UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended
December 31, 1998 Commission File No. 0-14710
XOMA LTD.
(Exact name of registrant as specified in its charter)
BERMUDA 94-2756657
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2910 Seventh Street,
Berkeley, California 94710
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
(510) 644-1170
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, U.S. $.0005 par value
Preference Share Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting common equity held by nonaffiliates of
the registrant, as of February 28, 1999: $172,989,370.
Number of Common Shares outstanding as of February 28, 1999: 49,748,145.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the Company's 1999 Annual
Meeting of Shareholders are incorporated by reference into Part III of this
Report.
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PART I
Item 1. Business
General
XOMA Ltd. ("XOMA" or the "Company") is a biopharmaceutical company
developing products to treat infections, infectious complications (such as those
that follow traumatic injury and surgery), and immunologic and inflammatory
disorders. The Company's current product development programs include:
o NEUPREX(R) (rBPI21), a modified recombinantly-derived fragment of human
bactericidal/ permeability-increasing protein ("BPI") and XOMA's lead
BPI-derived product. The product is currently in Phase III efficacy clinical
trials in two indications and has been in earlier-stage clinical trials in three
additional indications.
o I-PREX(TM), a proprietary topical formulation of rBPI21 for the treatment
of ophthalmic disorders, which is undergoing preclinical testing as a treatment
for corneal injuries and infections, including ulcerations and transplants.
o Mycoprex(TM), a fungicidal compound derived from BPI that is currently in
preclinical product development. It is targeted at systemic fungal infections.
o hu1124 (anti-CD11a), a humanized antibody product being developed in
collaboration with Genentech, Inc. ("Genentech"), which originally discovered
the antibody and characterized it as anti-CD11a. The hu1124 product has
completed a Phase II clinical trial for psoriasis.
XOMA recently completed a shareholder-approved corporate reorganization,
changing its legal domicile from Delaware to Bermuda. When referring to a time
or period before December 31, 1998, or when the context so requires, the terms
"Company" and "XOMA" refer to XOMA Corporation, a Delaware corporation and the
predecessor of XOMA Ltd.
Product Areas
The following describes XOMA's more significant therapeutic product
development and clinical activities:
The BPI Product Platform
The Company's current programs are primarily focused on developing novel
therapeutic products from bactericidal/permeability-increasing protein ("BPI").
BPI is a naturally-occurring human host-defense protein found in neutrophils
(white blood cells). BPI kills certain bacteria. It also binds to and
neutralizes endotoxins, molecular components of the cell walls of gram-negative
bacteria that can trigger severe complications in infected patients.
Furthermore, BPI inhibits angiogenesis (growth of new blood vessels) by binding
to and neutralizing heparin, a carbohydrate molecule involved in blood vessel
formation. Angiogenesis is an essential component of inflammation and solid
tumor growth.
BPI was discovered in 1978 by Peter Elsbach, M.D., Professor of Medicine,
and Jerrold Weiss, Ph.D., Professor of Microbiology, both at New York University
("NYU") School of Medicine. XOMA has collaborated with NYU since 1991 to extend
and apply BPI-related research to the commercial development of pharmaceutical
products. From March 1993 to December 1998, the U.S. Patent and Trademark Office
("Patent Office") has issued four patents and one additional Notice of
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Allowance to NYU relating to BPI, and the Company is the exclusive licensee of
these patents and the Notice of Allowance. See "Patents and Trade Secrets" and
"Research and License Agreements".
XOMA has adopted the BPI molecule as a platform for developing
pharmaceutical products. In 1991 XOMA scientists developed a modified
recombinant fragment of the BPI molecule, called rBPI21, which is potent and
stable and can be manufactured at commercially viable yields. This modified
fragment is the basis for the Company's NEUPREX(R) and I-PREX(TM) products. In
1994 a XOMA scientist discovered three functional domains in the BPI molecule
with pharmacologically-desirable activities. Based on this discovery, XOMA is
developing compounds from these domains into additional therapeutic products,
including the Mycoprex(TM) antifungal product.
NEUPREX(R)
In December 1992, XOMA submitted an investigational new drug application
("IND") to the U.S. Food and Drug Administration ("FDA") to begin Phase I human
testing of the NEUPREX(R) product. In March 1993, the Company began Phase I
human safety and pharmocokinetic testing under the IND. Beginning in 1995, the
Company initiated five clinical efficacy studies evaluating the NEUPREX(R)
product as a treatment for primary infections and major complications of
infectious diseases, traumatic injury and surgery. These indications are:
o Severe pediatric meningococcemia: This is a deadly bacterial infection
that usually afflicts children. In August 1996, following favorable
results in an open label Phase I/II pilot study, the U.S. Food & Drug
Administration ("FDA") Center for Biologics Evaluation and Research
("CBER") granted XOMA a Subpart E designation for NEUPREX(R) for the
treatment of severe pediatric meningococcemia. This designation is
intended to expedite the development, evaluation and marketing of new
therapies for life-threatening and debilitating illnesses. The Company
subsequently began a Phase III pivotal trial for the indication in
October 1996 in the United States and Canada. Beginning in the first
quarter of 1997, XOMA added trial sites in the United Kingdom to
increase patient enrollment in the trial. In June 1998, the Company
announced that NEUPREX(R) had been designated as an "orphan drug"
under the Orphan Drug Act by the FDA for treatment of severe
meningococcal disease. The Orphan Drug Act generally entitles the
first developer that receives FDA marketing approval for an orphan
drug to a seven-year exclusive marketing period in the United States
for that product.
o Hemorrhage due to trauma: Accidents or injuries that cause acute blood
loss may trigger serious complications in up to 40% of patients who
survive the initial trauma and surgery. These patients may be infected
by bacteria and their endotoxins translocated from their own
gastrointestinal tracts into their bloodstreams. A placebo-controlled,
double-blinded Phase II study in 401 patients began in June 1995 and
was completed in October 1996. A follow-on single-blinded Phase II
pharmacokinetics study explored alternative dosing regimens in 169
patients. Based on data from these two Phase II studies, XOMA
initiated a Phase III pivotal trial in the fourth quarter of 1997,
designed to enroll 1,650 patients in 40 centers, testing NEUPREX(R) to
prevent serious pulmonary complications (pneumonia and/or acute
respiratory distress syndrome (ARDS)) in trauma patients.
o Partial hepatectomy: This is a procedure involving the surgical
removal of part of the liver(usually to remove an isolated tumor),
which can result in temporarily impaired liver function. Since the
liver normally clears bacteria and their endotoxins from the
bloodstream, these patients are at risk for infectious complications.
The double-blinded, placebo-controlled Phase II study in 35 patients
began in mid-1995 and was concluded at the end of 1997.
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o Severe intra-abdominal infections: In 1996, the Company began a Phase
I/II open-label dose-ranging study testing NEUPREX(R) with
conventional antibiotics to treat patients with serious abdominal
infections that required surgery. Completed in 1998, the study showed
a dose-related improvement in outcome.
o Cystic fibrosis (CF): In the third quarter of 1997, XOMA initiated a
program to test NEUPREX(R) in CF patients, whose genetic disorder
predisposes them to recurring bacterial lung infections. With repeated
antibiotic treatments, the infecting bacteria often become resistant
to antibiotics. A natural history study in 1997 involved in vitro
testing of a formulation of rBPI21, alone and in combination with
antibiotics, against bacterial cultures collected from CF patients. A
Phase I safety and pharmacokinetics study in CF patients began in the
fourth quarter of 1997 and was concluded in 1998.
There can be no assurance that any of the clinical trials will yield data
that will result in licensure of the NEUPREX(R) product.
I-PREX(TM)
XOMA has developed a proprietary topical ophthalmic formulation of rBPI21
for the treatment of corneal infections, including those resistant to currently
available antibiotics. In addition, I-PREX(TM) may inhibit the growth of new
blood vessels in the cornea associated with these infections. This so-called
neovascularization can lead to scarring and permanently impaired vision. In
preclinical testing, the I-PREX(TM) product has shown both anti-infective and
anti-angiogenic (inhibition of blood vessel growth) properties that may be
useful in the treatment of corneal injury and associated infection. The use of
I-PREX(TM) to treat corneal injuries, including ulcers and other corneal
diseases, could reduce or eliminate the need for current anti-inflammatory
therapies, such as corticosteroids, which have undesirable side effects. In
1998, the Company retained an advisor to assist it in finding a development and
marketing partner for I-PREX(TM). No assurance can be given regarding the timing
or likelihood of future collaborative arrangements or of product licensure.
Mycoprex(TM)
XOMA scientists discovered that certain compounds derived from BPI display
potent fungicidal activity. Further research demonstrated that many of these
compounds not only kill strains of Candida, the most common fungi to cause
systemic illness, but also show activity against other strains of fungi,
including those resistant to the currently available drugs. Based on these
findings, the Company is developing compounds with a broad spectrum of
fungicidal activity and a better safety profile than currently-available
fungicidals. In late 1998, the Company retained an advisor to assist in finding
a development and marketing partner for Mycoprex(TM). No assurance can be given
regarding the timing or likelihood of future collaborative arrangements or of
product licensure.
LBP Assay
In the first quarter of 1997, the Company granted to Biosite Diagnostics
Incorporated ("Biosite") of San Diego, California, an exclusive U.S. license to
make, use and sell certain non-automated, point-of-care diagnostic and
prognostic products for measuring Lipopolysaccharide Binding Protein ("LBP") to
detect bacterial endotoxin exposure in patients with endotoxemia or sepsis. A
non-exclusive license was granted to SRL, Inc., a Japanese company, to make, use
and sell certain automated diagnostic and prognostic products for centralized
laboratory use in Japan. In August 1998, the Company announced that it had
granted to Diagnostics Products Corporation a worldwide license to its patented
technology that uses LBP as a biochemical marker of systemic exposure to
endotoxin.
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hu1124 (anti-CD11a) Monoclonal Antibody Product
In April 1996, XOMA and Genentech entered into an agreement to co-develop
Genentech's anti-CD11a humanized monoclonal antibody product (hu1124). In late
1996, the Company started a Phase I trial in moderate to severe psoriasis
patients. In the second quarter of 1997, in response to findings that hu1124 was
active at smaller doses, XOMA started additional Phase I studies at lower doses.
XOMA completed enrollment in a Phase II efficacy study in Canadian psoriasis
patients in October 1998. Following successful completion of that trial,
Genentech paid XOMA a $2 million milestone payment in December 1998. Further
joint development plans for this product are currently under review.
Additional Product and Technology Areas
XOMA continues to seek opportunities to realize value from products and
technologies outside its core research efforts, including immunoconjugates,
immunofusions, mammalian and microbial cell expression technologies,
humanization technology, osteoinductive proteins for bone repair, and
non-cariogenic proteins for low-calorie flavor enhancement. Various licenses and
sublicenses have been entered into in these areas. Discussions are ongoing with
other entities that have expressed interest in these products and technologies.
No assurance can be given that any agreement or agreements will be reached as a
result of the ongoing discussions.
XOMA has developed a patented technology for the humanization of
antibodies. This human engineering (HE) technology represents a novel
alternative to the complementarity-determining region (CDR) grafting-based
methods in widespread use today. The Company plans to seek outlicensing of this
technology, but no assurance can be given that it will successfully do so.
In 1996, XOMA received a $2.2 million payment related to the sale of its
T-cell receptor ("TCR") technology to Connective Therapeutics, Inc., now called
Connetics Corporation ("Connetics"). Connetics is using the technology in its
TCR vaccines in development for treatment of multiple sclerosis (MS) and
rheumatoid arthritis. XOMA is entitled to royalties on future sales of these
products. In December 1997, Connetics successfully completed a Phase I/II study
of their MS TCR vaccine.
In 1996, XOMA also received a $3.0 million payment for an exclusive license
to Genentech, including a sublicense to IDEC Pharmaceuticals Corporation
("IDEC"), to intellectual property covering the use of chimeric IgG1 antibodies
specific to the CD20 antigen on the surface of human B-cells. XOMA was entitled
to royalties on the sale of products employing the anti-CD20 technology that are
sold in the United States and in other countries where XOMA held relevant
patents. In December 1997, XOMA assigned these anti-CD20 antibody patents and
royalty rights to Pharmaceutical Partners, LLC for $17.0 million.
XOMA has granted licenses to a number of biotechnology and pharmaceutical
companies for use of patented and proprietary technologies relating to a
bacterial expression system used to manufacture recombinant pharmaceutical
products. Licensees include: Affymax Research Institute, Biosite, Cantab
Pharmaceuticals Research Ltd, Eli Lilly and Company, Enzon, Inc., Genentech, the
Hoechst Group, ICOS Corporation, Invitrogen Corporation,
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Pasteur Merieux Serums & Vaccins, and The Pharmacia & Upjohn Group.
Genimune(TM) is XOMA's humanized immunofusion product that targets T
lymphocytes (white blood cells that attack foreign cells) in autoimmune disease
therapy. For several years, the Company developed and evaluated several
proprietary variants of genetically-engineered proteins and targeted
immunofusions ("TIF"). In mid-1993 the Company selected a lead immunofusion
compound designated Genimune(TM). In December 1993, XOMA entered into
cross-license agreements with Research Development Foundation concerning
recombinant DNA-derived gelonin ("r-gelonin"), a plant-derived cytotoxic enzyme
used as a TIF component. In the fourth quarter of 1994, XOMA terminated further
internal development of Genimune(TM). XOMA is attempting to outlicense the
product, but no assurance can be given that it will successfully do so.
Thaumatin, a flavor-enhancing protein developed by XOMA, was classified as
generally recognized as safe ("GRAS") by the Flavor and Extract Manufacturer's
Association ("FEMA"). GRAS designation permits the use of this ingredient as a
flavor enhancer in food without additional regulatory approval. Thaumatin is the
first flavoring ingredient produced through biotechnology to be granted GRAS
status. The Company is seeking to outlicense this technology, but no assurance
can be given that it will successfully do so.
Manufacturing
XOMA is currently producing its NEUPREX(R) and hu1124 products for clinical
trial and other testing needs at its Berkeley manufacturing facility, pursuant
to a drug manufacturing license obtained from the State of California.
The Company's manufacturing capability is based on recombinant DNA
technology, with production of therapeutic proteins from either mammalian or
microbial cells. XOMA has fermentation capacity for up to 5,500 liters with
associated isolation and purification systems in place. The Company does its own
formulation for final sterile filling and finishing and has the capacity to do
its own small-scale filling.
Development and Marketing Arrangements
The Company's strategy is to enter into arrangements with established
pharmaceutical company partners in order to facilitate and finance the
development and marketing of its products. Assuming timely regulatory approval,
which cannot be assured, the successful commercialization of XOMA's products may
be dependent to a large extent upon the marketing capabilities of any
pharmaceutical partners.
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NEUPREX(R)
The Company is seeking one or more strategic alliances with respect to its
NEUPREX(R) product. Discussions have taken place with several entities regarding
such a product alliance. The Company cannot predict whether or when any such
alliance(s) will be consummated.
I-PREX(TM)
In 1998, the Company retained an advisor to assist it in finding a
development and marketing partner for I-PREX(TM). No assurance can be given
regarding the timing or likelihood of future collaborative arrangements or of
product licensure.
Mycoprex(TM)
In late 1998, the Company retained an advisor to assist in finding a
development and marketing partner for Mycoprex(TM). No assurance can be given
regarding the timing or likelihood of future collaborative arrangements or of
product licensure.
hu1124 (anti-CD11a)
In April 1996, XOMA and Genentech entered into an agreement whereby XOMA
agreed to co-develop Genentech's humanized monoclonal antibody product,
originally called anti-CD11a. Under the terms of the agreement Genentech
purchased 1.5 million XOMA common shares at $5.90 per share and funded
development through Phase II by making a series of convertible subordinated
loans. In April and December 1996, respectively, Genentech loaned $5.0 million
and $8.5 million to fund 1996 and 1997 development costs. In December 1997,
Genentech loaned an additional $10.0 million to fund 1998 development costs. In
December 1998, the Company received a $2.0 million milestone payment from
Genentech based on successful completion of its Phase II clinical study in
psoriasis. Further joint development plans for this product are currently under
review.
Other
From time to time, the Company reviews development opportunities with other
biotechnology companies with a view toward providing process scale-up,
regulatory and/or clinical services to them.
Competition
The biotechnology and pharmaceutical industries are subject to continuous
and substantial technological change. Competition in the areas of recombinant
DNA-based and antibody-based technologies is intense and expected to increase as
established biotechnology firms and large chemical and pharmaceutical companies
advance in the field. A number of these large pharmaceutical and chemical
companies have enhanced their capabilities by entering into arrangements with or
acquiring biotechnology companies or entering into business combinations with
other large pharmaceutical companies. Many of these companies have significantly
greater financial resources, larger research and development and marketing
staffs and larger production facilities than those of XOMA. Moreover, certain of
these companies have extensive experience in undertaking preclinical testing and
human clinical trials. These factors may enable other companies to develop
products and processes competitive with or superior to those of the Company. In
addition, a significant amount of research in biotechnology is being carried out
in universities and other non-profit research organizations. These entities are
becoming increasingly interested in the commercial value of their work and may
become more aggressive in seeking patent protection and licensing arrangements.
There can be no assurance that developments by others will not render the
Company's products or technologies obsolete or uncompetitive.
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It is possible that other companies may be developing one or more products
based on BPI, and there can be no assurance that such product(s) will not prove
to be more effective than or receive regulatory approval prior to NEUPREX(R).
Regulatory Process
XOMA's products are subject to comprehensive preclinical and clinical
testing requirements and to approval processes by FDA and similar authorities in
other countries. The Company's products are primarily regulated on a
product-by-product basis under the U.S. Food, Drug and Cosmetic Act and Section
351(a) of the Public Health Service Act. Most of the Company's human therapeutic
products are or will be classified as biologic products and would be subject to
regulation by CBER. Approval of a biologic for commercialization requires
licensure of the product and the manufacturing facilities.
The FDA regulatory process is carried out in several phases. Prior to
beginning clinical testing of a proposed new biologic product, an IND is filed
with FDA. This document contains scientific information on the proposed product,
including results of testing of the product in animal and in vitro or laboratory
models. Also included is information on manufacture of the product and studies
on toxicity in animals, and a clinical protocol outlining the initial
investigation in humans.
The initial stage of clinical testing, Phase I, ordinarily encompasses
safety, pharmacokinetics and pharmacodynamic evaluations. Phase II testing
encompasses investigation in specific disease states designed to provide
preliminary efficacy data and additional information on safety. Phase III
studies are designed to further establish clinical safety and efficacy and to
provide information allowing proper labeling of the product following approval.
Phase III studies are most commonly multicenter, randomized, placebo-controlled
trials in which rigorous statistical methodology is applied to clinical results.
Other designs may also be appropriate in specific circumstances.
Following completion of clinical trials, a Biologics License Application
("BLA") is submitted to FDA to request marketing approval. Internal FDA
committees are formed which evaluate the application, including scientific
background information, animal and in vitro efficacy studies, toxicology,
manufacturing facility and clinical data. During the review process, a dialogue
between FDA and the applicant is established in which FDA questions are raised
and additional information is submitted. During the final stages of the approval
process, FDA generally requests presentation of clinical or other data before an
FDA advisory committee. Also, during the later stages of review, FDA conducts an
inspection of the manufacturing facility to establish that the product is made
in conformity with good manufacturing practice (GMP). If all outstanding issues
are satisfactorily resolved and labeling established, FDA issues a license for
the product and for the manufacturing facility, thereby authorizing commercial
distribution.
The regulatory status of NEUPREX(R) is described above under "Product Areas
- - NEUPREX(R)".
Other potential XOMA products will require significant additional
development, including extensive pre-clinical and clinical testing. There can be
no assurance that any of the products under development by the Company will be
developed successfully, obtain the requisite regulatory approval or be
successfully manufactured or marketed.
FDA has substantial discretion in both the product approval process and the
manufacturing approval process, and it is not possible to predict at what point,
or whether, FDA will be satisfied with the Company's submissions or whether FDA
will raise questions which may delay or preclude product approval or
manufacturing facility approval. As additional clinical data are accumulated,
they will be submitted to FDA and may have a material impact on the FDA product
approval process. Given that regulatory review is an interactive and continuous
process, the Company has adopted a policy of limiting announcements and comments
upon the specific details of the ongoing regulatory review of its products,
subject to its obligations under the securities laws, until definitive action is
taken.
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Patents and Trade Secrets
As a result of its ongoing activities, the Company holds and is in the
process of applying for a number of patents in the United States and abroad to
protect its products and important processes. The Company also has obtained or
has the right to obtain exclusive licenses to certain patents and applications
filed by others. However, the patent position of biotechnology companies
generally is highly uncertain and no consistent policy regarding the breadth of
allowed claims has emerged from the actions of the Patent Office with respect to
biotechnology patents. Accordingly, no assurance can be given that the Company's
patents will afford protection against competitors with similar technologies, or
that others will not obtain patents claiming aspects similar to those covered by
the Company's patent applications.
During the period from September 1994 to December 1998, the U.S. Patent and
Trademark Office (the "Patent Office") issued 33 patents to the Company related
to its BPI-based products, including novel compositions, their manufacture,
formulation assay, and use. U.S. Patent Nos. 5,420,019, 5,674,834, 5,827,816,
5,488,034, and 5,696,090 issued to the Company relate to novel recombinant amino
terminal fragments and fragment analogs of BPI, pharmaceutical compositions,
methods for their recombinant production and formulation. The Company believes
that these patents will provide comprehensive protection for the manufacture,
use and sale of its BPI-derived NEUPREX(R) and I-PREX(TM) products in the U.S.
The Company has received Notices of Allowance from the Patent Office for nine
additional U.S. patents and has more than 20 pending patent applications
worldwide related to its BPI-based products.
The Company is the exclusive licensee of BPI-related patents and
applications owned by NYU. These include four issued U.S. patents and one
additional U.S. Notice of Allowance, directed to novel BPI-related protein and
DNA compositions, as well as their production and uses. U.S. Patent Nos.
5,198,541 and 5,641,874, issued to NYU, relate to the recombinant production of
BPI. The Company believes that these patents have substantial value because they
cover certain production methodologies that allow production of commercial-scale
quantities of BPI for human use. In addition, the European Patent Office granted
to NYU, EP 375724, with claims to N-terminal BPI fragments and their use, alone
or in conjunction with antibiotics, for the treatment of conditions associated
with bacterial infections.
Between 1992 and 1998, six patents related to BPI were issued to Incyte
Pharmaceuticals, Inc. ("Incyte") by the Patent Office directed to
endotoxin-associated uses of BPI, uses of BPI with polymannuronic acid, and an
LBP-BPI protein. Effective July 1998, the Company is the exclusive licensee of
BPI-related patents and applications owned by Incyte, including these six U.S.
patents, one granted European patent and pending applications worldwide.
During the period from July 1991 to December 1998, the Patent Office issued
eight patents to the Company related to its bacterial expression technology,
including claims to novel promoter sequences, secretion signal sequences,
compositions and methods for expression and secretion of recombinant proteins
from bacteria, including immunoglobulin gene products. U.S. Patent No.
5,028,530, issued to the Company, is directed to expression vehicles containing
an AraB promoter, host cells and processes for regulated expression of
recombinant proteins. U.S. Patent Nos. 5,576,195 and 5,846,818 are related to
DNA encoding a pectate lyase signal sequence, recombinant vectors, host cells
and methods for production and externalization of recombinant proteins. U.S.
Patent Nos. 5,595,898, 5,698,435 and 5,618,920 address secretable immunoglobulin
chains, DNA encoding the chains and methods for their recombinant production.
U.S. Patent Nos. 5,693,493 and 5,698,417 relate to methods for recombinant
production/secretion of functional immunoglobulin fragments. Numerous foreign
patents have been granted which, along with additional pending foreign patent
applications, correspond to the patents issued and allowed in the U.S.
If certain patents issued to others are upheld or if certain patent
applications filed by others issue and are upheld, the Company may require
certain
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licenses from others in order to develop and commercialize certain potential
products incorporating the Company's technology. There can be no assurance that
such licenses, if required, will be available on acceptable terms.
Research and License Agreements
XOMA has contracted with a number of academic and institutional
collaborators to conduct certain research and development. Under these
agreements the Company generally funds either the research and development or
evaluation of products, technologies or both, will own or obtain an exclusive
license to products or technologies developed, and will pay royalties on sales
of products covered by the license. The rates and durations of such royalty
payments vary by product and institution, and range generally for periods from
five years o indefinite duration. Aggregate expenses of the Company under all of
its research agreements totaled $0.1 million, $0.2 million and $0.3 million in
1998, 1997 and 1996, respectively. The Company has entered into certain license
agreements with respect to the following products:
Bactericidal/Permeability Increasing Protein (BPI)
In August 1990, XOMA entered into a research collaboration and license
agreement with NYU whereby XOMA obtained an exclusive license to patent rights
for DNA materials and genetic engineering methods for the production of BPI and
fragments thereof. BPI is part of the body's natural defenses against infection
and XOMA is exploring the use of its NEUPREX(R) and I-PREX(TM) products, based
on BPI, for various indications. XOMA has obtained an exclusive, worldwide
license for the development, manufacture, sale and use of BPI products for all
therapeutic and diagnostic uses, and it has paid a license fee and will make
milestone payments and pay royalties to NYU on the sale of such products. The
license becomes fully paid upon the later of the expiration of the relevant
patents or fifteen years after the first commercial sale, subject to NYU's right
to terminate for certain events of default.
In July 1998, XOMA entered into a license agreement with Incyte whereby
XOMA obtained an exclusive license to all of Incyte's patent rights relating to
BPI. XOMA will pay Incyte a royalty on sales of BPI products covered by the
license, up to a maximum of $11.5 million, and made a $1.5 million advance
royalty payment, one-half in cash and one-half in XOMA common shares. XOMA also
issued warrants to Incyte to purchase 250,000 XOMA common shares at $6.00 per
share. Due to offsets against other royalties, XOMA may not ultimately incur
increased total BPI royalty payments as a result of this license.
International Operations
The Company believes that, because the pharmaceutical industry is global in
nature, international activities will be a significant part of the Company's
future business activities and that, when and if it is able to generate income,
a substantial portion of that income will be derived from product sales and
other activities outside the United States.
A number of risks are inherent in international operations. Foreign
regulatory agencies often establish standards different from those in the United
States, and an inability to obtain foreign regulatory approvals on a timely
basis could have an adverse effect on the Company's international business and
its financial condition and results of operations. International operations may
be limited or disrupted by the imposition of gov-
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ernment controls, export license requirements, political or economic
instability, trade restrictions, changes in tariffs, restrictions on
repatriating profits, taxation, or difficulties in staffing and managing
international operations. In addition, the Company's business, financial
condition and results of operations may be adversely affected by fluctuations in
currency exchange rates. There can be no assurance that the Company will be able
to successfully operate in any foreign market.
Employees
As of December 31, 1998 XOMA employed 167 full-time employees at its
Berkeley and Santa Monica, California facilities. The Company's employees are
engaged in clinical, manufacturing, quality assurance and control, research and
product development activities, and in executive, finance and administrative
positions. The Company considers its employee relations to be excellent.
The Company was incorporated in Delaware in 1981 and became a Bermuda
company effective December 31, 1998. The principal executive offices of XOMA are
located at 2910 Seventh Street, Berkeley, California 94710 (telephone
510-644-1170).
Item 2. Properties
XOMA's principal product development and manufacturing facilities are
located in Berkeley, California. The Company leases 83,000 square feet of space
in Berkeley including approximately 35,000 square feet of research and
development laboratories, 32,000 square feet of production and production
support facilities and 16,000 square feet of office space. An additional 3,000
square feet of office space has been subleased to a third party. Separately, a
16,500 square foot production facility in Berkeley is owned by XOMA. XOMA also
maintains offices, laboratories and a manufacturing and scale up facility
occupying approximately 15,000 square feet in leased space in Santa Monica,
California. The Company also owns an approximately 6,750 square foot parking lot
in Santa Monica.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
On December 29, 1998, the Company held a special meeting of shareholders at
which (A) the proposed corporate reorganization, whereby the Company would
change its domicile from Delaware to Bermuda pursuant to (i) a merger agreement,
pursuant to which the Company would be merged with and into its newly-formed,
wholly-owned subsidiary, XOMA Arizona, Inc. ("XOMA-Arizona"), and (ii) a
memorandum of continuance, upon the registration of which XOMA-Arizona would
become a Bermuda company through a continuation procedure under Arizona and
Bermuda law, and (B) the proposed bye-laws, to be effective upon continuation
into Bermuda, and any future actions of the Board of Directors of the Company
(including with respect to existing share options, share purchase and other
employee benefit plans and the conversion of preference shares) deemed necessary
or advisable in accordance with either (A) or (B) or to give effect thereto,
were all approved, having received 27,161,474 votes for, 1,071,942 votes against
and 229,412 abstentions.
-11-
<PAGE>
Officers
The officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Title
<S> <C> <C>
John L. Castello 62 Chairman of the Board, President and Chief Executive Officer
Patrick J. Scannon, M.D., Ph.D. 51 Chief Scientific and Medical Officer and Director
Clarence L. Dellio 52 Senior Vice President, Operations
Stephen F. Carroll, Ph.D. 47 Vice President, Preclinical Research
Peter B. Davis 52 Vice President, Finance and Chief Financial Officer
Marvin J. Garrett 48 Vice President, Clinical and Regulatory Affairs
Bernardus N.M. Machielse 38 Vice President, Quality Assurance/Quality Control
Christopher J. Margolin 52 Vice President, General Counsel and Secretary
W. C. McGregor, Ph.D. 57 Vice President, Technical Development and Santa Monica Operations
</TABLE>
Officers serve at the discretion of the Board of Directors. There is no
family relationship among any of the officers or directors.
-12-
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Company's common shares trade on the Nasdaq National Market under the
symbol "XOMA". The following table sets forth the quarterly range of high and
low reported sale prices of the Company's common shares on the Nasdaq National
Market for the periods indicated.
Price Range
High Low
1997:
First Quarter $7-1/4 $4-5/16
Second Quarter 5-11/16 3-1/8
Third Quarter 8-1/2 4-5/8
Fourth Quarter 8-1/2 4-7/8
1998:
First Quarter $6-1/2 $4-5/16
Second Quarter 6 4-1/4
Third Quarter 5 1-27/32
Fourth Quarter 5 1-13/16
On March 4, 1999, there were approximately 4,379 record holders of XOMA's
common shares.
The Company has not paid dividends on its common shares. The Company
currently intends to retain any earnings for use in the development and
expansion of its business. The Company, therefore, does not anticipate paying
cash dividends on its common shares in the foreseeable future (see Note 4 to the
Consolidated Financial Statements, "SHARE CAPITAL").
-13-
<PAGE>
Item 6. Selected Financial Data
The following table contains selected financial information including
statement of operations and balance sheet data of XOMA for the years 1994
through 1998. The selected financial information has been derived from the
audited Consolidated Financial Statements of XOMA. The selected financial
information should be read in conjunction with the Consolidated Financial
Statements and notes thereto included in Item 8 of this report and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in Item 7 below. The data set forth below is not necessarily indicative
of the results of future operations.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of
Operations Data
Total revenues (1) $ 6,345 $ 18,383 $ 3,604 $ 1,165 $ 1,729
Total operating costs and
expense (2) 54,184 35,552 31,826 27,469 38,460
Other income or expense,
net (3) 636 1,404 (888) 3,832 2,104
--------- --------- --------- --------- ---------
Net loss $ (47,203) $ (15,765) $ (29,110) $ (22,472) $ (34,627)
========= ========= ========= ========= =========
Basic and diluted loss per $ (1.16) $ (0.44) $ (0.90) $ (0.97) $ (1.54)
common share ========= ========= ========= ========= =========
December 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Balance Sheet Data
Cash (4) $ 28,287 $ 55,146 $ 46,982 $ 26,633 $ 39,985
Total assets 37,304 64,776 57,675 40,878 62,429
Long-term debt (5) 26,513 24,773 14,516 7,692 120
Redeemable convertible
preference shares 6,440 -- -- -- --
Accumulated deficit (404,343) (354,526) (337,195) (307,905) (284,847)
Shareholders' equity
(net capital deficiency) $ (6,190) $ 31,240 $ 34,748 $ 26,836 $ 43,461
</TABLE>
(1) In 1998, includes a $2.0 million milestone payment from Genentech and $4.3
million in license fees. In 1997, includes $17.0 million from the
assignment of patent and royalty rights to Pharmaceutical Partners LLC.
(2) In 1998, includes non-recurring costs of $2.4 million to acquire rights to
Incyte's BPI patents and $2.5 million of costs related to the change in
domicile. In 1994, includes $2.5 million related to employee termination
benefits associated with a restructuring.
(3) In 1996, includes a non-recurring expense of $2.5 million relating to a
securities class action lawsuit settlement. Other income in 1995 includes a
one-time gain of $4.3 million related to a modification of the funding
arrangement with Pfizer for the E5(R) clinical trial, and a $2.4 million
loss related to the impairment in value of a company-owned facility.
-14-
<PAGE>
(4) Includes cash, cash equivalents, short-term investments, and interest
receivable.
(5) Excludes current portion. In 1998, 1997 and 1996, includes $23.5 million,
$23.5 million and $13.5 million, respectively, aggregate principal amount
of convertible subordinated notes due to Genentech in 2005. In 1995,
includes $6.5 million aggregate principal amount of convertible debentures
due 1998. As of December 31, 1996 all of the convertible debentures had
been converted into 2,054,224 common shares.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
XOMA is a biopharmaceutical company developing products to treat
infections, infectious complications (such as those that follow traumatic injury
and surgery), and immunologic and inflammatory disorders. The Company's primary
focus is on products derived from BPI. The first BPI-derived product, NEUPREX(R)
is in Phase III pivotal trials in two indications, and has been tested in
earlier stage clinical trials in three additional indications. Other BPI-derived
products in preclinical testing include I-PREX(TM) a topical ophthalmic product,
and Mycoprex(TM), a peptide product targeting systemic fungal infections.
XOMA is also developing the hu1124 humanized monoclonal antibody product
under a collaboration agreement with Genentech. The product has successfully
concluded a Phase II clinical trial for psoriasis. Genentech has provided
funding for development and clinical trials through a series of long-term
convertible loans. Future joint development plans for the product are currently
under review.
In December 1998, the shareholders of the Company (formerly XOMA
Corporation) approved a proposal to change XOMA's legal domicile from Delaware
to Bermuda. The change was tax free to the shareholders, with little or no tax
cost to the Company, and did not affect operations.
The Company incurred a net loss in each of the past three years and is
expected to continue to operate at a loss until regulatory approval and
commencement of commercial sales of its products. The timing of product
approvals is uncertain, and there can be no assurance that approvals will be
granted or that revenues from product sales will be sufficient to attain
profitability.
Revenues
Total revenues were $6.3 million in 1998, compared with $18.4 million in
1997 and $3.6 million in 1996. Revenues for 1998 included $2.0 million in
non-refundable milestone payments from Genentech for hu1124 development, and
$4.3 million in non-refundable license fees. Revenues for 1997 consisted of
$17.0 million from the assignment of anti-CD20 antibody patents and royalty
rights to Pharmaceutical Partners, LLC and $1.4 million for various licensing
transactions. Revenues for 1996 included $3.0 million for licensing of
intellectual property related to anti-CD20 antibodies to Genentech.
Costs and Expenses
In 1998, research and development expenses increased by $14.0 million (47%)
compared to 1997, following a $3.5 million (13%) increase from 1996 to 1997.
These increases reflect higher spending on clinical trials and preparing for
regulatory applications and inspections for NEUPREX(R) and the expansion
-15-
<PAGE>
of development work and clinical trials for hu1124. The Company anticipates
research and development expenditures to continue at similar or higher levels in
1999.
General and administrative expenses decreased by $0.2 million (4%) from
1997 to 1998, following an increase of $0.2 million (4%) from 1996 to 1997. The
Company does not foresee substantial near-term changes to general and
administrative expenditures.
Annual interest income has essentially remained unchanged when comparing
the fiscal years 1996 through 1998, as improved average cash investment balances
each successive year have been offset by lower prevailing interest rates. Other
expense in 1997 and 1998 included interest on the convertible notes due to
Genentech in 2005, which compounds semi-annually and accrues interest at a rate
of LIBOR plus 1% (6.78% at December 31, 1998). Interest expense in 1996 included
interest on the Genentech note and also on the Company's 4% Convertible
Subordinated Debentures.
Other income (expense) in 1998 included costs of $2.4 million related to an
exclusive license for all of Incyte's BPI-related patents and patent
applications and $2.5 million for the expenses related to the change in the
Company's legal domicile from Delaware to Bermuda. Other income (expense) in
1996 included a provision of $2.5 million for legal fees and settlement costs
reflecting an agreement reached with plaintiff's counsel in a class action law
suit. An offsetting gain of $0.3 million was realized in 1997 reflecting an
adjustment to the value of the settlement.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments decreased by $26.9
million to $28.3 million at December 31, 1998. Financing activities of $11.8
million included $12.1 million of net proceeds from a private placement
partially offset by principal payments under capital lease obligations. The
Company's cash, cash equivalents and short-term investments are expected to
continue to decrease while the Company pursues FDA licensure, except to the
extent the Company is able to secure additional funding.
Net cash used in operating activities was $37.7 million in 1998, compared
with $12.0 million in 1997 and $22.4 million in 1996. The increase in cash used
in operating activities in 1998 compared to 1997 is due to higher spending on
clinical trials and preparing for regulatory applications and inspections for
NEUPREX(R) and the expansion of development work and clinical trials for hu1124
and to $17.0 million in cash received from a single non-recurring transaction in
December 1997. The improvement in operating cash flows in 1997 was due primarily
to cash from the aforementioned non-recurring transaction. Capital expenditures
for 1998, 1997 and 1996 were $0.9 million, $1.5 million and $1.1 million,
respectively. A second 2750-liter fermentor train was added to XOMA's Berkeley
facility in 1997 to provide additional production capacity for NEUPREX(R) and
hu1124. The Company intends to continue to fund capital spending from internal
cash resources supplemented by capital financing where appropriate and
available.
Following a common shares financing in January 1999, with net proceeds of
$11.5 million, management believes that the Company's cash position and
resulting interest income are sufficient to finance the Company's currently
anticipated needs for operating expenses, working capital, equipment
acquisitions and current research projects, for at least one year. The Company
continues to evaluate strategic alliances, potential partnerships and financing
arrangements which would further strengthen its competitive position and provide
additional funding. The Company cannot predict whether or when any such
alliance(s), partnership(s) or financing(s) will be consummated or whether
additional funding will be available when required and on terms acceptable to
the Company.
Although operations are influenced by general economic conditions, the
Company does not believe that inflation had a material impact on financial
results for the periods presented. The Company believes that
-16-
<PAGE>
it is not dependent on materials or other resources that would be significantly
impacted by inflation or changing economic conditions in the foreseeable future.
Year 2000 Exposure
Year 2000 ("Y2K") exposure is the result of computer programs using two
instead of four digits to represent the year. These computer programs may
erroneously interpret dates beyond the year 1999, which could cause system
failures or other computer errors, leading to disruptions in operations.
The Company is developing a three-phase program to limit or eliminate Y2K
exposures. Phase I is to identify those systems, applications and third-party
relationships from which the Company has exposure to Y2K disruptions in
operations. Phase II is to develop and implement action plans to achieve Y2K
compliance in all areas before the end of 1999. Also included in Phase II is the
development of contingency plans to be implemented should Y2K compliance not be
achieved when required to avoid disruptions in operations. Phase III is the
final testing or equivalent certification of each major area of exposure to
ensure compliance. The Company believes it will complete all phases before the
end of 1999.
The Company has identified three major areas as critical for successful Y2K
compliance: Area 1, which includes company-wide information systems applications
that rely on computer software; Area 2, which includes manufacturing, quality,
and research applications that rely on computer programs embedded in
microprocessors; and Area 3, which includes third-party relationships which may
be affected by Area 1, 2 or 3 exposures that exist in other companies.
The Company, in accordance with Phase I of the program, is conducting an
internal review and contacting all software suppliers to determine major areas
of Y2K exposure in Area 1. In manufacturing, quality and research (Area 2), the
Company has engaged a consultant to help identify its exposures. With respect to
Area 3, the Company is evaluating its reliance on third parties for its
operations, and contacting these third parties in order to determine whether
their Y2K compliance will adequately assure the Company's uninterrupted
operations.
Although the Company has yet to complete Phase I of its Y2K program with
respect to all three of the major areas, the Company believes that it relies on
systems, applications and third-party relationships which, if not Y2K compliant
prior to the end of 1999, could have a material adverse impact on its
operations. Because the Company has not completed Phase II contingency planning,
it can not describe what action it would take should Y2K compliance not be
achievable in time.
As of December 31, 1998, the Company has identified costs of approximately
$0.3 million to replace or remediate and test its Area 1 computer information
systems and costs of $0.3 million to identify and replace its Area 2
manufacturing, quality and research applications, of which $0.1 million has been
expended. Not having completed its Phase I and II evaluations of all three
areas, the Company can not at this time estimate the total potential cost of its
Y2K compliance programs. The funds for these costs will be part of the Company's
cash flow from operations and capital expenditures.
Assuming that the Company's efforts to mitigate its Y2K exposure in any of
the three areas referred to above are unsuccessful, the most reasonably likely
worst case scenario is an interruption of ongoing clinical trials, including
delays in gathering and evaluating clinical data, and a disruption of the
Company's manufacturing and research operations.
-17-
<PAGE>
Forward-Looking Statements
Certain statements contained herein that are not related to historical
facts may constitute "forward-looking" information, as that term is defined in
the Private Securities Litigation Reform Act of 1995. Such statements are based
on the Company's current beliefs as to the outcome and timing of future events,
and actual results may differ materially from those projected or implied in the
forward-looking statements. Further, certain forward-looking statements are
based upon assumptions of future events which may not prove accurate. The
forward-looking statements involve risks and uncertainties including, but not
limited to, results of pending or future clinical trials, actions by the FDA,
changes in the status of the Company's collaborative relationships, and future
actions by the Patent Office, as well as more general risks and uncertainties
related to regulatory approvals, product efficacy and development, the Company's
financing needs and opportunities, scale-up and marketing capabilities,
intellectual property protection, competition, international operations, the
Company's ability to be Y2K compliant, stock price volatility and other risk
factors referred to herein and in other of the Company's Securities and Exchange
Commission filings.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk. The Company's exposure to market rate risk for changes in
interest rates relates primarily to the Company's investment portfolio. The
Company does not use derivative financial instruments in its investment
portfolio. By policy, the Company places its investments with high quality debt
security issuers, limits the amount of credit exposure to any one issuer, limits
duration by restricting the term, and holds investments to maturity except under
rare circumstances. The Company classifies its cash equivalents or short-term
investments as fixed rate if the rate of return on an instrument remains fixed
over its term. As of December 31, 1998, all the Company's cash equivalents and
short-term investments are classified as fixed rate.
The Company also has a long-term convertible note due to Genentech in 2005.
Interest on this note of LIBOR plus 1% is reset at the end of June and December
each year and therefore variable.
The table below presents the amounts and related weighted interest rates of the
Company's cash equivalents, short-term investments and long-term convertible
note at December 31, 1998:
<TABLE>
<CAPTION>
Fair Value Average
Maturity (in $ millions) Interest Rate
-------------------- ---------------------
<S> <C> <C> <C>
Cash equivalents, fixed rate daily 11.6 5.2%
Short-term investments, fixed rate 0 - 1 year 11.8 5.1%
Short-term investments, fixed rate 1 to 2 years 2.0 5.5%
Short-term investments, fixed rate 25 months 2.5 5.9%
Long-term note, variable rate 2005 26.5 6.8%
</TABLE>
Other Market Risk. At December 31, 1998 the Company had Series C Preference
Shares and a long-term convertible note outstanding, both of which are
convertible into common shares based on the market price of the Company's common
shares at the time of conversion. A 10% decrease in the market price of the
Company's common shares would increase the number of shares issuable upon
conversion of either security by approximately 11%. An increase in the market
price of Company common shares of 10% would decrease the shares issuable by
approximately 9%. (See Footnote 4 to the Consolidated Financial Statements).
-18-
<PAGE>
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements of the registrant, related
notes, and reports of independent auditors are set forth beginning on page 23 of
this report.
Report of Ernst & Young LLP, Independent Auditors
Report of Arthur Andersen LLP, Independent Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Redeemable Convertible Preference
Shares and Shareholders' Equity (Net Capital Deficiency)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 9. Change in Accountants
As previously reported, on March 19, 1998, the Company appointed Ernst &
Young, LLP ("Ernst & Young") to serve as the Company's independent auditors for
1998, the ratification of which appointment was submitted to the shareholders at
the Company's 1998 annual meeting.
From fiscal 1983 through fiscal 1997, Arthur Andersen, LLP ("Arthur
Andersen") acted as the Company's independent accountants. Arthur Andersen was
dismissed on March 19, 1998. The decision to change accountants was approved by
the audit committee of the Board of Directors. The reports of Arthur Andersen on
the financial statements of the Company for the fiscal years ended December 31,
1997 and 1996 did not contain any adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principles. During the Company's two years and all subsequent interim periods
preceding such dismissal, there were no disagreements with Arthur Andersen on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Arthur Andersen, would have caused it to make a reference
to the subject matter of disagreements in connection with its reports; nor has
Arthur Andersen ever presented a written report, or otherwise communicated in
writing to the Company or Board of Directors or the audit committee thereof the
existence of any "disagreement" or "reportable event" within the meaning of Item
304 of Regulation S-K.
The Company has authorized Arthur Andersen to respond fully to the
inquiries of Ernst & Young. The letter from Arthur Andersen addressed to the
Securities and Exchange Commission, as required by Item 304 (a) (3) of
Regulation S-K, was filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997, as amended.
-19-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The section labeled "Proposal 1 -- Election of Directors" appearing in the
Company's proxy statement for the 1998 annual meeting of shareholders is
incorporated herein by reference. Information concerning the Company's executive
officers is set forth in Part I of this Report on Form 10-K.
Item 11. Executive Compensation
The section labeled "Compensation of Executive Officers" appearing in the
Company's proxy statement for the 1998 annual meeting of shareholders is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The section labeled "Stock Ownership" appearing in the Company's proxy
statement for the 1998 annual meeting of shareholders is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
The section labeled "Certain Transactions" appearing in the Company's proxy
statement for the 1998 annual meeting of shareholders is incorporated herein by
reference.
-20-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) List of documents filed as part of this Report.
(1) Financial Statements:
All financial statements of the registrant referred to in Item 8
of this Report on Form 10-K.
(2) Financial Statement Schedules:
All financial statements schedules have been omitted because the
required information is included in the consolidated financial
statements or the notes thereto or is not applicable or required.
(3) Exhibits:
See "Index to Exhibits".
(b) Reports on Form 8-K.
None.
-21-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this 10th day of
March, 1999.
XOMA Ltd.
By /s/ John L. Castello
-----------------------------------
John L. Castello,
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- --------- ----- ----
/s/ John L. Castello Chairman of the Board, President March 10, 1999
- --------------------------------------------- and Chief Executive Officer
(John L. Castello)
/s/ Patrick J. Scannon Chief Scientific and Medical March 10, 1999
- --------------------------------------------- and Director
(Patrick J. Scannon)
/s/ Peter B. Davis Vice President, Finance and March 10, 1999
- --------------------------------------------- Chief Financial Officer (Principal
(Peter B. Davis) Financial and Accounting Officer)
/s/ James G. Andress
- --------------------------------------------- Director March 10, 1999
(James G. Andress)
/s/ William K. Bowes, Jr.
- --------------------------------------------- Director March 10, 1999
(William K. Bowes, Jr.)
/s/ Arthur Kornberg
- --------------------------------------------- Director March 10, 1999
(Arthur Kornberg)
/s/ Steven C. Mendell
- --------------------------------------------- Director March 10, 1999
(Steven C. Mendell)
/s/ W. Denman Van Ness
- --------------------------------------------- Director March 10, 1999
(W. Denman Van Ness)
</TABLE>
-22-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Report of Ernst & Young LLP, Independent Auditors........................... 24
Report of Arthur Andersen LLP, Independent Public Accountants............... 25
Consolidated Balance Sheets................................................. 26
Consolidated Statements of Operations....................................... 27
Consolidated Statements of Changes in Redeemable
Convertible Preference Shares and Shareholders' Equity
(Net Capital Deficiency).................................................. 28
Consolidated Statements of Cash Flows....................................... 29
Notes to Consolidated Financial Statements.................................. 30
-23-
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of XOMA Ltd.
We have audited the accompanying consolidated balance sheet of XOMA Ltd. as
of December 31, 1998 and the related consolidated statements of operations,
changes in redeemable convertible preference shares and shareholders' equity
(net capital deficiency) and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
XOMA Ltd. as of December 31, 1998, and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Palo Alto, California
February 12, 1999
-24-
<PAGE>
REPORT OF ARTHUR ANDERSEN LLP, INDEPENDENT PUBLIC ACCOUNTANTS
To XOMA Corporation (subsequently reincorporated as XOMA Ltd.):
We have audited the accompanying balance sheet of XOMA Corporation (a
Delaware corporation, subsequently reincorporated as XOMA Ltd., a Bermuda
company) as of December 31, 1997 and the related statements of operations,
stockholders' equity and cash flows for each of the two years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of XOMA Corporation,
subsequently reincorporated as XOMA Ltd., as of December 31, 1997, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
San Francisco, California ARTHUR ANDERSEN LLP
February 3, 1998
-25-
<PAGE>
<TABLE>
<CAPTION>
XOMA Ltd.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par and share amounts)
ASSETS
December 31
-----------
1998 1997
---- ----
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 11,857 $ 37,225
Short-term investments 16,430 17,921
Related party receivables 246 263
Other receivables 144 88
Prepaid expenses and other 159 142
--------- ---------
Total current assets 28,836 55,639
Property and equipment, net 3,895 4,564
Assets held for sale 4,442 4,442
Deposits and other 131 131
--------- ---------
$ 37,304 $ 64,776
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (Net capital deficiency)
CURRENT LIABILITIES:
Accounts payable $ 3,515 $ 1,644
Accrued liabilities 6,740 6,412
Capital lease obligations due within one year 286 707
--------- ---------
Total current liabilities 10,541 8,763
Convertible subordinated notes 26,513 24,773
--------- ---------
Total Liabilities 37,054 33,536
--------- ---------
Redeemable convertible
preference shares, $0.05 par value,
644 shares issued and outstanding
(liquidation preference of $6,440) at
December 31, 1998; at amount paid in 6,440 --
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY:
Preference shares, $.05 par value, 1,000,000
shares authorized, 1,167 outstanding
(liquidation preference of $11,670) at December
31, 1997 -- --
Common shares, $.0005 par value, 70,000,000 shares
authorized, 47,029,620 and 39,891,104 outstanding at
December 31, 1998 and 1997, respectively 24 20
Paid-in capital 398,129 385,746
Accumulated deficit (404,343) (354,526)
--------- ---------
Total shareholders' equity (net capital deficiency) (6,190) 31,240
--------- ---------
$ 37,304 $ 64,776
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
-26-
<PAGE>
XOMA Ltd.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year ended December 31
--------------------------------------------------------
1998 1997 1996
---- ---- ----
REVENUES:
<S> <C> <C> <C>
License fees $4,318 $18,077 $3,543
Collaborative research agreements 2,000 250 --
Product sales and royalties 27 56 61
--------- --------- ----------
Total revenues 6,345 18,383 3,604
--------- --------- ----------
OPERATING COSTS AND EXPENSES:
Research and development 43,839 29,878 26,371
General and administrative 5,430 5,674 5,455
Other:
License fee 2,415 -- --
Change in domicile 2,500 -- --
--------- ---------- ----------
Total operating costs and expenses 54,184 35,552 31,826
--------- --------- ----------
Loss from operations (47,839) (17,169) (28,222)
OTHER INCOME (EXPENSE):
Interest and other income 2,269 2,120 2,011
Litigation settlement -- -- (2,500)
Interest and other expense (1,633) (716) (399)
--------- ---------- ----------
Net loss (47,203) (15,765) (29,110)
Preference share dividends (2,614) (1,566) (180)
--------- ---------- ----------
Net loss available to common shareholders $ (49,817) $ (17,331) $ (29,290)
========= ========== ==========
BASIC AND DILUTED NET LOSS PER COMMON
SHARE $ (1.16) $ (0.44) $ (0.90)
========= ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 42,895 39,679 32,493
========= ========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
-27-
<PAGE>
<TABLE>
<CAPTION>
XOMA Ltd.
Statement of Changes in Redeemable Convertiable Preference
Shares and Shareholders' Equity (Net Capital Deficiency)
(In thousands)
Shareholders' Equity (Net Capital Deficiency)
--------------------------------------------------------------------------------
Total Share-
holders'
Redeemable Equity (Net
Convertible Paid-In Accumulated Capital
Preference Shares Preference Shares Common Shares Capital Deficit Deficiency)
----------------- ---------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
BALANCE, DECEMBER 31, 1995 -- $ -- 8 $ -- 27,303 $ 14 $ 334,727 $ (307,905) $ 26,836
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Exercise of share
options, contributions
to 401(k) and
incentive plans -- -- -- -- 162 -- 602 -- 602
Sale of common
shares -- -- -- -- 2,123 1 10,651 -- 10,652
Sale of preference
shares -- -- 7 -- -- -- 18,966 -- 18,966
Issuance of warrants -- -- -- -- -- -- 800 -- 800
Conversion of
preference shares -- -- (15) -- 7,914 4 (4) -- --
Conversion of
debentures -- -- -- -- 2,054 1 5,919 -- 5,920
Other -- -- -- -- -- -- 82 -- 82
Dividends on
preference shares -- -- -- -- 53 -- 180 (180) --
Net loss -- -- -- -- -- -- -- (29,110) (29,110)
------ ------- ------ ------ ------- ----- -------- --------- ---------
BALANCE, DECEMBER 31, 1996 -- -- -- -- 39,609 20 371,923 (337,195) 34,748
Exercise of
share options,
contributions to
401(k)and
incentive plans -- -- -- -- 110 -- 462 -- 462
Sale of preference
shares -- -- 1 -- -- -- 10,936 -- 10,936
Conversion of
preference shares -- -- -- -- 169 -- -- -- --
Issuance of warrants -- -- -- -- -- -- 1,125 -- 1,125
Unrealized loss on
investments -- -- -- -- -- -- (42) -- (42)
Dividends on
preference shares -- -- -- -- 3 -- 1,342 (1,566) (224)
Net loss -- -- -- -- -- -- -- (15,765) (15,765)
------ ------- ------ ------ ------- ----- -------- --------- ---------
BALANCE, DECEMBER 31, 1997 -- -- 1 -- 39,891 20 385,746 (354,526) 31,240
Exercise of
share options,
contributions to
401(k) and
incentive plans -- -- -- -- 111 -- 501 -- 501
Issuance of common
shares for
technology license -- -- -- -- 158 -- 750 -- 750
Issuance of common
shares for legal
settlement -- -- -- -- 344 1 1,896 -- 1,897
Issurance of Series C
redeemable con-
vertible preference
shares, net of
issuance costs 1,250 11,093 -- -- -- -- -- -- --
Conversion of Series C
redeemable con-
vertible preference
shares (606) (4,653) -- -- 2,678 1 4,652 -- 4,653
Issuance of warrants -- -- -- -- -- -- 1,915 -- 1,915
Conversion of
preference shares -- -- (1) -- 3,643 2 (2) -- --
Unrealized gain
(loss) on
investments -- -- -- -- -- -- 2 -- 2
Dividends on
preferred shares -- -- -- -- 204 -- 2,669 (2,614) 55
Net loss -- -- -- -- -- -- -- (47,203) (47,203)
------ ------- ------ ------ ------- ----- -------- --------- ---------
BALANCE, DECEMBER 31, 1998 644 $ 6,440 -- -- 47,029 $ 24 $398,129 $(404,343) $ (6,190)
====== ======= ====== ====== ======= ===== ======== ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
-28-
<PAGE>
<TABLE>
<CAPTION>
XOMA Ltd.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended December 31,
------------------------------------------------------
1998 1997 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $(47,203) $(15,765) $(29,110)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,645 2,032 2,131
Deferred compensation expense -- -- 37
Loss (gain) on retirement of property and
equipment (48) 21 2
Changes in assets and liabilities:
Decrease (increase) in related party and
other receivables (39) 450 1,742
Decrease (increase) in prepaid expenses (17) 77 (9)
Decrease (increase) in deposits and other -- 2 --
assets
Increase (decrease) in accounts payable 1,871 (134) (342)
Increase (decrease) in accrued liabilities 4,348 363 2,856
Increase (decrease) in convertible
subordinated note due to accrued 1,740 968 268
-------- -------- --------
Total adjustments 9,500 3,779 6,685
-------- -------- --------
Net cash used in operating activities (37,703) (11,986) (22,425)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of short-term investments 43,009 105,195 89,675
Payments for purchase of short-term (41,518) (77,389) (129,073)
investments
Purchase of property and equipment, net of
proceeds (928) (1,519) (1,050)
-------- -------- --------
Net cash provided by (used in)
investing activities 563 26,287 (40,448)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease (421) (485) (546)
obligations
Proceeds from issuance of convertible note -- 9,992 13,545
Proceeds from issuance of common or
redeemable convertible
preference shares and warrants 12,193 12,204 30,687
-------- -------- --------
Net cash provided by financing 11,772 21,711 43,686
activities -------- -------- --------
Net increase (decrease) in cash and
cash equivalents (25,368) 36,012 (19,187)
Cash and cash equivalents at beginning of year 37,225 1,213 20,400
-------- -------- --------
Cash and cash equivalents at end of year $ 11,857 $ 37,225 $ 1,213
======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
-29-
<PAGE>
XOMA Ltd.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
XOMA Ltd. ("XOMA" or the "Company"), a Bermuda company, formerly XOMA
Corporation a Delaware company, is a biopharmaceutical company developing
products to treat infections, infectious complications such as those that follow
traumatic injury and surgery, and immunologic and inflammatory disorders. The
Company's products are presently in various stages of development and all are
subject to regulatory approval before the Company can commercially introduce any
products. There can be no assurance that any of the products under development
by the Company will be developed successfully, obtain the requisite regulatory
approval or be successfully manufactured or marketed.
On December 31, 1998 XOMA completed a shareholder-approved corporate
reorganization, changing its legal domicile from Delaware to Bermuda. When
referring to an earlier time or period, or when the context so requires, the
terms "Company" and "XOMA" refer to XOMA Corporation, a Delaware corporation and
the predecessor of XOMA Ltd.
Following a common shares financing in January 1999, with net proceeds of
$11.5 million, management believes that the Company's cash position and
resulting interest income are sufficient to finance the Company's currently
anticipated needs for operating expenses, working capital, equipment
acquisitions and current research projects, for at least one year. The Company
continues to evaluate strategic alliances, potential partnerships, and financing
arrangements which would further strengthen its competitive position and provide
additional funding. The Company cannot predict whether or when any such
alliance(s), partnership(s) or financing(s) will be consummated or whether
additional funding will be available when required.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities, if any, at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ materially from those
estimates.
Consolidation
The consolidated financial statements include the accounts of the Company,
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Net Loss Per Common Share
Basic and diluted net loss per common share is based on the weighted
average number of common shares outstanding during the period in accordance with
Financial Accounting Standard No. 128.
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<PAGE>
The following potentially dilutive outstanding securities were not
considered in the computation of diluted net loss per share because they would
be antidilutive for each of the years ended December 31:
<TABLE>
<CAPTION>
Amount (in thousands): 1998 1997 1996
- --------------------- ---- ---- ----
<S> <C> <C> <C>
Options for common shares 4,006 3,720 3,196
Warrants for common shares 1,464 595 243
Common shares issuable to satisfy legal -- 344 --
settlement obligations
Shares of convertible preferred stock 1 1 --
Convertible notes, debentures, and related
interest $26,513 $24,773 $13,813
</TABLE>
Subsequent to December 31, 1998 the Company issued 2,051,254 common shares
and warrants to purchase 379,000 common shares in connection with a private
placement (see note 10).
Cash and Cash Equivalents
For the purpose of the statements of cash flows, the Company considers all
highly liquid debt instruments with maturities of three months or less at the
time the Company acquires them to be cash equivalents, except when such debt
instruments are part of a portfolio of investments managed by an independent,
outside investment manager, in which case these instruments are classified as
short-term investments.
Supplemental Cash Flow Information
Cash paid for interest was $0.1 million, $0.1 million, and $0.2 million
during the years ended December 31, 1998, 1997, and 1996, respectively.
In addition, during the years ended December 31, 1998, 1997 and 1996, the
Company had the following non-cash financing and investing activities (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Common shares contribution to the 401(k) and management $ 403 $ 319 $ 395
incentive plans (Notes 4 and 9)
Issuance of common shares for legal settlement 1,897 -- --
Issuance of common shares and warrants for technology
license 1,415 -- --
Unrealized loss(gain) on investments 2 (42) (45)
Conversion of debentures to common shares -- -- 5,861
Interest paid in common shares -- -- 59
Dividends paid in common shares 558 15 180
</TABLE>
-31-
<PAGE>
Fair Value of Financial Instruments
The fair value of marketable debt securities is based on quoted market
prices. The carrying value of those securities approximates their fair value.
The fair value of notes is estimated by discounting the future cash flows
using the current interest rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities. The
carrying values of these obligations approximate their respective fair values.
The fair value of short-term and long-term capital lease obligations is
estimated based on current interest rates available to the Company for debt
instruments with similar terms, degrees of risk and remaining maturities. The
carrying values of these obligations approximate their respective fair values.
Property and Equipment
Property and equipment, including equipment under capital leases, are
stated at cost. Equipment depreciation is calculated using the straight-line
method over the estimated useful lives of the assets (five to seven years).
Leasehold improvements, buildings, and building improvements are amortized and
depreciated using the straight-line method over the shorter of the lease terms
or the useful lives (one to seven years).
Property and equipment consist of the following (in thousands):
December 31
1998 1997
---- ----
Equipment $15,966 $15,545
Leasehold and building improvements 14,902 14,836
Construction-in-progress 257 97
------- ------
31,125 30,478
Less accumulated depreciation and amortization 27,230 25,914
------- -------
Property and equipment, net $ 3,895 $ 4,564
======= =======
Assets held for sale $ 4,442 $ 4,442
======= =======
At December 31, 1998 and 1997, property and equipment includes equipment
acquired under capital lease obligations which has cost and accumulated
depreciation of approximately $1.8 million.
Long-lived Assets
In accordance with FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of," the Company
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts of those assets.
In 1994, the Company discontinued development of its CD5 Plus(TM) product
and began to evaluate the related production facility for alternative uses,
including a possible sale of the facility. During 1995, the Company determined
that the events and circumstances indicated that the value of the facility had
become impaired. As a result, it recorded a charge of $2.4 million in "Other
income and expense," reflecting the difference between the then current carrying
value of the facility and its estimated realizable value.
At that time, the estimated realizable value was determined based on the
sales price that management had estimated it could receive from a potential
buyer of the facility. The Company does not currently believe that the carrying
amount is in excess of net realizable value, as it continues to reflect the
estimated price that could be received from a buyer. While the facility has not
been sold, it continues to be available for sale and
-32-
<PAGE>
there is no indication the current carrying value is inappropriate. If the
Company sells the facility, the amount the Company will ultimately realize could
differ materially from the carrying amount.
The Company is also considering adapting the facility to expand production
of its NEUPREX(R) product. This adaptation, if pursued, is estimated to cost
significantly less than a new facility. The Company's current estimate of net
cash flows from NEUPREX(R) that would be manufactured in the facility exceeds
the current carrying value of the facility plus anticipated costs to renovate it
for NEUPREX(R) production. If the Company pursues this alternative, the actual
net cash flows that the Company will ultimately realize as well as the estimated
costs to renovate the facility could differ materially from the estimated
amounts.
Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
December 31
1998 1997
---- ----
Accrued dividends $ 754 $ 810
Accrued payroll costs 2,217 1,986
Provision for litigation settlement -- 2,028
Costs related to change in domicile 1,457 --
Clinical trial costs 1,746 1,203
Other 566 385
------ ------
$6,740 $6,412
Activities through December 31, 1998 affecting the provision for litigation
settlement established in 1996 are as follows (in millions):
Original amount $2.5
Charges against the accrual 2.2
Adjustment to the accrual 0.3
In December 1997, the Company elected to settle the claim through the
issuance of 344,168 common shares which resulted in a $0.3 million reduction in
the cost of the settlement. The remaining liability was eliminated in January
1998 upon issuance of the shares (See Note 6).
Revenue Recognition
Revenue related to collaborative agreements is recognized when earned under
the terms of the agreement and when performance obligations have been met and
related payments are receivable and non-refundable. Non-refundable licenses and
milestone fees are recognized as revenue when the payments are receivable and
the Company has no future obligations to perform. In both cases, receivable
amounts are recognized when collection is assured.
Reclassifications
Certain reclassifications have been made to conform the prior years to the
1998 presentation.
-33-
<PAGE>
New Accounting Standards
In 1998, the Company reports its results of operations and financial
position based upon the Statement of Financial Accounting Standards (SFAS) No.
130 "Reporting Comprehensive Income," and SFAS No. 131 "Disclosures about
Segments of an Enterprise". SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities to be included in other comprehensive
income. During the years ended December 31, 1998, 1997 and 1996 these unrealized
gains and losses were not material and total comprehensive loss closely
approximated net loss in each period. Because the company currently operates in
one segment, adoption of SFAS 131 is not expected to have a material impact on
the Company's financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." XOMA is required to adopt SFAS No. 133 for
the year ending December 31, 2002. Because the Company currently holds no
derivative financial instruments and does not currently engage in hedging
activities, adoption of SFAS No. 133 is expected to have no material impact on
the Company's financial position or results of operations.
2. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
On December 31, 1998 and 1997, cash and cash equivalents consisted mostly
of money market mutual funds.
The Company follows a policy of investing only in marketable debt
securities and holding them to maturity; however, since the Company has from
time to time sold certain securities to meet cash requirements or improve
investment diversification, the Company's short-term investments have been
categorized as available-for-sale.
The aggregate fair values, amortized cost, gross unrealized holding gain,
and gross unrealized holding loss of the major types of debt securities in
short-term investments at December 31, (in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
Fair Amortized Fair Amortized
Value Cost Value Cost
<S> <C> <C> <C> <C>
U.S. Treasury Securities $15.5 $15.5 $9.5 $9.5
Corporate Bonds and Other 0.9 0.9 8.4 8.4
</TABLE>
The contractual maturities of the Company's investments in debt securities
as of December 31, (in millions):
1998 1997
---- ----
Less than 1 year $11.9 $11.4
From 1 to 2 years 2.0 4.0
More than 2 years 2.5 2.5
During the years ended December 31, 1998 and 1997, available-for-sale
securities incurred no significant gross realized gains or losses or net change
in unrealized gain or loss or had any significant gross unrealized holding gain
or loss at the end of the periods. Gains and losses are determined on a specific
identification basis.
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<PAGE>
3. RESEARCH AND DEVELOPMENT AGREEMENTS
In July, 1998, XOMA signed an exclusive license with Incyte
Pharmaceuticals, Inc. ("Incyte") for all of Incyte's patents and patent
applications relating to bactericidal/permeability-increasing protein ("BPI"), a
human host defense protein from which XOMA is developing a pipeline of
pharmaceutical products. The license provides that XOMA will pay Incyte a
royalty on sales of BPI products covered by the license, up to a maximum of
$11.5 million. In July, 1998, XOMA made a non-refundable $1.5 million advance
royalty payment consisting of $750,000 in cash and 158,103 XOMA common shares.
Incyte also received warrants (the "Incyte Warrants") to purchase 250,000 XOMA
common shares at $6.00 per share. The value of the warrants and the advance
royalty payment have been included in a $2.4 million charge recorded in the
second quarter of 1998. The entire value of the warrants has been recorded as a
non-recurring charge in the Company's statement of operations in 1998 since the
technology rights received relate to very early stage research which has no
assurance of commercial viability and no alternative future use.
In April 1996, the Company entered into a collaborative agreement with
Genentech, Inc. ("Genentech") to jointly develop hull24 (anti-CD11a), for
treatment of psoriasis and for organ transplant rejection. In connection with
the agreement, Genentech purchased 1.5 million common shares for approximately
$9.0 million and has agreed to fund the Company's development costs for hull24
until the completion of Phase II clinical trials through a series of convertible
subordinated notes. During 1996, Genentech made loans totaling $13.5 million
($5.0 and $8.5 million, respectively, for funding 1996 and 1997 clinical trials
and development costs) to XOMA under this arrangement. An additional loan of
$10.0 million was made in December 1997 to fund 1998 costs. Under the terms of
the agreement, the Company will scale up and develop hull24 and bring it through
Phase II clinical trials. In December 1998, Genentech made a $2.0 million
milestone payment to XOMA for successful completion of a Phase II study. Future
joint development plans for this product are currently under review.
In May 1996, the Company announced the granting of an exclusive license to
Genentech, including a sublicense to IDEC Pharmaceuticals Corporation, to
intellectual property covering the therapeutic use of chimeric IgG1 antibodies
specific to the CD20 antigen on the surface of human B-cells. The Company
received an initial cash payment of $3.0 million and the right to receive
royalties on the sale of products employing the
-35-
<PAGE>
anti-CD20 technology that are sold in the United States and in other countries
where the Company held relevant patents. In December 1997, the Company assigned
the related patents and royalty rights to Pharmaceutical Partners, LLC for $17.0
million and recognized this amount as license fee revenue.
In June 1994, the Company assigned its exclusive worldwide rights in T cell
receptor ("TCR") peptide technology to Connetics. The Company received a
promissory note in the amount of $1.4 million and warrants to purchase 450,000
shares of Connetics stock, and will receive milestone payments and royalties on
product sales. In 1995, the Company received an additional note in the amount of
$0.8 million pursuant to the terms of the original assignment. The notes were
paid in full in February 1996 and the warrants cancelled.
XOMA has granted licenses to a number of biotechnology and pharmaceutical
companies for use of patented and proprietary technologies relating to a
bacterial expression system used to manufacture recombinant pharmaceutical
products. Licensees include: Affymax Research Institute, Biosite Diagnostics
Incorporated, Cantab Pharmaceuticals Research Ltd, Eli Lilly and Company, Enzon,
Inc., Genentech Inc., the Hoechst Group, ICOS Corporation, Invitrogen
Corporation, Pasteur Merieux Serums & Vaccins, and The Pharmacia & Upjohn Group.
4. SHARE CAPITAL
Common Shares
In July 1998, the Company issued 158,103 common shares valued at $0.8
million to Incyte in partial payment of license fees.
In January 1998, the Company issued 344,168 common shares in connection
with the settlement of shareholder litigation valued at $1.9 million.
In April 1996, Genentech purchased 1.5 million common shares for
approximately $5.90 per share in connection with the collaborative agreement to
develop jointly Genentech's anti-CD11a monoclonal antibody product, hull24.
In March 1996, the Company completed a private placement exempt from
registration under the Securities Act of 1933 in reliance on Regulation D
thereunder, issuing 606,061 common shares for net proceeds of $1.9 million.
Preference Shares and Preferred Stock
In connection with the change in the Company's domicile to Bermuda from
Delaware, certain of the former series of preferred stock were re-designated as
new series of preference shares. Others of the former series of preferred stock
have already been fully converted into common shares and have not been
redesignated. The following table summarizes:
-36-
<PAGE>
<TABLE>
<CAPTION>
Former Preferred Stock Current Preference Share Shares outstanding at December 31,
Designation Designation 1998
<S> <C> <C>
Series A Series A None issued to date
Series B -- None remaining
Series C -- None remaining
Series D -- None remaining
Series E Series B None issued to date
Series F -- None remaining
Series G -- None remaining
Series H Series C 644
</TABLE>
Preference Shares (current designation)
Series A. Formerly Series A Preferred Stock. The Company has authorized 650,000
Series A Cumulative Preference Shares of which none were outstanding
at December 31, 1998, 1997 and 1996. (See "Shareholder Rights Plan" below.)
Series B. Formerly Series E Preferred Stock. (See "Convertible Subordinated
Notes and Debentures" below).
Series C. Formerly Series H Preferred Stock. In June 1998, the Company completed
a private placement exempt from registration under the Securities Act of 1933 in
reliance on Section 4(2) thereof, issuing 1,250 shares of convertible preferred
stock (now designated the "Series C Preference Shares") for proceeds of
approximately $12.1 million net of cash issuance costs. Conversions of Series C
Preference Shares are based on the price of common shares at the time of
conversion. There was no initial discount on the conversion price, but a
discount of 2% was added for each month the Series C Preference Shares were
held, up to a maximum discount of 12%. A deemed dividend of $1.5 million was
recorded in Paid-in capital in fiscal 1998 which represented the value of this
conversion feature. No conversions were permitted below a price of $5.35 for the
first 60 days. The maximum conversion price for the first six months was $6.24.
There are certain restrictions on the volume of sales of underlying common
shares by the investors. The investors also received three-year warrants to
purchase up to a total of 550,000 common shares at a price of $7.00 per share,
and additional warrants to purchase 69,000 common shares at the $7.00 price were
issued to the placement agents (collectively, "1998 Warrants"). As of December
31, 1998, $6,060,000 of the Series C Preference Shares, plus accrued dividends,
had been converted into 2,677,757 common shares. The remaining holders of Series
C Preference Shares are entitled to cumulative dividends at a rate of 5% per
annum, payable in cash or common shares, however, the Company may elect not to
declare a dividend, in which case the unpaid dividends will be calculated and
paid at the time of conversion. Upon any liquidation of the Company, holders
will be entitled to receive $10,000 per share, plus accrued and unpaid
dividends, before any distribution is made on the common shares or any other
junior securities of the Company. The holders will be entitled to redeem their
Series C Preference Shares if the common shares are no longer listed for, or are
suspended from, trading on Nasdaq or any other principal market or exchange for
such shares (other than as a result of a suspension of trading in securities
generally or temporarily pending release of material information) for five
trading days in the aggregate.
Preferred Stock (not redesignated as Preference Shares)
Series B. In December 1993, the Company issued 18,775 shares of Senior
Convertible Preferred Stock, Series B ("Series B Preferred") to two investors
for proceeds of $17.7 million net of issuance costs. Costs of the issue were
approximately $1.1 million. An additional 250 shares of Series B Preferred were
issued to the placement agent as part of the fee for investment banking
services. In May 1994, the placement agent converted all 250 of its shares of
preferred stock into 47,595 common shares. The amounts payable as dividends at
December 31, 1994 were paid with 252,745 common shares in January of 1995.
During 1995, 7,808 shares of the Series B Preferred had been converted into
1,501,731 common shares. The remaining 7,807 shares were converted into
1,648,115 common shares in 1996 prior to the June 1996 dividend date.
Series C. As of December 31, 1995, all shares of Series C Preferred Stock, plus
accrued dividends had been converted to common shares.
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<PAGE>
Series D. In March 1996, the Company completed a private placement exempt from
registration under the Securities Act of 1933 in reliance on Regulation D
thereunder, issuing 5,000 shares of its Convertible Preferred Stock, Series D
("Series D Preferred") for proceeds of $4.8 million net of issuance costs. As of
September 30, 1996, all of the Series D Preferred, plus accrued dividends, had
been converted into 1,048,610 common shares.
Series F. In September 1996, the Company completed a private placement exempt
from registration under the Securities Act of 1933 in reliance on Regulation D
thereunder, issuing 1,600 shares of its Convertible Preferred Stock, Series F
("Series F Preferred") for proceeds of approximately $15.0 million net of
issuance costs. As of December 31, 1996, all of the Series F Preferred, plus
accrued dividends, had been converted into 5,269,870 common shares.
Series G. In August 1997, the Company completed a private placement exempt from
registration under the Securities Act of 1933 in reliance on Section 4(2)
thereof, issuing 1,250 shares in the form of 5% Convertible Preferred Stock,
Series G ("Series G Preferred") for proceeds of approximately $12.1 million net
of cash issuance costs. Conversions of Series G Preferred were based on the
price of common shares at the time of conversion. There was no initial discount
on the conversion price, but a discount of 2% was added for each month the
Series G Preferred was held, up to a maximum discount of 14%. A deemed dividend
of $1.9 million has been recorded in Paid-in capital in 1997 and 1998 which
represented the value of this conversion feature. No conversions were permitted
below a price of $7.80 for the first 60 days. The maximum conversion price for
the first six months was $9.10. There were certain restrictions on the volume of
sales of underlying common shares by the investors. The investors also received
three-year warrants to purchase up to a total of 432,000 common shares at a
price of $10.00 per share, and additional warrants to purchase 54,000 common
shares at the $10.00 price were issued to the placement agents (collectively,
"1997 Warrants"). As of December 31, 1998, all of the Series G Preferred, plus
accrued dividends, had been converted into 4,019,581 common shares.
Convertible Subordinated Notes and Debentures
Under the arrangement with Genentech (see Note 3) the Company receives
funding for development of hull24 in the form of convertible subordinated notes
due 2005 at interest rates of LIBOR plus 1% compounded and reset at the end of
June and December each year. Interest is payable at maturity. The Company has
received $10.0 million, $8.5 million and $5.0 million of these loans in December
1997, in April 1996 and December 1996, respectively. The notes are convertible
into one Series B Preference Share at the market price of common shares at the
time of conversion (7,500 shares are so designated) for each $10,000 in notes.
The Series B Preference Shares are convertible into common shares. The
cumulative amount of interest accrued was $3.0 million, $1.2 million and $0.3
million as of December 31, 1998, 1997 and 1996, respectively.
In November 1995, the Company issued $6.5 million aggregate principal
amount of 4% Convertible Subordinated Debentures (the "debentures") due in 1998
to foreign investors in an offering exempt from registration under the
Securities Act of 1933 in reliance on Regulation S thereunder. The offering
yielded net proceeds to the Company of $5.9 million, net of issuance costs.
During the first quarter of 1996 all of the Debentures, plus accrued interest,
were converted into 2,054,224 common shares. Unamortized issuance costs of $0.6
million were charged to Paid-in capital in 1996 in connection with the
conversions of the Debentures.
-38-
<PAGE>
Management Incentive Compensation Plan
The Board of Directors of the Company established a Management Incentive
Compensation Plan effective July 1, 1993 (as amended, the "Incentive Plan"), in
which management employees (other than the Chief Executive Officer), as well as
certain additional discretionary participants chosen by the Chief Executive
Officer, are eligible to participate.
Awards under the Incentive Plan vest over a three-year period with 50% of
each award payable on a date to be determined, expected to be in the first
quarter of the following fiscal year, and 25% payable on each of the next two
annual distribution dates, so long as the participant continues to participate
in the Incentive Plan.
The amounts charged to expense under the Incentive Plan were $0.9 million,
$0.8 million and $0.7 million for the plan years 1998, 1997 and 1996
respectively.
Employee Share Purchase Plan
In 1998, the shareholders approved the 1998 Employee Share Purchase Plan
(the "Share Purchase Plan") which provides employees of the Company the
opportunity to purchase common shares through payroll deductions. The Company
has reserved 500,000 common shares for issuance under the Share Purchase Plan.
An employee may elect to have payroll deductions made under the Share Purchase
Plan for the purchase of common shares in an amount not to exceed 20% of the
employee's compensation. The purchase price per common share will be either (i)
an amount equal to 85% of the fair market value of a common share on the first
day of a 24-month offering period or on the last day of such offering period,
whichever is lower, or (ii) such higher price as may be set by the Compensation
Committee of the Board at the beginning of such offering period.
Shareholder Rights Plan
In October 1993, the Company's Board of Directors unanimously adopted a
Shareholder Rights Plan (the "Rights Plan"). Under the Rights Plan, Preference
Share Purchase Rights ("Rights") were distributed as a dividend at the rate of
one Right for each common share held of record as of the close of business on
November 12, 1993. Each Right entitles the registered holder of common shares to
buy a fraction of a share of the new series of Preference Shares (the "Series A
Preference Shares") at an exercise price of $30.00, subject to adjustment. The
Rights will be exercisable, and will detach from the common shares, only if a
person or group acquires 20 percent or more of the common shares, announces a
tender or exchange offer that if consummated will result in a person or group
beneficially owning 20 percent or more of the common shares, or if the Board of
Directors declares a person or group owning 10 percent or more of the
outstanding common shares to be an Adverse Person (as defined in the Rights
Plan). Once exercisable, each Right will entitle the holder (other than the
acquiring person) to purchase units of Series A Preference Share (or, in certain
circumstances, common shares of the acquiring person) with a value of twice the
Rights exercise price. The Company will generally be entitled to redeem the
Rights at $.001 per Right at any time until the close of business on the tenth
day after the Rights become exercisable. The Rights will expire at the close of
business on December 31, 2002.
5. SHARE OPTIONS AND WARRANTS
At December 31, 1998, the Company had three share-based compensation plans,
which are described below. The aggregate number of common shares that may be
issued under these plans is 5,300,000 shares.
Share Option Plan
Under the Company's amended 1981 Share Option Plan (the "Option Plan"),
qualified and non-qualified options of the Company's common shares may be
granted to certain employees and other individuals as determined by the Board of
Directors at not less than the fair market value of the shares at the date of
grant. Options granted under the Option Plan may be exercised when vested and
expire five years and two months to ten years from the date of grant or three
months from the date of termination of employment. Options granted generally
vest over five years. The Option Plan will terminate on November 15, 2001. As of
December 31, 1998, options covering 3,386,519 common shares were outstanding
under the Option Plan.
-39-
<PAGE>
Restricted Shares Plan
The Company also has a Restricted Share Plan (the "Restricted Plan") which
provides for the issuance of options or the direct sale of common shares to
certain employees and other individuals as determined by the Board of Directors
at not less than 85% of fair market value of the common shares on the grant
date. Each option issued under the Restricted Plan will be a non-statutory
option under the federal tax laws and will have a term not in excess of ten
years from the grant date. Options granted generally vest over five years. The
Restricted Plan will terminate on December 15, 2003.
The Company has granted options with exercise prices at 85% of fair market
value on the date of grant. Up to 1,200,000 shares are authorized for issuance
under the Restricted Plan. As of December 31, 1998, options covering 531,752
common shares of were outstanding under the Restricted Plan.
The Company amortizes deferred compensation, which is the difference
between the issuance price or exercise price as determined by the Board of
Directors and the fair market value of the shares at the date of sale or grant
over the period benefited.
Directors Share Option Plan
In 1992, the shareholders approved a Directors Share Option Plan (the
"Directors Plan") which provides for the issuance of options to purchase common
shares to non-employee directors of the Company at 100% of the fair market value
of the shares on the date of the grant. Up to 150,000 shares are authorized for
issuance during the term of the Directors Plan. Options vest on the date of
grant and have a term of up to ten years. As of December 31, 1998, options for
87,500 common shares were outstanding under the Directors Plan.
The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, the financial statements reflect
amortization of compensation resulting from options granted at exercise prices
which were below market price at the grant date. Had compensation cost for the
Company's shares-based compensation plans been based on the fair value at the
grant dates for awards under these plans consistent with the provisions of FASB
Statement 123, the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below for the years ended December
31 (in thousands except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Net loss As reported $(47,203) $(15,765) $(29,110)
Pro forma $(49,016) $(17,639) $(30,213)
Net loss per share As reported $ (1.16) $ (0.44) $ (0.90)
Pro forma $ (1.20) $ (0.48) $ (0.94)
</TABLE>
-40-
<PAGE>
The fair value of each option grant under these plans is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants during the years
indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Dividend yield 0% 0% 0%
Expected volatility 71% 71% 73%
Risk-free interest rate 5.7% 6.3% 5.2%
Expected life 7 years 7 years 7 years
</TABLE>
A summary of the status of the Company's share option plans as of December
31, 1998, 1997, and 1996, and changes during years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
OPTIONS: Shares Price* Shares** Price* Shares Price*
------ ------ -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 3,719,865 $ 4.91 3,196,150 $ 4.50 2,847,017 $ 4.50
Granted
(1) 7,750 3.91 1,750 5.36 2,500 4.84
(2) 551,450 4.84 671,000 6.68 499,750 4.97
(3) -- -- -- -- 145,333 5.00
Exercised (36,845) 2.65 (52,422) 2.72 (67,132) 2.68
Forfeited, expired or
canceled (236,449) 6.81 (96,613) 4.33 (231,318) 6.40
------- ------ --------
Outstanding at end of
year 4,005,771 4.78 3,719,865 4.92 3,196,150 4.50
========= ========= =========
Exercisable at end of
year 2,857,263 2,317,321 1,816,185
========= ========= =========
Weighted average fair
value of options
granted
(1) 3.03 3.89 2.71
(2) 3.09 4.78 3.09
(3) -- -- 1.59
</TABLE>
* Weighted-average exercise price
** Includes cancellation and granting of 1,820,385 new options
(1) Option price less than market price on date of grant
(2) Option price equal to market price on date of grant
(3) Option price greater than market price on date of grant
The Company adjusts for forfeitures as they occur.
The following table summarizes information about share options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Range of Number Number
Exercise Prices Outstanding Life* Price** Exercisable Price**
<S> <C> <C> <C> <C> <C>
$ 1.70 - 2.38 326,146 6.1 $ 2.35 242,735 $ 2.36
2.44 - 2.56 1,510,898 6.0 2.56 1,482,588 2.56
2.60 - 5.00 1,083,879 7.2 4.69 473,796 4.66
5.13 - 7.50 862,383 6.4 6.91 473,746 7.15
7.56 -22.53 190,465 3.5 14.45 152,398 16.14
22.75 -26.50 32,000 3.0 22.98 32,000 22.98
------------- --------- --- ------ --------- -------
$ 1.70 - 26.50 4,005,771 6.3 $ 4.78 2,857,263 $ 4.61
</TABLE>
* Weighted-average Remaining Contractual Life
** Weighted-average Exercise Price
-41-
<PAGE>
Warrants
In July 1998, warrants to purchase 250,000 common shares at $6.00 per share
were issued to Incyte in partial payment of license fees.
Warrants to purchase 550,000 common shares were issued in conjunction with
the issuance of the Series H Preferred in June 1998, all of which expire in June
2001, at an exercise price of $7.00 per share. These warrants were valued at
$1.0 million in paid-in capital. Additional warrants to purchase 68,681 common
shares at the $7.00 price were issued to placement agents.
Warrants to purchase 486,000 common shares were issued in conjunction with
the issuance of the Series G Preferred in August 1997, all of which expire in
August 2000, at an exercise price of $10.00 per share. These warrants were
valued at $1.1 million in paid-in capital.
The Company issued warrants valued at $0.8 million in Paid-in capital to
purchase 109,739 common shares in conjunction with the issuance of the Series F
Preferred, one-half of which expired on March 24, 1998 and the remainder
expiring on September 24, 1999, at an exercise price of $7.29 per share.
6. COMMITMENTS AND CONTINGENCIES
Collaborative Agreements and Royalties
The Company is obligated to pay royalties, ranging generally from 1.5% to
5% of the selling price of the licensed component and up to 25% of any
sublicense fees to various universities and other research institutions based on
future sales or licensing of products that incorporate certain products and
technologies developed by those institutions.
Leases
As of December 31, 1998, the Company leased administrative, research
facilities, certain laboratory and office equipment under operating and capital
leases expiring on various dates through 2009.
-42-
<PAGE>
Future minimum lease commitments are as follows (in thousands):
Operating Leases
1999 $ 2,740
2000 2,783
2001 2,369
2002 2,320
2003 2,435
Thereafter 10,294
-------
Net minimum lease payments $22,941
=======
Total rental expense was approximately $2.3 million, $2.0 million, and $2.0
million for the years ended December 31, 1998, 1997, and 1996, respectively. The
final capital lease payments of $0.3 million will be made in 1999.
Legal Proceedings
In the securities class action lawsuit Warshaw, et al. v. XOMA Corporation,
et al., the defendants and plaintiffs reached an agreement on March 14, 1997 to
settle all claims for $3.75 million in cash and $2.25 million in common shares.
By order entered September 8, 1997, the United States District Court for the
Northern District of California approved the settlement. All of the cash portion
of the settlement has been paid by insurance into a settlement fund administered
by an escrow agent. The claims administration process was deemed complete as of
December 16, 1997, and on January 7, 1998, XOMA directed its stock transfer
agent to issue and distribute to authorized claimants 344,168 common shares in
accordance with the terms of the court-approved settlement agreement.
Liability Insurance
The testing and marketing of medical and food additive products entails an
inherent risk of allegations of product liability. XOMA believes that its
product liability insurance levels are adequate for its clinical trial activity.
The Company will seek to obtain additional insurance, if needed, if and when its
products are commercialized; however, there can be no assurance that adequate
insurance coverage will be available or be available at acceptable costs or that
a product liability claim would not materially adversely affect the business or
financial condition of the Company.
The Company insures and indemnifies its directors and officers against
actions brought against them as a result of their management of the Company's
operations. There can be no assurance that adequate directors and officers
insurance coverage will be available or be available at acceptable costs or that
a claim against the directors and officers would not materially adversely affect
the business or financial condition of the Company.
-43-
<PAGE>
7. INCOME TAXES
The significant components of net deferred tax assets and liabilities as of
December 31, are as follows (in millions):
1998 1997
---- ----
Capitalized R&D expense $ 23.9 $ 62.8
Net operating loss carryforwards 73.0 61.7
R&D and other credit carryforwards 16.2 14.1
Other 9.3 9.6
Valuation allowance (122.4) (148.2)
------- -------
Total deferred tax asset $ -- $ --
========= =======
The net change in the valuation allowance was a $25.7 million decrease and
a $8.2 million increase for the years ended December 31, 1998 and 1997,
respectively. The 1998 decrease was due to the elimination of capitalized R&D
which is not expected to be useable for federal income tax purposes after the
change in the Company's domicile from Delaware to Bermuda.
XOMA's accumulated federal and state tax net operating loss carryforwards
("NOLs") and credit carryforwards as of December 31, 1998 are as follows:
Amounts Expiration
(in millions) Dates
Federal
NOLs $ 227.0 2000-2018
Credits 11.8 1999-2018
State
NOLs 10.1 1999-2003
Credits 4.4 2003-2013
For the year ended December 31, 1997 the Company had taxable income of
$12.8 million and $11.6 million for Federal income tax and State tax,
respectively. Except for the impact of Federal alternative minimum tax, which
was not material, these taxable income amounts were offset by NOL and tax credit
carryforwards. These amounts are subject to audit by federal and state tax
authorities and could change.
Certain future changes in the ownership of significant shareholders could
limit utilization of the Company's tax NOLs and credits.
8. RELATED PARTY TRANSACTIONS
In 1993, the Company granted a short-term, secured loan to an officer,
director and shareholder of the Company which has been renewed annually.
-44-
<PAGE>
9. DEFERRED SAVINGS PLAN
Under section 401(k) of the Internal Revenue Code of 1986, the Board of
Directors adopted, effective June 1, 1987, a tax-qualified deferred compensation
plan for employees of the Company. Participants may make contributions which
defer up to 14% of their total salary, up to a maximum for 1998 of $10,000. The
Company may, at its sole discretion, make contributions each plan year, in cash
or in the Company's common shares in amounts which match up to 50% of the salary
deferred by the participants. The expense of these contributions was $329,000,
$233,000, and $243,000, for the years ended December 31, 1998, 1997 and 1996,
respectively.
10. SUBSEQUENT EVENTS
On January 29,1999, the Company sold 2,051,254 common shares to two
institutional investors for gross proceeds of $12.0 million. The selling price
represented approximately a 60% premium over the then current market price for
XOMA shares. Under certain circumstances the number of shares may be adjusted in
the future.
-45-
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
3.1 Memorandum of Continuance of the Company (Exhibit 3.4).1
3.2 Bye-laws of the Company. (Exhibit 3.5).1
4.1 Stockholder Rights Agreement dated as of October 27, 1993 by and among XOMA
Corporation and First Interstate Bank of California as Rights Agent.
(Exhibit 1).2
4.2 Form of Resolution Regarding Preferences and Rights of Series A Preference
Shares (Exhibit 4.2).1
4.3 Form of Resolution Regarding Preferences and Rights of Series B Preference
Shares (Exhibit 4.3).1
4.4 Form of Resolution Regarding Preferences and Rights of Series C Preference
Shares (Exhibit 4.4).1
4.5 Form of Common Stock Purchase Warrant (1996 Warrants) (Exhibit 4.9).3
4.6 Form of Common Stock Purchase Warrant (1997 Warrants) (Exhibit 3).4
4.7 Form of Common Stock Purchase Warrant (1998 Warrants) (Exhibit 3).5
4.8 Form of Common Stock Purchase Warrant (Incyte Warrants) (Exhibit 2).6
4.9 Form of Common Share Purchase Warrant (1999 Warrants) (Exhibit 5).7
10.1 1981 Stock Option Plan as amended and restated (Exhibit 10.1).8
10.1A Form of Stock Option Agreement for 1981 Stock Option Plan (Exhibit
10.1A).8
10.2 Restricted Stock Plan as amended and restated (Exhibit 10.2).8
10.2A Form of Stock Option Agreement for Restricted Stock Plan (Exhibit 10.2A).8
10.2B Form of Restricted Stock Purchase Agreement for Restricted Stock Plan
(Exhibit 10.2B).8
10.3 1985 Non-Qualified Stock Option Plan and form of Stock Option Agreement
(Exhibit 10.3).8
10.3A Form of Assumption Agreement for 1985 Non-Qualified Stock Option Plan
(Exhibit 10.3A).8
10.3B Amendment to 1985 Non-Qualified Stock Option Plan (Exhibit 10.3B).8
10.4 1992 Directors Stock Option Plan as amended and restated (Exhibit 10.4).8
-46-
<PAGE>
10.4A Form of Stock Option Agreement for 1992 Directors Stock Option Plan
(initial grants) (Exhibit 10.4A).8
10.4B Form of Stock Option Agreement for 1992 Directors Stock Option Plan
(subsequent grants) (Exhibit 10.4B).8
10.5 Management Incentive Compensation Plan as amended and restated (Exhibit
10.5).8
10.6 Form of indemnification agreement for officers (Exhibit 10.6).8
10.7 Form of indemnification agreement for employee directors (Exhibit 10.7).8
10.8 Form of indemnification agreement for non-employee directors (Exhibit
10.8).8
10.9 Employment Agreement dated April 29, 1992 between the Company and John L.
Castello (Exhibit 10.9).8
10.10 Employment Agreement dated April 1, 1994 between the Company and Peter B.
Davis (Exhibit 10.10).9
10.11 Employment Agreement dated March 26, 1998 between the Company and Patrick
J. Scannon, M.D., Ph.D.
10.12 Lease of premises at 890 Heinz Street, Berkeley, California dated as of
July 22, 1987 (Exhibit 10.12).8
10.13 Lease of premises at Building E at Aquatic Park Center, Berkeley,
California dated as of July 22, 1987 and amendment thereto dated as of
April 21, 1988 (Exhibit 10.13).8
10.14 Lease of premises at Building C at Aquatic Park Center, Berkeley,
California dated as of July 22, 1987 and amendment thereto dated as of
August 26, 1987 (Exhibit 10.14).8
10.15 Letter of Agreement regarding CPI adjustment dates for leases of premises
at Buildings C, E and F at Aquatic Park Center, Berkeley, California dated
as of July 22, 1987 (Exhibit 10.15).8
10.16 Lease of premises at 2910 Seventh Street, Berkeley, California dated March
25, 1992 (Exhibit 10.16).8
10.17 Lease dated June 22, 1992, between the Company and Richard B. Gomez,
Josephine L. Gomez, TTEE-U/A/D, 10,31-90, FBO Gomez Family Trust (Exhibit
10.17).8
10.18 Sublease dated January 20, 1997, between the Company and UroGenesys, Inc
(Exhibit 10.18).8
10.19 Lease dated October 2, 1992, between the Company and Virginia Merritt, as
Trustee of the Bowman Merritt and Virginia Merritt Trust (Exhibit 10.19).8
10.19A First Extension of Lease dated April 23, 1997, between the Company and
Virginia Merritt and Kim Merritt Campot, as Trustees of the Bowman Merritt
and Virginia Merritt 1987 Trust (Exhibit 10.19A).8
10.20 License Agreement dated September 3, 1986 between the Company and the
Regents of the University of California (with certain confidential
information deleted) (Exhibit 10.20).8
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<PAGE>
10.21 License Agreement dated as of August 31, 1988 between the Company and
Sanofi (with certain confidential information deleted) (Exhibit 10.27).8
10.22 Amended and Restated Research and License Agreement dated September 1,
1993 between the Company and New York University (with certain confidential
information omitted, which omitted information is the subject of a
confidential treatment request and has been filed separately with the
Securities and Exchange Commission) (Exhibit 10.28).8
10.22A Third Amendment to License Agreement dated June 12, 1997 between the
Company and New York University (with certain confidential information
omitted, which omitted information is the subject of a confidential
treatment request and has been filed separately with the Securities and
Exchange Commission) (Exhibit 10.28A).8
10.22B Fourth Amendment to License Agreement dated December 23, 1998 between the
Company and New York University.
10.23 Cross License Agreement dated December 15, 1993 between Research
Development Foundation and the Company (with certain confidential
information deleted).
10.24 Cross License Agreement dated December 15, 1993 between the Company and
Research Development Foundation (with certain confidential information
deleted).
10.25 Technology Acquisition Agreement dated June 3, 1994 between Connective
Therapeutics, Inc. (now called Connetics Corporation) and the Company (with
certain confidential information deleted) (Exhibit 10.46).9
10.26 Collaboration Agreement, dated as of April 22, 1996, between the Company
and Genentech, Inc. (with certain confidential information omitted, which
omitted information is the subject of a confidential treatment request and
has been filed separately with the Securities and Exchange Commission
(Exhibit 10.1).3
10.27 Common Stock and Convertible Note Purchase Agreement, dated as of April
22, 1996, between the Company and Genentech, Inc. (with certain
confidential information omitted, which omitted information is the subject
of a confidential treatment request and has been filed separately with the
Securities and Exchange Commission) (Exhibit 10.2).3
10.28 Convertible Subordinated Note Agreement, dated as of April 22, 1996,
between the Company and Genentech, Inc. (with certain confidential
information omitted, which omitted information is the subject of a
confidential treatment request and has been filed separately with the
Securities and Exchange Commission) (Exhibit 10.3).3
10.28A Amendment to Convertible Subordinated Note Agreement, dated as of June
13, 1996, between the Company and Genentech, Inc. (with certain
confidential information omitted, which omitted information is the subject
of a confidential treatment request and has been filed separately with the
Securities and Exchange Commission) (Exhibit 10.4).3
10.29 Form of Registration Rights Agreement by and between the Company and the
holders of the 1996 Warrants (Exhibit 10.6).3
10.30 Form of Convertible Preferred Stock Purchase Agreement by and between the
Company and the purchasers of Series G and Series H Preferred Stock
(Exhibit 4).4
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<PAGE>
10.30A First Amendment to Convertible Preferred Stock Agreement, dated as of
January 1, 1998 (Exhibit 10.1).10
10.30B Second Amendment to Convertible Preferred Stock Agreement, dated as of
June 26, 1998 (Exhibit 10.3).11
10.31 Form of Registration Rights Agreement by and between the Company and the
purchasers of Series G and Series H Preferred Stock (Exhibit 5).4
10.32 Patent and Exclusive License Purchase Agreement by and between
Pharmaceutical Partners, L.L.C. and the Company dated as of December 30,
1997 (Exhibit 2).12
10.33 License Agreement between Incyte Pharmaceuticals, Inc. and the Company
effective as of July 9, 1998 (with certain confidential information
omitted, which omitted information is the subject of a confidential
treatment request and has been filed separately with the Securities and
Exchange Commission) (Exhibit 1).6
10.34 Registration Rights Agreement dated as of July 9, 1998 by and among the
Company and Incyte Pharmaceuticals, Inc. (Exhibit 3).6
10.35 Form of Subscription Agreement, dated as of January 28, 1999, by and
between the Company and the purchasers of Common Shares in the 1999 Private
Placement (Exhibit 2).7
10.36 Form of Registration Rights Agreement, dated as of January 28, 1999, by
and between the Company and the purchasers of Common Shares in the 1999
Private Placement (Exhibit 3).7
10.37 Form of Escrow Agreement, dated as of January 28, 1999, by and between
the Company, Brian W. Pusch, as Escrow Agent and the purchasers of Common
Shares in the 1999 Private Placement (Exhibit 4).7
16.1 Letter re: change of certifying accountant.8
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Arthur Andersen LLP as Independent Public Accountants.
27.1 Financial Data Schedule.
- -------------------------
Footnotes
1 Incorporated by reference to the referenced exhibit to the Company's
Registration Statement on Form S-4 filed November 17, 1998, as amended
(File No. 333-68045).
2 Incorporated by reference to the referenced exhibit to the Company's
Current Report on Form 8-K dated October 27, 1993 (File No. 0-14710).
3 Incorporated by reference to the referenced exhibit to the Company's
Registration Statement on Form S-3 filed June 28, 1996 (File No.
333-07263).
4 Incorporated by reference to the referenced exhibit to the Company's
Current Report on Form 8-K dated August 13, 1997 filed August 18, 1997
(File No. 0-14710).
-49-
<PAGE>
5 Incorporated by reference to the referenced exhibit to the Company's
Current Report on Form 8-K dated June 28, 1998 filed June 29, 1998 (File
No. 0-14710).
6 Incorporated by reference to the referenced exhibit to the Company's
Current Report on Form 8-K dated July 9, 1998 filed July 16, 1998 (file No.
0-14710).
7 Incorporated by reference to the referenced exhibit to the Company's
Current Report on Form 8-K dated January 28, 1999 filed January 29, 1999,
as amended (File No. 0-14710).
8 Incorporated by reference to the referenced exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, as amended
(File No. 0-14710).
9 Incorporated by reference to the referenced exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994 (File No.
0-14710).
10 Incorporated by reference to the referenced exhibit to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998
(File No. 0-14710).
11 Incorporated by reference to the referenced exhibit to the Company's
Registration Statement on Form S-3 filed July 16, 1998 (File no.
333-59241).
12 Incorporated by reference to the referenced exhibit to the Company's
Current Report on Form 8-K dated December 30, 1997 (File No. 0-14710).
-50-
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), made and effective this 26th day
of March, 1998, by and between XOMA CORPORATION ("XOMA" or the "Company"), a
Delaware corporation with its principal office at 2910 Seventh Street, Berkeley,
California, and Patrick J. Scannon, M.D, Ph.D., ("Executive"), an individual
residing at 176 Edgewood, San Francisco, California.
WHEREAS, the Company wishes to enter into this Agreement to assure the
Company of the continued services of Executive; and
WHEREAS, Executive is willing to enter into this Agreement and to serve in
the employ of the Company upon the terms and conditions hereinafter provided;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto hereby agree as follows:
1. Employment. The Company agrees to employ Executive, and Executive agrees
to enter the employ of the Company, for the period referred to in Section 3
hereof and upon the other terms and conditions herein provided.
2. Position and Responsibilities. The Company agrees to employ Executive in
the position of Chief Scientific and Medical Officer, and Executive agrees to
serve as Chief Scientific and Medical Officer, for the term and on the
conditions hereinafter set forth. Executive agrees to perform such services not
inconsistent with his position as shall from time to time be assigned to him by
the Chairman of the Board, President and Chief Executive Officer of the Company
(the "Chairman").
3. Term and Duties.
(a) Term of Employment. This Agreement shall become effective and the term
of employment pursuant to this Agreement shall commence on March 26, 1998 and
will continue for one (1) year until March 25, 1999, when it will terminate
unless it is extended by mutual written consent of Executive and the Company or
unless Executive's employment is terminated by the Company or he resigns from
the Company's employ as described herein.
(b) Duties. During the period of his employment hereunder Executive shall
serve the Company as its Chief Scientific and Medical Officer, and except for
illnesses, vacation periods and reasonable leaves of absence, Executive shall
devote all of his business time, attention, skill and efforts to the faithful
performance of his duties hereunder.
So long as Executive is Chief Scientific and Medical Officer of the
Company, he will discharge all duties incidental to such office and such further
duties as may be reasonably
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assigned to him from time to time by the Chairman.
4. Compensation and Reimbursement of Expenses.
(a) Compensation. For all services rendered by Executive as Chief
Scientific and Medical Officer during his employment under this Agreement, the
Company shall pay Executive as compensation a salary at a rate of not less than
$310,000 per annum. All taxes and governmentally required withholding shall be
deducted in conformity with applicable laws.
(b) Loan. In further consideration of Executive's agreement to the terms
hereof, the Company has agreed to a one year extension of a loan previously
provided to Executive in the principal amount of $236,292.69 (the "Loan") on the
terms and subject to the conditions set forth herein. On the date on which
Executive and the Company agreed that the Loan was to be funded (the "Loan
Date"), Executive executed a promissory note in the form attached hereto as
Exhibit A evidencing the Loan and a pledge agreement in the form attached hereto
as Exhibit B granting to the Company a first priority security interest in all
of the outstanding shares of Common Stock owned by Executive on the effective
date of this Agreement, whereupon the Company did lend to Executive the
principal amount of the Loan. The full amount of the Loan will be repaid by
Executive as soon as reasonably practicable and in any event no later than March
25, 1999, or on demand following any earlier termination of or resignation by
Executive. Interest will accrue on the Loan at a rate per annum equal to the
prime rate, as published in The Wall Street Journal on the Loan Date, and will
be payable as and when the Loan is repaid.
(c) Reimbursement of Expenses. The Company shall pay or reimburse Executive
for all reasonable travel and other expenses incurred by Executive in performing
his obligations under this Agreement in a manner consistent with past Company
practice. The Company further agrees to furnish Executive with such assistance
and accommodations as shall be suitable to the character of Executive's position
with the Company, adequate for the performance of his duties and consistent with
past Company practice.
5. Participation in Benefit Plans. The payments provided in Section 4
hereof are in addition to benefits Executive is entitled to under any group
hospitalization, health, dental care, disability insurance, surety bond, death
benefit plan, travel and/or accident insurance, other allowance and/or executive
compensation plan, including, without limitation, any senior staff incentive
plan, capital accumulation and termination pay programs, restricted or
non-restricted stock purchase plan, stock option plan, retirement income or
pension plan or other present or future group employee benefit plan or program
of the Company for which key executives are or shall become eligible, and
Executive shall be eligible to receive during the period of his employment under
this Agreement, and during any subsequent
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period(s) for which he shall be entitled to receive payment from the Company
under paragraph 6(b) below, all benefits and emoluments for which key executives
are eligible under every such plan or program to the extent permissible under
the general terms and provisions of such plans or programs and in accordance
with the provisions thereof.
6. Payments to Executive Upon Termination of Employment.
(a) Termination. Upon the occurrence of an event of termination (as
hereinafter defined) during the period of Executive's employment under this
Agreement, the provisions of this paragraph 6(a) and paragraph 6(b) shall apply.
As used in this Agreement, an "event of termination" shall mean and include any
one or more of the following:
(i) The termination by the Company of Executive's employment hereunder
for any reason other than pursuant to paragraph 6(c); or
(ii) Executive's resignation from the Company's employ, upon not less
than thirty (30) days' prior written notice.
(b) Continuation of Salary and Other Benefits. Upon the occurrence of an
event of termination under paragraph 6(a), the Company (i) shall, subject to the
provisions of Section 7 below, pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries of his estate, as the case may be, as
severance pay or liquidated damages, or both, semi-monthly for a period of
twelve (12) months following the event of termination (the "Severance Payment
Period"), a sum equal to his current salary in effect at the time of the event
of termination, but in no case less than $310,000 per annum, (ii) shall continue
to provide the other benefits referred to in Section 5 hereof until the end of
the Severance Payment Period or until Executive becomes employed elsewhere,
whichever is earlier, and (iii) shall continue to provide the benefits provided
for in paragraph 4(c) to the extent of expenses incurred but not reimbursed
prior to the event of termination. Such payments shall commence on the last day
of the next regular pay period following the date of the event of termination,
or, at the election of the Company, may be paid in one lump sum or in such other
installments as may be mutually agreed between the Company and Executive or, in
the event of his subsequent death, his beneficiary or beneficiaries or legal
representative, as the case may be.
(c) Other Termination of Employment. Notwithstanding paragraphs 6(a) and
(b) or any other provision of this Agreement to the contrary, if on or after the
date of this Agreement and prior to the end of the term hereof:
(i) Executive has been convicted of any crime or offense constituting
a felony under applicable law, including, without limitation, any act of
dishonesty
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such as embezzlement, theft or larceny;
(ii) Executive shall act or refrain from acting in respect of any of
the duties and responsibilities which have been assigned to him in
accordance with this Agreement and shall fail to desist from such action or
inaction within ten (10) days (or such longer period of time, not exceeding
ninety (90) days, as Executive shall in good faith and the exercise of
reasonable efforts require to desist from such action or inaction) after
Executive's receipt of notice from the Company of such action or inaction
and the Board of Directors determines that such action or inaction
constituted gross negligence or a willful act of malfeasance or misfeasance
of Executive in respect of such duties; or
(iii) Executive shall breach any material term of this Agreement and
shall fail to correct such breach within ten (10) days (or such longer
period of time, not exceeding ninety (90) days, as Executive shall in good
faith and the exercise of reasonable efforts require to cure such breach)
after Executive's receipt of notice from the Company of such breach;
then, and in each such case, the Company shall have the right to give notice of
termination of Employee's services hereunder as of a date (not earlier than
fourteen (14) days from such notice) to be specified in such notice and this
Agreement (other than the provisions of Section 7 hereof) shall terminate on
such date.
7. Post-Termination Obligations. All payments and benefits to Executive
under this Agreement shall be subject to Executive's compliance with the
following provisions during the term of his employment and for the Severance
Payment Period:
(a) Confidential Information and Competitive Conduct. Executive shall not,
to the detriment of the Company, disclose or reveal to any unauthorized person
any trade secret or other confidential information relating to the Company or
its affiliates or to any businesses operated by them, and Executive confirms
that such information constitutes the exclusive property of the Company.
Executive shall not otherwise act or conduct himself to the material detriment
of the Company or its affiliates, or in a manner which is inimical or contrary
to the interests thereof, and shall not, directly or indirectly, engage in,
enter the employ of or render any service to any person, firm or business in
direct competition with any part of the business being conducted by the Company;
provided, however, that Executive's ownership less than five percent (5%) of the
outstanding stock of a corporation shall not be itself be deemed to constitute
such competition. Executive recognizes that the possible restrictions on his
activities which may occur as a result of his performance of his obligations
under this paragraph 7(a) are required for the reasonable protection of the
Company and its investments. For purposes hereof, "direct competition"
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means the pursuit of one or more of the same therapeutic or diagnostic
indications utilizing a substantially similar scientific basis.
(b) Failure of Executive to Comply. If, for any reason other than death or
disability, Executive shall, without written consent of the Company, fail to
comply with the provisions of paragraph 7(a) above, his rights to any future
payments or other benefits hereunder shall terminate, and the Company's
obligations to make such payments and provide such benefits shall cease.
(c) Remedies. Executive agrees that monetary damages would not be adequate
compensation for any loss incurred by the Company by reason of a breach of the
provisions of this Section 7 and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
8. Effect of Prior Agreements. This Agreement contains the entire
understanding between the parties hereto and supersedes any prior employment
agreements between the Company and Executive.
9. General Provisions.
(a) Binding Agreement. This Agreement shall be binding upon, and inure to
the benefit of, Executive and the Company and their respective permitted
successors and assigns.
(b) Legal Expenses. In the event that Executive incurs legal expenses in
contesting any provision of this Agreement and such contest results in a
determination that the Company has breached any of its obligations hereunder,
Executive shall be reimbursed by the Company for such legal expenses.
10. Successors and Assigns.
(a) Assignment by the Company. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the Company and, unless
clearly inapplicable, reference herein to the Company shall be deemed to include
its successors and assigns.
(b) Assignment by Executive. Executive may not assign this Agreement in
whole or in part.
11. Modification and Waiver.
(a) Amendment of Agreement. This Agreement may not be modified or amended
except by an instrument in writing signed by the parties hereto.
(b) Waiver. No term or condition of this Agreement shall be deemed to have
been waived except by written instrument of the party charged with such waiver.
No such written waiver
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shall be deemed a continuing waiver unless specifically stated therein, and each
such waiver shall operate only as to the specific term or condition waived.
12. Severability. In the event any provision of this Agreement or any part
hereof is held invalid, such invalidity shall not affect any remaining part of
such provision or any other provision. If any court construes any provision of
this Agreement to be illegal, void or unenforceable because of the duration or
the area or matter covered thereby, such court shall reduce the duration, area
or matter of such provision, and, in its reduced form, such provision shall then
be enforceable and shall be enforced.
13. Governing Law. This Agreement has been executed and delivered in the
State of California, and its validity interpretation, performance, and
enforcement shall be governed by the laws of said State.
IN WITNESS WHEREOF, XOMA has caused this Agreement to be executed by its
duly authorized officer, and Executive has signed this Agreement, all as of the
day and year first above written.
XOMA CORPORATION
/s/Christopher J. Margolin
--------------------------------------
Christopher J. Margolin
Vice President, General Counsel
and Secretary
/s/Patrick J. Scannon
---------------------------------------
Patrick J. Scannon, M.D., Ph.D.
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EXHIBIT A
PROMISSORY NOTE
$236,292.69 Berkeley, California
March 26, 1998
FOR VALUE RECEIVED, the undersigned (the "Obligor") hereby unconditionally
promises to pay to the order of XOMA Corporation, a Delaware corporation (the
"Obligee"), the principal sum of TWO HUNDRED THIRTY-SIX THOUSAND TWO HUNDRED
NINETY-TWO AND 69/100 DOLLARS ($236,292.69) (the "Principal Amount") together
with interest from the date hereof at a rate per annum of six percent (6%) on
the earlier of (a) five (5) days after the demand of the Obligee if the Obligor
ceases to be employed by the Obligee or (b) the 25th day of March, 1999. Said
principal sum, and/or any accrued interest, may be prepaid in whole or in part
without premium or penalty.
1. It is hereby understood and agreed that if default be made in the
payment of the Principal Amount or of interest accrued and unpaid thereon, then
the Obligee may exercise any remedies available at law or in equity, including,
but not limited to, foreclosure upon the shares of Obligee's common stock which
have hereupon been pledged by the Obligor to the Obligee as security for the
Obligor's obligations hereunder pursuant to a Pledge Agreement, but shall not be
obligated to proceed first against such collateral and may proceed directly on
this Promissory Note. In the event of any such default, the Obligee shall be
entitled also to all costs of collection, including the reasonable fees of an
attorney. In the event the Obligee proceeds against the collateral and the
proceeds of the collateral are inadequate to pay any amounts due on this
Promissory Note, the Obligor shall remain liable for any deficiency. In
addition, and without limitation of any other provision of this Paragraph, in
the event of any default described above, the Obligor authorizes and requests
the Obligee to deduct and withhold from compensation otherwise payable by the
Obligee to the Obligor an amount equal to the defaulted payment of the Principal
Amount and/or of interest accrued and unpaid thereon; provided however, that the
Obligee may not so deduct more than fifty (50) percent of any payment of
compensation otherwise due the Obligor.
2. If application shall be made for the appointment of a receiver, trustee
or liquidator of the Obligor or any of his property, or if the Obligor shall
make a general assignment for the benefit of creditors, be adjudicated a
bankrupt or file a voluntary petition in bankruptcy or seek reorganization of
any arrangement with creditors, the Obligee may declare this
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Promissory Note to be due and payable, whereupon this Promissory Note shall
forthwith become due and payable without presentment, demand, protest, or notice
of protest, notice of dishonor, notice of nonpayment or any other notice of any
kind, all of which are hereby expressly waived.
3. No delay or omission on the part of the Obligee in exercising any right
hereunder shall operate as a waiver of such right or of any other right, nor
shall any delay, omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion.
4. If any provision of this Promissory Note should be found to be invalid
or unenforceable, all other provisions shall nevertheless remain in full force
and effect. This Promissory Note and any of its terms may be changed, waived or
terminated only by a written instrument signed by the party against which
enforcement of that change, waiver or termination is sought. The rights and
obligations of the parties hereunder shall be governed by and interpreted and
enforced in accordance with the substantive laws of the State of California,
without giving effect to principles of conflicts of law.
WITNESS the due execution hereof as of the date first above written.
/s/Patrick J. Scannon
--------------------------------------
Patrick J. Scannon, M.D., Ph.D.
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EXHIBIT B
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated April 15, 1993, between Patrick J. Scannon, M.D.,
Ph.D. (the "Pledgor"), and XOMA Corporation, a Delaware corporation (the
"Pledgee").
WHEREAS, the Pledgor is the owner of 69,993 shares (the "Pledged Shares")
of Common Stock, par value $0.0005 per share, issued by the Pledgee; and
WHEREAS, the Pledgee has agreed to loan the Pledgee $290,539.46 in
connection with the certain liabilities related to the Pledged Shares (the
"Loan"), and the Pledgor has simultaneously with the execution of this Agreement
executed a Promissory Note (the "Note") evidencing such indebtedness;
NOW THEREFORE, in consideration of the premises and in order to induce the
Pledgee to make the Loan, the Pledgor hereby agrees with the Pledgee as follows:
SECTION 1. Pledge. The Pledgor hereby pledges to the Pledgee, and grants to
the Pledgee a security interest in, the Pledged Shares and any and all proceeds
therefrom.
SECTION 2. Security for Obligations. This Agreement secures the payment of
all obligations of the Pledgor to the Pledgee now or hereafter existing pursuant
to the Loan and the Note, whether for principal, interest, fees, expenses or
otherwise (all such obligations of the Pledgor being the "Obligations").
SECTION 3. Delivery of Pledged Shares. All certificates or instruments
representing or evidencing the Pledged Shares shall be delivered to and held by
or on behalf of the Pledgee pursuant hereto and shall be in suitable form for
transfer by delivery, or shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in forms and substance satisfactory to the
Pledgee. In addition, the Pledgee shall have the right at any time to exchange
certificates or instruments representing or evidencing Pledged Shares for
certificates or instruments of smaller or larger denominations.
SECTION 4. Representations and Warranties. The Pledgor represents and
warrants as follows:
(a) The Pledgor is the legal and beneficial owner of the Pledged Shares
free and clear of any lien, security interest, option or other charge or
encumbrance except for the security interest created by this Agreement.
(b) The pledge of the Pledged Shares pursuant to this Agreement creates a
valid and perfected first priority security interest in the Pledged Shares,
securing the payment of the Obligations.
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SECTION 5. Further Assurances. The Pledgor agrees that at any time and from
time to time, at the expense of the Pledgor the Pledgor will promptly execute
and deliver all further instruments and documents, and take all further action,
that may be necessary or appropriate, or that the Pledgee may reasonably
request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Pledgee to exercise and enforce
its rights and remedies hereunder with respect to any Pledged Shares.
SECTION 6. Voting Rights; Dividends; Etc. (a) So long as no default exists
under the Note:
(i) The Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to the Pledged Shares.
(ii) The Pledgor shall be entitled to receive and retain any and all
dividends in respect of the Pledged Shares, provided, however, that any and
all dividends paid or payable other than in cash in respect of, and
instruments and other property received, receivable or otherwise
distributed in respect of, or in exchange for, any Pledged Shares, and any
and all dividends and other distributions paid or payable in cash in
respect of any Pledged Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of capital,
capital surplus or paid-in-surplus shall be delivered to the Pledgee to
hold as collateral as if such were Pledged Shares (such Collateral,
together with the Pledged Shares, the "Pledged Collateral") and shall, if
received by the Pledgor, be received in trust for the benefit of the
Pledgee, be segregated from the other property or funds of the Pledgor, and
be forthwith delivered to the Pledgee as Pledged Collateral in the same for
as so received (with any necessary indorsement).
(b) Upon the occurrence of a default under the Note, all rights of the
Pledgor to exercise the voting and other consensual rights which it would
otherwise be entitled to exercise pursuant to Section y(a)(i) and to receive the
dividends which it would otherwise be authorized to receive and retain pursuant
to Section (a)(ii) shall cease, and all such rights shall thereupon become
vested in the Pledgee who shall thereupon have the sole right to exercise such
voting and other consensual rights and to receive and hold as Pledged collateral
such dividends, and all dividends which are received by the Pledgor contrary to
the provisions of this Section (b) shall be received in trust for the benefit of
the Pledgee, shall be segregated from other funds of the Pledgor and shall be
forthwith paid over the Agent as Pledged Collateral in the same form as so
received with any necessary indorsement).
SECTION 7. Pledgee Appointed Attorney-in-Fact. The Pledgor hereby
irrevocably appoints the Pledgee the Pledgor's attorney-in-fact, with full
authority in the place
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and stead of the Pledgor and in the name of the Pledgor or otherwise, from time
to time in the Pledgee's discretion, to take any action and to execute any
instrument which the Pledgee may deem necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation, to receive, indorse
and collect all instruments made payable to the Pledgor representing any
dividend or other distribution in respect of the Pledge Shares and to give full
discharge for the same, when and to the extent permitted by this Agreement.
SECTION 8. Pledgee May Perform. If the Pledgor fails to perform any
agreement contained herein, the Pledgee may itself perform, or cause performance
of, such agreement, and the expenses of the Pledgee incurred in connection
therewith shall be payable by the Pledgor under Section 11.
SECTION 9. Reasonable Care. The Pledgee shall be deemed to have exercised
reasonable care in the custody and preservation of the Pledged Collateral in its
possession if such Pledged Collateral is accorded treatment substantially
equivalent to that which the Pledgee accords its own property, it being
understood that the Pledgee shall not have responsibility for taking any
necessary steps to preserve rights against any parties with respect to any of
the Pledged Collateral.
SECTION 10. Remedies upon Default. If any default under the Note shall have
occurred:
(a) The Pledgee may exercise in respect of the Pledged Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party on default
under the Uniform Commercial Code (the "Code") in effect in the State of
California at that time (in compliance with all applicable securities
laws), and the Pledgee may also, without notice except as specified below,
sell (in compliance with all applicable securities laws) the Pledged
collateral or any part thereof in one or more parcels at public or private
sale, at any exchange, broker's board, for cash, on credit or for future
delivery, and at such price or prices and upon such other terms as the
Pledgee may deem commercially reasonable. The Pledgor agrees that, to the
extent notice of sale shall be required by law, at least ten days' notice
to the Pledgor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable
notification. The Pledgee shall not be obligated to make any sale of
Pledged Collateral regardless of notice of sale having been given.
(b) Any cash held by the Pledgee as Pledged Collateral and all cash
proceeds received by the Pledgee in respect of any sale of, collection
from, or other realization upon all or any part of the Pledged Collateral
may, in
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the discretion of the Pledgee, be held by the Pledgee as collateral for,
and/or then or at any time thereafter applied (after payment of any amounts
payable to the Pledgee pursuant to Section 11) in whole or in part by the
Pledgee against all or any part of the Obligations in such order as the
Pledgee shall elect. Any surplus of such cash or cash proceeds held by the
Pledgee and remaining after payment in full of all the Obligations shall be
paid over the Pledgor or to whomsoever may be lawfully entitled to receive
such surplus.
SECTION 11. Expenses. The Pledgor will upon demand pay to the Pledgee the
amount of any and all reasonable expenses, including the fees and expenses of
its counsel and of any agents, which the Pledgee may incur in connection with
(i) the custody of, or the sale or other realization upon, any of the Pledged
collateral, (ii) the exercise or enforcement of any of the rights of the
Pledgee, or (iii) the failure by the Pledgor to perform or observe any of the
provisions hereof.
SECTION 12. Security Interest Absolute. All rights of the Pledgee and
security interests hereunder, and all obligations of the Pledgor hereunder,
shall be absolute and unconditional.
SECTION 13. Amendments, Etc. No amendment or waiver of any provision of
this Agreement nor consent to any departure by the Pledgor herefrom shall in any
event be effective unless the same shall be in writing and signed by the
Pledgee, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
SECTION 14. Addresses for Notices. Any notice or other communication to be
given or made to the Pledgee hereunder shall be sent or otherwise communicated
to the Pledgee at Xoma Corporation, Attention: Christopher Margolin, 1920
Seventh Street, Berkeley, California 94170, telecopy (510) 649-7571 or such
other address and/or for such other attention as may be notified to the Pledgor
in accordance with this Section. Any notice or other communication to be given
to the Pledgor hereunder shall be sent or otherwise communicated to the Pledgor
at 176 Edgewood, San Francisco, California 94117, or such other address and/or
for such other attention as may be notified to the Pledgee in accordance with
this Section. Any notice or other communication to be given or made pursuant to
this Agreement may be given or made personally or by registered first class mail
or by telecopier and shall be effective when actually received.
SECTION 15. Continuing Security Interest; Assignments. This Agreement shall
create a continuing security interest in the Pledged Collateral and shall (I)
remain in full force and effect until payment in full of the Obligations and
(ii) inure, together with the rights and remedies of the Pledgee hereunder, to
the benefit of the Pledgee, and successors, transferees and assigns. Upon the
payment in full of the Obligations, the Pledgor shall be entitled to the return,
upon its request and at its expense, of such of the Pledged Collateral
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as shall not have been sold or otherwise applied pursuant to the terms hereof.
SECTION 16. Governing Law; Terms. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, except as
required by mandatory provisions of law and except to the extent that the
validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Pledged Collateral are governed by the
laws of a jurisdiction other than the State of California. Unless otherwise
defined herein, terms defined in Article 9 of the Uniform Commercial Code in the
State of California are used herein as therein defined.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized, as of the date first above written.
/s/Patrick J. Scannon
---------------------------------------
PATRICK J. SCANNON, M.D., Ph.D.
XOMA CORPORATION
By /s/John L. Castello
------------------------------------
John L. Castello
Chairman of the Board,
President and Chief
Executive Officer
5
FOURTH AMENDMENT TO LICENSE AGREEMENT
This Fourth Amendment to License Agreement (hereinafter "Amendment") is
made on December 23, 1998, to be effective as set forth herein, by and between
XOMA CORPORATION, a corporation organized and existing under the laws of the
State of Delaware and having a place of business at 2910 Seventh Street,
Berkeley, California 94710 (hereinafter "CORPORATION"), and NEW YORK UNIVERSITY,
a corporation organized and existing under the laws of the State of New York and
having a place of business at 70 Washington Square South, New York, New York
10012 (hereinafter "NYU").
WITNESSETH
WHEREAS, CORPORATION and NYU entered into a certain agreement made and
effective as of August 6, 1990, as amended and restated on September 1, 1993 and
as subsequently amended on August 1, 1996 and June 12, 1997 (as so amended and
restated, the "Agreement"), pursuant to which, inter alia, CORPORATION undertook
to sponsor the NYU Research Project (as such term is defined in the Agreement)
and NYU granted to CORPORATION the License (as such term is defined in the
Agreement); and
WHEREAS, CORPORATION and NYU wish to amend the Agreement as specified
herein;
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-2-
NOW, THEREFORE, in consideration of the premises and the covenants,
conditions and promises set forth below, the parties hereto hereby agree as
follows:
1. Except as expressly provided for herein, all terms and conditions of
the Agreement shall remain in full force and effect.
2. Terms which are defined in the Agreement shall have the same meanings
when used in this Amendment, unless a different definition is given
herein.
3. Section 18.a.(ii) of the Agreement shall be, and hereby is, amended by
deleting the word "and" at the end thereof.
4. Section 18.a of the Agreement shall be, and hereby is, amended by
adding a semicolon and the following language after the word
"Agreement" and before the period at the end thereof:
iv) CORPORATION is planning a corporate reorganization (the
"Reorganization") whereby CORPORATION would change its legal
domicile from Delaware to Bermuda. Notwithstanding the
Reorganization, CORPORATION agrees to comply with the applicable
provisions of the Bayh-Dole Act of 1980 and the regulations
promulgated thereunder including, without limitation, the
requirement that any Licensed Products using the subject
technology will be manufactured substantially in the United
<PAGE>
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States to the extent required by 35 U.S.C. ss. 204.
5. This Amendment shall be effective only upon consummation of the
Reorganization.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
follows:
NEW YORK UNIVERSITY XOMA CORPORATION
By: /s/ Isaac T. Kohlberg By: /s/ Christopher J. Margolin
---------------------------- ---------------------------
Isaac T. Kohlberg Christopher J. Margolin
Assistant Dean and Vice Vice President, General
President for Industrial Counsel and Secretary
Liaison
[*] indicates that a confidential portion of the test of this agreement has been
omitted and filed separately with the Securities and Exchange Commission.
LICENSE AGREEMENT
This License Agreement (hereinafter referred to as "Agreement") is made and
effective as of the 15th of December, 1993, by and between XOMA CORPORATION
(hereinafter referred to as "Licensor"), a Delaware corporation, having an
office at 2910 Seventh Street, Berkeley, California, 94710;
AND
RESEARCH DEVELOPMENT FOUNDATION (hereinafter referred to as "Licensee"), a
Nevada nonprofit corporation having its office at 402 North Division Street,
Carson City, Nevada 89703.
WITNESSETH:
WHEREAS, Licensor is the owner of certain inventions, discoveries, and
know-how comprising certain Proprietary Property (as hereinafter defined)
described in Exhibit 1 hereto;
WHEREAS, Licensor is the owner of all the right, title and interest in and
to said Proprietary Property and has determined that the grant of exclusive and
non-exclusive licenses to Licensee as described herein is the best way in which
the Proprietary Property can be utilized to benefit the public and its
stockholders;
WHEREAS, Licensor has filed for patents and/or other protection therefor in
the countries listed in Exhibit 2 hereto;
WHEREAS, Licensee is a nonprofit organization exempt from taxation under
Section 501(c)(3) of the Internal Revenue Code of 1986;
WHEREAS, Licensee desires to obtain exclusive and non-exclusive worldwide
licenses from Licensor as described herein to produce, have produced, make, have
made, manufacture, have manufactured, use, sell, rent, and/or lease ("make, use,
or sell") methods, processes, or products of Licensor's Proprietary Property;
WHEREAS, Licensee is the owner of certain technology and is granting
Licensor exclusive and non-exclusive licenses to such technology by a cross
license (the "Cross License") of even date herewith;
<PAGE>
NOW, THEREFORE, in consideration of the above premises and the covenants
herein, the parties agree as follows:
ARTICLE I
Definitions
As used in this Agreement, the following terms shall have the following
respective meanings:
1.1 The term "Proprietary Property" shall mean and include all Patent
Rights and Know-How, whether patentable or not, described in Exhibit 1 hereto
and all Improvements (as herein defined);
1.2 The term "Patent Rights" shall mean rights in claims directed to
Gelonin (as herein defined) or methods or processes for the manufacture of
Gelonin of any United States patent issued on, and in claims of any foreign
patent granted on, the patent applications listed in Exhibit 1 hereto, or in
such claims of any divisions, continuations and continuations-in-part based
thereon, reissues, patents of addition or importation, or extensions thereof.
1.3 The term "Know-How" shall mean all information, data, specifications,
techniques, and methods of manufacture described in Exhibit 1 hereto.
1.4 The term "Improvements" shall mean refinements, enhancements, or
improvements in Gelonin itself or in methods or processes for the manufacture of
Gelonin itself described in the claims of the Patent Rights or consisting of
Know-How which are developed during the term of this Agreement.
1.5 The terms "commercialize," "commercializing," and "commercialization"
shall mean the sale, licensing, or other use by Licensee of the right to use the
methods or processes for the manufacture of Gelonin or to make, use, or sell
products within the scope of the Proprietary Property and this Agreement under
such circumstances as may be permitted by applicable international, federal, and
state laws and regulations.
1.6 The term "Fields of Use" shall mean the applications described in
Exhibit 3 hereto.
1.7 The term "Product" shall mean any material, composition, product or
portion of a product that embodies an invention claimed, or which results from
or is specifically
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<PAGE>
intended to be used to practice a method or process claimed, within the Patent
Rights and which is made, used, or sold by or for Licensee (or its sublicensees)
and, if not for the licenses granted herein, would infringe a claim of an issued
patent within the Patent Rights.
1.8 The term "Gross Revenues" shall mean charges actually collected by
Licensee from the making, use, or sale of Products, less:
(a) usual trade and/or cash discounts actually allowed and taken;
(b) forwarding expenses, freight, special packaging charges, postage and
duties actually paid or allowed and taxes imposed directly on the
seller with respect to such sales; and
(c) credits for goods returned or rejected.
No other allowance or deduction shall be made by whatever name known.
1.9 The term "Subsidiaries" shall mean any present or future companies
organized under the laws of any nation with respect to which (i) at least 50
percent in value or (ii) at least 50 percent of the total combined voting power
of all classes of shares entitled to vote is directly or indirectly under the
control of Licensee. The term "Licensee" wherever used herein shall include any
Subsidiaries of Licensee.
1.10 The term "Gelonin" shall mean and include gelonin as defined in the
claims of any United States patent issued on and in claims of any foreign patent
granted on the patent applications listed in Exhibit 1 hereto.
ARTICLE II
Grant of License
2.1 Licensor hereby grants and Licensee hereby accepts:
(a) a worldwide, exclusive license in the Fields of Use to make, use,
or sell Products;
(b) outside the Fields of Use, and outside those fields of use
exclusively granted to Licensor in the Cross License which are
hereby excluded from this grant to Licensee, a worldwide,
non-exclusive license to make, use, or sell Products; and
(c) outside those fields of use exclusively granted to Licensor in
the Cross License which are hereby
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<PAGE>
excluded from this grant to Licensee, a worldwide, non-exclusive
sublicense under the license described on Exhibit 4 hereto (the
"Governing License") to make, use, or sell Gelonin or Products
containing Gelonin as a significant component thereof (but only
to the extent that Licensor is entitled pursuant to the Governing
License to grant sublicenses of the scope set forth in this
paragraph (c)); provided that such sublicense shall be
royalty-free with respect to XOMA; provided further that Licensee
shall pay any royalties or other amounts owing to Sanofi and/or
any other third party arising out of Licensee's activities as
sublicensee under the Governing License directly to Sanofi or
such third party; [*]
[*]
Except as provided herein, no other, further, or different license or sublicense
is hereby granted, either expressly or by implication.
2.2 The licenses granted in Section 2.1 above shall include the license and
right to use Know-How in the exercise of such license rights and to incorporate
Know-How in any Products that Licensee makes, uses, or sells in accordance with
said Section 2.1; [*]
2.3 Licensor hereby grants and Licensee hereby accepts the right to grant
sublicenses to others within the scope of the license and sublicense grants made
in Section 2.1 above, but only under the terms and conditions herein set forth
and in the Governing License. Licensee accepts all responsibility for obtaining
binding agreements from and enforcing all terms and conditions hereof upon any
and every such sublicensee.
ARTICLE III
Patent Prosecution and Improvements
3.1 Licensor represents that it has timely filed patent applications
relating to the Patent Rights in the countries listed on Exhibit 2 hereto.
Licensor hereby agrees that if Licensor fails to file a patent application
relating to the Patent Rights in any country within six months after receipt of
a written request from Licensee to do so, Licensor shall be deemed to have
consented to Licensee filing and maintaining such patent
-4-
<PAGE>
application in the name of Licensor at Licensee's expense. Following the
issuance of a patent as a result of any such filing by Licensee, such patent
shall be deemed included in the Patent Rights, and Licensee shall be entitled to
deduct all reasonable fees (including counsel fees) and expenses incurred in
obtaining or maintaining such patent from royalties otherwise payable to
Licensor as a result of such patent issuance.
3.2 Licensor further agrees to use commercially reasonable efforts to
prosecute United States and foreign patent applications it has filed or files
related to the Patent Rights, and to maintain any patents issued thereon.
Notwithstanding the foregoing sentence, in the event that Licensor decides to
discontinue prosecution or maintenance of a patent or patent application related
to the Patent Rights in a particular country, Licensor shall promptly notify
Licensee. Upon receipt of such notice, Licensee, in its sole discretion, may
elect to assume responsibility (and thereafter pay all associated fees and
expenses) with respect to any such patent application or patent. If Licensee
elects to assume responsibility for a patent application or patent which
Licensor intends to abandon, following issuance of the patent Licensee may
deduct from the royalties payable to Licensor as a result of such patent the
reasonable fees (including counsel fees) and expenses incurred in connection
with prosecution of such patent application or maintenance of any such patent.
Licensee may, in its sole discretion, abandon any such patent application or
patent for which it has previously assumed responsibility and will not be liable
to Licensor in any way for such abandonment, but shall promptly notify Licensor
of any decision to abandon any such patent or application.
3.3 Consistent with the definitions contained in Article I, Licensor agrees
to make available promptly to Licensee during the term of this Agreement any
Improvements now or hereafter found, owned, or controlled by Licensor. Such
Improvements and the corresponding rights throughout the world shall be the
property of Licensor, and shall be included in the Proprietary Property licensed
to Licensee upon the terms and conditions set forth in this Agreement.
3.4 If patentable or otherwise protectable Improvements are now or
hereafter made and found by agents or employees of Licensor or otherwise owned
by Licensor, and Licensor, at its sole discretion, considers it desirable to
obtain patent protection thereon, Licensee agrees to cooperate fully and to do
all proper things reasonably necessary or desirable to obtain and maintain
patent protection therefor throughout the world, all at Licensor's
-5-
<PAGE>
expense.
3.5 Notwithstanding the provisions in Section 3.4 above, if Licensor fails
to file an application for patent protection for Improvements within six months
after receipt of a written request from Licensee to do so, Licensor shall be
deemed to have consented to Licensee obtaining and maintaining the necessary
protection therefor in the name of Licensor at Licensee's expense and, following
issuance of a patent, Licensee shall be entitled to deduct the reasonable fees
(including counsel fees) and expenses incurred in connection with such
protection from the royalty payments that Licensee is obligated to pay to
Licensor under this Agreement as a result of such patent. The filing and
prosecuting of the United States patent applications by Licensee shall in no
case go beyond an appeal to and a decision by the United States Patent and
Trademark Board of Appeals, unless Licensor specifically agrees otherwise in
writing.
3.6 If either Licensor or Licensee files patent applications or otherwise
obtains patent rights for Improvements, such patent applications or patent
rights shall be included in the Patent Rights, and Licensee shall have exclusive
and non-exclusive worldwide licenses therefor under the terms and conditions as
set forth in this Agreement.
[*]
ARTICLE IV
Royalties
4.1 Licensee shall pay Licensor during the term of this Agreement an earned
royalty of [*] on Gross Revenues with respect to all sales or uses of Products
[*].
4.2 Only one royalty shall be payable on a Product, regardless of the
number of licensed patents or patent applications of the Patent Rights under
which such Product has been manufactured, used or sold. In those cases where a
Product is sold as a part of an article which includes additional materials or
components, the production of which does not use the inventions, processes or
methods of the Patent Rights, the Gross Revenues shall be based on the sales
price at which Licensee would sell the Product independently of such other
materials or components in an arm's length transaction.
-6-
<PAGE>
4.3 Royalty payments, as provided in Section 4.1 of this Agreement, to be
paid hereunder, shall be paid for a period extending until expiration of all of
the Patent Rights or, if earlier, until this Agreement is terminated as
hereinafter specified. Royalty payments shall cease for any patent which has
expired or been declared invalid by a final determination or judgment.
4.4 In the case of sublicenses, Licensee will pay to Licensor [*]
[*]
4.5 Wherever this Agreement provides that Licensee may deduct expenses,
payments or other amounts from royalties payable to Licensor, (a) such
deductions shall be applied only against royalties payable from the country with
respect to which such deductions arose, [*].
4.6 Licensee is free to make, use, and sell any toxins or other substances
other than Gelonin to any third party without paying a royalty to Licensor
hereunder.
ARTICLE V
Payments, Reports, and Third Party Negotiations
5.1 Licensee shall notify Licensor, in writing, within 30 days of the date
of the first commercial sale of each Product subject to this Agreement and/or
the signing of each sublicense hereunder, and Licensee agrees to provide a copy
of each sublicense to Licensor with such notification.
5.2 Licensee agrees that beginning with the last day of the month of the
first commercial sale of a Product, Licensor shall receive from Licensee within
90 days after the end of each three-month period thereafter:
(a) payment of earned royalties; and
(b) a report showing the information and basis on which the earned
royalties have been calculated.
5.3 All royalties payable by Licensee shall be paid in U.S. Dollars.
Conversion from currencies other than U.S. Dollars shall be at the rate of
exchange quoted in the U.S. version of The Wall Street Journal as of the last
day of the three-month period in which such royalties are accrued.
-7-
<PAGE>
5.4 Until such time as royalties become payable pursuant to this Agreement,
Licensee agrees to make an annual report to Licensor by April 1st of each year
during the term of this Agreement covering Licensee's progress during the
previous calendar year toward research, development and commercialization.
5.5 Licensee also agrees to make a notarized written report to Licensor
within 90 days after the termination of this Agreement, stating in such report
the royalties payable hereunder, if any, and the basis therefore not previously
reported to Licensor. Licensee shall also continue to make written reports
pursuant to the provisions of this Agreement covering Gross Revenues and the
applicable earned royalties hereunder for Products made during the term of this
Agreement, but not sold, used, or reported until after termination hereof, until
such time as all such sales and uses shall have terminated. Concurrent with the
submittal of each post-termination report, Licensee shall pay Licensor all
applicable royalties.
5.6 Licensee shall keep full, true, clear and accurate records and books of
account with respect to the Products and/or Proprietary Property subject to
royalty or other payments. Said records and books of account shall be kept by
Licensee at the usual places where their like records and books are kept and
shall be retained for a period of two years following the end of the calendar
year to which they pertain. Licensor shall have the right at Licensor's expense
through its designated representatives, who shall be subject to the
confidentiality provisions of Article XII hereof, to examine and audit at all
reasonable times all such records and books of account and such other records
and accounts as may under recognized accounting practices contain information
bearing upon the amount of royalty payable to it under this Agreement. Prompt
adjustment shall be made by the proper party to compensate for any errors or
omissions disclosed by such examination or audit. [*] Neither such right to
examine and audit nor the right to receive such adjustment shall be affected by
any statement to the contrary appearing on checks or otherwise, unless such
statements appear in a letter, signed by the party having such right and
delivered to the other party, expressly waiving such right. Notwithstanding the
foregoing, Licensor may require Licensee to furnish any other information
reasonably requested to enable Licensor to evaluate Licensee's performance under
this Agreement.
-8-
<PAGE>
5.7 Royalty payments provided for in this Agreement shall, when overdue,
bear interest at the then existing prime rate at Citibank of New York plus 4
percent per annum until paid but in no event shall such interest exceed the
usury limit as it exists from time to time in the States of Nevada or
California.
[*]
ARTICLE VI
Protection of Patents
6.1 Licensor agrees where economically justified and within reasonable
limits to protect the Proprietary Property from infringement or misappropriation
by third parties and to prosecute such infringers or defendants, but the
decision to undertake such protection shall be in the sole discretion of
Licensor and Licensor's decision as to whether any such action shall be taken by
it shall be accepted by Licensee. In the event that Licensor shall recover
profits and/or damages from said infringer or defendant, Licensor agrees to turn
over to Licensee [*] of any amounts paid to it by said infringer or defendant
after deducting any or all of its expenses, including costs and legal fees
incurred in the undertaking of such protection and/or prosecution.
6.2 Licensor and Licensee shall each give immediate written notice to the
other of any infringement of a Patent Right or misappropriation of Know-How or
Improvements by any third party as may come to its knowledge. Notwithstanding
Section 6.1, if Licensor has not within six months from the date on which it is
notified or otherwise becomes aware of an infringement or misappropriation
either terminated such infringement or initiated legal action against the
infringer or defendant, it shall, upon written request of Licensee, grant to
Licensee the right to prosecute an action against the infringer or defendant at
Licensee's expense. Licensor agrees, in the event that Licensee cannot prosecute
such infringement or misappropriation in its own name, to sign and give to
Licensee, as soon as practicable, all necessary documents in order for Licensee
to prosecute such infringement or misappropriation in the name of Licensor.
Licensee shall be entitled to deduct all its expenses, including costs and legal
fees incurred in bringing and prosecuting such infringement or misappropriation
action, from royalties due Licensor with respect to the country in which such
action is prosecuted after commencement of such infringement or misappropriation
action.
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<PAGE>
Licensee shall not settle or compromise any such suit or action without the
prior written consent of Licensor, which consent shall not be unreasonably
withheld. In the event Licensee shall recover profits and/or damages from said
infringer or defendant, Licensee agrees to turn over to Licensor [*] of any
amounts paid to it by said infringer or defendant after deducting any or all of
its expenses, including costs and legal fees incurred in the undertaking of such
prosecution.
6.3 Licensee shall promptly advise Licensor in writing of any notice or
claim of any infringement and of the commencement against it of any suit or
action for infringement of a third party patent made or brought against Licensee
and based upon the use hereunder by Licensee of the Proprietary Property.
Licensee shall have the right either to:
(a) request that Licensor enter into negotiations with such third
party to obtain rights for Licensee under the third party patent;
or
(b) request that Licensor defend such suit or action at Licensor's
expense.
6.4 Licensor is neither obligated to enter into negotiations with such
third party to obtain rights for Licensee under the third party patent nor
obligated to defend such suit or action. If Licensor, in its sole discretion,
elects to enter into negotiations with such third party to obtain rights for
Licensee under the third party patent or if Licensor, in its sole discretion,
elects to undertake at its own expense the defense of any such suit or action to
the extent that the alleged infringement is based upon such use hereunder of the
Proprietary Property, Licensee shall render Licensor all reasonable assistance
that may be required by Licensor in the negotiations or in the defense of such
suit or action. Licensor has the primary right to control the defense of any
such suit or action by counsel of its own choice, and Licensee shall have the
right, at its own expense, to be represented in any such suit or action in
respect of which Licensee is a defendant by counsel of its own choice, subject
to Licensor's right of control. Notwithstanding the foregoing, if Licensor has
not within 90 days (or such lesser period of time as is necessary to avoid entry
of a default judgment against Licensor or Licensee) from the date of receipt of
a request from Licensee under Section 6.3 either entered into negotiations with
such third party to obtain rights for Licensee under the third party patent or
initiated legal action to defend such suit, it shall, upon written request of
Licensee, grant to
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<PAGE>
Licensee, the right to enter such negotiations or defend such suit or action.
Licensee shall be entitled to deduct all its expenses, including costs and legal
fees incurred in entering into such negotiations or defending such suit or
action, from royalties due Licensor with respect to the country in which such
suit or action is prosecuted after commencement of such suit or action. Licensee
shall not settle or compromise any such suit or action without the prior written
consent of Licensor, which consent shall not be unreasonably withheld.
ARTICLE VII
Disclaimer of Liability and/or Warranty
7.1 Nothing in this Agreement shall be construed as:
(a) a warranty or representation by Licensor as to the validity or
scope of any Proprietary Property; or
(b) a warranty or representation that anything sold, used, produced
or otherwise disposed of under any license granted in this
Agreement is or will be free from infringement of patents,
copyrights, and/or trademarks of third parties; or
(c) an express or implied warranty of merchantability or fitness for
a particular purpose.
7.2 Licensor shall exercise reasonable care in verifying the accuracy of
information provided under this Agreement, but Licensor shall not be liable for
any damages arising out of or resulting from any information made available
hereunder or of the use thereof nor shall it be liable to Licensee for
consequential damages under any circumstances.
7.3 Licensor shall have no responsibility for the ability of Licensee to
use such information, the quality or performance of any process or any product
produced by Licensee with the aid of such information or with respect to claims
of third parties arising from Licensee's use of such information.
7.4 Licensee shall assume all responsibility and liability for the sale,
use, production, and/or commercialization of the Proprietary Property by or
through Licensee, including, but not limited to, the safety, effectiveness, and
reliability of the process and/or products produced pursuant to this Agreement.
Licensee further agrees to defend, indemnify, and hold Licensor, its trustees,
directors, officers,
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<PAGE>
employees, agents, representatives, successors, assigns and affiliated entities,
harmless from and against any and all liability, demands, damages, expenses and
losses for death, personal injury, illness, or property damage, including the
cost of defense against same, which may be asserted, or any claims which may
arise from the sale, use, production, commercialization, or other disposition of
the Proprietary Property. Licensee acknowledges that the Proprietary Property
included herein is experimental and agrees to take all reasonable precautions to
prevent death, personal injury, illness, and property damage.
7.5 Licensee agrees to purchase and/or maintain insurance coverage
sufficient, taking into account its other assets, to establish the ability of
Licensee to honor the indemnity made in Section 7.4. [*]
ARTICLE VIII
Term and Termination
8.1 The Term of this Agreement shall be for a period extending until the
life of the last to expire of the Patent Rights or the patent rights included in
the Governing License, unless sooner terminated as herein provided.
8.2 If Licensee shall determine that it intends to declare itself insolvent
or file for bankruptcy or reorganization, it shall give ten days written notice
to Licensor. Notwithstanding the above, if Licensee shall become bankrupt or
insolvent; if the business or any assets or property of Licensee shall be placed
in the hands of a receiver, assignee or trustee, whether by the voluntary act of
Licensee or otherwise; if Licensee institutes or suffers to be instituted any
procedure in bankruptcy court for reorganization or rearrangement of its
financial affairs; or if Licensee makes a general assignment for the benefit of
creditors, this Agreement shall immediately terminate unless such bankruptcy,
insolvency, receivership or assignment for the benefit of creditors shall have
been cured within 30 days of such event occurring. Upon occurrence of any of the
foregoing events, Licensee shall give immediate written notice thereof to
Licensor.
8.3 Upon any material breach or default under this Agreement by Licensee,
Licensor may give written notice thereof to Licensee, and Licensee shall have 30
days thereafter to cure such breach or default. If such breach or default is not
so cured, Licensor may then in its sole discretion and option: (a) convert the
exclusive license granted hereunder into a non-exclusive license; or (b)
terminate this Agreement and
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<PAGE>
the licenses granted by it; and/or (c) seek such other relief as may be provided
by law or in equity in such circumstances by giving written notice thereof to
Licensee.
8.4 Upon any material breach or default under the Cross License by Licensee
in its capacity as licensor thereunder, Licensor may give written notice thereof
to Licensee, and Licensee shall have 30 days thereafter to cure such default or
breach. If such breach or default is not so cured, Licensor may then in its sole
discretion and option, and in addition to any legal rights it may have pursuant
to the Cross License arising from such breach or default: (a) convert the
exclusive license granted hereunder into a non-exclusive license; or (b)
terminate this Agreement and the licenses granted by it; and/or (c) seek such
other relief as may be provided by law or in equity in such circumstances by
giving written notice thereof to Licensee.
8.5 If Licensee contests or assists another in contesting the validity of
any of the patents licensed hereunder in a court of competent jurisdiction,
Licensor shall have the right to terminate this Agreement.
8.6 Upon termination hereof for any reason, all rights, licenses, and
sublicenses granted to Licensee hereunder shall immediately terminate and all
related sublicenses shall immediately terminate or, at the option of Licensor,
be deemed to have been assigned to Licensor.
ARTICLE IX
Representations and Warranties
9.1 Licensor represents and warrants that it owns or otherwise has the
right to license or sublicense the Proprietary Property and has the legal power
and authority to extend the rights granted to Licensee pursuant to this
Agreement and has not assigned, licensed, pledged or compromised the Proprietary
Property or made any commitments or offers inconsistent with or in derogation of
the rights created by this Agreement. [*]
9.2 Licensor represents or warrants that it has no knowledge of any
information likely to have a material effect on the validity or enforceability
of any Patent Right or any claim thereof which was not disclosed to the U.S.
Patent and Trademark Office at the time that the patent applications for the
Patent Rights were filed or during the pendency of said applications through the
date of this Agreement.
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<PAGE>
9.3 Licensee represents and warrants that it has full power and authority
to enter into this Agreement and to carry out the transactions contemplated
hereby.
9.4 Except as provided above in this Article IX, neither Licensor nor
Licensee makes any representation or warranty, express or implied, including,
without limitation, any implied warranty of merchantability, fitness for a
particular purpose, or non-infringement.
ARTICLE X
Agency/Partnership
10.1 Neither party shall be deemed to be an agent of the other party as a
result of any transaction under or related to this Agreement, and shall not in
any way pledge the other party's credit or incur any obligations on behalf of
the other party.
10.2 This Agreement shall not constitute either a partnership or a joint
venture, and neither party may be bound by the other to any contract,
arrangement or understanding except as specifically stated herein.
10.3 Without prior written consent obtained from Licensor, Licensee
(including any affiliate or sublicensee of Licensee) shall not use for purposes
of sales, advertising, marketing, marking of goods, promotion to investors,
press releases or other publicity, etc.: (i) the name of (or any other
information which would identify) Licensor or any corporation which is
controlled by the same persons who control Licensor ("controlled corporation");
(ii) the names of trustees, directors, officers, or employees of Licensor or a
controlled corporation; or (iii) any trademarks (or adaptations thereof) of
Licensor or a controlled corporation.
ARTICLE XI
Marking
Licensee agrees to apply or have applied to all articles and to all
containers containing products manufactured by it or any sublicensee(s) under
this Agreement such patent notices as may be required by the laws of the
countries where manufactured or as may reasonably be requested by Licensor.
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<PAGE>
ARTICLE XII
Nondisclosure of Confidential Information
12.1 All Proprietary Property and confidential scientific and technical
information communicated by one party to the other party under this Agreement,
including information contained in patent applications, shall be kept
confidential by such other party. Notwithstanding the foregoing, either party
shall be relieved of the confidentiality obligations herein and not be prevented
by this Agreement from utilizing any information received by it from the other
party if:
(a) the information was previously known to such party, but not
including what was previously known to the inventors of the
Proprietary Property;
(b) the information is or becomes generally available to the public
through no fault of Licensee, including as a result of
publications and/or laying open to inspection of any patent
applications that Licensor may file corresponding to such U.S. or
foreign patent applications;
(c) the information is acquired in good faith in the future by such
party from a third party who is not under an obligation of
confidence to the other party in respect to such information;
(d) the disclosure is required by a governmental or regulatory agency
or is otherwise required by law; or
(e) the disclosure of such information is essential for the
commercial exploitation of the Proprietary Property and is
disclosed subject to a confidentiality agreement including terms
substantially identical to those in this Article XII.
12.2 The agreement of the parties to maintain the Proprietary Property as
confidential shall survive termination of this Agreement, regardless of the
reason for its termination.
12.3 It is understood and agreed that Licensee's disclosure of information
in breach of this Article XII will cause Licensor irreparable harm, for which
monetary damages will not be an adequate remedy. Licensor shall therefore be
entitled to injunctive relief, in addition to any other relief to which it may
be entitled, to prevent any such disclosure.
12.4 Neither party shall be required to disclose to the other party any
proprietary property and confidential scientific
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<PAGE>
and technical information of a third party (including any sublicensees).
ARTICLE XIII
Miscellaneous
13.1 The captions herein are for convenience only and shall not be deemed
to limit or otherwise affect the construction hereof.
13.2 All written notices, payments, reports and the like required or
permitted hereunder shall be deemed to be given when mailed, postage prepaid, by
registered or certified mail, if to Licensor to:
XOMA Corporation
2910 Seventh Street
Berkeley, California 94710
Attn: Legal Department
and if to Licensee to:
Research Development Foundation
c/o Andrew MacKenzie, Esq.
402 North Division Street
Carson City, Nevada 89703
[*]
[*]
or to such other person or by such other means as to which the parties may from
time to time agree.
13.3 This Agreement, in whole or in part, shall not be assignable by
Licensee without the prior written consent of Licensor (unless to a successor
entity to Licensee by merger, acquisition or other reorganization), which
consent will not be unreasonably withheld, and any attempted assignment without
such consent shall be void. Licensor may assign this Agreement.
13.4 The failure of either party to enforce at any time any of the
provisions of this Agreement, or any rights in respect thereto, or to exercise
any election herein provided, shall in no way be considered to be a waiver of
such provisions, rights, or elections, or in any way to affect the validity of
this Agreement. The exercise by either party of any of its rights herein or any
of its elections under the terms or covenants herein shall not
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preclude either party from exercising the same or any other rights it may have
under this Agreement, irrespective of any previous action or proceeding taken by
either party hereunder.
13.5 Except as provided in Section 5.7 above, this Agreement shall be
governed and construed in accordance with the laws of the State of California,
U.S.A.
13.6 If any provision of this Agreement is judicially determined to be void
or unenforceable, such provision shall be construed to be severable from the
other provisions of this Agreement which shall retain full force and effect.
13.7 The parties hereto agree promptly to execute, forward, or otherwise
provide all documents and material necessary or desirable to effectuate this
Agreement.
13.8 The terms and conditions herein contained constitute the entire
agreement between the parties and shall supersede all previous communications,
either oral or written, between the parties hereto with respect to the subject
matter hereof. No agreement or understanding bearing on the same shall be
binding upon either party hereto unless it shall be in writing and signed by the
duly authorized officer or representative of each of the parties and shall
expressly refer to this Agreement.
13.9 This Agreement shall be binding on and shall inure to the benefit of
the parties hereto, and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed in multiple originals by their duly authorized representatives.
XOMA CORPORATION
By: /s/John L. Castello
------------------------------------
John L. Castello
Chairman of the Board, President and
Chief Executive Officer
RESEARCH DEVELOPMENT FOUNDATION
By: /s/Andrew MacKenzie
-----------------------------------
Andrew MacKenzie, Vice President
and Secretary
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<PAGE>
EXHIBIT 1
Proprietary Property
[*]
<PAGE>
EXHIBIT 1, CONTINUED
Proprietary Property
[*]
<PAGE>
EXHIBIT 2
List of Countries
[*]
<PAGE>
EXHIBIT 3
Fields of Use
[*]
<PAGE>
EXHIBIT 4
Governing License
[*]
[*] indicates that a confidential portion of the test of this agreement has been
omitted and filed separately with the Securities and Exchange Commission.
LICENSE AGREEMENT
This License Agreement (hereinafter referred to as "Agreement") is made and
effective as of the 15th day of December, 1993, by and between RESEARCH
DEVELOPMENT FOUNDATION (hereinafter referred to as "Licensor"), a Nevada
nonprofit corporation having its office at 402 North Division Street, Carson
City, Nevada 89703; AND
XOMA CORPORATION (hereinafter referred to as "Licensee"), a Delaware
corporation, having an office at 2910 Seventh Street, Berkeley, California,
94710.
WITNESSETH:
WHEREAS, Licensor is a nonprofit organization exempt from taxation under
Section 501(c)(3) of the Internal Revenue Code of 1986;
WHEREAS, Licensor is the owner of certain inventions, discoveries, and
know-how comprising certain Proprietary Property (as hereinafter defined)
described in Exhibit 1 hereto;
WHEREAS, Licensor is the owner of all the right, title and interest in and
to said Proprietary Property and has determined that the grant of exclusive and
non-exclusive licenses to Licensee as described herein is the only practicable
manner in which the Proprietary Property can be utilized to benefit the public;
WHEREAS, Licensor has filed for patents and/or other protection therefor in
the countries listed in Exhibit 2 hereto;
WHEREAS, Licensee desires to obtain exclusive and non-exclusive worldwide
licenses from Licensor as described herein to produce, have produced, make, have
made, manufacture, have manufactured, use, sell, rent, and/or lease ("make, use,
or sell") methods, processes, or products of Licensor's Proprietary Property;
WHEREAS, Licensee is the owner of certain technology and is granting
Licensor exclusive and non-exclusive licenses to such technology by a cross
license (the "Cross License") of even date herewith;
NOW, THEREFORE, in consideration of the above premises and
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the covenants herein, the parties agree as follows:
ARTICLE I
Definitions
As used in this Agreement, the following terms shall have the following
respective meanings:
1.1 The term "Proprietary Property" shall mean and include all Patent
Rights and Know-How, whether patentable or not, described in Exhibit 1 hereto
and all Improvements (as herein defined);
1.2 The term "Patent Rights" shall mean rights in claims directed to
Gelonin (as herein defined) or methods or processes for the manufacture of
Gelonin of any United States patent issued on, and in claims of any foreign
patent granted on, the patent applications listed in Exhibit 1 hereto, or in
such claims of any divisions, continuations and continuations-in-part based
thereon, reissues, patents of addition or importation, or extensions thereof.
1.3 The term "Know-How" shall mean all information, data, specifications,
techniques, and methods of manufacture described in Exhibit 1 hereto.
1.4 The term "Improvements" shall mean refinements, enhancements, or
improvements in Gelonin itself or in methods or processes for the manufacture of
Gelonin itself described in the claims of the Patent Rights or consisting of
Know-How which are developed during the term of this Agreement.
1.5 The terms "commercialize," "commercializing," and "commercialization"
shall mean the sale, licensing, or other use by Licensee of the right to use the
methods or processes for the manufacture of Gelonin or to make, use, or sell
products within the scope of the Proprietary Property and this Agreement under
such circumstances as may be permitted by applicable international, federal, and
state laws and regulations.
1.6 The term "Fields of Use" shall mean the applications described in
Exhibit 3 hereto.
1.7 The term "Product" shall mean any material, composition, product or
portion of a product that embodies an invention claimed, or which results from
or is specifically intended to be used to practice a method or process claimed,
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<PAGE>
within the Patent Rights and which is made, used, or sold by or for Licensee (or
its sublicensees) and, if not for the licenses granted herein, would infringe a
claim of an issued patent within the Patent Rights.
1.8 The term "Gross Revenues" shall mean charges actually collected by
Licensee from the making, use, or sale of Products, less:
(a) usual trade and/or cash discounts actually allowed and taken;
(b) forwarding expenses, freight, special packaging charges, postage
and duties actually paid or allowed and taxes imposed directly on
the seller with respect to such sales; and
(c) credits for goods returned or rejected. No other allowance or
deduction shall be made by whatever name known.
1.9 The term "Subsidiaries" shall mean any present or future companies
organized under the laws of any nation with respect to which (i) at least 50
percent in value or (ii) at least 50 percent of the total combined voting power
of all classes of shares entitled to vote is directly or indirectly under the
control of Licensee. The term "Licensee" wherever used herein shall include any
Subsidiaries of Licensee.
1.10 The term "Gelonin" shall mean and include gelonin as defined in the
claims of any United States patent issued on and in claims of any foreign patent
granted on the patent applications listed in Exhibit 1 hereto.
ARTICLE II
Grant of License
2.1 Licensor hereby grants and Licensee hereby accepts:
(a) a worldwide, exclusive license in the Fields of Use to make, use,
or sell Products; and
(b) outside the Fields of Use, and outside those fields of use
exclusively granted to Licensor in the Cross License which are
hereby excluded from this grant to Licensee, a worldwide,
non-exclusive license to make, use, or sell Products.
Except as provided herein, no other, further, or different license or sublicense
is hereby granted, either expressly or by implication.
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<PAGE>
2.2 The licenses granted in Section 2.1 above shall include the license and
right to use Know-How in the exercise of such license rights and to incorporate
Know-How in any Products that Licensee makes, uses, or sells in accordance with
said Section 2.1;
[*].
2.3 Licensor hereby grants and Licensee hereby accepts the right to grant
sublicenses to others within the scope of the license and sublicense grants made
in Section 2.1 above, but only under the terms and conditions herein set forth.
Licensee accepts all responsibility for obtaining binding agreements from and
enforcing all terms and conditions hereof upon any and every such sublicensee.
ARTICLE III
Patent Prosecution and Improvements
3.1 Licensor represents that it has timely filed patent applications
relating to the Patent Rights in the countries listed on Exhibit 2 hereto.
Licensor hereby agrees that if Licensor fails to file a patent application
relating to the Patent Rights in any country within six months after receipt of
a written request from Licensee to do so, Licensor shall be deemed to have
consented to Licensee filing and maintaining such patent application in the name
of Licensor at Licensee's expense. Following the issuance of a patent as a
result of any such filing by Licensee, such patent shall be deemed included in
the Patent Rights, and Licensee shall be entitled to deduct all reasonable fees
(including counsel fees) and expenses incurred in obtaining or maintaining such
patent from royalties otherwise payable to Licensor as a result of such patent
issuance.
3.2 Licensor further agrees to use commercially reasonable efforts to
prosecute United States and foreign patent applications it has filed or files
related to the Patent Rights, and to maintain any patents issued thereon.
Notwithstanding the foregoing sentence, in the event that Licensor decides to
discontinue prosecution or maintenance of a patent or patent application related
to the Patent Rights in a particular country, Licensor shall promptly notify
Licensee. Upon receipt of such notice, Licensee, in its sole discretion, may
elect to assume responsibility (and thereafter pay all associated fees and
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<PAGE>
expenses) with respect to any such patent application or patent. If Licensee
elects to assume responsibility for a patent application or patent which
Licensor intends to abandon, following issuance of the patent Licensee may
deduct from the royalties payable to Licensor as a result of such patent the
reasonable fees (including counsel fees) and expenses incurred in connection
with prosecution of such patent application or maintenance of any such patent.
Licensee may, in its sole discretion, abandon any such patent application or
patent for which it has previously assumed responsibility and will not be liable
to Licensor in any way for such abandonment, but shall promptly notify Licensor
of any decision to abandon any such patent or application.
3.3 Consistent with the definitions contained in Article I, Licensor agrees
to make available promptly to Licensee during the term of this Agreement any
Improvements now or hereafter found, owned, or controlled by Licensor. Such
Improvements and the corresponding rights throughout the world shall be the
property of Licensor, and shall be included in the Proprietary Property licensed
to Licensee upon the terms and conditions set forth in this Agreement.
3.4 If patentable or otherwise protectable Improvements are now or
hereafter made and found by agents or employees of Licensor or otherwise owned
by Licensor, and Licensor, at its sole discretion, considers it desirable to
obtain patent protection thereon, Licensee agrees to cooperate fully and to do
all proper things reasonably necessary or desirable to obtain and maintain
patent protection therefor throughout the world, all at Licensor's expense.
3.5 Notwithstanding the provisions in Section 3.4 above, if Licensor fails
to file an application for patent protection for Improvements within six months
after receipt of a written request from Licensee to do so, Licensor shall be
deemed to have consented to Licensee obtaining and maintaining the necessary
protection therefor in the name of Licensor at Licensee's expense and, following
issuance of a patent, Licensee shall be entitled to deduct the reasonable fees
(including counsel fees) and expenses incurred in connection with such
protection from the royalty payments that Licensee is obligated to pay to
Licensor under this Agreement as a result of such patent. The filing and
prosecuting of the United States patent applications by Licensee shall in no
case go beyond an appeal to and a decision by the United States Patent and
Trademark Board of Appeals, unless Licensor specifically agrees otherwise in
writing.
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<PAGE>
3.6 If either Licensor or Licensee files patent applications or otherwise
obtains patent rights for Improvements, such patent applications or patent
rights shall be included in the Patent Rights, and Licensee shall have exclusive
and non-exclusive worldwide licenses therefor under the terms and conditions as
set forth in this Agreement.
[*]
[*]
ARTICLE IV
Royalties
4.1 Licensee shall pay Licensor during the term of this Agreement an earned
royalty of [*] on Gross Revenues with respect to all sales or uses of Products
[*]
4.2 Only one royalty shall be payable on a Product, regardless of the
number of licensed patents or patent applications of the Patent Rights under
which such Product has been manufactured, used or sold. In those cases where a
Product is sold as a part of an article which includes additional materials or
components, the production of which does not use the inventions, processes or
methods of the Patent Rights, the Gross Revenues shall be based on the sales
price at which Licensee would sell the Product independently of such other
materials or components in an arm's length transaction.
4.3 Royalty payments, as provided in Section 4.1 of this Agreement, to be
paid hereunder, shall be paid for a period extending until expiration of all of
the Patent Rights or, if earlier, until this Agreement is terminated as
hereinafter specified. Royalty payments shall cease for any patent which has
expired or been declared invalid by a final determination or judgment.
4.4 In the case of sublicenses, Licensee will pay to Licensor [*]
[*]
4.5 Wherever this Agreement provides that Licensee may deduct expenses,
payments or other amounts from royalties payable to Licensor, (a) such
deductions shall be applied only against royalties payable from the country with
respect to which such deductions arose, [*]
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<PAGE>
[*]
4.6 Licensee is free to make, use, and sell any toxins or other substances
other than Gelonin to any third party without paying a royalty to Licensor
hereunder.
ARTICLE V
Payments, Reports, and Third Party Negotiations
5.1 Licensee shall notify Licensor, in writing, within 30 days of the date
of the first commercial sale of each Product subject to this Agreement and/or
the signing of each sublicense hereunder, and Licensee agrees to provide a copy
of each sublicense to Licensor with such notification.
5.2 Licensee agrees that beginning with the last day of the month of the
first commercial sale of a Product, Licensor shall receive from Licensee within
90 days after the end of each three-month period thereafter:
(a) payment of earned royalties; and
(b) a report showing the information and basis on which the earned
royalties have been calculated.
5.3 All royalties payable by Licensee shall be paid in U.S. Dollars.
Conversion from currencies other than U.S. Dollars shall be at the rate of
exchange quoted in the U.S. version of The Wall Street Journal as of the last
day of the three-month period in which such royalties are accrued.
5.4 Until such time as royalties become payable pursuant to this Agreement,
Licensee agrees to make an annual report to Licensor by April 1st of each year
during the term of this Agreement covering Licensee's progress during the
previous calendar year toward research, development and commercialization.
5.5 Licensee also agrees to make a notarized written report to Licensor
within 90 days after the termination of this Agreement, stating in such report
the royalties payable hereunder, if any, and the basis therefore not previously
reported to Licensor. Licensee shall also continue to make written reports
pursuant to the provisions of this Agreement covering Gross Revenues and the
applicable earned royalties hereunder for Products made during the term of this
Agreement, but not sold, used, or reported until after termination hereof, until
such time as all such sales and uses shall have terminated. Concurrent with
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<PAGE>
the submittal of each post-termination report, Licensee shall pay Licensor all
applicable royalties.
5.6 Licensee shall keep full, true, clear and accurate records and books of
account with respect to the Products and/or Proprietary Property subject to
royalty or other payments. Said records and books of account shall be kept by
Licensee at the usual places where their like records and books are kept and
shall be retained for a period of two years following the end of the calendar
year to which they pertain. Licensor shall have the right at Licensor's expense
through its designated representatives, who shall be subject to the
confidentiality provisions of Article XII hereof, to examine and audit at all
reasonable times all such records and books of account and such other records
and accounts as may under recognized accounting practices contain information
bearing upon the amount of royalty payable to it under this Agreement. Prompt
adjustment shall be made by the proper party to compensate for any errors or
omissions disclosed by such examination or audit. [*] [*]
[*] Neither such right to examine and audit nor the right to receive such
adjustment shall be affected by any statement to the contrary appearing on
checks or otherwise, unless such statements appear in a letter, signed by the
party having such right and delivered to the other party, expressly waiving such
right. Notwithstanding the foregoing, Licensor may require Licensee to furnish
any other information reasonably requested to enable Licensor to evaluate
Licensee's performance under this Agreement.
5.7 Royalty payments provided for in this Agreement shall, when overdue,
bear interest at the then existing prime rate at Citibank of New York plus 4
percent per annum until paid but in no event shall such interest exceed the
usury limit as it exists from time to time in the States of Nevada or
California.
[*]
ARTICLE VI
Protection of Patents
6.1 Licensor agrees where economically justified and within reasonable
limits to protect the Proprietary Property from infringement or misappropriation
by third parties and to prosecute such infringers or defendants, but the
decision to undertake such protection shall be in the sole discretion of
Licensor and Licensor's decision as to whether any such action shall be taken
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<PAGE>
by it shall be accepted by Licensee. In the event that Licensor shall recover
profits and/or damages from said infringer or defendant, Licensor agrees to turn
over to Licensee [*] of any amounts paid to it by said infringer or defendant
after deducting any or all of its expenses, including costs and legal fees
incurred in the undertaking of such protection and/or prosecution.
6.2 Licensor and Licensee shall each give immediate written notice to the
other of any infringement of a Patent Right or misappropriation of Know-How or
Improvements by any third party as may come to its knowledge. Notwithstanding
Section 6.1, if Licensor has not within six months from the date on which it is
notified or otherwise becomes aware of an infringement or misappropriation
either terminated such infringement or initiated legal action against the
infringer or defendant, it shall, upon written request of Licensee, grant to
Licensee the right to prosecute an action against the infringer or defendant at
Licensee's expense. Licensor agrees, in the event that Licensee cannot prosecute
such infringement or misappropriation in its own name, to sign and give to
Licensee, as soon as practicable, all necessary documents in order for Licensee
to prosecute such infringement or misappropriation in the name of Licensor.
Licensee shall be entitled to deduct all its expenses, including costs and legal
fees incurred in bringing and prosecuting such infringement or misappropriation
action, from royalties due Licensor with respect to the country in which such
action is prosecuted after commencement of such infringement or misappropriation
action. Licensee shall not settle or compromise any such suit or action without
the prior written consent of Licensor, which consent shall not be unreasonably
withheld. In the event Licensee shall recover profits and/or damages from said
infringer or defendant, Licensee agrees to turn over to Licensor [*] of any
amounts paid to it by said infringer or defendant after deducting any or all of
its expenses, including costs and legal fees incurred in the undertaking of such
prosecution.
6.3 Licensee shall promptly advise Licensor in writing of any notice or
claim of any infringement and of the commencement against it of any suit or
action for infringement of a third party patent made or brought against Licensee
and based upon the use hereunder by Licensee of the Proprietary Property.
Licensee shall have the right either to:
(a) request that Licensor enter into negotiations with such third
party to obtain rights for Licensee under the third party patent;
or
(b) request that Licensor defend such suit or action at Licensor's
expense.
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<PAGE>
6.4 Licensor is neither obligated to enter into negotiations with such
third party to obtain rights for Licensee under the third party patent nor
obligated to defend such suit or action. If Licensor, in its sole discretion,
elects to enter into negotiations with such third party to obtain rights for
Licensee under the third party patent or if Licensor, in its sole discretion,
elects to undertake at its own expense the defense of any such suit or action to
the extent that the alleged infringement is based upon such use hereunder of the
Proprietary Property, Licensee shall render Licensor all reasonable assistance
that may be required by Licensor in the negotiations or in the defense of such
suit or action. Licensor has the primary right to control the defense of any
such suit or action by counsel of its own choice, and Licensee shall have the
right, at its own expense, to be represented in any such suit or action in
respect of which Licensee is a defendant by counsel of its own choice, subject
to Licensor's right of control. Notwithstanding the foregoing, if Licensor has
not within 90 days (or such lesser period of time as is necessary to avoid entry
of a default judgment against Licensor or Licensee) from the date of receipt of
a request from Licensee under Section 6.3 either entered into negotiations with
such third party to obtain rights for Licensee under the third party patent or
initiated legal action to defend such suit, it shall, upon written request of
Licensee, grant to Licensee, the right to enter such negotiations or defend such
suit or action. Licensee shall be entitled to deduct all its expenses, including
costs and legal fees incurred in entering into such negotiations or defending
such suit or action, from royalties due Licensor with respect to the country in
which such suit or action is prosecuted after commencement of such suit or
action. Licensee shall not settle or compromise any such suit or action without
the prior written consent of Licensor, which consent shall not be unreasonably
withheld.
ARTICLE VII
Disclaimer of Liability and/or Warranty
7.1 Notwithstanding any other provisions of this Agreement, nothing in this
Agreement shall be construed as:
(a) a warranty or representation by Licensor as to the validity or
scope of any Proprietary Property; or
(b) a warranty or representation that anything sold, used, produced
or otherwise disposed of under any license granted in this
Agreement is or will be
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free from infringement of patents, copyrights, and/or trademarks
of third parties; or
(c) an express or implied warranty of merchantability or fitness for
a particular purpose.
7.2 Licensor shall exercise reasonable care in verifying the accuracy of
information provided under this Agreement, but Licensor shall not be liable for
any damages arising out of or resulting from any information made available
hereunder or of the use thereof nor shall it be liable to Licensee for
consequential damages under any circumstances.
7.3 Licensor shall have no responsibility for the ability of Licensee to
use such information, the quality or performance of any process or any product
produced by Licensee with the aid of such information or with respect to claims
of third parties arising from Licensee's use of such information.
7.4 Licensee shall assume all responsibility and liability for the sale,
use, production, and/or commercialization of the Proprietary Property by or
through Licensee, including, but not limited to, the safety, effectiveness, and
reliability of the process and/or products produced pursuant to this Agreement.
Licensee further agrees to defend, indemnify, and hold Licensor, its trustees,
directors, officers, employees, agents, representatives, successors, assigns and
affiliated entities, harmless from and against any and all liability, demands,
damages, expenses and losses for death, personal injury, illness, or property
damage, including the cost of defense against same, which may be asserted, or
any claims which may arise from the sale, use, production, commercialization, or
other disposition of the Proprietary Property. Licensee acknowledges that the
Proprietary Property included herein is experimental and agrees to take all
reasonable precautions to prevent death, personal injury, illness, and property
damage.
7.5 Licensee agrees to purchase and/or maintain insurance coverage
sufficient, taking into account its other assets, to establish the ability of
Licensee to honor the indemnity made in Section 7.4. [*]
[*]
[*]
ARTICLE VIII
Term and Termination
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8.1 The Term of this Agreement shall be for a period extending until the
life of the last to expire of the Patent Rights, unless sooner terminated as
herein provided.
8.2 If Licensee shall determine that it intends to declare itself insolvent
or file for bankruptcy or reorganization, it shall give ten days written notice
to Licensor. Notwithstanding the above, if Licensee shall become bankrupt or
insolvent; if the business or any assets or property of Licensee shall be placed
in the hands of a receiver, assignee or trustee, whether by the voluntary act of
Licensee or otherwise; if Licensee institutes or suffers to be instituted any
procedure in bankruptcy court for reorganization or rearrangement of its
financial affairs; or if Licensee makes a general assignment for the benefit of
creditors, this Agreement shall immediately terminate unless such bankruptcy,
insolvency, receivership or assignment for the benefit of creditors shall have
been cured within 30 days of such event occurring. Upon occurrence of any of the
foregoing events, Licensee shall give immediate written notice thereof to
Licensor.
8.3 Upon any material breach or default under this Agreement by Licensee,
Licensor may give written notice thereof to Licensee, and Licensee shall have 30
days thereafter to cure such breach or default. If such breach or default is not
so cured, Licensor may then in its sole discretion and option: (a) convert the
exclusive license granted hereunder into a non-exclusive license; or (b)
terminate this Agreement and the licenses granted by it; and/or (c) seek such
other relief as may be provided by law or in equity in such circumstances by
giving written notice thereof to Licensee.
8.4 Upon any material breach or default under the Cross License by Licensee
in its capacity as licensor thereunder, Licensor may give written notice thereof
to Licensee, and Licensee shall have 30 days thereafter to cure such default or
breach. If such breach or default is not so cured, Licensor may then in its sole
discretion and option, and in addition to any legal rights it may have pursuant
to the Cross License arising from such breach or default: (a) convert the
exclusive license granted hereunder into a non-exclusive license; or (b)
terminate this Agreement and the licenses granted by it; and/or (c) seek such
other relief as may be provided by law or in equity in such circumstances by
giving written notice thereof to Licensee.
8.5 If Licensee contests or assists another in contesting the validity of
any of the patents licensed hereunder in a court of competent jurisdiction,
Licensor shall have the right to terminate this Agreement.
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8.6 Upon termination hereof for any reason, all rights, licenses, and
sublicenses granted to Licensee hereunder shall immediately terminate and all
related sublicenses shall immediately terminate or, at the option of Licensor,
be deemed to have been assigned to Licensor.
ARTICLE IX
Representations and Warranties
9.1 Licensor represents and warrants that it owns or otherwise has the
right to license or sublicense the Proprietary Property and has the legal power
and authority to extend the rights granted to Licensee pursuant to this
Agreement and has not assigned, licensed, pledged or compromised the Proprietary
Property or made any commitments or offers inconsistent with or in derogation of
the rights created by this Agreement.
9.2 Licensor represents or warrants that it has no knowledge of any
information likely to have a material effect on the validity or enforceability
of any Patent Right or any claim thereof which was not disclosed to the U.S.
Patent and Trademark Office at the time that the patent applications for the
Patent Rights were filed or during the pendency of said applications through the
date of this Agreement.
9.3 Licensee represents and warrants that it has full power and authority
to enter into this Agreement and to carry out the transactions contemplated
hereby.
9.4 Except as provided above in this Article IX, neither Licensor nor
Licensee makes any representation or warranty, express or implied, including,
without limitation, any implied warranty of merchantability, fitness for a
particular purpose, or non-infringement.
ARTICLE X
Agency/Partnership
10.1 Neither party shall be deemed to be an agent of the other party as a
result of any transaction under or related to this Agreement, and shall not in
any way pledge the other party's credit or incur any obligations on behalf of
the other party.
10.2 This Agreement shall not constitute either a
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partnership or a joint venture, and neither party may be bound by the other to
any contract, arrangement or understanding except as specifically stated herein.
10.3 Without prior written consent obtained from Licensor, Licensee
(including any affiliate or sublicensee of Licensee) shall not use for purposes
of sales, advertising, marketing, marking of goods, promotion to investors,
press releases or other publicity, etc.: (i) the name of (or any other
information which would identify) Licensor or any corporation which is
controlled by the same persons who control Licensor ("controlled corporation");
(ii) the names of trustees, directors, officers, or employees of Licensor or a
controlled corporation; or (iii) any trademarks (or adaptations thereof) of
Licensor or a controlled corporation.
ARTICLE XI
Marking
Licensee agrees to apply or have applied to all articles and to all
containers containing products manufactured by it or any sublicensee(s) under
this Agreement such patent notices as may be required by the laws of the
countries where manufactured or as may reasonably be requested by Licensor.
ARTICLE XII
Nondisclosure of Confidential Information
12.1 All Proprietary Property and confidential scientific and technical
information communicated by one party to the other party under this Agreement,
including information contained in patent applications, shall be kept
confidential by such other party. Notwithstanding the foregoing, either party
shall be relieved of the confidentiality obligations herein and not be prevented
by this Agreement from utilizing any information received by it from the other
party if:
(a) the information was previously known to such party, but not
including what was previously known to the inventors of the
Proprietary Property;
(b) the information is or becomes generally available to the public
through no fault of Licensee, including as a result of
publications and/or laying open to inspection of any patent
applications that Licensor may file corresponding to such U.S. or
foreign patent applications;
(c) the information is acquired in good faith in the future by such
party from a third party who is not
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under an obligation of confidence to the other party in respect
to such information;
(d) the disclosure is required by a governmental or regulatory agency
or is otherwise required by law; or
(e) the disclosure of such information is essential for the
commercial exploitation of the Proprietary Property and is
disclosed subject to a confidentiality agreement including terms
substantially identical to those in this Article XII.
12.2 The agreement of the parties to maintain the Proprietary Property as
confidential shall survive termination of this Agreement, regardless of the
reason for its termination.
12.3 It is understood and agreed that Licensee's disclosure of information
in breach of this Article XII will cause Licensor irreparable harm, for which
monetary damages will not be an adequate remedy. Licensor shall therefore be
entitled to injunctive relief, in addition to any other relief to which it may
be entitled, to prevent any such disclosure.
12.4 Neither party shall be required to disclose to the other party any
proprietary property and confidential scientific and technical information of a
third party (including any sublicensees).
ARTICLE XIII
Miscellaneous
13.1 The captions herein are for convenience only and shall not be deemed
to limit or otherwise affect the construction hereof.
13.2 All written notices, payments, reports and the like required or
permitted hereunder shall be deemed to be given when mailed, postage prepaid, by
registered or certified mail, if to Licensor to:
Research Development Foundation
c/o Andrew MacKenzie, Esq.
402 North Division Street
Carson City, Nevada 89703
-15-
<PAGE>
[*]
[*]
and if to Licensee to:
XOMA Corporation
2910 Seventh Street
Berkeley, California 94710
Attn: Legal Department
or to such other person or by such other means as to which the parties may from
time to time agree.
13.3 This Agreement, in whole or in part, shall not be assignable by
Licensee without the prior written consent of Licensor (unless to a successor
entity to Licensee by merger, acquisition or other reorganization), which
consent will not be unreasonably withheld, and any attempted assignment without
such consent shall be void. Licensor may assign this Agreement.
13.4 The failure of either party to enforce at any time any of the
provisions of this Agreement, or any rights in respect thereto, or to exercise
any election herein provided, shall in no way be considered to be a waiver of
such provisions, rights, or elections, or in any way to affect the validity of
this Agreement. The exercise by either party of any of its rights herein or any
of its elections under the terms or covenants herein shall not preclude either
party from exercising the same or any other rights it may have under this
Agreement, irrespective of any previous action or proceeding taken by either
party hereunder.
13.5 Except as provided in Section 5.7 above, this Agreement shall be
governed and construed in accordance with the laws of the State of Nevada,
U.S.A.
13.6 If any provision of this Agreement is judicially determined to be void
or unenforceable, such provision shall be construed to be severable from the
other provisions of this Agreement which shall retain full force and effect.
13.7 The parties hereto agree promptly to execute, forward, or otherwise
provide all documents and material necessary or desirable to effectuate this
Agreement.
13.8 The terms and conditions herein contained constitute the entire
agreement between the parties and shall supersede all
-16-
<PAGE>
previous communications, either oral or written, between the parties hereto with
respect to the subject matter hereof. No agreement or understanding bearing on
the same shall be binding upon either party hereto unless it shall be in writing
and signed by the duly authorized officer or representative of each of the
parties and shall expressly refer to this Agreement.
13.9 This Agreement shall be binding on and shall inure to the benefit of
the parties hereto, and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed in multiple originals by their duly authorized representatives.
RESEARCH DEVELOPMENT FOUNDATION
By: /s/ Andrew MacKenzie
------------------------------------
Andrew MacKenzie,
Vice President and Secretary
XOMA CORPORATION
By: /s/ John L. Castello
------------------------------------
John L. Castello
Chairman of the Board,
President and Chief Executive Officer
-17-
<PAGE>
EXHIBIT 1
Proprietary Property
[*]
<PAGE>
EXHIBIT 2
List of Countries
[*]
<PAGE>
EXHIBIT 3
Fields of Use
[*]
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
on Form S-3 (Nos. 333-02493, 333-07263, 333-34907, 333-59241, 333-60503 and
33-59379) and the related Prospectuses and in the Registration Statements on
Form S-8 (No. 333-66171 and 33-39155) pertaining to the Share Option Plan,
Restricted Shares Plan, Directors Share Option Plan and Employee Share Purchase
Plan of XOMA Ltd. of our report dated February 12, 1999, with respect to the
consolidated financial statements of XOMA Ltd. included in its Annual Report
(Form 10-K) for the year ended December 31, 1998.
/s/ ERNST & YOUNG LLP
Palo Alto, California
March 8, 1999
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 8, 1998 included in this Form 10-K into the
Company's previously filed Registration Statements on Form S-3 (File Nos.
333-02493, -07263, -34907, -59241, -60503 and 33-59379) and on Form S-8 (File
Nos. 333-66171 and 33-39155).
San Francisco, California ARTHUR ANDERSEN LLP
March 8, 1999
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<PERIOD-END> Dec-31-1998
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