<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-Q
---------
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended March 31, 2000
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number: 000-24207
ABGENIX, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3248826
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7601 DUMBARTON CIRCLE
FREMONT, CALIFORNIA 94555
(Address of principal executive offices)
TELEPHONE NUMBER (510) 608-6500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of April 30, 2000 there were 40,183,198 shares of the Registrant's Common
Stock outstanding.
==============================================================================
1
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ABGENIX, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Balance Sheets - March 31, 2000 and December 31, 1999.....................................3
Condensed Statements of Operations - Three months ended
March 31, 2000 and March 31, 1999...................................................................4
Condensed Statements of Cash Flows - Three months ended
March 31, 2000 and March 31, 1999...................................................................5
Notes to Condensed Financial Statements.............................................................6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.........................................................................9
ITEM 3 - QUALITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......................................29
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS...............................................................................30
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS.......................................................30
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES.................................................................30
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................30
ITEM 5 - OTHER INFORMATION...............................................................................30
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K................................................................30
SIGNATURES...............................................................................................32
</TABLE>
2
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ABGENIX, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 316,388 $ 13,366
Marketable securities 251,614 44,646
Accounts receivable 250 4,150
Prepaid expenses and other current assets 4,183 4,861
---------------- ---------------
Total current assets 572,435 67,023
Property and equipment, net 5,253 5,300
Long-term investment 39,176 29,225
Intangible assets, net 45,814 46,591
Deposits and other assets 393 402
---------------- ---------------
$ 663,071 $ 148,541
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,542 $ 1,705
Deferred revenue 13,367 3,767
Accrued product development costs 445 1,667
Accrued employee benefits 700 1,287
Other accrued liabilities 965 725
Current portion of long-term debt 1,634 1,759
---------------- ---------------
Total current liabilities 19,653 10,910
Deferred rent 184 150
Long-term debt 112 421
Commitments
Stockholders' equity:
Preferred stock, $.0001 par value; 5,000,000 shares authorized, none
issued and outstanding
Common stock, $0.0001 par value; 100,000,000 shares authorized,
40,080,030 and 34,334,546 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively, at amount paid in 679,950 181,263
Additional paid-in capital 32,829 32,254
Deferred compensation (544) (670)
Accumulated other comprehensive income 24,070 14,013
Accumulated deficit (93,183) (89,800)
---------------- ---------------
Total stockholders' equity 643,122 137,060
---------------- ---------------
$ 663,071 $ 148,541
================ ===============
</TABLE>
See accompanying notes.
3
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ABGENIX, INC.
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
2000 1999
------------- --------------
<S> <C> <C>
Revenues:
Contract revenue $ 1,965 $ -
Interest income 4,341 395
------------- --------------
Total revenues 6,306 395
Costs and expenses:
Research and development 7,214 4,575
General and administrative 1,584 1,084
Amortization of intangible assets 777 -
Interest expense 114 133
------------- --------------
Total costs and expenses 9,689 5,792
------------- --------------
Net loss $ (3,383) $ (5,397)
============= ==============
Basic and diluted net loss per share $ (0.09) $ (0.22)
============= ==============
Shares used in computing basic and diluted net loss per share 37,250 24,274
============= ==============
</TABLE>
See accompanying notes.
4
<PAGE>
ABGENIX, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 1999
------------ -------------
<S> <C> <C>
Operating activities
Net loss $ (3,383) $ (5,397)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,257 416
Stock based compensation related to stock options
issued to consultants 576 171
Changes for certain assets and liabilities:
Accounts receivable 3,900 -
Prepaid expenses and other current assets 678 733
Deposits and other assets 5 -
Accounts payable 837 753
Deferred revenue 600 -
Accrued product development costs (1,222) (450)
Other accrued liabilities (348) 188
Deferred rent 34 -
------------ -------------
Net cash provided by (used in) operating activities 2,934 (3,586)
------------ -------------
Investing activities
Purchases of marketable securities (212,061) (26,730)
Sales of marketable securities 14,199 2,721
Capital expenditures (303) (148)
------------ -------------
Net cash used in investing activities (198,165) (24,157)
------------ -------------
Financing activities
Net proceeds from issuances of common stock 498,687 49,724
Payments on long-term debt (434) (419)
------------ -------------
Net cash provided by financing activities 498,253 49,305
------------ -------------
Net increase in cash and cash equivalents 303,022 21,562
Cash and cash equivalents at the beginning of the period . 13,366 1,415
------------ -------------
Cash and cash equivalents at the end of the period $316,388 $22,977
============ =============
</TABLE>
See accompanying notes.
5
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ABGENIX, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The unaudited condensed financial statements of
Abgenix, Inc. (the "Company" or "Abgenix") included herein have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information or footnote disclosure normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. In the opinion of the Company, the accompanying
unaudited condensed financial statements contain all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the
financial information included therein. While the Company believes that the
disclosures are adequate to make the information not misleading, it is
suggested that these financial statements be read in conjunction with the
audited financial statements for the year ended December 31, 1999 and
accompanying notes included in the Company's Annual Report as filed on Form
10-K with the Securities and Exchange Commission on March 28, 2000. The
results of operations for the quarter ended March 31, 2000 are not
necessarily indicative of the results to be expected for the full year or for
any other future period.
REVENUE RECOGNITION - In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101--Revenue Recognition in
Financial Statements ("SAB 101"), which provides guidance on the accounting
for revenue recognition. The Company is currently evaluating the
applicability of SAB 101 to its existing agreements. Should the Company
conclude that its approach is different from the approach described in SAB
101, it will change its method of accounting. As amended, SAB 101 is required
to be implemented no later than the second fiscal quarter of 2000, for
companies with fiscal years beginning between December 16, 1999 and March 15,
2000.
The Company receives payments from customers for licenses, options and
services. These payments are generally non-refundable but are reported as
deferred revenue until they are recognizable as revenue. The Company has
followed the following principles in recognizing revenue:
- Research license fees: Fees to license the use of XenoMouse in
research performed by the customer are generally recognized
when both the inception of the license period and delivery of
the technology has occurred. If Abgenix is obligated to provide
significant assistance to enable the customer to practice the
license, then the revenue is recognized over the period of such
obligation.
- Product license fees: Fees to license the production, use and
sale of an antibody generated by XenoMouse are generally
recognized when both the inception of the license period and
delivery of the technology has occurred. If Abgenix is
obligated to provide significant assistance to enable the
customer to practice the license, then the revenue is
recognized over the period of such obligation.
- Option fees: Fees for granting options to obtain product
licenses are recognized as revenue when the option is exercised
or when the option period expires, whichever occurs first.
- Payments for research services performed by Abgenix are
recognized ratably over the period during which these services
are performed.
- Milestone payments are recognized as revenue when the milestone
is achieved.
6
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TWO-FOR-ONE STOCK SPLIT - The accompanying financial statements have been
restated to reflect a two-for-one common stock split which was effective on
April 6, 2000.
BASIC AND DILUTED NET LOSS PER SHARE
Net loss per share is based on the weighted average number of shares of
common stock outstanding. Potentially dilutive securities consisting of stock
options and warrants have been excluded from the computation, as their effect
is antidilutive.
2. MARKETABLE SECURITIES
The following is a summary of available-for-sale securities at March 31, 2000
and December 31, 1999:
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000 AS OF DECEMBER 31, 1999
---------------------------------- ----------------------------------
AMORTIZED UNREALIZED ESTIMATED AMORTIZED UNREALIZED ESTIMATED
COST GAIN/(LOSS) FAIR VALUE COST GAIN/(LOSS) FAIR VALUE
-------- ----------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial obligations.............. $ 39,205 $ (60) $ 39,145 $22,829 $ (73) $22,756
Commercial paper.................... 493,558 82 493,640 15,358 10 15,368
Obligations of the U.S. government
and its agencies.................. 19,388 (128) 19,260 17,822 (149) 17,673
-------- ------- -------- ------- ------ -------
Total $552,151 $ (106) $552,045 $56,009 $ (212) $55,797
======== ======= ======== ======= ====== =======
Classified as:
Cash equivalents.................. $310,431 $ 11,151
Marketable securities............. 241,614 44,646
-------- --------
$552,045 $ 55,797
======== ========
</TABLE>
The Company's available for sale investments have the following maturities at
March 31, 2000:
<TABLE>
<S> <C>
Due in one year or less............. $550,068
Due after one year but less than
five years........................ 1,977
--------
$552,045
========
</TABLE>
At March 31, 2000 the Company also held common stock of Millennium which is
classified as trading securities and included in marketable securities.
3. COMPREHENSIVE INCOME
Other comprehensive gains/(losses) consists of unrealized gains or losses on
available-for-sale securities. For the three-month period ended March 31,
2000 the Company recorded unrealized gains of $9.95 million of gains relating
to its investment in CuraGen Corporation and approximately $106,000 of gains
in other available for sale investments. There were no comprehensive gains or
losses for the three-months ended March 31, 1999.
4. FOLLOW-ON PUBLIC OFFERING
On February 10, 2000 the Company completed a follow-on public offering in
which the Company sold 4,320,000 shares and Cell Genesys sold 1,680,000
shares of the Company's common stock to the public at a price of $105.00 per
share. On February 29, 2000 the Company's underwriters exercised their
overallotment option to purchase 900,000 additional shares, of which 648,000
shares were sold by the Company and 252,000 shares were sold by Cell Genesys
at a price of $105.00 per share. The Company received net proceeds from the
offerings of approximately $496.5 million after the underwriters' discount
and estimated costs of offering. All shares and per share amounts have been
restated to reflect the two-for-one common stock split which was effective
April 6, 2000.
5. CUSTOMER AND LICENSE AGREEMENTS
Elan: In January 2000, the Company entered into a research license and option
agreement with Elan to generate fully human antibodies to an undisclosed
antigen in the field of neurological diseases.
Gliatech: In January 2000, the Company entered into a research agreement,
option and license agreement with Gliatech to generate fully human antibodies
for use in the fields of cardiovascular and inflammatory diseases. Under this
agreement, Gliatech is paying the Company to perform the immunizations and
certain research activities.
Millennium: In March 2000, the Company granted Millennium a license to use
Xenomouse in research performed by Millennium and several licenses to make,
use and sell antibodies generated with Xenomouse. Payments totaling $10
million were made in the first quarter of 2000 representing a research
license fee, product license fees and service fees to establish the
technology at Millennium. The Company is recognizing these fees over the
period ended December 31, 2000 during which Abgenix is obligated to assist in
establishing the technology at Millennium, which will enable Millennium to
practice the research license and product licenses. Accordingly, $1.0 million
was recognized as revenue in the quarter ended March 31, 2000 and $9.0
million as deferred revenue. The $10 million payment was made in common stock
of Millennium, for which Millennium was obligated to make up the difference
between the fair value of such stock and $10 million upon the registration of
such common stock. The stock was registered and sold in April 2000, from
which the Company received $10 million of the proceeds and the remainder will
be refunded to Millennium.
Corixa: In March 2000, the Company entered into an agreement to discover and
develop fully human antibodies against selected targets from Corixas's
library of proprietary autoimmune disease, cancer and infectious disease
antigens.
7
<PAGE>
6. FACILITY LEASE AND LETTER OF CREDIT
In February 2000, the Company signed an operating lease for an additional
100,100 square foot facility, in Fremont, California, to be used primarily
for offices. This lease expires in the year 2015, with options to extend the
lease term. In March 2000, the Company issued a stand-by letter of credit for
$2.0 million to the lessor for the lease term, as a condition to the lease.
Future minimum payments under this non-cancelable operating lease as of
signing are as follows (in thousands): 2000--$1,121; 2001--$1,961;
2002--$2,030; 2003--$2,101; 2004--$2,174; and thereafter $27,698.
7. SUBSEQUENT EVENTS
In May 2000, the Company entered into an agreement to produce commercial
quantities of its fully human antibody, ABX-IL8, using Genzyme Transgenics
Corporation's manufacturing system. Under the terms of the agreement, in
exchange for fees and milestone payments, Genzyme Transgenics will develop
transgenic goats that express ABX-IL8 in their milk.
On May 3, 2000 the Company's stockholders approved an increase to the
aggregate number of shares of common stock authorized for issuance under the
Company's 1996 Incentive Stock Plan by 600,000 shares.
On May 3, 2000 the Company's stockholders approved an amendment to the
Company's Certificate of Incorporation to increase the authorized number of
shares of common stock from 50,000,000 to 100,000,000.
8
<PAGE>
ABGENIX, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS BASED UPON CURRENT
EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES. WHEN USED IN THIS
QUARTERLY REPORT ON FORM 10-Q, THE WORDS "INTEND," "ANTICIPATE," "BELIEVE,"
"ESTIMATE," "PLAN" AND "EXPECT" AND SIMILAR EXPRESSIONS AS THEY RELATE TO
ABGENIX ARE INCLUDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. OUR ACTUAL
RESULTS AND THE TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH BELOW AND UNDER "ADDITIONAL FACTORS THAT
MIGHT AFFECT FUTURE RESULTS" SET FORTH BELOW IN THIS QUARTERLY REPORT ON FORM
10-Q AND ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q.
OVERVIEW
We are a biopharmaceutical company that develops and intends to commercialize
antibody therapeutic products for the treatment of a variety of disease
conditions, including transplant-related diseases, inflammatory and
autoimmune disorders, cardiovascular disease, infectious diseases and cancer.
We have developed XenoMouse technology, a proprietary technology, which we
believe enables rapid generation of highly specific, fully human antibody
product candidates that bind to essentially any disease target appropriate
for antibody therapy. We intend to use XenoMouse technology to build a large
and diversified product portfolio that we plan to develop and commercialize
either through licensing to pharmaceutical companies or internal product
development programs.
We have established contractual arrangements to use XenoMouse technology to
produce fully human antibodies with eighteen customers covering numerous
antigen targets. Pursuant to these arrangements, we and our customers intend
to generate antibody product candidates for the treatment of cancer,
inflammation, auto immune diseases, transplant rejection, cardiovascular
disease, growth factor modulation, neurological diseases and infectious
disease. Our customers as of May 9, 2000 include Cell Genesys, Pfizer,
Schering-Plough Research Institute, Genentech, Millennium, Research
Corporation Technologies, AVI BioPharma, BASF Bioresearch Corporation, Amgen,
Japan Tobacco, Elan, Chiron, Human Genome Sciences, CuraGen, Centocor/Johnson
and Johnson, Gliatech, Corixa, and the U.S. Army. Of these customers, Pfizer,
Genentech, Millennium, Cell Genesys, Japan Tobacco and the U. S. Army have
each entered into new or expanded agreements with us specifying additional
antigens for XenoMouse antibody development. We expect that substantially all
of our revenues for the foreseeable future will result from payments under
contractual arrangements. The terms of the arrangements vary, reflecting the
value we add to the development of any particular product candidate. These
agreements typically provide our customers with access to XenoMouse
technology for the purpose of generating fully human antibody product
candidates to one or more specific antigen targets provided by the customer.
In most cases, we provide our mice to the customer who then carry out
immunizations with their specific antigen target. In other cases, we immunize
the mice with the customers' antigen target for additional compensation. Our
customers will need to obtain product licenses for any antibody product they
wish to develop and commercialize.
The financial terms of our existing agreements may include license fees,
option fees, and milestone payments paid to us by our customers. Based on our
agreements, these payments and fees would average $8.0 to $10.0 million per
antigen target if our customer takes the antibody product candidate into
development and ultimately to commercialization. If not, such payments and
fees will be less. In certain instances, the customer could make
reimbursement payments to us for research that we conduct on its behalf.
Additionally, if a product receives marketing approval from the FDA or an
equivalent foreign agency, we are entitled to receive
9
<PAGE>
royalties on any future product sales by the customer. Furthermore, the
customer will be responsible for worldwide manufacturing, product development
and marketing of any product developed through the agreement.
Our dependence on licensing and contractual agreements with third parties
subjects us to a number of risks. Agreements with customers typically allow
them significant discretion in electing whether to pursue any of the planned
activities. We cannot control the amount and timing of resources our
customers may devote to the product candidates. Even if we fulfill our
obligations under an agreement, the customer can terminate the agreement at
any time following proper written notice. If any customer were to terminate
or breach its agreement with us, or otherwise fail to complete its
obligations in a timely manner, our business, financial condition and results
of operations may be materially and adversely affected.
We also have four antibody product candidates that are under development
internally. Our lead product candidate, ABX-CBL, is an in-licensed mouse
antibody. We completed a multi-center Phase II clinical trial for ABX-CBL for
the treatment of a transplant-related disease known as graft versus host
disease, or GVHD. Following completion of the Phase II trial, we initiated a
Phase III clinical trial in December 1999. Our other three antibody product
candidates were generated using XenoMouse technology. We completed Phase I
and Phase I/II clinical trials for our fully human antibody product candidate
in psoriasis, ABX-IL8 and began Phase II clinical trials in April 2000. We
initiated a Phase I clinical trial for ABX-EGF in cancer in 1999 and patient
enrollment is ongoing. We are in preclinical development with one other fully
human antibody product candidate, ABX-RB2, for use in the treatment of
chronic immunological disorders.
We will expend significant capital to conduct clinical trials for these
products. We believe that more extensive clinical data will enable us to
enter into additional licensing agreements. We expect that this will
substantially increase our capital needs over the next few years and increase
operating losses. However, we believe that we will be able to receive more
favorable fees and payments from our potential customers if we have completed
significant development of these products.
In December 1999, we paid $47.0 million to purchase Japan Tobacco's interest
in the Xenotech joint venture, and a non-recurring payment of $10.0 million
to terminate rights to the current XenoMouse technology. Additionally, Japan
Tobacco paid us $6.0 million to acquire a license to new technology, and $4.0
million to acquire a research license and commercialization rights under
existing and future XenoMouse technology on a more limited basis than it did
under our prior collaboration with Japan Tobacco.
In connection with the grant of stock options since our organization on July
15, 1996, we have recorded aggregate deferred compensation of approximately
$2.3 million through March 31, 2000 representing the difference between the
deemed fair value of the common stock for accounting purposes and the option
exercise price at the date of grant. These amounts are presented as a
reduction of stockholders' equity and are amortized ratably over the vesting
period of the applicable options, generally four years. These valuations
resulted in charges to operations of $125,000 and $125,000 in three months
ended March 31, 2000 and 1999, respectively.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Contract revenue of $ 2.0 million in the three months ended March 31, 2000
included $1.0 million of the $10 million payment received under the agreement
with Millennium Pharmaceuticals. Although the payment from
10
<PAGE>
Millennium is non-refundable and was received at the inception of a research
license and product licenses granted to Millennium upon signing of the
agreement, Abgenix is obligated up to December 31, 2000 to provide assistance
to enable Millennium to practice these licenses, so the payment from
Millennium is being recognized over this period. Additionally, in this
period, contract revenue included fees for research funding, two product
licenses and fees for the performance of certain research work. In the three
months ended March 31, 1999, no contract revenues were recognized.
Interest income consists primarily of interest from cash, cash equivalents
and short-term investments. Interest income increased to $4.3 million in the
three months ended March 31, 2000 from $0.4 million in the three months ended
March 31, 1999. This is a result of the secondary offering in February of
2000 in which we received net proceeds of approximately $496.5 million, after
the costs of offering.
Research and development expenses consist primarily of compensation and other
expenses related to research and development personnel, costs associated with
preclinical testing and clinical trials of our product candidates and
facilities expenses. Research and development expenses increased to $7.2
million in the three months ended March 31, 2000 from $4.6 million in the
three months ended March 31, 1999. The increase reflects primarily costs
associated with increased personnel, costs associated with the clinical
trials of ABX-EGF and ABX-IL8, and the valuation of stock options awarded to
certain consultants.
General and administrative expenses include compensation and other expenses
related to finance and administrative personnel, professional services and
facilities. General and administrative expenses increased to $1.6 million in
the three months ended March 31, 2000 from $1.1 million in the three months
ended March 31, 1999. The increase reflects primarily costs associated with
increased personnel including recruiting costs and an accrual for incentive
compensation, and additional investor relation costs.
Amortization of intangible assets is a result of amortization of certain
assets, primarily patents and certain royalty rights, which were acquired
through the acquisition of the Xenotech joint venture in December of 1999.
Interest expense consists of interest incurred in connection with equipment
lease line financing and loan facilities. Interest expense decreased due to
the pay down of related debt.
LIQUIDITY AND CAPITAL RESOURCES
In February 2000, we completed a follow-on public offering in which we sold
4,968,000 shares of our common stock and raised net proceeds of $496.5
million. Prior to the February 2000 offering, we had financed our operations
primarily through capital contributions by, and borrowings from Cell Genesys,
private placements of our capital stock, an initial public offering of common
stock in 1998 and a follow-on public offering of common stock in March, 1999,
revenue from customer licensing and contractual agreements, equipment
leaseline financings and loan facilities.
We have incurred operating losses in each of the last three years of
operation, including net losses of approximately $35.9 million in 1997, $16.8
million in 1998 $20.5 million in 1999 and $3.4 million in the three months
ended March 31, 2000. As of March 31, 2000, we had an accumulated deficit of
approximately $93.2 million. Our losses have resulted principally from costs
incurred in performing research and development for our XenoMouse technology
and antibody product candidates, costs associated with certain agreements
with Japan Tobacco, costs related to the non-recurring cross-license and
settlement charge in 1997 and from general and administrative costs
associated with our operations. We expect to incur additional operating
losses for the foreseeable future as a result of our expenditures for
research and product
11
<PAGE>
development, including costs associated with conducting preclinical testing
and clinical trials, and charges related to purchases of technology or other
assets. We intend to invest significantly in our products prior to entering
into licensing arrangements. This will increase our need for capital and may
result in substantial losses for several years. We expect the amount of such
losses will fluctuate significantly from quarter to quarter as a result of
increases or decreases in our research and development efforts, the execution
or termination of licensing arrangements, or the initiation, success or
failure of clinical trials.
Net cash provided by operating activities was $2.9 million for the three
months ended March 31, 2000 and net cash used in operating activities was
$3.6 million for the three months ended March 31, 1999. In the three months
ended March 31, 2000 cash was provided by payments from customers, including
amounts recorded as deferred revenue. Cash was used for operations in both
periods primarily to fund research and development expenses and manufacturing
costs related to the development of new products.
As of March 31, 2000, we had cash, cash equivalents and marketable securities
of $568.0 million. We have invested the net proceeds of our initial and
follow on public offerings in highly liquid, interest bearing, investment
grade securities. In March 2000, we issued a stand by letter of credit for
$2.0 million from a commercial bank as a deposit on our new leased facility.
The stand-by letter of credit is secured by an investment account which must
maintain a $2.0 million balance. Additionally, we have an agreement with a
financing company under which we have financed purchases of about $2.0
million of our laboratory and office equipment. The lease term is 48 months
and bears interest at rates ranging from 12.5% to 13.0%, which are based on
the change in the five year U.S. Treasury rate. We also have a construction
financing line with a bank in the amount of $4.3 million that was used to
finance construction of leasehold improvements at our current facility. The
line matures in January 2001, bears interest at a rate of prime plus one
percent (10.0 % at March 31, 2000 and 9.5 % at December 31, 1999). As of
March 31, 2000, no further borrowings were available under the construction
financing line.
We plan to expend significant resources to establish our own manufacturing
facility and also to continue to expend substantial resources for the
expansion of research and development, including costs associated with
conducting preclinical testing and clinical trials. We may be required to
expend substantial funds if unforeseen difficulties arise in the course of
completing required additional development of product candidates,
manufacturing of product candidates, performing preclinical testing and
clinical trials of such product candidates, obtaining necessary regulatory
approvals or other aspects of our business. Our future liquidity and capital
requirements will depend on many factors, including:
- - scope and results of preclinical testing and clinical trials;
- - the retention of existing and establishment of further licensing and
contractual agreements, if any;
- - continued scientific progress in our research and development programs;
- - size and complexity of these programs;
- - cost of establishing our manufacturing capabilities, conducting
commercialization activities and arrangements;
- - time and expense involved in obtaining regulatory approvals;
- - competing technological and market developments;
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- - time and expense of filing and prosecuting patent applications and
enforcing patent claims;
- - investment in, or acquisition of, other companies;
- - product in-licensing; and
- - other factors not within our control.
We believe that our current cash balances, cash equivalents, marketable
securities and the cash generated from our licensing and contractual
agreements will be sufficient to meet our operating and capital requirements
for at least two years. However, we may need additional financing within this
timeframe. We may need to raise additional funds through public or private
financing, licensing and contractual agreements or other arrangements. We
cannot assure you that such additional funding, if needed, will be available
on terms favorable to us. Furthermore, any additional equity financing may be
dilutive to stockholders, and debt financing, if available, may involve
restrictive covenants. Licensing and other contractual agreements may require
us to relinquish our rights to certain of our technologies, products or
marketing territories. Our failure to raise capital when needed may have a
material adverse effect on our business, financial condition and results of
operations.
As of December 31, 1999, we had federal net operating loss carryforwards of
approximately $61.0 million. Our net operating loss carryforwards exclude
losses incurred prior to the organization of Abgenix in July 1996. Further,
the amounts associated with the cross-license and settlement that have been
expensed for financial statement accounting purposes have been capitalized
and are being amortized over a period of approximately fifteen years for tax
purposes. The net operating loss and credit carryforwards will expire in the
years 2011 through 2019, if not utilized. Utilization of the net operating
losses and credits may be subject to a substantial annual limitation due to
the "change in ownership" provisions of the Internal Revenue Code of 1986 and
similar state provisions. The annual limitation may result in the expiration
of net operating losses and credits before utilization.
ADDITIONAL FACTORS THAT MIGHT AFFECT FUTURE RESULTS
The following factors represent current challenges that we face which create
risk and uncertainty. Failure to adequately overcome any of the following
challenges, either singly or in combination, could materially adversely
effect our results of operations, business, or financial position.
OUR XENOMOUSE TECHNOLOGY MAY NOT PRODUCE SAFE, EFFICACIOUS OR COMMERCIALLY
VIABLE PRODUCTS.
Our XenoMouse technology is a new approach to the generation of antibody
therapeutic products. We have not commercialized any antibody products based
on XenoMouse technology. We are not aware of any commercialized, fully human
antibody therapeutic products that have been generated from any technologies
similar to ours. Our antibody product candidates are still at a very early
stage of development. We have begun clinical trials with respect to only two
fully human antibody product candidates, ABX-IL8 and ABX-EGF. We cannot be
certain that XenoMouse technology will generate antibodies against all the
antigens to which it is exposed in an efficient and timely manner, if at all.
Furthermore, XenoMouse technology may not result in any meaningful benefits
to our current or potential customers or be safe and efficacious for
patients. If XenoMouse technology fails to generate antibody product
candidates that lead to the successful development
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and commercialization of products, our business, financial condition and
results of operations will be materially and adversely affected.
CLINICAL TRIALS FOR OUR PRODUCT CANDIDATES WILL BE EXPENSIVE AND THEIR
OUTCOME IS UNCERTAIN.
Conducting clinical trials is a lengthy, time-consuming and expensive
process. Before obtaining regulatory approvals for the commercial sale of any
products, we must demonstrate through preclinical testing and clinical trials
that our product candidates are safe and effective for use in humans. We will
incur substantial expense for, and devote a significant amount of time to,
preclinical testing and clinical trials.
Historically, the results from preclinical testing and early clinical trials
have often not been predictive of results obtained in later clinical trials.
A number of new drugs and biologics have shown promising results in clinical
trials, but subsequently failed to establish sufficient safety and efficacy
data to obtain necessary regulatory approvals. Data obtained from preclinical
and clinical activities are susceptible to varying interpretations, which may
delay, limit or prevent regulatory approval. In addition, regulatory delays
or rejections may be encountered as a result of many factors, including
changes in regulatory policy during the period of product development.
As of March 31, 2000, three of our product candidates, ABX-CBL, ABX-IL8 and
ABX-EGF, were in clinical trials. Patient follow-up for these clinical trials
has been limited. To date, data obtained from these clinical trials has been
insufficient to demonstrate safety and efficacy under applicable FDA
guidelines. As a result, this data will not support an application for
regulatory approval without further clinical trials. Clinical trials
conducted by us or by third parties on our behalf may not demonstrate
sufficient safety and efficacy to obtain the requisite regulatory approvals
for ABX-CBL, ABX-IL8, ABX-EGF and or any other potential product candidates.
Regulatory authorities may not permit us to undertake any additional clinical
trials for our product candidates.
In addition, our other product candidate is in preclinical development, but
we have not submitted investigational new drug applications nor begun
clinical trials for this product candidate. Our preclinical or clinical
development efforts may not be successfully completed. We may not file
further investigational new drug applications. Our clinical trials may not
commence as planned.
Completion of clinical trials may take several years or more. The length of
time generally varies substantially according to the type, complexity,
novelty and intended use of the product candidate. Our commencement and rate
of completion of clinical trials may be delayed by many factors, including:
- inability to manufacture sufficient quantities of materials for
use in clinical trials;
- slower than expected rate of patient recruitment;
- inability to adequately follow patients after treatment;
- unforeseen safety issues;
- lack of efficacy during the clinical trials; or
- government or regulatory delays.
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We have limited experience in conducting and managing clinical trials. We
rely on third parties, including our customers, to assist us in managing and
monitoring clinical trials. Our reliance on these third parties may result in
delays in completing, or failing to complete, these trials if they fail to
perform under our agreements with them.
Our product candidates may fail to demonstrate safety and efficacy in
clinical trials. This failure may delay development of other product
candidates, and hinder our ability to conduct related preclinical testing and
clinical trials. As a result of these failures, we may also be unable to
obtain additional financing. Any delays in, or termination of, our clinical
trials will materially and adversely affect our business, financial condition
and results of operations.
THE CLINICAL SUCCESS OF ABX-CBL IS UNCERTAIN.
We recently completed a multi-center Phase II trial for the treatment graft
versus host disease, or GVHD, with our mouse antibody, ABX-CBL.
As of March 31, 2000, ABX-CBL had been administered to a total of only 162
patients for GVHD and organ transplant rejection indications. ABX-CBL was
administered to a total of 85 of these 162 patients by third parties prior to
Abgenix obtaining an exclusive license to ABX-CBL. We cannot rely on data
obtained from patients studied prior to our obtaining an exclusive license to
ABX-CBL to support the efficacy of ABX-CBL in an application for regulatory
approval.
Data from 27 patients included in the Phase II study was submitted to the
FDA. As an extension to the original Phase II trial protocol, we have
enrolled an additional 32 patients. In December 1999, we initiated a Phase
III clinical trial with ABX-CBL. The results of the Phase III trial may not
be favorable or may not extend the findings of the original Phase II study.
The FDA may view the result of our Phase III trial as insufficient and may
require additional clinical trials. There are several issues that could
adversely affect the clinical trial results, including the lack of a standard
therapy for GVHD patients in the control group, unforeseen side effects,
variability in the number and types of patients in the study, and response
rates required to achieve statistical significance in the study. In addition,
our clinical trials are being conducted with patients who have failed
conventional treatments and who are in the most advanced stages of GVHD.
During the course of treatment, these patients can die or suffer adverse
medical effects for reasons that may not be related to ABX-CBL. These adverse
effects may affect the interpretation of clinical trial results. There can be
no assurance that the FDA will accept the results of the Phase III study or
other elements of the product license application as being sufficient for
approval to market. Additional clinical trials will be extensive, expensive
and time-consuming. If ABX-CBL fails to receive regulatory approval, our
business, financial condition and results of operations may be materially and
adversely affected.
SUCCESSFUL DEVELOPMENT OF OUR PRODUCTS IS UNCERTAIN.
Our development of current and future product candidates is subject to the
risks of failure inherent in the development of new pharmaceutical products
and products based on new technologies. These risks include:
- delays in product development, clinical testing or
manufacturing;
- unplanned expenditures in product development, clinical testing
or manufacturing;
- failure in clinical trials or failure to receive regulatory
approvals;
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- emergence of superior or equivalent products;
- inability to manufacture on our own, or through others, product
candidates on a commercial scale;
- inability to market products due to third-party proprietary
rights;
- election by our customers not to pursue product development;
- failure by our customers to successfully develop products; and
- failure to achieve market acceptance.
Because of these risks, our research and development efforts or those of our
customers may not result in any commercially viable products. To date, only
four of our customers have exercised their right to obtain a product license.
If a significant portion of these development efforts is not successfully
completed, required regulatory approvals are not obtained, or any approved
products are not commercially successful, our business, financial condition
and results of operations will be materially and adversely affected.
OUR OWN ABILITY TO MANUFACTURE IS UNCERTAIN.
We are in the planning stages of establishing our own pilot scale
manufacturing facility for the manufacture of products for Phase I and Phase
II clinical trials, in compliance with FDA good manufacturing practices. In
February 2000 we signed a long-term lease for a facility which may be used
for this pilot scale facility. Once we have identified our pilot scale
manufacturing facility, the construction schedules may take longer than
expected, and the planned and actual construction costs of building and
qualifying the facility for regulatory compliance may be higher than
expected. The process of manufacturing antibody products is complex. We have
no experience in clinical or commercial scale manufacture of ABX-CBL, ABX-IL8
and ABX-EGF, or any other antibody products. Such antibody products will also
need to be manufactured in a facility and by a process which complies with
FDA and other regulations. It may take a substantial period of time to begin
producing antibodies in compliance with such regulations. If we are unable to
establish and maintain a manufacturing facility within our planned time and
costs parameters, the development and sales of our products and our financial
performance may be adversely affected.
We also may encounter problems with the following:
- production yields;
- quality control and assurance;
- shortages of qualified personnel;
- compliance with FDA regulations;
- production costs; and
- development of advanced manufacturing techniques and process
controls.
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For Phase III clinical trials and commercial production of our antibody
products we are currently evaluating our options, which include use of third
party contract manufacturers, establishing or expanding our own commercial
scale manufacturing facility, as applicable, or entering into a manufacturing
joint venture relationship with a third party. We are aware of only a limited
number of companies on a worldwide basis who operate manufacturing facilities
in which our product candidates can be manufactured under good manufacturing
practice regulations, a requirement for all pharmaceutical products. It would
take a substantial period of time for a contract facility which has not been
producing antibodies to begin producing antibodies under good manufacturing
practice regulations. We cannot assure you that we will be able to contract
with any of these companies on acceptable terms, if at all.
In addition, we and any third-party manufacturer will be required to register
manufacturing facilities with the FDA and other regulatory authorities. The
facilities will then be subject to inspections confirming compliance with FDA
good manufacturing practice or other regulations. If we or our third-party
manufacturer fail to maintain regulatory compliance, our business, financial
condition and results of operations will be materially and adversely affected.
WE CURRENTLY RELY ON A SOLE SOURCE THIRD-PARTY MANUFACTURER.
We currently rely, and will continue to rely for at least the next two years,
on a sole source contract manufacturer to produce ABX-CBL, ABX-IL8 and
ABX-EGF under good manufacturing practice regulations, for use in our
clinical trials. Our contract manufacturer has a limited number of facilities
in which our product candidates can be produced. Our contract manufacturer
has limited experience in manufacturing ABX-CBL, ABX-IL8 and ABX-EGF in
quantities sufficient for conducting clinical trials or for
commercialization. We currently rely on our contract manufacturer to produce
our product candidates under good manufacturing practice regulations, which
meet acceptable standards for our clinical trials.
Contract manufacturers often encounter difficulties in scaling up production,
including problems involving production yields, quality control and
assurance, shortage of qualified personnel, compliance with FDA regulations,
production costs, and development of advanced manufacturing techniques and
process controls. Our contract manufacturer may not perform as agreed or may
not remain in the contract manufacturing business for the time required by us
to successfully produce and market our product candidates. If our contract
manufacturer fails to deliver the required quantities of our product
candidates for clinical use on a timely basis and at commercially reasonable
prices, and we fail to find a replacement manufacturer or develop our own
manufacturing capabilities, our business, financial condition and results of
operations will be materially and adversely affected.
WE DEPEND ON KEY PERSONNEL AND MUST CONTINUE TO ATTRACT AND RETAIN KEY
EMPLOYEES AND CONSULTANTS.
We are highly dependent on the principal members of our scientific and
management staff. For us to pursue product development, marketing and
commercialization plans, we will need to hire additional qualified scientific
personnel to perform research and development. We will also need to hire
personnel with expertise in clinical testing, government regulation,
manufacturing, marketing and finance. Attracting and retaining qualified
personnel will be critical to our success. We may not be able to attract and
retain personnel on acceptable terms given the competition for such personnel
among biotechnology, pharmaceutical and healthcare companies, universities
and non-profit research institutions. If we lose any of these persons, or are
unable to attract and retain qualified personnel, our business, financial
condition and results of operations may be materially and adversely affected.
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In addition, we rely on members of our Scientific Advisory Board and other
consultants to assist us in formulating our research and development
strategy. All of our consultants and the members of our Scientific Advisory
Board are employed by other entities. They may have commitments to, or
advisory or consulting agreements with, other entities that may limit their
availability to us. If we lose the services of these advisors, the
achievement of our development objectives may be impeded. Such impediments
may materially and adversely affect our business, financial condition and
results of operations.
WE ARE AN EARLY STAGE COMPANY.
You must evaluate us in light of the uncertainties and complexities present
in an early stage biopharmaceutical company. Our product candidates are in
early stages of development. We will require significant additional
investment in research and development, preclinical testing and clinical
trials, regulatory and sales and marketing activities to commercialize
current and future product candidates. Our product candidates, if
successfully developed, may not generate sufficient or sustainable revenues
to enable us to be profitable.
WE HAVE A HISTORY OF LOSSES.
We have incurred net losses in each of the last five years of operation,
including net losses of approximately $8.3 million in 1995, $7.1 million in
1996, $35.9 million in 1997, $16.8 million in 1998, $20.5 million in 1999 and
$3.4 million in the three months ended March 31, 2000. As of March 31, 2000,
our accumulated deficit was $93.2 million. Our losses to date have resulted
principally from:
- research and development costs relating to the development of
our XenoMouse technology and antibody product candidates;
- costs associated with certain agreements with Japan Tobacco.
- costs related to a cross-license and settlement agreement
relating to our intellectual property portfolio; and
- general and administrative costs relating to our operations.
We expect to incur additional losses for the foreseeable future as a result
of increases in our research and development costs, including costs
associated with conducting preclinical testing and clinical trials, and
charges related to purchases of technology or other assets. We intend to
invest significantly in our products prior to entering into licensing
agreements. This will increase our need for capital and may result in
substantial losses for several years. We expect that the amount of operating
losses will fluctuate significantly from quarter to quarter as a result of
increases or decreases in our research and development efforts, the execution
or termination of licensing and contractual agreements, or the initiation,
success or failure of clinical trials.
OUR FUTURE PROFITABILITY IS UNCERTAIN
Prior to June 1996 our business was owned by Cell Genesys and operated as a
business unit. Since that time, we have funded our research and development
activities primarily from:
- the follow-on public offering of our common stock in February
2000
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- initial contributions from Cell Genesys;
- private placements of our capital stock;
- the initial public offering of our common stock;
- the follow-on public offering of our common stock in 1999;
- revenues generated from our licensing and contractual
agreements;
- equipment leaseline financings; and
- loan facilities.
We expect that substantially all of our revenues for the foreseeable future
will result from payments under licensing and contractual agreements. To
date, these payments have been in the form of upfront payments, reimbursement
for research and development expenses, license fees and milestone payments.
Payments under our existing and any future customer agreements will be
subject to significant fluctuation in both timing and amount. Our revenues
may not be indicative of our future performance or of our ability to continue
to achieve such milestones. Our revenues and results of operations for any
period may also not be comparable to the revenues or results of operations
for any other period. We may not be able to:
- enter into further licensing and contractual agreements;
- successfully complete preclinical or clinical trials;
- obtain required regulatory approvals;
- successfully develop, manufacture and market product
candidates; or
- generate additional revenues or profitability.
If we fail to achieve any of the above goals, our business, financial
condition and results of operations will be materially and adversely affected.
WE WILL NEED TO FIND THIRD PARTIES TO LICENSE AND DEVELOP MANY OF OUR PRODUCT
CANDIDATES.
Our strategy for the development and commercialization of antibody
therapeutic products depends, in large part, upon the formation of licensing
agreements with third parties. Potential third parties include pharmaceutical
and biotechnology companies, academic institutions and other entities. We
must enter into these agreements to successfully develop and commercialize
product candidates. These agreements are necessary in order for us to:
- access proprietary antigens for which we can generate fully
human antibody products;
- fund our research and development activities;
- fund preclinical testing, clinical trials and manufacturing;
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- seek and obtain regulatory approvals; and
- successfully commercialize existing and future product
candidates.
Only a limited number of fully human antibody product candidates have been
generated pursuant to our customer agreements. None of these product
candidates has entered clinical testing. We cannot assure you that any of
them will result in commercially successful products. Current or future
customer agreements may not be successful. If we fail to maintain our
existing customer agreements or to enter into additional agreements our
business, financial condition and results of operations will be materially
and adversely affected.
Our dependence on licensing and contractual agreements with third parties
subjects us to a number of risks. These agreements may not be on terms
favorable to us. Agreements with customers typically allow them significant
discretion in electing whether to pursue any of the planned activities. We
cannot control the amount and timing of resources our customers may devote to
the product candidates. Our customers may not perform their obligations as
expected. Business combinations or significant changes in a customer's
business strategy may adversely affect a customer's willingness or ability to
complete its obligations under the arrangement. Even if we fulfill our
obligations under an agreement, our customer can terminate the agreement at
any time following proper written notice. If any customer were to terminate
or breach our agreement with it, or otherwise fail to complete its
obligations in a timely manner, our business, financial condition and results
of operations may be materially and adversely affected. If we are not able to
establish further customer agreements or any or all of our existing
agreements are terminated, we may be required to seek new customers or to
undertake product development and commercialization at our own expense. Such
an undertaking may:
- limit the number of product candidates that we will be able to
develop and commercialize;
- reduce the likelihood of successful product introduction;
- significantly increase our capital requirements; and
- place additional strain on management's time.
Existing or future customers may pursue alternative technologies, including
those of our competitors. Disputes may arise with respect to the ownership of
rights to any technology or products developed with any current or future
customer. Lengthy negotiations with potential new customers or disagreements
between us and our customers may lead to delays or termination in the
research, development or commercialization of product candidates or result in
time consuming and expensive litigation or arbitration. If our customers
pursue alternative technologies or fail to develop or commercialize
successfully any product candidate to which they have obtained rights from
us, our business, financial condition and results of operations may be
materially and adversely affected.
WE FACE INTENSE COMPETITION AND RAPID TECHNOLOGICAL CHANGE.
The biotechnology and pharmaceutical industries are highly competitive and
subject to significant and rapid technological change. We are aware of
several pharmaceutical and biotechnology companies that are actively engaged
in research and development in areas related to antibody therapy. These
companies have commenced clinical trials of antibody products or have
successfully commercialized antibody products. Many of these
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companies are addressing the same diseases and disease indications as Abgenix
or our customers. Also, we compete with companies that offer antibody
generation services to companies that have antigens. These competitors have
specific expertise or technology related to antibody development. These
companies include GenPharm International, Inc., a wholly-owned subsidiary of
Medarex, Inc., Medarex's joint venture partner, Kirin Brewing Co., Ltd.,
Cambridge Antibody Technology Group plc, Protein Design Labs, Inc. and
MorphoSys AG.
Some of our competitors have received regulatory approval or are developing
or testing product candidates that may compete directly with our product
candidates. For example, SangStat Medical Corp. and Protein Design Labs
market organ transplant rejection products that may compete with ABX-CBL,
which is in clinical trials. In addition, MedImmune, Inc. has a potential
antibody product candidate in clinical trials for graft versus host disease
that may compete with ABX-CBL. We are also aware that several companies,
including Genentech, Inc., have potential product candidates that may compete
with ABX-IL8, which is in clinical trials. Furthermore, we are aware that
ImClone Systems, Inc., Medarex, AstraZeneca and Pfizer, in collaboration with
OSI Pharmaceuticals, Inc., have potential antibody and small molecule product
candidates in clinical development that may compete with ABX-EGF, which is
also in clinical trials.
Many of these companies and institutions, either alone or together with their
customers, have substantially greater financial resources and larger research
and development staffs than we do. In addition, many of these competitors,
either alone or together with their customers, have significantly greater
experience than we do in:
- developing products;
- undertaking preclinical testing and human clinical trials;
- obtaining FDA and other regulatory approvals of products; and
- manufacturing and marketing products.
Accordingly, our competitors may succeed in obtaining patent protection,
receiving FDA approval or commercializing products before us. If we commence
commercial product sales, we will be competing against companies with greater
marketing and manufacturing capabilities, areas in which we have limited or
no experience.
We also face, and will continue to face, competition from academic
institutions, government agencies and research institutions. There are
numerous competitors working on products to treat each of the diseases for
which we are seeking to develop therapeutic products. In addition, any
product candidate that we successfully develop may compete with existing
therapies that have long histories of safe and effective use. Competition may
also arise from:
- other drug development technologies and methods of preventing
or reducing the incidence of disease;
- new small molecules; or
- other classes of therapeutic agents.
Developments by competitors may render our product candidates or technologies
obsolete or noncompetitive. We face and will continue to face intense
competition from other companies for agreements with
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pharmaceutical and biotechnology companies for establishing relationships
with academic and research institutions, and for licenses to proprietary
technology. These competitors, either alone or with their customers, may
succeed in developing technologies or products that are more effective than
ours.
MARKET ACCEPTANCE OF OUR PRODUCTS IS UNCERTAIN.
Our product candidates may not gain market acceptance among physicians,
patients, healthcare payors and the medical community. We may not achieve
market acceptance even if clinical trials demonstrate safety and efficacy,
and the necessary regulatory and reimbursement approvals are obtained. The
degree of market acceptance of any product candidates that we develop will
depend on a number of factors, including:
- establishment and demonstration of clinical efficacy and safety;
- cost-effectiveness of our product candidates;
- their potential advantage over alternative treatment methods;
- reimbursement policies of government and third-party payors; and
- marketing and distribution support for our product candidates.
Physicians will not recommend therapies using our products until such time as
clinical data or other factors demonstrate the safety and efficacy of such
procedures as compared to conventional drug and other treatments. Even if the
clinical safety and efficacy of therapies using our antibody products is
established, physicians may elect not to recommend the therapies for any
number of other reasons, including whether the mode of administration of our
antibody products is effective for certain indications. For example, antibody
products are typically administered by infusion or injection, which requires
substantial cost and inconvenience to patients. Our product candidates, if
successfully developed, will compete with a number of drugs and therapies
manufactured and marketed by major pharmaceutical and other biotechnology
companies. Our products may also compete with new products currently under
development by others. Physicians, patients, third-party payors and the
medical community may not accept and utilize any product candidates that we
or our customers develop. If our products do not achieve significant market
acceptance, our business, financial condition and results of operations will
be materially and adversely affected.
OUR PATENT POSITION IS UNCERTAIN AND OUR SUCCESS DEPENDS ON OUR PROPRIETARY
RIGHTS.
Our success depends in part on our 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 will be able to protect our proprietary rights from unauthorized use by
third parties only to the extent that our proprietary rights are covered by
valid and enforceable patents or are effectively maintained as trade secrets.
We solely own one issued patent in the U.S., one granted patent in Europe and
have several pending
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patent applications in the U.S. and abroad relating to XenoMouse technology.
Our wholly owned subsidiary Xenotech owns two issued U.S. patents, one
Australian patent and several pending U.S. and foreign pending patent
applications related to methods of treatment of bone disease in cancer
patients. In addition, we have four issued U.S. patents and several pending
patent applications in the U.S. and abroad that are jointly owned with Japan
Tobacco relating to antibody technology or genetic manipulation. We try to
protect our proprietary position by filing United States and foreign patent
applications related to our proprietary technology, inventions and
improvements that are important to the development of our business. The
patent position of biopharmaceutical companies involves complex legal and
factual questions and, therefore, enforceability cannot be predicted with
certainty. Patents, if issued, may be challenged, invalidated or
circumvented. Thus, any patents that we own or license from third parties may
not provide any protection against competitors. Our pending patent
applications, those we may file in the future, or those we may license from
third parties, may not result in patents being issued. Also, patent rights
may not provide us with adequate proprietary protection or competitive
advantages against competitors with similar technologies. The laws of certain
foreign countries do not protect our intellectual property rights to the same
extent as do the laws of the United States.
In addition to patents, we rely on trade secrets and proprietary know-how. We
seek protection, in part, through confidentiality and proprietary information
agreements. These agreements may not provide meaningful protection or
adequate remedies for our technology in the event of unauthorized use or
disclosure of confidential and proprietary information. The parties may
breach such agreements. Also, our trade secrets may otherwise become known
to, or be independently developed by, our competitors. Furthermore, others
may independently develop similar technologies or duplicate any technology
that we have developed.
WE MAY FACE CHALLENGES FROM THIRD PARTIES REGARDING THE VALIDITY OF OUR
PATENTS AND PROPRIETARY RIGHTS.
Research has been conducted for many years in the antibody field. This has
resulted in a substantial number of issued patents and an even larger number
of still-pending patent applications. Patent applications in the United
States are, in most cases, maintained in secrecy until patents issue. The
publication of discoveries in the scientific or patent literature frequently
occurs substantially later than the date on which the underlying discoveries
were made. Our commercial success depends significantly on our ability to
operate without infringing the patents and other proprietary rights of third
parties. Our technologies may unintentionally infringe the patents or violate
other proprietary rights of third parties. In the event of such infringement
or violation, we and our customers may be prevented from pursuing product
development or commercialization. Such a result will materially and adversely
affect our business, financial condition and results of operations. In March
1997, we entered into a cross-license and settlement agreement with GenPharm
International Inc. to avoid protracted litigation. Under the cross-license,
we licensed on a non-exclusive basis certain patents, patent applications,
third-party licenses, and inventions pertaining to the development and use of
certain transgenic rodents, including mice, that produce fully human
antibodies that are integral to our products and business. Our business,
financial condition and results of operations will be materially and
adversely affected if any of the parties breaches the cross-license
agreement. We have one granted European patent relating to XenoMouse
technology that is currently undergoing opposition proceedings within the
European Patent Office and the outcome of this opposition is uncertain.
We are aware of at least two companies that each have a patent claiming the
use of antibodies to the EGF receptor in combination with chemotherapy. We
believe that our antibody product candidate targeting the EGF receptor,
ABX-EGF, may be effective alone, and may be used without chemotherapy. We
believe use of ABX-EGF alone is not covered by claims in these other
companies' patents. If clinical trials demonstrate that combination therapy
is preferable or necessary in the treatment of patients, we may desire to, or
be required to, obtain a license under the other companies' patents in order
to commercialize ABX-EGF. Any license under these other patents may not be
available on commercially reasonable terms, if at all.
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The biotechnology and pharmaceutical industries have been characterized by
extensive litigation regarding patents and other intellectual property
rights. The defense and prosecution of intellectual property suits, United
States Patent and Trademark Office interference proceedings and related legal
and administrative proceedings in the United States and internationally
involve complex legal and factual questions. As a result, such proceedings
are costly and time-consuming to pursue and their outcome is uncertain.
Litigation may be necessary to:
- enforce patents that we own or license;
- protect trade secrets or know-how that we own or license; or
- determine the enforceability, scope and validity of the
proprietary rights of others.
If we become involved in any litigation, interference or other administrative
proceedings, we will incur substantial expense and the efforts of our
technical and management personnel will be significantly diverted. An adverse
determination may subject us to loss of our proprietary position or to
significant liabilities, or require us to seek licenses that may not be
available from third parties. We may be restricted or prevented from
manufacturing and selling our products, if any, in the event of an adverse
determination in a judicial or administrative proceeding or if we fail to
obtain necessary licenses. Costs associated with these arrangements may be
substantial and may include ongoing royalties. Furthermore, we may not be
able to obtain the necessary licenses on satisfactory terms, if at all. These
outcomes will materially and adversely affect our business, financial
condition and results of operations.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATIONS AND WE MAY NOT BE ABLE TO
OBTAIN REGULATORY APPROVALS.
Our product candidates under development are subject to extensive and
rigorous domestic government regulation. The FDA regulates, among other
things, the development, testing, manufacture, safety, efficacy,
record-keeping, labeling, storage, approval, advertising, promotion, sale and
distribution of biopharmaceutical products. If our products are marketed
abroad, they also are subject to extensive regulation by foreign governments.
None of our product candidates has been approved for sale in the United
States or any foreign market. The regulatory review and approval process,
which includes preclinical studies and clinical trials of each product
candidate, is lengthy, expensive and uncertain. Securing FDA approval
requires the submission of extensive preclinical and clinical data and
supporting information to the FDA for each indication to establish the
product candidates' safety and efficacy. The approval process takes many
years, requires the expenditure of substantial resources, involves
post-marketing surveillance, and may involve ongoing requirements for
post-marketing studies. Delays in obtaining regulatory approvals may:
- adversely affect the successful commercialization of any drugs
that we or our customer develop;
- impose costly procedures on us or our customers;
- diminish any competitive advantages that we or our customers
may attain; and
- adversely affect our receipt of revenues or royalties.
24
<PAGE>
Certain material changes to an approved product such as manufacturing changes
or additional labeling claims are subject to further FDA review and approval.
Any required approvals, once obtained, may be withdrawn. Compliance with
other regulatory requirements may not be maintained. Further, if we fail to
comply with applicable FDA and other regulatory requirements at any stage
during the regulatory process, we or our contract manufacturers may be
subject to sanctions, including:
- delays;
- warning letters;
- fines;
- product recalls or seizures;
- injunctions;
- refusal of the FDA to review pending market approval
applications or supplements to approval applications;
- total or partial suspension of production;
- civil penalties;
- withdrawals of previously approved marketing applications; and
- criminal prosecutions.
We expect to rely on our customers to file investigational new drug
applications and generally direct the regulatory approval process for many of
our products. Our customers may not be able to conduct clinical testing or
obtain necessary approvals from the FDA or other regulatory authorities for
any product candidates. If we fail to obtain required governmental approvals,
our customers will experience delays in or be precluded from marketing
products developed through our research. In addition, the commercial use of
our products will be limited. Delays and limitations may materially and
adversely affect our business, financial condition and results of operations.
We and our contract manufacturers also are required to comply with the
applicable FDA current good manufacturing practice regulations. Good
manufacturing practice regulations include requirements relating to quality
control and quality assurance as well as the corresponding maintenance of
records and documentation. Manufacturing facilities are subject to inspection
by the FDA. These facilities must be approved before we can use them in
commercial manufacturing of our products. We or our contract manufacturers
may not be able to comply with the applicable good manufacturing practice
requirements and other FDA regulatory requirements. If we or our contract
manufacturers fail to comply, our business, financial condition and results
of operations will be materially and adversely affected.
WE DO NOT HAVE MARKETING AND SALES EXPERIENCE.
We do not have a marketing, sales or distribution capability. For certain
products, we may establish an internal marketing and sales force. We intend
to enter into arrangements with third parties to market and sell most of our
products. We may not be able to enter into marketing and sales arrangements
with others on
25
<PAGE>
acceptable terms, if at all. To the extent that we enter into marketing and
sales arrangements with other companies, our revenues, if any, will depend on
the efforts of others. These efforts may not be successful. If we are unable
to enter into third-party arrangements, then we must develop a marketing and
sales force, which may need to be substantial in size, in order to achieve
commercial success for any product candidate approved by the FDA. We may not
successfully develop marketing and sales experience or have sufficient
resources to do so. If we do develop such capabilities, we will compete with
other companies that have experienced and well-funded marketing and sales
operations. If we fail to establish successful marketing and sales
capabilities or fail to enter into successful marketing arrangements with
third parties, our business, financial condition and results of operations
will be materially and adversely affected.
WE MAY REQUIRE ADDITIONAL FINANCING.
We will continue to expend substantial resources for the expansion of
research and development, including costs associated with conducting
preclinical testing and clinical trials. We will be required to expend
substantial funds in the course of completing required additional
development, preclinical testing and clinical trials of and regulatory
approval for product candidates. Our future liquidity and capital
requirements will depend on many factors, including:
- the scope and results of preclinical testing and clinical
trials;
- the retention of existing and establishment of further
licensing and contractual agreements, if any;
- continued scientific progress in our research and development
programs;
- the size and complexity of these programs;
- the cost of establishing manufacturing capabilities and
conducting commercialization activities and arrangements;
- the time and expense involved in obtaining regulatory
approvals, if any;
- competing technological and market developments;
- the time and expense of filing and prosecuting patent
applications and enforcing patent claims;
- investment in, or acquisition of, other companies;
- product in-licensing; and
- other factors not within our control.
We believe that the net proceeds from our February 2000 offering, our cash
balances, cash equivalents, short-term investments and cash generated from
our customer agreements will be sufficient to meet our operating and capital
requirements for at least two years. However, we may need additional
financing within this timeframe. We may need to raise additional funds
through public or private financings, licensing and contractual agreements or
other arrangements. Additional funding may not be available to us on
favorable terms, if at all. Furthermore, any additional equity financing
would be dilutive to stockholders, and debt
26
<PAGE>
financing, if available, may involve restrictive covenants. Contractual
arrangements may require us to relinquish our rights to certain of our
technologies, product candidates or marketing territories. If we fail to
raise additional funds when needed, our business, financial condition and
results of operations will be materially and adversely affected.
CELL GENESYS EXERCISES SIGNIFICANT INFLUENCE OVER US.
As of March 31, 2000 Cell Genesys beneficially owned approximately 12.1% of
our outstanding common stock. We may be adversely impacted by the significant
influence that Cell Genesys will have with respect to matters affecting us.
WE FACE UNCERTAINTY OVER REIMBURSEMENT AND HEALTHCARE REFORM.
In both domestic and foreign markets, sales of our product candidates will
depend in part upon the availability of reimbursement from third-party
payors. Such third-party payors include government health administration
authorities, managed care providers, private health insurers and other
organizations. These third-party payors are increasingly challenging the
price and examining the cost effectiveness of medical products and services.
In addition, significant uncertainty exists as to the reimbursement status of
newly approved healthcare products. We may need to conduct post-marketing
studies in order to demonstrate the cost-effectiveness of our products. Such
studies may require us to provide a significant amount of resources. Our
product candidates may not be considered cost-effective. Adequate third-party
reimbursement may not be available to enable us to maintain price levels
sufficient to realize an appropriate return on our investment in product
development. Domestic and foreign governments continue to propose and pass
legislation designed to reduce the cost of healthcare. Accordingly,
legislation and regulations affecting the pricing of pharmaceuticals may
change before our proposed products are approved for marketing. Adoption of
such legislation could further limit reimbursement for pharmaceuticals. If
the government and third-party payors fail to provide adequate coverage and
reimbursement rates for our product candidates, the market acceptance of our
products may be adversely affected. If our products do not receive market
acceptance, our business, financial condition and results of operations will
be materially and adversely affected.
WE FACE PRODUCT LIABILITY RISKS AND MAY NOT BE ABLE TO OBTAIN ADEQUATE
INSURANCE.
The use of any of our product candidates in clinical trials, and the sale of
any approved products, may expose us to liability claims resulting from such
use or sale of our products. These claims might be made directly by
consumers, healthcare providers or by pharmaceutical companies or others
selling such products. We may experience financial losses in the future due
to product liability claims. We have obtained limited product liability
insurance coverage for our clinical trials. Our insurance coverage limits are
$5.0 million per occurrence and $5.0 million in the aggregate. We intend to
expand our insurance coverage to include the sale of commercial products if
marketing approval is obtained for product candidates in development. We may
not be able to maintain insurance coverage at a reasonable cost or in
sufficient amounts to protect us against losses. If a successful product
liability claim or series of claims is brought against us for uninsured
liabilities or in excess of insured liabilities, our business, financial
condition and results of operations may be materially and adversely affected.
OUR OPERATIONS INVOLVE HAZARDOUS MATERIALS.
Our research and manufacturing activities involve the controlled use of
hazardous materials. We cannot eliminate the risk of accidental contamination
or injury from these materials. In the event of an accident or
27
<PAGE>
environmental discharge, we may be held liable for any resulting damages,
which may exceed our financial resources and may materially and adversely
affect our business, financial condition and results of operations.
OUR STOCK PRICE IS HIGHLY VOLATILE.
The market price of our common stock has been highly volatile and is likely
to continue to be volatile. This may impact your decision to buy or sell your
common stock. The market price and trading volume of shares of our common
stock are volatile, and we expect them to continue to be volatile for the
foreseeable future. For example, during the period between March 31, 1999 and
March 31, 2000, our common stock closed as high as $199.50 per share and as
low as $6.625 per share. Factors affecting our stock price include:
- fluctuations in our operating results;
- announcements of technological innovations or new commercial
therapeutic products by us or our competitors;
- published reports by securities analysts;
- progress with clinical trials;
- government regulation;
- changes in reimbursement policies;
- developments in patent or other proprietary rights;
- developments in our relationship with customers;
- public concern as to the safety and efficacy of our products;
and
- general market conditions.
WE HAVE IMPLEMENTED A STOCKHOLDER RIGHTS PLAN AND ARE SUBJECT TO OTHER
ANTI-TAKEOVER PROVISIONS.
In June 1999, our board of directors adopted a stockholder rights plan, which
was amended in November 1999. The stockholder rights plan provides for a
dividend distribution of one preferred share purchase right on each
outstanding share of our common stock. Each right entitles stockholders to
buy 1/1000th of a share of our Series A participating preferred stock at an
exercise price of $120.00. Each right will become exercisable following the
tenth day after a person or group, other than Cell Genesys or its affiliates,
successors or assigns, announces an acquisition of 15% or more of our common
stock, or announces commencement of a tender offer, the consummation of which
would result in ownership by the person or group of 15% or more of our common
stock. In the case of Cell Genesys, or its affiliates, successors or assigns,
which beneficially owned approximately 12.1% of our outstanding common stock
as of March 31, 2000, each right will become exercisable following the tenth
day after it announces the acquisition of more than 25% of our common stock,
or announces commencement of a tender offer, the consummation of which would
result in ownership by Cell Genesys, or its affiliates, successors or
assigns, of more than 25% of our common stock. We will be entitled to redeem
the rights at $0.01 per right at any time on or before the close of business
on the tenth day following acquisition by a person or group of 15% or more,
or in the case of Cell Genesys, or its affiliates, successors or assigns,
more than 25%, of our common stock.
28
<PAGE>
The stockholder rights plan and certain provisions of our amended and
restated certificate of incorporation and amended and restated bylaws may
have the effect of making it more difficult for a third party to acquire, or
of discouraging a third party from attempting to acquire control of Abgenix.
This could limit the price that certain investors might be willing to pay in
the future for our shares of common stock. Certain provisions of our amended
and restated certificate of incorporation and amended and restated bylaws
allow us to:
- issue preferred stock without any vote or further action by the
stockholders;
- eliminate the right of stockholders to act by written consent
without a meeting;
- specify procedures for director nominations by stockholders and
submission of other proposals for consideration at stockholder
meetings; and
- eliminate cumulative voting in the election of directors.
We are subject to certain provisions of Delaware law which could also delay
or make more difficult a merger, tender offer or proxy contest involving us.
In particular, Section 203 of the Delaware General Corporation Law prohibits
a Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years unless certain conditions
are met. The stockholder rights plan, the possible issuance of preferred
stock, the procedures required for director nominations and stockholder
proposals and Delaware law could have the effect of delaying, deferring or
preventing a change in control of us, including without limitation,
discouraging a proxy contest or making more difficult the acquisition of a
substantial block of our common stock. The provisions could also limit the
price that investors might be willing to pay in the future for shares of our
common stock.
WE DO NOT INTEND TO PAY CASH DIVIDENDS ON OUR COMMON STOCK.
We intend to retain any future earnings to finance the growth and development
of our business and we do not plan to pay cash dividends on our common stock
in the foreseeable future.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The objective of our investment activities is to preserve principal, while at
the same time maximizing yields without significantly increasing risk. To
achieve this objective, we invest in highly liquid and high quality debt
securities. Our investments in debt securities are subject to interest rate
risk. To minimize the exposure due to an adverse shift in interest rates, we
invest in short term securities and maintain an average maturity of one year
or less. A hypothetical 50 basis point increase in interest rates would
result in an approximate $450,000 decrease (0.08%) in the fair value of our
debt securities, classified as available-for-sale securities, at March 31,
2000. As part of a strategic alliance effort, we invested in common stock of
CuraGen Corporation. This investment is subject to fluctuations from market
value changes in stock prices.
29
<PAGE>
PART II
ITEM 1 - LEGAL PROCEEDINGS
Not applicable.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
USE OF PROCEEDS
Not applicable.
RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 - OTHER INFORMATION
Not applicable.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Caption
----------- -------
<S> <C>
10.54 Lease agreement dated February 24, 2000 between
Ardenwood Corporate Park Associates, a California
Limited Partnership and Abgenix, Inc.
27.1 Financial Data Schedule
-----------
</TABLE>
(b) Reports on Form 8-K
- On January 7, 2000 a Form 8-K was filed relating to the
announcement that we had acquired JT America Inc.'s interest in
the Xenotech joint venture.
- On January 28, 2000 a Form 8-K was filed relating to our
signing several agreements with JT America Inc., including the
acquisition of JT America Inc.'s interest in the Xenotech joint
venture that became effective on December 31, 1999.
30
<PAGE>
- On January 28, 2000 a Form 8-K was filed relating to our
Registration Statement on Form S-1 with the Securities and
Exchange Commission, covering the underwritten public offering
of our common stock.
- On March 2, 2000 a Form 8-K was filed relating to the
announcement that we had declared a two-for-one stock split to
be effected in the form of a stock dividend.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 15, 2000
ABGENIX, INC.
(Registrant)
/s/ R. Scott Greer
--------------------------------------------
R. Scott Greer
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Kurt Leutzinger
--------------------------------------------
Kurt Leutzinger
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
32
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
10.54 Lease agreement dated February 24, 2000 between Ardenwood Corporate Park Associates, a California Limited
Partnership and Abgenix, Inc.
27.1 Financial Data Schedule
</TABLE>
33
<PAGE>
EXHIBIT 10.54
LEASE BETWEEN
ABGENIX, INC. AND ARDENWOOD CORPORATE PARK ASSOCIATES
<TABLE>
<CAPTION>
SECTION.............................................................................................PAGE #
<S> <C>
Parties..................................................................................................1
Premises.................................................................................................1
Use......................................................................................................1
Permitted Uses........................................................................................1
Uses Prohibited.......................................................................................1
Advertisements and Signs..............................................................................1
Covenants, Conditions and Restrictions................................................................1
Term and Rental..........................................................................................2
Base Monthly Rent.....................................................................................2
Late Charges..........................................................................................2
Security Deposit......................................................................................2
Construction.............................................................................................3
Building Shell Construction...........................................................................3
Tenant Improvement Construction.......................................................................3
Building Shell Costs..................................................................................4
Tenant Improvement Costs..............................................................................4
Insurance.............................................................................................4
Punch List & Warranty.................................................................................4
Other Work by Tenant..................................................................................4
Acceptance of Possession and Covenants to Surrender......................................................4
Delivery and Acceptance...............................................................................4
Condition Upon Surrender..............................................................................5
Failure to Surrender..................................................................................5
Alterations and Additions................................................................................6
Tenant's Alterations..................................................................................6
Free From Liens.......................................................................................6
Compliance With Governmental Regulations..............................................................6
Maintenance of Premises..................................................................................6
Landlord's Obligations................................................................................6
Tenant's Obligations..................................................................................6
Waiver of Liability...................................................................................7
Hazard Insurance.........................................................................................7
Tenant's Use..........................................................................................7
Landlord's Insurance..................................................................................7
Tenant's Insurance....................................................................................7
Waiver................................................................................................8
Taxes....................................................................................................8
Utilities................................................................................................8
</TABLE>
Page i
<PAGE>
<TABLE>
<S> <C>
Toxic Waste and Environmental Damage.....................................................................8
Tenant's Responsibility...............................................................................8
Tenant's Indemnity Regarding Hazardous Materials......................................................9
Actual Release by Tenant..............................................................................9
Environmental Monitoring.............................................................................10
Landlord's Indemnity Regarding Hazardous Materials...................................................10
Tenant's Default........................................................................................10
Remedies.............................................................................................10
Right to Re-enter....................................................................................11
Abandonment..........................................................................................11
No Termination.......................................................................................11
Non-Waiver...........................................................................................11
Performance by Landlord..............................................................................11
Habitual Default.....................................................................................12
Landlord's Liability...................................................................................12
Limitation on Landlord's Liability...................................................................12
Limitation on Tenant's Recourse......................................................................12
Indemnification of Landlord..........................................................................12
Destruction of Premises.................................................................................12
Landlord's Obligation to Restore.....................................................................12
Limitations on Landlord's Restoration Obligation.....................................................13
Condemnation............................................................................................13
Assignment or Sublease..................................................................................13
Consent by Landlord..................................................................................13
Assignment or Subletting Consideration...............................................................14
No Release...........................................................................................14
Reorganization of Tenant.............................................................................14
Permitted Transfers..................................................................................14
Effect of Default....................................................................................15
Effects of Conveyance................................................................................15
Successors and Assigns...............................................................................15
Option to Extend the Lease Term.........................................................................15
Grant and Exercise of Option.........................................................................15
Determination of Fair Market Rental..................................................................15
Resolution of a Disagreement over the Fair Market Rental.............................................16
Personal to Tenant...................................................................................16
General Provisions......................................................................................16
Attorney's Fees......................................................................................16
Authority of Parties.................................................................................16
Brokers..............................................................................................16
Choice of Law........................................................................................17
Dispute Resolution...................................................................................17
Entire Agreement.....................................................................................18
Entry by Landlord....................................................................................18
Estoppel Certificates................................................................................18
Exhibits.............................................................................................18
Interest.............................................................................................18
Modifications Required by Lender.....................................................................18
No Presumption Against Drafter.......................................................................18
</TABLE>
Page ii
<PAGE>
<TABLE>
<S> <C>
Notices..............................................................................................19
Property Management..................................................................................19
Rent.................................................................................................19
Representations......................................................................................19
Rights and Remedies..................................................................................19
Severability.........................................................................................19
Submission of Lease..................................................................................19
Subordination........................................................................................19
Survival of Indemnities..............................................................................19
Time.................................................................................................20
Waiver of Right to Jury Trial........................................................................20
EXHIBIT A - Premises & Building.........................................................................22
EXHIBIT B - Draft Letter of Credit......................................................................23
EXHIBIT C - Shell Plans and Specifications..............................................................24
EXHIBIT D - Tenant Improvement Plans and Specifications.................................................25
EXHIBIT E - Hazardous Materials List....................................................................26
</TABLE>
Page iii
<PAGE>
1. PARTIES: THIS LEASE, is entered into on this 24th day of February,
2000, ("Effective Date") between Ardenwood Corporate Park Associates, a
California Limited Partnership, whose address is 10600 North De Anza Blvd.,
# 200, Cupertino, California, 95014, and Abgenix, Inc., a Delaware
Corporation, whose address is 7601 Dumbarton Circle, Fremont, California,
94555, hereinafter called respectively Landlord and Tenant.
2. PREMISES: Landlord hereby leases to Tenant, and Tenant hires from
Landlord those certain Premises with the appurtenances, situated in the City
of Fremont, County of Alameda, State of California, commonly known and
designated as 6701 Kaiser Drive, consisting of 100,103 rentable square feet
("Building") including parking for approximately 370 cars as outlined in red
on EXHIBIT "A" and all improvements located therein including but not limited
to buildings, parking areas and structures, landscaping, loading docks,
sidewalks, service areas and other facilities. Unless expressly provided
otherwise, the term Premises as used herein shall include the Tenant
Improvements (defined in Section 5.B) constructed by Tenant pursuant to
Section 5.B. Tenant acknowledges Landlord's right to and hereby consents to
construction of additional building(s) on adjacent land owned by Landlord.
3. USE:
A. PERMITTED USES: Tenant shall use the Premises only for the
following purposes and shall not change the use of the Premises without the
prior written consent of Landlord: Office, research and development
(including laboratories), marketing, light manufacturing, pharmaceutical
manufacturing (to the extent permitted by governmental authority), ancillary
storage and other incidental uses. Tenant shall use only the number of
parking spaces allocated to Tenant under this Lease. All commercial trucks
and delivery vehicles shall (i) be parked at the rear of the Building, (ii)
loaded and unloaded in a manner which does not interfere with the businesses
of surrounding tenants, and (iii) permitted to remain within the Premises
only so long as is reasonably necessary to complete the loading and
unloading. Landlord makes no representation or warranty that any specific use
of the Premises desired by Tenant is permitted pursuant to any Laws.
B. USES PROHIBITED: Tenant shall not commit or suffer to be committed
on the Premises any waste, nuisance, or other act or thing which may disturb
the quiet enjoyment of any other tenant in or around the Premises, nor allow
any sale by auction or any other use of the Premises for an unlawful purpose.
Tenant shall not (i) damage or overload the electrical, mechanical or
plumbing systems of the Premises as the same may be augmented from time to
time pursuant to Lease Sections 5 and 7 below, (ii) attach, hang or suspend
anything from the ceiling, walls or columns of the building in such a way as
would adversely affect the structure or integrity of the Building, or set any
load on the floor in excess of the load limits for which such items are
designed, or (iii) generate dust, fumes or waste products which create a fire
or health hazard or damage the Premises, including without limitation the
soils or ground water in or around the Premises. No materials, supplies,
equipment, finished products or semi-finished products, raw materials or
articles of any nature, or any waste materials, refuse, scrap or debris,
shall be stored upon or permitted to remain on any portion of the Premises
outside of the Building without Landlord's prior approval, which approval may
be withheld in its sole discretion. The foregoing notwithstanding, Landlord
acknowledges that Tenant intends to construct an enclosed equipment yard with
approximate dimensions of 30' x 60' abutting the rear of the Building 9 (as
generally shown in green on EXHIBIT "A") as part of its Tenant Improvement
construction.
C. ADVERTISEMENTS AND SIGNS: Tenant will not place or permit to be
placed, in, upon or about the Premises any signs not approved by the city and
other governing authority having jurisdiction. Tenant will not place or
permit to be placed upon the Premises any signs, advertisements or notices
without the written consent of Landlord as to type, size, design, lettering,
coloring and location, which consent will not be unreasonably withheld. Any
sign placed on the Premises shall be removed by Tenant, at its sole cost,
prior to the Expiration Date or promptly following the earlier termination of
the Lease, and Tenant shall repair, at its sole cost, any damage or injury to
the Premises caused thereby, and if not so removed, then Landlord may have
same so removed at Tenant's expense.
D. COVENANTS, CONDITIONS AND RESTRICTIONS: This Lease is subject to
the effect of (i) any covenants, conditions, restrictions, easements,
Page 1
<PAGE>
mortgages or deeds of trust, ground leases, rights of way of record and any
other matters or documents of record; and (ii) any zoning laws of the city,
county and state where the Building is situated (collectively referred to
herein as "Restrictions") and Tenant will conform to and will not violate the
terms of any such Restrictions.
4. TERM AND RENTAL:
A. BASE MONTHLY RENT: The term ("Lease Term") shall be for one
hundred eighty (180) months, commencing on June 1, 2000 (the "Commencement
Date"), and ending one hundred eighty (180) months thereafter, ("Expiration
Date"). Notwithstanding the Parties agreement that the Lease Term begins on
the Commencement Date, this Lease and all of the obligations of Landlord and
Tenant shall be binding and in full force and effect from and after the
Effective Date. In addition to all other sums payable by Tenant under this
Lease, Tenant shall pay base monthly rent ("Base Monthly Rent") for the
Premises according to the following schedule:
<TABLE>
<S> <C>
Months 01-12: $160,165.00 per month
Months 13-24: $165,771.00 per month
Months 25-36: $171,573.00 per month
Months 37-48: $177,578.00 per month
Months 49-60: $183,793.00 per month
Months 61-72: $190,226.00 per month
Months 73-84: $196,883.00 per month
Months 85-96: $203,774.00 per month
Months 97-108: $210,906.00 per month
Months 109-120: $218,288.00 per month
Months 121-132: $225,928.00 per month
Months 133-144: $233,836.00 per month
Months 145-156: $242,020.00 per month
Months 157-168: $250,491.00 per month
Months 169-180: $259,258.00 per month
</TABLE>
Base Monthly Rent shall be due in advance on or before the first day of each
calendar month during the Lease Term. All sums payable by Tenant under this
Lease shall be paid to Landlord in lawful money of the United States of
America, without offset or deduction and without prior notice or demand, at
the address specified in Section 1 of this Lease or at such place or places
as may be designated in writing by Landlord during the Lease Term. Base
Monthly Rent for any period less than a calendar month shall be a pro rata
portion of the monthly installment. Concurrently with Tenant's execution of
this Lease, Tenant shall pay to Landlord the sum of One Hundred Sixty
Thousand One Hundred Sixty Five Dollars ($160,165.00) as prepaid rent for the
first month of the Lease.
B. LATE CHARGES: Tenant hereby acknowledges that late payment by
Tenant to Landlord of Base Monthly Rent and other sums due hereunder will
cause Landlord to incur costs not contemplated by this Lease, the exact
amount of which is extremely difficult to ascertain. Such costs include but
are not limited to: administrative, processing, accounting, and late charges
which may be imposed on Landlord by the terms of any contract, revolving
credit, mortgage, or trust deed covering the Premises. Accordingly, if any
installment of Base Monthly Rent shall not be received by Landlord or its
designee within five (5) business days after the Base Monthly Rent is due, or
any other sum due from Tenant shall not be received by Landlord or its
designee within five (5) business days after written notice from Landlord
that such sum is due, Tenant shall pay to Landlord a late charge equal to
five (5%) percent of such overdue amount, which late charge shall be due and
payable on the same date that the overdue amount was due. The parties agree
that such late charge represents a fair and reasonable estimate of the costs
Landlord will incur by reason of late payment by Tenant, excluding interest
and attorneys fees and costs. If any rent or other sum due from Tenant
remains delinquent for a period in excess of thirty (30) days then, in
addition to such late charge, Tenant shall pay to Landlord interest on any
rent that is not paid when due at the Agreed Interest Rate specified in
Section 19.J following the date such amount became due until paid. Acceptance
by Landlord of such late charge shall not constitute a waiver of Tenant's
default with respect to such overdue amount nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder. In the
event that a late charge is payable hereunder, whether or not collected, for
three (3) consecutive installments of Base Monthly Rent, then the Base
Monthly Rent shall automatically become due and payable quarterly in advance,
rather than monthly, notwithstanding any provision of this Lease to the
contrary.
C. SECURITY DEPOSIT: On or before March 1, 2000, Tenant agrees to
deposit with Landlord the sum of Two Million Dollars ($2,000,000.00)
("Security "Deposit"). Landlord shall not be deemed a trustee of the Security
Deposit, may use the Security Deposit in business, and shall not be required
to segregate it from its general accounts. Tenant shall not be entitled to
interest on the Security Deposit. If Tenant defaults with respect to any
provisions of the Lease, including but not limited to the provisions relating
to: (i) payment of Base Monthly Rent or other charges, (ii) removal of
Tenant's equipment and fixtures (including lab benches, casework and fume
hoods), and (iii) removal of Specialized Improvements as defined in Section
6.B. below; then Landlord may, to the extent reasonably necessary to remedy
Tenant's default, use any or all of the Security Deposit towards payment of
the following: (i) Base Monthly Rent or other charges in default; (ii) any
other amount which Landlord may spend or become obligated to spend by reason
of Tenant's default including, but not limited to Tenant's failure to restore
or clean the Premises following vacation
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thereof. If any portion of the Security Deposit is so used or applied,
Tenant shall, within ten (10) days after written demand from Landlord,
deposit cash with Landlord in an amount sufficient to restore the Security
Deposit to its full original amount, and shall pay to Landlord such other
sums as necessary to reimburse Landlord for any sums paid by Landlord. Tenant
may not assign or encumber the Security Deposit without the consent of
Landlord. Any attempt to do so shall be void and shall not be binding on
Landlord. The Security Deposit shall be returned to Tenant within thirty (30)
days after the Expiration Date and surrender of the Premises to Landlord,
less any amount deducted in accordance with this Section, together with
Landlord's written breakdown itemizing the amounts and purposes for such
deduction. In the event of termination of Landlord's interest in this Lease,
Landlord may deliver or credit the Security Deposit to Landlord's successor
in interest in the Premises and thereupon be relieved of further
responsibility with respect to the Security Deposit.
Landlord agrees that in lieu of a cash Security Deposit, Tenant may deposit a
letter of credit ("Letter of Credit") substantially in the form attached
hereto as EXHIBIT "B". Landlord shall be entitled to draw against the Letter
of Credit at any time provided only that Landlord certifies to the issuer of
the Letter of Credit that Tenant is in default under the Lease. Tenant shall
keep the letter of credit in effect during the entire Lease Term, as the same
may be extended, plus a period of four (4) weeks after expiration of the
Lease Term. At least thirty (30) days prior to expiration of any Letter of
Credit, the term thereof shall be renewed or extended for a period of at
least one (1) year. Tenant's failure to so renew or extend the Letter of
Credit shall be a material default of this Lease by Tenant. In the event
Landlord draws against the Letter of Credit, Tenant shall replenish the
existing Letter of Credit or cause a new Letter of Credit to be issued such
that the aggregate amount of letters of credit available to Landlord at all
times during the Lease Term is the amount of the Security Deposit originally
required.
5. CONSTRUCTION:
A. BUILDING SHELL CONSTRUCTION: Landlord has completed construction
of the Building shell ("Building Shell"), the scope of which improvements are
outlined in the plans and specifications attached as EXHIBIT "C" ("Shell
Plans and Specifications"). Landlord agrees that, on the Commencement Date,
the Building Shell shall be substantially complete and that all elements of
the Building to be maintained by Landlord pursuant to this Lease shall be in
good operating condition and repair.
B. TENANT IMPROVEMENT CONSTRUCTION: Tenant shall contract directly
with a general contractor selected by Tenant, subject to Landlord's approval
("General Contractor"), to cause improvements to the Premises ("Tenant
Improvements") to be constructed in accordance with plans and outline
specifications to be attached as EXHIBIT "D" ("Tenant Improvement Plans and
Specifications"). The General Contractor shall use union labor. For purposes
of this Lease, the "Building Core" means those items typically associated in
the industry with an office building core including elevators, restrooms,
fire sprinklers, HVAC and electrical systems distributed to each floor,
exiting stair finishes, and a finished building lobby. The Tenant
Improvements Plans and Specifications shall be prepared at Tenant's expense
by an architect selected by Tenant ("Tenant's Architect"). The Tenant
Improvement Plans and Specifications shall be completed for all aspects of
the work with all detail necessary for submittal to the city for issuance of
building permits and for construction and shall include any information
required by the relevant agencies regarding Tenant's use of Hazardous
Materials. The Tenant Improvements shall consist of all items not included
within the Building Shell but shall not, in any event, include any of
Tenant's equipment or trade fixtures including lab benches, laboratory
casework, and fume hoods. All Tenant Improvements that materially affect or
are directly related to the Building Core shall be subject to Landlord's
approval, which approval which shall not be unreasonably withheld,
conditioned or delayed. The Tenant Improvement Plans and Specifications shall
provide for a minimum build-out in all areas of the Premises consisting of:
(i) the Building Core, (ii) fire sprinklers, (iii) floor coverings, (iv)
t-bar suspended ceiling (v) distribution of the HVAC system, (vi) 2' x 4'
drop-in florescent lighting, and (vii) any other work required by the City of
Fremont necessary to obtain a Certificate of Occupancy. Prior to commencing
construction of the Tenant Improvements, Tenant shall: (i) obtain all
required governmental approvals and permits; and (ii) provide Landlord ten
(10) business days' prior notice so that Landlord may post a notice of
nonresponsibility. The Tenant Improvement Plans and Specifications shall be
prepared in sufficient detail to allow General Contractor and Tenant to enter
into a construction contract ("Tenant Improvement Budget"), a copy of which
shall be provided to Landlord prior to commencement of construction.
Tenant shall use its best efforts to obtain a building permit from the City
of Fremont as soon as possible and thereafter diligently supervise the
construction of Tenant Improvements until they are substantially complete as
hereinafter defined. The Tenant Improvements shall be deemed substantially
complete ("Substantially Complete" or "Substantial Completion") when the
Tenant Improvements have been substantially completed in accordance with the
Tenant Improvement Plans and Specifications, as
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evidenced by the completion of a final inspection or the issuance of a
certificate of occupancy or its equivalent by the appropriate governmental
authority. Installation of Tenant's data and phone cabling or furniture shall
not be required in order to deem the Premises Substantially Complete. All
Tenant Improvement work shall be conducted at Tenant's risk and in accordance
with all Laws. Tenant shall indemnify and hold Landlord harmless from and
against all costs, damages, claims, liabilities and expenses (including
attorneys' fees) suffered by or claimed against Landlord, directly or
indirectly, based on, arising out of or resulting from Tenant's construction
of the Tenant Improvements. Immediately upon completion of the Tenant
Improvements, Tenant agrees to provide Landlord a complete set of half-size
(15" x 21") vellum as-built drawings for the Tenant Improvements and a
certificate of occupancy for the Premises. The Tenant Improvements shall not
be removed or altered by Tenant except as may be required or permitted by
Landlord pursuant to Sections 6 and 7 below. During the Lease Term, the
Tenant Improvements shall be the property of Tenant and Tenant shall have the
right to depreciate and claim and collect any investment tax credits in the
Tenant Improvements. At the expiration of the Lease Term or any earlier
termination of the Lease, the Tenant Improvements shall become the property
of Landlord and shall remain upon and be surrendered with the Premises
(subject to Landlord's right to require removal pursuant to Section 6 below),
and title thereto shall automatically vest in Landlord without any payment
therefore.
C. BUILDING SHELL COSTS: Landlord shall pay all costs associated with
the Building Shell.
D. TENANT IMPROVEMENT COSTS: As an inducement to Tenant to enter into
this Lease, Landlord has agreed to provide Tenant an allowance ("Work
Allowance") to be utilized by Tenant towards the cost of construction of
Tenant Improvements in the amount of One Million Five Hundred One Thousand
Five Hundred Forty Five and No/100 Dollars ($1,501,545.00). Tenant shall pay
all costs associated with the Tenant Improvements less the Work Allowance
provided herein. The cost of Tenant Improvements shall include the following
to the extent actually incurred by General Contractor in connection with the
construction of Tenant Improvements: construction costs, all permit fees, and
construction taxes or other costs imposed by governmental authorities related
to the Tenant Improvements. The Work Allowance shall be paid by Landlord to
Tenant within fifteen (15) days following Substantial Completion of the
Premises and occupancy by Tenant.
In addition to the Work Allowance, Landlord agrees to reimburse Tenant up to
$100,000.00 towards the cost of either: (i) Tenant's application of a
mutually acceptable sealant to the surface of the concrete slab foundation of
the Building Shell, or (ii) such other mutually acceptable work to mitigate
potential seepage through the Building slab. Tenant shall be obligated to
apply the sealant or perform such other work prior to commencement of
construction of Tenant Improvements.
E. INSURANCE: Landlord shall cause the General Contractor to procure
(as a cost of the Building Shell) a "Broad Form" liability insurance policy
in the amount of Three Million Dollars ($3,000,000.00). Landlord shall also
procure (as a cost of the Building Shell) builder's risk insurance for the
full replacement cost of the Building Shell and Tenant Improvements while the
Building and Tenant Improvements are under construction, up until the date
that the casualty insurance policy described in Section 9 is in full force
and effect.
F. PUNCH LIST & WARRANTY: After the Tenant Improvements are
Substantially Complete, Tenant shall cause the General Contractor to
immediately correct any construction defects or other "punch list" items
which require attention. The General Contractor shall provide a standard
contractor's warranty with respect to the Tenant Improvements for one (1)
year from the Commencement Date.
G. OTHER WORK BY TENANT: All work not described in the Shell Plans
and Specifications or Tenant Improvement Plans and Specifications, such as
furniture, telephone equipment, telephone wiring and office equipment work,
shall be furnished and installed by Tenant at Tenant' cost. Prior to
Substantial Completion, Tenant shall be obligated to (i) provide active phone
lines to any elevators, and (ii) contract with a firm to monitor the fire
system. Any contractor or other authorized representatives used by Tenant in
connection with such entry and installation work prior to Substantial
Completion shall use union labor.
6. ACCEPTANCE OF POSSESSION AND COVENANTS TO SURRENDER:
A. DELIVERY AND ACCEPTANCE: On the Commencement Date, Landlord shall
deliver and Tenant shall accept possession of the Premises and enter into
occupancy of the Premises on the Commencement Date. Immediately after the
Effective Date, Tenant shall be allowed full access to the Premises ("Early
Access") for purposes of designing, installing and/or constructing the Tenant
Improvements. Such Early Access shall be subject to all the terms and
conditions of this Lease, other than the obligations of Tenant to pay Base
Monthly Rent. Tenant acknowledges that it has had an opportunity to conduct,
and has conducted, such inspections of the Premises as it deems necessary to
evaluate its condition. Except as otherwise specifically provided herein,
Tenant agrees to accept
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possession of the Premises in its then existing condition, subject to all
Restrictions and without representation or warranty by Landlord. Landlord
agrees that as of the Commencement Date, all elements of the Building to be
maintained by Landlord pursuant to Section 8.A. below shall be in good
operating condition and repair. At the time Landlord delivers possession of
the Premises to Tenant, Landlord and Tenant shall together execute an
acceptance agreement. Landlord shall have no obligation to deliver
possession, nor shall Tenant be entitled to take occupancy, of the Premises
until such acceptance agreement has been executed, and Tenant's obligation to
pay Base Monthly Rent and Additional Rent shall not be excused or delayed
because of Tenant's failure to execute such acceptance agreement. Within nine
(9) months after the Commencement Date, Tenant agrees to be in occupancy of
at least fifty percent (50%) of the rentable square footage of the Premises.
B. CONDITION UPON SURRENDER: Tenant further agrees on the Expiration
Date or on the sooner termination of this Lease, to surrender the Premises to
Landlord in good condition and repair, normal wear and tear excepted. In this
regard, "normal wear and tear" shall be construed to mean wear and tear
caused to the Premises by the natural aging process which occurs in spite of
prudent application of commercially reasonable standards for maintenance,
repair replacement, and janitorial practices, and does not include items of
neglected or deferred maintenance. In any event, Tenant shall cause the
following to be done prior to the Expiration Date or sooner termination of
this Lease: (i) all interior walls shall be painted or cleaned so that they
appear freshly painted, (ii) all tiled floors shall be cleaned and waxed,
(iii) all carpets shall be cleaned and shampooed, (iv) all broken, marred,
stained or nonconforming acoustical ceiling tiles shall be replaced, (v) all
cabling placed above the ceiling by Tenant or Tenant's contractors shall be
removed, (vi) all windows shall be washed; (vii) the HVAC system shall be
serviced by a reputable and licensed service firm and left in "good operating
condition and repair" as so certified by such firm, (viii) the plumbing and
electrical systems and lighting shall be placed in good order and repair
(including replacement of any burned out, discolored or broken light bulbs,
ballasts, or lenses. On or before the Expiration Date or sooner termination
of this Lease, Tenant shall remove all its personal property and trade
fixtures from the Premises. All property and fixtures not so removed shall be
deemed as abandoned by Tenant. Tenant shall ascertain from Landlord within
ninety (90) days before the Expiration Date whether Landlord desires Tenant
to remove any Alterations not previously consented to by Landlord in
accordance with Section 7, or to cause Tenant to surrender such Alterations
(as defined in Section 7) in place to Landlord. If Landlord shall so desire,
Tenant shall, at Tenant's sole cost and expense, remove such Alterations as
Landlord requires and shall repair and restore said Premises or such parts
thereof before the Expiration Date. Such repair and restoration shall include
causing the Premises to be brought into compliance with all applicable
building codes and laws in effect at the time of the removal to the extent
such compliance is necessitated by the repair and restoration work.
Notwithstanding anything in the Lease to the contrary, Tenant shall be
required at the Expiration Date or earlier termination of this Lease to
remove: (i) all lab benches, fume hoods, and laboratory casework; and (ii) at
Landlord's election, all Tenant Improvements determined by Landlord to be
specialized in nature (items (i) and (ii) above collectively referred to as
"Specialized Improvements"). Such Specialized Improvements may also include,
but shall not be limited to, cold rooms, outdoor utility yard, and other
Tenant Improvements and equipment associated with Tenant's particular use of
the Premises. If Landlord shall so desire, Tenant shall, at Tenant's sole
cost and expense, remove such designated Specialized Improvements and restore
the affected areas of the Premises to either their condition as of the
Effective Date or to an open office layout, whichever is preferred by
Landlord. Such repair and restoration shall further include causing the
Premises to be brought into compliance with all applicable building codes and
laws in effect at the time of the removal to the extent such compliance is
necessitated by removal of the Specialized Improvements.
C. FAILURE TO SURRENDER: If the Premises are not surrendered at the
Expiration Date or sooner termination of this Lease in the condition required
by this Section 6, Tenant shall be deemed in a holdover tenancy pursuant to
this Section 6.C and Tenant shall indemnify, defend, and hold Landlord
harmless against loss or liability resulting from delay by Tenant in so
surrendering the Premises including, without limitation, any losses due to
claims made by any succeeding tenant founded on such delay and costs incurred
by Landlord in returning the Premises to the required condition, plus
interest at the Agreed Interest Rate. Any holding over after the termination
or Expiration Date with Landlord's express written consent, shall be
construed as month-to-month tenancy, terminable on thirty (30) days written
notice from either party, and Tenant shall pay as Base Monthly Rent to
Landlord a rate equal to one hundred twenty five percent (125%) of the Base
Monthly Rent due in the month preceding the termination or Expiration Date,
plus all other amounts payable by Tenant under this Lease. Any holding over
shall otherwise be on the terms and conditions herein specified, except those
provisions relating to the Lease Term and any options to extend or renew,
which provisions shall be of no further force and effect following the
expiration of the applicable exercise period. If Tenant remains in possession
of the Premises after
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the Expiration Date or sooner termination of this Lease without Landlord's
consent, Tenant's continued possession shall be on the basis of a tenancy at
sufferance and Tenant shall pay as rent during the holdover period an amount
equal to one hundred fifty percent (150%) of the Base Monthly Rent due in the
month preceding the termination or Expiration Date, plus all other amounts
payable by Tenant under this Lease. This provision shall survive the
termination or expiration of the Lease.
7. ALTERATIONS AND ADDITIONS:
A. TENANT'S ALTERATIONS: Tenant shall not make, or suffer to be made,
any alteration or addition to the Premises after completion of the initial
Tenant Improvements ("Alterations"), or any part thereof, without obtaining
Landlord's prior written consent and delivering to Landlord the proposed
architectural and structural plans for all such Alterations at least fifteen
(15) days prior to the start of construction. If such Alterations affect the
structure of the Building, Tenant additionally agrees to reimburse Landlord
its reasonable out-of-pocket costs incurred in reviewing Tenant's plans.
After obtaining Landlord's consent, Tenant shall not proceed to make such
Alterations until Tenant has obtained all required governmental approvals and
permits, and provides Landlord reasonable security, in form reasonably
approved by Landlord, to protect Landlord against mechanics' lien claims.
Tenant agrees to provide Landlord (i) written notice of the anticipated and
actual start-date of the work, (ii) a complete set of half-size (15" X 21")
vellum as-built drawings for all Alterations which are material in extent;
and (iii) a certificate of occupancy for the work upon completion of the
Alterations, if required. All Alterations shall be constructed in compliance
with all applicable building codes and laws including, without limitation,
the Americans with Disabilities Act of 1990 as amended from time to time.
Upon the Expiration Date, all Alterations, except movable furniture and trade
fixtures, shall become a part of the realty and belong to Landlord but shall
nevertheless be subject to removal by Tenant as provided in Section 6 above.
Alterations which are not deemed as trade fixtures include heating, lighting,
electrical systems, air conditioning, walls, carpeting, or any other
installation which has become an integral part of the Premises. All
Alterations shall be maintained, replaced or repaired by Tenant at its sole
cost and expense. Notwithstanding the foregoing, Tenant shall be entitled,
without obtaining Landlord's consent, to make Alterations which do not affect
the structure of the Building and which do not cost more than One Hundred
Thousand Dollars ($100,000.00) per Alteration ("Permitted Alteration");
provided, however, that Tenant shall still be required to comply with all
other provisions of this paragraph, and such Permitted Alterations are
subject to removal by Tenant at Landlord's election pursuant to Section 6
above at the expiration or earlier termination of the Lease. Notwithstanding
the foregoing, for purposes of ownership or removal during the Lease Term and
subject to Tenant's surrender obligations contained in Section 6, the term
"Alterations" shall not include, in any case, any of Tenant's equipment or
trade fixtures.
B. FREE FROM LIENS: Tenant shall keep the Premises free from all
liens arising out of work performed, materials furnished, or obligations
incurred by Tenant or claimed to have been performed for Tenant. In the event
Tenant fails to discharge any such lien within ten (10) days after receiving
notice of the filing, Landlord shall be entitled to discharge the lien at
Tenant's expense and all resulting costs incurred by Landlord, including
attorney's fees shall be due from Tenant as additional rent.
C. COMPLIANCE WITH GOVERNMENTAL REGULATIONS: The term Laws or
Governmental Regulations shall include all federal, state, county, city or
governmental agency laws, statutes, ordinances, standards, rules,
requirements, or orders now in force or hereafter enacted, promulgated, or
issued. The term also includes government measures regulating or enforcing
public access, traffic mitigation, occupational, health, or safety standards
for employers, employees, landlords, or tenants. Tenant, at Tenant's sole
expense shall make all repairs, replacements, alterations, or improvements
needed to comply with all Governmental Regulations. The judgment of any court
of competent jurisdiction or the admission of Tenant in any action or
proceeding against Tenant (whether Landlord be a party thereto or not) that
Tenant has violated any such law, regulation or other requirement in its use
of the Premises shall be conclusive of that fact as between Landlord and
Tenant.
8. MAINTENANCE OF PREMISES:
A. LANDLORD'S OBLIGATIONS: Landlord at its sole cost and expense,
shall maintain in good condition, order, and repair, and replace as and when
necessary, the foundation, exterior load bearing walls and roof structure of
the Building Shell.
B. TENANT'S OBLIGATIONS: Tenant shall clean, maintain, repair and
replace when necessary the Premises and every part thereof through regular
inspections and servicing, including but not limited to: (i) all plumbing and
sewage facilities, (ii) all heating ventilating and air conditioning
facilities and equipment, (iii) all fixtures, interior walls floors, carpets
and ceilings, (iv) all windows, door entrances, plate glass and glazing
systems including caulking, and skylights, (v) all electrical facilities and
equipment, (vi) all automatic fire extinguisher equipment, (vii) the parking
lot and all underground
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utility facilities servicing the Premises, (viii) all elevator equipment,
(ix) the roof membrane system, and (x) all waterscape, landscaping and
shrubbery. All wall surfaces and floor tile are to be maintained in an as
good a condition as when Tenant took possession free of holes, gouges, or
defacements. With respect to items (ii), (viii) and (ix) above, Tenant shall
provide Landlord a copy of a service contract between Tenant and a licensed
service contractor providing for periodic maintenance of all such systems or
equipment in conformance with the manufacturer's recommendations. Tenant
shall provide Landlord a copy of such preventive maintenance contracts and
paid invoices for the recommended work if requested by Landlord.
C. WAIVER OF LIABILITY: Failure by Landlord to perform any defined
services, or any cessation thereof, when such failure is caused by accident,
breakage, repairs, strikes, lockout or other labor disturbances or labor
disputes of any character or by any other cause, similar or dissimilar, shall
not render Landlord liable to Tenant in any respect, including damages to
either person or property, nor be construed as an eviction of Tenant, nor
cause an abatement of rent, nor relieve Tenant from fulfillment of any
covenant or agreement hereof. Should any equipment or machinery utilized in
supplying the services listed herein break down or for any cause cease to
function properly, upon receipt of written notice from Tenant of any
deficiency or failure of any services, Landlord shall use reasonable
diligence to repair the same promptly, but Tenant shall have no right to
terminate this Lease and shall have no claim for rebate of rent or damages on
account of any interruptions in service occasioned thereby or resulting
therefrom. Tenant waives the provisions of California Civil Code Sections
1941 and 1942 concerning the Landlord's obligation of tenantability and
Tenant's right to make repairs and deduct the cost of such repairs from the
rent. Landlord shall not be liable for a loss of or injury to person or
property, however occurring, through or in connection with or incidental to
furnishing, or its failure to furnish, any of the foregoing. Notwithstanding
the foregoing, nothing contained in this Section 8.C. is intended to absolve
Landlord from its gross negligence or willful misconduct under this Lease.
9. HAZARD INSURANCE:
A. TENANT'S USE: Tenant shall not use or permit the Premises, or any
part thereof, to be used for any purpose other than that for which the
Premises are hereby leased; and no use of the Premises shall be made or
permitted, nor acts done, which will cause an increase in premiums or a
cancellation of any insurance policy covering the Premises or any part
thereof, nor shall Tenant sell or permit to be sold, kept, or used in or
about the Premises, any article prohibited by the standard form of fire
insurance policies. Tenant shall, at its sole cost, comply with all
requirements of any insurance company or organization necessary for the
maintenance of reasonable fire and public liability insurance covering the
Premises and appurtenances.
B. LANDLORD'S INSURANCE: Landlord agrees to purchase and keep in
force fire, extended coverage insurance in an amount equal to the replacement
cost of the Building (not including any Tenant Improvements or Alterations
paid for by Tenant from sources other than the Work Allowance) as determined
by Landlord's insurance company's appraisers. If commercially available and
carried by other owners of commercial properties in the area, such fire and
property damage insurance may be endorsed to cover loss caused by such
additional perils against which Landlord may elect to insure, including
earthquake and/or flood, and shall contain reasonable deductibles.
Additionally Landlord may maintain a policy of (i) commercial general
liability insurance insuring Landlord (and such others designated by
Landlord) against liability for personal injury, bodily injury, death and
damage to property occurring or resulting from an occurrence in, on or about
the Premises or Project in an amount as Landlord determines is reasonably
necessary for its protection, and (ii) rental lost insurance covering a
twelve (12) month period. Tenant agrees to pay Landlord as additional rent,
on demand, the full cost of said insurance as evidenced by insurance billings
to Landlord, and in the event of damage covered by said insurance, the amount
of any deductible under such policy; provided, however, that Tenant shall not
be required to pay any deductible amount on earthquake coverage in excess of
ten percent (10%) of the replacement cost of the Premises. Payment shall be
due to Landlord within ten (10) days after written invoice to Tenant. It is
understood and agreed that Tenant's obligation under this Section will be
prorated to reflect the Lease Commencement and Expiration Dates.
C. TENANT'S INSURANCE: Tenant agrees, at its sole cost, to insure its
personal property, Tenant Improvements (for which it has paid from sources
other than the Work Allowance), and Alterations for their full replacement
value (without depreciation) and to obtain worker's compensation and public
liability and property damage insurance for occurrences within the Premises
with a combined single limit of not less than Five Million Dollars
($5,000,000.00). Tenant's liability insurance shall be primary insurance
containing a cross-liability endorsement, and shall provide coverage on an
"occurrence" rather than on a "claims made" basis, except for product
liability. Tenant shall name Landlord and Landlord's lender as an additional
insured and shall deliver a copy of the policies and renewal certificates to
Landlord. All such policies shall provide for thirty (30) days' prior written
notice to Landlord of any cancellation, termination, or reduction in
coverage. Notwithstanding the
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above, Landlord retains the right to have Tenant provide other forms of
insurance which may be reasonably required to cover future risks.
D. WAIVER: Landlord and Tenant hereby waive all rights each may have
against the other on account of any loss or damage sustained by Landlord or
Tenant, as the case may be, or to the Premises or its contents, which may
arise from any risk covered by their respective insurance policies (or which
would have been covered had such insurance policies been maintained in
accordance with this Lease) as set forth above. The Parties shall use their
reasonable efforts to obtain from their respective insurance companies a
waiver of any right of subrogation which said insurance company may have
against Landlord or Tenant, as the case may be.
10. TAXES: Tenant shall be liable for and shall pay as additional rental,
prior to delinquency, the following: (i) all taxes and assessments levied
against Tenant's personal property and trade or business fixtures; (ii) all
real estate taxes and assessment installments or other impositions or charges
which may be levied on the Premises or upon the occupancy of the Premises,
including any substitute or additional charges which may be imposed
applicable to the Lease Term; and (iii) real estate tax increases due to an
increase in assessed value resulting from a sale, transfer or other change of
ownership of the Premises as it appears on the City and County tax bills
during the Lease Term. All real estate taxes shall be prorated to reflect the
Lease Commencement and Expiration Dates. If, at any time during the Lease
Term a tax, excise on rents, business license tax or any other tax, however
described, is levied or assessed against Landlord as a substitute or
addition, in whole or in part, for taxes assessed or imposed on land or
Buildings, Tenant shall pay and discharge its pro rata share of such tax or
excise on rents or other tax before it becomes delinquent; except that this
provision is not intended to cover net income taxes, inheritance, gift or
estate tax imposed upon Landlord. In the event that a tax is placed, levied,
or assessed against Landlord and the taxing authority takes the position that
Tenant cannot pay and discharge its pro rata share of such tax on behalf of
Landlord, then at Landlord's sole election, Landlord may increase the Base
Monthly Rent by the exact amount of such tax and Tenant shall pay such
increase. If by virtue of any application or proceeding brought by Landlord,
there results a reduction in the assessed value of the Premises during the
Lease Term, Tenant agrees to pay Landlord a fee consistent with the fees
charged by a third party appeal firm for such services, but in no event more
than the reasonable value of such services. Tenant, at its cost, shall have
the right at any time to seek a reduction in or otherwise contest any Taxes
which it is obligated to pay hereunder, by action or proceeding against the
entity with authority to assess or impose the same. Landlord shall not be
required to join in any proceeding or action brought by Tenant unless the
provisions of applicable law or regulations require that such proceeding or
action be brought by or in the name of Landlord, in which event Landlord
shall join in such proceeding or action or permit it to be brought in
Landlord's name, provided that Tenant agrees to protect, indemnify and hold
Landlord free and harmless from and against any liability, cost or expense in
connection with such proceeding or contest.
11. UTILITIES: Tenant shall pay directly to the providing utility all
water, gas, electric, telephone, and other utilities supplied to the
Premises. Landlord shall not be liable for loss of or injury to person or
property, however occurring, through or in connection with or incidental to
furnishing or the utility company's failure to furnish utilities to the
Premises, and in such event Tenant shall not be entitled to abatement or
reduction of any portion of Base Monthly Rent or any other amount payable
under this Lease.
12. TOXIC WASTE AND ENVIRONMENTAL DAMAGE:
A. TENANT'S RESPONSIBILITY: Without the prior written consent of
Landlord, Tenant or Tenant's agents, employees, contractors and invitees
("Tenant's Agents") shall not bring, use, or permit upon the Premises, or
generate, create, release, emit, or dispose (nor permit any of the same) from
the Premises any chemicals, toxic or hazardous gaseous, liquid or solid
materials or waste, including without limitation, material or substance
having characteristics of ignitability, corrosivity, reactivity, or toxicity
or substances or materials which are listed on any of the Environmental
Protection Agency's lists of hazardous wastes or which are identified in
Division 22 Title 26 of the California Code of Regulations as the same may be
amended from time to time or any wastes, materials or substances which are or
may become regulated by or under the authority of any applicable local, state
or federal laws, judgments, ordinances, orders, rules, regulations, codes or
other governmental restrictions, guidelines or requirements. ("Hazardous
Materials") except for those substances customary in typical office uses for
which no consent shall be required. The foregoing does not apply to
underground migration from other sources over which Tenant has no control. In
order to obtain consent, Tenant shall deliver to Landlord its written
proposal describing the toxic material to be brought onto the Premises,
measures to be taken for storage and disposal thereof, safety measures to be
employed to prevent pollution of the air, ground, surface and ground water.
Landlord's approval may be withheld in its reasonable judgment. In the event
Landlord consents to Tenant's use of Hazardous Materials on the Premises or
such consent is not required, Tenant represents and warrants that it shall
comply with all Governmental Regulations
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applicable to Hazardous Materials including doing the following: (i) adhere
to all reporting and inspection requirements imposed by Federal, State,
County or Municipal laws, ordinances or regulations and will provide Landlord
a copy of any such reports or agency inspections; (ii) obtain and provide
Landlord copies of all necessary permits required for the use and handling of
Hazardous Materials on the Premises; (iii) enforce Hazardous Materials
handling and disposal practices consistent with industry standards; (iv)
surrender the Premises free from any Hazardous Materials arising from
Tenant's bringing, using, permitting, generating, creating, releasing,
emitting or disposing of Hazardous Materials; and (v) properly close the
facility with regard to Hazardous Materials including the removal or
decontamination of any process piping, mechanical ducting, storage tanks,
containers, or trenches which have come into contact with Hazardous Materials
and obtain a closure certificate from the local administering agency prior to
the Expiration Date. Landlord hereby consents to Tenant's use on the Premises
of the Hazardous Materials listed on the attached EXHIBIT "E" in the
approximate quantities listed thereon, subject to the terms and conditions of
this Section 12.
B. TENANT'S INDEMNITY REGARDING HAZARDOUS MATERIALS: Tenant shall, at
its sole cost and expense, comply with all laws pertaining to, and shall with
counsel reasonably acceptable to Landlord, indemnify, defend and hold
harmless Landlord and Landlord's trustees, shareholders, directors, officers,
employees, partners, affiliates, and agents from, any claims, liabilities,
costs or expenses incurred or suffered arising from the bringing, using,
permitting, generating, emitting or disposing of Hazardous Materials by
Tenant, Tenant's Agents or a third party through the surface soils of the
Premises during the Lease Term or the violation of any Governmental
Regulation or environmental law, by Tenant or Tenant's Agents. Tenant's
indemnification, defense, and hold harmless obligations include, without
limitation, the following: (i) claims, liability, costs or expenses resulting
from or based upon administrative, judicial (civil or criminal) or other
action, legal or equitable, brought by any private or public person under
common law or under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 as amended ("CERCLA"), the Resource Conservation
and Recovery Act of 1980 ("RCRA") or any other Federal, State, County or
Municipal law, ordinance or regulation now or hereafter in effect; (ii)
claims, liabilities, costs or expenses pertaining to the identification,
monitoring, cleanup, containment, or removal of Hazardous Materials from
soils, riverbeds or aquifers including the provision of an alternative public
drinking water source; (iii) all costs of defending such claims; (iv) losses
attributable to diminution in the value of the Premises or the Building; (v)
loss or restriction of use of rentable space in the Building; (vi) Adverse
effect on the marketing of any space in the Building; and (vi) all other
liabilities, obligations, penalties, fines, claims, actions (including
remedial or enforcement actions of any kind and administrative or judicial
proceedings, orders or judgments), damages (including consequential and
punitive damages), and costs (including attorney, consultant, and expert fees
and expenses) resulting from the release or violation. This Section 12.B
shall survive the expiration or termination o this Lease.
C. ACTUAL RELEASE BY TENANT: Tenant agrees to notify Landlord of any
lawsuits or orders known to Tenant which relate to the remedying of or actual
release of Hazardous Materials on or into the soils or ground water at or
under the Premises. Tenant shall also provide Landlord all notices required
by Section 25359.7(b) of the Health and Safety Code and all other notices
required by law to be given to Landlord in connection with Hazardous
Materials. Without limiting the foregoing, Tenant shall also deliver to
Landlord, within twenty (20) days after receipt thereof, any written notices
from any governmental agency alleging a material violation of, or material
failure to comply with, any federal, state or local laws, regulations,
ordinances or orders, the violation of which or failure to comply with poses
a foreseeable and material risk of contamination of the ground water or
injury to humans (other than injury solely to Tenant or Tenant's Agents.
In the event of any release on or into the Premises or into the soil or
ground water under the Premises or the Building of any Hazardous Materials
used, treated, stored or disposed of by Tenant or Tenant's Agents, Tenant
agrees to comply, at its sole cost, with all laws, regulations, ordinances
and orders of any federal, state or local agency relating to the monitoring
or remediation of such Hazardous Materials. In the event of any such release
of Hazardous Materials Tenant shall immediately give verbal and follow-up
written notice of the release to Landlord, and Tenant agrees to meet and
confer with Landlord and its Lender to attempt to eliminate and mitigate any
financial exposure to such Lender and resultant exposure to Landlord under
California Code of Civil Procedure Section 736(b) as a result of such
release, and promptly to take reasonable monitoring, cleanup and remedial
steps given, inter alia, the historical uses to which the Property has and
continues to be used, the risks to public health posed by the release, the
then available technology and the costs of remediation, cleanup and
monitoring, consistent with acceptable customary practices for the type and
severity of such contamination and all applicable laws. Nothing in the
preceding sentence shall eliminate, modify or reduce the obligation of Tenant
under 12.B of this Lease to indemnify, defend and hold Landlord harmless from
any claims liabilities, costs or expenses incurred or suffered by Landlord.
Tenant
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shall provide Landlord prompt written notice of Tenant's monitoring, cleanup
and remedial steps.
In the absence of an order of any federal, state or local governmental or
quasi-governmental agency relating to the cleanup, remediation or other
response action required by applicable law, any dispute arising between
Landlord and Tenant concerning Tenant's obligation to Landlord under this
Section 12.C concerning the level, method, and manner of cleanup, remediation
or response action required in connection with such a release of Hazardous
Materials shall be resolved by mediation and/or arbitration pursuant to this
Lease.
D. ENVIRONMENTAL MONITORING: Landlord and its agents shall have the
right to inspect, investigate, sample and monitor the Premises including any
air, soil, water, ground water or other sampling or any other testing,
digging, drilling or analysis to determine whether Tenant is complying with
the terms of this Section 12. If Landlord discovers that Tenant is not in
compliance with the terms of this Section 12, any such costs incurred by
Landlord, including attorneys' and consultants' fees, shall be due and
payable by Tenant to Landlord within five (5) days following Landlord's
written demand therefore.
E. LANDLORD'S INDEMNITY REGARDING HAZARDOUS MATERIALS: Landlord shall
indemnify and hold Tenant harmless from any claims, liabilities, costs or
expenses incurred or suffered by Tenant related to the removal,
investigation, monitoring or remediation of Hazardous Materials which are
present at the Premises as of the Effective Date. Landlord's indemnification
and hold harmless obligations include, without limitation, (i) claims,
liability, costs or expenses resulting from or based upon administrative,
judicial (civil or criminal) or other action, legal or equitable, brought by
any private or public person under common law or under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"),
the Resource Conservation and Recovery Act of 1980 ("RCRA") or any other
Federal, State, County or Municipal law, ordinance or regulation, (ii)
claims, liabilities, costs or expenses pertaining to the identification,
monitoring, cleanup, containment, or removal of Hazardous Materials from
soils, riverbeds or aquifers including the provision of an alternative public
drinking water source, and (iii) all costs of defending such claims. In no
event shall Landlord be liable for any consequential damages suffered or
incurred by Tenant as a result of the presence of Hazardous Materials at the
Premises as of the Effective Date.
13. TENANT'S DEFAULT: The occurrence of any of the following shall
constitute a material default and breach of this Lease by Tenant: (i)
Tenant's failure to pay the Base Monthly Rent including additional rent or
any other payment due under this Lease, where such failure continues for five
(5) business days after written notice from Landlord that such amount is due,
(ii) the abandonment of the Premises by Tenant; (iii) Tenant's failure to
observe and perform any other required provision of this Lease, where such
failure continues for thirty (30) days after written notice from Landlord;
(iv) Tenant's making of any general assignment for the benefit of creditors;
(v) the filing by or against Tenant of a petition to have Tenant adjudged a
bankrupt or of a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against
Tenant, the same is dismissed after the filing); (vi) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease, where
possession is not restored to Tenant within sixty (60) days; or (vii) the
attachment, execution or other judicial seizure of substantially all of
Tenant's assets located at the Premises or of Tenant's interest in this
Lease, where such seizure is not discharged within sixty (60) days.
A. REMEDIES: In the event of any such default by Tenant, then in
addition to other remedies available to Landlord at law or in equity,
Landlord shall have the immediate option to terminate this Lease and all
rights of Tenant hereunder by giving written notice of such intention to
terminate. In the event Landlord elects to so terminate this Lease, Landlord
may recover from Tenant all the following: (i) the worth at time of award of
any unpaid rent which had been earned at the time of such termination; (ii)
the worth at 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 rental loss for the same period that Tenant proves could have been
reasonably avoided; (iii) the worth at time of award of the amount by which
the unpaid rent for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves could be reasonably
avoided; (iv) any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease, or which in the ordinary course of things would be likely
to result therefrom; including the following: (x) expenses for repairing,
altering or remodeling the Premises for purposes of reletting, (y) broker's
fees, advertising costs or other expenses of reletting the Premises, and (z)
costs of carrying the Premises such as taxes, insurance premiums, utilities
and security precautions; and (v) at Landlord's election, such other amounts
in addition to or in lieu of the foregoing as may be permitted by applicable
California law. The term "rent", as used herein, is defined as the minimum
monthly installments of Base Monthly Rent and all other sums required to be
paid by Tenant pursuant to this Lease, all such other sums being deemed as
additional rent due
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hereunder. As used in (i) and (ii) above, "worth at the time of award" shall
be computed by allowing interest at a rate equal to the discount rate of the
Federal Reserve Bank of San Francisco plus five (5%) percent per annum. As
used in (iii) above, "worth at the time of award" shall be computed by
discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one (1%) percent.
B. RIGHT TO RE-ENTER: In the event of any such default by Tenant,
Landlord shall have the right, after terminating this Lease, to re-enter the
Premises and remove all persons and property. Such property may be removed
and stored in a public warehouse or elsewhere at the cost of and for the
account of Tenant, and disposed of by Landlord in any manner permitted by law.
C. ABANDONMENT: If Landlord does not elect to terminate this Lease as
provided in Section 13.A or 13.B above, then the provisions of California
Civil Code Section 1951.4, (Landlord may continue the lease in effect after
Tenant's breach and abandonment and recover rent as it becomes due if Tenant
has a right to sublet and assign, subject only to reasonable limitations) as
amended from time to time, shall apply and Landlord may from time to time,
without terminating this Lease, either recover all rental as it becomes due
or relet the Premises or any part thereof for such term or terms and at such
rental or rentals and upon such other terms and conditions as Landlord in its
sole discretion may deem advisable, with the right to make alterations and
repairs to the Premises. In the event that Landlord elects to so relet,
rentals received by Landlord from such reletting shall be applied in the
following order to: (i) the payment of any indebtedness other than Base
Monthly Rent due hereunder from Tenant to Landlord; (ii) the payment of any
reasonable cost of such reletting; (iii) the payment of the cost of any
alterations and repairs to the Premises necessary to relet; and (iv) the
payment of Base Monthly Rent due and unpaid hereunder. The residual rentals,
if any, shall be held by Landlord and applied in payment of future Base
Monthly Rent as the same may become due and payable hereunder. Landlord shall
the obligation to market the space but shall have no obligation to relet the
Premises following a default if Landlord has other comparable available space
within the Building or Project. In the event the portion of rentals received
from such reletting which is applied to the payment of rent hereunder during
any month be less than the rent payable during that month by Tenant
hereunder, then Tenant shall pay such deficiency to Landlord immediately upon
demand. Such deficiency shall be calculated and paid monthly. Tenant shall
also pay to Landlord, as soon as ascertained, any costs and expenses
reasonably incurred by Landlord in such reletting or in making such
alterations and repairs necessary to relet not covered by the rentals
received from such reletting.
D. NO TERMINATION: Landlord's re-entry or taking possession of the
Premises pursuant to 13.B or 13.C shall not be construed as an election to
terminate this Lease unless written notice of such intention is given to
Tenant or unless the termination is decreed by a court of competent
jurisdiction. Notwithstanding any reletting without termination by Landlord
because of any default by Tenant, Landlord may at any time after such
reletting elect to terminate this Lease for any such default.
E. NON-WAIVER: Landlord may accept Tenant's payments without waiving
any rights under this Lease, including rights under a previously served
notice of default. No payment by Tenant or receipt by Landlord of a lesser
amount than any installment of rent due shall be deemed as other than payment
on account of the amount due. If Landlord accepts payments after serving a
notice of default, Landlord may nevertheless commence and pursue an action to
enforce rights and remedies under the previously served notice of default
without giving Tenant any further notice or demand. Furthermore, the
Landlord's acceptance of rent from the Tenant when the Tenant is holding over
without express written consent does not convert Tenant's Tenancy from a
tenancy at sufferance to a month to month tenancy. No waiver of any provision
of this Lease shall be implied by any failure of Landlord to enforce any
remedy for the violation of that provision, even if that violation continues
or is repeated. Any waiver by Landlord of any provision of this Lease must be
in writing. Such waiver shall affect only the provision specified and only
for the time and in the manner stated in the writing. No delay or omission in
the exercise of any right or remedy by Landlord shall impair such right or
remedy or be construed as a waiver thereof by Landlord. No act or conduct of
Landlord, including, without limitation, the acceptance of keys to the
Premises, shall constitute acceptance of the surrender of the Premises by
Tenant before the Expiration Date. Only written notice from Landlord to
Tenant of acceptance shall constitute such acceptance of surrender of the
Premises. Landlord's consent to or approval of any act by Tenant which
requires Landlord's consent or approvals shall not be deemed to waive or
render unnecessary Landlord's consent to or approval of any subsequent act by
Tenant.
F. PERFORMANCE BY LANDLORD: If Tenant fails to perform any obligation
required under this Lease or by law or governmental regulation, Landlord in
its sole discretion may, with prior notice to Tenant, without waiving any
rights or remedies and without releasing Tenant from its obligations
hereunder, perform such obligation, in which event Tenant shall pay Landlord
as additional rent all sums paid by Landlord in connection with such
substitute performance, including interest at the
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Agreed Interest Rate (as defined in Section 19.J) within ten (10) days of
Landlord's written notice for such payment.
G. HABITUAL DEFAULT: The provisions of Section 13 notwithstanding,
the Parties agree that if Tenant shall have defaulted in the performance of
any (but not necessarily the same) material term or condition of this Lease
for four or more times during any twelve (12) month period during the Lease
Term and Landlord shall have given Tenant notice of such default, then such
conduct shall, at the election of the Landlord, represent a separate event of
default which cannot be cured by Tenant. Tenant acknowledges that the purpose
of this provision is to prevent repetitive defaults by Tenant, which work a
hardship upon Landlord and deprive Landlord of Tenant's timely performance
under this Lease.
14. LANDLORD'S LIABILITY:
A. LIMITATION ON LANDLORD'S LIABILITY: In the event of Landlord's
failure to perform any of its covenants or agreements under this Lease,
Tenant shall give Landlord written notice of such failure and shall give
Landlord thirty (30) days to cure or commence to cure such failure prior to
any claim for breach or resultant damages, provided, however, that if the
nature of the default is such that it cannot reasonably be cured within the
30-day period, Landlord shall not be deemed in default if it commences within
such period to cure, and thereafter diligently prosecutes the same to
completion. In addition, upon any such failure by Landlord, Tenant shall give
notice by registered or certified mail to any person or entity with a
security interest in the Premises ("Mortgagee") that has provided Tenant with
notice of its interest in the Premises, and shall provide Mortgagee a
reasonable opportunity to cure such failure, including such time to obtain
possession of the Premises by power of sale or judicial foreclosure, if such
should prove necessary to effectuate a cure. Tenant agrees that each of the
Mortgagees to whom this Lease has been assigned is an expressed third-party
beneficiary hereof. Tenant waives any right under California Civil Code
Section 1950.7 or any other present or future law to the collection of any
payment or deposit from Mortgagee or any purchaser at a foreclosure sale of
Mortgagee's interest unless Mortgagee or such purchaser shall have actually
received and not refunded the applicable payment or deposit. Tenant Further
waives any right to terminate this Lease and to vacate the Premises on
Landlord's default under this Lease. Tenant's sole remedy on Landlord's
default is an action for damages or injunctive or declaratory relief.
B. LIMITATION ON TENANT'S RECOURSE: If Landlord is a corporation,
trust, partnership, joint venture, unincorporated association or other form
of business entity, then (i) the obligations of Landlord shall not constitute
personal obligations of the officers, directors, trustees, partners, joint
venturers, members, owners, stockholders, or other principals or
representatives except to the extent of their interest in the Premises.
Tenant shall have recourse only to the interest of Landlord in the Premises
or for the satisfaction of the obligations of Landlord and shall not have
recourse to any other assets of Landlord for the satisfaction of such
obligations.
C. INDEMNIFICATION OF LANDLORD: As a material part of the
consideration rendered to Landlord, Tenant hereby waives all claims against
Landlord for damages to goods, wares and merchandise, and all other personal
property in, upon or about said Premises and for injuries to persons in or
about said Premises, from any cause arising at any time to the fullest extent
permitted by law, and Tenant shall indemnify, defend with counsel reasonably
acceptable to Landlord and hold Landlord, and their shareholders, directors,
officers, trustees, employees, partners, affiliates and agents from any
claims, liabilities, costs or expenses incurred or suffered arising from the
use of occupancy of the Premises or any part of the Project by Tenant or
Tenant's Agents, the acts or omissions of Tenant or Tenant's Agents, Tenant's
breach of this Lease, or any damage or injury to person or property from any
cause, except to the extent caused by the willful misconduct or active
negligence of Landlord or from the failure of Tenant to keep the Premises in
good condition and repair as herein provided, except to the extent due to the
gross negligence or willful misconduct of Landlord. Further, in the event
Landlord is made party to any litigation due to the acts or omission of
Tenant and Tenant's Agents, Tenant will indemnify, defend (with counsel
reasonably acceptable to Landlord) and hold Landlord harmless from any such
claim or liability including Landlord's costs and expenses and reasonable
attorney's fees incurred in defending such claims.
15. DESTRUCTION OF PREMISES:
A. LANDLORD'S OBLIGATION TO RESTORE: In the event of a destruction of
the Premises during the Lease Term Landlord shall repair the same to a
similar condition to that which existed prior to such destruction. Such
destruction shall not annul or void this Lease; however, Tenant shall be
entitled to a proportionate reduction of Base Monthly Rent while repairs are
being made, such proportionate reduction to be based upon the extent to which
the repairs interfere with Tenant's business in the Premises, as reasonably
determined by Landlord. In no event shall Landlord be required to replace or
restore Alterations, Tenant Improvements paid for by Tenant from sources
other than the Work Allowance or Tenant's fixtures or personal property. With
respect to a destruction which Landlord is obligated to repair or may elect
to repair
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under the terms of this Section, Tenant waives the provisions of Section
1932, and Section 1933, Subdivision 4, of the Civil Code of the State of
California, and any other similarly enacted statute, and the provisions of
this Section 15 shall govern in the case of such destruction.
B. LIMITATIONS ON LANDLORD'S RESTORATION OBLIGATION: Notwithstanding
the provisions of Section 15.A, Landlord shall have no obligation to repair,
or restore the Premises if any of the following occur: (i) if the repairs
cannot be made in one hundred eighty (180) days from the date of receipt of
all governmental approvals necessary under the laws and regulations of State,
Federal, County or Municipal authorities, as reasonably determined by
Landlord, (ii) if the holder of the first deed of trust or mortgage
encumbering the Building elects not to permit the insurance proceeds payable
upon damage or destruction to be used for such repair or restoration (unless
Tenant, within 45 days after the casualty, agrees in writing to pay all costs
associated with rebuilding), (iii) the damage or destruction is not fully
covered by the insurance required to be maintained by Landlord hereunder
(unless Tenant, within 45 days after the casualty, agrees in writing to
contribute any shortfall), (iv) the damage or destruction occurs in the last
eighteen (18) months of the Lease Term, (v) Tenant is in default pursuant to
the provisions of Section 13, or (vi) Tenant has vacated the Premises for
more than ninety (90) days. In any such event Landlord may elect either to
(i) complete the repair or restoration, or (ii) terminate this Lease by
providing Tenant written notice of its election within sixty (60) days
following the damage or destruction. Tenant shall also have the right to
terminate this Lease in the event of either (i) or (iv) above, by providing
Landlord with written notice of its election to do so within thirty (30) days
following the damage or destruction.
16. CONDEMNATION: If any part of the Premises shall be taken for any
public or quasi-public use, under any statute or by right of eminent domain
or private purchase in lieu thereof, and only a part thereof remains which is
susceptible of occupation hereunder, this Lease shall, as to the part so
taken, terminate as of the day before title vests in the condemnor or
purchaser ("Vesting Date") and Base Monthly Rent payable hereunder shall be
adjusted so that Tenant is required to pay for the remainder of the Lease
Term only such portion of Base Monthly Rent as the value of the part
remaining after such taking bears to the value of the entire Premises prior
to such taking. Further, in the event of such partial taking, Landlord shall
have the option to terminate this Lease as of the Vesting Date. If all of the
Premises or such part thereof be taken so that there does not remain a
portion susceptible for occupation hereunder, this Lease shall terminate on
the Vesting Date. If part or all of the Premises be taken, all compensation
awarded upon such taking shall go to Landlord, and Tenant shall have no claim
thereto; except Landlord shall cooperate with Tenant, without cost to
Landlord, to recover compensation for damage to or taking of any Alterations,
Tenant Improvements paid for by Tenant from sources other than the Work
Allowance, or for Tenant's moving costs. Tenant hereby waives the provisions
of California Code of Civil Procedures Section 1265.130 and any other
similarly enacted statue, and the provisions of this Section 16 shall govern
in the case of a taking. Nothing contained herein shall be deemed or
construed to prevent Tenant from interposing and prosecuting in any
condemnation proceedings, a claim for the value of any fixtures or
improvements installed in, or made to the Premises by Tenant, or for its
costs of moving or loss of business by reason of such condemnation.
Notwithstanding anything to the contrary set forth in this Section, in the
event that Tenant's leasehold estate only shall be so taken or appropriated,
and the taking or appropriation shall be for a period of less than the
balance of the Lease Term, this Lease shall continue in full force and
effect, Tenant shall receive any award or consideration paid by the
condemning or appropriating authority, and Tenant shall continue to pay
Landlord all sums due under this Lease.
17. ASSIGNMENT OR SUBLEASE:
A. CONSENT BY LANDLORD: Except as specifically provided in this
Section 17.E, Tenant may not assign, sublet, hypothecate, or allow a third
party to use the Premises without the express written consent of Landlord,
which shall not be unreasonably withheld, delayed or conditioned. In the
event Tenant desires to assign this Lease or any interest herein or sublet
the Premises or any part thereof, Tenant shall deliver to Landlord (i)
executed counterparts of any agreement and of all ancillary agreements with
the proposed assignee/subtenant, (ii) current financial statements of the
transferee covering the preceding three years (if available), (iii) the
nature of the proposed transferee's business to be carried on in the
Premises, (iv) a statement outlining all consideration to be given on account
of the Transfer, and (v) a current financial statement of Tenant. Landlord
may condition its approval of any Transfer on receipt of a certification from
both Tenant and the proposed transferee of all consideration to be paid to
Tenant in connection with such Transfer. At Landlord's request, Tenant shall
also provide additional information reasonably required by Landlord to
determine whether it will consent to the proposed assignment or sublease.
Landlord shall have a ten (10) day period following receipt of all the
foregoing within which to notify Tenant in writing that Landlord elects to:
(i) permit Tenant to assign or sublet such space to the named
assignee/subtenant on the terms and conditions set forth in the notice; or
(ii) refuse consent. If Landlord should fail to notify Tenant in writing of
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such election within the 10-day period, Landlord shall be deemed to have
elected option (ii) above. In the event Landlord elects option (ii) above,
Landlord's written consent to the proposed assignment or sublease shall not
be unreasonably withheld, provided and upon the condition that: (i) the
proposed assignee or subtenant is engaged in a business that is limited to
the use expressly permitted under this Lease; (ii) the proposed assignee or
subtenant is a company with sufficient financial worth and management ability
to undertake the financial obligation of this Lease and Landlord has been
furnished with reasonable proof thereof; (iii) the proposed assignment or
sublease is in form reasonably satisfactory to Landlord; (iv) Tenant
reimburses Landlord on demand for any reasonable costs that may be incurred
by Landlord in connection with said assignment or sublease, including the
costs of making investigations as to the acceptability of the proposed
assignee or subtenant and legal costs incurred in connection with the
granting of any requested consent (not to exceed $6,000.00); and (vi) Tenant
shall not have advertised or publicized in any way the availability of the
Premises without prior notice to Landlord. In the event all or any one of the
foregoing conditions are not satisfied, Landlord shall be considered to have
acted reasonably if it withholds its consent.
B. ASSIGNMENT OR SUBLETTING CONSIDERATION: Any rent or other economic
consideration realized by Tenant under any sublease and assignment, in excess
of the Base Monthly Rent payable hereunder and reasonable subletting and
assignment costs, and after deduction of the unamortized cost of Tenant
Improvements not paid for out of the Work Allowance, shall be divided and
paid fifty percent (50%) to Landlord and fifty percent (50%) to Tenant.
Tenant's obligation to pay over Landlord's portion of the consideration
constitutes an obligation for additional rent hereunder. The above provisions
relating to the allocation of excess rent are independently negotiated terms
of the Lease which constitute a material inducement for the Landlord to enter
into the Lease, and are agreed by the Parties to be commercially reasonable.
No assignment or subletting by Tenant shall relieve it of any obligation
under this Lease. Any assignment or subletting which conflicts with the
provisions hereof shall be void.
C. NO RELEASE: Any assignment or sublease shall be made only if and
shall not be effective until the assignee or subtenant shall execute,
acknowledge, and deliver to Landlord an agreement, in form and substance
reasonably satisfactory to Landlord, whereby the assignee or subtenant shall
assume all the obligations of this Lease on the part of Tenant to be
performed or observed and shall be subject to all the covenants, agreements,
terms, provisions and conditions in this Lease. Notwithstanding any such
sublease or assignment and the acceptance of rent by Landlord from any
subtenant or assignee, Tenant and any guarantor shall remain fully liable for
the payment of Base Monthly Rent and additional rent due, and to become due
hereunder, for the performance of all the covenants, agreements, terms,
provisions and conditions contained in this Lease on the part of Tenant to be
performed and for all acts and omissions of any licensee, subtenant, assignee
or any other person claiming under or through any subtenant or assignee that
shall be in violation of any of the terms and conditions of this Lease, and
any such violation shall be deemed a violation by Tenant. Tenant shall
indemnify, defend and hold Landlord harmless from and against all losses,
liabilities, damages, costs and expenses (including reasonable attorney fees)
resulting from any claims that may be made against Landlord by the proposed
assignee or subtenant or by any real estate brokers or other persons claiming
compensation in connection with the proposed assignment or sublease.
D. REORGANIZATION OF TENANT: The provisions of this Section 17.D
shall apply if Tenant is a corporation and: (i) there is a dissolution,
merger, consolidation, or other reorganization of or affecting Tenant, where
Tenant is not the surviving corporation, or (ii) there is a sale or transfer
to one person or entity (or to any group of related persons or entities) of
stock possessing more than 50% of the total combined voting power of all
classes of Tenant's capital stock issued, outstanding and entitled to vote
for the election of directors, and after such sale or transfer of stock
Tenant's stock is no longer publicly traded. In a transaction under clause
(i) the surviving corporation shall promptly execute and deliver to Landlord
an agreement in form reasonably satisfactory to Landlord under which such
surviving corporation assumes the obligations of Tenant hereunder, and in a
transaction under clause (ii) the transferee or buyer shall promptly execute
and deliver to Landlord an agreement in form reasonably satisfactory to
Landlord under which such transferee or buyer assumes the obligations of
Tenant under the Lease.
E. PERMITTED TRANSFERS: Notwithstanding anything contained in this
Section 17, so long as Tenant otherwise complies with the provisions of this
Article, Tenant may enter into any of the following transfers (a "Permitted
Transfer") without Landlord's prior consent, and Landlord shall not be
entitled to terminate the Lease or to receive any part of any subrent
resulting therefrom that would otherwise be due pursuant to Sections 17.A and
17.B. Tenant may sublease all or part of the Premises or assign its interest
in this Lease to (i) any corporation which controls, is controlled by, or is
under common control with the original Tenant to this Lease by means of an
ownership interest of more than 50%; (ii) a corporation which results from a
merger, consolidation or other reorganization in which Tenant: (a) is the
surviving corporation;
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or (b) is not the surviving corporation, so long as the surviving corporation
has a net worth at the time of such assignment that is equal to or greater
than the net worth of Tenant immediately prior to such transaction; and (iii)
a corporation which purchases or otherwise acquires all or substantially all
of the assets of Tenant so long as such acquiring corporation has a net worth
at the time of such assignment that is equal to or greater than the net worth
of Tenant immediately prior to such transaction.
F. EFFECT OF DEFAULT: In the event of Tenant's default, Tenant hereby
assigns all rents due from any assignment or subletting to Landlord as
security for performance of its obligations under this Lease, and Landlord
may collect such rents as Tenant's Attorney-in-Fact, except that Tenant may
collect such rents unless a default occurs as described in Section 13 above.
A termination if the Lease due to Tenant's default shall not automatically
terminate an assignment or sublease then in existence; rather at Landlord's
election, such assignment or sublease shall survive the Lease termination,
the assignee or subtenant shall attorn to Landlord, and Landlord shall
undertake the obligations of Tenant under the sublease or assignment; except
that Landlord shall not be liable for prepaid rent, security deposits or
other defaults of Tenant to the subtenant or assignee, or for any acts or
omissions of Tenant and Tenant's Agents.
G. CONVEYANCE BY LANDLORD: As used in this Lease, the term "Landlord"
is defined only as the owner for the time being of the Premises, so that in
the event of any sale or other conveyance of the Premises or in the event of
a master lease of the Premises, Landlord shall be entirely freed and relieved
of all its covenants and obligations hereunder, and it shall be deemed and
construed, without further agreement between the Parties and the purchaser at
any such sale or the master tenant of the Premises, that the purchaser or
master tenant of the Premises has assumed and agreed to carry out any and all
covenants and obligations of Landlord hereunder. Such transferor shall
transfer and deliver Tenant's security deposit and any other prepaid sums to
the purchaser at any such sale or the master tenant of the Premises, and
thereupon the transferor shall be discharged from any further liability in
reference thereto.
F. SUCCESSORS AND ASSIGNS: Subject to the provisions this Section 17,
the covenants and conditions of this Lease shall apply to and bind the heirs,
successors, executors, administrators and assigns of all Parties hereto; and
all Parties hereto comprising Tenant shall be jointly and severally liable
hereunder.
18. OPTION TO EXTEND THE LEASE TERM:
A. GRANT AND EXERCISE OF OPTION: Landlord grants to Tenant, subject
to the terms and conditions set forth in this Section 18.A, two (2) options
(the "Options") to extend the Lease Term for an additional term (each an
"Option Term"). Each Option Term shall be for a period of sixty (60) months
and shall be exercised, if at all, by written notice to Landlord no earlier
than eighteen (18) months prior to the date the Lease Term would expire but
for such exercise but no later than twelve (12) months prior to the date the
Lease Term would expire but for such exercise, time being of the essence for
the giving of such notice. If Tenant exercises the Option, all of the terms,
covenants and conditions of this Lease except for the grant of additional
Options pursuant to this Section, provided that Base Monthly Rent for the
Premises payable by Tenant during the Option Term shall be the greater of (i)
the Base Monthly Rent applicable to the period immediately prior to the
commencement of the Option Term, and (ii) ninety five percent (95%) of the
Fair Market Rental as hereinafter defined. Notwithstanding anything herein to
the contrary, if Tenant is in monetary or material non-monetary default under
any of the terms, covenants or conditions of this Lease either at the time
Tenant exercises the Option or at any time thereafter prior to the
commencement date of the Option Term, Landlord shall have, in addition to all
of Landlord's other rights and remedies provided in this Lease, the right to
terminate the Option upon notice to Tenant, in which event the Lease Term
shall not be extended pursuant to this Section 18.A. As used herein, the term
"Fair Market Rental" is defined as the rental and all other monetary
payments, including any escalations and adjustments thereto (including
without limitation Consumer Price Indexing) that Landlord could obtain during
the Option Term from a third party desiring to lease the Premises, based upon
an office/R&D use of the Premises, as determined by the rents then being
obtained for new leases of space comparable in age and quality to the
Premises in the same real estate submarket in Fremont as the Building. The
appraisers shall be instructed that: (1) the foregoing five percent (5%)
discount is intended to offset comparable rents that include the following
costs which Landlord will not incur in the event Tenant exercises its option
(i) brokerage commissions, (ii) tenant improvement allowances, (iii) building
improvement costs, and (iv) vacancy costs; and (2) no premium shall be
factored in or value attributed for Tenant's specialized laboratory and
manufacturing improvements, but rather those areas of the Premises shall be
assumed as general office improvements for the purposes of appraisal.
B. DETERMINATION OF FAIR MARKET RENTAL: If Tenant exercises the
Option, Landlord shall send Tenant a notice setting forth the Fair Market
Rental for the Option Term within thirty (30) days following the Exercise
Date. If Tenant disputes Landlord's determination of Fair Market Rental for
the Option Term, Tenant shall, within thirty (30)
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days after the date of Landlord's notice setting forth Fair Market Rental for
the Option Term, send to Landlord a notice stating that Tenant either elects
to terminate its exercise of the Option, in which event the Option shall
lapse and this Lease shall terminate on the Expiration Date, or that Tenant
disagrees with Landlord's determination of Fair Market Rental for the Option
Term and elects to resolve the disagreement as provided in Section 18.C
below. If Tenant does not send Landlord a notice as provided in the previous
sentence, Landlord's determination of Fair Market Rental shall be the Base
Monthly Rent payable by Tenant during the Option Term. If Tenant elects to
resolve the disagreement as provided in Section 18.C and such procedures are
not concluded prior to the commencement date of the Option Term, Tenant shall
pay to Landlord as Base Monthly Rent the Fair Market Rental as determined by
Landlord in the manner provided above. If the Fair Market Rental as finally
determined pursuant to Section 18.C is greater than Landlord's determination,
Tenant shall pay Landlord the difference between the amount paid by Tenant
and the Fair Market Rental as so determined in Section 18.C within thirty
(30) days after such determination. If the Fair Market Rental as finally
determined in Section 18.C is less than Landlord's determination, the
difference between the amount paid by Tenant and the Fair Market Rental as so
determined in Section 18.C shall be credited against the next installments of
Base Monthly Rent due from Tenant to Landlord hereunder.
C. RESOLUTION OF A DISAGREEMENT OVER THE FAIR MARKET RENTAL: Any
disagreement regarding Fair Market Rental shall be resolved as follows:
1. Within thirty (30) days after Tenant's response to Landlord's
notice setting forth the Fair Market Rental, Landlord and Tenant shall meet
at a mutually agreeable time and place, in an attempt to resolve the
disagreement.
2. If within the 30-day period referred to above, Landlord and
Tenant cannot reach agreement as to Fair Market Rental, each party shall
select one appraiser to determine Fair Market Rental. Each such appraiser
shall arrive at a determination of Fair Market Rental and submit their
conclusions to Landlord and Tenant within thirty (30) days after the
expiration of the 30-day consultation period described above.
3. If only one appraisal is submitted within the requisite time
period, it shall be deemed as Fair Market Rental. If both appraisals are
submitted within such time period and the two appraisals so submitted differ
by less than ten percent (10%), the average of the two shall be deemed as
Fair Market Rental. If the two appraisals differ by more than 10%, the
appraisers shall immediately select a third appraiser who shall, within
thirty (30) days after his selection, make and submit to Landlord and Tenant
a determination of Fair Market Rental. This third appraisal will then be
averaged with the closer of the two previous appraisals and the result shall
be Fair Market Rental.
4. All appraisers specified pursuant to this Section shall be
members of the American Institute of Real Estate Appraisers with not less
than ten (10) years experience appraising office and industrial properties in
the Santa Clara Valley. Each party shall pay the cost of the appraiser
selected by such party and one-half of the cost of the third appraiser.
D. PERSONAL TO TENANT: All Options provided to Tenant in this Lease
are personal and granted to Abgenix, Inc. and are not exercisable by any
third party (other than a third party resulting from a Permitted Transfer)
should Tenant assign or sublet all or a portion of its rights under this
Lease, unless Landlord consents to permit exercise of any option by any
assignee or subtenant, in Landlord's sole and absolute discretion. In the
event Tenant has multiple options to extend this Lease, a later option to
extend the Lease cannot be exercised unless the prior option has been
properly exercised.
19. GENERAL PROVISIONS:
A. ATTORNEY'S FEES: In the event a suit or alternative form of
dispute resolution is brought for the possession of the Premises, for the
recovery of any sum due hereunder, to interpret the Lease, or because of the
breach of any other covenant herein; then the losing party shall pay to the
prevailing party reasonable attorney's fees including the expense of expert
witnesses, depositions and court testimony as part of its costs which shall
be deemed to have accrued on the commencement of such action. The prevailing
party shall also be entitled to recover all costs and expenses including
reasonable attorney's fees incurred in enforcing any judgment or award
against the other party. The foregoing provision relating to post-judgment
costs is severable from all other provisions of this Lease.
B. AUTHORITY OF PARTIES: Tenant represents and warrants that it is
duly formed and in good standing, and is duly authorized to execute and
deliver this Lease on behalf of said corporation, in accordance with a duly
adopted resolution of the Board of Directors of said corporation or in
accordance with the by-laws of said corporation, and that this Lease is
binding upon said corporation in accordance with its terms. At Landlord's
request, Tenant shall provide Landlord with corporate resolutions or other
proof in a form acceptable to Landlord, authorizing the execution of the
Lease.
C. BROKERS: Tenant represents it has not utilized or contacted a real
estate broker or finder with respect to this Lease other than CRESA
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Partners and Tenant agrees to indemnify, defend and hold Landlord harmless
against any claim, cost, liability or cause of action asserted by any other
broker or finder claiming through Tenant. Landlord agrees that it will be
responsible for all real estate fees or commissions due to CRESA Partners
pursuant to a separate agreement between Landlord and CRESA Partners.
Landlord agrees to indemnify, defend and hold Tenant harmless against any
claim, cost, liability or cause of action asserted by any other broker or
finder claiming through Landlord.
D. CHOICE OF LAW: This Lease shall be governed by and construed in
accordance with California law. Except as provided in Section 19.E, venue
shall be Santa Clara County.
E. DISPUTE RESOLUTION: Landlord and Tenant and any other party that
may become a party to this Lease or be deemed a party to this Lease including
any subtenants agree that, except for any claim by Landlord for unlawful
detainer or any claim within the jurisdiction of the small claims court
(which small claims court shall be the sole court of competent jurisdiction),
any controversy, dispute, or claim of whatever nature arising out of, in
connection with or in relation to the interpretation, performance or breach
of this Lease, including any claim based on contract, tort, or statute, shall
be resolved at the request of any party to this agreement through a two-step
dispute resolution process administered by J.A.M.S. or another judicial
mediation service mutually acceptable to the parties located in Santa Clara
County, California. The dispute resolution process shall involve first,
mediation, followed, if necessary, by final and binding arbitration
administered by and in accordance with the then existing rules and practices
of J.A.M.S. or other judicial mediation service selected. In the event of any
dispute subject to this provision, either party may initiate a request for
mediation and the parties shall use reasonable efforts to promptly select a
J.A.M.S. mediator and commence the mediation. In the event the parties are
not able to agree on a mediator within thirty (30) days, J. A. M. S. or
another judicial mediation service mutually acceptable to the parties shall
appoint a mediator. The mediation shall be confidential and in accordance
with California Evidence Code ss. 1119 et. seq. The mediation shall be held
in Santa Clara County, California and in accordance with the existing rules
and practice of J. A. M. S. (or other judicial and mediation service
selected). The parties shall use reasonable efforts to conclude the mediation
within sixty (60) days of the date of either party's request for mediation.
The mediation shall be held prior to any arbitration or court action (other
than a claim by Landlord for unlawful detainer or any claim within the
jurisdiction of the small claims court which are not subject to this
mediation/arbitration provision and may be filed directly with a court of
competent jurisdiction). Should the prevailing party in any dispute subject
to this Section 19.E attempt an arbitration or a court action before
attempting to mediate, the prevailing party shall not be entitled to
attorney's fees that might otherwise be available to them in a court action
or arbitration and in addition thereto, the party who is determined by the
arbitrator to have resisted mediation, shall be sanctioned by the arbitrator
or judge.
IF A MEDIATION IS CONDUCTED BUT IS UNSUCCESSFUL, IT SHALL BE FOLLOWED BY
FINAL AND BINDING ARBITRATION ADMINISTERED BY AND IN ACCORDANCE WITH THE THEN
EXISTING RULES AND PRACTICES OF J.A.M.S. OR THE OTHER JUDICIAL AND MEDIATION
SERVICE SELECTED, AND JUDGMENT UPON ANY AWARD RENDERED BY THE ARBITRATOR(S)
MAY BE ENTERED BY ANY STATE OR FEDERAL COURT HAVING JURISDICTION THEREOF AS
PROVIDED BY CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 1280 ET. SEQ, AS SAID
STATUTES THEN APPEAR, INCLUDING ANY AMENDMENTS TO SAID STATUTES OR SUCCESSORS
TO SAID STATUTES OR AMENDED STATUTES, EXCEPT THAT IN NO EVENT SHALL THE
PARTIES BE ENTITLED TO PROPOUND INTERROGATORIES OR REQUEST FOR ADMISSIONS
DURING THE ARBITRATION PROCESS. THE ARBITRATOR SHALL BE A RETIRED JUDGE OR A
LICENSED CALIFORNIA ATTORNEY. THE VENUE FOR ANY SUCH ARBITRATION OR MEDIATION
SHALL BE IN SANTA CLARA COUNTY, CALIFORNIA.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION OF
DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA
LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE
LITIGATED IN A COURT OR fURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE
GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS
ARE SPECIFICALLY INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES"
PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS
PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE
CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION
PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE
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FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN
THE "MEDIATION AND ARBITRATION OF DISPUTES" PROVISION TO NEUTRAL ARBITRATION.
LANDLORD: ______ TENANT: _______
F. ENTIRE AGREEMENT: This Lease and the exhibits attached hereto
contains all of the agreements and conditions made between the Parties hereto
and may not be modified orally or in any other manner other than by written
agreement signed by all parties hereto or their respective successors in
interest. This Lease supersedes and revokes all previous negotiations,
letters of intent, lease proposals, brochures, agreements, representations,
promises, warranties, and understandings, whether oral or in writing, between
the parties or their respective representatives or any other person
purporting to represent Landlord or Tenant.
G. ENTRY BY LANDLORD: Upon prior notice to Tenant and subject to
Tenant's reasonable security regulations, Tenant shall permit Landlord and
his agents to enter into and upon the Premises at all reasonable times, and
without any rent abatement or reduction or any liability to Tenant for any
loss of occupation or quiet enjoyment of the Premises thereby occasioned, for
the following purposes: (i) inspecting and maintaining the Premises; (ii)
making repairs, alterations or additions to the Premises; (iii) erecting
additional building(s) and improvements on the land where the Premises are
situated or on adjacent land owned by Landlord; (iv) performing any
obligations of Landlord under the Lease including remediation of Hazardous
Materials if determined to be the responsibility of Landlord, (v) posting and
keeping posted thereon notices of non-responsibility for any construction,
alteration or repair thereof, as required or permitted by any law, and (vi)
showing the Premises to Landlord's or the Master Landlord's existing or
potential successors, purchaser, tenants and lenders. Tenant shall permit
Landlord and his agents, at any time within one hundred eighty (180) days
prior to the Expiration Date (or at any time during the Lease if Tenant is in
default hereunder), to place upon the Premises "For Lease" signs and exhibit
the Premises to real estate brokers and prospective tenants at reasonable
hours. Landlord's right pursuant to this Paragraph 19.F. shall be subject to
the condition that exercise of any of such rights shall not unreasonably
interfere with Tenant's use of the Premises.
H. ESTOPPEL CERTIFICATES: At any time during the Lease Term, Tenant
shall, within ten (10) days following written notice from Landlord, execute
and deliver to Landlord a written statement certifying, if true, the
following: (i) that this Lease is unmodified and in full force and effect
(or, if modified, stating the nature of such modification); (ii) the date to
which rent and other charges are paid in advance, if any; (iii) acknowledging
that there are not, to Tenant's knowledge, any uncured defaults on Landlord's
part hereunder (or specifying such defaults if they are claimed); and (iv)
such other information as Landlord may reasonably request. Any such statement
may be conclusively relied upon by any prospective purchaser or encumbrancer
of Landlord's interest in the Premises. Tenant's failure to deliver such
statement within such time shall be conclusive upon the Tenant that this
Lease is in full force and effect without modification, except as may be
represented by Landlord, and that there are no uncured defaults in Landlord's
performance. Tenant agrees to provide, within five (5) business days of
Landlord's request, Tenant's most recent three (3) years of audited financial
statements (if available) for Landlord's use in financing or sale of the
Premises or Landlord's interest therein.
I. EXHIBITS: All exhibits referred to are attached to this Lease and
incorporated by reference.
J. INTEREST: All rent due hereunder, if not paid when due, shall bear
interest at the rate of the Reference Rate published by Bank of America, San
Francisco Branch, plus two percent (2%) per annum from that date until paid
in full ("Agreed Interest Rate"). This provision shall survive the expiration
or sooner termination of the Lease. Despite any other provision of this
Lease, the total liability for interest payments shall not exceed the limits,
if any, imposed by the usury laws of the State of California. Any interest
paid in excess of those limits shall be refunded to Tenant by application of
the amount of excess interest paid against any sums outstanding in any order
that Landlord requires. If the amount of excess interest paid exceeds the
sums outstanding, the portion exceeding those sums shall be refunded in cash
to Tenant by Landlord. To ascertain whether any interest payable exceeds the
limits imposed, any non-principal payment (including late charges) shall be
considered to the extent permitted by law to be an expense or a fee, premium,
or penalty rather than interest.
K. MODIFICATIONS REQUIRED BY LENDER: If any lender of Landlord or
ground lessor of the Premises requires a modification of this Lease that will
not increase Tenant's cost or expense or materially or adversely change
Tenant's rights and obligations, this Lease shall be so modified and Tenant
shall execute whatever documents are required and deliver them to Landlord
within ten (10) business days after the request.
L. NO PRESUMPTION AGAINST DRAFTER: Landlord and Tenant understand,
agree and acknowledge that this Lease has been freely negotiated by both
Parties; and that in any controversy, dispute, or contest over the meaning,
interpretation, validity, or enforceability of this
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Lease or any of its terms or conditions, there shall be no inference,
presumption, or conclusion drawn whatsoever against either party by virtue of
that party having drafted this Lease or any portion thereof.
M. NOTICES: All notices, demands, requests, or consents required to
be given under this Lease shall be sent in writing by U.S. certified mail,
return receipt requested, or by personal delivery addressed to the party to
be notified at the address for such party specified in Section 1 of this
Lease, or to such other place as the party to be notified may from time to
time designate by at least fifteen (15) days prior notice to the notifying
party. When this Lease requires service of a notice, that notice shall
replace rather than supplement any equivalent or similar statutory notice,
including any notices required by Code of Civil Procedure Section 1161 or any
similar or successor statute. When a statute requires service of a notice in
a particular manner, service of that notice (or a similar notice required by
this Lease) shall replace and satisfy the statutory service-of-notice
procedures, including those required by Code of Civil Procedure Section 1162
or any similar or successor statute.
N. PROPERTY MANAGEMENT: In addition, Tenant agrees to pay Landlord
along with the expenses to be reimbursed by Tenant a monthly fee for
management services rendered by either Landlord or a third party manager
engaged by Landlord (which may be a party affiliated with Landlord), in the
amount of four percent (4%) of the Base Monthly Rent.
O. RENT: All monetary sums due from Tenant to Landlord under this
Lease, including, without limitation those referred to as "additional rent",
shall be deemed as rent.
P. REPRESENTATIONS: Tenant acknowledges that neither Landlord nor any
of its employees or agents have made any agreements, representations,
warranties or promises with respect to the Premises or with respect to
present or future rents, expenses, operations, tenancies or any other matter.
Except as herein expressly set forth herein, Tenant relied on no statement of
Landlord or its employees or agents for that purpose.
Q. RIGHTS AND REMEDIES: Subject to Section 14 above, All rights and
remedies hereunder are cumulative and not alternative to the extent permitted
by law, and are in addition to all other rights and remedies in law and in
equity.
R. SEVERABILITY: If any term or provision of this Lease is held
unenforceable or invalid by a court of competent jurisdiction, the remainder
of the Lease shall not be invalidated thereby but shall be enforceable in
accordance with its terms, omitting the invalid or unenforceable term.
S. SUBMISSION OF LEASE: Submission of this document for examination
or signature by the parties does not constitute an option or offer to lease
the Premises on the terms in this document or a reservation of the Premises
in favor of Tenant. This document is not effective as a lease or otherwise
until executed and delivered by both Landlord and Tenant.
T. SUBORDINATION: This Lease is subject and subordinate to ground and
underlying leases, mortgages and deeds of trust (collectively "Encumbrances")
which may now affect the Premises, to any covenants, conditions or
restrictions of record, and to all renewals, modifications, consolidations,
replacements and extensions thereof; provided, however, if the holder or
holders of any such Encumbrance ("Holder") require that this Lease be prior
and superior thereto, within seven (7) days after written request of Landlord
to Tenant, Tenant shall execute, have acknowledged and deliver all documents
or instruments, in the form presented to Tenant, which Landlord or Holder
deems necessary or desirable for such purposes. Landlord shall have the right
to cause this Lease to be and become and remain subject and subordinate to
any and all Encumbrances which are now or may hereafter be executed covering
the Premises or any renewals, modifications, consolidations, replacements or
extensions thereof, for the full amount of all advances made or to be made
thereunder and without regard to the time or character of such advances,
together with interest thereon and subject to all the terms and provisions
thereof; provided only, that in the event of termination of any such lease or
upon the foreclosure of any such mortgage or deed of trust, Holder agrees to
recognize Tenant's rights under this Lease as long as Tenant is not then in
default and continues to pay Base Monthly Rent and additional rent and
observes and performs all required provisions of this Lease. Within ten (10)
days after Landlord's written request, Tenant shall execute any documents
reasonably required by Landlord or the Holder to make this Lease subordinate
to any lien of the Encumbrance. If Tenant fails to do so, then in addition to
such failure constituting a default by Tenant, it shall be deemed that this
Lease is so subordinated to such Encumbrance. Notwithstanding anything to the
contrary in this Section, Tenant hereby attorns and agrees to attorn to any
entity purchasing or otherwise acquiring the Premises at any sale or other
proceeding or pursuant to the exercise of any other rights, powers or
remedies under such encumbrance, provided only that such entity agrees to
recognize this Lease. As of the Effective Date, there is no lender on the
Premises.
U. SURVIVAL OF INDEMNITIES: All indemnification, defense, and hold
harmless obligations of Landlord and Tenant under this Lease
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shall survive the expiration or sooner termination of the Lease.
V. TIME: Time is of the essence hereunder.
W. WAIVER OF RIGHT TO JURY TRIAL: Landlord and Tenant waive their
respective rights to trial by jury of any contract or tort claim,
counterclaim, cross-complaint, or cause of action in any action, proceeding,
or hearing brought by either party against the other on any matter arising
out of or in any way connected with this Lease, the relationship of Landlord
and Tenant, or Tenant's use or occupancy of the Premises, including any claim
of injury or damage or the enforcement of any remedy under any current or
future law, statute, regulation, code, or ordinance.
Page 20
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the day
and year first above written.
LANDLORD: Ardenwood Corporate Park Associates, TENANT: Abgenix, Inc.
a California Limited Partnership a Delaware Corporation
By: John Michael Sobrato * By: /s/ Kurt Leutzinger
------------------------------- ------------------------
Its: General Partner Its: Vice President and Chief
------------------------------ Financial Officer
------------------------
* By: /s/ R. Scott Greer
------------------------
Its: President and Chief
Executive Officer
------------------------
* NOTE: THIS LEASE MUST BE SIGNED BY TWO (2) OFFICERS OF SUCH CORPORATION:
ONE BEING THE CHAIRMAN OF THE BOARD, THE PRESIDENT, OR A VICE PRESIDENT, AND
THE OTHER BEING THE SECRETARY, AN ASSISTANT SECRETARY, THE CHIEF FINANCIAL
OFFICER OR AN ASSISTANT TREASURER. IF ONE (1) INDIVIDUAL IS SIGNING IN TWO
(2) OF THE FOREGOING CAPACITIES, THAT INDIVIDUAL MUST SIGN TWICE; ONCE AS ONE
OFFICER AND AGAIN AS THE OTHER OFFICER AND IN SUCH EVENT, TENANT MUST DELIVER
TO LANDLORD A CERTIFIED COPY OF A CORPORATE RESOLUTION AUTHORIZING THE
SIGNATORY TO EXECUTE THIS LEASE.
Page 21
<PAGE>
EXHIBIT "A" - PREMISES & BUILDING
Page 22
<PAGE>
EXHIBIT "B" - DRAFT LETTER OF CREDIT
Page 23
<PAGE>
EXHIBIT "C" - SHELL PLANS AND SPECIFICATIONS
(REFERENCE ATTACHED PLANS PREPARED BY ARCTEC DATED 4/15/98)
Page 24
<PAGE>
EXHIBIT "D" - TENANT IMPROVEMENT PLANS AND SPECIFICATIONS
(SHEET REFERENCES TO BE ATTACHED)
Page 25
<PAGE>
EXHIBIT "E" - HAZARDOUS MATERIALS LIST
Page 26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEETS AND THE STATEMENTS OF OPERATIONS AS OF AND FOR THE
THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 316,388
<SECURITIES> 251,614
<RECEIVABLES> 250
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 572,435
<PP&E> 8,788
<DEPRECIATION> 3,535
<TOTAL-ASSETS> 663,071
<CURRENT-LIABILITIES> 19,653
<BONDS> 112
0
0
<COMMON> 679,950
<OTHER-SE> (36,828)
<TOTAL-LIABILITY-AND-EQUITY> 663,071
<SALES> 0
<TOTAL-REVENUES> 1,965
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,575
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114
<INCOME-PRETAX> (3,383)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,383)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,383)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
