending on September 30,
2005 ("First Option Period"). All of the terms and
conditions of this Lease except for Base Rent and the
provisions of this Paragraph shall be applicable to the
First Option Period. Provided that Tenant is not in Default
as of the time of exercise of this option and the
commencement date of the Section Option Period, that as of
said date there is no act or omission of Tenant that would
become a Default with the passage of time or the giving of
notice, and that Tenant has duly exercised the First
Extension Option, Tenant shall have a second option ("Second
Extension Option") to extend the Term of the Lease for the
Premises in "as is" condition at the expiration of the First
Option Period for a period ending on the last day of the
120th full calendar month following the original Term
Commencement Date ("Second Option Period"). All of the terms
and conditions of this Lease except for Base Rent and the
provisions of this Paragraph shall be applicable to the
Second Option Period.
The Base Rent for the Premises under each option shall be
the then current market rent for comparable facilities in
the proximate South San Francisco market area. The
definition of comparable facilities shall incorporate the
parking amenities of the Premises, and the Building's
location, age, quality, amenities, identity, exterior
appearance, interior improvements, and type of construction,
excluding laboratory and manufacturing improvements paid for
by Tenant.
Tenant shall give Landlord written notice of its intent to
exercise its option at least twelve (12) but nor more than
eighteen (18) months prior to the expiration of the then
current Term for the Premises. Within fifteen (15) days
after Tenant exercises its option to extend, Landlord shall
provide Tenant with the Base Rent, as determined by
Landlord, for the Option Period. The parties are obligated
to negotiate in good faith to agree on the Base Rent. If the
parties have not mutually agreed on the Base Rent within
thirty (30) days from notification by Landlord to Tenant of
Landlord's determination of Base Rent, each party hereto
shall appoint one representative who shall be a licensed
real estate broker experienced in the leasing of comparable
facilities in the County of San Mateo to act as an
arbitrator. The two (2)
<PAGE> 27
arbitrators so appointed shall determine the Base Rent for
the relevant Option Period. The determination of said Base
Rent shall be made by said two (2) arbitrators within sixty
(60) days from notification by Landlord to Tenant of
Landlord's determination of Base Rent and they shall submit
said determination in writing and signed by said arbitrators
in duplicate. One of the written notifications shall be
delivered to Landlord and the other to Tenant.
In the event the two (2) arbitrators of the parties hereto
cannot agree on the Base Rent for the Premises herein, said
two (2) arbitrators shall appoint a third arbitrator who
shall be a licensed real estate broker experienced in the
leasing of comparable facilities in the County of San Mateo,
to act as an arbitrator. The Base Rent for the relevant
Option Period shall be independently determined by the third
of said arbitrators, which said determination shall be made
within ninety (90) days from notification by Landlord to
Tenant of Landlord's determination of Base Rent. The role of
the third arbitrator shall then be to immediately select
from the proposed resolution of arbitrators #1 and #2 the
one that most closely approximates the third arbitrator's
determination of Base Rent. The third arbitrator shall have
no right to adopt a compromise or middle ground or any
modification of either of the two final proposed
resolutions. The resolution that the third arbitrator
chooses as most closely approximating his determination of
the Base Rent shall constitute the decision of all
arbitrators and shall be final and binding upon the parties.
The parties hereto shall pay the charges of the arbitrator
appointed by it and any expenses incurred by such
arbitrator. The charges and expenses of the third
arbitrator, as provided herein, shall be paid by the parties
hereto in equal shares.
In the event either arbitrator #1 or arbitrator #2 fails to
present a Base Rent figure within the thirty (30) day
period, the Base Rent presented by the other arbitrator
shall be considered final and binding on both parties.
Notwithstanding anything to the contrary herein contained,
Tenant's right to extend the term by exercise of the
foregoing Option shall be conditioned upon the following:
(i) at the time of the exercise of the Option, and at the
time of the commencement of the extended term, Tenant shall
be in possession of and occupying the Premises for the
conduct of its business therein and the same shall not be
occupied by any assignee, subtenant or licensee, and (ii)
the notice of exercise shall constitute a representation and
promise by Tenant to Landlord effective as of the date of
the exercise and as of the date of commencement of the
extended term, that Tenant shall not assign the lease in
whole or in part, or sublet all of any portion of the
Premises, the election to extend the term being for purposes
of utilizing the Premises for Tenant's purposes in the
conduct of Tenant's business therein.
E. NOTICE TO LENDER OF DEFAULT. In the event that a notice
of default ("Notice of Default") is served on Landlord,
Tenant shall provide a copy of such Notice of Default to all
lenders of whom Tenant has been notified for whose benefit a
Deed of Trust then encumbers the Project (a "Beneficiary").
F. LENDER'S TIME TO CURE. In the event that Tenant is served
with a Notice of Default and Landlord fails to cure such
default within the time provided in this Lease, Beneficiary
shall have an additional thirty (30) days within which to
cure the default, commencing with its receipt of the Notice
of Default, or if such default cannot be cured within that
time, then such additional time as may be necessary to
effect such cure if within such thirty (30) days the
Beneficiary has commenced and is diligently pursuing the
remedies necessary to cure such default (including, but not
limited to, commencement of foreclosure proceedings, if
necessary to effect such cure).
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day and year
first above written.
"Landlord"
<PAGE> 28
OYSTER POINT TECH CENTER LLC, a Delaware Limited
Liability Company
By: RIGGS & COMPANY, a division of Riggs Bank
N.A., its sole member
Riggs Bank N.A. as Trustee for the
Multi-Employer Property Trust
By: /s/ MARY ANNE MARTIN
---------------------------------------------
Its: Managing Director
---------------------------------------------
"Tenant"
VAXGEN, INC., a Delaware corporation
By: /s/ ROBERT NOWINSKI
---------------------------------------------
Its: Chairman
---------------------------------------------
By:
----------------------------------------------
Its:
----------------------------------------------
<PAGE> 29
EXHIBIT A-1
LEGAL DESCRIPTION OF PROJECT
PARCEL I:
BEGINNING at granite monument set 10 chains South of the corner common to
Sections 14-15-22 and 13 in Township 3 South of Range 5 West, Mount Diablo Base
and Meridian; running thence along the line dividing said Sections 22 and 23,
North 460.02 feet to the Southwesterly corner of tide Lot No. 8; thence along
the Southerly line of said tide Lot 8, as same is described in Deed from Morgan
Oyster Company, to Bay Counties Land Company, dated March 25, 1909 and recorded
in Book 163 of Deeds at page 44; Records of San Mateo County, South 81 degrees
45' East 339.24 feet; North 64 degrees 45' East 214.80 feet to a point; thence
leaving said Southerly line South 508.85 feet; thence South 88 degrees 27' 14"
West 229.94 feet; thence North 89 degrees 59' West 300.16 feet; thence North
12.0 feet to the point of beginning.
PARCEL II:
A non-exclusive easement for storm drainage purposes in on and over the
following described property:
That portion of the Easterly 12.50 feet of the Westerly 62.50 feet of Parcel "B"
as described in the Lot Line Adjustment recorded September 1, 1992 under
Document Number 92141612 in the Records of San Mateo County, also being the
Westerly 12.50 feet of Parcel 1 as shown on the Map of Oyster Point Business
Park (recorded April 12, 1982 in Book 52 of Parcel Maps at page 58 in the
Records of San Mateo County that lies Southerly of the line shown as "N 81
degrees 45' 55" W 339.24" on said Parcel Map (52 PM 58).
The easement is appurtenant to Parcel I above and was created by Easement for
Storm Drainage dated July 31, 1997, by and between Shelton Properties Inc., a
Hawaii corporation and TC Northern California, Inc., a Delaware corporation,
recorded August 1, 1997, Document No. 97093545, San Mateo County Records.
PARCEL III:
A non-exclusive easement for grading and lateral support for the intended
purpose and Grantee may import, deposit grade, compact, and maintain soil and
fill on the easement area, in on and over the following described property.
A portion of Parcel "B" as described in the Lot Line Adjustment recorded under
Series Number 92141612 in the Official Records of said County, described as
follows:
Beginning at the Southwesterly corner of Parcel "B" thence North 81 degrees 45'
55" West along said line 44.44 feet to the actual point of beginning and through
the following numbered courses:
1) South 81 degrees 45' 55" East along the Southerly line of Parcel "B" 345.32
feet
2) North 64 degrees 44' 05" East along the Southerly line of Parcel "B" 220.36
feet
3) North 30 degrees 04' 12" West 10.04 feet
4) South 64 degrees 44' 05" West 216.51 feet
5) North 81 degrees 45' 55" West along said line 330.51 feet
6) South 57 degrees 57' 36" West 15.47 feet to the point of beginning.
PARCEL IV:
A non-exclusive easement for grading and lateral support for the intended
purpose and Grantee may, import, deposit grade, compact and maintain soil and
file on the easement area, in, on and over the following described property:
A portion of the lands described in the Lot Line Adjustment recorded under
Serial Number 92141612 in the Official Records of said County, described as
follows:
<PAGE> 30
Beginning at the Southeasterly corner of Parcel A of said Lot Line Adjustment.
This also being the Southeasterly corner of Parcel 4 of the Map recorded in
Volume 23 of Parcel Maps at page 27 in the records of said County; thence North
00 degrees 00' 55" West along the Westerly line of Parcel A 48.00 feet to the
actual point of beginning and through the following numbered courses:
1) North 10 degrees 07' 28" West 131.03 feet
2) North 05 degrees 00' 57" West 80.31 feet
3) North 02 degrees 52' 40" West 40.05 feet
4) North 04 degrees 50' 57" East 141.51 feet to a curve to the right with a
radius of 30.00 feet
5) Along said curve through a central of 53 degrees 06' 39" an arc distance of
27.81 feet to the Southerly line of Parcel B.
6) South 81 degrees 45' 55" East along said line 6.08 feet to the Easterly line
of Parcel A 7) South 00 degrees 00' 55" East along said line 412.02 feet to
the point of beginning.
A.P. No 015-190-020 JPN 015 019 190 02 A
R/W 015 019 190 03
R/W 015 001 010 20.02
<PAGE> 31
EXHIBIT A-2
Site Plan
<PAGE> 32
EXHIBIT A-3
Stacking Plan
(First Floor)
<PAGE> 33
EXHIBIT B-1
INITIAL IMPROVEMENTS OF PREMISES
1. LANDLORD'S WORK
1.1 Landlord's work ("Landlord's Work") shall be defined as the
construction of the Building shell more particularly described in Exhibit C and
Building Core improvements as defined below, including soft costs associated
with Landlord's Work. Such soft costs shall include, but are not limited to
architecture, engineering, consultants, shell building permits and impact fees,
utility fees, loan fees, construction interest, transaction fees, and
development fees. The scope of the shell construction shall include: The
Building shell, roof, all exterior windows and doors, fire sprinklers at the
roof line, utilities and services to the Building's exterior, the parking lot,
exterior common areas, and landscaping. The scope of the Building Core
Improvements shall include: lobbies, restrooms, locker areas with showers,
janitorial room, elevator, elevator equipment room, roof screen and stair
assemblies.
1.2 Landlord's Work shall be completed through Landlord's general
contractor, South Bay Construction, in compliance with all applicable codes and
regulations.
1.3 In addition to Tenant Improvement Allowance described in
Paragraph 2.1 below, Landlord, at Landlord's sole cost and expense, shall pay
for all costs involved in Landlord's Work described in paragraph 1.1.
1.4 Changes requested by Tenant to the Building shell and/or Core
Improvements shall be at Tenant's sole cost and expense.
2. TENANT'S WORK
2.1 All interior improvements, including installation of Trade
Fixtures (except those items set forth in Exhibit B-3) and furnishings
(collectively referred to herein at "Tenant's Work"), shall be constructed by
Tenant at its sole cost and expense. All of the plans and specifications for
Tenant's Work shall be approved by Landlord in advance of commencing any
construction. Such approval by Landlord shall not be unreasonably withheld.
Tenant shall invest a minimum of fifty dollars ($50.00) per rentable square
foot, in excess of the Tenant Improvement Allowance supplied by Landlord,
excluding soft costs ("Soft Costs"), as defined below. Tenant shall, on or
before the Term Commencement Date, provide Landlord with an accounting,
certified by an officer of Tenant, itemizing all amounts expended by Tenant in
excess of the Tenant Improvement Allowance to improve the Premises. If the
Amount expended by Tenant is less than fifty dollars ($50.00) per rentable
square foot of the Building, Tenant shall, together with the accounting, deliver
to Landlord an unconditional irrevocable letter of credit in an amount equal to
the difference between the amount expended by Tenant and fifty dollars ($50.00)
per rentable square foot of the Building. At any time prior to the thirty-sixth
month of the Lease Term (but in no event more frequently than monthly) Tenant
may provide Landlord with an amended accounting, as above, showing additional
amounts expended by Tenant to improve the Premises since the last date shown on
the immediately preceding accounting. If the total amount expended by Tenant is
less than fifty dollars ($50.00) per rentable square foot of the Building, the
amount of the letter of credit may be reduced to a sum equal to the difference
between the amount expended by Tenant and fifty dollars ($50.00) per rentable
square foot of the Building. On or before the last day of the thirty-sixth month
of the Lease Term, Tenant shall provide an amended accounting as above showing
in addition any amounts expended by Tenant to improve the Premises since the
last date shown on Tenant's most recent accounting. If the total amount expended
by Tenant is less than fifty dollars ($50.00) per rentable square foot, Landlord
shall be immediately entitled to draw down from the letter of credit an amount
equal to the difference between the amount expended by Tenant and fifty dollars
($50.00) per rentable square foot. Upon such draw the requirement that this
letter of credit be maintained shall terminate. The letter of credit shall (a)
designate Landlord or its assignees as beneficiary, (b) be issued by a financial
institution approved by Landlord, (c) be in form satisfactory to Landlord, and
(d) be for a term of thirty-eight months. Landlord shall not be required to
deliver any certifications or documentation of any kind to the issuer in order
to make a draw, other than Landlord's written demand. The issuer shall not be
required to conduct any inquiry or investigation before paying Landlord the
requested amount of the draw. Landlord may assign, transfer or pledge the letter
of credit to any lender or purchaser in connection with any financing or sale of
the Premises. Landlord shall provide to Tenant a Tenant Improvement Allowance of
up to a maximum of twenty-four dollars ($24.00) per rentable
<PAGE> 34
square foot on the Premises ("Tenant Improvement Allowance") including Soft
Costs associated with Tenant's Work. Soft Costs shall include, but are not
limited to architecture, engineering, consultants, shell building permits and
impact fees, utility fees, loan fees, transaction fees, and Landlord's
construction management fee. Tenant shall promptly pay when due all costs for
Tenant's Work. Landlord shall reimburse Tenant a portion of such costs not to
exceed in the aggregate the amount of the Tenant Improvement Allowance. Tenant
shall, not more frequently than monthly after commencement of the construction
of Tenant's Work, submit to landlord requests for reimbursement of amounts
expended by Tenant for Tenant's Work. Each request shall be certified by an
officer of Tenant and shall include, without limitation, (i) copies of all
invoices paid by Tenant for which reimbursement is sought (ii) proof of payment
of each invoice (iii) a fully executed unconditional lien release from each
payee, and (iv) such additional information as Landlord may reasonably request.
After Landlord has received and approved each request as provided herein,
Landlord shall process the approved request for payment by its lender and upon
disbursement by Landlord's Lender reimburse Tenant promptly for one-half of all
amounts shown in the request as expenditures for costs to which the Tenant
Improvement Allowance applies, as hereinbelow provided up to the maximum amount
set forth above.
2.2 Tenant's Improvement Allowance (twenty-four dollars ($24.00)
per rentable square foot on the Premises) shall be applied to, but not limited
to the following costs:
(i) Costs paid to general contractors and subcontractors for
labor, material, permits, bonds and the like relating to
the Premises.
(ii) Construction management fee to Landlord in the amount of
two percent (2%) of the Tenant Improvement Allowance;
(iii) Cost of labor, material and overhead for change orders
approved by landlord in accordance with this Exhibit B-1
and minor field changes;
(iv) Architectural, engineering and other design fees;
(v) Plans, drawings and printing costs;
(vi) Insurance premiums;
(vii) Cost of any reasonably required reports, surveys or
studies;
(viii) The cost of utility connections, installation of utility
facilities and meters and user installation or hook-up
fees;
(ix) All governmental fees and development impact fees,
including fees for permits, charges and costs of obtaining
governmental approvals;
(x) Recording costs and filing fees; and
2.3 Tenant shall contract with an architect approved by Landlord
for Tenant's Work (such approval shall not be unreasonably withheld by Landlord)
to furnish architectural plans and specifications ("Tenant's Plans and
Specifications") required for the construction of Tenant's Work. Tenant's Plans
and Specifications shall also be based on the Interior Improvement
Specifications attached hereto as Exhibit B-2.
2.4 Tenant shall contract with a general contractor approved by
Landlord for completion of Tenant's Work. Tenant's suppliers, contractors,
workmen and mechanics shall be subject to approval by Landlord, which shall not
be unreasonably withheld or delayed, prior to the commencement of work and shall
be subject to Landlord's administrative control while performing their work.
Landlord shall coordinate with Tenant's representative the scheduling of
Tenant's Work. Prior to commencement of Landlord's Work, Tenant shall notify
Landlord with respect to any special scheduling requirements of Tenant in
connection with the installation of Tenant's Work. If at any time any supplier,
contractor, workman or mechanic performing Tenant's Work hinders or delays any
other work in the Building or performs any work which may or does impair the
quality, integrity or performance of any portion of the Building, Tenant shall
take all
<PAGE> 35
steps necessary to bring an end to the delay or hindrance, and the contractor in
question shall not recommence Tenant's Work until reasonable steps have been
taken to avoid further delay or hindrance. In performing Tenant's Work, Tenant
shall be required to employ contractors (and subcontractors) which (a) are
parties to, and bound by, a collective bargaining agreement with a labor
organization affiliated with the Building and Construction Trades Council of the
AFL-CIO and (b) employ only members of such labor organizations to perform work
within their respective jurisdictions), with the exception of labor hired for
network cabling for personal and mainframe computer systems and related items.
Tenant shall reimburse Landlord for any repairs or corrections of Landlord's
Work or of Tenant's Work or of any portion of the Building caused by or
resulting from the work of any supplier, contractor, workman or mechanic with
whom Tenant contracts. Landlord shall provide access to Tenant's suppliers,
contractors, workmen and mechanics so as to achieve timely completion and
occupancy of the Premises.
2.5 Unless the Lease has been terminated pursuant to Paragraph 26
of the Lease, upon the termination or expiration of the Lease, as such term may
be extended, Tenant shall have the right to remove items listed in Exhibit B-3
which have been installed and paid for by Tenant. Tenant shall repair any damage
to the Premises resulting from such removal, patch and repair the walls, floor
and ceiling and return the Premises in clean condition.
3. COMPLETION DATES
3.1 Tenant shall notify Landlord in advance of the approximate
date on which Tenant's Work will be substantially completed and will notify
Landlord when Tenant's Work is in fact substantially competed ("Substantial
Completion"). If any dispute shall arise as to whether the Premises are
substantially completed and ready for Tenant's occupancy, a certificate
furnished by an independent architect mutually agreed to by Landlord and Tenant
certifying the date of Substantial Completion shall be conclusive. The following
shall constitute tenant delays ("Tenant Delays") under the Lease:
(a) Tenant's failure to furnish complete and timely
instruction or approvals;
(b) Tenant's failure to submit conceptual plans for
Tenant's Work to Landlord within thirty (30) days from execution of Lease;
(c) Tenant's failure to submit preliminary Plans and
Specifications for Tenant's Work for approval by Landlord within thirty (30)
days from execution of Lease;
(d) Tenant's failure to enter into contract with
Landlord's general contractor for construction of Tenant's Work within
forty-five (45) days of execution of Lease;
(e) Tenant's failure to substantially complete
construction of Tenant's Work as evidenced by a Temporary Certificate of
Occupancy by March 31, 1999; and
(f) Tenant's failure to deliver a Certificate of
Occupancy to Landlord within thirty (30) days after Substantial Completion of
Tenant's Work.
Tenant Delays resulting in postponement of the Term Commencement Date shall
cause Tenant to be charged rent under the terms of the Lease for each day of
such delay. All time periods indicated above shall be computed on a calendar
basis with no allowance for holidays, weekends or other customs.
3.3 Except as otherwise provided in the Lease, failure of
Landlord to deliver possession of the Premises within the time and in the
condition provided for in the Lease will not give rise to any claim for damages
by Tenant against Landlord or Landlord's general contractor. If Landlord fails
to deliver the Premises in the condition as provided for under this Lease,
Landlord shall promptly correct any such deficiencies, excluding any immaterial
deficiencies which do not prevent Tenant from using the Premises for their
intended use. If Landlord fails to correct such deficiencies within a reasonable
time, Tenant may pursue its legal remedies against Landlord.
<PAGE> 36
EXHIBIT B-2
INTERIOR IMPROVEMENT SPECIFICATIONS
NOTE: Not all specified items listed herein refer to this project.
1. WALLS
A. All walls receive paint to be properly prepared. Texture to be
medium spray finish with 1 coat of latex paint to cover. Paint
to be Pittsburg Doric white.
B. Demising walls, between tenant spaces to roof height shall be
metal studs with 5/8" gypsum board both sides. Fire tape finish.
U.O.N. See T.I. drawings for size, gauge and spacing.
C. Restroom studs with 5/8" gypsum board to 6" above adjacent
ceiling U.O.N. with friction fit sound batt insulation. Wainscot
at wet walls to be +4' - 0' high with ceramic tile. Texture to
be smooth finish with semi-gloss latex paint U.O.N.
D. Interior Office Walls. Metal studs with 5/8" gypsum board on both
sides to underside of ceiling, U.O.N. Perimeter office walls
between office and warehouse areas to 6" above ceiling, U.O.N.
per Title 24 energy calculation requirements.
E. Other. As may be directed by code or tenant purposes for fire
protection, sound or energy insulation, demountability and
aesthetics.
F. See tenant improvements drawings for specifications on size,
gauge and spacing of studs.
2. CEILING
A. General, Finished ceiling height to be 10'.
B. Restrooms. Finished ceiling height to be 9' with metal joist with
5/8" gypsum board. Texture to be smooth finish with semi-gloss
latex paint with friction fit sound batt insulation. See tenant
improvement drawings for specifications on size, gauge and
spacing of joists.
C. Office. 2' x 4' T-bar suspended ceiling system with 2' x 4'
Second Look II acoustical ceiling tile by Armstrong or approved
equal.
D. Other. As may be directed by tenant or as may otherwise be
required by tenant or codes. See tenant improvement drawings.
3. FLOOR COVERING
A. Carpet - 30 oz. Cut pile nylon Design Weave "Westbridge"/26 oz.
Loop Design Weave "Caravan" or equivalent without pad. Carpet to
be glued down installation. Color to be selected by Tenant.
B. V.C.T. Armstrong "Standard Excelon" - 1/8" gauge: 12" x 12" or
approved equal.
C. Sheet vinyl Congoleum "Forever" or approved equal.
D. Base. 2-1/2" covered based at carpet and resilient floors.
E. Ceramic tile at toilet rooms with 6" ceramic tile base.
F. Sealed Concrete. Sealed with a clear acrylic sealer.
<PAGE> 37
4. DOORS
A. Interior. SP Particleboard Core Oak 3'-0" x 9'-0", Rotary Swan
Red Oak Veneer door by Weyerhauser or equal. 20 minute rated at
one hour fire walls. In laboratory and laboratory support
spaces, hollow metal doors.
5. FRAMES (DOORS & WINDOWS)
A. Timely Standard prefinished steel door and sidelight frame in
standard white. "Timely II" at rated walls.
B. Other. As may be directed by code.
6. HARDWARE
A. Latch set and lockset - Schlage D Series in brushed stainless
steel with H.C. Levon lever.
B. Butts - 2 pair per door finished to match.
7. RESTROOM ACCESSORIES
A. Water closet, white American Standard flush valve #2221.18 with
Olsonite #95 seat and Sloan Ryal #110.3 flush valve. H.C. stalls
to have white #9468.018 water closet with Sloan Royal #115.3
flush valve.
B. Urinal, white American Standard "Washbrook" #6501.010 with Sloan
Royal #186 flush valve.
C. Lavatory, American Standard with faucet #0355.07 and drain
#2103.786.
D. Recessed towel dispenser/waste receptacle, Bobrick #B3944.
E. Surface mounted seat cover dispense, Bobrick.
F. Surface mounted toilet tissue dispenser, Bobrick #B2740.
G. Hook, Bobrick #B682.
H. Grab bars, Bobrick #B6806, 36" and 42".
I. Toilet partitions, Bobrick 1080 series, plastic laminate, or
equivalent. Baked enamel floor-braced with coat hook/bumper.
J. Urival partitions, Bobrick 1085 "Duraline" series, or equivalent.
K. Recessed toilet room accessories, Bobrick B301, B3570 and B35704,
or equivalent.
8. HVAC
Gas-fired roof-mounted VAV system for cooling, heating and ventilation.
Designed and installed in accordance with the California Energy Act -
Title 24.
1. All cuts in roof to be properly sealed, flashed and hot
mopped.
9. ELECTRICAL
A. Designed and installed in accordance with the California Energy
Act - Title 24.
<PAGE> 38
B. Power distributed as required by tenant for warehouse, assembly
and manufacturing equipment, appliance operation and special
office machinery shall be ceiling hung U.O.N.
C. Warehouse/Manufacturing/Assembly Lighting. High Bay THS 150-watt
high pressure sodium light fixtures by Lithonia or equal in areas
with open ceiling. U.O.N. See tenant improvement drawings. T-bar
dropped ceilings 2' x 4' recessed mounted fluorescent fixtures
with light levels ranging from 15-75 foot candles as specified by
Owner. Fixtures same as for office lighting following.
D. Office lighting is 2' x 4' recessed mounted fluorescent ceiling
fixtures, Lithonia 2PM4G B3 40 18LS 120 or equal, approved by
Owner, with parabolic lens.
E. Downlights. Halo #117-1CT-331-P Coilex Baffle 7" O.D. trim.
F. Wallwashers. Halo #1176-T-425P Coilex Baffle with scoop trim 7"
O.D.
G. Track Lights. Halo 120v single circuit power trac with Coilex
Continental lampholdes #L733P.1.
H. Wall-mounted fixture at restroom. Lithonia Wallens #W240-120A.
I. Other lighting as required by tenant or code.
J. Provide plates for all power outlets. Provide pull wires at all
telephone and cable (C.R.T.) pull locations as indicated on plan.
K. Illuminated exit signs as required by tenant or code.
L. Emergency lighting as required by code.
10. FINISHES/SPECIALTIES
A. Special office wall or floor finishes. See tenant improvement
drawings or specifications.
B. Lunch room, conference room, coffee or wet bar cabinetry and
plumbing. See tenant improvement drawings.
<PAGE> 39
EXHIBIT B-3
MOVEABLE EQUIPMENT AND TRADE FIXTURES
Moveable Equipment & Trade Fixtures includes:
Lab Benches and Counters
Fume Hoods
Cold Rooms
<PAGE> 40
EXHIBIT C
INITIAL PROJECT SPECIFICATION
GENERAL DESCRIPTION
o Two story concrete tilt-up building.
o Clear heights of 13'8" on the top floor and 24'2-1/2" and 19'2-1/2" on the
bottom floor (349 and 347 Oyster Point respectively).
o Bay spacing of 33'-4" and 34' x 60' on the top floor and 33'-4" and 34' x
30' on the bottom (349 and 347 Oyster Point respectively).
BUILDING STRUCTURE
o All foundations to include footings, foundation walls or other building
foundation components required to support the entire building structure.
o Columns shall be steel box or pipe columns.
o All columns, beams, joists, purlins, headers, or other framing members to
support the roof, roofing membrane and stair openings.
o Five inch (5") thick concrete slab on grade with #3 reinforcing bars at 18"
on center each way or welded wire mesh and any other reinforcing or
structural connections that may be necessary or required.
o Two and a half (2-1/2") thick concrete slab over metal deck supported by
structural metal beams and columns.
o Exterior walls that enclose the perimeter of the building with steel
reinforcing and structural connections that may be necessary or required.
o All exterior glass and glazing with pained aluminum frames. Glass to be
tinted as appropriate to the aesthetic design of the building. All exterior
doors, door closer and locking devices necessary for proper functioning.
o Hybrid Volcraft panel roof system to support roofing membrane.
o Four (4) play built-up roofing (including a base sheet, two plays and a cap
sheet) and all flashings by Owens-Corning, Johns Manville, or equal.
o Painting of all concrete walls with Tex-Coat or Kel-Tex textural paint. All
caulking of exterior concrete joint in preparation for painting.
o The foundation and structural framing should be designed to support a
minimum live load of 100 pounds per square foot in all areas.
o The floor-to-floor height of the building shall allow a minimum of 10'0"
interior drop ceiling height.
o Roof hatch and ladder within each building.
PLUMBING
o Underground sanitary sewer laterals connected to the city sewer main the
street and piped into the building and under the concrete slab on grade for
the length of the building. Sewer lines to consist of a six inch (6"
sanitary sewer line
<PAGE> 41
and a six inch (6") biowaste sewer line. Sanitary sewer line under the slabs
will be in a close proximity to the building restroom locations.
o Domestic water mains connected to the city water main in the street and
stubbed to the building. Water main to the building shall be two inches (2")
in size with a three inch (3") supply line.
o Roof drain leaders piped and connected to the site storm drainage systems or
asphalt paved area.
o Gas lines connected from the city public utility mains and gas meters
adjacent to, and in close proximity to the building. Meters supplied by
utility company.
ELECTRICAL
o All primary electrical service to the building that is complete including
underground conduit and wire feeders from transformers pads into the
building's main switchgear electrical room. The electrical characteristics
of the secondary side of transformers shall be 277/480 volt, 3 Phase and the
rate capacity of the transformers shall be 2,000 amps for each building.
o Underground pull section, meter, and panel(s), for site lighting and
landscaping.
o Underground conduit from the street to the building for telephone trunk line
service by Pacific Telephone Conduit to the building shall not be less than
4".
o An electrically operated landscape irrigation controller that is a complete
and functioning system.
o Underground conduit from the building to the main fire protection system,
shut off valve (PIV) for installation for security alarm wiring.
o All parking lot and landscaping lighting to include fixtures, underground
conduit, wire, distribution panel and controller. All exterior lighting
shall be a complete and functioning system.
FIRE PROTECTION
o A complete and fully functional overhead system distributed throughout the
building with a density of .2/3000 on the top floors and .4/2000 and
.495/2000 on the bottom floors (349 and 347 Oyster Point respectively).
o System shall include all sprinkler heads that may be required by building
codes above the ceiling, when ceilings are installed.
LOADING
o Two (2) grade level 12' x 14' roll-up doors plus at least one (1) 12' x 10'
location for future grade level opening per building.
SITEWORK
o All work outside the building perimeter walls shall be considered site work
for the building shell and shall include grading, asphalt concrete, paving,
landscaping (hard and soft), landscape and irrigation, storm drainage,
utility service laterals, curbs, butters, sidewalks, specialty paving (if
required), retaining walls, fencing and gates, trash enclosures, planters,
sign monuments, parking lot and landscape lighting and other exterior
lighting per code.
o Paving sections for automobile and truck access shall be according to the
Geological Soils Report.
o All parking lot striping to include handicap signage and spaces.
<PAGE> 42
o Underground site storm drainage system shall be connected to the city storm
system main.
EXCLUSIONS
The following items are not included in the building shell:
o Electrical panels and distribution.
o Security system.
<PAGE> 43
EXHIBIT D
TENANT ESTOPPEL CERTIFICATE
TO: Oyster Point Tech Center LLC
c/o Trammell Crow NW, Inc.
1241 East Hillsdale Blvd., Ste. 200
Foster City, CA 94404
THIS IS TO CERTIFY:
1. That the undersigned is the Tenant under that certain lease dated
_____________________, and, if applicable, amended on ___________________, by
and between ______________________________ ("Landlord"), and the undersigned
("Tenant") covering those certain premises located as shown on the drawing made
part of the Lease (the "Premises").
2. That said Lease is in full force and effect and, except as noted in
Paragraph 1. Above, has not been modified, changed, altered or amended in any
respect, and is the only lease or agreement between the Tenant and the Landlord
affecting the Premises.
3. To the best of Tenant's knowledge, the information set forth below is
true and correct:
<TABLE>
<S> <C>
(a) Square footage of the Premises: _____________________________________
(b) Annual rent as of the Commencement of Lease: $_______________________
(c) Current annual rent (if different than at commencement): $___________
(d) Commencement date of Lease: _________________________________________
(e) Lease termination date: _____________________________________________
(f) Rent paid to and including: _________________________________________
(g) Security deposit: $__________________________________________________
(h) Prepaid rent for an in amount of: $__________________________________
(i) Free rent period: ___________________________________________________
(j) Amount of current monthly escrow payment obligations with respect to
taxes, insurance, and Common Area Maintenance charges under the Lease:
Taxes: $___________________________
Insurance: $___________________________
Common Area Maintenance Charges: $___________________________
(k) Dates through which Tenant has paid monthly escrow
payments and Common Area Maintenance charges:
Escrow Payment for Taxes: ___________________________
Escrow Payment for Insurance: ___________________________
Common Area Maintenance Charges: ___________________________
</TABLE>
4. Delete if Tenant has not occupied the Premises: Tenant now occupies
the Premises, accepts the Premises in their current condition subject only to
those punch list items listed in Exhibit A, if any, and is not aware of any
defect in the Premises except as described in Exhibit A, if any.
5. Delete if Tenant has occupied the Premises: Tenant does not occupy the
Premises. The status of the plans and specifications for and the construction of
Tenant Improvements is described in Exhibit A. Tenant is familiar with the
Tenant Improvement work done to date and is now aware of any defect in such
work, except as described in Exhibit A.
<PAGE> 44
6. No rent has been paid in the current month other than as disclosed in
Paragraph 3. No free rent or other concessions, benefits, or inducements other
than as specified in the Lease have been granted to Tenant or undertaken by the
Landlord.
7. Tenant has not been granted any renewal, expansion, purchase options
or any rights of first refusal, except as disclosed in writing in the Lease.
8. Neither Tenant nor to the best of Tenant's knowledge, Landlord is in
breach of the Lease and there has not occurred any event, act, omission or
condition which by notice or lapse of time or both or otherwise, will result in
any breach by Tenant or to the best of Tenant's knowledge, by Landlord. As of
the date hereof and except as set forth in the Lease, the undersigned is
entitled to no credit, offset or deduction in rent. Tenant knows of no
liabilities or obligations of Landlord which have accrued but are unsatisfied
under the Lease as of the date of this Certificate.
9. To the best of Tenant's knowledge, there are no actions, whether
voluntary or otherwise, pending against the undersigned under the bankruptcy
laws or other laws for the relief of debtors of the United States or any state
thereof.
10. With the exception of this Lease and except as otherwise disclosed
in writing to Landlord, neither the Tenant nor any affiliate of the Tenant is a
tenant under a lease or any other tenancy arrangement (i) with (a) ________; (b)
__________; (c) __________; or (ii) involving any property in which the entities
named in clauses (____), (_____) or (______) are known by the Tenant to have an
ownership interest.
DATED this ___________ day of _____________, 19___.
TENANT:
VAXGEN, INC., a Delaware Corporation
By: ________________________________
Name: ______________________________
Its: _______________________________
(Tenant to attach Exhibit A to Tenant Estoppel Certificate, List of Defects, if
necessary.)
<PAGE> 45
EXHIBIT E
RULES AND REGULATIONS
FOR TENANT'S CONTRACTOR(S)
1. Tenant's contractor will be responsible for making arrangements with
Landlord as to time for the use of building and equipment such as elevators
and loading areas. The delivery of materials, equipment and supplies to the
Building or Premises must be coordinated with Landlord at least two 92)
business days prior to delivery. The Building debris box is not to be used
for waste produced by Tenant's contractor.
2. Tenant's contractor shall not interfere with the Landlord's contractor and
sub-trades in any way and will cooperate fully with same.
3. All Tenant's contractor's waste and debris must be removed from the Premises
and Building regularly and promptly. All combustible waste and debris must
be stored in a covered, fire-proof container prior to removal.
4. Tenant's contractor and sub-trades shall take all precautions to ensure the
security and the site condition of the Premises and Building in which the
work is being performed, including their own tools, equipment and materials,
and are responsible for any damage caused by employees and sub-trades to any
part of the Building or Premises.
5. Tenant's contractor shall remove and properly replace underfloor duct access
coverings as required for Tenant's trades and services. Any damage to
underfloor duct access coverings shall be repaired or replaced by Tenant's
contractor to the satisfaction of Landlord.
6. Tenant's contractor must provide their own fire protection equipment, have
same on premises at all times and conform to any requirements of Landlord or
Landlord's contractor regarding fire protection.
7. Tenant's contractor shall carry out all work in compliance with all Federal,
State, county and city Building Codes and applicable Acts. Ordinances and
Statutes.
8. Tenant's contractor shall provide all their own protective devices and
coverings, so as to protect the Building finishes provided by Landlord in
the Building.
9. No attachments to or use of window frames and mullions, ceiling systems,
glass, ceiling frame or building frame, will be permitted without the
expressed written consent of Landlord.
10. All Tenant's contractors, employees and trades must be confined to the area
in which work is being performed.
11. Tenant or Tenant's contractor shall carry builder's risk insurance with
limits of not less than the amount requested by Landlord, insurance covering
loss or damage to the work during the course of construction; worker's
compensation/employer's liability insurance covering all employees of
contractor and subcontractor. All such policies shall name Landlord and
Tenant as additional insureds. A certificate of insurance must be provided
to Landlord prior to commencement of work.
12. Any construction, alteration, maintenance, repair, replacement, removal or
decoration undertaken by Tenant's contractor shall be carried out in a good,
workmanlike, and prompt manner, shall comply with applicable statutes, laws,
ordinances, regulations, rules orders and requirements of the authorities
having jurisdiction thereof, and shall be subject to supervision by Landlord
or its employees, agents, or contractors. All construction shall be
performed in a timely manner without delays or interruptions.
13. Tenant's contractors shall not use excessive quantities of electricity or
water and shall not shut off any water, electricity, sprinkler systems or
other services without first obtaining Landlord's express authorization.
<PAGE> 46
EXHIBIT F
DISCLOSED HAZARDOUS MATERIALS LIST
Preliminary Estimate of Maximum Amounts of Hazardous Chemicals and Biohazards
<TABLE>
<CAPTION>
Organics
<S> <C>
Chloroform 10 gal
Ethanol 40 gal
Methanol 10 gal
Isopropyl alcohol 10 gal
Butanol 0.5 gal
Phenol 10 gal
DMSO 4 gal
Glutaraldeheyde 0.5 gal
Formaldehyde 2 gal
Formamide 2 gal
Mercaptoethanol 1 gal
Paraformaldehyde 1 gal
Toluene 1 gal
Acids
Acetic acid 10 gal
Nitric acid 4 gal
Hydrochoric acid 4 gal
Sulfuric acid 4 gal
Trichloroacetic acid 1 gal
Formic acid 4 gal
Chlorox 20 gal
Bases
Ammonium hydroxide 4 gal
Sodium hydroxide 10 gal
Miscellaneous chemicals
Acrylamide 6 kg
CO2 Gas 12 tanks
CO2 Solid 100 lbs
Film developing chemicals 60 gal (fully diluted)
Ethidium bromide 50 g
Propidium iodide 10 g
Methotrexate 2 g
Sodium azide 200 g
Thimerisol 50 g
Guanidine thiocyanate 500 g
Radiochemicals (maximum weekly consumption)
125 NaI 40 mCi
35S-labeled amino acids and nucleotides 40 mCi
3H Tritium 10 mCi
32P 40 mCi
14C 10 mCi
Biologic Hazards
E. coli 40 L
HIV1 3 L
</TABLE>
<PAGE> 47
<TABLE>
<S> <C>
SIV/SHIV 1L
Human blood/serum/plasma 600L
Rodent blood/serum/plasma 100 L
Nonhuman primateblood serum/plasma 10L
</TABLE>
<PAGE> 1
Exhibit 10.19
BASIC LEASE INFORMATION
OFFICE NET
<TABLE>
<S> <C>
LEASE DATE: May 20, 1998
TENANT: VaxGen, Inc., a Delaware corporation
TENANT'S NOTICE ADDRESS: 1000 Marina Blvd., Suite 200, Brisbane, CA
with copy to:
1420 5th Avenue, Suite 2200, Seattle, WA 98101
TENANT'S BILLING ADDRESS: 1000 Marina Blvd., Suite 200, Brisbane, CA
TENANT CONTACT: Marina Trumbull
PHONE NUMBER: 650-225-7000
FAX NUMBER: 650-225-7057
LANDLORD: Spieker Properties, L.P., a California limited
partnership
LANDLORD'S NOTICE ADDRESS: Spieker Properties
1000 Marina Blvd., Suite 104
Brisbane, CA 94005
LANDLORD'S REMITTANCE ADDRESS: Spieker Properties
P.O. Box 45587
Department 11561
San Francisco, CA 94145-0587
PROJECT DESCRIPTION: Sierra Point 1000 Marina Blvd., Brisbane, CA
BUILDING DESCRIPTION: A six-story, multi-tenanted office building
PREMISES: Approximately 16,483 rentable square feet known as
Suite 200; the entire second floor.
PERMITTED USE: General sales; office and administration, light
laboratory
OCCUPANCY DENSITY: n/a
PARKING DENSITY: 4 spaces per 1000 usable square feet
PARKING AND PARKING CHARGE: 66 non-exclusive spaces at $0 per space/per month
SCHEDULED TERM COMMENCEMENT DATE: August 1, 1998
SCHEDULED LENGTH OF TERM: Eighty four (84) months
SCHEDULED TERM EXPIRATION DATE: July 31, 2005
RENT:
BASE RENT: $32,966.00 per month
(subject to adjustment as provided in Paragraph 39,
hereof)
ESTIMATED FIRST YEAR OPERATING EXPENSES: $11,702.93 per month
SECURITY DEPOSIT: $210,000.00 See Addendum #3
TENANT'S PROPORTIONATE SHARE:
OF BUILDING: 16.62%
OF PROJECT: 16.62%
</TABLE>
1
<PAGE> 2
The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Each reference in this Lease to any of the Basic Lease Information
shall mean the respective information above and shall be construed to
incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease Information and the Lease, the latter shall control.
LANDLORD TENANT
Spieker Properties, L.P., VaxGen, Inc., a Delaware corporation
a California limited partnership
/s/ ROBERT F. PACQUER
------------------------------------
By: Spieker Properties, Inc.
a Maryland corporation, By: Robert F. Pacquer
its general partner Its: Chief Financial Officer
/s/ PETER H. SCHNUGG
-----------------------------
By: Peter H. Schnugg
Its: Senior Vice President
2
<PAGE> 3
LEASE
THIS LEASE is made as of the twentieth day of May, 1998, by and between Spieker
Properties, L.P., a California limited partnership (hereinafter called
"Landlord"), and VaxGen, Inc., a Delaware corporation (hereinafter called
"Tenant").
1. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord, upon the
terms and conditions hereinafter set forth, those premises (the "Premises")
outlined in red on Exhibit B and described in the Basic Lease Information. The
Premises shall be all or part of a building (the "Building") and of a project
(the "Project"), which may consist of more than one building and additional
facilities, as described in the Basic Lease Information. The Building and
Project are outlined in blue and green respectively on Exhibit B. Landlord and
Tenant acknowledge that physical changes may occur from time to time in the
Premises, Building or Project, and that the number of buildings and additional
facilities which constitute the Project may change from time to time, which may
result in an adjustment in Tenant's Proportionate Share, as defined in the Basic
Lease Information, as provided in Paragraph 7.A.
2. POSSESSION AND LEASE COMMENCEMENT
A.
B. CONSTRUCTION OF IMPROVEMENTS. If this Lease pertains to a Building to be
constructed or improvements to be constructed within a Building, the provisions
of this Paragraph 2.B. shall apply in lieu of the provisions of Paragraph 2.A.
above and the term commencement date ("Term Commencement Date") shall be the
earlier of the date on which: (1) Tenant takes possession of some or all of the
Premises; or (2) the improvements to be constructed or performed in the Premises
by Landlord (if any) shall have been substantially completed in accordance with
the plans and specifications, if any, described on Exhibit C and Tenant's taking
of possession of the Premises or any part thereof shall constitute Tenant's
confirmation of substantial completion for all purposes hereof, whether or not
substantial completion of the Building or Project shall have occurred. If for
any reason Landlord cannot deliver possession of the Premises to Tenant on the
scheduled Term Commencement Date, Landlord shall not be subject to any liability
therefor, nor shall Landlord be in default hereunder except as provided in this
Paragraph 2.B. nor shall such failure affect the validity of this Lease, and
Tenant agrees to accept possession of the Premises at such time as such
improvements have been substantially completed, which date shall then be deemed
the Term Commencement Date. Tenant shall not be liable for any Rent for any
period prior to the Term Commencement Date (but without affecting any
obligations of Tenant
<PAGE> 4
under any improvement agreement appended to this Lease). In the event of any
dispute as to substantial completion of work performed or required to be
performed by Landlord, the certificate of Landlord's architect or general
contractor shall be conclusive. Substantial completion shall have occurred
notwithstanding Tenant's submission of a punchlist to Landlord, which Tenant
shall submit, if at all, with fourteen (14) business days after the Term
Commencement Date or otherwise in accordance with any improvement agreement
appended to this Lease. Upon Landlord's request, Tenant shall promptly execute
and return to Landlord a "Start-Up Letter" in which Tenant shall agree, among
other things, to acceptance of the Premises and to the determination of the Term
Commencement Date, in accordance with the terms of this Lease, but Tenant's
failure or refusal to do so shall not negate Tenant's acceptance of the Premises
or affect determination of the Term Commencement Date. The Commencement Date,
Rent and Tenant's other obligations shall be postponed to the extent Tenant is
unable to occupy the Premises because Landlord fails: (i) to substantially
complete any improvements to the Premises required to be performed by Landlord
under this Lease, or (ii) to deliver possession of the Premises for any other
reason, except to the extent that Tenant, it's contractors, agents or employees
have caused such failure. Any such delay in the Commencement Date shall not
subject Landlord to liability for loss or damage resulting therefrom, and
Tenant's sole recourse with respect thereto shall be the postponement of Rent
and other obligations. Notwithstanding the foregoing, in the event Landlord's
failures described above have caused the delay of the Commencement Date, without
Tenant delay or Force Majeure contributing to such delay, and the Commencement
Date is delayed for more than sixty (60) days past the date set forth in the
Basic Lease Information, then Landlord shall credit to Tenant, for each day of
delay after such sixty (60) day period until possession of the Premises is
delivered to Tenant, the amount of $1,488.96. For purposes of this Paragraph 2,
delays caused by the agents or contractors of a party shall be deemed to be
delays caused by that party.
3. TERM
The term of this Lease (the "Term") shall commence on the Term
Commencement Date and continue in full force and effect for the number of months
specified as the Length of Term in the Basic Lease Information or until this
Lease is terminated as otherwise provided herein. If the Term Commencement Date
is a date other than the first day of the calendar month, the Term shall be the
number of months of the Length of Term in addition to the remainder of the
calendar month following the Term Commencement Date.
4. USE
A. GENERAL. Tenant shall use the Premises for the permitted use specified in the
Basic Lease Information ("Permitted Use") and for no other use or purpose.
Tenant shall control Tenant's employees, agents, customers, visitors, invitees,
licensees, contractors, assignees and subtenants (collectively, "Tenant's
Parties") in such a manner that Tenant and Tenant's Parties cumulatively do not
exceed the occupant density (the "Occupancy Density") or the parking density
(the "Parking Density") specified in the Basic Lease Information at any time.
Tenant shall pay the Parking Charge specified in the Basic Lease Information as
Additional Rent (as hereinafter defined) hereunder. So long as Tenant is
occupying the Premises, Tenant and Tenant's Parties shall have the nonexclusive
right to use, in common with other parties occupying the Building or Project,
the parking areas, driveways and other common areas of the Building and Project,
subject to the terms of this Lease and such rules and regulations as Landlord
may from time to time prescribe. Landlord reserves the right, without notice or
liability to Tenant, and without the same constituting an actual or constructive
eviction, to alter or modify the common areas from time to time, including the
location and configuration thereof, and the amenities and facilities which
Landlord may determine to provide from time to time, provided, however, that any
such changes shall not materially affect or impair Tenant's use of or access to
the Premises.
B. LIMITATIONS. Tenant shall not permit any odors, smoke, dust, gas, substances,
noise or vibrations to emanate from the Premises or from any portion of the
common areas as a result of Tenant's or any Tenant's Party's use thereof, nor
take any action which would constitute a nuisance or would disturb, obstruct or
endanger any other tenants or occupants of the Building or Project or elsewhere,
or interfere with their use of their respective premises or common areas.
Storage outside the Premises of materials,
<PAGE> 5
vehicles or any other items is prohibited. Tenant shall not use or allow the
Premises to be used for any immoral, improper or unlawful purpose, nor shall
Tenant cause or maintain or permit any nuisance in, on or about the Premises.
Tenant shall not commit or suffer the commission of any waste in, on or about
the Premises. Tenant shall not allow any sale by auction upon the Premises, or
place any loads upon the floors, walls or ceilings which could endanger the
structure, or place any harmful substances in the drainage system of the
Building or Project. No waste, materials or refuse shall be dumped upon or
permitted to remain outside the Premises. Landlord shall not be responsible to
Tenant for the non-compliance by any other tenant or occupant of the Building or
Project with any of the above-referenced rules or any other terms or provisions
of such tenant's or occupant's lease or other contract.
C. COMPLIANCE WITH REGULATIONS. By entering the Premises, Tenant accepts the
Premises in the condition existing as of the date of such entry. Tenant shall at
its sole cost and expense strictly comply with all existing or future applicable
municipal, state and federal and other governmental statutes, rules,
requirements, regulations, laws and ordinances, including zoning ordinances and
regulations, and covenants, easements and restrictions of record governing and
relating to the use, occupancy or possession of the Premises, to Tenant's use of
the common areas, or to the use, storage, generation or disposal of Hazardous
Materials (hereinafter defined) (collectively "Regulations"). Landlord warrants
that to Landlord's actual knowledge as of the Commencement Date, the Premises
comply with all Regulations, punchlist items excepted. Tenant shall at its sole
cost and expense obtain any and all licenses or permits necessary for Tenant's
use of the Premises. Tenant shall at its sole cost and expense promptly comply
with the requirements of any board of fire underwriters or other similar body
now or hereafter constituted. Tenant shall not do or permit anything to be done
in, on, under or about the Project or bring or keep anything which will in any
way increase the rate of any insurance upon the Premises, Building or Project or
upon any contents therein or cause a cancellation of said insurance or otherwise
affect said insurance in any manner. Tenant shall indemnify, defend (by counsel
reasonably acceptable to Landlord), protect and hold Landlord harmless from and
against any loss, cost, expense, damage, attorneys' fees or liability arising
out of the failure of Tenant to comply with any Regulation. Landlord shall
likewise indemnify, defend (by counsel reasonably acceptable to Tenant), protect
and hold Tenant harmless from and against any loss, cost, expense, damage,
attorneys' fees or liability arising out of Landlord's breach of warranty that
as of the Commencement Date the Premises comply with all applicable regulations.
Tenant's obligations pursuant to the foregoing indemnity shall survive the
expiration or earlier termination of this Lease.
D. HAZARDOUS MATERIALS. As used in this Lease, "Hazardous Materials" shall
include, but not be limited to, hazardous, toxic and radioactive materials and
those substances defined as "hazardous substances," "hazardous materials,"
"hazardous wastes," "toxic substances," or other similar designations in any
Regulation. Tenant shall not cause, or allow any of Tenant's Parties to cause,
any Hazardous Materials to be handled, used, generated, stored, released or
disposed of in, on, under or about the Premises, the Building or the Project or
surrounding land or environment in violation of any Regulations. Tenant must
obtain Landlord's written consent prior to the introduction of any Hazardous
Materials onto the Project. Notwithstanding the foregoing, Tenant may handle,
store, use and dispose of products containing small quantities of Hazardous
Materials for "general office purposes" (such as toner for copiers) to the
extent customary and necessary for the Permitted Use of the Premises; provided
that Tenant shall always handle, store, use, and dispose of any such Hazardous
Materials in a safe and lawful manner and never allow such Hazardous Materials
to contaminate the Premises, Building, or Project or surrounding land or
environment. Tenant shall immediately notify Landlord in writing of any
Hazardous Materials' contamination of any portion of the Project of which Tenant
becomes aware, whether or not caused by Tenant. Landlord shall have the right at
all reasonable times, upon at least two (2) hours advance notice, and during
regular normal business hours and without interfering with Tenant's business
operations, to inspect the Premises and to conduct tests and investigations to
determine whether Tenant is in compliance with the foregoing provisions, the
costs of all such inspections, tests and investigations to be borne by Tenant.
Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord),
protect and hold Landlord harmless from and against any and all claims,
liabilities, losses, costs, loss of rents, liens, damages, injuries or expenses
(including attorneys' and consultants' fees and court costs), demands, causes of
action, or judgments directly or indirectly arising out of or related to the
use, generation, storage, release, or disposal of Hazardous Materials by Tenant
or any of Tenant's Parties in,
<PAGE> 6
on, under or about the Premises, the Building or the Project or surrounding
land or environment, which indemnity shall include, without limitation, damages
for personal or bodily injury, property damage, damage to the environment or
natural resources occurring on or off the Premises, losses attributable to
diminution in value or adverse effects on marketability, the cost of any
investigation, monitoring, government oversight, repair, removal, remediation,
restoration, abatement, and disposal, and the preparation of any closure or
other required plans, whether such action is required or necessary prior to or
following the expiration or earlier termination of this Lease. Landlord shall
likewise indemnify, defend (by counsel reasonably acceptable to Tenant), protect
and hold Tenant harmless from and against any loss, cost, expense, damage,
attorneys' fees or liability arising from or relating to the existence of
Hazardous Materials at the Premises as of the Commencement Date and any
Hazardous Materials handled, used, generated, stored, released or disposed of in
the Premises in violation of any Regulations, by Landlord, it's employees,
agents, customers, invitees, licensees, contractors or assignees (collectively
"Landlord's Parties). Neither the consent by Landlord to the use, generation,
storage, release or disposal of Hazardous Materials nor the strict compliance by
Tenant with all laws pertaining to Hazardous Materials shall excuse Tenant from
Tenant's obligation of indemnification pursuant to this Paragraph 4.D. Tenant's
obligations pursuant to the foregoing indemnity shall survive the expiration or
earlier termination of this Lease.
5. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the building rules and
regulations attached hereto as Exhibit A and any other rules and regulations and
any modifications or additions thereto which Landlord may reasonably from time
to time prescribe in writing for the purpose of maintaining the proper care,
cleanliness, safety, traffic flow and general order of the Premises or the
Building or Project. Tenant shall cause Tenant" Parties to comply with such
rules and regulations. Landlord shall not be responsible to Tenant for the
non-compliance by any other tenant or occupant of the Building or Project with
any of such rules and regulations, an other tenant's or occupant's lease or any
Regulations.
6. RENT
A. BASE RENT. Tenant shall pay to Landlord and Landlord shall receive, without
notice or demand throughout the Term, Base Rent as specified in the Basic Lease
Information, payable in monthly installments in advance on or before the first
day of each calendar month, in lawful money of the United States, without
deduction or offset whatsoever, at the Remittance Address specified in the Basic
Lease Information or to such other place as Landlord may from time to time
designate in writing. Base Rent for the first full month of the Term shall be
paid by Tenant upon Tenant's execution of this Lease. If the obligation for
payment of Base Rent commences on a day other than the first day of a month,
then Base Rent shall be prorated and the prorated installment shall be paid on
the first day of the calendar month next succeeding the Term Commencement Date.
The Base Rent payable by Tenant hereunder is subject to adjustment as provided
elsewhere in this Lease, as applicable. As used herein, the term "Base Rent"
shall mean the Base Rent specified in the Basic Lease Information as it may be
so adjusted from time to time.
B. ADDITIONAL RENT. All monies other than Base Rent required to be paid by
Tenant hereunder, including, but not limited to, Tenant's Proportionate Share of
Operating Expenses, as specified in Paragraph 7 of this Lease, charges to be
paid by Tenant under Paragraph 15, the interest and late charge described in
Paragraphs 26.C. and D., and any monies spent by Landlord pursuant to Paragraph
30, shall be considered additional rent ("Additional Rent"). "Rent" shall mean
Base Rent and Additional Rent.
7. OPERATING EXPENSES
A. OPERATING EXPENSES. In addition to the Base Rent required to be paid
hereunder, Tenant shall pay as Additional Rent, Tenant's Proportionate Share of
the Building and/or Project (as applicable), as defined in the Basic Lease
Information, of Operating Expenses (defined below) in the manner set forth
below. Tenant shall pay the applicable Tenant's Proportionate Share of each such
Operating Expenses.
<PAGE> 7
Landlord and Tenant acknowledge that if the number of buildings which
constitute the Project increases or decreases, or if physical changes are made
to the Premises, Building or Project or the configuration of any thereof,
Landlord may at its discretion reasonably adjust Tenant's Proportionate Share of
the Building or Project to reflect the change. Landlord's determination of
Tenant's Proportionate Share of the Building and of the Project shall be
conclusive so long as it is reasonably and consistently applied. "Operating
Expenses" shall mean all expenses and costs of every kind and nature which
Landlord shall pay or become obligated to pay, because of or in connection with
the ownership, management, maintenance, repair, preservation, replacement and
operation of the Building or Project and its supporting facilities and such
additional facilities now and in subsequent years as may be determined by
Landlord to be necessary or desirable to the Building and/or Project (as
determined in a reasonable manner) other than those expenses and costs which are
specifically attributable to Tenant or which are expressly made the financial
responsibility of Landlord or specific tenants of the Building or Project
pursuant to this Lease. Operating Expenses shall include, but are not limited
to, the following:
(1) TAXES. All real property taxes and assessments, possessory interest
taxes, sales taxes, personal property taxes, business or license taxes
or fees, gross receipts taxes, service payments in lieu of such taxes or
fees, annual or periodic license or use fees, excises, transit charges,
and other impositions, general and special, ordinary and extraordinary,
unforeseen as well as foreseen, of any kind (including fees "in-lieu" of
any such tax or assessment) which are now or hereafter assessed, levied,
charged, confirmed, or imposed by any public authority upon the Building
or Project, its operations or the Rent (or any portion or component
thereof), or any tax, assessment or fee imposed in substitution,
partially or totally, of any of the above. Operating Expenses shall also
include any taxes, assessments, reassessments, or other fees or
impositions with respect to the development, leasing, management,
maintenance, alteration, repair, use or occupancy of the Premises,
Building or Project or any portion thereof, including, without
limitation, by or for Tenant, and all increases therein or reassessments
thereof whether the increases or reassessments result from increased
rate and/or valuation (whether upon a transfer of the Building or
Project or any portion thereof or any interest therein or for any other
reason). Operating Expenses shall not include inheritance or estate
taxes imposed upon or assessed against the interest of any person in the
Project, or taxes computed upon the basis of the net income of any
owners of any interest in the Project. If it shall not be lawful for
Tenant to reimburse Landlord for all or any part of such taxes, the
monthly rental payable to Landlord under this Lease shall be revised to
net Landlord the same net rental after imposition of any such taxes by
Landlord as would have been payable to Landlord prior to the payment of
any such taxes.
(2) INSURANCE. All insurance premiums and costs, including, but not
limited to, any deductible amounts, premiums and other costs of
insurance incurred by Landlord, including for the insurance coverage set
forth in Paragraph 8.A. herein.
(3) COMMON AREA MAINTENANCE.
(a) Repairs, replacements, and general maintenance of
and for the Building and Project and public and common areas and
Facilities of and comprising the Building and Project,
including, but not limited to, the roof and roof membrane,
windows, elevators, restrooms, conference rooms, health club
facilities, lobbies, mezzanines, balconies, mechanical rooms,
building exteriors, alarm systems, pest extermination,
landscaped areas, parking and service areas, driveways,
sidewalks, loading areas, fire sprinkler systems, sanitary and
storm sewer lines, utility services, heating/ventilation/air
conditioning systems, electrical, mechanical or other systems,
telephone equipment and wiring servicing, plumbing, lighting,
and any other items or areas which affect the operation or
appearance of the Building or Project, which determination shall
be at Landlord's reasonable discretion, except for: those items
expressly made the financial responsibility of Landlord pursuant
to Paragraph 10 hereof; those items to the extent paid for by
the proceeds of insurance; and those items attributable solely
or jointly to specific tenants of the Building or Project.
<PAGE> 8
(b) Repairs, replacements, and general maintenance shall
include the cost of any capital improvements made to or capital
assets acquired for the Project or Building that in Landlord's
discretion may reduce any other Operating Expenses, including
present or future repair work, are reasonably necessary for the
health and safety of the occupants of the Building or Project,
or are required to comply with any Regulation, such costs or
allocable portions thereof to be amortized over such reasonable
period as Landlord shall determine, together with interest on
the unamortized balance at the publicly announced "prime rate"
charged by Wells Fargo Bank, N.A. (San Francisco) or its
successor at the time such improvements or capital assets are
constructed or acquired, plus two (2) percentage points, or in
the absence of such prime rate, then at the U.S. Treasury
six-month market note (or bond, if so designated) rate as
published by any national financial publication selected by
Landlord, plus four (4) percentage points, but in no event more
than the maximum rate permitted by law.
(c) Payment under or for any easement, license, permit,
operating agreement, declaration, restrictive covenant or
instrument relating to the Building or Project.
(d) All expenses and rental related to services and
costs of supplies, materials and equipment used in operating,
managing and maintaining the Premises, Building and Project, the
equipment therein and the adjacent sidewalks, driveways, parking
and service areas, including, without limitation, expenses
related to service agreements regarding security, fire and other
alarm systems, janitorial services, window cleaning, elevator
maintenance, Building exterior maintenance, landscaping and
expenses related to the administration, management and operation
of the Project, including without limitation salaries, wages and
benefits and management office rent.
(e) The cost of supplying any services and utilities
which benefit all or a portion of the Premises, Building or
Project, including without limitation services and utilities
provided pursuant to Paragraph 15 hereof.
(f) Legal expenses and the cost of audits by certified
public accountants; provided, however, that legal expenses
chargeable as Operating Expenses shall not include the cost of
negotiating leases, collecting rents, evicting tenants nor shall
it include costs incurred in legal proceedings with or against
any tenant or to enforce the provisions of any lease.
(g) A management and accounting cost recovery fee equal
to five percent (5%) of the sum of the Project's base rents and
Operating Expenses (other than such management and accounting
fee).
If the rentable area of the Building and/or Project is not fully
occupied during any fiscal year of the Term as determined by Landlord, an
adjustment may be made in Landlord's discretion in computing the Operating
Expenses for such year so that Tenant pays an equitable portion of all variable
items (e.g., utilities, janitorial services and other component expenses that
are affected by variations in occupancy levels) of Operating Expenses, as
reasonably determined by Landlord; provided, however, that in no event shall
Landlord be entitled to collect in excess of one hundred percent (100%) of the
total Operating Expenses from all of the tenants in the Building or Project, as
the case may be.
Operating Expenses shall not include the cost of providing tenant
improvements or other specific costs incurred for the account of, separately
billed to and paid by specific tenants of the Building or Project, the initial
construction cost of the Building, or debt service on any mortgage or deed of
trust recorded with respect to the Project other than pursuant to Paragraph
7.A.(3)(b) above. Notwithstanding anything herein to the contrary, in any
instance wherein Landlord, in Landlord's reasonable discretion, deems Tenant to
be responsible for any amounts greater than Tenant's Proportionate Share,
Landlord shall have the right to allocate costs in any manner Landlord
reasonably deems appropriate.
<PAGE> 9
The above enumeration of services and facilities shall not be deemed to
impose an obligation on Landlord to make available or provide such services or
facilities except to the extent if any that Landlord has specifically agreed
elsewhere in this Lease to make the same available or provide the same. Without
limiting the generality of the foregoing, Tenant acknowledges and agrees that it
shall be responsible for providing adequate security for its use of the
Premises, the Building and the Project and that Landlord shall have no
obligation or liability with respect thereto, except to the extent if any that
Landlord has specifically agreed elsewhere in this Lease to provide the same.
B. PAYMENT OF ESTIMATED OPERATING EXPENSES. "Estimated Operating Expenses" for
any particular year shall mean Landlord's estimate of the Operating Expenses for
such fiscal year made with respect to such fiscal year as hereinafter provided.
Landlord shall have the right from time to time to revise its fiscal year and
interim accounting periods so long as the periods as so revised are reconciled
with prior periods in a reasonable manner. During the last month of each fiscal
year during the Term, or as soon thereafter as practicable, Landlord shall give
Tenant written notice of the Estimated Operating Expenses for the ensuing fiscal
year. Tenant shall pay Tenant's Proportionate Share of the Estimated Operating
Expenses with installments of Base Rent for the fiscal year to which the
Estimated Operating Expenses applies in monthly installments on the first day of
each calendar month during such year, in advance. Such payment shall be
construed to be Additional Rent for all purposes hereunder. If at any time
during the course of the fiscal year, Landlord determines that Operating
Expenses are projected to vary from the then Estimated Operating Expenses by
more than five percent (5%), Landlord may, by written notice to Tenant, revise
the Estimated Operating Expenses for the balance of such fiscal year, and
Tenant's monthly installments for the remainder of such year shall be adjusted
so that by the end of such fiscal year Tenant has paid to Landlord Tenant's
Proportionate Share of the revised Estimated Operating Expenses for such year,
such revised installment amounts to be Additional Rent for all purposes
hereunder.
C. COMPUTATION OF OPERATING EXPENSE ADJUSTMENT. "Operating Expense Adjustment"
shall mean the difference between Estimated Operating Expenses and actual
Operating Expenses for any fiscal year determined as hereinafter provided.
Within one hundred twenty (120) days after the end of each fiscal year, or as
soon thereafter as practicable, Landlord shall deliver to Tenant a statement of
actual Operating Expenses for the fiscal year just ended, accompanied by a
computation of Operating Expense Adjustment. If such statement shows that
Tenant's payment based upon Estimated Operating Expenses is less than Tenant's
Proportionate Share of Operating Expenses, then Tenant shall pay to Landlord the
difference within twenty (20) days after receipt of such statement, such payment
to constitute Additional Rent for all purposes hereunder. If such statement
shows that Tenant's payments of Estimated Operating Expenses exceed Tenant's
Proportionate Share of Operating Expenses, then (provided that Tenant is not in
default under this Lease) Landlord shall pay to Tenant the difference within
twenty (20) days after the date of delivery of the statement. Should this lease
commence or terminate at any time other than the first day of the fiscal year,
Tenant's Proportionate Share of the Operating Expense Adjustment shall be
prorated based on a month of 30 days and the number of calendar months during
such fiscal year that this Lease is in effect. Notwithstanding anything to the
contrary contained in Paragraph 7.A or 7.B, Landlord's failure to provide any
notices or statements within the time periods specified in those paragraphs
shall in no way excuse Tenant from its obligation to pay Tenant's Proportionate
Share of Operating Expenses.
D. NET LEASE. This shall be a triple net Lease and Base Rent shall be paid to
Landlord absolutely net of all costs and expenses, except as specifically
provided to the contrary in this Lease. The provisions for payment of Operating
Expenses and the Operating Expense Adjustment are intended to pass on to Tenant
and reimburse Landlord for all costs and expenses of the nature described in
Paragraph 7.A incurred in connection with the ownership, management,
maintenance, repair, preservation, replacement and operation of the Building
and/or Project and its supporting facilities and such additional facilities now
and in subsequent years as may be determined by Landlord to be necessary or
desirable to the Building and/or Project.
E. TENANT AUDIT. If Tenant shall dispute the amount set forth in any statement
provided by Landlord under Paragraph 7.B or 7.C above, Tenant shall have the
right, not later than forty-five (45) days following
<PAGE> 10
receipt of such statement and upon the condition that Tenant shall first
deposit with Landlord the full amount in dispute, to cause Landlord's books and
records with respect to Operating Expenses for such fiscal year to be audited by
certified public accountants selected by Tenant and subject to Landlord's
reasonable right of approval. The Operating Expense Adjustment shall be
appropriately adjusted on the basis of such audit. If such audit discloses a
liability for a refund in excess of ten percent (10%) of Tenant's Proportionate
Share of the Operating Expenses previously reported, the cost of such audit
shall be borne by Landlord; otherwise the cost of such audit shall be paid by
Tenant. If Tenant shall not request an audit in accordance with the provisions
of this Paragraph 7.E within twenty (20) days after receipt of Landlord's
statement provided pursuant to Paragraph 7.B or 7.C, such statement shall be
final and binding for all purposes hereof.
8. INSURANCE AND INDEMNIFICATION
A. LANDLORD'S INSURANCE. All insurance maintained by Landlord shall be for the
sole benefit of Landlord and under Landlord's sole control.
(1) PROPERTY INSURANCE. Landlord agrees to maintain property insurance
insuring the Building against damage or destruction due to risk
including fire, vandalism, and malicious mischief in an amount not less
than the replacement cost thereof, in the form and with deductibles and
endorsements as selected by Landlord. At its election, Landlord may
instead (but shall have no obligation to) obtain "All Risk" coverage,
and may also obtain earthquake, pollution and/or flood insurance in
amounts selected by Landlord.
(2) OPTIONAL INSURANCE. Landlord, at Landlord's option, may also (but
shall have no obligation to) carry insurance against loss of rent, in an
amount equal to the amount of Base Rent and Additional rent that
Landlord could be required to abate to all Building tenants in the event
of condemnation or casualty damage for a period of twelve (12) months.
Landlord may also (but shall have no obligation to) carry such other
insurance as Landlord may deem prudent or advisable, including, without
limitation, liability insurance in such amounts and on such terms as
Landlord shall determine. Landlord shall not be obligated to insure, and
shall have no responsibility whatsoever for any damage to, any
furniture, machinery, goods, inventory or supplies, or other personal
property or fixtures which Tenant may keep or maintain in the Premises,
or any leasehold improvements, additions or alterations within the
premises.
B. TENANT'S INSURANCE.
(1) PROPERTY INSURANCE. Tenant shall procure at Tenant's sole cost and
expense and keep in effect from the date of this Lease and at all times
until the end of the Term, insurance on all personal property and
fixtures of Tenant and all improvements, additions or alterations made
by or for Tenant to the Premises on an "All Risk" basis, insuring such
property for the full replacement value of such property.
(2) LIABILITY INSURANCE. Tenant shall procure at Tenant's sole cost and
expense and keep in effect from the date of this Lease and at all times
until the end of the Term Commercial General Liability insurance
covering bodily injury and property damage liability occurring in or
about the Premises or arising out of the use and occupancy of the
Premises and the Project, and any party of either, and any areas
adjacent thereto, and the business operated by Tenant or by any other
occupant of the Premises. Such insurance shall include contractual
liability insurance coverage insuring all of Tenant's indemnity
obligations under this Lease. Such coverage shall have a minimum
combined single limit of liability of at least Two Million Dollars
($2,000,000.00), and a minimum general aggregate limit of Two Million
Dollars ($2,000,000.00), with an "Additional Insured - Managers or
Lessors of Premises Endorsement." All such policies shall be written to
apply to all bodily injury (including death), property damage or loss,
personal and advertising injury and other covered loss, however
occasioned, occurring during the policy term, shall be endorsed to add
Landlord and any party holding an interest to which this Lease may be
subordinated as an additional insured, and shall provide that such
coverage shall be "primary"
<PAGE> 11
and non-contributing with any insurance maintained by Landlord, which
shall be excess insurance only. Such coverage shall also contain
endorsements including employees as additional insureds if not covered
by Tenant's Commercial General Liability Insurance. All such insurance
shall provide for the severability of interests of insureds; and shall
be written on an "occurrence" basis, which shall afford coverage for all
claims based on acts, omissions, injury and damage, which occurred or
arose (or the onset of which occurred or arose) in whole or in part
during the policy period.
(3) WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY INSURANCE. Tenant
shall carry Workers' Compensation Insurance as required by any
Regulation, throughout the Term at Tenant's sole cost and expense.
Tenant shall also carry Employers' Liability Insurance in amounts not
less than One Million Dollars ($1,000,000) each accident for bodily
injury by accident; One Million Dollars ($1,000,000) policy limit for
bodily injury by disease; and One Million Dollars ($1,000,000) each
employee for bodily injury by disease, throughout the Term at Tenant's
sole cost and expense.
(4) GENERAL INSURANCE REQUIREMENTS. All coverages described in this
Paragraph 8.B. shall be endorsed to (i) provide Landlord with thirty
(30) days' notice of cancellation or change in terms; and (ii) waive all
rights of subrogation by the insurance carrier against Landlord. If at
any time during the Term the amount or coverage of insurance which
Tenant is required to carry under this Paragraph 8.B. is, in Landlord's
reasonable judgment, materially less than the amount or type of
insurance coverage typically carried by owners or tenants of properties
located in the general area in which the Premises are located which are
similar to and operated for similar purposes as the Premises or if
Tenant's use of the Premises should change with or without Landlord's
consent, Landlord shall have the right to require Tenant to increase the
amount or change the types of insurance coverage required under this
Paragraph 8.B. All insurance policies required to be carried by Tenant
under this Lease shall be written companies rated A X or better in
"Best's Insurance Guide" and authorized to do business in the State of
California. In any event deductible amounts under all insurance policies
required to be carried by Tenant under this Lease shall not exceed Five
Thousand Dollars ($5,000.00) per occurrence. Tenant shall deliver to
Landlord on or before the Term Commencement Date, and thereafter at
least thirty (30) days before the expiration dates of the expired
policies, certified copies of Tenant's insurance policies, or a
certificate evidencing the same issued by the insurer thereunder; and,
if Tenant shall fail to procure such insurance, or to deliver such
policies or certificates, Landlord may, at Landlord's option and in
addition to Landlord's other remedies in the event of a default by
Tenant hereunder, procure the same for the account of Tenant, and cost
thereof shall be paid to Landlord as Additional Rent.
C. INDEMNIFICATION. Tenant shall indemnify, defend by counsel reasonably
acceptable to Landlord, protect and hold Landlord harmless from and against any
and all claims, liabilities, loses, costs, lost of rents, liens, damages,
injuries or expenses, including reasonable attorneys' and consultants' fees and
court costs, demands, causes of action, or judgments, directly or indirectly
arising out of or related to: (1) claims of injury to or death of persons or
damage to property occurring or resulting directly or indirectly from the use or
occupancy of the Premises, Building or Project by Tenant or Tenant's Parties, or
from activities or failures to act of Tenant or Tenant's Parties; (2) claims
arising from work or labor performed, or for materials or supplies furnished to
or at the request or for the account of Tenant in connection with performance of
any work done for the account of Tenant within the Premises or Project; (3)
claims arising from any breach or default on the part of Tenant in the
performance of any covenant contained in this Lease; and (4) claims arising from
the negligence or intentional acts or omissions of Tenant or Tenant's Parties.
The foregoing indemnity by Tenant shall not be applicable to claims to the
extent arising from the gross negligence or willful misconduct of Landlord.
Landlord shall not be liable to Tenant and Tenant hereby waives all claims
against Landlord for any injury or damage to any person or property in or about
the Premises, Building or Project by or from any cause whatsoever (other than
Landlord's gross negligence or willful misconduct) and, without limiting the
generality of the foregoing, whether caused by water leakage of any character
form the roof, walls, basement or other portion of the Premises, Building
<PAGE> 12
or Project, or caused by gas, fire, oil or electricity in, on or about the
Premises, Building or Project. The provisions of this Paragraph shall survive
the expiration or earlier termination of this Lease.
9. WAIVER OF SUBROGATION
To the extent permitted by law and without affecting the coverage
provided by insurance to be maintained hereunder or any other rights or
remedies, Landlord and Tenant each waive any right to recover against the other
for: (a) damages for injury to or death of persons; (b) damages to property,
including personal property; (c) damages to the Premises or any part thereof;
and (d) claims arising by reason of the foregoing due to hazards covered by
insurance maintained or required to be maintained pursuant to this Lease to the
extent of proceeds recovered therefrom, or proceeds which would have been
recoverable therefrom in the case of the failure of any party to maintain any
insurance coverage required to be maintained by such party pursuant to this
Lease. This provision is intended to waive fully, any rights and/or claims
arising by reason of the foregoing, but only to the extent that any of the
foregoing damages and/or claims referred to above are covered or would be
covered, and only to the extent of such coverage, by insurance actually carried
or required to be maintained pursuant to this Lease by either Landlord or
Tenant. This provision is also intended to waive fully, and for the benefit of
each party, any rights and/or claims which might give rise to a right of
subrogation on any insurance carrier. Subject to all qualifications of this
Paragraph 9, Landlord waives its rights as specified in this Paragraph 9 with
respect to any subtenant that it has approved pursuant to Paragraph 21 but only
in exchange for the written waiver of such rights to be given by such subtenant
to Landlord upon such subtenant taking possession of the Premises or a portion
thereof. Each party shall cause each insurance policy obtained by it to provide
that the insurance company waives all right of recovery by way of subrogation
against either party in connection with any damage covered by any policy.
10. LANDLORD'S REPAIRS AND MAINTENANCE
Landlord shall at Landlord's sole expense maintain in good repair,
reasonable wear and tear excepted, the structural soundness of the roof,
foundations, and exterior walls of the Building. The term "exterior walls" as
used herein shall not include doors, special store fronts or office entries. Any
damage caused by or repairs necessitated by any negligence or act of Tenant or
Tenant's Parties may be repaired by Landlord at Landlord's option and Tenant's
expense. Tenant shall immediately give Landlord written notice of any defect or
need of repairs in such components of the Building for which Landlord is
responsible, after which Landlord shall have a reasonable opportunity and the
right to enter the Premises at all reasonable times upon at least two (2) hours
advance notice, and during regular business hours and without interfering with
Tenant's business operations to repair same. Landlord's liability with respect
to any defects, repairs, or maintenance for which Landlord is responsible under
any of the provisions of this Lease shall be limited to the cost of such repairs
or maintenance, and 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 repairs, alterations or improvements in or to any
portion of the Premises, the Building or the Project or to fixtures,
appurtenances or equipment in the Building, except as provided in Paragraph 24
as of the Commencement Date, the Premises are in good order, condition and
repair. By taking possession of the Premises, Tenant accepts them "as is," as
being in good order, condition and repair and the condition in which Landlord is
obligated to deliver them and suitable for the Permitted Use and Tenant's
intended operations in the Premises.
11. TENANT'S REPAIRS AND MAINTENANCE
Tenant shall at all times during the Term at Tenant's expense maintain
all parts of the Premises and such portions of the Building as are within the
exclusive control of Tenant in a first-class, good, clean and secure condition
and promptly make all necessary repairs and replacements, as determined by
Landlord, with materials and workmanship of the same character, kind and quality
as the original. Notwithstanding anything to the contrary contained herein,
Tenant shall, at its expense, promptly repair any damage to the Premises or the
Building or Project resulting from or caused by any negligence or act of Tenant
or Tenant's Parties.
<PAGE> 13
12. ALTERATIONS
A. Tenant shall not make, or allow to be made, any alterations, physical
additions, improvements or partitions, including without limitation the
attachment of any fixtures or equipment, in, about or to the Premises
("ALTERATIONS") without obtaining the prior written consent of Landlord, which
consent shall not be unreasonably withheld with respect to proposed Alterations
which: (a) comply with all applicable Regulations; (b) are, in Landlord's
opinion, compatible with the Building or the Project and its mechanical,
plumbing, electrical, heating/ventilation/air conditioning systems, and will not
cause the Building or Project or such systems to be required to be modified to
comply with any Regulations (including, without limitation, the Americans With
Disabilities Act); and (c) will not interfere with the use and occupancy of any
other portion of the Building or Project by any other tenant or its invitees.
Specifically, but without limiting the generality of the foregoing, Landlord
shall have the right of written consent for all plans and specifications for the
proposed Alterations, construction means and methods, all appropriate permits
and licenses, any contractor or subcontractor to be employed on the work of
Alterations, and the time for performance of such work, and may impose rules and
regulations for contractors and subcontractors performing such work. Tenant
shall also supply to Landlord any documents and information reasonably requested
by Landlord in connection with Landlord's consideration of a request for
approval hereunder. Tenant shall cause all Alterations to be accomplished in a
first-class, good and workmanlike manner, and to comply with all applicable
Regulations and Paragraph 27 hereof. Tenant shall at Tenant's sole expense,
perform any additional work required under applicable Regulations due to the
Alterations hereunder. No review or consent by Landlord of or to any proposed
Alteration or additional work shall constitute a waiver of Tenant's obligations
under this Paragraph 12, nor constitute any warranty or representation that the
same complies with all applicable Regulations, for which Tenant shall at all
times be solely responsible. Tenant shall reimburse Landlord for all costs which
Landlord may reasonably incur in connection with granting approval to Tenant for
any such Alterations, including any costs or expenses which Landlord may incur
in electing to have outside architects and engineers review said plans and
specifications, and shall pay Landlord an administration fee of ten percent
(10%) of the cost of the Alterations as Additional Rent hereunder. All such
Alterations shall remain the property of Tenant until the expiration or earlier
termination of this Lease, at which time they shall be and become the property
of Landlord; provided, however, that Landlord may, at Landlord's option, require
that Tenant, at Tenant's expense, remove any or all Alterations made by Tenant
and restore the Premises by the expiration or earlier termination of this Lease,
to their condition existing prior to the construction of any such Alterations.
Notwithstanding the foregoing, unless Landlord notifies Tenant of its desire to
have the alterations removed at the time of it's approval of the project, then
Tenant may deem Landlord's right to require removal to have been waived. All
such removals and restoration shall be accomplished in a first-class and good
and workmanlike manner so as not to cause damage to the Premises or Project
whatsoever. If Tenant fails to remove such Alterations or Tenant's trade
fixtures or furniture or other personal property, Landlord may keep and use them
or remove any of them and cause them to be stored or sold in accordance with
applicable law, at Tenant's sole expense. In addition to and wholly apart from
Tenant's obligation to pay Tenant's Proportionate Share of Operating Expenses,
Tenant shall be responsible for and shall pay prior to delinquency any taxes or
governmental service fees, possessory interest taxes, fees or charges in lieu of
any such taxes, capital levies, or other charges imposed upon, levied with
respect to or assessed against its fixtures or personal property, on the value
of Alterations within the Premises, and on Tenant's interest pursuant to this
Leas, or any increase in any of the foregoing based on such Alterations. To the
extent that any such taxes are not separately assessed or billed to Tenant,
Tenant shall pay the amount thereof as invoiced to Tenant by Landlord.
Notwithstanding the foregoing, at Landlord's option (but without
obligation), all or any portion of the Alterations shall be performed by
Landlord for Tenant's account and Tenant shall pay Landlord's estimate of the
cost thereof (including a reasonable charge for Landlord's overhead and profit)
prior to commencement of the work. In addition, at Landlord's election and
notwithstanding the foregoing, however, Tenant shall pay to Landlord the cost of
removing any such Alterations and restoring the Premises to their original
condition such cost to include a reasonable charge for Landlord's overhead and
profit as provided above, and such amount may be deducted from the Security
Deposit or any other sums or amounts held by Landlord under this Lease.
<PAGE> 14
B. In compliance with Paragraph 27 hereof, at least ten (10) business days
before beginning construction of any Alteration, Tenant shall give Landlord
written notice of the expected commencement date of that construction to permit
Landlord to post and record a notice of non-responsibility. Upon substantial
completion of construction, if the law so provides, Tenant shall cause a timely
notice of completion to be recorded in the office of the recorder of the county
in which the Building is located.
13. SIGNS
Tenant shall not place, install, affix, paint or maintain any signs,
notices, graphics or banners whatsoever or any window decor which is visible in
or from the public view or corridors, the common areas or the exterior of the
Premises or the Building, in or on any exterior window or window fronting upon
any common areas or service area without Landlord's prior written approval which
Landlord shall have the right to withhold in its absolute discretion; provided
that Tenant's name shall be included in any Building-standard door and directory
signage, if any, in accordance with Landlord's Building signage program,
including without limitation, payment by Tenant of any fee charged by Landlord
for maintaining such signage, which fee shall constitute Additional Rent
hereunder. Any installation of signs, notices, graphics or banners on or about
the Premises or Project approved by Landlord shall be subject to any Regulations
and to any other requirements imposed by Landlord. Tenant shall remove all such
signs or graphics by the expiration or any earlier termination of this Lease.
Such installations and removals shall be made in such manner as to avoid injury
to or defacement of the Premises, Building or Project and any other improvements
contained therein, and Tenant shall repair any injury or defacement including
without limitation discoloration caused by such installation or removal.
14. INSPECTION/POSTING NOTICES
Upon at least twenty-four (24) hours advance notice, and during regular
business hours and without interfering with Tenant's business operations except
in emergencies where no such notice shall be required, Landlord and Landlord's
agents and representatives, shall have the right to enter the Premises to
inspect the same, to clean, to perform such work as may be permitted or required
hereunder, to make repairs, improvements or alterations to the Premises,
Building or Project or to other tenant spaces therein, to deal with emergencies,
to post such notices as may be permitted or required by law to prevent the
perfection of liens against Landlord's interest in the Project, or to exhibit
the Premises to prospective tenants, purchasers, encumbrancers or to others, or
for any other purpose as Landlord may deem necessary or desirable; provided,
however, that Landlord shall use reasonable efforts not to unreasonably
interfere with Tenant's business operations. Tenant shall not be entitled to any
abatement of Rent by reason of the exercise of any such right of entry. Tenant
waives any claim for damages for any injury or inconvenience to or interference
with Tenant's business, any loss of occupancy or quiet enjoyment of the
Premises, and any other loss occasioned thereby. Landlord shall at all times
have and retain a key with which to unlock all of the doors in, upon and about
the Premises, excluding Tenant's vaults and safes or special security areas
(designated in advance), and Landlord shall have the right to use any and all
means which Landlord may deem necessary or proper to open said doors in an
emergency, in order to obtain entry to any portion of the Premises, and any
entry to the Premises or portions thereof obtained by Landlord by any of said
means, or otherwise, shall not be construed to be a forcible or unlawful entry
into, or a detainer of, the Premises, or an eviction, actual or constructive, of
Tenant from the Premises or any portions thereof. At any time within six (6)
months prior to the expiration of the Term or following any earlier termination
of this Lease or agreement to terminate this Lease, Landlord shall have the
right to erect on the Premises, Building and/or Project a suitable sign
indicating that the Premises are available for lease.
15. SERVICES AND UTILITIES
A. Provided Tenant shall not be in default hereunder, and subject to the
provisions elsewhere herein contained and to the rules and regulations of the
Building, Landlord shall furnish to the Premises during ordinary business hours
of generally recognized business days, to be reasonably determined by Landlord
(but exclusive in any event, of Saturdays, Sundays and legal holidays), water
for lavatory and drinking purposes and electricity, heat and air conditioning as
usually furnished or supplied for use of the
<PAGE> 15
Premises for reasonable and normal office use as of the date Tenant takes
possession of the Premises as determined by Landlord (but not including
above-standard or continuous cooling for excessive heat-generating machines,
excess lighting or equipment), janitorial services during the times and in the
manner that such services are, in Landlord's judgment, customarily furnished in
comparable office buildings in the immediate market area, and elevator service,
which shall mean service either by nonattended automatic elevators with
attendants, or both, at the option of Landlord. Tenant acknowledges that Tenant
has inspected and accepts the water, electricity, heat and air conditioning and
other utilities and services being supplied or furnished to the Premises as of
the date Tenant takes possession of the Premises, as being sufficient for use of
the Premises for reasonable and normal office use in their present condition,
"as is," and suitable for the Permitted Use, and for Tenant's intended
operations in the Premises. Provided that Tenant is not in default under the
Lease, Landlord shall provide additional or after-hours electricity, heating or
air conditioning, but if Landlord provides such services at Tenant's request,
Tenant shall pay to Landlord a reasonable charge for such services as determined
by Landlord. Tenant agrees to keep and cause to be kept closed all window
covering when necessary because of the sun's position, and Tenant also agrees at
all times to cooperate fully with Landlord and to abide all of the regulations
and requirements which Landlord may prescribe for the proper functioning and
protection of electrical, heating, ventilating and air conditioning systems.
Wherever heat-generating machines, excess lighting or equipment are used in the
Premises which affect the temperature otherwise maintained by the air
conditioning system, Landlord reserves the right to install supplementary air
conditioning units in the Premises and the cost thereof, including the cost of
installation and the cost of operation and maintenance thereof, shall be paid by
Tenant to Landlord upon demand by Landlord.
B. Tenant shall not without reasonable written consent of Landlord use an
apparatus, equipment or device in the Premises, including, without limitation,
computers, electronic data processing machines, copying machines, and other
machines, using excess lighting or using electrical current, water, or any other
resource in excess of or which will in any way increase the amount of
electricity, water, or any other resource being furnished or supplied for the
use of the Premises for reasonable and normal office use, in each case as of the
date Tenant takes possession of the Premises as determined by Landlord, or which
will require additions or alterations to or interfere with the Building power
distribution systems; nor connect with electric current, except through existing
electrical outlets in the Premises or water pipes, any apparatus, equipment or
device for the purpose of using electrical current, water, or any other
resource,. If Tenant shall require water or electric current or any other
resource in excess of that being furnished or supplied for the use of the
Premises as of the date Tenant takes possession of the Premises as determined by
Landlord, Tenant shall first procure the written consent of Landlord which
Landlord may reasonably refuse, to the use thereof, and Landlord may cause a
special meter to be installed in the Premises so as to measure the amount of
water, electric current or other resource consumed for any such other use.
Tenant shall pay directly to Landlord as an addition to and separate from
payment of Operating Expenses the cost of all such additional resources, energy,
utility service and meters (and of installation, maintenance and repair thereof
and of any additional circuits or other equipment necessary to furnish such
additional resources, energy, utility or service). Landlord may add to the
separate metered charge a recovery of additional expense incurred in keeping
account of the excess water, electric current or other resource so consumed.
Landlord shall not be liable for any damages directly or indirectly resulting
from nor shall the Rent or any monies owed Landlord under this Lease herein
reserved by abated by reason of: (a) the installation, use or interruption of
use of any equipment used in connection with the furnishing of any such
utilities or services, or any change in the character or means of supplying or
providing any such utilities or services or any supplier thereof; (b) the
failure to furnish or delay in furnishing any such utilities or services when
such failure or delay is caused by acts of God or the elements, labor
disturbances of any character, or any other accidents or other conditions beyond
the reasonable control of Landlord or because of any interruption of service due
to Tenant's use of water, electric current or other resource in excess of that
being supplied or furnished for the use of the Premises as of the date Tenant
takes possession of the Premises; (c) the inadequacy, limitation, curtailment,
rationing or restriction on use of water, electricity, gas or any other form of
energy or any other service or utility whatsoever serving the Premises or
Project, whether by Regulation or otherwise; or (d) the partial or total
unavailability of any such utilities or services to the Premises or the
Building, whether by Regulation or otherwise; nor shall any such occurrence
constitute an actual or constructive eviction of
<PAGE> 16
Tenant. Landlord shall further have no obligation to protect or preserve any
apparatus, equipment or device installed by Tenant in the Premises, including
without limitation by providing additional or after-hours heating or air
conditioning. Landlord shall be entitled to cooperate voluntarily and in
reasonable manner with the efforts of national, state or local governmental
agencies or utility suppliers in reducing energy or other resource consumption.
The obligation to make services available hereunder shall be subject to the
limitations of any such voluntary, reasonable program. In addition, Landlord
reserves the right to change the supplier or provider of any such utility or
service from time to time. Tenant shall have not right to contract with or
otherwise obtain any electrical or other such service for or with respect to the
Premises or Tenant's operations therein from any supplier of any such service.
Tenant shall cooperate with Landlord and any supplier or provider of such
services designated by Landlord from time to time to facilitate the delivery of
such services to Tenant at the Premises and to the Building and Project,
including without limitation allowing Landlord and Landlord's suppliers or
providers, and their respective agents and contractors, reasonable access to the
Premises for the purpose of installing, maintaining, repairing, replacing or
upgrading such service or any equipment or machinery associated therewith.
C. Tenant shall pay, upon demand, for all utilities furnished to the Premises,
or if not separately billed to or metered to Tenant, Tenant's Proportionate
Share of all charges jointly serving the Project in accordance with Paragraph 7.
All sums payable under this Paragraph 15 shall constitute Additional Rent
hereunder.
16. SUBORDINATION
Without the necessity of any additional document being executed by
Tenant for the purpose of effecting a subordination, the Lease shall be and is
hereby declared to be subject and subordinate at all times to: (a) all ground
leases or underlying leases which may now exist or hereafter be executed
affecting the Premises and/or the land upon which the Premises and Project are
situated, or both; and (b) any mortgage or deed of trust which may now exist or
be placed upon the Building, the Project and/or the land upon which the Premises
or the Project are situated, or said ground leases or underlying leases, or
Landlord's interest or estate in any of said items which is specified as
security, provided, however, that any such lender, mortgagee, beneficiary or
lessor execute an agreement to recognize the Lease and not disturb Tenant for so
long as Tenant has not defaulted under this Lease. Notwithstanding the
foregoing, Landlord shall have the right to subordinate or cause to be
subordinated any such ground leases or underlying leases or any such liens to
this Lease. If any ground lease or underlying lease terminates for any reason or
any mortgage or deed of trust is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant of the successor in interest to
Landlord provided that Tenant shall not be disturbed in its possession under
this Lease by such successor in interest so long as Tenant is not in default
under this Lease. Within ten (10) business days after request by Landlord,
Tenant shall execute and deliver any additional documents evidencing Tenant's
attornment or the subordination of this Lease with respect to any such ground
leases or underlying leases or any such mortgage or deed of trust, in the form
requested by Landlord or by any ground landlord, mortgagee, or beneficiary under
a deed of trust, subject to such nondisturbance requirement. If requested in
writing by Tenant, Landlord shall use commercially reasonable efforts to obtain
a subordination, nondisturbance and attornment agreement for the benefit of
Tenant reflecting the foregoing from any ground landlord, mortgagee or
beneficiary, at Tenant's expense, subject to such other terms and conditions as
the ground landlord, mortgagee or beneficiary may require.
17. FINANCIAL STATEMENTS
At the request of Landlord from time to time, Tenant shall provide to
Landlord Tenant's and any guarantor's current financial statements or other
information discussing financial worth of Tenant and any guarantor, which
Landlord shall use solely for purposes of this Lease and in connection with the
ownership, management, financing and disposition of the Project. Landlord shall
insure that all information remains confidential.
<PAGE> 17
18. ESTOPPEL CERTIFICATE
Tenant agrees from time to time, within ten (10) days after request of
Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this Lease is in full force and effect, that this Lease
has not been modified (or stating all modifications, written or oral, to this
Lease), the date to which Rent has been paid, the unexpired portion of this
Lease, that there are no current defaults by Landlord or Tenant under this Lease
(or specifying any such defaults), that the leasehold estate granted by this
Lease is the sole interest of Tenant in the Premises and/or the land at which
the Premises are situated, and such other matters pertaining to this Lease as
may be reasonably requested by Landlord or any mortgagee, beneficiary, purchaser
or prospective purchaser of the Building or Project or any interest therein.
Failure by Tenant to execute and deliver such certificate shall constitute an
acceptance of the Premises and acknowledgement by Tenant that the statements
included are true and correct without exception. Tenant agrees that if Tenant
fails to execute and deliver such certificate within such ten (10) day period,
Landlord may execute and deliver such certificate on Tenant's behalf that such
certificate shall be binding on Tenant. Landlord and Tenant intend that any
statement delivered pursuant to this Paragraph may be relied upon by any
mortgagee, beneficiary, purchaser or prospective purchaser of the Building or
Project or any interest therein. The parties agree that Tenant's obligation to
furnish such estoppel certificates in a timely fashion is a material inducement
for Landlord's execution of the Lease, and shall be an event of default (without
any cure period that might be provided under Paragraph 26.A(3) of this Lease) if
Tenant fails to fully comply or makes any material misstatement in any such
certificate.
19. SECURITY DEPOSIT
Tenant agrees to deposit with Landlord upon execution of this Lease, a
security deposit as stated in the Basic Lease Information (the "Security
Deposit"), which sum shall be held and owned by Landlord, without obligation to
pay interest, as security for the performance of Tenant's covenants and
obligations under this Lease. The Security Deposit is not an advance rental
deposit or a measure of damages incurred by Landlord in case of Tenant's
default. Upon the occurrence of any event of default by Tenant, Landlord may
from time to time, without prejudice to any other remedy provided herein or by
law, use such fund as a credit to the extent necessary to credit against any
arrears of Rent or other payments due to Landlord hereunder, and any other
damage, injury, expense or liability caused by such event of default, and Tenant
shall pay to Landlord, on demand, the amount so applied in order to restore the
Security Deposit to its original amount. Although the Security Deposit shall be
deemed the property of Landlord, any remaining balance of such deposit shall be
returned by Landlord to Tenant within thirty (30) days from the Lease
Termination Date after all of Tenant's obligations under this Lease have been
fulfilled, reduced by such amounts as may be reasonably required by Landlord to
remedy defaults on the part of Tenant in the payment of Rent or other
obligations of Tenant under this Lease, to repair damage to the Premises,
Building or Project caused by Tenant or any Tenant's Parties and to clean the
Premises. Landlord may use and commingle the Security Deposit with other funds
of Landlord. The provisions of Addendum #3 of this Lease are added to this
Paragraph 19.
20. LIMITATION OF TENANT'S REMEDIES
The obligations and liability of Landlord to Tenant for any default by
Landlord under the terms of this Lease are not personal obligations of Landlord
or of the individual or other partners of Landlord or its or their partners,
directors, officers, or shareholders, and Tenant agrees to look solely to
Landlord's interest in the Project and the revenues and proceeds thereof for the
recovery of any amount from Landlord, and shall not look to other assets of
Landlord nor seek recourse against the assets of the individual or other
partners of Landlord or its or their partners, directors, officers or
shareholders. Any lien obtained to enforce any such judgment and any levy of
execution thereon shall be subject and subordinate to any lien, mortgage or deed
of trust on the Project. Under no circumstances shall Tenant have the right, to
offset against or recoup Rent or other payments due and to become due to
Landlord hereunder except as expressly provided in Paragraph 23.B. below, which
Rent and other payments shall be absolutely due and payable hereunder in
accordance with the terms hereof.
<PAGE> 18
21. ASSIGNMENT AND SUBLETTING
A. (1) GENERAL. This Lease has been negotiated to be and is granted as an
accommodation to Tenant. Accordingly, this Lease is personal to Tenant,
and Tenant's rights granted hereunder do not include the right to assign
this Lease or sublease the Premises, or to receive any excess, either in
installments or lump sum, over the Rent which is expressly reserved by
Landlord as hereinafter provided, except as otherwise expressly
hereinafter provided. Except as provided herein, Tenant shall not assign
or pledge this Lease or sublet the Premises or any part thereof, whether
voluntarily or by operation of law, or permit the use or occupancy of
the Premises or any part thereof by anyone other than Tenant, or suffer
or permit any such assignment, pledge, subleasing or occupancy, without
Landlord's prior written consent which shall not be unreasonably
withheld except as provided herein. If Tenant desires to assign this
Least or sublet any or all of the Premises, Tenant shall give Landlord
written notice (the "Transfer Notice") at least sixty (60) days prior to
the anticipated effective date of the proposed assignment or sublease,
which shall contain all of the information reasonably requested by
Landlord to address Landlord's decision criteria specified hereinafter.
Landlord shall then have a period of twenty (20) days following receipt
of the Transfer Notice to notify Tenant in writing that Landlord elects
either: (i) to terminate this Lease as to the space so affected as of
the date so requested by Tenant; or (ii) to consent to the proposed
assignment or sublease, subject, however, to Landlord's prior written
consent of the proposed assignee or subtenant and of any related
documents or agreements associated with the assignment or sublease. If
Landlord should fail to notify Tenant in writing of such election within
said period, Landlord shall be deemed to have waived option (i) above,
but written consent by Landlord of the proposed assignee or subtenant
shall still be required. If Landlord does not exercise option (i) above,
Landlord's consent to a proposed assignment or sublease shall not be
unreasonably withheld. Consent to any assignment or subletting shall not
constitute consent to any subsequent transaction to which this Paragraph
21 applies. Notwithstanding the foregoing, Landlord shall not have the
right to terminate this Lease following receipt of a Transfer Notice
which relates to Tenant's proposed subleasing of not more than 35% of
the Premises for a term less than the remaining term of this Lease.
(2) CONDITIONS OF LANDLORD'S CONSENT. Without limiting the other
instances in which it may be reasonable for Landlord to withhold
Landlord's consent to an assignment or subletting, Landlord and Tenant
acknowledge that it shall be reasonable for Landlord to withhold
Landlord's consent in the following instances: if the proposed assignee
does not agree to be bound by and assume the obligations of Tenant under
this Lease in form and substance satisfactory to Landlord; the use of
the Premises by such proposed assignee or subtenant would not be a
Permitted Use or would violate any exclusivity or other arrangement
which Landlord has with any other tenant or occupant or any Regulation
or would increase the Occupancy Density or Parking Density of the
Building or Project, or would otherwise result in an undesirable tenant
mix for the Project as determined by Landlord; the proposed assignee or
subtenant is not of sound financial condition as determined by Landlord
in Landlord's reasonable discretion; the proposed assignee or subtenant
is a governmental agency; the proposed assignee or subtenant does not
have a good reputation as a tenant of property or a good business
reputation; the proposed assignee or subtenant is a person with whom
Landlord is negotiating to lease space in the Project or is a present
tenant of the Project; the assignment or subletting would entail any
Alterations which would lessen the value of the leasehold improvements
in the Premises or use of any Hazardous Materials or other noxious use
or use which may disturb other tenants of the Project; or Tenant is in
default of any obligation of Tenant under this Lease, or Tenant has
defaulted under this Lease on three (3) or more occasions during any
twelve (12) months preceding the date that Tenant shall request consent.
Failure by or refusal of Landlord to consent to a proposed assignee or
subtenant shall not cause a termination of this Lease. Upon a
termination under Paragraph 21.A.(1)(i), Landlord may lease the Premises
to any party, including parties with whom Tenant has negotiated an
assignment or sublease, without incurring any liability to Tenant. At
the option of Landlord, a surrender and termination of this Lease shall
operate as an assignment to Landlord of some or all subleases or
subtenancies. Landlord shall exercise this option by giving notice of
that assignment to such subtenants on or before the effective date of
the surrender and
<PAGE> 19
termination. In connection with each request for assignment or
subletting, Tenant shall pay to Landlord Landlord's standard fee for
approving such requests, as well as all costs incurred by Landlord or
any mortgagee or ground lessor in approving each such request and
effecting any such transfer, including, without limitation, reasonable
attorneys' fees.
B. BONUS RENT. Any Rent or other consideration realized by Tenant under any such
sublease or assignment in excess of the Rent payable hereunder, after
amortization of a reasonable brokerage commission incurred by Tenant, shall be
divided and paid, ten percent (10%) to Tenant, ninety percent (90)%) to
Landlord. In any subletting or assignment undertaken by Tenant, Tenant shall
diligently seek to obtain the maximum rental amount available in the marketplace
for comparable space available for primary leasing.
C. CORPORATION. If Tenant is a corporation, a transfer of corporate shares by
sale, assignment, bequest, inheritance, operation of law or other disposition
(including such a transfer to or by a receiver or trustee in federal or state
bankruptcy, insolvency or other proceedings) resulting in a change in the
present control of such corporation or any of its parent corporations by the
person or persons owning a majority of said corporate shares, shall not
constitute an assignment for purposes of this Lease. A transfer of controlling
interest in the Tenant by way of merger, consolidation or sale of assets shall
not constitute an assignment for purposes of this Lease.
D. UNINCORPORATED ENTITY. If Tenant is a partnership, joint venture,
unincorporated limited liability company or other unincorporated business form,
a transfer of the interest of persons, firms or entities responsible for
managerial control of Tenant by sale, assignment, bequest, inheritance,
operation of law or other disposition, so as to result in a change in the
present control of said entity and/or of the underlying beneficial interests of
said entity and/or a change in the identity of the persons responsible for the
general credit obligations of said entity shall constitute an assignment for all
purposes of this Lease.
E. LIABILITY. No assignment or subletting by Tenant, permitted or otherwise,
shall relieve Tenant of any obligation under this Lease or alter the primary
liability of the Tenant named herein for the payment of Rent or for the
performance of any other obligations to be performed by Tenant, including
obligations contained in Paragraph 25 with respect to any assignee or subtenant.
Landlord may collect rent or other amounts or any portion thereof from any
assignee, subtenant, or other occupant of the Premises, permitted or otherwise,
and apply the net rent collected to the Rent payable hereunder, but no such
collection shall be deemed to be a waiver of this Paragraph 21, or the
acceptance of the assignee, subtenant or occupant as tenant, or a release of
Tenant from the further performance by Tenant of the obligations of Tenant under
this Lease. Any assignment or subletting which conflicts with the provisions
hereof shall be void.
22. AUTHORITY
Landlord represents and warrants that it has full right and authority to
enter into this Lease and to perform all of Landlord's obligations hereunder and
that all persons signing this Lease on its behalf are authorized to do so.
Tenant and the person or persons, if any, signing on behalf of Tenant, jointly
and severally represent and warrant that Tenant has full right and authority to
enter into this Lease, and to perform all of Tenant's obligations hereunder, and
that all persons signing this Lease on its behalf are authorized to do so.
23. CONDEMNATION
A. CONDEMNATION RESULTING IN TERMINATION. If the whole or any substantial part
of the Premises should be taken or condemned for any public use under any
Regulation, or by right of eminent domain, or by private purchase in lieu
thereof, and the taking would prevent or materially interfere with the Permitted
Use of the Premises, either party shall have the right to terminate this Lease
at its option. If any material portion of the Building or Project is taken or
condemned for any public use under any Regulation, or by right of eminent
domain, or by private purchase in lieu thereof, Landlord may terminate this
Lease at its
<PAGE> 20
option. In either of such events, the Rent shall be abated during the unexpired
portion of this Lease, effective when the physical taking of said Premises shall
have occurred.
B. CONDEMNATION NOT RESULTING IN TERMINATION. If a portion of the Project of
which the Premises are a part should be taken or condemnation for any public use
under any Regulation, or by right of eminent domain, or by private purchase in
lieu thereof, and the taking prevents or materially interferes with the
Permitted Use of the Premises, and this Lease is not terminated as provided in
Paragraph 23.A. above, the Rent payable hereunder during the unexpired portion
of the Lease shall be reduced, beginning on the date when the physical taking
shall have occurred, to such amount as may be fair and reasonable under all of
the circumstances, but only after giving Landlord' credit for all sums received
or to be received by Tenant by the condemning authority. Notwithstanding
anything to the contrary contained in this Paragraph, if the temporary use or
occupancy of any part of the Premises shall be taken or appropriated under power
of eminent domain during the Term, this Lease shall be and remain unaffected by
such taking or appropriation and Tenant shall continue to pay in full all Rent
payable hereunder by Tenant during the Term; in the event of any such temporary
appropriation or taking, Tenant shall be entitled to receive that portion of any
award which represents compensation for the use of or occupancy of the Premises
during the Term, and Landlord shall be entitled to receive that portion of any
award which represents the cost of restoration of the Premises and the use and
occupancy of the Premises.
C. AWARD. In the event of a permanent taking, Landlord shall be entitled to (and
Tenant shall assign to Landlord) any and all payment, income, rent, award or any
interest therein whatsoever which may be paid or made in connection with such
taking or conveyance and Tenant shall have no claim against Landlord or
otherwise for any sums paid by virtue of such proceedings, whether or not
attributable to the value of any unexpired portion of this Lease, except as
expressly provided in this Lease. Notwithstanding the foregoing, any
compensation specifically and separately awarded Tenant for Tenant's personal
property and moving costs, leasehold value and business interruption shall be
and remain the property of Tenant.
D. WAIVER OF CCP SECTION 1265.130. Each party waives the provisions of
California Civil Code Procedure Section 1265.130 allowing either party to
petition the superior court to terminate this Lease as a result of a partial
taking.
24. CASUALTY DAMAGE
A. GENERAL. If the Premises or Building should be damaged or destroyed by fire,
tornado, or other casualty (collectively, "Casualty"), Tenant shall give
immediate written notice thereof to Landlord. Within thirty (30) days after
Landlord's receipt of such notice, Landlord shall notify Tenant whether in
Landlord's estimation material restoration of the Premises can reasonably be
made within one hundred eighty (180) days from the date of such notice and
receipt of required permits for such restoration. Landlord's determination shall
be binding on Tenant.
B. WITHIN 180 DAYS. If the Premises or Building should be damaged by Casualty to
such extent that material restoration can in Landlord's estimation be reasonably
completed within one hundred eighty (180) days after the date of such notice and
receipt of required permits for such restoration, this Lease shall not
terminate. Provided that insurance proceeds are received by Landlord to fully
repair the damage, Landlord shall proceed to rebuild and repair the Premises in
the manner determined by Landlord, except that Landlord shall not be required to
rebuild, repair or replace any part of the Alterations which may have been
placed on or about the Premises by Tenant. If the Premises are untenantable in
whole or in part following such damage, the Rent payable hereunder during the
period in which they are untenantable shall be abated proportionately, but only
to the extent the Premises are unfit for occupancy.
C. GREATER THAN 180 DAYS. If the Premises or Building should be damaged by
Casualty to such extent that rebuilding or repairs cannot in Landlord's
estimation be reasonably completed within one hundred eighty (180) days after
the date of such notice and receipt of required permits for such rebuilding or
repair, then Landlord shall have the option of either: (1) terminating this
Lease effective upon the date of the occurrence of such damage, in which event
the Rent shall be abated during the unexpired portion of
<PAGE> 21
this Lease; or (2) electing to rebuild or repair the Premises diligently and in
the manner determined by Landlord. Landlord shall notify Tenant of its election
within thirty (30) days after Landlord's receipt of notice of the damage or
destruction. Notwithstanding the above, Landlord shall not be required to
rebuild, repair or replace any part of any Alterations which may have been
placed, on or about the Premises by Tenant. If the Premises are untenantable in
whole or in part following such damage, the Rent payable hereunder during the
period in which they are untenantable shall be abated proportionately, but only
to the extent of rental abatement insurance proceeds received by Landlord during
the time and to the extent the Premises are unfit for occupancy.
D. TENANT'S FAULT. Notwithstanding anything herein to the contrary, if the
Premises or any other portion of the Building are damaged by Casualty resulting
from the fault, negligence, or breach of this Lease by Tenant or any of Tenant's
Parties, Base Rent and Additional Rent shall not be diminished during the repair
of such damage and Tenant shall be liable to Landlord for the cost and expense
of the repair and restoration of the Building caused thereby to the extent such
cost and expense is not covered by insurance proceeds.
E. INSURANCE PROCEEDS. Notwithstanding anything herein to the contrary, if the
Premises or Building are damaged or destroyed and are not fully covered by the
insurance proceeds received by Landlord or if the holder of any indebtedness
secured by a mortgage or deed of trust covering the Premises requires that the
insurance proceeds be applied to such indebtedness, then in either case Landlord
shall have the right to terminate this Lease be delivering written notice of
termination to Tenant within thirty (30) days after the date of notice to
Landlord that said damage or destruction is not fully covered by insurance or
such requirement is made by any such holder, as the case may be, whereupon this
Lease shall terminate.
F. WAIVER. This Paragraph 24 shall be Tenant's sole and exclusive remedy in the
event of damage or destruction to the Premises or the Building. As a material
inducement to Landlord entering into this Lease, Tenant hereby waives any rights
it may have under Sections 1932, 1933(4), 1941 or 1942 of the Civil Code of
California with respect to any destruction of the Premises, Landlord's
obligation for tenantability of the Premises and Tenant's right to make repairs
and deduct expenses of such repairs, or under any similar law, statute or
ordinance now or hereinafter in effect.
G. TENANT'S PERSONAL PROPERTY. In the event of any damage or destruction of the
Premises or the Building, under no circumstances shall Landlord be required to
repair any injury or damage to, or make any repairs or replacements of, Tenant's
personal property.
25. HOLDING OVER
Unless Landlord expressly consents in writing to Tenant's holding over,
Tenant shall be unlawfully and illegally in possession of the Premises, whether
or not Landlord accepts any rent from Tenant or any other person while Tenant
remains in possession of the Premises without Landlord's written consent. If
Tenant shall retain possession of the Premises or any portion thereof without
Landlord's consent following the expiration of this Lease or sooner termination
for any reason, then Tenant shall pay to Landlord for each day of such retention
double the amount of daily rental as of the last month prior to the date of
expiration or earlier termination. Tenant shall also indemnify, defense, protect
and hold Landlord harmless from any loss, liability or cost, including
consequential and incidental damages and reasonable attorneys' fees, incurred by
Landlord resulting from delay by Tenant in surrendering the Premises, including,
without limitation, any claims made by the succeeding tenant founded on such
delay. Acceptance of Rent by Landlord following expiration or earlier
termination of this Lease, or following demand by Landlord for possession of the
Premises, shall not constitute a renewal of this Lease, and nothing contained in
this Paragraph 25 shall waive Landlord's right of reentry or any other right.
Additionally, if upon expiration or earlier termination of this Lease, or
following demand by Landlord for possession of the Premises, Tenant has not
fulfilled its obligation with respect to repairs and cleanup of the Premises or
any other Tenant obligations as set forth in this Lease, the Landlord shall have
the right to perform any such obligations as it deems necessary at Tenant's sole
cost and expense, and any time required by Landlord to complete such obligations
shall be considered a period of holding over and
<PAGE> 22
the terms of this Paragraph 25 shall apply. The provisions of this Paragraph 25
shall survive any expiration or earlier termination of this Lease.
26. DEFAULT
A. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an
event of default on the part of Tenant:
(1) ABANDONMENT. Abandonment or vacation of the Premises for a
continuous period in excess of thirty (30) days. Tenant waives any right
to notice Tenant may have under Section 1951.3 of the Civil Code of the
State of California, the terms of this Paragraph 26.A being deemed such
notice to Tenant as required by such Section 1951.3.
(2) NONPAYMENT OF RENT. Failure to pay any installment of Rent or any
other amount due and payable hereunder upon the date when said payment
is due, as to which time is of the essence.
(3) OTHER OBLIGATIONS. Failure to perform any obligation, agreement or
covenant under this Lease other than those matters specified in
subparagraphs (1) and (2) of this Paragraph 26.A, such failure
continuing for fifteen (15) days after written notice of such failure,
as to which time is of the essence.
(4) GENERAL ASSIGNMENT. A general assignment by Tenant for the benefit
of creditors.
(5) BANKRUPTCY. The filing of any voluntary petition in bankruptcy by
Tenant, or the filing of an involuntary petition by Tenant's creditors,
which involuntary petition remains undischarged for a period of ninety
(90) days. If under applicable law, the trustee in bankruptcy or Tenant
has the right to affirm this Lease and continue to perform the
obligations of Tenant hereunder, such trustee or Tenant shall, in such
time period as may be permitted by the bankruptcy court having
jurisdiction, cure all defaults of Tenant hereunder outstanding as of
the date of the affirmance of this Lease and provide to Landlord such
adequate assurances as may be necessary to ensure Landlord of the
continued performance of Tenant's obligations under this Lease.
(6) RECEIVERSHIP. The employment of a receiver to take possession of
substantially all of Tenant's assets or Tenant's leasehold of the
Premises, if such appointment remains undismissed or undischarged for a
period of ninety (90) days after the order therefor.
(7) ATTACHMENT. The attachment, execution or other judicial seizure of
all or substantially all of Tenant's assets or Tenant's leasehold of the
Premises, if such attachment or other seizure remains undismissed or
undischarged for a period of ninety (90) days after the levy thereof.
(8) INSOLVENCY. The admission by Tenant in writing of its inability to
pay its debts as they become due.
B. REMEDIES UPON DEFAULT.
(1) TERMINATION. In the event of the occurrence of any event of default,
Landlord shall have the right to give a written termination notice to
Tenant, and on the date specified in such notice, Tenant's right to
possession shall terminate, and this Lease shall terminate unless on or
before such date all Rent and all costs and expenses incurred by or on
behalf of Landlord hereunder shall have been paid by Tenant and all
other events of default of this Lease by Tenant at the time existing
shall have been fully remedied to the satisfaction of Landlord. At any
time after such termination, Landlord may recover possession of the
Premises or any part thereof and expel and remove therefrom Tenant and
any other person occupying the same, including any subtenant or
subtenants notwithstanding Landlord's consent to any sublease, by any
lawful means, and again repossess and enjoy the Premises without
prejudice to any of the remedies that Landlord may
<PAGE> 23
have under this Lease, or at law or equity by any reason of Tenant's
default or of such termination. Landlord hereby reserves the right, but
shall not have the obligation, to recognize the continued possession of
any subtenant. The delivery or surrender to Landlord by or on behalf of
Tenant of keys, entry codes, or other means to bypass security at the
Premises shall not terminate this Lease.
(2) CONTINUATION AFTER DEFAULT. Even though an event of default may have
occurred, this Lease shall continue in effect for so long as Landlord
does not terminate Tenant's right to possession under paragraph 26.B.(1)
hereof, and Landlord may enforce all of Landlord's rights and remedies
under this Lease and at law or in equity, including without limitation,
the right to recover Rent as it becomes due, and Landlord, without
terminating this Lease, may exercise all of the rights and remedies of a
landlord under Section 1951.4 of the Civil Code of the State of
California or any successor code section. Acts of maintenance,
preservation or efforts to lease the Premises or the appointment of a
receiver under application of Landlord to protect Landlord's interest
under this Lease or other entry by Landlord upon the Premises shall not
constitute an election to terminate Tenant's right to possession.
(3) INCREASED SECURITY DEPOSIT. If Tenant is in default under Paragraph
26.A.(2) hereof and such default remains uncured for ten (10) days after
such occurrence or such default occurs more than three times in any
twelve (12) months period Landlord may require that Tenant increase the
security deposit to the amount of three times the current months rent at
the time of the most recent default.
C. DAMAGES AFTER DEFAULT. Should Landlord terminate this Lease pursuant to the
provisions of Paragraph 26.B.(1) hereof, Landlord shall have the rights and
remedies of a Landlord provided by Section 1951.2 of the Civil Code of the State
of California, or any successor code sections. Upon such termination, in
addition to any other rights and remedies to which Landlord may be entitled
under applicable law or at equity, Landlord shall be entitled to recover from
Tenant: (1) the worth at the time of award of the unpaid Rent and other amounts
which had been earned at the time of termination, (2) the worth at the time of
award of the amount by which the unpaid Rent and other amounts that would have
been earned after the date of termination until the time of award exceeds the
amount of such Rent loss that the Tenant proves could be reasonably avoided; (3)
the worth at the time of award of the amount by which the unpaid Rent and other
amounts for the balance of the Term after the time of award exceeds the amount
of such Rent loss that the Tenant proves could be reasonably avoided; and (4)
any other amount and court costs necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease or which, in the ordinary course of things, would be likely to
result therefrom. The "worth at the time of award" as used in (1) and (2) above
shall be computed at the Applicable Interest Rate (defined below). The "worth at
the time of award" as used in (3) above shall be computed by discounting such
amount at the Federal Discount Rate of the Federal Reserve Bank of San Francisco
at the time of award plus one percent (1%). If this Lease provides for any
periods during the Term during which Tenant is not required to pay Base Rent or
if Tenant otherwise receives a Rent concession, then upon the occurrence of an
event of default, Tenant shall owe to Landlord the full amount of such Base Rent
or value of such Rent concession, plus interest at the Applicable Interest Rate,
calculated from the date that such Base Rent or Rent concession would have been
payable.
D. LATE CHARGE. In addition to its other remedies, Landlord shall have the right
without notice or demand to add to the amount of any payment required to be made
by Tenant hereunder, and which is not paid and received by Landlord on or before
the first day of each calendar month, an amount equal to ten percent (10%) of
the delinquency for each month or portion thereof that the delinquency remains
outstanding to compensate Landlord for the loss of the use of the amount not
paid and the administrative costs caused by the delinquency, the parties
agreeing that Landlord's damage by virtue of such delinquencies would be
extremely difficult and impracticable to compute and the amount stated herein
represents a reasonable estimate thereof. Any waiver by Landlord of any late
charges or failure to claim the same shall not constitute a waiver of other late
charges or any other remedies available to Landlord.
E. INTEREST. Interest shall accrue on all sums not paid when due hereunder at
the lesser of eighteen percent (18%) per annum or the maximum interest rate
allowed by law ("APPLICABLE INTEREST RATE") from the due date until paid.
F. REMEDIES CUMULATIVE. All rights, privileges and elections or remedies of the
parties are cumulative and not alternative, to the extent permitted by law and
except as otherwise provided herein.
<PAGE> 24
27. LIENS
Tenant shall at all times keep the Premises and the Project free from
liens arising out of or related to work or services performed, materials or
supplies furnished or obligations incurred by or on behalf of Tenant or in
connection with work made, suffered or done by or on behalf of Tenant in or on
the Premises or Project. If Tenant shall not, within the ten (10) days following
the imposition of any such lien, cause the same to be released of record by
payment or posting of a proper bond, Landlord shall have, in addition to all
other remedies provided herein and by law, the right, but not the obligation, to
cause the same to be released by such means as Landlord shall reasonably deem
proper, including payment of the claim giving rise to such lien. All sums paid
by Landlord on behalf of Tenant and all expenses incurred by Landlord in
connection therefor shall be payable to Landlord by Tenant on demand with
interest at the Applicable Interest Rate as Additional Rent. Landlord shall have
the right at all times to post and keep posed on the Premises any notices
permitted or required by law, or which Landlord shall deem proper, for the
protection of Landlord, the Premises, the Project and any other party having an
interest therein, from mechanics' and materialmen's liens, and Tenant shall give
Landlord not less than ten (10) business days prior written notice of the
commencement of any work in the Premises or Project which could lawfully give
rise to a claim for mechanics' or materialmen's liens to permit Landlord to post
and record a timely notice of non-responsibility, as Landlord may elect to
proceed or as the law may from time provide, for which purpose, if Landlord
shall so determine, Landlord may enter the Premises. Tenant shall not remove any
such notice posted by Landlord without Landlord's consent, and in any event not
before completion of the work which could lawfully give rise to a claim for
mechanics' or materialmen's liens.
28. SUBSTITUTION
[SECTION DELETED]
29. TRANSFERS BY LANDLORD
In the event of a sale or conveyance by Landlord of the Building or a
foreclosure by any creditor of Landlord, the same shall operate to release
Landlord from any liability upon any of the covenants or conditions, express or
implied, herein contained in favor of Tenant, to the extent required to be
performed after the passing of title to Landlord's successor-in-interest. In
such event, Tenant agrees to look solely to the responsibility of the
successor-in-interest of Landlord under this Lease with respect to the
performance of the covenants and duties of "Landlord" to be performed after the
passing of title to Landlord's successor-in-interest. This Lease shall not be
affected by any such sale and Tenant agrees to attorn to the purchaser or
assignee. Landlord's successor(s)-in-interest shall not have liability to Tenant
with respect to the failure to perform any of the obligations of "Landlord," to
the extent required to be performed prior to the date such
successor(s)-in-interest became the owner of the Building.
30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
All covenants to be performed by Tenant under any of the terms of this
Lease shall be performed by Tenant at Tenant's sole cost and expense and without
any abatement of Rent. If Tenant shall fail to pay any sum of money, other than
Base Rent, required to be paid by Tenant hereunder or shall fail to
<PAGE> 25
perform any other act on Tenant's part to be performed hereunder, including
Tenant's obligations under Paragraph 11 hereof, and such failure shall continue
for twenty (20) days after notice thereof by Landlord, in addition to the other
rights and remedies of Landlord, Landlord may make any such payment and perform
any such act on Tenant's part. In the case of an emergency, no prior
notification by Landlord shall be required. Landlord may take such actions
without any obligation and without releasing Tenant from any of Tenant's
obligations. All sums so paid by Landlord and all incidental costs incurred by
Landlord and interest thereon at the Applicable Interest Rate, from the date of
payment by Landlord, shall be paid to Landlord on demand as Additional Rent.
31. WAIVER
If either Landlord or Tenant waives the performance of any term,
covenant or condition contained in this Lease, such waiver shall not be deemed
to be a waiver of any subsequent breach of the same or any other term, covenant
or condition contained herein, or constitute a course of dealing contrary to the
expressed terms of this Lease. The acceptance of Rent by Landlord shall not
constitute a waiver of any preceding breach by Tenant of any term, covenant or
condition of this Lease, regardless of Landlord's knowledge of such preceding
breach at the time Landlord accepted such Rent. Failure by Landlord to enforce
any of the terms, covenants or conditions of this Lease for any length of time
shall not be deemed to waive or decrease the right of Landlord to insist
thereafter upon strict performance by Tenant. Waiver by Landlord of any term,
covenant or condition contained in this Lease may only be made by a written
document signed by Landlord, based upon full knowledge of the circumstances.
32. NOTICES
Each provision of this Lease or of any applicable governmental laws,
ordinances, regulations and other requirements with reference to sending,
mailing, or delivery of any notice or the making of any payment by Landlord or
Tenant to the other shall be deemed to be complied with when and if the
following steps are taken:
A. RENT. All rent and other payments required to be made by Tenant to Landlord
hereunder shall be payable to Landlord at Landlord's Remittance Address set
forth in the Basic Lease Information, or at such other address as Landlord may
specify from time to time by written notice delivered in accordance herewith.
Tenant's obligations to pay Rent and any other amounts to Landlord under the
terms of this Lease shall not be deemed satisfied until such Rent and other
amounts have been actually received by Landlord.
B. OTHER. All notices, demands, consents and approvals which may or are required
to be given by either party to the other hereunder shall be in writing and
either personally delivered, sent by commercial overnight courier, mailed,
certified or registered, postage prepaid, and in each case addressed to the
party to be notified at the Notice Address for such party as specified in the
Basic Lease Information or to such other place as the party to be notified may
from time to time designate by at least fifteen (15) days notice to the
notifying party. Notices shall be deemed served upon receipt or refusal to
accept delivery. Tenant appoints as its agent to receive the service of all
default notices and notice of commencement of unlawful detainer proceedings the
person in charge of or apparently in charge of occupying the Premises at the
time, and, if there is no such person, then such service may be made by
attaching the same on the main entrance of the Premises.
C. REQUIRED NOTICES. Tenant shall immediately notify Landlord in writing of any
notice of a violation or a potential or alleged violation of any Regulation that
relates to the Premises or the Project, or of any inquiry, investigation,
enforcement or other action that is instituted or threatened by any governmental
or regulatory agency against Tenant or any other occupant of the Premises, or
any claim that is instituted or threatened by any third party that relates to
the Premises or the Project.
<PAGE> 26
33. ATTORNEYS' FEES
If Landlord places the enforcement of this Lease, or any part thereof,
or the collection of any Rent due, or to become due hereunder, or recovery of
possession of the Premises in the hands of an attorney, Tenant shall pay to
Landlord, upon demand, Landlord's reasonable attorneys' fees and court costs,
whether incurred without trial, at trial, appeal or review. In any action which
Landlord or Tenant brings to enforce its respective rights hereunder, the
unsuccessful party shall pay all costs incurred by the prevailing party
including reasonable attorneys' fees, to be fixed the court, and said costs and
attorneys' fees shall be a part of the judgment in said action.
34. SUCCESSORS AND ASSIGNS
This Lease shall be binding upon and inure to the benefit of Landlord,
its successors and assigns, and shall be binding upon and inure to the benefit
of Tenant, its successors, and to the extent assignment is approved by Landlord
as provided hereunder, Tenant's assigns.
35. FORCE MAJEURE
If performance by a party of any portion of this Lease is made
impossible by any prevention, delay, or stoppage caused by strikes, lockouts,
labor disputes, acts of God, inability to obtain services, labor, or materials
or reasonable substitutes for those items, government actions, civil commotions,
fire or other casualty, or other causes beyond the reasonable control of the
party obligated to perform, performance by that party for a period equal to the
period of that prevention, delay, or stoppage is excused. Tenant's obligation to
pay Rent, however, is not excused by this Paragraph 35.
36. SURRENDER OF PREMISES
Tenant shall, upon expiration or sooner termination of this Lease,
surrender the Premises to Landlord in the same condition as existed on the date
Tenant originally took possession thereof, including, but not limited to, all
interior walls cleaned, all interior painted surfaces repainted in the original
color, all holes in the walls repaired, all carpets shampooed and cleaned, and
all floors cleaned, waxed, and free of any Tenant-introduced marking or
painting, all to the reasonable satisfaction of Landlord, ordinary wear and tear
excepted. Tenant shall remove all of its debris from the Project. At or before
the time of surrender, Tenant shall comply with the terms of Paragraph 12.A.
hereof with respect to Alterations to the Premises and all other matters
addressed in such Paragraph. If the Premises are not so surrendered at the
expiration or sooner termination of this Lease, the provisions of Paragraph 25
hereof shall apply. All keys to the Premises or any part thereof shall be
surrendered to Landlord upon expiration or sooner termination of the Term.
Tenant shall give written notice to Landlord at least thirty (30) days prior to
vacating the Premises and shall meet with Landlord for a joint inspection of the
Premises at the time of vacating, but nothing contained herein shall be
construed as an extension of the Term or as a consent by Landlord to any holder
over by Tenant. In the event of Tenant's failure to give such notice or
participate in such joint inspection, Landlord's inspection at or after Tenant's
vacating the Premises shall conclusively be deemed correct for purposes of
determining Tenant's responsibility for repairs and restoration. Any delay
caused by Tenant's failure to carry out its obligations under this Paragraph 36
beyond the term hereof, shall constitute unlawful and illegal possession of the
Premises under Paragraph 25 hereof.
37. PARKING
So long as Tenant is occupying the Premises, Tenant and Tenant's Parties
shall have the right to use up to the number of parking spaces, if any,
specified in the Basic Lease Information on an unreserved, non-exclusive, first
come, first served basis, for passenger-size automobiles, in the parking areas
in the Project designated from time to time by Landlord for use in common by
tenants of the Building.
<PAGE> 27
Tenant may request additional parking spaces from time to time and if
Landlord in its sole discretion agrees to make such additional spaces available
for use by Tenant, such spaces shall be provided on a month-to-month unreserved
and nonexclusive basis (unless otherwise agreed in writing by Landlord), and
subject to such parking charges as Landlord shall determine, and shall otherwise
be subject to such terms and conditions as Landlord may require.
Tenant shall at all times comply and shall cause all Tenant's Parties
and visitors to comply with all Regulations and any rules and regulations
established from time to time by Landlord relating to parking at the Project,
including any keycard, sticker or other identification or entrance system, and
hours of operation, as applicable.
Landlord shall have no liability for any damage to property or other
items located in the parking areas of the Project, nor for any personal injuries
or death arising out of the use of parking areas in the Project by Tenant or any
Tenant's Parties except arising from or caused by Landlord's parties gross
negligence, willful misconduct or criminal activity. Without limiting the
foregoing, if Landlord arranges for the parking areas to be operated by an
independent contractor not affiliated with Landlord, Tenant acknowledges that
Landlord shall have no liability for claims arising through the acts or
omissions of such independent contractor. In all events, Tenant agrees to look
first to its insurance carrier and to require that Tenant's Parties look first
to their respective insurance carriers for payment of any losses sustained in
connection with any use of the parking areas.
Landlord reserves the right to assign specific spaces, and to reserve
spaces for visitors, small cars, disabled person or for other tenants or guests,
and Tenant shall not park and shall not allow Tenant's Parties to park in any
such assigned or reserved spaces. Tenant may validate visitor parking by such
method as Landlord may approve, at the validation rate from time to time
generally applicable to visitor parking. Landlord also reserves the right to
alter, modify, relocate or close all or any portion of the parking areas in
order to make repairs or perform maintenance service, or to restripe or renovate
the parking areas, or if required by casualty, condemnation, act of God,
Regulations or for any other reason deemed reasonable by Landlord.
Tenant shall pay to Landlord (or Landlord's parking contractor, if so
directed in writing by Landlord), as Additional Rent hereunder, the monthly
charges established from time to time by Landlord for parking under the Building
should such spaces become available and should Landlord and Tenant agree that t
shall lease such spaces. Such parking charges shall be payable in advance
with Tenant's payment of Basic Rent. No deductions from the monthly parking
charge shall be made for days on which the Tenant does not use any of the
parking spaces entitled to be used by Tenant.
38. MISCELLANEOUS
A. GENERAL. The term "Tenant" or any pronoun used in place thereof shall
indicate and include the masculine or feminine, the singular or plural number,
individuals, firms or corporations, and their respective successors, executors,
administrators and permitted assigns, according to the context hereof.
B. TIME. Time is of the essence regarding this Lease and all of its provisions.
C. CHOICE OF LAW. This Lease shall in all respects be governed by the laws of
the State of California.
D. ENTIRE AGREEMENT. This Lease, together with its Exhibits, addenda and
attachments and the Basic Lease Information, contains all the agreements of the
parties hereto and supersedes any previous negotiations. There have been no
representations made by the Landlord or understandings made between the parties
other than those set forth in this Lease and its Exhibits, addenda and
attachments and the Basic Lease Information.
<PAGE> 28
E. MODIFICATION. This Lease may not be modified except by a written instrument
signed by the parties hereto. Tenant accepts the area of the Premises as
specified in the Basic Lease Information as the approximate area of the Premises
for all purposes under this Lease, and acknowledges and agrees that no other
definition of the area (rentable, usable or otherwise) of the Premises shall
apply. Tenant shall in no event be entitled to a recalculation of the square
footage of the Premises, rentable, usable or otherwise, and no recalculation, if
made, irrespective of its purpose, shall reduce Tenant's obligations under this
Lease in any manner, including without limitation the amount of Base Rent
payable by Tenant or Tenant's Proportionate Share of the Building and of the
Project.
F. SEVERABILITY. If, for any reason whatsover, any of the provisions hereof
shall be unenforceable or ineffective, all of the other provisions shall be an
remain in full force and effect.
G. RECORDATION. Tenant shall not record this Lease or a short form memorandum
hereof.
H. EXAMINATION OF LEASE. Submission of this Lease to Tenant does not constitute
an option or offer to lease and this Lease is not effective otherwise until
execution and delivery by both Landlord and Tenant.
I. ACCORD AND SATISFACTION. No payment by Tenant of a lesser amount than the
total Rent due nor any endorsement on any check or letter accompanying any check
or payment of Rent shall be deemed an accord and satisfaction of full payment of
Rent, and Landlord may accept such payment without prejudice to Landlord's right
to recover the balance of such Rent or to pursue other remedies. All offers by
or on behalf of Tenant of accord and satisfaction are hereby rejected in
advance.
J. EASEMENTS. Landlord may grant easements on the Project and dedicate for
public use portions of the Project without Tenant's consent; provided that no
such grant or dedication shall materially interfere with Tenant's Permitted Use
of the Premises. Upon Landlord's request, Tenant shall execute, acknowledge and
deliver to Landlord documents, instruments, maps, and plats necessary to
effectuate Tenant's covenants hereunder.
K. DRAFTING AND DETERMINATION PRESUMPTION. The parties acknowledge that this
Lease has been agreed to by both the parties, that both Landlord and Tenant have
consulted with attorneys with respect to the terms of this Lease and that no
presumption shall be created against Landlord because Landlord drafted this
Lease. Except as otherwise specifically set forth in this Lease, with respect to
any consent, determination or estimation of Landlord required or allowed in this
Lease or requested of Landlord, Landlord's consent, determination or estimation
shall not be unreasonably withheld by Landlord. If Landlord fails to respond to
any request for its consent within the time period, if any, specified in this
Lease, Landlord shall be deemed to have disapproved such request.
L. EXHIBITS. The Basic Lease Information, and the Exhibits, addenda and
attachments attached hereto are hereby incorporated herein by this reference and
made a part of this Lease as though fully set forth herein.
M. NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of light, air
or view by any structure which may be erected on lands adjacent to or in the
vicinity of the Building shall in no way affect this Lease or impose any
liability on Landlord.
N. NO THIRD PARTY BENEFIT. This Lease is a contract between Landlord and Tenant
and nothing herein is intended to create any third party benefit.
O. QUIET ENJOYMENT. Upon payment by Tenant of the Rent, and upon the observance
and performance of all of the other covenants, terms and conditions on Tenant's
part to be observed and performed, Tenant shall peaceably and quietly hold and
enjoy the Premises for the term hereby demised without hindrance or interruption
by Landlord or any other person or persons lawfully or equitably claiming by,
thorugh or under Landlord, subject, nevertheless, to all of the other terms and
conditions of this Lease.
<PAGE> 29
Landlord shall not be liable for any hindrance, interruption, interference or
disturbance by other tenants or third persons, nor shall Tenant be released from
any obligations under this Lease because of such hindrance, interruption,
interference or disturbance.
P. COUNTERPARTS. This Lease may be executed in any number of counterparts, each
of which shall be deemed an original.
Q. MULTIPLE PARTIES. If more than one person or entity is named herein as
Tenant, such multiple parties shall have joint and several responsibility to
comply with the terms of this Lease.
R. PRORATIONS. Any Rent or other amounts payable to Landlord by Tenant hereunder
for any fractional month shall be prorated based on a month of 30 days. As used
herein, the term "fiscal year" shall mean the calendar year or such other fiscal
year as Landlord may deem appropriate.
39. ADDITIONAL PROVISIONS
ADDENDUM #1 - RENT
Notwithstanding anything to the contrary in the Basic Lease Information and
pursuant to and subject to the provisions of Paragraphs 6 and 7 of the Lease,
the Rent shall be as follows:
<TABLE>
<S> <C>
Months 1 - 12
Base Rent $32,966.00
Basic Operating Expenses
(1998 estimate) $11,702.93
----------
$44,668.93 per month
Months 13 - 24
Base Rent $34,614.30
Basic Operating Expenses
(1998 estimate) $11,702.93
----------
$47,317.23 per month
Months 25 - 36
Base Rent $36,262.60
Basic Operating Expenses
(1998 estimate) $11,702.93
----------
$47,965.53 per month
Months 37 - 48
Base Rent $37,910.90
Basic Operating Expenses
(1998 estimate) $11,702.93
----------
$49,613.83 per month
Months 49 - 60
Base Rent $39,559.20
Basic Operating Expenses
(1998 estimate) $11,702.93
----------
$51,262.13 per month
Months 61 - 72
Base Rent $41,207.50
Basic Operating Expenses
(1998 estimate) $11,702.93
----------
$52,910.43 per month
Months 73 - 84
Base Rent $42,885.80
Basic Operating Expenses
(1998 estimate) $11,702.93
----------
$54,558.73 per month
</TABLE>
<PAGE> 30
ADDENDUM #2 - OPTION TO EXTEND
Provided that Tenant is not, and has not been, in default of any of it's
obligations under this Lease, Tenant shall have an option to extend the Term
("Extended Term") in an "as-is" condition for a period of five (5) years
commencing at the expiration of the Term. The Base Rent for the Extended Term
shall be at the then-prevailing fair market value for comparable space in the
Brisbane area. However, in no event shall the Base Rent for the Extended Term be
less than the Base Rent for the last month of the Term.
Tenant shall give to Landlord written notice of it's intent to exercise this
Option to Extend no sooner than one hundred eighty (180) days prior to the
expiration of the Lease Term. Within fifteen (15) days from receipt of such
written notice to exercise by Tenant, Landlord will provide to Tenant the fair
market rent, as reasonably determined by Landlord, as well as terms and
conditions (collectively, the "Determination") for the Extended Term. Tenant
shall have fifteen (15) days from receipt of the Determination to accept
Landlord's Determination. If Landlord does not receive written acceptance from
Tenant of Landlord's Determination by the end of such fifteen (15) day period,
this Option to Extend shall be null and void and Landlord shall have no further
obligation to Tenant and Landlord may enter into a lease for the Premises with a
third party.
This Option to Extend is for the exclusive and sole benefit of Tenant and may
not be conveyed, made a par of a sublease, assigned or otherwise transferred.
ADDENDUM #3 - SECURITY DEPOSIT
A. DELIVERY OF LETTER OF CREDIT. In addition to providing the $50,000.00 cash
security deposit with Landlord, Tenant shall, no later than the Commencement
Date of this Lease, deliver to Landlord and cause to be in effect during the
initial thirty-six (36) months of the Leas term an unconditional, irrevocable
and automatically renewable letter of credit ("LC") in the amount of
$160,000.00, (the "LC Amount"). The LC shall be in a form acceptable to Landlord
and shall be issued by an LC bank selected by Tenant and acceptable to Landlord.
An LC bank is a bank that accepts deposits, maintains accounts, has a local
office that will negotiate a letter of credit, and the deposits of which are
insured by the Federal Deposit Insurance Corporation. Tenant shall pay all
expenses, points, or fees incurred by Tenant in obtaining the LC.
B. REPLACEMENT OF LETTER OF CREDIT. Tenant may, from time to time, replace any
existing LC with a new LC if the new LC (a) becomes effective at least thirty
(30) days before expiration of the LC that it replaces; (b) is in the required
amount; (c) is issued by an LC bank acceptable to Landlord; and (d) otherwise
complies with the requirements of this Paragraph 19.
C. LANDLORD'S RIGHT TO DRAW ON LETTER OF CREDIT. Landlord shall hold the LC as
security for the performance of Tenant's obligations under this Lease. If, after
notice and failure to cure within any applicable period provided in this Lease,
Tenant defaults on any provisions of this Lease, Landlord may, without prejudice
to any other remedy it has, draw on that portion of the LC necessary to (a) pay
Rent of other sum in default; (b) pay or reimburse Landlord for any amount that
Landlord may spend or become obligated to spend in exercising Landlord's rights
under Paragraph 30 (Right of Landlord to Perform Tenant's Covenant); and/or (c)
compensate Landlord for any expense, loss, or damage that Landlord may suffer
because of Tenant's default. If Tenant fails to renew or replace the LC at least
thirty (30) days before its expiration, Landlord may, without prejudice to any
other remedy it has, draw on the entire amount of the LC. Notwithstanding
anything to the contrary above, if Tenant shall have been in monetary default
more than two (2) times during the initial thirty-six (36) months of the initial
Lease Term, then such LC shall be required as a condition of the Lease for the
entire Lease Term.
D. RESTORATION OF LETTER OF CREDIT AND LC SECURITY DEPOSIT. If Landlord draws on
any portion of the LC and/or applies all or any portion of such draw, Tenant
shall, within five (5) business days after demand by Landlord, either (a)
deposit cash with Landlord in an amount that, when added to the amount remaining
under the LC and the amount of any LC Security Deposit, shall equal the LC
Amount then required under this Paragraph 19; or (b) reinstate the LC to the
full LC amount.
<PAGE> 31
ADDENDUM #4 - ADVANCED PAYMENT OF RENT
As a material consideration of this Lease, Tenant shall pay to Landlord, as
Advance Rent, the sum of Three hundred fifty seven thousand three hundred fifty
one and 44/100 dollars ($357,351.44) upon execution of this Lease which shall be
applied as Rent for the period July 1, 1998 through February 28, 1999. Upon
execution, Tenant shall deposit by check or cash the sum of forty four thousand
six hundred sixty eight and 93/100 dollars ($44,668.93) which shall represent
the payment of the first months Rent. The balance shall be provided in a letter
of credit pursuant to the following:
(1) DELIVERY OF LETTER OF CREDIT. In addition to providing the
$44,668.93 cash payment to the Landlord, Tenant shall, no later than the
Commencement Date of this Lease, deliver to Landlord and cause to be in
effect during the initial eight (8) months of the Lease Term an
unconditional, irrevocable and automatically renewable letter of credit
("LC") in the amount of $312,682.51, (the "LC Amount"). The LC shall be
in a form acceptable to the Landlord and shall be issued by an LC bank
selected by Tenant and acceptable to Landlord. An LC bank is a bank that
accepts deposits, maintains accounts, has a local office that will
negotiate a letter of credit, and the deposits of which are insured by
the Federal Deposit Insurance Corporation. Tenant shall pay all
expenses, points, or fees incurred by Tenant in obtaining the LC.
(2) REPLACEMENT OF LETTER OF CREDIT. Tenant may, from time to time,
replace any existing LC with a new LC if the new LC (a) becomes
effective at least thirty (30) days before the expiration of the LC that
it replaces; (b) is in the required LC amount; (c) is issued by an LC
bank acceptable to Landlord; and (d) otherwise complies with the
requirements of this Addendum #4.
(3) LANDLORD'S RIGHT TO DRAW ON LETTER OF CREDIT. Landlord shall hold
the LC as security for the performance of Tenant's monetary obligations
under this Lease. If, after the fifth (5th) day of any month the Rent is
not received by Landlord, Landlord may, without prejudice to any other
remedy it has, draw on that portion of the LC necessary to pay Rent.
40. JURY TRIAL WAIVER
EACH PARTY HERETO (WHICH INCLUDES ANY ASSIGNEE, SUCCESSOR HEIR OR
PERSONAL REPRESENTATIVE OF A PARTY) SHALL NOT SEEK A JURY TRIAL, HEREBY WAIVES A
TRIAL BY JURY, AND HEREBY FURTHER WAIVES ANY OBJECTION TO VENUE IN THE COUNTY IN
WHICH THE BUILDING IS LOCATED, AND AGREES AND CONSENTS TO PERSONAL JURISDICTION
OF THE COURT OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IN ANY ACTION OR
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST THE OTHER ON ANY
MATTER 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 PREMISES,
OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY
STATUTE, EMERGENCY OR OTHERWISE, WHETHER ANY OF THE FOREGOING IS BASED ON THIS
LEASE OR ON TORT LAW. EACH PARTY REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO
CONSULT WITH LEGAL COUNSEL CONCERNING THE EFFECT OF THIS PARAGRAPH 40. THE
PROVISIONS OF THE PARAGRAPH 40 SHALL SURVIVE THE EXPIRATION OR EARLIER
TERMINATION OF THIS LEASE.
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the day and the year first above written.
LANDLORD
Spieker Properties, L.P.,
a California limited partnership
By: Spieker Properties, Inc.
a Maryland corporation,
its general partner
By: /s/ PETER H. SCHNUGG
----------------------------------
Peter H. Schnugg
Its: Senior Vice President
Date: 5-27-98
------------------------------------
TENANT
VaxGen, Inc.
a Delaware corporation
By: /s/ ROBERT F. PACQUER
--------------------------------------
Robert F. Pacquer
Its: Chief Financial Officer
Date: 5-21-98
------------------------------------
<PAGE> 33
EXHIBIT A
RULES AND REGULATIONS
1. Sidewalks, halls, passages, exits, entrances, elevators, escalators and
stairways shall not be obstructed by tenants or used by tenants for any
purpose other than for ingress and egress from their respective premises.
The halls, passages, exits, entrances, elevators and stairways are not for
the use of the general public and Landlord shall in all cases retain the
right to control and prevent access there by all person whose presence, in
the judgment of Landlord, shall be prejudicial to the safety, character,
reputation and interests of the Building, the Project and its tenants,
provided that nothing herein contained shall be construed to prevent such
access to persons with whom any tenant normally deals in the ordinary
course of such tenant's business unless such persons are engaged in illegal
activities. No tenant, and no employees of any tenant, shall go upon the
roof of any Building, except as authorized by Landlord. No tenant, and no
employees of any tenant shall move any common area furniture without
Landlord's consent.
2. No sign, placard, banner, picture, name, advertisement or notice, visible
form the exterior of the Premises or the Building or the common areas of
the Building shall be inscribed, painted, affixed, installed or otherwise
displayed by Tenant either on its Premises or any part of the Building or
Project without the prior written consent of Landlord in Landlord's sole
and absolute discretion. Landlord shall have the right to remove any such
sign, placard, banner, picture, name, advertisement, or notice without
notice to and at the expense of the Tenant, which were installed or
displayed in violation of this rule. If Landlord shall have given such
consent to Tenant at anytime, whether before or after the execution of
Tenant's lease, such consent shall in no way operate as a waiver or release
of any of the provisions hereof or of the Lease, and shall be deemed to
relate only to the particular sign, placard, banner, picture, name,
advertisement or notice so consented to by Landlord and shall not be
construed as dispensing with the necessity of obtaining the specific
written consent of Landlord with respect to any other such sign, placard,
banner, picture, name, advertisement or notice.
All approved signs or lettering on doors and walls shall be printed, affixed
or inscribed at the expense of Tenant by a person or vendor approved by
Landlord and shall be removed by Tenant at the time of vacancy at Tenant's
expense.
3. The directory of the Building will be provided exclusively for the display
of the name and location of tenants only and Landlord reserves the right to
charge for the use thereof and to exclude any other names therefrom.
4. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, awnings, hangings or decorations shall be attached to, hung or
placed in, or used in connection with, any window or door on the Premises
without the prior written consent of Landlord. In any event with the prior
written consent of Landlord, all such items shall be installed inboard of
Landlord's standard window covering and shall in no way be visible from the
exterior of the Building. All electrical ceiling fixtures hung in offices
or spaces along the perimeter of the Building must be fluorescent or of a
quality, type, design, and bulb color approved by Landlord. No articles
shall be placed or kept on the window sills so as to be visible from the
exterior of the Building. No articles shall be placed against glass
partitions or doors which Landlord considers unsightly form outside
Tenant's Premises.
5. Landlord reserves the right to exclude from the Building and the Project,
between the hours of 6 p.m. and 8 a.m. and at all hours on Saturdays,
Sundays and legal holidays, all persons who are not tenants or their
accompanied guests in the Building. Each tenant shall be responsible for
all persons for whom it allows to enter the Building or the Project and
shall be liable to Landlord for all acts of such persons.
Landlord and its agents shall not be liable for damages for any error concerning
the admission to, or exclusion from, the Building or the Project of any
person.
<PAGE> 34
During the continuance of any invasion, mob, riot, public excitement or other
circumstance rendering such action advisable in Landlord's opinion,
Landlord reserves the right (but shall not be obligated) to prevent access
to the Building and the Project during the continuance of that event by any
means it considers appropriate for the safety of tenants and protection of
the Building, property in the Building and the Project.
6. All cleaning and janitorial services for the Building and the Premises
shall be provided exclusively through Landlord. Except with the written
consent of Landlord, no person or persons other than those approved by
Landlord shall be permitted to enter the Building for the purpose of
cleaning the same. Tenant shall not cause any unnecessary labor by reason
of Tenant's carelessness or indifference in the preservation of good order
and cleanliness of its Premises. Landlord shall in no way be responsible to
Tenant for any loss of property on the Premises, however occurring, or for
any damage done to Tenant's property by the janitor or any other employee
or any other person.
7. Tenant shall see that all doors of its Premises are closed and securely
locked and must observe strict care and caution that all water faucets or
water apparatus, coffee pots or other heat-generating devices are entirely
shut off before Tenant or its employees leave the Premises, and that all
utilities shall likewise be carefully shut off, so as to prevent waste or
damage. Tenant shall be responsible for any damage or injuries sustained by
other tenants or occupants of the Building or Project by Landlord for
noncompliance with this rule. On multiple-tenancy floors, all tenants shall
keep the door or doors to the Building corridors closed at all times except
for ingress and egress.
8. Tenant shall not use any method of heating or air-conditioning other than
that supplied by Landlord. As more specifically provided in the Tenant's
lease of the Premises, Tenant shall not waste electricity, water or
air-conditioning and agrees to cooperate fully with Landlord to assure the
most effective operation of the Building's heating and air-conditioning,
and shall refrain from attempting to adjust any controls other than room
thermostats installed for Tenant's use.
9. Landlord will furnish Tenant free of charge with two keys to each door in
the Premises. Landlord may make a reasonable charge for any additional
keys, and Tenant shall not make or have made additional keys. Tenant shall
not alter any lock or access device or install a new or additional lock or
access device or bolt on any door of its Premises, without the prior
written consent of Landlord. If Landlord shall give its consent, Tenant
shall in each case furnish Landlord with a key for any such lock. Tenant,
upon the termination of its tenancy, shall deliver to Landlord the keys for
all doors which have been furnished to Tenant, and in the event of loss of
any keys so furnished, pay Landlord therefor.
10. The restrooms, toilets, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown into them. The
expense of any breakage, stoppage, or damage resulting from violation of
this rule shall be borne by the tenant who, or whose employees or invitees,
shall have caused the breakage, stoppage, or damage.
11. Tenant shall not use or keep in or on the Premises, the Building or the
Project any kerosene, gasoline, or inflammable or combustible fluid or
material.
12. Tenant shall not use, keep or permit to be used or kept in its Premises any
foul or noxious gas or substance. Tenant shall not allow the Premises to be
occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Building by reason of noise, odors and/or vibrations
or interfere in any way with other tenants or those having business
therein, nor shall any animals or birds be brought or kept in or about the
Premises, the Building or the Project.
13. No cooking shall be done or permitted by any tenant on the Premises, except
that use by the tenant of Underwriter's Laboratory (UL) approved equipment,
refrigerators and microwave ovens may be used in the Premises for the
preparation of coffee, tea, hot chocolate and similar beverages, storing
and heating food for tenants and their employees shall be permitted. All
uses must be in
<PAGE> 35
accordance with all applicable federal, state and city laws, codes,
ordinances, rules and regulations and the Lease.
14. Except with the prior written consent of Landlord, Tenant shall not sell,
or permit the sale, at retail, of newspapers, magazines, periodicals,
theater tickets or any other goods or merchandise in or on the Premises,
nor shall Tenant carry on, or permit or allow any employee or other person
to carry on, the business of stenography, typewriting or similar business
in or from the Premises for the service or accommodation of occupants of
any other portion of the Building, nor shall the Premises be used for the
storage of merchandise or for manufacturing of any kind, or the business of
a public barber shop, beauty parlor, nor shall the Premises be used for any
illegal, improper, immoral or objectionable purpose, or any business or
activity other than that specifically provided for in such Tenant's Lease.
Tenant shall not accept hairstyling, barbering, shoeshine, nail, massage or
similar services in the Premises or common areas except as authorized by
Landlord.
15. If Tenant requires telegraphic, telephonic, telecommunications, data
processing, burglar alarm or similar services, it shall first obtain, and
comply with, Landlord's instructions in their installation.
16. Landlord will direct electricians where and how telephone, telegraph and
electrical wires are to be introduced or installed. No boring or cutting
for wires will be allowed without the prior written consent of Landlord.
The location of burglar alarms, telephones, call boxes and other office
equipment affixed to the Premises shall be subject to the written approval
of Landlord.
17. Tenant shall not install any radio or television antenna, satellite dish,
loudspeaker or any other device on the exterior walls or the roof of the
Building, without Landlord's consent. Tenant shall not interfere with radio
or television broadcasting or reception form or in the Building, the
Project or elsewhere.
18. Tenant shall not mark, or drive nails, screws or drill into the partitions,
woodwork or drywall or in any way deface the Premises or any part thereof
without Landlord's consent. Tenant may install nails and screws in areas of
the Premises that have been identified for those purposes to Landlord by
Tenant at the time those walls or partitions were installed in the
Premises. Tenant shall not lay linoleum, tile, carpet or any other floor
covering so that the same shall be affixed to the floor of its Premises in
any manner except as approved in writing by Landlord. The expense of
repairing any damage resulting form a violation of this rule or the removal
of any floor covering shall be borne by the tenant by whom, or by whose
contractors, employees or invitees, the damage shall have been caused.
19. No furniture, freight, equipment, materials, supplies, packages,
merchandise or other property will be received in the Building or carried
up or down the elevators except between such hours and in such elevators as
shall be designated by Landlord.
Tenant shall not place a load upon any floor of its Premises which exceeds the
load per square foot which such floor was designed to carry or which is
allowed by law. Landlord shall have the right to prescribe the weight, size
and position of all safes, furniture or other heavy equipment brought into
the Building. Safes or other heavy objects shall, if considered necessary
by Landlord, stand on wood strips of such thickness as determined by
Landlord to be necessary to properly distribute the weight thereof.
Landlord will not be responsible for loss of or damage to any such safe,
equipment or property form any cause, and all damage done to the Building
by moving or maintaining any such safe, equipment or other property shall
be repaired a the expense of Tenant.
Business machines and mechanical equipment belonging to Tenant which cause noise
or vibration that may be transmitted to the structure of the Building or to
any space therein to such a degree as to be objectionable to Landlord or to
any tenants in the Building shall be placed and maintained by Tenant, at
Tenant's expense, on vibration eliminators or other devices sufficient to
eliminate noise or vibration. The persons employed to move such equipment
in or out of the Building must be acceptable to Landlord.
<PAGE> 36
20. Tenant shall not install, maintain or operate upon it Premises any vending
machine without the written consent of Landlord, such consent not be
unreasonably withheld.
21. There shall not be used in any space, or in the public areas of the Project
either by Tenant or others, any hand trucks except hose equipped with
rubber tires and side guards or such other material handling equipment as
Landlord may approve. Tenants using hand trucks shall be required to use
the freight elevator, or such elevator as Landlord shall designate. No
other vehicles of any kind shall be brought by Tenant into or kept in or
about its Premises.
22. Each tenant shall store its trash and garbage within the interior of the
Premises. Tenant shall not place in the trash boxes or receptacles any
personal trash or any material that may not or cannot be disposed of in the
ordinary and customary manner of removing and disposing of trash and
garbage in the city, without violation of any law or ordinance governing
such disposal. All trash, garbage and refuse disposal shall be made only
through entry-ways and elevators provided for such purpose and at such
times as Landlord shall designate. If the Building has implemented a
building-wide recycling program for tenants, Tenant shall use good faith
efforts to participate in said program.
23. Canvassing, soliciting, distributing of handbills or any other written
material and peddling in the Building and the Project are prohibited and
each tenant shall cooperate to prevent the same. No tenant shall make
room-to-room solicitation of business from other tenants in the Building or
the Project, without the written consent of Landlord.
24. Landlord shall have the right, exercisable without noticed and without
liability to any tenant, to change the name and address of the Building and
the Project.
25. Landlord reserves the right to exclude or expel form the Project any person
who, in Landlord's judgment, is under the influence of alcohol or drugs or
who commits any act in violation of any of these Rules and Regulations.
26. Without the prior written consent of Landlord, Tenant shall not use the
name of the Building or the Project or any photograph or other likeness of
the Building or the Project in connection with, or in promoting or
advertising Tenant's business except that Tenant may include the Building's
or Project's name in Tenant's address.
27. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency.
28. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
29. The requirements of Tenant will be attended to only upon appropriate
application at the office of the Building by an authorized individual.
Employees of Landlord shall not perform any work or do anything outside of
their regular duties unless under special instruction form Landlord, and no
employees of Landlord will admit any person (tenant or otherwise) to any
office without specific instructions from Landlord.
30. Landlord reserves the right to designate the use of the parking spaces on
the Project. Tenant or Tenant's guests shall park between designated
parking lines only, and shall not occupy two parking spaces with one car.
Parking spaces shall be for passenger vehicles only; no boats, trucks,
trailers, recreational vehicles or other types of vehicles may be parked in
the parking areas (except that trucks may be loaded and unloaded in
designated loading areas). Vehicles in violation of the above shall be
subject to tow-away, at vehicle owner's expense. Vehicles parked on the
Project overnight without prior written consent of the Landlord shall be
deemed abandoned and shall be subject to tow-away at vehicle owner's
expense. No tenant of the Building shall park in visitor or reserved
parking areas. Any tenant found parking in such designated visitor or
reserved parking areas shall
<PAGE> 37
be subject to tow-away at vehicle owner's expense. The parking areas shall
not be used to provide car wash, oil changes, detailing, automotive repair
or other services unless otherwise approved or furnished by Landlord.
31. No smoking of any kind shall be permitted anywhere within the Building,
including, without limitation, the Premises and those areas immediately
adjacent to the entrances and exits to the Building, or any other area as
Landlord elects. Smoking the Project is only permitted in smoking areas
identified by Landlord, which may be relocated from time to time.
32. If the Building furnishes common area conference rooms for tenant usage,
Landlord shall have the right to control each tenant's usage of the
conference rooms, including limiting tenant usage so that the rooms are
equally available to all tenants in the Building. Any common area amenities
or facilities shall be provided form time to time at Landlord's discretion.
33. Tenant shall not swap or exchange building keys or cardkeys with other
employees or tenants in the Building or the Project.
34. Tenant shall be responsible for the observance of all of the foregoing
Rules and Regulations by Tenant's employees, agents, clients, customers,
invitees and guests.
35. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify, alter or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of any premises in the
Project.
36. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a wavier of such Rules and Regulations in favor of
any other tenant or tenants, nor prevent Landlord from thereafter enforcing
any such Rules and Regulations against any or all tenants of the Building.
37. Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgment may from time to time be needed for safety
and security, for care and cleanliness of the Building and the Project and
for the preservation of good order therein. Tenant agrees to abide by all
such Rules and Regulations herein stated and any additional rules and
regulations which are adopted.
<PAGE> 38
EXHIBIT C
OFFICE LEASE IMPROVEMENT AGREEMENT
This Office Lease Improvement Agreement ("IMPROVEMENT AGREEMENT") sets
forth the terms and conditions relating to construction of the initial tenant
improvements described in the Plans to be prepared and approved as provided
below (the "TENANT IMPROVEMENTS") in the Premises. Capitalized terms used but
not otherwise defined herein shall have the meanings set for the in the Lease
(the "LEASE") to which this Improvement Agreement is attached and forms a part.
1. Base Building Work. The "Base Building Work" described in SCHEDULE 1 to this
EXHIBIT C, if any, has been or will be performed by Landlord at Landlord's sole
cost and expense.
2. Plans and Specifications.
A. Landlord and Tenant shall retain the services of the space
planner/architect designated by Landlord and Tenant (the "SPACE PLANNER") to
prepare a detailed space plan (the "SPACE PLAN") mutually satisfactory to
Landlord and Tenant for the construction of the Tenant Improvements in the
Premises. Tenant shall approve or disapprove the Space Plan and any proposed
revisions there in writing no later than June 1, 1998 which approval shall not
be unreasonably withheld.
B. Based on the approved Space Plan, Landlord shall cause the Space Planner
to prepare detailed plans, specifications and working drawings for the
construction of the Tenant Improvements (the "PLANS"). Landlord and Tenant shall
diligently pursue the preparation of the Plans. Tenant shall approve or
disapprove the Plans and any proposed revisions thereto, including the estimated
cost of the Tenant Improvements, in writing within three (3) business days after
receipt thereof. If Tenant fails to approve or disapprove the Space Plan or
Plans or any revisions thereto within the time limits specified herein, Tenant
shall be deemed to have approve the same. Landlord and Tenant shall use diligent
efforts to cause the final Plans and the cost estimate to be prepared and
approved no later than thirty (30) days after the execution of the Lease.
C. Notwithstanding Landlord's preparation, review and approval of the Space
Plan and the Plans and any revisions thereto, Landlord shall have no
responsibility or liability whatsoever for any errors or omissions contained in
the Space Plan or Plans, or to verify the dimensions or conditions, or for the
quality, design or compliance with applicable Regulation of any improvements
described therein or constructed in accordance therewith. Landlord hereby
assigns to Tenant all warranties and guarantees by the Space Planner or the
contractor who constructs the Tenant Improvements relating to the Tenant
Improvements, and Tenant hereby waives all claims against Landlord relating to,
or arising out of the design or construction of, the Tenant Improvements.
3. Specifications for Standard Tenant Improvements.
A. Specifications and quantities of standard building components which will
comprise and be used in the construction of the Tenant Improvements
("STANDARDS") are set forth in SCHEDULE 2 to this EXHIBIT C. As used herein,
"STANDARDS" or "BUILDING STANDARDS" shall mean the standards for a particular
item selected from time to time by Landlord for the Building, including those
set forth on SCHEDULE 2 of this EXHIBIT C, or such other standards of equal or
better quality as may be mutually agreed between Landlord and Tenant in writing.
B. No deviations form the Standards are permitted.
4. Tenant Improvement Cost.
<PAGE> 39
A. The cost of the Tenant Improvements shall be paid for by Tenant,
including, without limitation, the cost of: Standards; space plans and studies;
architectural and engineering fees; permits, approvals and other governmental
fees; labor, material, equipment and supplies; construction fees and other
amounts payable to contractors or subcontractors; taxes; off-site improvements;
remediation and preparation of the Premises for construction of the Tenant
Improvements; taxes; filing and recording fees; premiums for insurance and
bonds; attorneys' fees; financing costs; and all other costs expended or to be
expended in the construction of the Tenant Improvements, including those costs
incurred for construction of elements of the Tenant Improvements in the
Premises, which construction was performed by Landlord prior to the execution of
the lease or for materials comprising the Tenant Improvements which were
purchased by Landlord prior to the execution of the Lease; and an administration
fee of ten percent (10%) of the total cost of the Tenant Improvements.
B. Provided t is not in default under the Lease, including this Improvement
Agreement, Landlord shall contribute a one-time tenant improvement allowance not
to exceed $130,000.00 ("TENANT IMPROVEMENT ALLOWANCE") to be credited by
Landlord toward the cost of the initial Tenant Improvements. If the cost of the
Tenant Improvements exceeds the Tenant Improvement Allowance, Tenant shall pay
Landlord such excess cost within three (3) business days after Landlord's notice
of Tenant of such excess cost. No credit shall be given to Tenant if the cost of
the Tenant Improvements is less than the Tenant Improvement Allowance.
C. If the cost of the Tenant Improvements increases after the Tenant's
approval of the Plans due to the requirements of any governmental agency or
applicable Regulation or any other reason, Tenant shall pay Landlord the amount
of such increase within three (3) business days after notice from Landlord of
such increase.
D. If Tenant requests any change(s) in the Plans after approval of the
estimate of the cost of the Tenant Improvements and any such requested changes
are approved by Landlord in writing in Landlord's sole discretion, Landlord
shall advise Tenant promptly of any cost increases and/or delays such approved
change(s) will cause in the construction of the Tenant Improvements. Tenant
shall approve or disapprove any or all such change(s) within three (3) business
days after notice form dl of such cost increases and/or delays. To the extent
Tenant disapproves any such cost increase and/or delay attributable thereto,
Landlord shall have the right, in its sole discretion, to disapprove Tenant's
request for any changes to the approved Plans. If the cost of the Tenant
Improvements increases due to any changes in the Plan(s) requested by Tenant,
Tenant shall pay Landlord the amount of such increase within three (3) business
days after notice from Landlord of such increase and Tenant's approval thereof
in accordance with this Paragraph 4.4.
5. Construction of Tenant Improvements.
A. Upon Tenant's approval of the Plans including the estimate of the cost of
the Tenant Improvements and Landlord's receipt of payment of any such estimated
cost exceeding the amount of the Tenant Improvement Allowance, landlord shall
cause its contractor to proceed to secure a building permit and commence
construction of the tenant Improvements provided that Tenant shall cooperate
with Landlord in executing permit applications and performing other actions
reasonably necessary to enable Landlord to obtain any required permits or
certificates of occupancy; and provided further that the Building has in
Landlord's discretion reached the stage of construction where it is appropriate
to commence construction of the Tenant Improvements in the Premises.
B. Without limiting the provisions of Paragraph 35 of the Lease, Landlord
shall not be liable for any direct or indirect damages suffered by Tenant as a
result of delays in construction beyond Landlord's reasonable control,
including, but not limited to, delays due to strikes or unavailability of
materials or labor, or delays caused by Tenant (including delays by the Space
Planner, the contractor or anyone else performing services on behalf of Landlord
or Tenant).
C. If any work is to be performed on the Premises by Tenant or Tenant's
contractor or agents:
<PAGE> 40
(1) Such work shall proceed upon Landlord's written approval of
Tenant's contractor, public liability and property damage insurance
carried by Tenant's contractor, and detailed plans and specifications
for such work, shall be at Tenant's sole cost and expense and shall
further be subject to the provisions of Paragraphs 12 and 27 of the
Lease.
(2) All work shall be done in conformity with a valid building
permit when required, a copy of which shall be furnished to Landlord
before such work is commenced, and in any case, all such work shall be
performed in accordance with all applicable Regulations. Notwithstanding
any failure by Landlord to object to any such work, Landlord shall have
no responsibility for Tenant's failure to comply with all applicable
Regulations.
(3) If required by landlord or any lender of Landlord, all work
by Tenant or Tenant's contractor or agents shall be done with union
labor in accordance with all union labor agreements applicable to the
trades being employed.
(4) All work by Tenant or Tenant's contractor or agents shall be
scheduled through Landlord.
(5) Tenant or Tenant's contractor or agents shall arrange for
necessary utility, hoisting and elevator service with Landlord's
contractor and shall pay such reasonable charges for such services as
may be charged by Tenant's or Landlord's contractor.
(6) Tenant's entry to the Premises for any purpose, including,
without limitation, inspection or performance of Tenant construction by
Tenant's agents, prior to the date Tenant's obligation to pay rent
commences shall be subject to all the terms and conditions of the Lease
except the payment of Rent. Tenant's entry shall mean entry by Tenant,
its officers, contractors, licensees, agents, servants, employees,
guests, invitees, or visitors.
(7) Tenant shall promptly reimburse Landlord upon demand for any
reasonable expense actually incurred by the Landlord by reason of faulty
work done by Tenant or its contractors or by reason of any delays caused
by such work, or by reason of inadequate clean-up.
6. Completion and Rental Commencement Date
A. Tenant's obligation to pay Rent under the Lease shall commence on the
applicable date described in Paragraph 2 of the Lease. However:
(1) If Tenant delays in preparing or approving the Space Plans
or the Plans, or fails to approve the estimate of the cost of the Tenant
Improvements or any other matter requiring Tenant's approval, or to pay
the excess cost of Tenant Improvements, in each case within the time
limits specified herein; or
(2) If the construction period is extended because Tenant
requests any changes in construction, or modifies the approved Plans or
if the same do not comply with applicable Regulations; or
(3) If Landlord is otherwise delayed in the construction of the
Tenant Improvements for any act or omission of or breach by Tenant or
anyone performing services on behalf of Tenant or on account of any work
performed on the Premises by Tenant or Tenant's contractors or agents,
then the date described in Paragraph 2 of the Lease shall be deemed to
be accelerated by the total number of days of Tenant delays described in
(a) through (c) above (each, a "Tenant Delay"), calculated in accordance
with the provisions of Paragraph 6.2 below.
B. If the Term of the Lease has not already commenced pursuant to the
provisions of Paragraph 2 of the Lease and substantial completion of the Tenant
Improvements has been delayed on account of any Tenant Delays, then upon actual
substantial completion of the Tenant Improvements (as defined in
<PAGE> 41
Paragraph 2 of the Lease), Landlord shall notify Tenant in writing of the date
substantial completion of the Tenant Improvements would have occurred but for
such Tenant Delays, and such date shall thereafter be deemed to be the Term
Commencement Date for all purposes under the Lease. Tenant shall pay to
Landlord, within three (3) business days after receipt of such written notice
(which notice shall include a summary of Tenant Delays), the per diem Base Rent
times the number of days between the date the Term Commencement Date would have
otherwise occurred but for the Tenant Delays (as determined by the Space Planner
or Landlord's contractor), and the date of actual substantial completion of the
Tenant Improvements.
C. Promptly after substantial completion of the Tenant Improvements,
Landlord shall give notice to Tenant and Tenant shall conduct an inspection of
the Premises with a representative of Landlord and develop with such
representative of Landlord a punchlist of items of the Tenant Improvements that
are not complete or that require corrections. Upon receipt of such punchlist,
Landlord shall proceed diligently to remedy such items at Landlord's cost and
expense provided such items are part of the Tenant Improvements to be
constructed by Landlord hereunder and are otherwise consistent with Landlord's
obligations under this Improvement Agreement and provided Tenant has fully paid
Landlord for the cost of the Tenant Improvements exceeding the Tenant
Improvement Allowance (with any dispute between Landlord and Tenant pertaining
thereto to be resolved by the Space Planner or Landlord's general contractor).
Substantial completion shall not be delayed notwithstanding delivery of any such
punchlist.
D. A default under this Improvement Agreement shall constitute a default
under the Lease, and the parties shall be entitled to all rights and remedies
under the Lease in the event of a default hereunder by the other party
(notwithstanding that the Term thereof has not commenced).
E. Without limiting the "as-is" provisions of the Lease, except for the
Tenant Improvements, if any, to be constructed by Landlord pursuant to this
Improvement Agreement, Tenant accepts the Premises in its "as-is" condition and
acknowledges that it has had an opportunity to inspect the Premises prior to
signing the Lease.
<PAGE> 42
SCHEDULE 1
TO EXHIBIT C
BASE BUILDING WORK
Landlord, at Landlord's sole cost and expense shall perform the
following:
Replacement of ceiling in fire corridor on the second floor;
Replacement of floor covering in fire corridor on the second floor;
Replacement of lighting on the second floor, if floor necessary, in
fire corridor;
Upgrade of restrooms on the second floor.
<PAGE> 43
SCHEDULE 2
TO EXHIBIT C
BUILDING STANDARDS
The following constitutes the Building Standard tenant improvements
("STANDARDS") in the quantities specified:
(to be provided per construction drawings)
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
VaxGen, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Seattle, Washington
May 5, 1999
<PAGE> 1
EXHIBIT 23.3
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as amended,
the undersigned hereby consents to be named as a person about to become a
director in the registration statement on Form S-1 to be filed on May 7, 1999 in
connection with the registration of shares of common stock of VaxGen, Inc., a
Delaware corporation.
/s/ ROBERTA R. KATZ Dated: May 6, 1999
---------------
(Signature)
Roberta R. Katz
----------------
(Print name)
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