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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1999 Commission File No. 0-14710
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XOMA LTD.
(Exact name of registrant as specified in its charter)
Bermuda 94-2756657
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2910 Seventh Street, Berkeley, California 94710
(Address of principal executive offices) (Zip Code)
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 29, 2000: $595,197,559
Number of Common Shares outstanding as of February 29, 2000: 64,716,757
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the Company's 2000 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 infectious diseases, immunologic and inflammatory
disorders and cancer. The Company's current product development programs
include:
o NEUPREX(R)(rBPI21), a recombinantly derived modified fragment of human
bactericidal/permeability-increasing protein ("BPI") and XOMA's lead BPI-derived
product. The product completed a Phase III efficacy clinical trial in 1999 in
one indication and has been in various clinical trials in four additional
indications. Further development of this product will continue under a licensing
agreement with Baxter Healthcare Corporation ("Baxter").
o Anti-CD11a, a humanized monoclonal antibody product being developed in
collaboration with Genentech, Inc. ("Genentech"). The anti-CD11a product has
completed several Phase I clinical studies, one Phase II study and has started a
Phase III trial in psoriasis patients.
Ophthalmic anti-infective products, including combinations of rBPI and
antibiotics that are being developed under a licensing agreement with Allergan,
Inc. ("Allergan").
Mycoprex(TM), a fungicidal compound derived from BPI that is currently in
preclinical product development. It is initially targeted at systemic fungal
infections. XOMA is seeking a partner for clinical development and
commercialization of this product.
ING-1, a high-affinity recombinant monoclonal antibody to an antigen
expressed on epithelial cell cancers (breast, colorectal, prostate and others)
that destroys cancer cells by recruiting the patient's own immune system. XOMA
has recently accelerated the development schedule for ING-1 and is currently
pursuing development of ING-1 internally.
Genimune(TM), a product developed using XOMA's proprietary targeted gelonin
fusion technology. The product delivers a proprietary recombinant cytotoxin
(rGelonin) specifically to CD5-positive cells. The CD5 antigen is expressed on
mature T cells and some B cells, but not on stem cells or other tissues. The
product may treat cancers such as T and B-cell lymphomas and chronic lymphocytic
leukemia, as well as autoimmune diseases such as rheumatoid arthritis. XOMA is
seeking a partner for clinical development and commercialization of the product
and plans to outlicense the technology.
In late 1998, XOMA completed a shareholder-approved corporate
reorganization, changing its legal domicile from Delaware to Bermuda and its
name to XOMA Ltd. 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.
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Product Areas
The following describes XOMA's more significant product development and
clinical activities:
The BPI Product Platform
The Company is developing novel therapeutic products from recombinant
bactericidal/permeability-increasing protein ("rBPI"). rBPI is a genetically
engineered version of a human host-defense protein found in white blood cells.
rBPI kills gram-negative 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. rBPI also enhances the
activity of antibiotics, in many cases reversing bacterial resistance to the
antibiotic. Furthermore, rBPI 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.
Natural BPI was discovered in 1978 at New York University ("NYU") School of
Medicine by Peter Elsbach, M.D., Professor of Medicine, and Jerrold Weiss,
Ph.D., Professor of Microbiology. XOMA has collaborated with NYU since 1991 to
extend and apply BPI-related research to the commercial development of
pharmaceutical products. 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 recombinant
modified 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 ophthalmic products. More recently, a
XOMA scientist discovered three functional domains in the BPI molecule with
desirable pharmacological activities. Based on this discovery, XOMA is
developing smaller compounds from these domains into additional therapeutic
products, including the Mycoprex(TM) antifungal product and anti-angiogenic
compounds.
NEUPREX(R)
In December 1992, XOMA submitted an investigational new drug application
("IND") to the U.S. Food and Drug Administration ("FDA") to begin human testing
of the NEUPREX(R) product. In March 1993, the Company began Phase I human safety
and pharmacokinetic testing under the IND. Beginning in 1995 the Company
initiated clinical efficacy studies evaluating NEUPREX(R) as a treatment for
primary infections and complications of infectious diseases, trauma and surgery.
The indications tested so far are:
o Severepediatric meningococcemia: This deadly systemic bacterial
infection usually afflicts children. In August 1996, following
favorable results in an open-label Phase I/II pilot study, the FDA
Center for Biologics Evaluation and Research ("CBER") granted
NEUPREX(R) a Subpart E designation 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
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subsequently began a Phase III pivotal trial for the indication in
October 1996 in the United States. 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 an "orphan drug" by the FDA under the
Orphan Drug Act for treatment of severe meningococcal disease. The
Orphan Drug Act generally entitles the first developer that receives
FDA marketing approval to a seven-year exclusive marketing period in
the United States for that product. The Phase III trial completed
enrollment at nearly 400 patients in May 1999. In August 1999, a
preliminary analysis of the data revealed a clinical benefit in
mortality and morbidities. A more detailed analysis was submitted to
the FDA in November 1999, and the Company is preparing to meet with
the FDA to discuss the trial results. The Company cannot predict the
outcome of the meeting.
o Hemorrhage due to trauma: Accidents or injuries that cause acute blood
loss can trigger serious infectious complications in up to 40% of
patients who survive the initial trauma and surgery. 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. In September 1999, an independent Data Safety
Monitoring Board (DSMB) identified no safety issues but concluded that
the data did not support continuing the trial. Enrollment was halted
at approximately 1100 patients. An analysis of the trial is underway.
o Partial hepatectomy: This procedure, surgical removal of part of the
liver (usually to remove an isolated tumor), 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. The study showed a reduction in pulmonary complications in
patients treated with NEUPREX(R).
o Severeintra-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 patient outcome.
o Cysticfibrosis (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 tested a formulation
of rBPI21, alone and in combination with antibiotics, in vitro against
bacterial cultures collected from CF patients. A Phase I safety and
pharmacokinetics study in CF patients was concluded in 1998.
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There can be no assurance that any of the clinical trials will yield data
that will result in licensure of the NEUPREX(R) product.
BPI-related Ophthalmic Program
In June of 1999, XOMA entered into an agreement with Allergan to develop
ophthalmic anti-infectives that combine rBPI with antibiotics. Such combination
products have shown positive in vitro results against resistant strains of
bacteria that cause eye infections.
Mycoprex(TM)
XOMA scientists have 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 fungus to
cause systemic illness, but also show activity against other strains of fungi,
including those resistant to 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 fungicidal drugs. 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 Program
In the first quarter of 1997, XOMA 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.
Later in 1997, 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.
Monoclonal Antibody Programs
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. In late 1996, XOMA
started a Phase I trial in moderate to severe psoriasis patients. In the second
quarter of 1997, the Company 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. In April
1999, the companies announced an agreement to continue collaborative development
of the product through Phase III for the treatment of moderate to severe plaque
psoriasis. In August 1999, XOMA announced the expansion of the collaboration to
include organ transplant rejection, and has subsequently scheduled a Phase I/II
study in kidney transplant patients. In December 1999, a Phase III trial was
initiated in psoriasis patients.
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Other Antibody-based Products and Technologies
XOMA has additional core capabilities in the recombinant antibody area,
including ING-1, (a therapeutic oncology antibody product candidate) targeted
gelonin fusion technology and a related product (Genimiune(TM)), and mammalian
and microbial expression systems for the manufacture of recombinant antibodies.
Various licenses and sublicenses have been entered into in some of 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 may
choose to develop some of these products further on its own.
Genimune(TM) is XOMA's humanized gelonin fusion product that targets CD5
positive lymphocytes (T and B white blood cells) for autoimmune disease therapy.
For several years, the Company developed and evaluated several proprietary
variants of genetically engineered proteins and targeted immunofusions. In
mid-1993 the Company selected a lead 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 fusion component. XOMA has engaged an
advisor to assist in seeking partners and is attempting to outlicense the
product and the targeted gelonin fusion technology, but no assurance can be
given that it will successfully do so.
XOMA has developed a patented technology for the human engineering of
antibodies. This Human Engineering (HE) technology represents a novel
alternative to the complementarity-determining region (CDR) grafting-based
humanization methods in widespread use today. The Company is using the HE
technology for internal development of ING-1 and Genimune(TM) and also plans to
outlicense it. No assurance can be given that the technology will be outlicensed
successfully.
Additional Product and Technology Areas
XOMA continues to seek opportunities to realize value from products and
technologies outside its core research efforts, including mammalian and
microbial cell expression technologies, 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.
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 named
Connetics Corporation ("Connetics"). In December 1999, Connetics and XOMA agreed
to assign their TCR intellectual property to The Immune Response Corporation
("IRC") in exchange for cash, common stock of IRC, and future royalties. IRC
owns additional TCR-related intellectual property and intends to carry forward
development of pharmaceutical products for the treatment of rheumatoid arthritis
and other autoimmune diseases using this technology.
In 1996 XOMA also received a $3.0 million payment for an exclusive license
to Genentech, including a sublicense to IDEC Pharmaceuticals Corporation
("IDEC"), for 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
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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, Celltech Ltd, Eli Lilly and Company, Enzon, Inc.,
Genentech, the Hoechst Group, ICOS Corporation, Invitrogen Corporation, Pasteur
Merieux Serums & Vaccins, The Pharmacia & Upjohn Group and ZymoGenetics, a
subsidiary of Novo Nordisk.
Thaumatin, a flavor-enhancing protein developed by XOMA, is 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 the rBPI21, anti-CD11a, and ING-1 products for
clinical trial and other testing needs at its Berkeley and Santa Monica
manufacturing facilities, 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 4,000 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
will depend to a large extent upon the marketing capabilities of any
pharmaceutical partners.
NEUPREX(R)
In January 2000, XOMA entered into NEUPREX(R) licensing and supply
agreements with the Hyland Immuno division of Baxter for treatment of
meningococcemia and all future anti-bacterial and anti-endotoxin indications.
The agreements provide for upfront and other payments of up to $35 million for
meningococcemia. In addition, Baxter has committed to fund development of the
product in additional indications. Baxter will pay all future development costs,
and XOMA may receive additional payments related to additional indications. XOMA
will receive royalties from future NEUPREX(R) sales, and will supply initial
product needs from its Berkeley manufacturing facility.
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BPI Related Ophthalmics
In June 1999, XOMA concluded licensing and supply agreements with Allergan.
for the use of rBPI in combination with antibiotics for the treatment of eye
infections. Allergan will fund all development costs and XOMA will receive up to
$11 million in milestone payments and a royalty on sales of future products.
XOMA will also manufacture rBPI21 for use in the licensed products.
XOMA is in discussion with potential partners regarding the licensing and
development of BPI-derived anti-angiogenic products for use in ophthalmic
indications, such as diabetic retinopathy. No assurance can be given regarding
the timing or likelihood of future arrangements.
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.
Anti-CD11a
In April 1996, XOMA and Genentech entered into an agreement whereby XOMA
agreed to co-develop Genentech's humanized monoclonal antibody product
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 XOMA $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. In April 1999, the
companies extended and expanded the agreement. XOMA will now receive a royalty
of 25% of U.S. profits, if any, from anti-CD11a in all indications, and a
royalty on sales outside the United States. Genentech will continue to finance
XOMA's share of development costs via convertible subordinated loans, which are
due at the earlier of 2005 or first product approval. In 1999, the Company
received $6.5 million in funding from Genentech under the anti-CD11a development
agreement.
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
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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.
Without limiting the foregoing, XOMA is aware that Biogen Inc. has
completed Phase II testing of a product in severe psoriasis, Immunex Corp. may
be testing its rheumatoid arthritis drug in psoriasis and Medarex, Inc. may be
developing a monoclonal antibody product for treatment of inflammatory skin
disorders. 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) or any ophthalmic product developed by Allergan and XOMA.
Regulatory
XOMA's products are subject to comprehensive preclinical and clinical
testing requirements and to approval processes by the U.S. Food and Drug
Administration (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 FDA's Center for
Biologics Evaluation and Research (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 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 multi-center, 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 laboratory efficacy studies, toxi-
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cology, 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) and anti-CD11a is described above under
"Product Areas."
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.
European Filing Process
In Europe, most of the Company's human therapeutic products are or will be
classified as biologic and would be subject to a single European registration
through a centralized procedure. The assessment of the Marketing Authorization
Application is carried out by a rapporteur and co-rapporteur appointed by the
Committee for Proprietary Medicinal Products (CPMP), which is the expert
scientific committee of the European Medicines Evaluation Agency (EMEA).
The rapporteur and co-rapporteur are drawn from the CPMP membership
representing member states of the European Union. They liase with the applicant
on behalf of the CPMP in an effort to provide answers to queries raised by the
CPMP. Their assessment report(s) is circulated to and considered by the full
CPMP membership leading to the production ultimately of a CPMP opinion which is
transmitted to the applicant and Commission. The final decision on an
application is issued by the Commission. When a positive decision is reached, a
Marketing Authorization or "MA" will be issued. Once approval is granted the
product can be marketed under the single European MA in all member states of the
European Union. Consistent with the single MA, the labeling for Europe is
identical throughout all member states except that all labeling must be
translated into the local language of the country of intended importation and in
relation to the content of the so called "blue box" on the outer packaging in
which locally required information may be inserted.
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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 1999, the U.S. Patent and
Trademark Office (the "Patent Office") issued 44 patents to the Company related
to its BPI-related 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 ophthalmic products in the U.S.
The Company has received Notices of Allowance from the Patent Office for five
additional U.S. patents and has more than 20 pending patent applications
worldwide related to its BPI-related products.
The Company is the exclusive licensee of BPI-related patents and
applications owned by NYU. These include five 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 1999, 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, XOMA 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.
From January 1996 to December 1999, XOMA was issued six patents and one
Notice of Allowance directed to its LBP-related assays and products, including
diagnostic and prognostic methods for measuring LBP levels in humans. XOMA has
also acquired from Johnson & Johnson an exclusive sublicense to their
LBP-related portfolio, including five U.S. patents issued to the discoverers of
LBP, Drs. Richard Ulevitch and Peter Tobias, at the Scripps Research Institute
in San Diego.
During the period from July 1991 to December 1999, the Patent Office issued
eight patents to the Company related to its bacterial expression technology,
including claims to novel promoter se-
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quences, 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 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 to indefinite duration. Aggregate expenses of the Company under all
of its research agreements totaled $0.1 million, $0.1 million and $0.2 million
in 1999, 1998 and 1997, 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 investigating the use of 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
-11-
<PAGE>
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 government 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, 1999 XOMA employed 175 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 U.S.A. (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 idle 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.
-12-
<PAGE>
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
Officers
The officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Title
<S> <C> <C>
John L. Castello 63 Chairman of the Board, President and
Chief Executive Officer
Patrick J. Scannon, M.D., Ph.D. 52 Chief Scientific and Medical Officer and
Director
Clarence L. Dellio 54 Senior Vice President, Operations
Daniel P. Cafaro 43 Vice President, Regulatory Affairs
Ronald H. Carlson, Ph.D. 47 Vice President, Quality Assurance/Control
Stephen F. Carroll, Ph.D. 48 Vice President, Preclinical Research
Peter B. Davis 53 Vice President, Finance and Chief Financial
Officer
Marvin R. Garovoy, M.D. 56 Vice President, Clinical and Medical Affairs
Christopher J. Margolin 53 Vice President, General Counsel and Secretary
W. C. McGregor, Ph.D. 58 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.
-13-
<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
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
1999:
First Quarter $ 4-3/16 $ 2-13/16
Second Quarter 6-3/4 2-1/2
Third Quarter 8 2-1/32
Fourth Quarter 3-3/4 2
On March 15, 2000, there were approximately 3,938 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").
-14-
<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 1995
through 1999. 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,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except per share amounts)
Statement of
Operations Data
<S> <C> <C> <C> <C> <C> <C>
Total revenues (1) $2,361 $6,345 $18,383 $3,604 $1,165
Total operating costs and
expense (2) 47,534 54,184 35,552 31,826 27,469
Other income (expense), net (3) (606) 636 1,404 (888) 3,832
------------- ---------- ----------- --------- --------
Net loss $(45,779) $(47,203) $(15,765) $(29,110) $(22,472)
============= ========== =========== ========= ========
Net loss per common share $(0.87) $(1.16) $(0.44) $(0.90) $(0.97)
============= ========== =========== ========= ========
December 31,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Balance Sheet Data
Cash (4) $18,539 $28,287 $55,146 $46,982 $26,633
Total assets 28,312 37,304 64,776 57,675 40,878
Long-term debt (5) 34,724 26,513 24,773 14,516 7,692
Redeemable convertible
preference shares -- 6,440 -- -- --
Accumulated deficit (450,177) (404,343) (354,526) (337,195) (307,905)
Shareholders' equity (net
capital deficiency) $(16,846) $(6,190) $31,240 $34,748 $26,836
</TABLE>
(1) In 1999, includes non-refundable license fee and milestone payment from
Allergan and proceeds from the assignment of intellectual property rights
to IRC. 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 related patents and $2.5 million of costs related to the
change in domicile.
-15-
<PAGE>
(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 Inc. for the E5(R) clinical trial, and a $2.4
million loss related to the impairment in value of a company-owned
facility.
(4) Includes cash, cash equivalents, short-term investments, and interest
receivable.
(5) Excludes current portion. In 1999, 1998, 1997 and 1996, includes $30.0
million, $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.
-16-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
XOMA is a biopharmaceutical company developing products to treat infectious
diseases, immunologic and inflammatory disorders and cancer. The Company's
primary infectious disease drug development platform is BPI
(bactericidal/permeability-increasing protein), a human host-defense protein.
The first BPI-derived product, NEUPREX(R), has completed a Phase III trial in
meningococcemia and has been in clinical trials in four additional indications.
XOMA has concluded license and supply agreements with Baxter for NEUPREX(R) and
with Allergan for BPI-derived products in combination with antibiotics for
ophthalmic infections. Other BPI-derived products in preclinical development
include Mycoprex(TM), a peptide-derived compound initially targeting systemic
fungal infections.
XOMA is also developing the anti-CD11a humanized monoclonal antibody
product under a collaboration agreement with Genentech. The product has
successfully concluded a Phase II and has started a Phase III clinical trial in
psoriasis patients. Genentech is providing funding for development and clinical
trials through a cost sharing arrangement and through a series of long-term
convertible loans. Future joint development plans include additional
indications, beginning with organ transplant rejection.
Additional human engineered antibody-related products being developed by
the Company include ING-1 which targets epithelial cell cancer indications, and
Genimune(TM), which targets B and T cell cancers and autoimmune diseases
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.
In January 2000, the Company's shareholders approved an increase in
authorized share capital by 65,000,000 common shares.
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 $2.4 million in 1999, compared with $6.3 million in
1998 and $18.4 million in 1997. Revenues for 1999 included a non-refundable
licensing fee and first milestone payment from Allergan, related to the use of
rBPI in combination with antibiotics for the treatment of ophthalmic infections,
and also proceeds from the assignment of T-cell receptor (TCR) intellectual
property to IRC. Revenues for 1998 included $2.0 million in non-refundable
milestone payments from Genentech for anti-CD11a 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
-17-
<PAGE>
rights to Pharmaceutical Partners, LLC and $1.4 million for various licensing
transactions. In addition to milestones and royalties, future revenues will be
impacted by services and drug material provided by the Company for the
development of the NEUPREX(R) product.
Costs and Expenses
In 1999, research and development expenses decreased by $2.4 million (5%)
compared to 1998, following a $14.0 million (47%) increase from 1997 to 1998.
The decrease from 1998 to 1999 reflected the initiation of a cost sharing
arrangement with Genentech in April 1999 related to the development of the
anti-CD11a monoclonal antibody product. The increase from 1997 to 1998 reflected
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 anti-CD11a. The Company anticipates research and development
expenditures may vary considerably from year-to-year depending on development
plans for NEUPREX(R) and other products.
General and administrative expenses increased by $0.7 million (12%) from
1999 to 1998, following a decrease of $0.2 million (4%) from 1997 to 1998. The
increase was due primarily to costs related to licensing activities and the
Company's change in domicile to Bermuda at year-end 1998. The Company does not
foresee substantial near-term changes to general and administrative
expenditures.
Other 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. A gain of $0.3 million was
realized in 1997 reflecting an adjustment to the value of a previously settled
class action law suit lawsuit.
Interest income was $1.1 million lower in 1999 than 1998, reflecting both
lower cash investment balances and lower prevailing interest rates. Interest and
other expense in 1997, 1998 and 1999 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% (7.13% at December 31, 1999).
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments decreased by $9.7 million
to $18.5 million at December 31, 1999. Financing activities of $34.3 million
includes $27.8 million of net proceeds from private placements in January and
July of 1999 and $6.5 million net funding from Genentech under the anti-CD11a
development agreement. 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 $43.1 million in 1999, compared
with $37.7 million in 1998 and $12.0 million in 1997. The increase in cash used
in operating activities in 1999 compared to 1998 is due to higher spending on
clinical trials and preparing for regulatory applications and inspections for
NEUPREX(R). Approximately $1.5 million of the expenses accrued in 1998 for the
change in domicile were actually paid in 1999. The increase in cash usage in
1998 versus 1997 was primarily due to higher spending on NEUPREX(R) and
anti-CD11a, and to $17.0 million received in a
-18-
<PAGE>
single non-recurring transaction in December 1977 was due primarily to cash from
the aforementioned non-recurring transaction. Net capital expenditures for 1999,
1998 and 1997 were $1.0 million, $0.9 million and $1.5 million, respectively. A
second 2,750-liter fermentor train was added to XOMA's Berkeley facility in 1997
to provide additional production capacity for NEUPREX(R) and anti-CD11a. The
Company intends to continue to fund capital spending from internal cash
resources supplemented by capital financing where appropriate and available.
Following a licensing and supply agreement with the Hyland Immuno division
of Baxter in January 2000, involving an initial payment of $10 million, and a
common share financing in February 2000, with net proceeds of $29.0 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 research
projects, for approximately two years. The Company continues to evaluate
strategic alliances, potential partnerships and financing arrangements that
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 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
XOMA has not experienced any problems with its computer systems related to
such systems being unable to recognize appropriate dates related to the Year
2000. The Company is not aware that any clients or vendors have experienced any
material problems with this issue. Accordingly, XOMA does not anticipate
incurring material expenses or experiencing any material operational disruptions
as a result of any year 2000 issues.
Forward-Looking Statements
Certain statements contained herein related to the sufficiency of the
Company's cash position, existing and potential collaborative and licensing
relationships, timing of clinical trials, the regulatory process and other
aspects of clinical development, or that otherwise relate to future periods are
"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 that may not prove accurate. The
forward-looking statements involve risks and uncertainties including, but not
limited to, timing of results of pending or future clinical trials, actions by
the FDA, changes in 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, the legal standards applicable to
biotechnology patents, scale-up and marketing capabilities, intellectual
property protection, competition, inter-
-19-
<PAGE>
national 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 its investment portfolio. XOMA 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, 1999, all cash equivalents and short-term investments are
classified as fixed rate.
XOMA 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, 1999:
<TABLE>
<CAPTION>
Fair Value Average
Maturity (in $ millions) Interest Rate
----------------- -------------------- ---------------------
<S> <C> <C> <C>
Cash equivalents, fixed rate daily $16.2 5.2%
</TABLE>
Other Market Risk. At December 31, 1999 the Company had a long-term
convertible note outstanding, which is 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).
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
-20-
<PAGE>
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 report of Arthur Andersen on
the financial statements of the Company for the fiscal year ended December 31,
1997 did not contain any adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
During the Company's fiscal year 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 report; 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.
-21-
<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 2000 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 2000 annual meeting of shareholders is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The section labeled "Share Ownership" appearing in the Company's proxy
statement for the 2000 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 2000 annual meeting of shareholders is incorporated herein by
reference.
-22-
<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.
-23-
<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 23 day of
March, 2000.
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>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John L. Castello Chairman of the Board, President March 23, 2000
and Chief Executive Officer
- ----------------------------------------
(John L. Castello)
/s/ Patrick J. Scannon Chief Scientific and Medical March 23, 2000
- ----------------------------------------
(Patrick J. Scannon) and Director
/s/ Peter B. Davis Vice President, Finance and March 23, 2000
- ----------------------------------------
(Peter B. Davis) Chief Financial Officer (Principal
Financial and Accounting Officer)
/s/ James G. Andress Director March 23, 2000
- ----------------------------------------
(James G. Andress)
/s/ William K. Bowes, Jr. Director March 23, 2000
- ----------------------------------------
(William K. Bowes, Jr.)
/s/ Arthur Kornberg Director March 23, 2000
- ----------------------------------------
(Arthur Kornberg)
/s/ Steven C. Mendell Director March 23, 2000
- ----------------------------------------
(Steven C. Mendell)
/s/ W. Denman Van Ness Director March 23, 2000
- ----------------------------------------
(W. Denman Van Ness)
</TABLE>
-24-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Report of Ernst & Young LLP, Independent Auditors...........................
Report of Arthur Andersen LLP, Independent Public Accountants...............
Consolidated Balance Sheets.................................................
Consolidated Statements of Operations.......................................
Consolidated Statement of Changes in Redeemable Convertible Preference
Shares and Shareholders' Equity (Net Capital Deficiency)..................
Consolidated Statements of Cash Flows.......................................
Notes to Consolidated Financial Statements..................................
F-1
<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 sheets of XOMA Ltd.
and subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of operations, changes in shareholders' equity (net capital
deficiency) and cash flows for each of the two years in the period ended
December 31, 1999. 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 consolidated financial position of XOMA Ltd. and
subsidiaries as of December 31, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
Palo Alto, California ERNST & YOUNG LLP
February 18, 2000
F-2
<PAGE>
REPORT OF ARTHUR ANDERSEN LLP, INDEPENDENT PUBLIC ACCOUNTANTS
To XOMA Corporation (subsequently reincorporated as XOMA Ltd.):
We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of XOMA Corporation (a Delaware corporation,
subsequently reincorporated as XOMA Ltd., a Bermuda corporation) for the year
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 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 results of operations and cash
flows of XOMA Corporation, subsequently reincorporated as XOMA Ltd., for the
year ended December 31, 1997 in conformity with generally accepted accounting
principles.
San Francisco, California ARTHUR ANDERSEN LLP
February 3, 1998
F-3
<PAGE>
<TABLE>
<CAPTION>
XOMA Ltd.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31
1999 1998
---- ----
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 18,539 $ 11,857
Short-term investments -- 16,430
Related party receivables 219 246
Other receivables 658 144
Prepaid expenses and other 679 159
--------- ---------
Total current assets 20,095 28,836
Property and equipment, net 3,651 3,895
Assets held for sale 4,442 4,442
Deposits and other 124 131
--------- ---------
$ 28,312 $ 37,304
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 3,915 $ 3,515
Accrued liabilities 6,519 6,740
Capital lease obligations -- 286
--------- ---------
Total current liabilities 10,434 10,541
Convertible subordinated notes 34,724 26,513
--------- ---------
Total liabilities 45,158 37,054
--------- ---------
Redeemable convertible preference shares, $0.05 par value,
644 shares issued and outstanding (liquidation preference $6,440) at
December 31, 1998; at amount paid in -- 6,440
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY (NET CAPITAL DEFICIENCY):
Preference shares, $.05 par value, 1,000,000 shares authorized, no shares
issued and outstanding -- --
--------- ---------
Common shares, $.0005 par value, 135,000,000 shares authorized, 58,324,058 and
47,029,620 outstanding at December 31, 1999 and 1998, respectively
29 24
Paid-in capital 433,302 398,129
Accumulated deficit (450,177) (404,343)
--------- ---------
Total shareholders' equity (net capital deficiency) (16,846) (6,190)
--------- ---------
$ 28,312 $ 37,304
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
XOMA Ltd.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year ended December 31
--------------------------------------------------------
1999 1998 1997
---- ---- ----
REVENUES:
<S> <C> <C> <C>
License fees $2,281 $4,318 $18,077
Collaborative research agreements -- 2,000 250
Product sales and royalties 80 27 56
------------ ---------- -------
Total revenues 2,361 6,345 18,383
------------ ---------- -------
OPERATING COSTS AND EXPENSES:
Research and development 41,454 43,839 29,878
General and administrative 6,080 5,430 5,674
Other :
License fee -- 2,415 --
Change in domicile -- 2,500 --
Total operating costs and expenses 47,534 54,184 35,552
------------ ---------- -------
Loss from operations (45,173) (47,839) (17,169)
OTHER INCOME (EXPENSE):
Investment and other income 1,159 2,269 2,120
Interest and other expense (1,765) (1,633) (716)
------------ ---------- -------
Net loss (45,779) (47,203) (15,765)
Preference share dividends (55) (2,614) (1,566)
------------ ---------- -------
Net loss available to common shareholders $(45,834) $(49,817) $(17,331)
============ ========== =======
NET LOSS PER COMMON SHARE $(0.87) $(1.16) $(0.44)
============ ========== =======
SHARES USED IN COMPUTING NET LOSS PER COMMON SHARE 52,705 42,895 39,679
============ ========== =======
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
XOMA Ltd.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(NET CAPITAL DEFICIENCY)
(In thousands)
Shareholder's Equity (Net Capital Deficiency)
Preference Shares Common Shares
Shares Amount $ Shares Amount
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 -- -- 39,609 $ 20
Exercise of share options, contributions to 401(k) and
incentive plans -- -- 110 --
Sale of preference shares 1 -- -- --
Conversion of preference shares -- -- 169 --
Issuance of warrants -- -- -- --
Unrealized loss on investments -- -- -- --
Dividends on preference shares -- -- 3 --
Net loss -- -- -- --
------- -------- -------- --------
BALANCE, DECEMBER 31, 1997 1 -- 39,891 20
Exercise of share options, contributions to 401(k) and
incentive plans -- -- 111 --
Issuance of common shares for technology license -- -- 158 --
Issuance of common shares for legal settlement -- -- 344 1
Issuance of Series C redeemable convertible preference
shares, net of issuance costs 1,250 11,093 -- --
Conversion of Series C redeemable convertible
preference shares (606) (4,653) 2,678 1
Issuance of warrants -- -- -- --
Conversion of preference shares (1) -- 3,643 2
Unrealized gain (loss) on investments -- -- - --
Dividends on preference shares -- -- 204 --
Net loss -- -- -- --
------- -------- -------- -------
BALANCE, DECEMBER 31, 1998 644 6,440 47,029 4
Exercise of share options, contributions to 401(k) and
incentive plans -- -- 195 --
Sale of common shares -- -- 8,613 4
Conversion of Series C redeemable convertible
preference shares (644) (6,440) 2,394 1
Unrealized gain (loss) on investments -- -- -- --
Dividends on preference shares -- -- 93 --
Net loss -- -- -- --
------- -------- -------- --------
BALANCE, DECEMBER 31, 1999 -- $ -- 58,324 $ 29
========= ========= ======== ========
F-6
<PAGE>
Shareholder's Equity (Net Capital Deficiency)
Total Shareholder's
Paid-In Accumulated Equity (Net Capital
Capital Deficit Deficiency)
------------- ------------ ----------------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $ 371,923 $(337,195) $ 34,748
Exercise of share options, contributions to 401(k) and
incentive plans 462 -- 462
Sale of preference shares 10,936 -- 10,936
Conversion of preference shares -- -- --
Issuance of warrants 1,125 -- 1,125
Unrealized loss on investments (42) -- (42)
Dividends on preference shares 1,342 (1,566) (224)
Net loss -- (15,765) (15,765)
------- -------- --------
BALANCE, DECEMBER 31, 1997 385,746 (354,526) 31,240
Exercise of share options, contributions to 401(k) and
incentive plans 501 -- 501
Issuance of common shares for technology license 750 -- 750
Issuance of common shares for legal settlement 1,896 -- 1,897
Issuance of Series C redeemable convertible preference
shares, net of issuance costs -- -- --
Conversion of Series C redeemable convertible
preference shares 4,652 -- 4,653
Issuance of warrants 1,915 -- 1,915
Conversion of preference shares (2) -- --
Unrealized gain (loss) on investments 2 -- 2
Dividends on preference shares 2,669 (2,614) 55
Net loss -- (47,203) (47,203)
------- -------- --------
BALANCE, DECEMBER 31, 1998 398,129 (404,343) (6,190)
Exercise of share options, contributions to 401(k) and
incentive plans 661 -- 661
Sale of common shares 27,827 -- 27,831
Conversion of Series C redeemable convertible
preference shares 6,439 -- 6,440
Unrealized gain (loss) on investments (1) -- (1)
Dividends on preference shares 247 (55) 192
Net loss -- (45,779) (45,779)
------- -------- --------
BALANCE, DECEMBER 31, 1999 $ 433,302 $(450,177) $(16,846)
========= ========= ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
XOMA Ltd.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended December 31,
----------------------------------------------
1999 1998 1997
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $(45,779) $(47,203) $(15,765)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,233 1,645 2,032
Common shares contributed to 401(k) and
management incentive plans 391 403 319
Issuance of common shares for legal settlement -- 1,897 --
Issuance of common shares and warrants for
technology license -- 1,415 --
Receipt of stock in exchange for technology license (500) -- --
Loss (gain) on retirement of property and equipment 2 (48) 21
Changes in assets and liabilities:
Related party and other receivables (487) (39) 450
Prepaid expenses (20) (17) 77
Deposits and other assets 7 -- 2
Accounts payable 400 1,871 (134)
Accrued liabilities (29) 633 44
Accrued interest on convertible subordinated note 1,711 1,740 968
-------- --------- ---------
Net cash used in operating activities (43,071) (37,703) (11,986)
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of short-term investments 59,738 43,009 105,195
Payments for purchases of short-term investments (43,309) (41,518) (77,389)
Purchase of property and equipment, net of proceeds (928) (1,519)
(991)
-------- --------- ---------
Net cash provided by investing activities 15,438 563 26,287
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations (286) (421) (485)
Proceeds from issuance of convertible note 11,000 -- 9,992
Payments on convertible note (4,500) -- --
Proceeds from issuance of common or redeemable
convertible preference shares and warrants 28,101 12,193 12,204
-------- --------- ---------
Net cash provided by financing activities 34,315 11,772 21,711
-------- --------- ---------
Net increase (decrease) in cash and cash 6,682 (25,368) 36,012
equivalents
Cash and cash equivalents at beginning of year 11,857 37,225 1,213
-------- --------- ---------
Cash and cash equivalents at end of year $ 18,539 $ 11,857 $ 37,225
======== ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-7
<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 infectious diseases, immunologic and inflammatory disorders
and cancer. 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.
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.
F-8
<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): 1999 1998 1997
- -------------------- ---- ---- ----
<S> <C> <C> <C>
Options for common shares 4,231 4,006 3,720
Warrants for common shares 1,884 1,464 595
Common shares issuable to satisfy legal
settlement obligations -- -- 344
Shares of convertible preferred stock -- 1 1
Convertible notes, debentures, and related
interest $34,724 $26,513 $24,773
Convertible preference shares -- 644 --
</TABLE>
Subsequent to December 31, 1999 the Company issued 6,145,000 common shares
and warrants to purchase 250,000 common shares, in connection with a private
placement financing (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 $0.0 million, $0.1 million, and $0.1 million
during the years ended December 31, 1999, 1998 and 1997, respectively. In
addition, dividends paid in common shares was $0.2 million, $0.6 million and
$0.0 million during the years ended December 31, 1999, 1998 and 1997,
respectively.
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.
F-9
<PAGE>
The fair value of 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
1999 1998
---- ----
Equipment $ 16,854 $ 15,966
Leasehold and building improvements 15,095 14,902
Construction-in-progress 99 257
-------- -------
32,048 31,125
Less accumulated depreciation and amortization (28,397) (27,230)
------- --------
Property and equipment, net $3,651 $ 3,895
======= =======
Assets held for sale $ 4,442 $ 4,442
======= =======
At December 31, 1999 and 1998, property and equipment includes equipment
acquired under capital lease obligations which had 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 there is no indication the
current carrying value is in excess of the
F-10
<PAGE>
net realizable value. 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
1999 1998
---- ----
Accrued payroll costs $ 2,928 $ 2,217
Accrued dividends -- 754
Costs related to change in domicile -- 1,457
Accrued clinical trial costs 2,957 1,746
Other 634 566
--- ------
$ 6,519 $ 6,740
======= =======
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
1999 presentation.
Comprehensive Income
In 1998, the Company began to report its results of operations and
financial position based upon the Statement of Financial Accounting Standards
(SFAS) No. 130 "Reporting Comprehensive Income". 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, 1999, 1998 and
1997 these unrealized gains and losses were not material and total comprehensive
loss closely equaled net loss in each period.
F-11
<PAGE>
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements. SAB 101 summarizes certain areas of the Staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company is currently in the process of evaluating SAB 101 and
what effect it may have on the financial statements. Accordingly, the Company
has not determined whether SAB 101 will have a material impact on the 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.
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" (SOP
98-1). SOP 98-1 requires that entities capitalize certain costs related to
internal use software once certain criteria have been met. The adoption of the
provisions of SOP 98-1 for the year ended December 31, 1999 did not have a
significant impact on the Company's results of operations or financial
condition.
2. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
On December 31, 1999 and 1998, cash and cash equivalents consisted of money
market mutual funds.
The Company follows a policy of investing mostly 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>
1999 1998
---- ----
Fair Amortized Fair Amortized
Value Cost Value Cost
----- ---- ----- ----
e e
- -
<S> <C> <C> <C> <C>
U.S. Treasury Securities -- -- $ 15.5 $ 15.5
Corporate Bonds and Other -- -- 0.9 0.9
</TABLE>
The contractual maturities of the Company's investments in debt securities
as of December 31, (in millions):
1999 1998
---- ----
Less than 1 year -- $ 11.9
From 1 to 2 years -- 2.0
More than 2 years -- 2.5
F-12
<PAGE>
During the years ended December 31, 1999 and 1998, 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.
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 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 anti-CD11a 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 anti-CD11a 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.
In April 1999, the Companies extended and expanded the agreement. XOMA will now
receive a 25% interest in U.S. profits from anti-CD11a in all indications, and a
royalty on sales outside the U.S. Genentech will continue to finance XOMA's
share of development costs via a long-term convertible loan, which is due at the
earlier of 2005, or first product approval. In 1999, the Company received $6.5
million net funding from Genentech under the anti-CD11a development agreement.
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 antibodies
directed 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 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.
F-13
<PAGE>
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 was entitled to 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. In December
1999, Connetics and XOMA agreed to assign their TCR intellectual property to The
Immune Response Corporation (IRC) in exchange for cash, stock and future
royalties. IRC owns additional TCR-related intellectual property and intends to
carry forward development of pharmaceutical products using the technology.
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, The Pharmacia & Upjohn Group and
ZymoGenetics, a subsidiary of Novo Nordisk.
4. SHARE CAPITAL
Common Shares
In July 1999, the Company issued 3,024,086 common shares to for net
proceeds of $16.4 million. The Company also issued five-year warrants to
purchase up to 150,000 common shares for $5.75 per share to the placement agents
in this transaction.
In January 1999, the Company issued 2,051,254 common shares for net
proceeds of $11.4 million. The price represented approximately a 60% premium
over the then current market price for XOMA shares. The common shares were held
in an escrow account until sold by the investors. In the third quarter of 1999,
based on the then current market price of XOMA's shares, the Company contributed
768,751 additional common shares to the escrow account. The number of shares
remaining in the escrow account were subject to further adjustment based on an
11% discount from the prevailing market price at such time. In the fourth
quarter of 1999, the Company contributed 2,768,865 additional common shares to
the escrow account. All common shares have subsequently been withdrawn from the
escrow account and there will be no further adjustments.
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.
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 the share amounts as of December
31, 1999:
F-14
<PAGE>
Former Preferred Stock Current Preference Share
Designation Designation at December 31, 1999
- --------------------------- ----------- --------------------
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 None remaining
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, 1999, 1998 and 1997. (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 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 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 that represented the value of this
conversion feature. No conversions were permitted below a price of $5.35 for the
first 60 days. 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 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, of the Series C Preference Shares,
plus accrued dividends, had been converted into common shares. 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. In 1999, the remaining
$6,440,000 of Series C Preference Shares were converted into 2,393,508 common
shares.
Preferred Stock (not redesignated as Preference 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
F-15
<PAGE>
that 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 anti-CD11a in the form of convertible subordinated
notes due 2005 at interest rates of LIBOR plus 1% (7.13% at December 31, 1999)
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. In April 1999, the arrangement was amended to reflect a profit
sharing arrangement. As a result, the loan balance will be increased by cash
advances from Genentech to XOMA, by interest accruing in the loan balance and by
XOMA's share of the combined development spending. The loan balance will be
reduced by XOMA's spending on anti-CD11a development. In 1999, the Company
received $6.5 million net funding from Genentech under the anti-CD11a
development agreement. 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 $4.7 million, $3.0 million and $1.2 million as of December 31, 1999,
1998 and 1997, respectively.
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 $0.8 million,
$0.9 million and $0.8 million for the plan years 1999, 1998 and 1997
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
F-16
<PAGE>
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. As of December 31, 1999, payroll
deductions under the Share Purchase Plan totaled $214,000.
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 share, 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, 1999, 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 6,950,000 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, 1999, options covering 3,544,132 common shares were outstanding
under the Option Plan.
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.
F-17
<PAGE>
The Company has granted options with exercise prices at 85% of fair market
value on the date of grant. Up to 1,250,000 shares are authorized for issuance
under the Restricted Plan. As of December 31, 1999, options covering 561,752
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 300,000 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, 1999, options for
125,000 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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C>
Net loss As reported $(45,779) $(47,203) $(15,765)
Pro forma $(47,342) $(49,016) $(17,639)
Net loss per share As reported $ (0.87) $ (1.16) $ (0.44)
Pro forma $ (0.90) $ (1.20) $ (0.48)
</TABLE>
F-18
<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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Dividend yield 0% 0% 0%
Expected volatility 84% 71% 71%
Risk-free interest rate 5.3% 5.7% 6.3%
Expected life 4.7 years 7 years 7 years
</TABLE>
A summary of the status of the Company's share option plans as of December
31, 1999, 1998, and 1997, and changes during years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
OPTIONS: Shares Price* Shares Price* Shares** Price*
- -------- ------ ------ ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 4,005,771 $4.78 3,719,865 $ 4.91 3,196,150 $ 4.50
Granted
(1) 663,500 3.97 7,750 3.91 1,750 5.36
(2) 20,500 6.16 551,450 4.84 671,000 6.68
(3) -- -- --
-- -- --
Exercised (76,652) 3.59 (36,845) 2.65 (52,422) 2.72
Forfeited, expired or canceled (382,235) 5.96 (236,449) 6.81 (96,613) 4.33
--------- --------- ---------
Outstanding at end of year 4,230,884 4.58 4,005,771 4.78 3,719,865 4.92
========= ========= =========
Exercisable at end of year 3,054,029 2,857,263 2,317,321
========= ========= =========
Weighted average fair value of
options granted
(1) 3.77 3.03 3.89
(2) 2.65 3.09 4.78
(3) -- --
--
</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, 1999:
<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 - 2.56 1,778,064 5.04 $ 2.53 1,760,921 $ 2.53
2.60 - 5.00 1,422,912 8.06 4.23 570,127 4.44
5.13 - 7.88 889,908 5.62 6.97 582,981 7.07
16.36 - 26.50 140,000 .70 18.95 140,000 18.95
------------- ----------- --- ----- -------- - -----
$ 1.70 - 26.50 4,230,884 6.03 $ 4.58 3,054,029 $ 4.51
================ ========= ==== ====== ========= ======
</TABLE>
* Weighted-average remaining contractual life
F-19
<PAGE>
** Weighted-average exercise price
F-20
<PAGE>
Warrants
In July 1999, warrants to purchase up to 150,000 common shares at $5.75 per
share and expiring in July 2004 were issued to the placement agents in
conjunction with a private placement of common shares.
In January 1999, warrants to purchase up to 240,000 common shares at $5.85
per share were issued to investors in a private placement of common shares.
Additional warrants to purchase up to 64,000 common shares at $5.85 were issued
to the placement agent and separately warrants for 75,000 common shares at $5.85
were issued to an advisor. All of these warrants expire in January 2004.
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. These warrants expire
in July 2008.
Warrants to purchase 550,000 common shares at $7.00 per share were issued
in conjunction with the issuance of the Series H Preferred in June 1998. These
warrants were valued at $1.0 million in paid-in capital. Additional warrants to
purchase 68,681 common shares at $7.00 per share were issued to placement
agents. All of these warrants expire in June 2001
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 and were included in paid-in capital.
All of the above warrants were exercisable upon issuance.
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, 1999, the Company leased administrative, research
facilities, certain laboratory and office equipment under operating leases
expiring on various dates through 2009.
F-21
<PAGE>
Future minimum lease commitments are as follows (in thousands):
Operating Leases
----------------
2000 $ 3,048
2001 2,849
2002 2,498
2003 2,484
2004 2,483
Thereafter 7,187
-------
Net minimum lease payments $ 20,549
========
Total rental expense was approximately $2.7 million, $2.3 million, and $2.0
million for the years ended December 31, 1999, 1998 and 1997, respectively.
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.
F-22
<PAGE>
7. INCOME TAXES
The significant components of net deferred tax assets and liabilities as of
December 31, are as follows (in millions):
1999 1998
---- ----
Capitalized R&D expense $ 27.1 $ 23.9
Net operating loss carryforwards 73.6 73.0
R&D and other credit carryforwards 18.4 16.2
Other 4.5 9.3
Valuation allowance (123.6) (122.4)
------- -------
Total deferred tax asset $ -- $ --
========== ========
The net change in the valuation allowance was a $1.2 million increase and a
$25.7 million decrease for the years ended December 31, 1999 and 1998,
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, 1999 are as follows:
Amounts Expiration
(in millions) Dates
------------- -----
Federal
NOLs $ 209.0 2000-2019
Credits 12.3 2000-2019
State
NOLs 13.6 2000-2004
Credits 4.9 2003-2014
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.
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
F-23
<PAGE>
1999 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 $271,000, $329,000 and $233,000 for the years ended December
31, 1999, 1998 and 1997, respectively.
10. SUBSEQUENT EVENTS
On January 31, 2000, the Company held a special meeting of shareholders at
which a proposal to approve the increase of the Company's authorized share
capital by 65,000,000 Common Shares was approved, having received 50,225,390
votes for the proposed increase in authorized shares, 3,374,183 votes against,
and 239,053 abstentions.
In January 2000, XOMA concluded NEUPREX(R) licensing and supply agreements
with the Hyland Immuno division of Baxter Healthcare Corporation. The agreement
provided for upfront and other payments of up to $35 million for
meningococcemia. In addition, Baxter has committed to testing the product in
multiple additional indications. Baxter will pay all future development costs,
and XOMA may receive additional payments related to additional indications. XOMA
will receive a royalty from future NEUPREX(R) sales, and will supply initial
product needs from its Berkeley manufacturing facility.
In February 2000, the Company issued 6,145,000 common shares for net
proceeds of $29.0 million. The Company also issued five-year warrants to
purchase up to 250,000 common shares for $5.00 per share to each of the two
placement agents in this transaction. These warrants were exercisable upon
issuance and expire in February 2005.
F-24
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
3.1 Memorandum of Continuance of XOMA Ltd. (Exhibit 3.4).(1)
3.2 Bye-Laws of XOMA Ltd. (Exhibit 3.5).(1)
4.1 Amended and Restated Shareholder Rights Agreement dated as of October
27, 1993 and amended and restated December 31, 1998 by and among XOMA
Corporation (to be renamed XOMA Ltd.) and ChaseMellon Shareholder
Services L.L.C. (successor to First Interstate Bank of California) as
Rights Agent (Exhibit 4.1).(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 (January and March 1999
Warrants) (Exhibit 5).(7)
4.10 Form of Common Share Purchase Warrant (July 1999 Warrants) (Exhibit
4).(8)
4.11 Form of Common Share Purchase Warrant (2000 Warrants) (Exhibit 4).(9)
10.1 1981 Share Option Plan as amended and restated (Exhibit 10.1).(10)
10.1A Form of Share Option Agreement for 1981 Share Option Plan (Exhibit
10.1A).(10)
10.2 Restricted Share Plan as amended and restated (Exhibit 10.2).(10)
10.2A Form of Share Option Agreement for Restricted Share Plan (Exhibit
10.2A).(10)
10.2B Form of Restricted Share Purchase Agreement for Restricted Share Plan
(Exhibit 10.2B).(10)
<PAGE>
10.3 1992 Directors Share Option Plan as amended and restated (Exhibit
10.4).(10)
10.3A Form of Share Option Agreement for 1992 Directors Share Option Plan
(initial grants) (Exhibit 10.4A).(10)
10.3B Form of Share Option Agreement for 1992 Directors Share Option Plan
(subsequent grants) (Exhibit 10.4B).(10)
10.4 Management Incentive Compensation Plan as amended and restated
(Exhibit 10.5).(10)
10.5 1998 Employee Share Purchase Plan (Exhibit 10.1).(11)
10.5A Amendment No. 1 to 1998 Employee Share Purchase Plan (Exhibit
10.2).(11)
10.6 Form of indemnification agreement for officers (Exhibit 10.6).(10)
10.7 Form of indemnification agreement for employee directors (Exhibit
10.7).10 10.8 Form of indemnification agreement for non-employee
directors (Exhibit 10.8).(10)
10.9 Employment Agreement dated April 29, 1992 between the Company and John
L. Castello (Exhibit 10.9).(10)
10.10 Employment Agreement dated April 1, 1994 between the Company and Peter
B. Davis (Exhibit 10.10).(12)
10.11 Employment Agreement dated March 25, 1999 between XOMA (US) LLC 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).(10)
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).(10)
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).(10)
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).(10)
10.16 Lease of premises at 2910 Seventh Street, Berkeley, California dated
March 25, 1992 (Exhibit 10.16).(10)
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).(10)
-2-
<PAGE>
10.18 Sublease dated January 20, 1997, between the Company and UroGenesys,
Inc (Exhibit 10.18).(10)
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).(10)
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).(10)
10.20 License Agreement dated as of August 31, 1988 between the Company and
Sanofi (with certain confidential information deleted) (Exhibit
10.27).(10)
10.21 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).(10)
10.21A 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).(10)
10.21B Fourth Amendment to License Agreement dated December 23, 1998 between
the Company and New York University (Exhibit 10.22B).(13)
10.21C Fifth Amendment to License Agreement dated June 25, 1999 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).
10.22 Cross License Agreement dated December 15, 1993 between Research
Development Foundation and the Company (with certain confidential
information deleted) (Exhibit 10.23).(13)
10.23 Cross License Agreement dated December 15, 1993 between the Company
and Research Development Foundation (with certain confidential
information deleted) (Exhibit 10.24).(13)
10.24 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).(12)
10.24A Amendment Number One to Technology Acquisition Agreement dated
December 8, 1999 between Connetics Corporation and XOMA (US) LLC (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).
10.24B Agreement dated December 8, 1999 by and between The Immune Response
Corporation and XOMA (US) LLC (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).
-3-
<PAGE>
10.25 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)
10.25A Amendment to Collaboration Agreement, dated as of April 14, 1999,
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 10.5).(14)
10.26 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)
10.26A Amendment to Common Stock and Convertible Note Purchase Agreement,
dated as of April 14, 1999, between XOMA Ltd. and Genentech, Inc.
(Exhibit 10.6).(14)
10.27 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)
10.27A 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)
10.27B Second Amendment to Convertible Subordinated Note Agreement, dated as
of April 14, 1999, between the XOMA Ltd. 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
10.7).(14)
10.28 Form of Registration Rights Agreement by and between the Company and
the holders of the 1996 Warrants (Exhibit 10.6).(3)
10.29 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)
10.29A First Amendment to Convertible Preferred Stock Agreement, dated as of
January 1, 1998 (Exhibit 10.1).(15)
10.29B Second Amendment to Convertible Preferred Stock Agreement, dated as of
June 26, 1998 (Exhibit 10.3).(16)
10.30 Form of Registration Rights Agreement by and between the Company and
the purchasers of Series G and Series H Preferred Stock (Exhibit
5).(4)
-4-
<PAGE>
10.31 License Agreement between Incyte Pharmaceuticals, Inc. and XOMA
Corporation 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)
10.32 Registration Rights Agreement dated as of July 9, 1998 by and among
the Company and Incyte Pharmaceuticals, Inc. (Exhibit 3).(6)
10.33 Form of Subscription Agreement, dated as of January 28, 1999, by and
between XOMA Ltd. and the purchasers of Common Shares in the January
1999 Private Placement (Exhibit 2).(7)
10.34 Form of Registration Rights Agreement, dated as of January 28, 1999,
by and between XOMA Ltd. and the purchasers of Common Shares in the
January 1999 Private Placement (Exhibit 3).(7)
10.35 Form of Escrow Agreement, dated as of January 28, 1999, by and between
XOMA Ltd., Brian W. Pusch, as Escrow Agent and the purchasers of
Common Shares in the January 1999 Private Placement (Exhibit 4).(7)
10.36 License Agreement dated as of June 25, 1999 between XOMA Ireland
Limited and Allergan Sales, 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 2).(17)
10.37 Supply Agreement dated as of June 25, 1999 between XOMA (US) LLC and
Allergan Sales, 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 3).(17)
10.38 Form of Subscription Agreement, dated as of July 21, 1999, by and
between XOMA Ltd. and the purchasers of Common Shares in the July 1999
Private Placement (Exhibit 2).(7)
10.39 Form of Registration Rights Agreement dated as of July 21, 1999 by and
between XOMA Ltd. and the purchasers of Common Shares in the July 1999
Private Placement (Exhibit 3).(8)
10.40 Form of Registration Rights Agreement dated as of July 21, 1999 by and
between XOMA Ltd. and the placement agents of Common Shares in the
July 1999 Private Placement (Exhibit 5).(8)
10.41 License Agreement dated as of January 25, 2000 between XOMA Ireland
Limited and Baxter Healthcare Corporation (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 2).(18)
-5-
<PAGE>
10.42 Supply and Development Agreement dated as of January 25, 2000 between
XOMA (US) LLC and Baxter Healthcare Corporation (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
3).(18)
10.43 Form of Subscription Agreement, dated as of February 8, 2000 by and
between XOMA Ltd. and the purchasers of Common Shares in the February
2000 Private Placement (Exhibit 2).(9)
10.44 Form of Registration Rights Agreement, dated as of February 11, 2000
by and between XOMA Ltd. and the purchasers of Common Shares in
February 2000 Private Placement (Exhibit 3).(9)
10.45 Form of Registration Rights Agreement, dated as of February 11, 2000
by and between XOMA Ltd. and the placement agents in the February 2000
private placement (Exhibit 5).(9)
16.1 Letter re: change of certifying accountant.(10)
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
Registration Statement on Form 8-A filed May 21, 1999 (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).
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
Current Report on Form 8-K dated July 23, 1999 filed July 26, 1999 (File
No. 0-14710).
9 Incorporated by reference to the referenced exhibit to the Company's
Current Report on Form 8-K dated February 11, 2000 filed February 14, 2000
(File No. 0-14710).
10 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).
11 Incorporated by reference to the referenced exhibit to the Company's
Registration Statement on Form S-8 filed October 27, 1998 (File No.
333-66171).
-6-
<PAGE>
12 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).
13 Incorporated by reference to the referenced exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998 (File No.
0-14710).
14 Incorporated by reference to the referenced exhibit to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1999
(File No. 0-14710).
15 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).
16 Incorporated by reference to the referenced exhibit to the Company's
Registration Statement on Form S-3 filed July 16, 1996 (File No.
333-59241).
17 Incorporated by reference to the referenced exhibit to the Company's
Amendment No. 1 to Current Report on Form 8-K/A dated and filed July 19,
1999 (File No. 0-14710).
18 Incorporated by reference to the referenced exhibit to the Company's
Amendment No. 2 to Current Report on Form 8-K/A dated and filed March 9,
2000 (File No. 0-14710).
-7-
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), made and effective this 26th day
of March, 1999, by and between XOMA Ltd. ("XOMA" or the "Company"), a Bermuda
company 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, 1999 and
will continue for one (1) year until March 25, 2000, 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
1
<PAGE>
to such office and such further duties as may be reasonably 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
$320,000 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 $209,565.40 (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 Common Shares 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, 2000, 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 share purchase plan, share 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
2
<PAGE>
Executive shall be eligible to receive during the period of his employment under
this Agreement, and during any subsequent 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:
3
<PAGE>
(i) Executive has been convicted of any crime or offense
constituting a felony under applicable law, including, without
limitation, any act of dishonesty 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
4
<PAGE>
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" 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.
5
<PAGE>
(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 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 Ltd.
/s/Christopher J. Margolin
--------------------------------------
Christopher J. Margolin
Vice President, General Counsel
and Secretary
/s/ Patrick J. Scannon
----------------------
Patrick J. Scannon, M.D., Ph.D.
6
<PAGE>
PROMISSORY NOTE
$209,565.40 Berkeley, California
- -----------
April 1, 1999
FOR VALUE RECEIVED, the undersigned (the "Obligor") hereby unconditionally
promises to pay to the order of XOMA Ltd., a Bermuda company (the "Obligee"),
the principal sum of TWO HUNDRED NINE THOUSAND FIVE HUNDRED SIXTY-FIVE AND
40/100 DOLLARS ($209,565.40) (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 31ST day of March, 2000. 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 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
1
<PAGE>
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.
2
<PAGE>
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.
1
<PAGE>
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 g ranted 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
2
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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
[*]indicates that a confidential portion of the text of this agreement has been
omitted
FIFTH AMENDMENT TO LICENSE AGREEMENT
This Fifth Amendment to License Agreement (hereinafter "Amendment") is made
and effective on June 25, 1999, by and between XOMA TECHNOLOGY LTD., a company
organized and existing under the laws of Bermuda and having an office 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, June 12, 1997 and December 23, 1998
(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
<PAGE>
-2-
WHEREAS, CORPORATION and NYU wish to amend the Agreement as specified
herein;
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. The second line of Subsection 7.c.(2) of the Agreement shall be, and
hereby is, amended by adding the following language after the
semicolon:
provided, that such sublicense may also be assignable to the successor
or assignee of that portion of the sublicensee's business to which
such sublicense relates so long as NYU receives reasonably prompt
notice of such assignment and a copy of the formal written assignment,
which shall include an undertaking by the assignee to perform the
original sublicensee's obligations under the sublicense;
4. The second line of Subsection 7.c.(3) of the Agreement shall be, and
hereby is, amended by adding the
<PAGE>
-3-
following language after the semicolon and before the word "and":
provided, that in the case of a sublicense granted to a sublicensee
for [*] the sublicense may also provide for the grant of further
sublicenses to up to one sublicensee in each country of the territory
covered by such sublicense so long as any such further sublicense is
granted only on terms including those set forth in the last sentence
of this Subsection 7.c. and such further sublicensee is included in
the term "sublicensee" for purposes of Subsections 9.a.(3), (4) and
(5), 9.b. and 9.c. hereof;
5. The last line of Subsection 9.a.(2) of the Agreement (after giving
effect to the Third Amendment thereto) shall be, and hereby is,
amended by adding the following language after the word "and":
in the case of a sublicense between CORPORATION and a third party for
[*] and
6. The first clause (i.e., the language preceding the first colon) of
Subsection 9.a.(3) of the Agreement shall be, and hereby is, amended
to read in its entirety as follows:
(a) a royalty of [*] of the Net Sales of any Licensed Product
described in Section 1.1(aa) or (bb) and sold by CORPORATION or its
sublicensees (including CORPORATION Entity) for human diagnostic,
prophylactic and/or therapeutic uses other than [*] for as long as
CORPORATION maintains the License except (in the case of the foregoing
clause (a), (b) or (c)) as follows in (i) and (ii) below
<PAGE>
-4-
7. The first clause (i.e., the language preceding the first colon) of
Subsection 9.a.(4) of the Agreement shall be, and hereby is, amended
to read in its entirety as follows:
(a) a royalty of [*] of the Net Sales of any Licensed Product
described in Section 1.1(cc) or (dd) and sold by CORPORATION or its
sublicensees (including CORPORATION Entity) for human diagnostic,
prophylactic and/or therapeutic uses other than [*] for as long as
CORPORATION maintains the License except (in the case of the foregoing
clause (a), (b) or (c)) as follows in (i) and (ii) below
8. Subsection 9.a.(5) of the Agreement shall be, and hereby is, amended
to read in its entirety as follows:
If any Licensed Product is covered solely by a CORPORATION Patent then
the royalty owed by the CORPORATION to NYU with respect to such
Licensed Product shall be [*] of the Net Sales of such Licensed
Product sold by CORPORATION or its sublicensees (including CORPORATION
Entity) for human diagnostic, prophylactic and/or therapeutic uses
other than [*] for as long as CORPORATION maintains the License.
9. The seventeenth line (i.e., the end of the third sentence) of Section
9.b. of the Agreement shall be, and hereby is, amended by adding a
semicolon and the following language after the words "Combination
Product":
<PAGE>
-5-
provided, that this sentence shall not apply to Net Sales of Licensed
Products for [*]
10. The last line of Section 9.c. of the Agreement shall be, and the same
hereby is, amended by adding a semi-colon and the following language
after the word "CORPORATION":
provided, that, in the event the relevant sublicense does not contain
provisions requiring the sublicensee to provide such reports to NYU,
then NYU shall not have the right to have CORPORATION undertake to
have the sublicensee provide any such reports and to have CORPORATION
conduct any such audit pursuant to the preceding clauses of this
sentence, but instead shall have the right to have the books of
accounts, records and other relevant documentation of the sublicensee
inspected by independent auditors on the same terms as set forth in
the first five sentences of this Subsection 9.c.
11. The last line of Subsection 9.e. of the Agreement shall be, and hereby
is, amended by adding a semi-colon and the following language after
the word "non-exclusive":
provided, that, without effecting the foregoing right of termination,
NYU shall have no such right to declare the License to be
non-exclusive with respect to Licensed Products for the mitigation,
treatment or prevention of ophthalmic infection in humans and other
mammals in the event CORPORATION fails to make any such payment
12. Section 18.a.(iv) of the Agreement shall be, and hereby is, amended to
read in its entirety as follows:
<PAGE>
-6-
(iv) CORPORATION has changed its legal domicile from Delaware to
Bermuda and has also assigned this Agreement in whole to XOMA
Technology Ltd., a Bermuda company wholly owned by CORPORATION
("XTL"), and NYU hereby consents to such assignment. In addition, (a)
CORPORATION's rights and obligations hereunder relating to the
manufacture, use and sale of Licensed Products [*] have been
transferred from XTL to XOMA Ireland Limited, incorporated under the
laws of Ireland and wholly owned by CORPORATION ("XIL"), which in turn
has granted a nonexclusive sublicense hereunder for the manufacture of
Licensed Products for [*] to XOMA (US) LLC, a Delaware limited
liability company wholly owned by CORPORATION ("XUS"); (b) from time
to time CORPORATION's other rights and obligations hereunder relating
to other fields of use and/or indications may be transferred from XTL
to XIL, which in turn may grant nonexclusive sublicenses hereunder for
the manufacture of Licensed Products in such other fields of use
and/or indications to XUS; and (c) NYU hereby consents to all of the
foregoing transfers and license grants. Notwithstanding the foregoing,
CORPORATION (now understood to mean XTL, XIL and XUS, each as to their
respective rights and obligations hereunder) 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 subsequent technology will be
manufactured substantially in the United States to the extent required
by 35 U.S.C. ss. 204.
13. This Amendment may be executed in one or more counterparts, each of
which shall be an original and all of which shall constitute together
the same document.
<PAGE>
-7-
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
follows:
NEW YORK UNIVERSITY XOMA TECHNOLOGY LTD.
By:______________________________________ By:________________________________
Isaac T. Kohlberg G. James Reynolds
Assistant Dean and Vice Director
President for Industrial Liaison
XOMA IRELAND LIMITED
SIGNED by
----------------------------
Alan Kane, Director,
duly authorized for and on behalf
of XOMA IRELAND
LIMITED in the presence of:
------------------------------
[*] indicates that a confidential portion of the text of this agreement has been
omitted.
AMENDMENT NUMBER ONE TO TECHNOLOGY ACQUISITION AGREEMENT
THIS AMENDMENT NUMBER ONE TO TECHNOLOGY ACQUISITION AGREEMENT is entered
into as of December 8, 1999, by and between XOMA (US) LLC ("XOMA") and Connetics
Corporation ("Connetics" or "CT").
A. XOMA (under the name "XOMA Corporation") and Connetics (under the name
"Connective Therapeutics, Inc.") are parties to a Technology
Acquisition Agreement effective as of June 3, 1994 (the
"XOMA/Connetics Agreement"), and an Assignment and Assumption
Agreement effective as of June 3, 1994, pursuant to which XOMA
assigned to Connetics and Connetics assumed XOMA's rights and
obligations under that certain Research Collaboration and License
Agreement between XOMA and Dr. Arthur A. Vandenbark ("Vandenbark")
effective February 27, 1990 (the "1990 Research Agreement") and that
certain License Agreement between XOMA and Vandenbark effective
February 27, 1990 (the "1990 License Agreement") (collectively, the
"Assigned Agreements").
B. Connetics desires to assign all of its rights, title and interest in
and to the Agreements to The Immune Response Corporation ("IRC") and
XOMA is willing to agree to such assignment.
C. Prior to assuming Connetics' obligations under the Assigned
Agreements, IRC has requested that certain amendments be made to the
Assigned Agreements, and XOMA and Connetics agree to such changes in
return for consideration from IRC.
NOW, THEREFORE XOMA and Connetics hereby agree as follows:
AGREEMENT
Section 1. Section 1 of the XOMA/Connetics Agreement is hereby amended to
add the following sections:
<PAGE>
-2-
1.23 "Affiliate" shall mean, with respect to any Person, any other
Person which directly or indirectly controls, is controlled by, or is under
common control with, such Person. A Person shall be regarded as in control
of another Person if it owns, or directly or indirectly controls, greater
than fifty percent (50%) of the voting stock or other ownership interest of
the other Person, or if it directly or indirectly possesses the power to
direct or cause the direction of the management and policies of the other
Person by any means whatsoever.
1.24 "New Drug Application" or "NDA" shall mean a New Drug
Application, as defined in the U.S. Food, Drug and Cosmetic Act and its
regulations promulgated thereunder, and any corresponding foreign
application, registration or certification.
1.25 "Pivotal Trial" shall mean a clinical trial that is designed to
provide data establishing the safety and efficacy of a Product in support
of an NDA, PLA or BLA.
1.26 "Product License Application" or "PLA" shall mean a Product
License Application, as defined in the U.S. Food, Drug and Cosmetic Act and
the regulations promulgated thereunder, and any corresponding foreign
application, registration or certification.
1.27 "Valid Claim" shall mean (a) an issued claim under an issued
patent within the Patent Rights, which has not (i) expired or been
canceled, (ii) been declared invalid by an unreversed and unappealable
decision of a court or other appropriate body of competent jurisdiction,
(iii) been admitted to be invalid or unenforceable through reissue,
disclaimer otherwise, or (iv) been abandoned, and (b) a claim of a patent
application included within the Patent Rights as of the Effective Date.
Section 2. Section 1.2 of the XOMA/Connetics Agreement is hereby amended to
read in its entirety as follows:
1.2 "Agreement" shall mean this Technology Acquisition Agreement dated
as of June 3, 1994, as amended December 8, 1999.
Section 3. Section 1.3 of the XOMA/Connetics Acquisition Agreement is
hereby amended to read in its entirety as follows:
<PAGE>
-3-
1.3 "Assignment and Assumption Agreement" shall mean the agreement
whereby XOMA assigned to CT its rights under and CT assumes XOMA's
obligations under the Vandenbark License Agreement as provided in Section
3.3 which is attached as Exhibit A to the XOMA/Connetics Agreement and
incorporated by reference therein.
Section 4. Section 1.6 of the XOMA/Connetics Agreement is hereby deleted.
Section 5. Section 1.9 of the XOMA/Connetics Agreement is hereby deleted.
Section 6. Section 1.10 of the XOMA/Connetics Agreement is hereby amended
to read in its entirety as follows:
1.10 "Net Sales" shall mean, with respect to any Product, the invoiced
sales price of such Product billed by CT, its Affiliates or licensees of
the TCR Technology to customers who are not Affiliates, less (to the extent
incurred and absorbed by CT, its Affiliates or any such licensee) (a)
credits, allowances, discounts and rebates to, and chargebacks from the
account of, such customers for spoiled, damaged, out-dated, rejected or
returned Product; (b) transportation and insurance costs incurred in
transporting such Product in final form to such customers; (c) actual cash,
quantity and trade discounts, rebates and other price adjustments or
reduction programs; (d) sales, use, value-added and other direct taxes, or
any other governmental charge imposed upon the production, importation, use
or sale of the Product; (e) customs, duties, surcharges and other
governmental charges incurred in the exportation or importation of such
Product; and (f) bad debts accruals.
Section 7. Section 1.13 of the XOMA/Connetics Agreement is hereby amended
to read in its entirety as follows:
1.13 "Patents" shall mean (a) all United States and foreign (including
regional authorities such as the European Patent Office) regular or
provisional patent applications and issued patents listed on Schedule A;
(b) all United States and foreign patents that have issued or issue from
such patent applications, including utility, model and design patents and
certificates of invention; (c) all divisionals, continuations,
continuations-in-part, reissues, reexaminations, renewals, extensions or
additions to any such patents and patent applications described in clauses
(a) or (b) above.
Section 8. Section 1.14 of the XOMA/Connetics Agreement is hereby deleted.
<PAGE>
-4-
Section 9. Section 1.16 of the XOMA/Connetics Agreement is hereby amended
to read in its entirety as follows:
1.16 "Product" shall mean a composition or a product the manufacture,
use, offer for sale, sale or import of which is within the scope of a Valid
Claim.
Section 10. Section 1.18 of the XOMA/Connetics Agreement is hereby amended
to read in its entirety as follows:
1.18 "TCR Related Improvements" shall mean all technology and know-how
developed by or on behalf of CT prior to December 8, 1999, to the extent
such technology and know-how are related to the TCR Technology, other than
TCR Sole Improvements.
Section 11. Section 1.19 of the XOMA/Connetics Agreement is hereby amended
to read in its entirety as follows:
1.19 "TCR Sole Improvements" shall mean all technology and know-how
developed by or on behalf of CT prior to December 8, 1999, to the extent
such technology and know-how are improvements of the TCR Technology and may
have applications related to the TCR Technology.
Section 12. Section 1.20 of the XOMA/Connetics Agreement is hereby amended
to read in its entirety as follows:
1.20 "TCR Technology" shall mean the Patents and all other technology
and know-how developed, owned or controlled by XOMA, including that
technology acquired by XOMA pursuant to the Vandenbark Agreements and that
technology described in Exhibit E to this Agreement.
Section 13. Section 1.21 of the XOMA/Connetics Agreement is hereby amended
to read in its entirety as follows:
1.21 "Vandenbark License Agreements" shall mean the Research
Collaboration and License Agreement, between Dr. Vandenbark and XOMA dated
as of February 27, 1990, and any and all amendments thereto.
Section 14. Article 2 of the XOMA/Connetics Agreement is hereby amended to
read in its entirety as follows:
<PAGE>
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2. Assignment of TCR Technology.
Subject to the terms and conditions of, and for the consideration set
forth in this Agreement, XOMA, effective as of the Closing, did sell,
convey, assign, transfer and deliver to CT and CT shall purchase and
acquire from XOMA all right, title and interest in and to the TCR
Technology, including without limitation the right to sue for and collect
upon past infringements (the "Assignment"). The Assignment includes the
right to all preclinical and clinical data related to a Product, which XOMA
owned or controlled as of the Closing. XOMA agrees to execute and deliver
to CT all instruments necessary to evidence and document such Assignment to
CT as set forth in Section 6.5. XOMA hereby appoints CT its
attorney-in-fact to execute and deliver on behalf of XOMA all such
instruments upon XOMA's breach of its obligations under this Section 2,
which breach is not cured within 30 days of receipt by XOMA of written
notice from CT.
Section 15. Section 3.2 of the XOMA/Connetics Agreement is hereby deleted.
Section 16. Section 3.3 of the XOMA/Connetics Agreement is hereby amended
to read in its entirety as follows:
3.3 Assumption of Vandenbark License Agreement. As partial
consideration for the purchase of the TCR Technology, CT shall assume and
agree to perform all of the obligations of XOMA under the Vandenbark
License Agreement; and, at Closing, CT shall execute and deliver to XOMA
for delivery to Vandenbark the Assignment and Assumption Agreement in the
form attached as Exhibit A to this Agreement. From and after the Closing
Date, CT shall indemnify and hold harmless (except as set forth below) XOMA
from all claims of loss or damage of any nature whatsoever arising out of
or in connection with the Vandenbark License Agreement; provided, however,
that XOMA shall indemnify and hold harmless CT from all claims of loss or
damage of any nature whatsoever arising out of or in connection with any
breach by XOMA of its obligations under the Vandenbark License Agreement.
Section 17. Section 5.1 of the XOMA/Connetics Agreement is hereby amended
to read in its entirety as follows:
5.1 Amount of Royalty.
5.1.1 CT shall pay XOMA a royalty equal to [*] of Net Sales in each
country where Products are sold by CT, its Affiliates and licensees.
<PAGE>
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For purposes of Connetics' royalty obligations pursuant to Section
5.1.1, in the event that Connetics materially narrows the scope of or
abandons a claim within the Patent Rights, then the narrowed claim in the
form existing as of the Effective Date or the abandoned claim in the form
existing as of the Effective Date, as applicable, shall be considered a
Valid Claim with respect to such Product for purposes of this Agreement for
a period of [*] after the first commercial sale of such Product.
Notwithstanding the foregoing, Connetics shall not abandon claims within
the Patent Rights prior to [*].
Section 18. Section 5.2 of the XOMA/Connetics Agreement is hereby amended
to read in its entirety as follows:
5.2 Term of Royalty Payments. Royalty payments shall continue to
accrue and be payable with respect to Net Sales of Products and will
automatically expire on a country-by-country basis on the later of (i) [*]
from first commercial sale of a Product in any country or (ii) the
expiration (or revocation) of the last to expire (or be revoked) of the
Valid Claims in such country with respect to a Product.
Section 19. Section 5.3 of the XOMA/Connetics Agreement is hereby deleted.
Section 20. Section 5.4 of the XOMA/Connetics Agreement is hereby amended
to read in its entirety as follows:
5.4 Reports. During the term of this Agreement following the first
commercial sale of a Product by CT or its Affiliates, or the grant of a
sublicense hereunder by CT or its Affiliates, CT shall furnish to XOMA a
quarterly written report showing in reasonably specific detail the
calculation of amounts payable, if any, which shall have accrued hereunder
during the reporting period. With respect to sales of Products invoiced or
revenues received in United States dollars, all amounts shall be expressed
in United States dollars. With respect to sales of Products invoiced or
revenues received in a currency other than United States dollars, all
amounts shall be expressed in the domestic currency of the party making the
sale together with the United States dollar equivalent of the amounts
payable, calculated using the average closing buying rate for such currency
published in the United States Western Edition of The Wall Street Journal
under the heading "Currency Trading - Exchange Rates" on the last business
day of each month in the quarter prior to the date of payment. Reports
shall be due on the thirtieth (30th) day following the close of each
calendar quarter. CT shall keep complete and accurate records in sufficient
detail to properly permit the calculation of amounts payable hereunder to
be determined.
<PAGE>
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Section 21. Section 5.5 of the XOMA/Connetics Agreement is hereby amended
to read in its entirety as follows:
5.5 Exchange Control. If at any time legal restrictions prevent the
prompt remittance by CT of part or all amounts with respect to any country
where a Product is sold, the parties shall use their reasonable commercial
efforts, in cooperation with the applicable authorities in such country or
otherwise, to facilitate payment of all royalties affected thereby. If,
notwithstanding the good faith efforts of the parties, such remittance is
prevented, CT shall have the right, in its sole discretion, to make such
payments by depositing the amount thereof in local currency to XOMA's
account in a bank or other depository institution in such country.
Section 22. Section 5.6 of the XOMA/Connetics Agreement is hereby amended
to read in its entirety as follows:
5.6 Records. CT shall keep for four (4) years from the date of each
payment of amounts due pursuant to Section 5.1 complete and accurate
records of sales and all other information necessary to calculate Net Sales
of each Product in sufficient detail to allow the accrued royalties to be
determined accurately. XOMA shall have the right to cause an independent,
certified public accounting firm of nationally recognized standing (who has
executed a confidentiality agreement with CT reasonably acceptable to CT)
to audit such records at the place or places of business where such records
are customarily kept in order to verify the accuracy of the reports of Net
Sales and payments for the preceding four years. Such audits may be
exercised during normal business hours once a year upon 30 days' advance
written notice to CT. The accounting firm shall disclose to XOMA only
whether the reports are correct or not and the specific details concerning
any discrepancies. No other information shall be shared. XOMA shall bear
the full cost of such audit unless such audit discloses a variance of more
than 5% from the amount of the payments due under Section 4.1 of this
Agreement, in which event, CT shall bear the full cost of such audit and
shall pay to XOMA the amount payable. XOMA shall not disclose confidential
information concerning payments and reports, and all information learned in
the course of any audit or inspection unless such information is or becomes
publicly known or available (unless such information becomes publicly known
or available through breach of this Agreement), except to the extent
necessary for XOMA to reveal such information in order to enforce its
rights under this Agreement or if disclosure is required by law.
Section 23. Section 5.7 of the XOMA/Connetics Agreement is hereby deleted.
<PAGE>
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Section 24. Section 6.1 of the XOMA/Connetics Agreement is hereby amended
to read in its entirety as follows:
6.1 CT hereby assumes sole responsibility for the prosecution,
maintenance, enforcement and defense of the Patent Rights and the TCR
Technology. CT shall use its commercially reasonable efforts to prosecute
and maintain the Patent Rights consistent with CT's patent practices. XOMA
shall assist CT, to the extent of any reasonable request of CT and at CT's
expense, in CT's prosecution and maintenance of the Patent Rights in any
and all countries, and to vest title thereto in CT or its successors and
assigns. CT shall reimburse XOMA for all Costs incurred by XOMA under this
Section 6.1; provided, however, that such assistance by XOMA which is
reasonable and not costly shall be without charge to CT.
Section 25. Section 6.2 of the XOMA/Connetics Agreement is hereby deleted.
Section 26. Section 6.3 of the XOMA/Connetics Agreement is hereby deleted.
Section 27. Section 7 of the XOMA/Connetics Agreement is hereby amended to
read in its entirety as follows:
7. Diligence Milestones.
7.1 CT shall use its commercially reasonable efforts to commence (or
to cause its Affiliate or licensee of the TCR Technology to commence) the
first Pivotal Trial of a Product on or before [*]. For purposes of this
provision, "commence" shall mean the date the first patient is enrolled. CT
shall use its commercially reasonable efforts to submit (or to cause its
Affiliate or licensee of the TCR Technology to submit) an NDA, PLA or BLA
to the FDA by or before [*] .
7.2 If CT is unable to achieve either of the diligence milestones
prior to the applicable dates set forth in Section 7.1 for reasons outside
of CT's reasonable control, CT shall prepare and submit to XOMA a
reasonable plan for the continued diligent development of Products and a
revised schedule for achieving the remaining diligence milestones (which
shall extend the applicable dates to accommodate the delay caused by such
reasons outside of CT's reasonable control).
7.3 If (a) CT is unable to achieve either of the diligence milestones
prior to the applicable dates set forth in Section 7.1 other than for
reasons outside of CT's control, or (b) CT is unable to achieve remaining
diligence milestones prior to the revised
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schedule submitted under Section 7.2, CT shall either (i) at its option in
its sole discretion, make a one-time payment to XOMA of [*], or (ii)
otherwise, convey to XOMA CT's rights in the TCR Technology and TCR Sole
Improvements (and transfer to XOMA of the know-how within the TCR
Technology and TCR Sole Improvements). In either event, CT shall have no
further diligence obligations under this Agreement.
Section 28. Section 10 of the XOMA/Connetics Agreement is hereby deleted in
its entirety.
Section 29. Section 15.2 of the XOMA/Connetics Agreement is hereby deleted.
Section 30. During the term of the XOMA/Connetics Agreement, neither XOMA
nor any of its Affiliates shall take any action or initiate any proceeding to
prevent the issuance of, invalidate, revoke or otherwise render unenforceable
any of the Patent Rights (as defined in the Assignment Agreement dated as of
December 8, 1999, between IRC and Connetics). Within ninety (90) days after the
date hereof, XOMA and its Affiliates shall terminate, dismiss and withdraw all
such actions and proceedings which were taken or initiated by it or any of its
Affiliates on or before the date hereof.
Section 31. Without limiting the rights and remedies of IRC at law, in
equity or otherwise, if XOMA or any of its Affiliates (a) takes during the term
of the XOMA/Connetics Agreement any action or initiates any proceeding to
prevent the issuance of, invalidate, revoke or otherwise render unenforceable
any of the Patent Rights (as defined in the Assignment Agreement dated as of
December 8, 1999, between IRC and Connetics), or (b) fails within ninety (90)
days after the date hereof to terminate, dismiss and withdraw any such action or
proceeding which was taken or initiated by it or any of its Affiliates on or
before the date hereof, then, if IRC is not itself in material breach of the
XOMA/Connetics Agreement or the IRC/XOMA Agreement, within ten (10) days after
written notice from IRC, (x) XOMA shall refund to IRC all amounts paid by IRC to
XOMA under the Agreement dated as of the date hereof, between IRC and XOMA (the
"IRC/XOMA Agreement"); (y) XOMA shall sell, assign and transfer to IRC (at no
cost to IRC) the number of shares of Common Stock of IRC issued to XOMA under
Section 3.1.2 of the IRC/XOMA Agreement (or if XOMA no longer owns the IRC
shares, XOMA shall pay to IRC an amount equal to the full amount of
consideration received for the sale of such shares); and (z) IRC shall have no
further obligation to pay any amounts to XOMA under the XOMA/Connetics Agreement
or the IRC/XOMA Agreement.
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Section 32. Without limiting the rights and remedies of IRC at law, in
equity or otherwise, if Connetics, Vandenbark or any of their respective
Affiliates (a) takes during the term of the XOMA/Connetics Agreement any action
or initiates any proceeding to prevent the issuance of, invalidate, revoke or
otherwise render unenforceable any of the Patent Rights (as defined in the
Assignment Agreement dated as of December 8, 1999, between IRC and Connetics),
or (b) fails within ninety (90) days after the date hereof to terminate, dismiss
and withdraw any such action or proceeding which was taken or initiated by it or
any of its Affiliates on or before the date hereof, then, if IRC is not itself
in material breach of the XOMA/Connetics Agreement or the IRC/XOMA Agreement,
IRC shall have no further obligation to pay any amounts to XOMA under Section
3.1.1 of the IRC/XOMA Agreement.
Section 33. IRC shall be a third party beneficiary of the provisions of
Sections 30, 31 and 32 of this Amendment.
Section 34. Except as specifically modified or amended hereby, the
XOMA/Connetics Agreement shall continue in full force and effect and, as so
modified or amended, is hereby ratified, confirmed and approved. No provision of
this Amendment may be modified or amended except expressly in a writing signed
by both parties nor shall any terms be waived except expressly in a writing
signed by the party charged therewith. This Amendment shall be governed in
accordance with the laws of the State of California, without regard to
principles of conflicts of laws.
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IN WITNESS WHEREOF, XOMA and Connetics have entered into this Amendment
Number One to Technology Acquisition Agreement as of the date first written
above.
"XOMA" "Connetics"
XOMA (US) LLC Connetics Corporation
a Delaware corporation
By:____________________________ _____________________________________
Name: Thomas G. Wiggans
Title: President and Chief Executive Officer
[*] indicates that a confidential portion of the text of this agreement has been
omitted
AGREEMENT
THIS AGREEMENT (this "Agreement") dated as of December 8, 1999 (the
"Effective Date"), is entered into between The Immune Response Corporation, a
Delaware corporation ("IRC"), having a place of business located at 5935 Darwin
Court, Carlsbad, California 92008, and XOMA (US) LLC, a Delaware limited
liability company ("XOMA"), having a place of business at 2910 Seventh Street,
Berkeley, California 94710, with reference to the following facts:
A. In connection with an acquisition of technology by IRC, an assignment
agreement known as the Technology Acquisition Agreement between Connetics
Corporation ("Connetics") and XOMA and effective as of June 3, 1994 (the
"Original Agreement") must be amended.
B. In consideration for XOMA's willingness to amend the Original Agreement,
which amendment shall be effective as of December 8, 1999, IRC will transfer to
XOMA shares of IRC stock and will pay to XOMA the amounts set forth herein, all
on the terms and conditions herein.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein, the parties agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the terms defined in this Article 1 shall
have the respective meanings set forth below:
1.1 "Affiliate" shall mean, with respect to any Person, any other Person
which directly or indirectly controls, is controlled by, or is under common
control with, such Person. A Person shall be regarded as in control of another
Person if it owns, or directly or indirectly controls, greater than fifty
percent (50%) of the voting stock or other ownership interest of the other
Person, or if it directly or indirectly possesses the power to direct or cause
the direction of the management and policies of the other Person by any means
whatsoever.
1.2 "Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
1.3 "Person" shall mean an individual, corporation, partnership, limited
liability company, trust, business trust, association, joint stock company,
joint venture, pool, syndicate,
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sole proprietorship, unincorporated organization, governmental authority or any
other form of entity not specifically listed herein.
1.4 The terms "register," "registered" and "registration" shall mean a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
1.5 "Registration Expenses" shall mean all expenses incurred in effecting
the registration of the Shares pursuant to this Agreement, including, without
limitation, all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for IRC, blue sky fees and
expenses, and expenses of any regular or special audits incident to or required
by any such registration, but shall not include Selling Expenses.
1.6 "Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar successor federal statute and the rules and regulations thereunder,
all as the same shall be in effect from time to time.
1.7 "Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of the Shares and fees and disbursements of
counsel for XOMA.
1.8 "Shares" shall mean those Shares of IRC Common Stock issued to XOMA
pursuant to Section 3.1.2 of this Agreement.
1.9 "Third Party" shall mean any Person other than IRC, XOMA and their
respective Affiliates.
1.10 "Vandenbark" shall mean Dr. Arthur A. Vandenbark.
2. REPRESENTATIONS AND WARRANTIES.
2.1 Mutual Representations. Each party represents and warrants to the other
party as follows:
2.1.1 Legal Existence. Such party is a corporation or limited liability
company, as the case may be, duly organized, validly existing and in good
standing under the laws of the state in which it is incorporated or formed, as
the case may be.
2.1.2 Authorization and Enforcement of Obligations. Such party (a) has the
power and authority and the legal right to enter into this Agreement and to
perform its obligations hereunder, and (b) has taken all necessary action on its
part to authorize the execution and delivery of this Agreement and the
performance of its obligations hereunder. This
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Agreement has been duly executed and delivered on behalf of such party, and
constitutes a legal, valid, binding obligation, enforceable against such party
in accordance with its terms.
2.1.3 No Consents. All necessary consents, approvals and authorizations of
all governmental authorities and other Persons required to be obtained by such
party in connection with this Agreement have been obtained.
2.1.4 No Conflict. The execution and delivery of this Agreement and the
performance of such party's obligations hereunder (a) do not conflict with or
violate any requirement of applicable laws or regulations, and (b) do not
conflict with, or constitute a default under, any contractual obligation of it.
2.2 XOMA Representations. XOMA represents and warrants to IRC as follows:
2.2.1 Accredited Investor. XOMA is an "accredited investor" as defined in
Rule 501(a) of Regulation D promulgated under the Securities Act.
2.2.2 Investment Intent. XOMA is acquiring the Shares pursuant to Section
3.1.2(a) below for investment for its own account only and not with a view to
the resale or "distribution" thereof in violation of the Securities Act. XOMA
understands that such Shares have not been registered under the Securities Act
or registered or qualified under any state securities law in reliance on
specific exemptions therefrom, which exemptions may depend upon, among other
things, the bona fide nature of XOMA's investment intent as expressed herein.
2.2.3 Investment Experience. XOMA has been furnished with all requested
materials relating to IRC's business affairs and financial condition and has
been afforded the opportunity to ask questions of IRC and received satisfactory
answers to any such inquiries. XOMA has such business and financial experience
as is required to give it the capacity to evaluate the merits and risks of the
acquisition of such Shares.
2.2.4 Compliance with Securities Laws and Regulations. All subsequent
offers and sales of such Shares shall be made pursuant to registration under the
Securities Act and qualification under the applicable state securities laws or
pursuant to exemptions from registration and qualification.
2.3 IRC Representations. IRC represents and warrants to XOMA as follows:
2.3.1 Valid Issuance of Shares. The Shares which are being issued to XOMA
hereunder, when issued, sold and delivered in accordance with the terms hereof,
for the consideration expressed herein, will be duly and validly issued, fully
paid and nonassessable, free and clear of all security interests, liens or other
encumbrances, voting or other restrictions and
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preemptive or similar rights and, based in part upon the representations of XOMA
in this Agreement, will be issued in compliance with all applicable federal and
state securities laws. The Common Stock of IRC is qualified for trading on the
Nasdaq Stock Market, and IRC and such Common Stock meet the criteria for
continuing qualification for such trading.
2.3.2 Governmental Consents. The execution, delivery and performance by IRC
of this Agreement require no action by or in respect of, or filing with, any
governmental body, agency, or official other than (a) post-sale filings pursuant
to applicable state and federal securities laws, which IRC undertakes to file
within the applicable time periods and (b) any such action or filing as to which
the failure to make or obtain would not, individually or in the aggregate, have
a material adverse effect.
2.3.3 SEC Filings; Financial Statements.
(a) IRC has delivered to XOMA (i) its annual report on Form 10-K for its
fiscal year ended December 31, 1998, (ii) its proxy or information statement
relating to the annual meeting of the stockholders of the Company held on May
25, 1999, and (iii) all of its other reports, statements, schedules and
registration statements filed with the Commission since December 31, 1998. IRC
has filed on a timely basis all such reports, statements, schedules and
registration statements required to be filed with the Commission.
(b) As of its filing date, each such report or statement filed pursuant to
the 1934 Act did not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
(c) The audited consolidated financial statements and unaudited
consolidated interim financial statements of IRC included in the annual and
other reports referred to in Section 2.3.3(a) fairly present, in conformity with
generally accepted accounting principles applied on a consistent basis, the
consolidated financial position of IRC and its consolidated subsidiaries as of
the dates thereof and their consolidated results of operations and changes in
financial position for the periods then ended.
3. CONSIDERATION.
3.1 Payments by IRC.
3.1.1 Technology Access.
(a) Upon the Effective Date, IRC shall pay to XOMA [*] in cash.
(b) On or before [*] in cash.
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(c) If prior to July 31, 2000, IRC (i) sells or assigns to a Third Party
the Assigned Technology or grants to a Third Party a license under the Assigned
Technology, and (ii) receives cash consideration for such sale, assignment or
license, then within ten (10) business days after the receipt by IRC of such
cash consideration, IRC shall pay to XOMA an amount [*]. All amounts paid to
XOMA under this Section 3.1.1(c) shall be credited against the payments owing
under Section 3.1.1(b) above in the inverse order in which they are due.
3.1.2 The Shares.
(a) On the Effective Date, IRC shall issue to XOMA the number of shares of
Common Stock of IRC (rounded to the nearest whole number) which shall have an
aggregate value of [*], at a price per share equal to the average daily closing
price of the Common Stock of IRC as quoted on the Nasdaq Stock Market on each of
the twenty (20) trading days ending three (3) trading days prior to the
Effective Date.
(b) The certificate or certificates for the Shares shall be subject to a
legend restricting transfer under the Securities Act of 1993 and referring to
restrictions on transfer of such certificate(s), which legend shall be
substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE, OFFERING OR DISTRIBUTION THEREOF. NO SUCH
SALE, OFFERING OR DISPOSITION MAY BE EFFECTED WITHOUT (A) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, OR (B) AN OPINION OF COUNSEL
FOR XOMA THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES
ACT, OR (C) FULL COMPLIANCE WITH THE PROVISIONS OF RULE 144 UNDER THE
SECURITIES ACT.
Any legend endorsed on a certificate pursuant to this section shall be removed
(i) if such shares may be transferred in compliance with Rule 144(k) promulgated
under the Securities Act, (ii) if such shares may be transferred in compliance
with subsection 3.1.2(c) below, and (iii) following registration of the Shares,
upon XOMA's request.
(c) XOMA shall not directly or indirectly sell, assign, transfer or
otherwise dispose of the Shares or any interest therein (or enter into any
agreement to do any of the foregoing) until such time as (i) the Shares have
been registered and qualified under applicable federal and state securities
laws, or (ii) XOMA may sell, assign, transfer or otherwise dispose of the Shares
pursuant to an exemption from applicable federal and state securities laws.
Thereafter, XOMA shall not directly or indirectly sell, assign, transfer or
otherwise dispose of
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in the aggregate more than one-third (1/3) of the aggregate number of the Shares
issued to XOMA under Section 3.1.2(a) above (or enter into any agreement to do
any of the foregoing) in any period of thirty (30) consecutive days.
(d) Late Payments. Any payments or portions thereof due hereunder which are
not paid on the date such payments are due under this Agreement shall bear
interest at a rate equal to the lesser of the prime rate as published in the
United States Western Edition of The Wall Street Journal (or its successor in
interest) under the heading "Money Rates" plus two percent (2%), or the maximum
rate permitted by law, calculated on the number of days such payment is
delinquent.
4. ACCOUNTING.
4.1 Records. IRC shall keep for four (4) years from the date of each
payment of amounts due pursuant to Section 4.1 of the Assignment Agreement
between IRC and Connetics, complete and accurate records of sales and all other
information necessary to calculate Net Sales of each Product (as such terms are
defined in the Assignment Agreement) in sufficient detail to allow the accrued
royalties to be determined accurately. XOMA shall have the right to cause an
independent, certified public accounting firm of nationally recognized standing
(who may be XOMA's regularly retained independent accountants and who have
executed a confidentiality agreement with IRC reasonably acceptable to IRC) to
audit such records at the place or places of business where such records are
customarily kept in order to verify the accuracy of the reports of Net Sales and
payments for the preceding four years. Such audits may be exercised during
normal business hours once a year upon 30 days' advance written notice to IRC.
The accounting firm shall disclose to XOMA only whether the reports are correct
or not and the specific details concerning any discrepancies. No other
information shall be shared. XOMA shall bear the full cost of such audit unless
such audit discloses a variance of more than 5% from the amount of the payments
due under Section 4.1 of the Assignment Agreement, in which event, IRC shall
bear the full cost of such audit and shall pay to XOMA the amount payable. XOMA
shall not disclose confidential information concerning payments and reports, and
all information learned in the course of any audit or inspection unless such
information is or becomes publicly known or available other than through breach
of this Agreement, except to the extent necessary for XOMA to reveal such
information in order to enforce its rights under this Agreement or if disclosure
is required by law.
5. REGISTRATION OF THE SHARES.
5.1 Registration. Within thirty (30) days after the Effective Date, IRC
shall file a registration statement for the resale of the Shares on Form S-3
pursuant to the Securities Act and as would permit or facilitate the sale and
distribution of the Shares. IRC shall use its
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commercially reasonable efforts to effect such registration as soon as
practicable thereafter. Additionally, IRC shall file appropriate post-effective
amendments to such registration statement and appropriate qualifications under
applicable blue sky or other state securities laws. IRC shall furnish XOMA with
copies of all correspondence to and from the Commission from the date of filing,
in connection with such registration, such copies to be forwarded no later than
five (5) business days after receipt by IRC or mailing by IRC or its agents, as
the case may be.
5.1.1 IRC shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 5.1 in any particular
jurisdiction in which IRC would be required to execute a general consent to
service of process in effecting such registration, qualification, or compliance,
unless IRC is already subject to service in such jurisdiction and except as may
be required by the Securities Act.
5.1.2 The registration statement filed pursuant to this Section 5.1 shall
not include other securities of IRC with respect to which registration rights
have been granted (except those issued to Connetics pursuant to the Assignment
Agreement dated as of the date hereof, between IRC and Connetics), nor
securities of IRC being sold for the account of IRC, unless XOMA consents to
such inclusion, which consent shall not be unreasonably withheld or delayed.
5.2 Expenses. All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to Section 5.1 above shall be
borne by IRC. All Selling Expenses shall be borne by XOMA.
5.3 Registration Procedures. IRC will provide XOMA with a draft of the
registration statement and give due consideration to their comments three (3)
days prior to the filing. IRC will keep XOMA advised in writing as to the
initiation of the registration of the Shares and as to the completion thereof.
At its expense, IRC will use its commercially reasonable efforts to:
5.3.1 Keep such registration effective for a period of one (1) year from
the Effective Date or until XOMA has completed the distribution described in the
registration statement relating thereto, whichever first occurs;
5.3.2 Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement;
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5.3.3 Furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as XOMA
from time to time may reasonably request;
5.3.4 Notify XOMA of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or incomplete in the light of the circumstances then existing, and at
the request of XOMA, prepare and furnish to XOMA a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of Shares, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or incomplete in the light of the circumstances then existing;
and
5.3.5 Cause the Shares to be listed or qualified on each securities
exchange or inter-dealer quotation system on which similar securities issued by
IRC are then listed and thereafter maintain such listing or quotation.
5.4 Indemnification.
5.4.1 IRC shall indemnify XOMA, its directors, officers, employees, legal
counsel and accountants and each Person controlling XOMA within the meaning of
Section 15 of the Securities Act, against all losses, liabilities, damages and
expenses incurred as a result of any claim, demand, action or proceeding by any
Third Party arising out of or based on any untrue statement (or alleged untrue
statement) made by or on behalf of IRC of a material fact contained in any
prospectus, offering circular, or other document (including any related
registration statement, notification, or the like), or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
IRC of the Securities Act or any rule or regulation thereunder applicable to IRC
and will reimburse each such XOMA, its officers, directors, employees, legal
counsel and accountants and each Person controlling XOMA within the meaning of
Section 15 of the Securities Act, for any legal or any other expenses reasonably
incurred in connection with investigating or defending or settling any such
claim, demand, action or other proceeding; provided, however, that IRC will not
be liable in any such case to the extent that any such loss, liability, damage
or expense arises out of or is based on any untrue statement or omission based
upon written information furnished to IRC by XOMA and stated to be specifically
for use therein; provided, further, that the obligations of IRC hereunder shall
not apply to amounts paid in settlement of any such claims, demands, actions or
other proceedings if such settlement is effected without the consent of IRC
(which consent shall not be unreasonably withheld or delayed).
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5.4.2 XOMA shall indemnify IRC, its directors, officers, employees, legal
counsel and accountants and each Person controlling IRC within the meaning of
Section 15 of the Securities Act, against all losses, liabilities, damages and
expenses incurred as a result of any claim, demand, action or proceeding by any
Third Party arising out of or based on any untrue statement (or alleged untrue
statement) made by or on behalf of XOMA of a material fact contained in any
prospectus, offering circular, or other document (including any related
registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by
XOMA of the Securities Act or any rule or regulation thereunder applicable to
XOMA, and will reimburse IRC, its directors, officers, employees, legal counsel
and accountants and each Person controlling IRC within the meaning of Section 15
of the Securities Act, for any legal or any other expenses reasonably incurred
in connection with investigating or defending or settling any such claim,
demand, action or other proceeding, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus, offering
circular, or other document in reliance upon and in conformity with written
information furnished to IRC by XOMA and stated to be specifically for use
therein; provided, however, that the obligations of XOMA hereunder shall not
apply to amounts paid in settlement of any such claims, demands, actions or
other proceedings if such settlement is effected without the consent of XOMA
(which consent shall not be unreasonably withheld or delayed).
5.4.3 The indemnified party shall promptly notify the other party hereto of
any claim, demand, action or proceeding for which it intends to claim such
indemnification, and the indemnifying party shall have the right to participate
in, and, to the extent it so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel selected by the
indemnifying party; provided, however, that the indemnified party shall have the
right to retain its own counsel if representation of the indemnified party by
the counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between the indemnified party and any
other party represented by such counsel in such proceedings, the reasonable
costs of such independent counsel to be borne by the indemnifying party. The
failure to deliver notice to the indemnifying party within a reasonable time
after notice of any such claim or demand, or commencement of any such action or
proceeding, if materially prejudicial to its ability to defend, shall relieve
the indemnifying party of any liability to the indemnified party under this
Article 5, but the omission so to deliver notice to the indemnifying party will
not relieve it of any liability that it may have to the indemnified party
otherwise than under this Article 5. The indemnified party under this Article 5
and its agents, shall cooperate fully with the indemnifying party and its legal
representatives in the investigation and defense of any claim, demand, action or
proceeding covered by this indemnification.
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5.5 Information by XOMA. XOMA shall furnish to IRC such information
regarding XOMA and the distribution of the Shares as IRC may reasonably request
in writing and as shall be reasonably required in connection with any
registration, qualification, or compliance referred to in this Article 5.
6. MISCELLANEOUS.
6.1 Termination of Payment Obligations.
6.1.1 During the term of this Agreement, neither XOMA nor any of its
Affiliates shall take any action or initiate any proceeding to prevent the
issuance of, invalidate, revoke or otherwise render unenforceable any of the
Patent Rights (as defined in the Assignment Agreement dated as of December 8,
1999, between IRC and Connetics). Within ninety (90) days after the date hereof,
XOMA and its Affiliates shall terminate, dismiss and withdraw all such actions
and proceedings which were taken or initiated by it or any of its Affiliates on
or before the date hereof.
6.1.2 Without limiting the rights and remedies of IRC at law, in equity or
otherwise, if XOMA or any of its Affiliates (a) takes during the term of this
Agreement any action or initiates any proceeding to prevent the issuance of,
invalidate, revoke or otherwise render unenforceable any of the Patent Rights
(as defined in the Assignment Agreement dated as of December 8, 1999, between
IRC and Connetics), or (b) fails within ninety (90) days after the date hereof
to terminate, dismiss and withdraw any such action or proceeding which was taken
or initiated by it or any of its Affiliates on or before the date hereof, then,
if IRC is not itself in material breach of the Original Agreement or this
Agreement, within ten (10) days after written notice from IRC, (x) XOMA shall
refund to IRC all amounts paid by IRC to XOMA under this Agreement; (y) XOMA
shall sell, assign and transfer to IRC (at no cost to IRC) the number of shares
of Common Stock of IRC issued to XOMA under Section 3.1.2 of this Agreement (or
if XOMA no longer owns the IRC shares, XOMA shall pay to IRC an amount equal to
the full amount of consideration received for the sale of such shares); and (z)
IRC shall have no further obligation to pay any amounts to XOMA under the
Original Agreement or this Agreement.
6.1.3 Without limiting the rights and remedies of IRC at law, in equity or
otherwise, if Connetics, Vandenbark or any of their respective Affiliates (a)
takes during the term of this Agreement any action or initiates any proceeding
to prevent the issuance of, invalidate, revoke or otherwise render unenforceable
any of the Patent Rights (as defined in the Assignment Agreement dated as of
December 8, 1999, between IRC and Connetics), or (b) fails within ninety (90)
days after the date hereof to terminate, dismiss and withdraw any such action or
proceeding which was taken or initiated by it or any of its Affiliates on or
before the date hereof, then, if IRC is not itself in material breach of the
Original Agreement or this
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Agreement, IRC shall have no further obligation to pay any amounts to XOMA under
Section 3.1.1 of this Agreement.
6.2 Notices. Any consent, notice or report required or permitted to be
given or made under this Agreement by one of the parties hereto to the other
party shall be in writing, addressed to such other party at its address
indicated below, or to such other address as the addressee shall have last
furnished in writing to the addressor and (except as otherwise provided in this
Agreement) shall be effective upon receipt by the addressee.
If to IRC: The Immune Response Corporation
5935 Darwin Court
Carlsbad, California 92008
Attention: President
Fax: (760) 431-8636
If to XOMA: XOMA (US) LLC
2910 Seventh Street
Berkeley, California 94710
Attention: Legal Department
6.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without regard to
principles of conflicts of law.
6.4 Attorneys' Fees. In the event that the parties incur attorneys' fees as
a result of an action arising from IRC's failure to pay the amounts due
hereunder, the prevailing party shall be entitled to attorneys' fees.
6.5 Assignment. Neither IRC nor XOMA shall assign its rights or obligations
under this Agreement without the prior written consent of the other party
hereto; provided, however, that party may, without such consent, assign this
Agreement and its rights and obligations hereunder (a) to its Affiliates, or (b)
in connection with the transfer or sale of all or substantially all of its
business, or in the event of its merger or consolidation or change in control or
similar transaction. Any permitted assignee shall assume all obligations of its
assignor under this Agreement.
6.6 Amendments. No change, modification, extension or termination of this
Agreement, or any of the provisions herein contained, shall be valid unless made
in writing and signed by duly authorized representatives of the parties hereto.
6.7 Entire Agreement. This Agreement embodies the entire understanding
between the parties and supersedes any prior representations, understanding and
agreements between
<PAGE>
-12-
them regarding the subject matter hereof. There are no representations,
agreements or understandings, oral or written, between the parties regarding the
subject matter of this Agreement which are not fully expressed herein.
6.8 Waiver. The waiver by either party hereto of any right hereunder or the
failure to perform or of a breach by the other party shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by said
other party whether of a similar nature or otherwise.
6.9 Headings. The headings and captions used in this Agreement are for
convenience of reference only, and shall not in any way affect the
interpretation of the provisions of this Agreement.
6.10 Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original and all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
THE IMMUNE RESPONSE CORPORATION
By
----------------------------------------
Dennis J Carlo, Ph.D.
President and Chief Executive Officer
XOMA (US) LLC
By
-----------------------------------------
Title
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. 333-07263, 333-34907, 33-59241, 33-60503, 333-74205,
333-84585, 333-85607, 333-87227, 333-93029 and 333-30370) and the related
Prospectuses and in the Registration Statements on Form S-8 (Nos. 333-66171 and
333-39155) 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 18, 2000, with respect to the consolidated financial
statements of XOMA Ltd. included in this Annual Report (Form 10-K) for the year
ended December 31, 1999.
Palo Alto, California ERNST & YOUNG LLP
March 17, 2000
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 3, 1998 included in this Form 10-K into the
Company's previously filed Registration Statements on Form S-3 (File Nos.
333-07263, 333-34907, 33-59241, 33-60503, 333-74205, 333-84585, 333-85607,
333-87227, 333-93029 and 333-30370) and on Form S-8 (File Nos. 333-66171 and
333-39155).
San Francisco, California ARTHUR ANDERSEN LLP
March 17, 2000
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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